Good afternoon, everyone, and welcome to the PLAYSTUDIOS' Second Quarter 2025 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the call over to Jason Hahn, PLAYSTUDIOS' 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 PLAYSTUDIOS' Q2 2025 Earnings Call. Joining me on the call today are our Chairman and CEO, Andrew Pascal; and our CFO, Scott Peterson. Before we begin, please note that during this call, we may make forward-looking statements. These statements are based on our current expectations and are subject to risks and uncertainties that may cause actual results to differ materially. Please refer to our SEC filings for a more detailed discussion of these risks. We will also discuss certain non-GAAP financial measures. These should not be considered a substitute for measures prepared in accordance with GAAP. Reconciliations to comparable GAAP measures can be found in our earnings release and SEC filings. With that, I'll turn it over to Andrew.

Great. Thanks, Jason. Good afternoon, everyone. The dominant theme in Q2 and across the broader market continues to be the rapid rise of social casinos leveraging Sweepstakes mechanics. This structural shift is reshaping player behavior and monetization across the category, with more players gravitating towards social casino products powered by Sweepstakes. This trend is pressuring traditional offerings, including our core social casino portfolio. That said, these dynamics were anticipated, and they're exactly why we launched our reinvention program last year. We entered Q2 knowing the headwinds would persist, and we remain focused on advancing the new initiatives that will define our next chapter. While our core business continued to soften this quarter, we're encouraged by the early signals we're seeing in areas like Sweepstakes, direct-to-consumer purchases, and new game development. These signals validate our strategic direction and give us confidence in the path ahead. Let me walk you through some of the key updates. Let's start with our Sweepstakes initiative. After just 9 months since formalizing this effort, we're now live in open beta across 7 states, and the early signals are promising. Player retention, engagement, and monetization are all trending in the right direction. We're seeing clear evidence that our proposition resonates with players. We're taking a measured and rigorous approach to scaling, focused on ensuring that when we open the product to all eligible states, the experience is fully optimized and delivers on our high standards, player expectations, and return on ad spend thresholds. We expect to be live across the full footprint of qualified U.S. states later this year. I want to remind everyone on the call that our strategy consists of a phased approach. We're beginning with a stand-alone web-based platform, allowing us to build operating excellence and refine our core Sweepstakes mechanics. Over time, this will evolve into a fully integrated promotional engine that drives chip sales across our social casino portfolio. In parallel, we continue to actively explore complementing our own efforts with strategic acquisitions that could accelerate our momentum and position us for market leadership in the category. Let's turn to our other growth opportunity, Tetris Block Party. Development progressed steadily throughout Q2 with meaningful product improvements and early marketing tests that offer valuable insights into player engagement and acquisition efficiency. As with any new title, we're in a phase of continuous iteration, refining the gameplay, tuning the economy, and sharpening the funnel. We're currently in the mid-stages of that cycle, and while there's still work to do, we're increasingly confident in the game's potential. We remain on track for a Q4 launch. I'd like to provide a bit more color on our overall play games publishing business. As I already highlighted, the casino portfolio continues to be impacted by the broader market shift towards Sweepstakes products. We're seeing ongoing softness in core titles with DAU declines across the board as the primary driver. This was partially offset by stronger unit-level monetization, particularly in myKONAMI, which was a bright spot in the quarter. We also continue to scale our direct-to-consumer business, which remains a standout. In Q2, direct-to-consumer generated $6.7 million of in-app purchase revenue, up 107% year-over-year and 34% sequentially and represented 13.9% of total in-app purchase revenue. This momentum is driven by increased adoption and deeper engagement with our MyVIP direct-to-consumer offerings. And with Apple's recent policy changes giving us more flexibility to promote the channel, we see even greater opportunity to build on this momentum. Let's talk casual. Our casual portfolio also remains under pressure due to challenging market and competitive dynamics. During the quarter, we focused on product updates aimed at improving engagement and retention. We believe these enhancements will better position us to deploy user acquisition more profitably in future quarters. In the meantime, we've deliberately scaled back marketing spend to prioritize margin contribution from this portfolio, and we'll continue to evaluate our approach going forward. On the playAWARDS front, playAWARDS remains our core differentiator, and we continue to invest in the platform to deepen engagement and drive long-term loyalty. In Q2, players purchased nearly 200,000 rewards with a retail value of $13 million. While rewards purchases were down compared to Q1, we're seeing encouraging signs as we focus on higher-value partners and more curated strategic offerings that align with player preferences and our broader engagement goals. We also ran several promotions for the upcoming MyVIP World tournament of slots across our games, which were very well received by our players. We're excited about the momentum building around this high-impact franchise activation, and we believe it will play a meaningful role in reenergizing our community in the coming quarters ahead. Lastly, I'd like to briefly touch on our balance sheet and capital allocation. Our balance sheet remains rock solid. We ended the quarter with approximately $112.9 million in cash, up from $107 million in Q1, even after deploying over $2 million to repurchase shares during the quarter. We remain debt-free with full access to our $81 million credit facility, providing us with strategic latitude to deploy capital to high-returning initiatives in the quarters ahead. So with that, I'll turn the call over to Scott for some more financial highlights.

Thanks, Andrew. Good afternoon, everyone. Second quarter revenue was $59 million, down approximately 18.3% year-over-year and 5.4% sequentially. This reflects continued softness in our core casino and casual games, which, as Andrew mentioned, was driven by market disruption and DAU declines across most titles. Adjusted EBITDA for the quarter was $10.7 million, down 24% year-over-year and 14.2% sequentially, reflecting limited flow-through given revenue softness. Adjusted EBITDA margin was 18.1% compared to 19.5% in the second quarter of '24 and 19.9% in the first quarter of '25. DAU was 2.3 million, down from 2.6 million in the first quarter and 3.2 million in the second quarter of '24. MAU was 10 million, also down from 11.4 million in the first quarter. ARPDAU was $0.28, up slightly from $0.26 last quarter and $0.25 a year ago, reflecting stronger monetization. Direct-to-consumer revenue for the second quarter was $6.7 million, representing 13.9% of total in-app purchase revenue. This was up from $5 million in the first quarter and $3.2 million in the second quarter of '24. For the first half of the year, direct-to-consumer revenue totaled $11.7 million, up 109.8% year-over-year. We ended the quarter with approximately $112.9 million in cash, no debt, and an outstanding share count of 125.2 million. While we're currently pacing below our full-year revenue and adjusted EBITDA guidance as revenue softness has more than offset cost savings, we are not changing guidance at this time. We will continue to evaluate how the investments we've made in recent quarters translate and see how this very dynamic market continues to evolve as we approach the back half of the year. With that, I'll turn the call back to Andrew.

Thanks, Scott. To close, we're clear-eyed about the challenges in our core business, but also confident that we're taking the right steps to adapt and evolve. Our focus remains firmly on executing our core strategic priorities, those being developing our Sweepstakes capabilities, expanding our direct-to-consumer sales, unlocking the potential of Tetris, and modernizing our core games, and we're encouraged by the early traction we're seeing across these initiatives. The investments we're making today are building a stronger, more diversified foundation that we believe will drive renewed momentum in the quarters ahead. We appreciate your continued support as we move forward with purpose in this dynamic market. Operator, let's open it up for questions.

Our first question comes from Ryan Sigdahl with Craig-Hallum Capital Group.

I want to start with the DAU, MAU, both down by high 20% year-over-year. I get the challenges with everything going on in the environment. But can you split that out between social casino, casual games? I guess, was it similar between the 2, one better, worse? And then anything within the game construct of either of those categories?

Yes. Look, the DAU and MAU declines were pretty substantial in both cases. I think, obviously, a lot of that's a result of our having pulled back pretty materially on user acquisition investments as well. And so I would say that it's a bit more dramatic in the casual space than the social casino space, but meaningful in both portfolios.

Got you. Then just Sweepstakes, I appreciate kind of the player engagement, monetization encouraging commentary. But anything you can comment from whether it's a quantitative KPI or anything you're willing to share number of users, how ARPDAU compares, just anything kind of from that early launch? And then I guess, given the challenges that don't seem to be abating anytime soon, why not accelerate kind of the full launch of Sweepstakes?

Yes. Today, we are operational in seven different jurisdictions with our service. We began this initiative about nine months ago, and we completed our platform in roughly seven months. We started our initial trials in the first two jurisdictions and used the data from those groups to fine-tune the platform and our operations. As we gained confidence, we expanded into additional jurisdictions. I'm pleased to share that we are observing positive improvements across all key metrics. Retention rates and conversion rates are both on the rise, and the revenue per monetizer is increasing as well. We're feeling optimistic about our progress and evolution. Now, nine and a half to ten months into this cycle, we believe we're in a solid position. In the upcoming months, we plan to open more jurisdictions and allocate additional marketing resources to meet our return targets, which will enable us to scale effectively. It's all about continuing to optimize our marketing strategies while becoming more familiar with the funnel and its conversion metrics, leading to better retention, engagement, and monetization. This will ultimately allow us to achieve the returns necessary for significant capital investment in scaling and growing the business. We are on track and encouraged by the evolution of our platform, content, and features, as well as our ability to manage this business successfully.

As someone that lives in one of those 2 initial states, I was a positive contributor for you guys in the quarter. And I do have to say that the experience is, albeit early and evolving, was impressive, I guess, comparable to many of the other Sweepstakes out there and that's unsort. Last question for me. It's probably for Scott, but just any guidepost you can put around Q3. I guess, as a starting point, I think Q3 typically from a seasonality standpoint is pretty similar to Q2. I guess, would you agree with that? And any guidepost you can give around next quarter expectations would be helpful.

Yes. I mean I can weigh in and Scott, he can offer his color, too. But as you highlighted, no meaningful differences that we see in Q3 relative to Q2. Our primary focus is on executing on all of these things that we think are going to restore the momentum in our business. And so there's a lot that's changing and a lot that's happening within the portfolio of initiatives that we're actively investing in. We're always reluctant to provide guidance based upon all of these new initiatives until we have a clear line of sight regarding their predictability, both in terms of timing when they'll be in the market and their capacity to scale and contribute to our operating performance. So for that reason, we're just going to hold to where we are. And I think Q3 won't look that different from what we've seen in Q2.

Our next question comes from the line of Aaron Lee with Macquarie.

I want to stay on Sweepstakes for a little bit more. I just want to make sure I have this right. But as it relates to the Sweepstakes launch, are there any more technical aspects that you still need to hammer out for the platform? Or is it really just about optimizing and refining how you operate at this point?

All the essential functionality needed to launch the service has been established for the past few months. We are currently focused on refining the features, content, and practices related to fraud detection and maintaining the overall integrity of the service. A significant part of this process involves testing various marketing strategies, channels, and campaigns to determine the right unit economics that will enable us to invest effectively in scaling the business. We are making progress on multiple fronts. It is a complex task, especially considering our competitors have been in the market for a couple of years and have developed their core capabilities and operational competencies. We are tackling all these aspects simultaneously and want to ensure we are confident about the integrity of our system, our operational practices, and our ability to invest and grow. This is why we have expanded from 2 jurisdictions to 4 and now to 7. I expect that in the upcoming months, we will open up further and, by the year's end, hopefully operate in all qualified jurisdictions, taking a careful approach to ensure we are fully prepared.

Understood. Yes. I think that's the right approach. And then for my follow-up, on Sweepstakes again, you've obviously been building out the platform organically. You mentioned you're exploring strategic acquisitions. Any color on what those acquisitions could look like? Would it be targeting tech, talent, a database? Any color you can provide there would be helpful.

Yes, I think our aim in this category is to become a market leader, especially with the transformative opportunities that Sweepstakes presents in the social casino space. We admire several large, profitable players in this sector known for their capital efficiency. We're committed to our organic growth strategy and believe strongly in it. However, we remain open to pursuing significant mergers and acquisitions if the right opportunities arise, which would help us gain market share more rapidly and accelerate our journey to become a top player in this category. Our focus would be on enhancing our market position rather than merely filling capability gaps.

Our next question comes from the line of Martin Yang with Oppenheimer & Company. Martin, are you on mute?

Can you hear me?

We can hear you now, Martin, but we didn't hear you. So if you could repeat the question, that would be great.

Sure. My question is on the casual portfolio. Aside from new product launches, what's the medium or long-term goal or expectation for the segment? Do you expect the rest of the portfolio to continue gradual decline? Or do you expect a turnaround at a certain point regardless of the macro impact?

Thank you for the question. There are two main aspects to our casual strategy. First, we have our existing portfolio, which includes a number of mature products. Recently, we have been focusing on margin contribution and have significantly reduced our investments in user acquisition for that portfolio. At the same time, we are upgrading these products with more modern technology to enhance our speed and flexibility in introducing new features and content, which should lead to better retention and engagement, driving revenue through in-app advertising. Over the past six to eight months, we have been diligently making these adjustments. As mentioned, we've substantially cut back on user acquisition investments in our casual and legacy portfolios. We'll keep tracking our progress until we reach a point where we can begin reinvesting in new player cohorts that can ultimately generate more revenue from our ad products and units. I don't foresee any significant growth from the legacy casual portfolio. The second part of our casual strategy is focused on our Tetris franchise. We have an existing Tetris product that we are continuously refining, but most of our resources are dedicated to developing a new version known as Tetris Block Party, which has been in progress for nearly two years. We are encouraged by the strong and improving metrics we are seeing for this product. In today’s market, launching a new AAA quality casual game requires meeting high standards in feature richness and content volume as well as having the capability to maintain a dynamic product with a steady flow of new content. Therefore, we are not only refining this product to meet core metrics but also investing in our ability to deliver the necessary content volume when we scale and launch it. We need to be fully prepared to achieve the scale we envision for Tetris Block Party. So, we are working on stabilizing our core legacy casual portfolio, and once it's ready for investment, we'll reconsider our user acquisition investments there. Meanwhile, we are moving forward to prepare for the launch and scaling of Tetris Block Party.

Got it. My other question relates to Tetris Block Party and overall your D2C strategy. With a new game, do you think you can do something unique into the game launch for Tetris Block Party so that its D2C share can be different or can have another boost relative to your platform average?

Yes. I mean, that's certainly what we hope for. We have a lot more latitude today in terms of merchandising within the app, the alternative methods of more direct purchasing from our players. And so I think to your point, absolutely, we're going to do everything we can to make sure that our players are aware of the alternative and the benefits of purchasing with us directly. With that said, we don't want to introduce any friction that might limit or restrict the player from converting and starting to spend money with us. So we're going to actively look at and optimize how we do that. And I can tell you today that the monetization within the Tetris Block Party product is really solid. It's quite encouraging, and it's going to support and allow us to go into the market, a very competitive market, and buy cohorts of players at and around where they're priced today, given how intense the competition is. So to your point, the more direct-to-consumer purchasing we can motivate, the more flow-through and margin that we have to then look at ultimately piling back and investing in scaling up and growing our audience until we achieve that critical mass and then start maturing the product and focusing on improving its margins and harvesting the value.

Our next question comes from the line of Mike Hickey with Benchmark.

Andrew, just on the regulatory pressure here that we're seeing from states to ban Sweepstakes. Just kind of curious your view on how that should trend moving forward and how you get comfortable launching and investing the product in states comfortable that the regulatory piece won't change and go against you in terms of a ban?

It's a significant question. Our strategy aligns closely with what many others in the industry are doing. We analyze the market on a state-by-state basis, thoroughly assessing the regulatory and legal risks in each area. We also monitor ongoing support and opposition to the Sweepstakes model in those markets. This analysis informs our capital deployment and the level of our investment in various states. If a market we see as stable becomes riskier, we promptly adjust our spending there. Our approach is dynamic and actively managed. Additionally, we aim to enhance the credibility and legitimacy of this opportunity. Our strategy for Sweepstakes involves multiple phases. Initially, we will establish a service that we believe will be exceptionally well executed and competitive against others in the market. Ultimately, we plan to integrate Sweepstakes mechanics into our existing apps to encourage the sale of virtual chips. We believe we can position ourselves as using Sweepstakes as a promotional tool, as intended. We have many plans to legitimize this opportunity and advocate for its acceptance rather than opposition.

Yes, Andrew. The Sweepstakes mechanics market is very competitive, with several aggressive players holding significant shares. As you prepare to launch your app in your markets, how substantial is your user acquisition spending? How will this affect your near-term EBITDA? Most importantly, do you feel confident that this spending will allow your app's quality to stand out against the competition, ensuring you achieve the necessary retention to justify the investment?

Yes. I mean that's the model, right, as you establish and set a certain return horizon. And as long as you're achieving and meeting that horizon, then you should be able to confidently deploy more capital. And so the industry generally has been working towards a 4- to 6-month return horizon on their ad spend. I think that's a reflection of some of the regulatory uncertainty you alluded to a moment ago. The 4- to 6-month horizon return horizon on ad spend for Sweeps products compares to what has been traditionally typical for the social casino industry, which is anywhere from 12 to 24 months. So wildly different. I think your question, like to what extent do we think our investing in growing our Sweeps business might adversely impact EBITDA? Well, it will during its growth cycle, but that's a good thing because we're seeing the opportunity to go grab customers and market share and to scale up our service so that ultimately can get to a place where we then start to focus on flow-through and improve margins and harvest the benefits. That's how we see it playing out.

That's how we're seeing from...

One thing I want to highlight is that the market is very competitive, and many players have integrated their core platforms and offerings. This has led to limited differentiation among these products. We are investing in our extensive library of proprietary game content and enhancing our social features that promote engagement and create a richer experience. As we enter the market with our own proprietary content, we believe we will set ourselves apart from competitors and demonstrate why customers should choose to spend their time and money on our Sweepstakes options rather than other available alternatives. We aim to validate this over time.

Last question. I understand you kept the guidance the same. Obviously, your core business is facing pretty significant pressure. And of course, you're also on the cusp of transitioning to the Sweepstakes, which clearly is exciting, but will also take some investment. Just curious if you're comfortable here that you have enough cash on the balance sheet to sort of manage through this transition.

For sure. I mean our cash position is very strong, as I alluded to earlier. We have all the capital we need to be very aggressive in the way that we approach investing in and getting into the space. In fact, we have enough capital to support both of our growth initiatives. Should they continue to show positive signs, we look to deploy tens of millions of capital into scaling and growing both Tetris Block Party and our Sweeps business, we're in a position where we can do that.

And we have reached the end of the question-and-answer session. And also, this does conclude today's conference, and you may disconnect your lines at this time. We thank you for your participation.