PLAYSTUDIOS, Inc.

Greetings and welcome to Play Studio's first quarter 2025 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Jason Hahn. Chief Strategy Officer and Head of Investor Relations. Thank you, sir. You may begin. Thank you, Operator.

Good afternoon, and thank you for joining us for Play Studios' first quarter 2025 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 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 a reconciliation to the comparable GAAP measures will be provided in our first quarter earnings release and in our SEC filings. With that, I'll pass the call to Andrew.

Thanks, Jason, and good afternoon, everyone. While challenges persist, we're off to a focused and productive start in 2025. Our core business is still normalizing following the reset from last year, and we're cautiously working our way through a period of transition and recalibration. Market conditions across traditional social casino and casual segments remain challenging, and this continues to weigh on our operating performance. That said, our reinvention plan is already helping us operate with more clarity, efficiency, and discipline, and we believe we're starting to see the foundation for future growth taking shape. Let me highlight a few key themes from the quarter. In addition to broader market weakness, the social casino category is being impacted by the rising popularity of sweepstakes styles offerings, which are capturing increasing mindshare and spend from players. Because we don't get all for competitive sweepstakes proposition, We believe this dynamic is the primary cause of the pressure on our player activity and monetization. As a result, we've been hard at work on the development of a sweepstakes solution and have made strong progress in this quarter. During the quarter, we launched our internal alpha of our sweepstakes promotional platform. This exercise provided valuable insight into both the technical readiness and player-facing aspects of our offering. The feedback has been constructive and is actively informing our next phase of refinement. We expect to make the service available to select players in Q2 and begin scaling in the back half of the year. We believe this new promotional mechanic can reinvigorate our social casino portfolio and spawn a return to growth. Compliance has been a central focus of our development efforts. We're committed to building the most compliant and transparent promotion mechanic in the industry. Our vision is to reclaim Sweepstakes for what it was intended to be, a fun, engaging, and trusted promotional incentive that will drive more consumption across our social consumer portfolio. Second, development continues on our new casual Tetris title, Tetris Block Party. We're applying learnings from the puzzle and rate and defend genres to create a differentiated and scalable game experience. While developing games is never deterministic, we remain focused on readying the product for a Q4 launch. Third, we're realizing the benefits of our reinvention plans. The cost savings program we initiated last year is tracking to plan and beginning to approve the efficiency of our core operations. Turning to our business segments, let's start with the Play Games casino portfolio. The social casino portfolio continues to face category-wide headwinds with softness across all key casino apps. That said, monetization improved across several core titles. ARPDAU increased year-over-year in pop slots. MyKanami, and especially in the MyVegas franchise, where MyVegas posted double-digit gains. New content cadence is a major focus across the portfolio as we work to re-engage players and drive stronger performance. Our teams also remain focused on economy design, player segmentation, and expanding our direct-to-consumer channel. Direct-to-consumer remains a bright spot in our portfolio, showing strong momentum and contributing to our broader efforts around margin optimization. In Q1, our direct-to-consumer channel generated approximately 5 million in in-app purchase revenue, representing 9.8% of total IAP revenue in the quarter. This compares to 2.3 million, or 3.9%, in Q1 of 2024, and 4.7 million, or 8.6%, in Q4 of 2024, representing growth of 114% year-over-year and 6% quarter-over-quarter. As mentioned earlier, we're also investing in the development of our sweepstakes promotional capabilities, which we believe will become a meaningful feature to drive engagement and consumption that re-energizes our social casino portfolio. Let's talk about casual game portfolio. In our casual segment, performance remains soft across both Brainium and Tetris Prime. Brainium showed early signs of monetization improvement, though overall performance was pressured by softer DAU and weaker ECPMs. We continue to invest in user acquisition and product enhancements aimed at stabilizing engagement, and capturing more value from our audience. Tetris Prime also experienced challenges, with user acquisition continuing to be the primary headwind. While monetization per user held relatively steady, growing the audience remains difficult in an increasingly competitive market. To address this, we're testing a range of new marketing and growth strategies. We're also preparing for the launch of our next casual title, Tetris Blog Party. In Q1, we polished the product, implemented a number of optimizations, and began technical validation in select European markets. The feedback from early players has been valuable and is helping us shape the next phase of iteration. Assuming all metrics align with our criteria, we expect to launch the product in Q4 and scale it thereafter. Let's now turn to Play Awards. Play Awards remain central to our broader strategy of being a leader in rewarded play. Through Play Awards, we pioneered one of the first iterations of sweepstakes-style engagement offering players real-world rewards as a loyalty and promotional strategy. As the broader landscape evolves and a second flavor of sweepstakes rises in prominence, our Play Awards platform is working closely with our games to elevate the role of our rewarded play model, and in doing so, drive deeper player engagement, amplify the value of our ecosystem, and reinforce our differentiation in the marketplace. This quarter, we made great progress in this regard. We've now executed the full integration of MyVIP across our major games to drive a more unified loyalty experience. In the quarter, we launched several new reward partnerships, including Foley Entertainment Group, a premium partner reflective of the kind of experiential rewards that align with our broader strategy. These additions further enhanced the diversity and appeal of our loyalty ecosystem. While purchases and redemptions were down double digits, this reflects our deliberate strategy to focus on premium, high-quality offerings over scale. The daily average retail value of available rewards increased by 5% to approximately $2 million per day. We also recently announced the second annual million-dollar MyVIP World Tournament of Slots hosted by Atlantis Paradise Island, Bahamas, taking place from October 22nd to the 26th of 2025. The high-profile tournament will bring together slot enthusiasts from the digital and real world who will compete for a top cash prize of a million dollars and the prestigious title of World's Greatest Law Player. We expect this new franchise to drive engagement across our games, and we look forward to sharing more as the plans get rolled out. Turning to our financial foundation, our balance sheet remains strong, ending the quarter with approximately $107 million in cash and no outstanding debt under our $81 million revolving credit facility. We continue to execute on our share repurchase program and remain active in assessing strategic M&A opportunities that align with our growth priorities. In summary, Q1 reflects disciplined execution in a challenging environment. We're investing in our future while managing our cost base and positioning Play Studios for long-term value creation. With that said, I'll now turn the call over to Scott for more detailed financial commentary.

Thanks, Andrew, and good afternoon, everyone. First quarter revenue was $63 million, down approximately 19% year-over-year, reflecting continued softness in both our social casino and casual portfolios. This was largely driven by category-wide pressure and lower new player acquisition and engagement across most of our key titles. Revenue was also down approximately 7.5% sequentially from the fourth quarter as a result of seasonal softness and continued DAU pressure. Adjusted EBITDA for the quarter was $12 million, an 18.5% decline year over year and flat sequentially. Performance this quarter was shaped by three key dynamics. Continued DAU declines across the portfolio, particularly in Tetris and Branium, ARPDAU gains driven by optimization in our social casino titles, and the first benefits of cost savings flowing through from our reinvention plan. Adjusted EBITDA margin was 20%, up 20 basis points from the same period last year. This increase was driven by early savings from our reinvention plan, partially offset by lower revenues. DAU was 2.6 million, down 25% versus Q1 of 24, and down 3% sequentially. MAU was 11.4 million, down 23% year over year, and largely flat sequentially, reflecting recent stabilization. The majority of user declines were concentrated in Tetris and Branium. ARPDEL was 26 cents, an increase of 8.3% versus Q1 of 24, and largely consistent with the fourth quarter. This was driven by targeted economy improvements in MyVegas and optimized ad monetization in Branium. This reflects our ongoing efforts to optimize monetization, even as overall engagement remains under pressure. We remain on track to realize between $25 and $30 million in annualized cost savings from our reinvention plan. These savings will be reinvested into our strategic priorities, including sweepstakes and Tetris Block Party. Regarding capital allocation, we repurchased $1.6 million of our stock in the quarter under our existing share repurchase authorization, which has $42 million remaining at quarter end. Importantly, we are reaffirming our full-year 2025 guidance of net revenue between $250 and $270 million and consolidated adjusted EBITDA between $45 and $55 million. Notably, our guidance continues to exclude revenue contributions from sweepstakes and our new Tetris title, although we continue to expect them to begin generating impact later this year. We will provide updates on those initiatives as we progress towards launch. We remain confident that our current strategy will enable us to stabilize our core and unlock new growth in the quarters ahead. With that, I'll turn the call back to Andrew for closing remarks.

Thanks, Scott. So to wrap up, we're making steady progress. We're investing in our future while improving profitability. Our investments in the sweepstakes, promotional mechanic, and Tetris are taking shape, and we're excited about the path ahead. I want to thank you for your continued support, and I'll now ask the operator to open up the call for questions.

Thank you. And at this time, we will conduct our 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. One moment please while we pull for questions. Our first question comes from Mike Hickey with Benchmark. Please state your question.

Hey, Andrew, Scott, Jason. Thanks for taking our questions here. Andrew, nice to hear that you reaffirmed your Q2 launch of your new sweepstakes product. Just curious how confident at this point, obviously you just reaffirmed, but just your confidence on executing on the Q2. And if you plan to sort of geo-test it, Andrew, in any particular states just on monetization or any other KPIs that you think are relevant. And then after launch, just curious your confidence on your ability to scale the product in the second half of year 25. Thanks, guys.

Yeah, thanks for the questions, Mike. We're confident that we're going to be in a position where we can start to introduce and slowly scale the sweeps offering in the back half of this quarter, the second quarter. We have already done some limited amount of technical validation And we're just continuing to evolve the product and make sure that all of the internal control standards and operating practices are solid and in place, as well as the product offering and the breadth of content we know we're going to need so that we can go to market with something that's compelling. So we're feeling good about where it is and the pace and progress that we're making. I think that what you'll see is a very measured introduction, which will consist of several jurisdictions initially. And then as we start to optimize the product and get ever more comfortable with the overall integrity of it and its appeal, then we'll start to expand into other markets and invest more aggressively in the back half of this year. But overall, we're on our plan.

Thanks, Andrew. Last question from us. You mentioned your DTC revenue, you're certainly getting a lot of success there, doubling year over year to 5 million. It's now 10% of your virtual currency sales. I guess, just remind us what's driving your success or your growth there. And if you think momentum can continue, obviously the Epic case seems like it's gonna be a real tailwind for you. Just curious your thoughts on that. And then I can't remember if you targeted sort of a long-term target or not for DTC as a percentage of total revenue and sort of what unlocks we need to look at here to sort of get you to that target. Thanks, guys.

Yeah, no, thanks for the follow-up question. Maybe I'll let Jason take that one.

Yeah, so in terms of the first question, in terms of what's driven the success, you know, it's definitely been a focus of ours for the period around driving more consumption directly. And we do that through offering incentives for users to transact directly and bonus currency and loyalty points. And the fact that we have a loyalty program enables us to kind of unlock additional benefits and value for players that consume with us directly. And so we're gonna continue to do that. We think the new ruling from the Apple and Epic case will make that even easier because we now have the ability to route purchases through the direct channel more directly and we can promote and deep link and do a lot more interesting things to make the process a bit more frictionless for the consumer. And they can become more aware of it. So we think this will just allow us more momentum in the direct-to-consumer business going forward. We haven't fully modeled what that means in terms of new contribution by the end of the year. So we'll have to get back to you once we kind of have, we haven't published specific guidance on where we expect that to be. But we hope it will be double where it is today as we sit here at this time next year.

Nice. Thanks, guys. Good luck. Thank you.

And your next question comes from Ryan Sigdahl with Craig Hallam. Please state your question.

Good afternoon, guys. This is Will on for Ryan. Thanks for taking our questions. First wanted to ask on sweepstakes. In the development phase, can you kind of talk about maybe what's changed since you've started going after this and kind of your learnings from the initial testing? Thanks.

Yeah, thanks for the question, Ryan. I don't know that there's anything that we've learned. It's really more just validating the overall technical stability and performance of the platform that we built and the tools that we'll use to manage this new promotional mechanic as well as just prove out the integration of both the third-party content and our own content that we're going to be using when we launch the service. So to this point, it's more technical validation. Once we get into the market, and as I alluded to a moment ago, we'll be a bit measured and just open up a few jurisdictions so that we can start to then get real consumer feedback about our overall proposition and how we're offering it up relative to where the rest of the market is. And then we'll optimize and work on scaling from there. So to this point, it's really been more about the technical validation and certification of the platform and tools that we've built.

Got it. And then maybe a quick follow-up on the Apple Epic Games lawsuit. Of course, it's still developing, and Apple, I think, is appealing. But curious if you could lay out any benefits you hope to see from that, and maybe when we'll get a concrete resolution. Thanks.

Yeah, I mean, I can certainly offer. Go ahead, Jason, if you want to.

So, yeah, I think as mentioned in the previous question, I think with the ruling, we now have the ability to route purchases through a direct channel more aggressively, and we can promote it. So we think, number one, it's going to expand the adoption of users. Those users that end up purchasing direct, there's additional margin improvement because we don't have to pay the 30% cut on those specific purchases. So that's kind of a near-term, very practical and kind of technical benefits that we would assume. But over time, we also think this can enable a more strategic evolution because it enables deeper loyalty tie-ins. And because of our loyalty program, we think we could do some interesting things strategically as a result of this to build a stronger connection with our consumer, which is really what this enables long-term is a deeper player relationship.

Thanks, guys.

Thanks, Ryan.

Your next question comes from Aaron Lee with Macquarie. Please state your question.

Hey, good afternoon, guys. Thanks for taking my question. Maybe sticking with sweepstakes for a little bit more. Can you just talk about how you're thinking about the Play Awards externalization efforts in the context of the sweepstakes business? Do these kind of work together to advance both or just externalizing the Play Awards platform kind of take a backseat just given all the work you're doing on sweepstakes? Thanks.

Yeah, no, thank you, Aaron. It's a great question. We think that they're complementary for sure and that in fact our whole loyalty program and proposition as part of the sweepstakes promotional mechanic kind of amplifies it and its potential impact. So players of our sweeps offerings and promotions will not only be able to engage in the games and accumulate promotional currency that can ultimately be converted to cash, But as they engage with our products and accumulate those benefits, they'll also continue to accumulate loyalty currency and all the real-world benefits. And then along with that, a really bespoke and tailored level of service for all of our premium and more loyal customers. So we believe that just as the loyalty program is kind of the strategic centerpiece of our existing business, and enhances the overall value proposition of our existing games, it'll do the same thing as we look to incorporate the sweepstakes mechanic.

Got you. Thank you. That's helpful. One last one for me. Just in terms of reward partners, you noted in the prepared remarks you added Golden Entertainment. But just curious, are there any areas or sectors outside of casinos that you're looking to expand to with regard to rewards partners?

You know, I appreciate the question. We've done a lot over the last couple of quarters to really kind of reset our rewards offering and really kind of more carefully curate and manage the range of partners and the types of rewards that we've introduced. We want to make sure that they all fit kind of our entertainment and leisure positioning of the program. And so I would say going forward, we're always actively looking for the types of rewards partners that kind of enhance that positioning. Entertainment offerings, whether it be music festivals and shows and theme parks and amusement park destinations, along with the very robust offering that we have within the whole casino vertical. So we'll continue to cycle through different partners and rewards and test and see the ones that really resonate the most and are demanded by our player base. And as they tell us what they want, we'll go out and pursue and look to cultivate more of those types of partners. But that's really what's motivated the shift in the composition and the rewards that are part of our platform today.

Okay. Thank you. Appreciate all the color. Good luck.

Thanks so much.

Thank you. And just a reminder to the audience, to ask a question, press star 1 on your telephone keypad. To remove yourself from the queue, press star two. Our next question comes from Martin Yang with Oppenheimer and Company. Please state your question.

Hi, thank you for taking the question. First question on the timing regarding Apple, our ability to do outlink on iOS devices. Do you expect that feature to be implemented soon in our next software update? If not, how soon should we expect for you to take advantage of the ruling?

I think that you'll see us with some initial implementations in the relative near term. Like everybody else, we're going to do all we can to take advantage of this shift in Apple's overall position response to the ruling. There are a lot of different ways to implement alternative means of purchase that reduce the amount of friction and make it easy for the players. So we're going to do what we can to enhance our existing solution, but we're also kind of revisiting some of the more fundamental approaches to how we redirect our players so it doesn't feel so much like they're being redirected out of the app ecosystem. Instead, they stay within the experience. So some enhancements in the relative near term and then more comprehensive solutions in also the short term, but No, probably not for some number of weeks.

Got it. Thank you, Andrew. The next question is a financial one. Can you confirm that your EBITDA target does not or have, in fact, included the investments for new game launches, including sweepstake and block party?

Jason, you want to speak to that?

Yes, so it does have the investments that we are making in the guidance. It does not include the revenue for it because we don't, you know, because of the uncertainty around, you know, it contributing to our top line. We were conservative on the top line. But since we've already are incurring tangible costs today, we have included it in the cost side of the EBITDA guidance.

And also, UA costs associated with Block Party is also included?

I do not believe we have specific UA costs related to Block Party. It's just the operating expenses for the headcount that's working on those games.

That's right. All the team and direct expense of the execution of both Block Party and the sweeps initiative are what we burdened the go-forward outlook with, but not the UA expense. Once we are in the market and we have a line of sight on the unit economics and around our UA investments, then we'll be able to provide more specific guidance. But suffice to say, we won't ramp up our UA investments without the confidence that the product is performing as intended or better.

Got it. That's clear. Thank you. Thank you, Andrew. Thank you, Jason. That's it for me.

Yep. Okay, Martin, thank you.

Thank you. And at this time, there are no further questions. So with that, we will go ahead and conclude today's call. All parties may now disconnect. Have a good day. Thank you.