PLAYSTUDIOS, Inc.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Play Studios fourth quarter and year-end 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the final presentation. Please note that this conference call is being recorded today, March 9, 2023. I will now hand the call over to Samir Jain, Head of Investor Relations and Treasury.

Welcome everyone and thank you for joining the Play Studios fourth quarter and year-end 2022 earnings call. Hosting the call today will be Andrew Paschal, Play Studios chairman and chief executive officer, and Scott Peterson, chief financial officer of the company. Our call today will contain forward-looking statements about future events, expectations, and projections. These statements involve risks and uncertainties that could cause actual future results to differ materially from our current expectations. We refer you to our SEC filings for a more detailed discussion of the risk factors that could impact our future operating results and financial conditions. During the call, management will also discuss certain non-GAAP financial measures. These measures should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is contained in our fourth quarter 2022 earnings release and in our SEC filings. The earnings release is available on our website at ir.playstudios.com. With that, I'll turn the call over to Andrew.

Thank you, Samir, and good afternoon, everyone. Welcome to the Play Studios fourth quarter 2022 and year-end earnings call. Given this is our first call in the new year, we're going to spend some time reviewing our recent results, reaffirming our priorities, along with overviewing our outlook and guidance for the current year. Let's start with some of the highlights. 2022 was an eventful year. one in which we advanced key elements of our strategy and enhanced our overall position. More specifically, we had a solid fourth quarter and full year with revenues and adjusted EBITDA exceeding both our guidance and analyst expectations. Products from both our core and growth portfolios contributed to our positive momentum posting year-over-year and sequential gains. We acquired the casual game maker, Brainiam, and initiated its integration into our overall business platform. We significantly expanded our game portfolio, diversified our business model, and more than doubled our player network from 1.5 million in the third quarter to over 3.2 million daily active users in the fourth. Our development stage initiatives, My Vegas Bingo and Tetris, made noteworthy progress and had good momentum entering 2023. Our Play Awards division continued its expansion by reaching more players and adding a collection of new and exciting partnerships. We evolved our organization, expanding our capacity in Asia and Southeastern Europe, along with optimizations focused on improving our margins and operating results. And finally, we initiated a share repurchase program in November and have acquired roughly 2.4 million shares of our stock. Turning to 2023, we're more convinced than ever that our unique model and strategic focus position us to outperform the market. Most of our peers are struggling to acquire new players, making it difficult to grow, let alone sustain their existing audience. This places even greater importance on retaining players. As our industry's pioneers in loyalty and rewarded play, I believe our model positions us to weather these market challenges, maintain our player network, and drive performance by leveraging our real-world incentives. Since founding our company over 11 years ago, this has been our vision, to craft games players love that offer rewards they want. It's our plan to fully exploit this model, and as we do, further establish our company as the leaders in rewarded play. With that as context, let's touch on our recent financial performance and other key operating metrics. Our results were ahead of our prior guidance and street expectations. We were able to not only grow revenues, but adjusted EBITDA and EBITDA margins as well. DAU and MAU of 3.2 million and 11.5 million were up substantially over the quarter as we included brainium into our quarterly results for the first time. Excluding brainium, users were down modestly versus the third quarter, showing relative stability against the declining industry backdrop. We believe the results highlight the popularity of our games and the loyalty that's engendered by leveraging our Play Awards capabilities. ARPDAU was also higher than the third quarter once adjusted for the effect of the ad-based premium games. Let's briefly touch on the general market conditions. Industry dynamics remain challenging, particularly around user acquisition. As demonstrated by our games' performance, we've definitely navigated these conditions, but the difficulties remain nonetheless. Our focus remains on maintaining our network as we focus on converting more of our existing players to payers. We believe this should allow us to drive growth in the face of a shifting and complicated UA environment. The economy also remains strained, creating a broader drag for us and every other consumer-facing business. While a recent slowing in inflation is a relative positive, aggregate figures remain high. Similarly, labor pressures have picked up with many large-scale job reductions. We continue to operate under the assumption that we'll be facing more economic headwinds and plan to focus on creating our own momentum through company-specific initiatives. On the topic of strategy, I want to remind everyone that ours consists of two key pillars. The first centers around diversifying our portfolio of games, allowing us to expand our player network and demonstrate our loyalty lift across a broader collection of products. We've done this most recently by complementing our organic efforts with strategic M&A and acquiring the rights to Tetris and the branding portfolio of casual games. The second is focused on advancing our Play Awards program by developing new capabilities and expanding the collection of real-world partners and benefits. I believe that executing on these strategic priorities will enable us to accelerate our growth, minimize creative risk, improve margins, and ultimately drive substantial value. Let's touch on some of our primary initiatives, starting with games. Over the past year, we materially repositioned our company by expanding from seven to 17 games. With all but four consisting of casual and puzzle products, we've evolved from a pure social casino operator to a diversified game publisher, a key transition as we look to solidify our market standing as the leaders in rewarded play. Now let's delve a bit deeper into some of our key accomplishments. We continue to post steady performance in our core social casino games, a notable accomplishment given the overall weakness in the sector. Our portfolio's revenues generally matched the industry, down a few percentage points year over year and largely flat sequentially. Like the third quarter, we were able to extract higher revenues per user, resulting in further improvements in ARBDAO. As mentioned earlier, DAU and MAU were down modestly versus the third quarter and generally better than the more significant declines posted by many of our competitors. Going forward, we believe there are still meaningful opportunities to grow these products by further improving the monetization of existing players, along with attracting new ones. We'll achieve this by further evolving our live operations practices, continuing to innovate, and leveraging cross-promotion from our 11 million plus active player network. I'm excited by the potential of these efforts and believe this focus will drive top line growth and margin expansion. Turning to our newer and growth-oriented initiatives, I'm happy to share that we made significant progress this last year, and I'm encouraged by our momentum heading into 2023. As a reminder, these products include Tetris Prime, MyVegas Bingo, the Brainium portfolio, and our new Tetris puzzle game. Growth in Tetris Prime continued with sequential increases in DAU and MAU in the fourth quarter. Both metrics remain very healthy and speak to the enduring nature of this iconic brand. In the quarter, we introduced Adventure Mode, focused on adding depth and richness to the game experience. We're pleased with the early results and believe this enhancement, along with the limited integration of our MyVIP program, have contributed to the rise in user engagement. Monetization has also improved, with ARP DAO up sequentially from the third quarter. Improved ad logic and the optimization of advertising partnerships drove these games, which are still early in their full application. Going forward, we'll continue to enhance the game with live operations, deeper meta features, and the full rollout of our loyalty and rewards program, a key milestone for our overall business vision. We also made notable progress on our reimagined and more casual version of Tetris. While still in development, we've been conducting moderated user tests along with limited releases of the product in isolated markets. This has allowed us to solicit early stage feedback that's critical to the evolution and optimization of the game. Overall, we're encouraged by the results and remain committed to our strategy. We continue to believe that the Tetris game format has the potential to be its own casual game category alongside Match 3, Solitaire, and Bingo. Each of these categories demonstrate the unique power of a universally appealing game format when complemented with progression mechanics, richer features, and a more sophisticated live operation. I look forward to updating you on our progress in the coming quarters. My Vegas Bingo also made notable strides this quarter and we're pleased with its momentum heading into 2023. Since assuming control of the app roughly a year ago, we've been consumed with improving the technical performance of the game by refining or completely refactoring key systems. With most of the foundational work behind us, we were able to focus on enhancing the game's key performance measures. Specific efforts included an overhaul of the game and comedy, additional bingo formats, new rooms, and new live event features. Overall, these efforts have begun bearing fruit with sequential gains in DAU, PPU, RPPU, and resulting ARPDAU. Given these improvements, we plan to scale the game's audience through a complement of cross-promotion and performance marketing in the coming months. Lastly, I'd like to update you on our recent acquisition of Brainium. Since acquiring the company back in October, we've been focused on integrating the portfolio and team into our overall business framework. I'm happy to report the process has gone well, and their priorities are now aligned with the broader business. More specifically, we're focused on tending to the existing collection of Brainium products, integrating play awards, mastering cross-promotion, and driving profitability. We expect the first stage of our integration efforts will likely take another three months, after which we'll expand our efforts to capitalize on the next collection of growth initiatives. Along these lines, we've begun sharing resources and best practices for UA and ad monetization, enabling us to refine our approach to growing our casual portfolio. Turning to the second of our strategic pillars, we've made great strides with advancing our Play Awards business division. We've continued to generalize the systems, tools, and practices that will allow us to more fully leverage and eventually monetize the service, And we've initiated the early trials of MyVIP and Tetris Prime. In addition, the team has been active in qualifying and onboarding reward partners. Throughout the quarter, our players had access to an average of 574 unique rewards, which is 6% more than the same period last year. Purchases were also up 6% in the quarter and 13% in 2022 versus year-ago levels. In aggregate, the retail value of purchases made by our players was nearly $130 million for the year. Looking forward, we expect the introduction of Play Awards into our casual gaming titles to further increase the overall scale and engagement in our program. More specifically, we expect to increase the exposure of the program by nearly 400% as we more fully integrate with Tetris and the Brainiam Collection. It's worth reinforcing the potential impact of Play Awards with a key factor in our decision to acquire these assets. Lastly, we believe momentum in these casual categories will help validate the platform's effectiveness. and catalyze the opportunities with a broader collection of strategic partners and third parties. In doing so, Play Awards will prove itself with a much larger and more diverse group of users. These game categories are also distinct and separate from the free-to-play casino genre, allaying any concerns that our model has limited or narrow appeal. We're confident that success with casual games will be the key to unlocking our loyalties of service commercial opportunities. I'd like to now take a moment to touch on our operations and overall executions. Over the past year, I highlighted some of the complexities and challenges of scaling our operations and optimizing our business. If you recall, I highlighted the escalating costs in each of our primary development hubs and the opportunity to build studios and teams in alternative markets. I also provided updates on our progress as we opened offices in Belgrade and Vietnam. With that said, we believe we're now positioned to increase our operating margins over the next 12 to 18 months. This is reflected in our 2023 guidance. and a trend we aim to sustain until we've achieved parity with our industry peers. To achieve this, we've spent the past few quarters further refining our operating model and qualifying the changes needed to optimize our performance. These include the realignment of products into common portfolios, enhancing key leadership, consolidating studios, and applying more rigor to our capital deployment with a focus on risk-adjusted returns. More specifically, we recently reoriented the company away from geographic regions and around our two primary business lines, Play Games and Play Awards. In doing so, we're able to more fully leverage our centers of excellence and improve efficiency. Within Play Games, titles are now grouped based on their genres, social casino, casual, et cetera, and will leverage common resources. This structure allows for economies of scale, coordinated efforts across games, and the ability to identify and leverage best practices quickly. As part of these changes, we've elected to transition the leadership of MyVegas and MyEconomy slots to our Tel Aviv studio and support their execution from Vietnam and Eastern Europe. This will result in the closure of our studios in Austin and Hong Kong with an anticipated reduction of 110 employees. While it's difficult to say goodbye to so many of our valued colleagues, we know these moves are necessary for to realize our future potential. The next quarter will be focused on the logistics of these product transitions with the subsequent months dedicated to stabilizing our teams and normalizing our operations. We'll provide a better sense of the overall impact of these enhancements on our next earnings call in May. In addition to the operational disciplines being applied to our games division, we're bringing more focus and attention to play awards. This will be critically important in 23 as we work towards demonstrating the broader potential of the model by fully launching our program inside of Tetris and the Brainiam suite of games. This will enable us to evolve our overall business in the direction of being the only platform provider of comprehensive loyalty solutions to the games industry. I believe the structural changes that we're implementing will allow us to realize our vision for loyalty as a service. As I mentioned earlier, we'll be deliberate and thoughtful about these changes. While we have a plan of action, implementation is complicated with many unknowns. As such, you should view our plan as fluid and something that will continually evolve. Please keep in mind we anticipate a lag between the actions we're taking and the results we expect, with most of the benefits coming in the back half of the year. Before passing the mic to Scott, I want to briefly touch on our capital position. In November, we initiated a share repurchase program and have spent $10 million through February acquiring our stock in the open market. In total, we acquired roughly 2.4 million shares. Post the repurchase, we have roughly $40 million remaining on our $50 million repurchase authorization. Even with an active repurchase program, our cash balance as of December 31st remained high at $134 million. We're unlevered and have full access to our $81 million credit facility. With the strength of our balance sheet, we remain well positioned to repurchase more shares, be active in M&A, pursue strategic growth, or all of the above. I'll now turn the call over to Scott to provide specifics on the financials and share our 2023 financial guidance. Thank you, Andrew. As Andrew highlighted, we had an excellent quarter and beat annual guidance and consensus expectations. We reported $79.4 million of revenue during the fourth quarter compared to $71.9 million last year and $72.1 million in the third quarter of 2022. Year-over-year gains were bolstered by the inclusion of Branium and Tetris in this year's results. As a reminder, Branium was acquired in October of 22, while the mobile rights to Tetris were acquired in November of 21. Adjusting for these gains, we were still able to show positive sequential gains in revenues, a notable achievement given the difficult operating environment. Adjusted EBITDA was $12.1 million compared to $12 million a year ago and $9.8 million in the third quarter of 22. EBITDA margins were 15.2%, 170 basis point improvement sequentially. Growth in advertising and other revenues contributed to the margin gains, though we also saw margin gains in the social casino portfolio. We are encouraged by this momentum and believe these trends are sustainable going forward. As Andrew mentioned, we were pleased with our KPIs. Dow for the fourth quarter was 3.2 million and Mal was 11.5 million, up 145% and 137% respectively over the last year, and up 117% and 72% sequentially. Fourth quarter user metrics are heavily skewed by the inclusion of Branium. Adjusted for this, DAO and MAO were slightly down versus year-ago figures. However, given the broad-based deflation of user growth in the industry, we are encouraged with these results. Fourth quarter ARPDAU was down sharply from last year's levels due to the impact of both Tetris and Branium, which are advertising-based revenue models. Excluding these gains, ARPDAU increased on a year-over-year and sequential basis, continuing a trend that we've seen throughout 2022. We saw healthy gains in MyVegas Bingo and Tetris, two gains we are actively growing. On the loyalty side, available rewards grew by 6% in the quarter to 574,000 units. Reward purchases of 512,000 units increased by 6% over last year's fourth quarter. For the full year, over 2.2 million rewards were purchased, up almost 13% versus 2021. We continue to add world-class rewards partners in the quarter, including Hilton Hotels, Pacific Cycle, and the Nevada Ballet Theater. Including these partners, Play Awards represents a collection of 105 real-world brands that includes iconic businesses such as the Intercontinental Hotels, AMC Theaters, Royal Caribbean Cruises, and MGM Resorts. Through our Play Awards platform, these brands have combined to deliver hundreds of millions of dollars of rewards benefits to millions of gamers. As Andrew discussed, Branium continues to be integrated into our operations, and we are happy with the progress to date. We continue to believe there are numerous synergies from this transaction, but are still too early in the process to quantify anything just yet. We will provide updates as we have them. While we don't provide game-level specifics as a follow-up to our discussion of the contingent payment associated with the Branium acquisitions, I wanted to confirm that the criteria for the contingent payment was not met, and therefore the original purchase price of $70 million was unchanged. As a reminder, our expectation was that the contingent payment would not be paid, and we view Brainyup's performance to be in line to the projections which supported the $70 million purchase price. Turning to the balance sheet, we ended the quarter with $134 million of cash and no debt. Our borrowing capacity remains at $81 million, all of which is available to us. Including the accordion feature, total available borrowings are up to $156 million. During the quarter, we began repurchasing our shares under our $50 million stock repurchase authorization. Through today, we have repurchased approximately $10 million of our stock, or roughly 2.4 million shares. We still have the majority of our authorization available to us and continue to evaluate additional repurchases of our stock. As of the close of the quarter, we had 132.1 million total shares of common stock outstanding. As Andrew mentioned, we remain in a strong financial position with considerable flexibility in terms of M&A and internal growth initiatives. As evidenced by the recent acquisition of Branium, we will be aggressive when the right opportunity presents itself. Now let me close with guidance for 2023. We estimate that revenues will be between $300 and $320 million and adjusted EBITDA between $47.5 and $52.5 million. As implied, we are assuming a notable increase in our EBITDA margins. Driving this will be a mix of efficiencies and progress in the new and developing games Andrew discussed earlier. Also lifting margins will be the inclusion of Brainium for the full year, which has substantially higher margins than our legacy business due to its advertising-based model. When modeling our 2023 results, please consider the following. One, our guidance does not include synergies from Brainium. Two, in part because of the initiatives outlined by Andrew earlier, we expect our guidance to be slightly weighted to the back half of the year. While this has historically been the case, the skew may be a bit larger this year, so please consider this while you build out your quarterly earnings models. Finally, while we aren't guiding to an explicit share count figure, we advise against including share repurchases in your forecast. Though we may purchase more shares, we are unable to provide any concrete guidance around future share repurchase activity or projected share counts. With that, I will pass it back to Andrew for some closing remarks. Thank you, Scott. Before we end our prepared remarks and open the call for questions, I'd like to reinforce some of the key points. We had an excellent quarter with revenue and adjusted EBITDA above our prior guidance and consensus through expectations. We did this while making notable progress on all of our new initiatives. Despite challenging market conditions, we were able to largely sustain our network while also showing another quarter of sequential ARPDAU gains. We continue to focus on payer conversion or seeing our efforts bear fruit. Our new game initiatives, Tetris and My Biggest Bingo, made tangible progress this quarter and on track to show meaningful gains in 2023. Brainium is being incorporated into our broader business and the transition's been smooth. We're already finding ways to leverage best practices and see many more opportunities ahead. Play awards continue to gain momentum in the quarter with partners growing year over year and players purchasing 512,000 rewards at a retail value of over $30 million. The platform is poised for a step change in 2023 with the inclusion of Tetris and the Brainium Games. We initiated a stock repurchase program and bought 2.4 million of our shares through February. And we're now sharing our 2023 guidance that calls for meaningful growth across the board. Both adjusted EBITDA and adjusted EBITDA margins are expected to increase in 2023 as a result of our efforts around increased profitability. With that said, I want to thank you for joining us today, and we're now happy to take your questions. Operator, please open the lines.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Thank you. Our first question is from Aaron Lee with Macquarie. Please proceed with your question.

Hi, great to speak with you guys. Thanks for taking my question, and congrats on the strong result. I want to talk about your outlook first, and I think you touched upon this in your prepared remarks, but maybe you can just tie it all together. Can you talk about what you have embedded in your guidance in terms of, one, assumptions around the consumer and macro, and two, the timeline for scaling the Tetris games and the Play Awards integration? Thank you.

And I'll thank you for the question. So, you know, our general assumption is that we're not forecasting any meaningful change in the overall macro economic environment and that the challenges that we've seen in the industry will generally continue. So for that reason, we kind of anticipate that our pace that we exited the year is what we'll sustain going forward, but then taking into account the full benefit of a full year of uranium. As far as Tetris, Our current assumptions are that we'll continue to invest in and support the growth of our Tetris Prime product, and without having any clarity around when we'll be in a position to launch our Tetris Casual products, we haven't yet included those in our outlook or our forecasts.

Yeah, very helpful. As a quick follow-up, you know, for the Branium synergies, So it's been about five months. I know you're not guiding to it, but has your thinking changed at all in terms of the size of the synergies or the different buckets or the timeline for achieving those synergies? Just wondering if there's any changes there. Thanks.

No, I mean generally we're kind of on pace with what we had expected. You know, our first focus was just to integrate the teams and have exposure to them and their areas of expertise, particularly around ad monetization, get them integrated into all of our basic business systems so that we're fully integrated from an operating perspective. And then we can focus on some of the synergies and ultimately start enjoying some of those benefits. So our focus has first been on teams, stabilizing the team, ensuring that they're healthy and excited about the outlook, being a part of Play Studios. and now we'll start focusing on where there are other opportunities to drive synergies.

Got it. Very helpful. Thank you very much.

Thank you. Thank you. Our next question is from Ryan Stigdal with Craig Hallam Capital Group. Please proceed with your question.

Good afternoon, guys. I want to start with the internal reorganization workforce reductions. Are you able to quantify the cost savings that you got from the 14% reduction?

I don't think we've yet fully provided the guidance because I think, as I alluded, we're actually shifting those products from where they're currently hosted and operated from being Austin and Hong Kong to our studio in Tel Aviv, and then they'll be supported out of our studios in Vietnam and in Southeastern Europe. Given that as we make those transitions, we're going to also then be layering in some additional teams and resources to support those efforts. We're not yet fully resolved on what the net benefit will be, but we fully expect that we'll provide that on our next call. So, but, you know, we know that it's going to be material. As I said, as you just highlighted, you know, it's about a 14% reduction in the actual workforce. and a majority of that is going to flow through into our benefit in the back half of the year.

And just to be clear, Andrew, is that a 14% net reduction or is that a 14% reduction and then you're going to be adding some additional personnel in different locations?

The latter, yeah. So at the time of the reduction, it's 14%, but as we then transition the products, we'll be layering some people back in to service them out of those markets. And I would just remind you that there's amazing talent in those markets and our cost per employee is significantly lower. So we'll be able to, you know, complement the capacity that we currently have retained and actually be able to scale it up at a lower cost in the end. Gotcha.

Switching over, you mentioned solid momentum exiting 2022. Any comment on how trends have been thus far in 2023?

I mean, generally, we've maintained our pace and performance. So I don't know that, you know, obviously we don't talk about any of the specific products, but, you know, I would just say the trends that we saw during the year we're seeing continue on through the first part of this quarter.

Last one for me, the ARPDAL uplift on Tetris. Are you able to quantify how much that was?

Yeah. not only because we don't speak to or disclose kind of specific product performance, but I can tell you it's been pretty meaningful. The team's done a great job optimizing that product and driving engagement and increasing ad impressions and just optimizing the waterfall logic. So we're seeing the benefits of all of that work, and so we're pretty enthused about the results and the momentum that product has right now.

Sounds good, guys. Good luck. Thanks. All right.

Thank you, Ryan.

Thank you. Our next question is from Omar Dasufi with Bank of America Securities. Please proceed with your question.

Hey, guys. This is Arthur on for Omar. Thanks for taking my question. So I just wanted to, you know, touch on quickly on Brainium. Can you talk a little bit about, you know, how Brainium has performed on a standalone basis in the quarter? That's the first question. And the second is, what sort of outlook for Brainium is embedded in your current 23 revenue guidance? Thank you.

Yes, Arthur, thanks for the question. But, you know, unfortunately we don't break out and speak about the specific products or subsets of our products. You know, what I can tell you is that the Brainium suite has performed as we expected. that we feel really good about the transaction and ultimately the price that we paid for the company. And we're going to continue to look to optimize the suite of products and the performance as we integrate our Play Awards program and start to drive what we think will be added lift and performance as we deliver those benefits to those players. And then also benefit from the cross-promotion out of that network into the rest of our products and the other way as well. So, you know, apologies for not being able to answer your question a bit more directly, but we just don't break out the performance by specific groups of products.

Understood. And if I could just have one follow-up, I think some of the, you know, some of the other mobile gaming companies have reported experiencing a more challenging environment for scaling new games, you know, to, you know, for example, $100 million run rate. It sounds like you've had some early successes with the launch of Tetris and Bingo and, you But like wondering to what factors would you attribute those successes to?

Well, first of all, I would generally agree that the UA environment is challenging. But with that said, you know, all of our products are investable. We're seeing meaningful returns as we look to sustain the current scale and size of those audiences or if we're not able to drive the volume of players that we have in the past. we are able to see qualities and a concentration of quality within those cohorts, so we're seeing healthy returns. So, yes, it's a difficult environment, but our team, I think, has done a really great job both on the product side, making sure that the products are engaging and able to captivate these new players that are being exposed to them, and then from our UA team, finding the pockets of players that seem ideally suited for our games. So certainly, you know, difficult environment, but I think we're managing through it fairly well. So is there another particular question that I missed? No? Okay. All right. Thanks, Arthur.

Thanks, Chris.

Thank you. Our next question is from Mike Hickey with the Benchmark Company. Please consider their question.

Hey, Andrew, Scott, congratulations. Nice quarter and strong guide. Thanks for taking my question. I guess just the first one, I appreciate that your performance is second half weighted, but we're mostly through the first quarter here, and your guide was stronger than consensus view. Can you give us any perspective on the first quarter? I think consensus view is $73 million in revenue and $9 million in EBITDA. Is that something you guys are – comfortable with, and if not, what should we be considering in the first quarter?

Look, Mike, appreciate the question. You know, we don't provide quarterly guidance. You know, what I can tell you is that, you know, the pace that we saw coming out of the fourth quarter, we've generally been able to maintain. And so, you know, without getting any more specific, I'll leave it to you to kind of interpret that and resolve your own modeling expectations.

All right, fair enough. And then, Andrew, on the Tetris casual, I know you were excited about that. Can you sort of talk a little bit more about the development of that game? And I think it's taken a little bit longer than you expected. Is that the game itself? Is that the macro or UA environment? I guess what sort of – and now it's not in your guidance for the year. So how are you thinking about sort of the eventual commercialization and where you're at on the development cycle. Thank you.

Yeah, no, I appreciate the question. So, you know, the effort, you know, started off with our early kind of and fairly comprehensive conceptual explorations. And by the time we finally greenlit the effort, we're probably into the development cycle now, you know, 10 to 12 months, which for an altogether new product in a new genre is, I think, reasonable. we've been in the market with the products in some of these tertiary markets just doing technical validation and getting some early exposure to consumers so that we can start the exercise of optimizing the product. And so, you know, I would just say, you know, as has been the case with, you know, all of our games, that process of getting it from, something that you're ready to expose to your consumers, to something that is now worthy and ready to be launched and to go and invest in aggressively is unpredictable. So, you know, we're in that cycle now, and we'd certainly hope that in the next several months we'll have more clarity and hopefully able to provide a better view and some guidance on our next call. It's why during an earlier question I mentioned that, Our forecasts and guidance for the year really don't include a contribution from the Tetris casual product. So to the extent that we get to a place where we have clarity around the timing of it, well, then maybe we'll make an adjustment. But from where we stand today, we think that's the right posture or position to take.

Thanks, Andrew. Last question. I guess just could you talk a little bit more about the transition of Tetris and Brainium into your Play Awards program? I think both those games are primarily ad models, which is a little bit different than the other games within the awards program. So I'm just sort of curious how you expect that to play out. And then I guess the other part would be the partnership side. I think we've all been sort of excited about your ability to sort of grow your your play award network by adding third party partnerships. Curious if you think that you'll have success this year with that or if that's more longer term.

Well, appreciate the question. First of all, I think that the ad based products are better suited for our model than an app purchase products because they, the model drives engagement. And so without requiring purchase in order to drive, you know, kind of continued and extended play, the inherent mechanics of the game obviously need to be entertaining, but then you have this loyalty program that also drives longer-term engagement and lift. So we actually think that the ad-based games potentially are even better suited than IAP games. With that said, we've been trialing and testing and optimizing the Play Awards program within our Tetris Prime products In the next several weeks, we're going to be expanding the audience. So we're beyond the trial period. We saw what we expected in terms of the lift and some of the key metrics. And it's going to coincide with the premiere of the movie about Tetris that Apple is launching at the end of March. We have a great marketing and co-promotion program going on with Apple. They've given us thousands of Apple Plus TVs. subscriptions that are going to be part of our rewards offering with a whole other new collection of extended rewards that are going to be made available to our Tetris players. So, you know, towards the end of this month and into April, there's going to be a lot of activity and visibility and we believe organic lift in and around our whole Tetris initiative. So this will be, it's exciting for us because we get to really more fully leverage our play awards program and its capabilities and the marketing team and to really lean into this whole proposition. So we have the game, we have this movie premiere, we have our rewards program and proposition, and we've got Apple support with all kinds of co-promotion and merchandising. So it's going to be pretty great.

Nice. And our third-party partnerships, I guess, on the game side. Andrew, anything there?

As far as providing as a service, I can tell you that we have initiated conversations. We're still early in the cycle of those. There's obviously really strong interest, so pretty confident that we're going to be able to ultimately go to market with a really qualified partner to help us really demonstrate and prove out the value of this proposition. But the timing and the specifics of it are not yet fully resolved, and happy to address this in a future call once they are.

All right. Good luck, guys. Thank you, Andrew.

Yeah, thanks so much, Mike.

Thank you. Our next question is from Greg Gibbous with Northland Security. Please proceed with your question.

Hey, good afternoon, Andrew and Scott. Thanks for taking the questions, and congrats on the results. Yeah, thank you. Yeah, you know, first, if we could just maybe take a step back, you know, where do you attribute the upside that you saw relative to your guidance? you know, maybe what drove those strong KPIs in the quarter?

You know, look, I would say that it wasn't concentrated within a particular product or game or initiative or even category, that we saw general improvements, you know, across the board. You know, obviously the integration of Branium, which took place in October, had a meaningful impact. And so, you know, the integration of the team and the products and their contribution was obviously contributed to our improvement. But, you know, across the portfolio, we started to see things from up a bit. So, yeah, there wasn't any one major event other than the acquisition of Rainium.

Okay, good to hear. And relating to the timing of new game launches, can we maybe just go over that for 2023? I think you said Tetris casual products not included in guidance, just rough expectations for new game launches.

Yeah, I mean, what I can tell you is that Tetris casual is in active development, but because we don't have clarity around when it will be completed and ready to be launched and scaled, we haven't included it in our guidance. We think that's the that's overall position to take rather than to make the assumptions and then ultimately have to shift out the timing and then contend with the implications of that with all of you. So we think that the safest position to take is to exclude it from the current modeling and thinking and then update everybody once we have more clarity.

Okay, I think that's fair. I guess lastly, you know, in relation to your M&A initiatives, Do you maybe expect those to take a backseat relative to kind of your current integration and studio restructuring or optimizing initiatives this year?

No. If anything, I think that the exercise of onboarding the Tetris license and team and then ultimately rolling forward with Brainium and its integration, has helped us refine our overall approach to executing on these types of opportunities. And so we're really active in continuing to look at and qualify what we think are really great companies and teams and products that we think would be a really great complement to what we currently offer. So, no, we intend to be as active, not more active, than we have been in the past. We think that there's a really meaningful opportunity for us to continue to find companies that have the right profile and then incorporated not only in the company but into our Play Awards program ultimately and drive that scale and growth.

Okay, great. Thanks, guys. Thank you.

Thank you. Our next question is from Martin Yang with Oppenheimer. Please proceed with your question.

Hi. Thank you for taking my question. First of all, I want to ask about a guidance for adjusted EBITDA into 23. Can you maybe elaborate on the source of margin expansion? Do you see most coming from maybe a year-over-year decline on marketing spending, particularly for the first half? Or is it from the mixed shift between premium and the rest of the portfolio? And the third potential source I see is just the overall margin expansion on the core portfolio. Any additional comment will be appreciated. Thank you.

No, thank you, Martin. I appreciate your just highlighting. You've answered the question by posing it. So there are those three key areas. Greater efficiency in and around our investments in UA. So getting back to normalized levels, which were in keeping with where we were pre-COVID, which is reinvestment rates that are somewhere between 18% to 22%, as opposed to where they've been in the mid-to-20s. And then there's the cost savings. improvements as a result of the restructuring that we've been working on and working through over the last several months. So as those start to really materialize, we'll start to see the benefits in the back half of the year, as we've described, and then the overall composition and mix of business as we continue to scale or fully integrate and get the full benefit of a full year of Branium and just the ad-based products that have higher margins.

Thank you, Andrew. Alan, one more question on Tetris Casual. Can you maybe talk in general terms on the potential timeline you would expect between maybe alpha or public beta and the final release? And I think maybe the new game launches is more challenging in the current environment. Is there any way for you to maybe give us a general time horizon associated with upcoming new games and maybe more specific to Tetris casual?

Yeah, I wish that were the case, but the short of it is no. We can't provide any more clarity only because it's a difficult process to really nail down. You're talking about looking at and qualifying your consumer's reaction to the game and then optimizing both You know, all the fundamental metrics that you need to see and hit certain thresholds in order to comfortably then allocate, you know, millions of dollars, tens of millions of dollars even to scaling, growing a product in the current environment. So, you know, I think that's why, you know, our overall position has been just don't include it in the plan for this year. And as we get more clarity around the timing of when it will launch, then we'll go ahead and share that with everyone and incorporate that into our guidance.

Got it. Thank you very much.

Yeah. With that said, I mean- Thank you. Go ahead. Sorry. Sorry, Alfred. There are no further questions at this time. I'd just like to hand the floor back over to Andrew Pascal for any closing comments.

Okay. Well, thank you. We just appreciate everybody's continued interest. Thank you for tuning in, and we look forward to engaging again and updating you on our progress on our next call. This concludes today's conference.

You may disconnect your lines at this time. Thank you for your participation.