PLAYSTUDIOS, Inc.

Greetings, and welcome to the Play Studios third quarter 2024 earnings call-in webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed in the question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Samir Jain, Head of Treasury and Investor Relations. Samir, please go ahead.

Thank you, Operator. Good afternoon, and thank you for joining us for Play Studios' third quarter 2024 earnings call. Joining me on the call today are Chairman and CEO Andrew Paschal and our CFO, Scott Peterson. Before we begin, let me remind you that during the course of this call, we'll make forward-looking statements. These statements are based on our current expectations and beliefs and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings for discussion of the risks and uncertainties that may affect our future results. I'd like to remind everyone that we will discuss certain non-GAAP financial measures during this call. These measures should not be considered as a substitute for financial results prepared in accordance with GAAP. Our results are prepared in accordance with GAAP and a reconciliation to comparable GAAP measures will be provided in our third quarter earnings release and in our ICC filings. With that, I'll pass the call to Andrew.

Great. Thank you, Samir, and welcome, everyone, to our third quarter 2024 earnings call. As always, our commentary today is in addition to the financial disclosures we made in our press release, so I encourage you to take a look at the release for a summary of our recent performance. I'll begin with a few thoughts on the quarter and the company's outlook after which Scott will follow with a discussion of our financials. We'll then open the call up for your questions. Revenues and adjusted EBITDA on the quarter were ahead of consensus estimates and generally in line with our expectations. On a year-over-year basis, revenues were down 6% while adjusted EBITDA increased 8%. We remain focused on stabilizing revenue and increasing profitability. After carefully evaluating the potential impact of retooling our business on both revenues and profitability, we concluded that the resetting of our cost structure is critical for our success going forward. This reinvention plan, if you will, which was launched in October, consists of a reduction in our total workforce of over 30%, the suspension of select subscale games, the consolidation of key functions, and a new technology strategy focused on improving the productivity of R&D capacity. While we'll provide more visibility into the overall financial impact of this plan when we provide guidance for the coming year, I can share that we expect these changes to result in a normalized annual cost savings of approximately $25 to $30 million. Consistent with this focus, I was encouraged that our adjusted EBITDA margins of 20.5% grew 270 basis points versus a year ago and 100 basis points compared to the second quarter. Gains were driven by efficiencies, lower cost of sales, and reduce user acquisition spend. I believe the more recent measures we've taken will further improve our profitability, bringing us closer to the margin profile of our peers. Now, let's dig deeper into our Play Games division, where we continue to focus on three key initiatives. First, stabilizing our social casino portfolio and returning it to positive sales growth. Second, scaling and expanding our portfolio of growth games, which include Tetris and Brainy, and then third, expanding the breadth of our offering to acquisitions and new categories. We're making progress on all fronts. In social casino, year-over-year ARPDAU and revenue per paying user have been increasing in both MyVegas and MyKanami since the beginning of the year. As popular games with a significant base of daily and monthly players, increasing these metrics is the key to improving results. It's been a more challenging year for POP slots, however. There are a number of reasons why, but I believe we've made the appropriate changes to get the game back on course. Though early compared to the second quarter, POP showed sequential increases in revenue and ARPDAU. We're looking to build on this momentum and return the game back to growth. Our direct-to-consumer business still represents a significant untapped opportunity, accounting for 7.2% of total revenues this quarter, up from 4.5% last quarter. Our goal is to continue to increase the complement of revenues attributed to this channel with an ultimate target of over 20%. To continue to make progress optimizing games in our growth portfolio, Brainiam has another strong quarter, posting year-over-year growth in revenues and ARKDAO. Higher sales are being driven by the introduction of new advertising formats, such as banners and rewarded video, while increased profitability is a function of operating leverage. Results within our Tetris franchise were mixed in the quarter as the brand's 40th anniversary had a more muted effect than we anticipated. Similarly, we continue to test and assess user acquisition strategies for Tetris Block Hustle, which is still in the early stages of its optimization cycle. Lastly, let's quickly touch on new initiatives. Integration of our recent acquisition, PIXODE, is progressing smoothly. The team has begun work to combine PIXODE's highly engaging block puzzle game with the Tetris brand. As a reminder, PIXODE uses the proven raid and defend mechanic that's been popularized in superscaled games such as Coin Master and Monopoly Go. By leveraging the Tetris brand, we believe this game has the potential to substantially upend the block puzzle category. We're still in the early days of development, but our hope is to have a game ready for some time in 2025. We're also working to better understand the rapidly growing sweepstakes promotional model and how it can potentially revitalize our social casino portfolio. Given its increasing popularity, along with our unique and relevant collection of strategic assets, we've elected to incubate our own sweepstakes solution and evolve our rewarded play and promotional capabilities. Now let's turn our attention to play awards. Our product teams have been dedicated to integrating our refreshed MyVIP loyalty program into our primary titles by year end. Leveraging our industry-leading collection of rewards and benefits, the program enriches the value proposition for our players and creates a strategic point of difference for our games. This quarter, we added 11 new partners, including brands such as Hoover, Atlantis Bahamas, Borgata, and a collection of national theme parks. At quarter end, we had 133 partners offer nearly $2.3 million in retail rewards per day. No other game publisher offers anything close. Once fully integrated, we look for my VIP to further enhance the lifetime value of our players and drive greater long-term value. Lastly, I want to discuss our capital position and plans for investing our available cash. We restarted our share repurchase program in the third quarter and including transactions we completed in the spring. We've repurchased nearly 10% of our total issued stock this year. We continue to believe that the intrinsic value of our company is greater than its public valuation. and buying back our stock for its value for all shareholders. At the same time, our large cash holdings and annual cash generation allow us to invest in our businesses and pursue external acquisitions. On the latter, we remain committed to pursuing strategic and accretive M&A transactions and are actively searching for compelling opportunities. I'll now turn the call over to Scott to discuss the quarterly results and our outlook for the year. Scott? Thanks, Andrew. In addition to today's press release, our Form 10-Q will be filed shortly. Please look to those filings for a comprehensive summary of our third quarter results. Net revenues in the quarter were $71.2 million, a 6% decrease versus a year ago. Our portfolio of social gains accounted for the majority of the decline due to continued weakness in the category. While we don't expect industry trends to reverse anytime soon, we are hopeful that the rate of pressure will ease in the coming quarters. Similarly, we were encouraged that our social casino portfolio showed sequential revenue growth versus the second quarter, particularly in our largest game, Pop Slots. Our longer-term focus in social casino remains on improving performance of our game to drive growth, regardless of the industry backdrop. Performance in our casual portfolio was mixed this quarter, with some slowing in Tetris and continued strength at Branium. Some of the drivers of these results included the scaling of advertising, product updates, and full adoption of our loyalty offerings. Third quarter consolidated adjusted EBITDA was 14.6 million, an 8% increase versus 13.5 million a year ago. Adjusted EBITDA margins of 20.5% expanded 270 basis points versus a year ago and 100 basis points versus last quarter. Gains were driven by an increase in direct-to-consumer sales, a higher mix of advertising revenues, and lower user acquisition spend. As discussed in previous calls, we believe there's an opportunity to increase our margins considerably and that we can eventually reach a consolidated adjusted EBITDA margin closer to our peers. DAU was $3 million and MAU was $12.7 million in the third quarter, down 16% and 8% respectively from the same period last year. DAU declines were broad-based but largely driven by social casino and brainium. ARPDAU for the quarter was $0.26, up 13% from year-ago results. Continuing a trend we've seen since the beginning of the year, we saw a double-digit year-over-year percentage ARPDAU gains in MyVegas, Mykonami, and Brainium. Also encouraging was a double-digit year-over-year and sequential ARPDAU gain for PopSlots. We're hopeful that these early results can lead to positive long-term momentum. Turning to Play Awards, we continue to make progress expanding the functionality and scope of the platform. We closed the quarter with 532 available rewards and 133 rewards partners. Brands added this quarter include Universal Studios, Hoover, Atlantis, Bahamas, and Borgata. Nearly 450,000 rewards were purchased during the quarter at a retail value of $25 million. As Andrew mentioned, in October we began the process of resetting our cost structure to a plan which consists of a reduction in our total workforce, the suspension of select subscale games, the consolidation of key functions, and a new technology strategy. As a result of this reset, We will be recording a charge in the fourth quarter of between $14 and $16 million, approximately half of which is related to severance and contract termination payments, with the other half related to non-cash charges for the impairment of capitalized software costs and fixed assets. We ended the year with approximately $105 million in cash, no borrowings, and full availability of our $81 million revolver. As Andrew mentioned, we restarted our share repurchase program and year-to-date have bought back $29.2 million of our stock, or 10% of our total issued stock through the end of the quarter. Our share repurchase authorization currently stands at 45 million. Beyond repurchases, our capital allocation goals remain the same, investing in our businesses and pursuing strategic and accretive M&A. Our 2024 financial guidance of revenues in the range of 285 and 295 million and consolidated adjusted EBITDA between 55 and 65 million remain unchanged. I will now turn the call back to Andrew for some closing remarks. Thanks, Scott. Before we end our prepared remarks and open the call for questions, I'd like to touch on a few highlights. We recently launched a comprehensive restructuring, which will simplify our business, focus our talent, and drive further margin improvements and profitability. Despite continued industry pressures, which are impacting our sales, we are able to grow adjusted EBITDA by 8% versus a year ago and increase our margin by 270 basis points over the same period. Increased monetization efforts at MyVegas and Brainy are working. For the third quarter in a row, we saw double-digit year-over-year gains in ARPDAU across both titles. We look for momentum to continue to 2025. Pixone has been integrated into our operations, and we're making progress on our new Tetris title. Our goal remains to have the new game complete and in the market at some point in 2025. And we formally constituted our sweepstakes promotions initiative and look forward to leveraging this promotional mechanic to reinvigorate our social casino portfolio. With that, I'll turn it over to the operator. Operator, please open the line for questions.