PLAYSTUDIOS, Inc.

Good afternoon, everyone, and welcome to the Play Studios fourth quarter and year-end 2024 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. As a reminder, this conference is being recorded. I would now like to turn the call over to Jason Hahn, Play Studios Chief Strategy Officer and Head of Investor Relations. Mr. Hahn, you may begin.

Thank you, Operator. Good afternoon, and thank you for joining us for Play Studios' fourth quarter and year-end 2024 earnings call. Joining me on the call today are our 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 will 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 would 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 the reconciliation to comparable GAAP measures will be provided in our fourth quarter earnings release and in our SEC filings. With that, I'll pass the call to Andrew. Thanks, Jason, and welcome, everyone, to our fourth quarter and year-end 2024 earnings call. Earlier today, we published a press release containing our financial results along with the commentary for the recently completed fourth quarter and year-end 2024. Included in the release is segment reporting and our usual financial disclosures. Scott will discuss these materials in greater detail later, but if you haven't had a chance to review the release, I'd encourage you to do so. 2024 was another eventful and challenging year for the games industry. Despite these pressures, we were able to achieve our full year guidance and make material progress on a number of strategic initiatives heading into 2025. We sharply reduced the company's cost structure and reoriented our operations for improved profitability and cash flow. A number of new initiatives were incubated and our new promotional effort, World Tournament of Slots, was launched and very well received by our players. Let's dive a little deeper into some of the more noteworthy highlights. We closed the year with full-year revenue and adjusted EBITDA in line with our 2024 guidance. We restructured our business to drive enhanced efficiency in economies of scale. Our reinvention plan, which we launched in October, consisted of a reduction in our total workforce of over 30%, the suspension of select subscale gains, the consolidation of key functions, and a new technology strategy that included an outsourcing of some of our R&D capacity. Post-changes will be leaner, have a more acute focus on growth, and be positioned to deliver stronger results. We advanced two new growth initiatives that we believe can reinvigorate our play games business. We believe our new sweepstakes effort has the potential to reinvigorate the growth of our social casino portfolio. Sweepstakes features continue to grow in popularity among free-to-play casino players, including our own. We think adding sweepstakes to our current loyalty and promotional offerings will substantially enhance the attraction of our games and drive real value to our company. Our goal remains to introduce sweepstakes in the coming quarters. PIXODE has now been fully integrated into Play Studios and is making solid progress with the development of a new casual Tetris title. The new game will combine the highly engaging block puzzle format, the Tetris brand, and the proven raid and defend mechanic that's been popularized in super-scaled games such as Coin Master and Monopoly Go. By leveraging a proven game design, a well-established metagame feature, and the Tetris brand, we believe the game has the potential to redefine the category. Our hope is to have a game ready to be launched in the second half of 2025. World Fit Play Awards continues with the addition of more players, a full integration of MyVIP across our major games, and the onboarding of key new rewards partnerships. The program also launched the World Tournament of Slots, which held its inaugural event in October of this last year. With its million-dollar prize and 500 players participating live, the tournament drove excitement in our games and players alike. We plan to build on the tournament's momentum in 2025. Finally, during the year, we purchased $31.2 million in stock, including the purchase of roughly 9% of our outstanding shares from Microsoft. Despite this, we remain very well capitalized with $109 million in cash at the end and the full availability of our $81 million revolving credit facility. As I've reaffirmed in the past, our strategy consists of two key pillars. The first is expanding our play games division by driving more operating leverage from our mature portfolio as well as developing and acquiring new games. A broader collection of games allows us to amplify the effect of our industry-leading loyalty platforms. Most recently, we've set out to accomplish this organically through the development of new sweepstakes promotional capabilities and through strategic M&A from our acquisitions of the Tetris Rites, Branium, and PIXO. The second pillar is the advancement of play awards, which can drive adoption and engagement of our game portfolio. I believe executing these strategic priorities will enable us to accelerate our growth, improve margins, and ultimately drive substantial value. So let's touch on some of our primary initiatives starting within Play Games. Play Games has three primary goals in 2025. One, improving the productivity and margins of our core casino games. Two, growing our casual portfolio. And three, advancing new initiatives currently in development. The focus for the casino portfolio in 2025 will be improved retention and monetization in Popslots, MyVegas, and MyKanami, expanding direct-to-consumer sales, leveraging a full adoption of MyVIP across our portfolio, and the integration of sweepstakes into each of our primary titles. We're pleased with the progress made in MyVegas this past year and hope to build on that momentum in 2025. While pop slots and my economy have been more challenging, we expect recent organizational changes and operating refinements to boost performance in 2025. As all three games have a loyal following and strong user engagement, our biggest opportunity is to convert more of our users to payers. In support of this, our teams are intensely focused on refining the game economies, enhancing our segmentation and pricing practices, and introducing new sweepstakes and other features that enrich the overall game experience. We're also focused on offering compelling incentives to purchase off-platform through our player-specific and bespoke web solutions. which is focused on generating more direct sales with our players. Our direct-to-consumer business still represents a significant untapped opportunity, accounting for $4.5 million this quarter or 8% of total in-app purchase revenues, this up from $2.5 million or 4% from the same time last year. This represents an 89% increase year-over-year. Our goal is to continue to increase the complement of revenues attributed to this channel with the ultimate target of over 20%, which will further improve our operating margins. Turning to our casual portfolio, the focus in 2025 will be the continued optimization of Branium and the expansion of our Tetris franchise. Branium had a strong 2024, growing revenue and up-down year over year as a result of new advertising formats, the incorporation of our loyalty program, and continued product improvements. We plan to build on that growth in 2025 following the successful implementation of a new technology stack in the fourth quarter. Results were weaker within our Tetris franchise this quarter, as recent product changes did not have the positive effect we anticipated. We continue to view Tetris Prime as a compelling growth opportunity and plan to introduce several new features this year. Similarly, we continue to use our Tetris block puzzle game to test and assess user acquisition and product strategies in anticipation of our eventual introduction of our Pixode Tetris product. As you may recall, we acquired Pixode last year based on our belief that their flagship game could be more fully realized under the Tetris brand. Alongside the talented team at Pixode, we're hard at work to make this reality and believe we can launch a new Tetris casual game later this year. As I've said in prior calls, developing new games is more art than science, and as such, the ultimate success of each is hard to predict. That said, we know the Tetris brand is incredibly popular with players, and many of the games in the puzzle category today are facsimiles of the real thing. We firmly believe this creates an opportunity for us to capture players who we believe would choose an authentic Tetris game if given the option. Now, let's turn our attention to Play Awards. Throughout 2024, our Play Awards team has been dedicated to integrating our refreshed My VIP Loyalty program into our primary titles, curating and streamlining our collection of rewards partners, and rolling out our inaugural World Tournament of Slots campaign. I'm happy to say we've been successful on all fronts. My VIP has been fully integrated into all of our major games, giving our players a consistent and seamless loyalty experience. As we've discussed in the past, loyalty is a unique value enhancer for our games and a proven driver of increased retention and engagement. Regarding the collection of award partners, this quarter we added several new partners, including brands such as Topgolf, while also streamlining our catalog to ensure a focus on our highest-performing partners. In 2024, we offered approximately $2 million in retail rewards per day. Lastly, in Q4, we held the inaugural MyVIP World Tournament Slots event at the Atlantis Paradise. This exclusive tournament gave over 500 players a chance to compete for a million-dollar prize generating significant excitement and raising engagement across all of our games. We intend to build on this momentum with a newer, improved version of World Tournament of Slots in 2025. World Tournament of Slots is another example of our company's unique value proposition of connecting the digital and real worlds that's unmatched by any other gaming publisher. With these exciting initiatives in place and a reset cost structure and operating framework, we believe 2025 is shaping up to be a year of progress. We're intensely focused on growing our business and fully exploiting our unique rewarded play model, all while striking the balance between optimizing our core business while continuing to invest in our future opportunities. In doing so, we'll continue to expand our audience, reinvigorate revenues, improve margins, and drive higher profits. Scott will provide more details when he outlines our 2025 guidance in a moment. However, I want to quickly touch on our thinking and approach to capital allocation. The dislocation between the market's view of our stock and what we believe to be fair value continued to widen in 2024. As such, we were aggressive purchases of our stock, buying back $31 million throughout the year. We'll continue to evaluate share buybacks in 2025. We also remain committed to pursuing accreted and strategic M&A opportunities that are in keeping with our overall strategy and expansion plans. In the meantime, we expect to continue to generate positive cash flows and add to our already sizable cash balance. I'll now turn the call over to Scott to provide some additional comments and share our 2025 financial guidance. Scott? Thanks, Andrew. Good afternoon, everyone. In addition to today's press release, our Form 10-K will be filed shortly. Please look at the filings for a comprehensive summary of our quarterly and full year results. Revenues in the quarter declined by 9.3 million or 12% versus a year ago. Both social casino and casual games were down in the quarter with larger dollar declines in social casino and larger percentage declines in casual. Social casino weaknesses continue to reflect softness in the category and our own challenges in stemming DAU declines. On the positive side, we've been making progress in monetization, and we're seeing positive results from the recent changes in our largest game, Pop Slots. Longer term, we remain confident that our social casino titles can return to growth, particularly with the addition of our sweepstakes features later this year. Lower revenues in our casual portfolio were largely driven by Tetris, where a decline in DAU drove lower advertising revenues. Fourth quarter adjusted EBITDA of $12.5 million was 15% lower than a year ago. Adjusted EBITDA margin was 18.4%, a 70 basis point decline versus the same quarter a year ago. Revenue declines drove both adjusted EBITDA and adjusted EBITDA margin declines in the quarter. DAU was 2.7 and NAU was 11.5 million in the fourth quarter, down 19% and 14% respectively from the same period last year. DAU declines were broad-based across our portfolio, but largely driven by Tetris and Branium, which accounted for more than half of the overall decrease. While we expect user growth to continue to be challenged, we are hopeful that our new initiatives, such as sweepstakes and our new Tetris title, will serve to counter these pressures. Likewise, we believe the recent integration of MyVIP across all our major games will be helpful. ARPDAU for the quarter was 27 cents, up 8% from year-ago results. The growth in ARPDAU was driven by our social casino portfolio. Continuing trend we've seen since the beginning of the year, we saw double-digit year-over-year percentage gains in POP, MyVegas, and Brainium. The growth in Brainium is particularly noteworthy given the large base of players and relatively low levels of ARPDAU. Increasing player monetization was a key objective of ours, so we are pleased with the results. We continue to believe there is still significant opportunity for growth ahead. We initiated our reinvention program in the fourth quarter of 2024, which will get fully realized in 2025. As Andrew mentioned earlier, our goal was to streamline our business around key opportunities, expand operational efficiencies, and reduce our overall cost. While we continue to expect the program to result in annual operating cost savings for our core business of approximately 25 to 30 million, there will be offsetting costs associated with launching and scaling our strategic priorities that will impact our overall consolidated results. I will discuss this in greater detail when I outline our 2025 guidance. For the full year, revenues declined 7% versus 2023. Full year adjusted EBITDA was down 9% from 2023, while adjusted EBITDA margin of 19.5% was down 50 basis points versus last year. We ended the quarter with approximately $109 million in cash, no borrowings, and full availability of our $81 million revolver. As Andrew mentioned, we restarted our share repurchase program and purchased $31 million, or 13% of total issued common stock during 2024. Our remaining share repurchase authorization was $44 million at year end. In 2025, our capital allocation goals will continue to be centered on maximizing shareholder value through investing in our businesses, pursuing strategic and accretive M&A, and exploring other ways of returning value to our shareholders, which may include additional share buybacks. Finally, our outlook for 2025. We estimate that revenues will range between $250 and $270 million. Consolidated adjusted EBITDA will range between 45 and 55 million. When modeling our 2025 results, please consider the following. Our guidance does not include the impact of acquisitions or divestitures. Our new sweepstakes and Tetris initiatives are still in development, and we have not included any revenue contributions from these efforts in our guidance. We will provide updates as we have them, but you should use your own judgment and analysis to project how these businesses may perform. Our current expectation is that these initiatives, once proven out, could contribute as much as $15 to $30 million of revenue during the year, most of the benefits recognized in the fourth quarter. While we are on track to recognize the cost savings from our restructuring, we expect to redeploy some of those savings towards developing and marketing our two new initiatives as they start to show product-market fit. This, in addition to the continued declines in the core business, is why 2025 adjusted EBITDA is expected to be down versus 2024. Thank you. I will now turn the call back to Andrew for some closing remarks. Thanks, Scott, and thanks to everyone for participating in today's call. Before we end our prepared remarks and open the call for questions, I'd like to reinforce some key points. First, 2024 was a transformative year that's positioned us for sustainable and profitable growth. We incubated two new businesses in high-growth categories, streamlined our operations around our strongest business lines, and dramatically lowered our cost basis. Our recent development of sweepstakes promotional capabilities is expected to enhance the value proposition of our social casino portfolio, which we believe can reinvigorate our business. With our recent integration of Pixode, we're more committed than ever in establishing Tetris as a world-class mobile franchise. We have an exciting new game development and are working towards introducing it later this year. Play Awards continues to expand its technology, partnerships, and functionality. The World Tournament of Slots is an example of this and something we plan to build on in 2025. We continue to view Play Awards as a key differentiating factor for our company and integral to our value proposition and growth. We're making progress in optimizing POP and MyEconomy and believe both are on track with notable improvements in 2025. Brainium performed well this past year, going revenues and up now, and we look forward to building on this momentum in 2025 with the optimization of MyVIP and a new technology stack. And our balance sheet remains strong, with $109 million of cash, a fully undrawn credit facility, and an operating business that generates positive cash flows. Our capital allocation strategy will continue to be focused on maximizing shareholder value through growth-oriented investments in our business, strategic acquisitions, and exploring other ways of returning value to our shareholders. Lastly, I continue to believe there's a large discrepancy between the core value of our business and the value ascribed to us in the public markets. While frustrating, rest assured, our leadership is aligned, our teams are focused, and we're all committed to strengthening our company. I want to thank you for your time today. We appreciate your support and hope you're as encouraged about the coming years we are. I'll now turn the call over to the operator to take questions. Operator?

Thank you. And at this time, we'll conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would 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 keys. Once again, to ask a question, press star 1 on your telephone keypad. We'll pause for a moment while we pull for questions. Thank you. Our first question comes from Ryan Signall with Craig Hallam Capital Group. Please state your question.