Hello, and welcome to PLAYSTUDIO's Third Quarter 2023 Earnings Call. Please note that this conference is being recorded. I am pleased to introduce Samir Jain, Head of Treasury and Investor Relations. Thank you. You may begin.

Thank you, operator. Good afternoon, and thank you for joining us for PLAYSTUDIO's third quarter 2023 earnings call. Joining me on the call today are Chairman and CEO, Andrew Pascal; 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 a discussion of the risks and uncertainties that may affect our future results. We will also 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 SEC filings. With that, I'll pass the call to Andrew.

Thank you, Samir, and welcome, everyone, to our third quarter 2023 earnings call. Earlier today, we published a press release containing our financial results along with commentary for the recently completed third quarter. As always, our release contains considerable financial disclosures, as well as our thoughts on topics we believe are pertinent to our company. I hope you had a chance to read the release, and if not, I'd encourage you to do so. Rather than rehash what's contained there, Scott and I will spend a few minutes highlighting some key developments and save the majority of today's time for your questions. Adjusted EBITDA, and more importantly, EBITDA margins increased meaningfully versus year-ago results. A number of initiatives that contributed to this, including our focus on operating efficiency and a more diversified business model, that now sees nearly 25% of our revenues coming from higher-margin advertising sales. We believe there are still more opportunities to improve our cost structure and optimize productivity, which will further improve margin gains going forward. As we've discussed before, our margins are a bit leaner due to our ongoing investments in new products, our playAWARDS platform, and other growth initiatives. However, it's our view that we can achieve margin parity with our peers as these efforts mature and contribute to our revenues. Our playGAMES Group continues to benefit from momentum in our growth portfolio with DAU and ARPDAU increasing throughout the year. Player interest in Tetris remains high, with many of the key performance metrics improving steadily. In addition to scaling our existing Tetris Prime product, we continue to advance the development of our new casual titles. With that said, I'm thrilled to share that we recently executed a new agreement with the Tetris Company, extending our exclusive rights to this important intellectual property through at least August of 2029. With this renewed commitment, we can now confidently pursue a more comprehensive and long-term growth strategy for this beloved gaming franchise. We're also optimistic about other products in our growth portfolio, where early tests of new features and capabilities have been promising. Most notable are the enhancements to some of our Brainium games, which have lifted our advertising revenues and contributed to our inter-network cross-promotion, reaffirming our initial acquisition thesis. We plan to incorporate these changes, along with our myVIP program, into the full collection of Brainium products throughout the remainder of this year and the early part of 2024. In doing so, we expect the portfolio as a whole will generate higher revenues in the coming year. We also remain committed to creating and publishing new games. As a result, we'll further diversify our portfolio, expand our player network and position the company for continued growth. Of course, crafting new games is more art than science, and as such, the timing and ultimate success of each is hard to predict. Having said that, I'm happy to share that we're making solid progress with our new game initiatives and anticipate launching at least one new title within the next six to twelve months. The trends in our core portfolio remained consistent with the broader social casino industry. While we remain hopeful that the conditions will improve for the genre as a whole, we're undertaking numerous initiatives to drive organic growth, lift revenue, and continue to expand margins. At the top of the list are the games we transitioned to new operating teams as part of our restructuring back in March. As a reminder, the teams overseeing these games now include key product leaders from POP! Slots, our top-performing social casino title. Given our experience, we continue to believe that both myKONAMI and myVegas can achieve meaningful improvements in payer conversion and spend per payer. Other initiatives focused on improving the performance of our core titles include enhancing our direct sales capabilities, new advertising products, and improved capabilities with incentivized cross-promotions. Now turning to playAWARDS; we continue to advance the technologies, program features, and benefits of our MyVIP program and underlying platform. We're also making strides in our plan to launch our loyalty-as-a-service solution to external partners and continue to believe loyalty will be integral to the mobile gaming industry's future. We remain enthusiastic about the yet untapped potential of this unique strategic asset and look forward to more fully realizing its value. Before I hand the call over to Scott to discuss our financials, I wanted to reaffirm our interest and focus on M&A. We continue to actively search for and qualify compelling opportunities that align with our overall strategy and expansion plans. We have a history of growth driven by both internally crafted games along with acquired game assets, and I expect it to continue into the foreseeable future. We've been thoughtful stewards of our capital, opportunistically accumulating our own stock, while maintaining substantial cash reserves to enable strategic acquisitions. While the public markets will always be unpredictable, we'll remain focused on optimizing the returns for our shareholders. I'll now turn the call over to Scott to provide some additional comments.

Thanks, Andrew. Good afternoon, everyone. 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 quarterly results. As Andrew mentioned, we were able to generate strong adjusted EBITDA performance again this quarter. As a reminder, Brainium was acquired in October of 2022 and wasn't part of our company in the third quarter last year. Both DAU and MAU in the quarter were heavily skewed by the inclusion of Brainium. Fourth quarter results will be more comparable, and a full annualization will happen in the first quarter of 2024. Excluding Brainium, organic growth in DAU and MAU was up double-digit percentages versus a year ago. This growth was driven by our casual portfolio that more than offset the declines in our core social casino users, which we believe were in line with the industry. These declines translated to lower paying users and lower DPU this quarter. Excluding the impact of our advertising-driven games, Tetris and Brainium, ARPDAU was up mid-single digits. The growth in ARPDAU was broad-based across our social casino portfolio. We ended the quarter with approximately $130 million in cash, no borrowings, and full availability of our $81 million revolver. We did not repurchase any shares during the quarter and continue to have $30 million remaining in our stock repurchase authorization. Our broader capital allocation goals remain the same; investing in our games, building the scale in playAWARDS, pursuing strategic and accretive M&A, and investing in our public equity. Looking ahead, we are adjusting our annual guidance given that there is only one quarter remaining in 2023. Our adjusted EBITDA guidance increases to $60 million versus the previous range of between $55 million and $60 million. We are tightening our full-year revenue guidance to be between $305 million and $315 million versus prior guidance of between $305 million and $325 million. As discussed last quarter, our guidance assumes a pickup in spending to support our growth and development of games, as well as continued industry and economic stress. I will now turn the call back to Andrew for some closing remarks.

Thank you, Scott, and thanks to everyone participating in today's call. While not without its challenges, I'm very encouraged by the progress we've made this year, and I'm quite optimistic about the many developments underway. Our efforts to increase profitability are working, and I believe we're on a path to margin parity with our peers. Our growth portfolio is adding meaningfully to our total revenues, and I expect the contributions to grow into 2024. I'm also excited about new games in development, and I'm hopeful that one or more of them will be in the marketplace in the coming year. Alongside these internal efforts, we continue to scour the market for acquisitions that can accelerate our growth and expand our overall opportunity. Before I conclude the call and take your questions, I want to address the ongoing conflict in Israel. As you know, we have a significant presence in the region, with a number of our playmakers based in Tel Aviv. Like the rest of the world, we were horrified by the events on October 7 and profoundly saddened by what's transpired since. While we have comprehensive business continuity measures in place and a collection of services aimed at supporting our employees during this turbulent and complicated time, know that we'll continue to do everything possible to minimize the impact on our company and safeguard our team members and their families. And above all, we hope that someday soon, these cycles of violence and suffering will end and an air of tolerance, justice, and stability will come to this beautiful and sacred land. I'll now turn the call over to the operator to take your questions.

Our first question comes from Ryan Sigdahl with Craig Hallum. Please go ahead with your question.

Good afternoon, Andrew, Scott. I think, Scott, I didn't catch exactly; you had a lot of metrics. What was organic revenue growth, excluding Brainium in the quarter?

Organic revenue growth, just give me a second. Give me just a second, Ryan. Let me just...

Yes, sure. You want to look at it, I can keep moving.

Yes, that's okay. But the answer is pretty close to being flat quarter-over-quarter.

Okay. Okay. Then you mentioned a focus on and you have been making good progress in the margin expansion, focused on getting to margin parity with peers. Can you do that without a reacceleration in revenue growth or do you need some of these growth initiatives to really hit to get there?

Well, there are one or two things, right? I mean, we have a number of initiatives that are in their development stage, right, where we're investing substantially, that aren't contributing at all to revenues. So as they mature, they're either going to contribute to revenues and result in that margin expansion or they're not going to work. In which case, we, as a company, have a strategic choice to make, to redeploy that capacity into new development efforts that will drive future growth, or to adjust the cost structure of our business, in order to achieve what we believe to be more mature margins. When we kind of look at and value our business and look at the core portfolio, we are at margin parity with our peers, even burdening it with the overhead, the more G&A, and other expenses outside of that portfolio. And so really, our margins are compressed by the investments we're making in our new development opportunities and then, of course, the investments we continue to make in playAWARDS as a platform in its capabilities, so that we can leverage it more fully as a service beyond just supporting our own products. So I think that addresses your question. We're either going to enjoy the benefits of these investments or we're going to adjust our overall cost structure or we're going to redeploy that capacity into other future opportunities that we think are going to drive growth.

Helpful. Yes, I was getting at the structural margin of the business, excluding all those growth initiatives, which you answered. My last question, you mentioned you've been testing the waters on external parties and partners using playAWARDS. You mentioned in the press release of the growth driver now. Curious kind of how that pipeline is progressing, what you're hearing, and then maybe any timeline around when we might hear something more formalized?

Yes. I mean, I think it's still premature for us to speak more specifically to what the overall shape of that opportunity looks like, and we've talked about our vision, which is to provide loyalty solutions to other key strategic partners or players in the industry. We've had a number of conversations. The feedback generally is pretty constructive and positive. I mean, they see it as a really unique asset, particularly given the dynamics of the industry today and how difficult it is to acquire players, retaining them becomes all the more important. And so a loyalty program is really aimed very specifically at retaining players over a longer period, and as a result, driving up LTV. So early feedback; people appreciate and see the value of it, and we're in the early stages, just qualifying what that means. So how to really support a third-party partner, with not only the underlying technology solution, but all the other services that it might provide. And so it's been super helpful because it's refined our thinking, and it's helped us understand how to better approach exploiting that opportunity. So again, I would characterize the conversations as still being quite preliminary, but really instructive for us.

Great. Thanks, Andrew, Scott. Good luck, guys.

Awesome. Thanks, Ryan.

Our next question comes from David Pang with Stifel. Please go ahead with your question.

Thanks, everyone. Can you talk about the puts and takes on guidance, which implies a fairly wide range in 4Q revenue? And what gives you confidence in your EBITDA outlook given this revenue range?

We have narrowed our revenue projections to between $305 million and $315 million, settling on a midpoint of $310 million. This decision was made due to the general uncertainty in the market. Regarding EBIT, we have maintained consistency with our EBITDA forecasts and decided to present a single number. We have already factored in the additional user acquisition costs we expect to incur in the fourth quarter. Did I address your question?

No. David, here. I will take it from here. The clarity on EBITDA, I mean, just remember, it also includes quite a bit from the expense side, which we do have probably a lot more control over, also like the mix shift that you can sort of see towards the casual games, etc. So there's probably a little bit more of a line of sight with that, as opposed to the revenues, which are, as Scott mentioned, much more based on how the broader economy is doing and how the category is doing. So that's why there's a little bit more precision in that number than the revenues.

Got it. And separately, how do your players engage with playAWARDS during periods of economic weakness or uncertainty?

They become more active in the rewards program because they are playing games for free and accumulating all of these real-world benefits that they then get to take advantage of. So we're in a tighter, more distressed economy and people are being a little more frugal, they take greater advantage of the program.

Great. And just lastly, on the initiatives that you ran for Solitaire, what were some of the key learnings from that?

There are many opportunities still within the Solitaire game category, at least in terms of our execution. We believe this is true across our broader casual portfolio as well. We are making efforts that are influencing the fill rates of our various impressions and new ad products, approaching their integration into our games carefully to translate into revenue increases. As we validate these methods in one game, we believe they can also be applied to others. Additionally, we have a roadmap of other features and developments, some of which are subtle and others significant, like the introduction of the myVIP loyalty program for those products. This is why we consider it to be a strong source of growth over the past few quarters, and we expect it to continue.

You’ll remember, David, when we acquired Brainium, we discussed the potential synergies that we couldn't quantify at the time. What you're seeing now is that there has always been a plan, but with the restructuring and various changes that have occurred since we made the purchase about a year ago, we are finally starting to address many of those opportunities we identified back then. We’ve had ample time to consider this, and we are just beginning to put our plans into action now.

I would say, not only think about it, but we've been implementing a lot of the core infrastructure and these titles, casual titles generally don't have the same kind of underlying infrastructure and back-end capabilities that allow you to deliver a lot of the core aspects of a loyalty program. So there was quite a bit of just infrastructure work that we had to do and put in place, in service of now launching the myVIP program into those products, and that's what's coming up here shortly. Is that good?

Thank you.

Okay. Awesome. All right.

Our next question comes from the line of Greg Gibas with Northland Securities. Please proceed with your question.

Great. Thanks, Andrew, Scott. Appreciate you taking the questions. Wondering if you could speak to the timing; you commented on some new formats to come under the Tetris banner. I wonder if you could just speak to maybe what some of those similar games or new formats would be, and then kind of the timing of those launches?

Our vision is to develop a portfolio of Tetris products. Currently, we have Tetris Prime, which targets traditional players looking for a classic Tetris experience. We've added unique features to enhance the basic gameplay, and we are tracking audience growth and product performance. We plan to introduce additional Tetris products that will be more casual in nature. With our long-term relationship in managing the Tetris brand, we believe we can create versions that are more accessible and appealing to a broader mobile casual and puzzle game audience. If we successfully engage this audience, there's potential to scale these products, complementing Tetris Prime. We have several game teams working on these more casual iterations of Tetris, and we also want to ensure we have a version that truly meets the expectations of purist players. For those who prefer the traditional game, we aim to deliver that experience while enhancing it with features like playAWARDS. We envision a future, 12 to 18 months from now, where we offer a range of products from the classic Tetris to casual alternatives enriched with engaging mechanics. That's our plan.

That's good to hear. I wanted to follow up on your previous comments about your Tel Aviv studio. From a high level, I'm curious if there are any disruptions there. I ask because I know you've recently transitioned a few studios there and are working on improving some games at that studio. I'm interested to know if you're experiencing any operational or financial impact or if visibility is challenging, but I'm curious if you're seeing any disruption there.

We're certainly adapting to the current situation. We do not expect any significant negative financial impact, as we have activated our crisis management practices. Regarding our game portfolio, we've decentralized leadership so that each product is managed by individuals who remain closely connected to our core leadership team in Tel Aviv but are less reliant on them. In recent years, we have invested significantly in development and production support from markets like Belgrade, which acts as a partner studio to our Tel Aviv team, and from Asia, which also supports various other products in our portfolio. Therefore, we're not heavily reliant on the production capacity based in Tel Aviv, which is mostly focused on a few products. We've implemented various measures to ensure we maintain continuity and support for each product without major disruptions. There is also a comprehensive plan in place by product, with entire teams mapped and redundant capacities ready to activate immediately if necessary. I want to commend the remarkable resilience of our team in Israel. They care deeply about the company and are invested in their products, feeling a strong sense of responsibility to keep the business running. Despite the extraordinary circumstances they are facing, they remain focused and supportive of our efforts, adapting flexibly to whatever solutions we deem fit for this interim period. I am incredibly proud of their mindset. We are all very concerned for their well-being and are committed to ensuring they have the flexibility to prioritize their safety and the security of their families. It's a complex situation, but I believe we have the right measures in place to keep our business operating. As of today, we believe we are managing our portfolio's performance quite well.

There are no other questions in the queue. I'd like to hand it back to Mr. Pascal for closing remarks.

Well, I just appreciate those of you that have dialed in. Thank you for your continued interest in the company. We look forward to continuing to close out this year. We've had some pretty meaningful improvements in our performance growth year-over-year, which we're excited about from an EBITDA perspective. Got a bunch of efforts that we've alluded to and touched upon that we believe are going to drive top-line growth in the coming quarters. And so we just look forward to revisiting with you once we get on the other side of the new year, and where we can talk a bit more about those things. So again, thanks for tuning in and looking forward to our next call.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.