Good afternoon, everyone, and welcome to the PLAYSTUDIOS Third Quarter 2025 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the call over to Joel Agena, General Counsel. Mr. Agena, you may begin.

Thank you. Good afternoon, and thanks for joining us for the PLAYSTUDIOS third quarter 2025 earnings call. With me on the call today are our Chairman and CEO, Andrew Pascal; and our CFO, Scott Peterson. During this call, we will make some forward-looking statements that are based on our current expectations, but that are subject to risks and uncertainties that may cause actual results to differ materially from those expectations. Please refer to our SEC filings for a more detailed discussion of those 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.

Thank you, Joel. Good afternoon, everyone. Before I focus on our specific performance for the quarter, I'd like to provide some context and perspective on our current operating environment. The past two years have been extremely challenging. Category headwinds have continued to pressure our core markets. Our valuation today sits only slightly above our cash position, and we know some investors are questioning our direction. As both the CEO and one of the company's largest shareholders, I understand these concerns, and I share the urgency to reposition the business. The Board and leadership team are fully aligned in this effort, and we're focused on reshaping the company with discipline, navigating the headwinds, further tightening our expense structure and reorienting the business toward durable growth. Nothing is off the table as we work through this transition. As you know, in Q4 of last year, we took meaningful actions to reduce our expenses and improve operating efficiency. These moves reduced our fixed cost base, but also came with trade-offs, particularly in our ability to sustain the same pace of new content, live operations and product development, which contributed to continued softening across the portfolio. The benefits, however, enabled us to invest in a disciplined manner into our highest conviction growth projects while preserving our profitability. And while our reinvention initiatives created short-term savings, it's important to highlight that they did not solve the structural market-wide headwinds we continue to operate against. That's an important distinction. From a product standpoint, we've been very intentional about reconnecting with the principles that defined our early success, innovative and beautifully executed games, real-world loyalty benefits and uncompromising player service. As we expanded the portfolio over time and market conditions shifted, complexity increased and our focus moved more toward monetization and promotional tactics. This often came at the expense of delivering a fun, dynamic and carefully curated experience for many of our players. Through our reinvention work last year, we reaffirmed our commitment to quality, player value and execution. Our approach to our growth initiatives reflects this renewed focus on these core principles. Let's briefly touch on some key updates, beginning with our sweepstakes effort. Win Zone continues to gain traction, now live in open beta across 15 states and on pace for a broader rollout in all qualified jurisdictions before year-end. As we refine the product, we're seeing steady improvements across retention, engagement and monetization, resulting in our highest returns on ad spend. With a view towards our upcoming launch, we remain focused on improving this way of efficiency and long-term player value as well as the keys to driving scale. While the broader sweepstakes market has faced regulatory contraction, reducing the TAM by roughly 25%, growth in the remaining open states remains strong and with an addressable market of $3.5 billion to $4 billion, we continue to believe the category represents a meaningful long-term opportunity. Our approach is intentionally phased. We started with a stand-alone web-based product to build capability and over time, we'll evolve it into a fully integrated promotional engine supporting chip sales across our social casino portfolio with selective strategic acquisitions as a potential accelerant. Let's now review our second growth opportunity, Tetris Block Party. Tetris Block Party is one of our most promising upcoming launches. Our thesis has always been that Tetris should be a super scaled mobile franchise. It's one of the most beloved games of all time, yet it hasn't fully realized that potential on mobile platforms. We're hoping to change that by pairing a familiar puzzle mechanic with a deeper social meta game built around competition, progression and community. The game has been in open beta in select markets and early performance across UA, retention, engagement and monetization has been very encouraging. Based on those results, we're about to begin a focused go-to-market test ahead of a broader rollout in Q1. Turning to our playGAMES core business, let's first look at the casino games. As I mentioned, the social casino category remains challenged, reflecting broader market conditions and ongoing shifts towards sweepstakes style offerings. These trends contributed to year-over-year declines in both DAU and ARPDAU across most of our portfolio with the exception of myKONAMI, which continues to show double-digit year-over-year increases in ARPDAU. That said, our direct-to-consumer business continues to show strong growth, benefiting from a full quarter of operations under the relaxed Apple policy changes. Direct-to-consumer revenue was $7.7 million, a 48% quarter-over-quarter increase, representing 16.7% of total in-app purchase revenue, up from 9.1% in Q3 of 2024. DAU for the Casino segment remained stable sequentially, signaling a more resilient core player base. On the topic of our casual business, it continues to experience pressure on DAU, which accounted for most of our sequential audience decline. During the quarter, the team focused on enhancing the underlying technology of our ad monetization, improving efficiency and yield. As a result, ARPDAU for both Brainium and Tetris Prime improved meaningfully year-over-year, offsetting some of the DAU declines and setting the stage for renewed user acquisition in 2026. Our playAWARDS loyalty platform continues to be a core differentiator for our business, bridging in-game engagement with real-world entertainment. Over the past year, we streamlined the program to focus on higher-quality partners and more aspirational rewards while also expanding the catalog of digital benefits like vanity items, customizations and status-based perks that enhance progression inside the games. This resulted in a decrease in the retail value of rewards purchased year-over-year, but an increase of 16% sequentially for the third quarter. A highlight for the quarter is our myVIP World Tournament of Slots, which started with in-app activations and social campaigns and culminated in a 3-day live event in the Bahamas, where 500 top players competed for $1 million and the title of world's best slot player. It's a clear proof point of how we connect play to real-world experiences in a way that builds deeper loyalty and longer-lasting relationships with our players. Before I turn the call over to Scott, I'd like to spotlight our emphasis on modernizing our development approach, particularly through the adoption of AI. Across our game development pipeline, creative tooling, UA modeling and player targeting, AI is helping us move faster and operate more efficiently. We're still early in this journey, and we see meaningful long-term opportunities in how AI can reshape gameplay, production and our live ops execution. With that, I'll hand it off to Scott.

Thanks, Andrew. Good afternoon, everyone. Total revenue for the quarter was $57.6 million, down approximately 19.1% versus the third quarter of '24 and down 2.7% sequentially, primarily reflecting a decline in DAU. Year-to-date revenue stands at $179.7 million, down 18.9% year-over-year. Adjusted EBITDA for the quarter was $7.2 million, down 50.5% versus the third quarter of '24, resulting in a 12.6% operating margin compared to 20.5%. Year-to-date adjusted EBITDA was $30.5 million, down approximately 31% year-over-year. This contraction reflects reduced revenue scale and an increase in investment for new growth projects, partially offset by cost savings from last year's reinvention program. Our MAU declined 24.9% versus last year's third quarter and down 5.4% sequentially, while DAU decreased 25.3% versus last year's third quarter and 5.8% sequentially. These declines were primarily concentrated in the casual segment, consistent with industry trends. We ended the quarter with approximately $106.3 million in cash, no debt and access to a fully undrawn $81 million credit facility. Our liquidity position provides flexibility to pursue opportunities that can drive long-term shareholder value. Given the magnitude of the more recent softness in player activity and monetization, we now expect full year results for both net revenue and consolidated adjusted EBITDA to fall below the low end of the previously provided guidance ranges. While near-term market conditions remain challenging, we continue to operate with discipline and focus on initiatives that we believe will strengthen our long-term competitive position. With that, I'll turn the call back to Andrew.

Thanks, Scott. So looking ahead, our priority remains balancing disciplined investment with continued improvement in operating efficiency while advancing the initiatives that we believe can reenergize our growth over time. For now, we're staying close to fundamentals, delivering for our players, strengthening core product performance and advancing towards the point where our newer initiatives can contribute meaningfully to our growth. We appreciate your continued support as we move forward with purpose in this dynamic market. Operator, let's open the call for questions.

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

Sweepstakes, so you had the World Series of Slots. Last week, Win Zone was promoted throughout that. I guess curious what feedback you got from those players that were in the World Series as it relates to sweepstakes, are those existing Win Zone players or not and kind of feedback there? And then how you think about kind of a bigger, broader scale launch with the Win Zone relative to kind of the state-by-state you've been going?

Thank you, Ryan. First of all, I believe the feedback about Win Zone has been largely positive. However, considering the number of players we had at the World Tournament of Slots and the limited number of those in regions where it's available, the sample size is quite small. Therefore, we shouldn't place too much emphasis on the feedback we've gathered on Win Zone. That said, we focus more on the actual data generated from players in the 15 markets where we are currently active. As I mentioned in my opening comments, we are encouraged by the consistent improvements in metrics such as retention and conversion rates to monetization, as well as the monetization behavior we are observing. Overall, we are making good progress. Additionally, we anticipate expanding into more jurisdictions, with the hope that by the end of the year, we will be operational in all available regions and ready to invest more significantly in user acquisition and start scaling that area of the business.

And just as it relates to sweepstakes, California put a ban. You never launched in California, but have you seen any benefit to your core social casino games in California following that ban?

Not yet. The ban goes into effect just after the first of the year. And so we're looking really closely to see once it does, in fact, take root, whether we're going to see some lift and return to more traditional social play. Obviously, we'll be doing a lot of targeted marketing where we're promoting our rewarded play alternative to the sweeps promotional mechanic. So we're curious and hopeful that we'll actually enjoy some benefit within the core social portfolio independent of what it means in terms of reduction in the available market for sweepstakes.

One more for me, and then I'll turn it over to the others. You mentioned kind of everything is on the table kind of reevaluating the business, etc. Is that primarily an organic exercise? Are you looking at M&A or a combination of both?

It's both. I would say, internally, the work that we're doing just to consistently look for and find ways to just operate more efficiently is just a never-ending exercise. And so we look at things that are incremental, and we look at things that are far more structural. And as you know, we did a bunch of work starting in the fourth quarter last year. And as we signaled, we expected that we would enjoy somewhere between $25 million and $30 million of cost savings or benefits on a normalized basis. And directionally, that's where we ended up. And so that was offset a bit by the continued erosion that we're seeing in revenue and the investments that we're making in these growth initiatives. So that's why that didn't show up in our operating results just yet. But we're looking for continued refinements just in the core business today. And then the inorganic opportunities, we consistently look at where there might be companies that can accelerate our position as we look at sweepstakes and establishing a certain critical mass and momentum within that dimension of the free-to-play casino genre or things that we think are complementary to our playAWARDS offering and/or the casual portfolio that we have today. With that said, we're not in a position where anything has gotten any meaningful traction where we'll be ready to talk about it. But suffice it to say, we're looking at all of those things.

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

As we head into 2026, there's a lot of moving pieces between the core portfolio, sweepstakes and Tetris. So how much visibility do you have into the business in 2026? And do you think by year-end, you'll be in a position to guide to sweepstakes contribution?

Yes. Thanks. It's a great question. And we certainly hope so. I mean it's difficult right now because as you highlight, the business is very dynamic. The core of the business, the social casino core has been contracting, and we're doing everything we can to stabilize it. And then we are investing in these new growth opportunities. And we're at that place now. I just spoke to the fact that by the end of this year, we intend to be live in all of the domestic jurisdictions with sweepstakes and start to invest in scaling and growing that business. So hopefully, we'll be in a position where the go-forward performance is a bit more predictable, and we'll obviously speak to that on our next call. And then our Tetris Block Party initiative, which is really the primary initiative that we're focused on in terms of really capitalizing on the Tetris rights and franchise that we have. We certainly hope that by the end of this year, we'll also have the kind of validation that will give us more confidence and visibility into its contributions next year. On that point, we're in the cycle right now of a primary marketing test in a key market where it's really going to help to inform our strategy and thinking as we approach the new year and scaling that product. So I would say along both sweeps and the Tetris Block Party dimensions, we're hoping to have more visibility and be able to predict more clearly what their contributions will be next year.

And then on sweeps, you mentioned you'll be in the full range of jurisdictions by the end of the year. So I guess once you're there, is that when you will start leaning more into marketing? Or is there anything else you have to see before you kind of get into the full launch?

Yes. Thanks. Well, our practice is we're going to open up all the jurisdictions. We'll then start to deploy a modest amount of marketing capital so that we can generate the kind of cohorts and users to get a clear read on what then are the overall cost of acquisition and are the metrics continuing to hold up or improve. And assuming that they are, then we'll go ahead and start deploying more meaningful capital in scaling up that business. So that's our intention.

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

Just three from us. I'll keep it light for you, Andrew. The first one, you took down your numbers for '25 on revenue and EBITDA. You've only got one quarter left and you're one month through. Can you help us sort of size the magnitude of the reduction here? And maybe the best way to do it is if you can give us any color on sequential growth in Q4 from revenue or not? And maybe there's a better way to approach it, but that seems maybe the easiest.

Okay. Scott, do you want to take that?

Sure. As Andrew mentioned regarding some of our new launches, we're hoping to gain more clarity as we approach the middle of this quarter and possibly accelerate if the metrics support it. That's one reason we didn't provide specifics. Additionally, the trends we observed in the third quarter appear to be continuing for now, and that's how you should view the situation.

Okay, Scott. So just to clarify, if you take out launches where you're hopeful, obviously, but it's problematic in terms of modeling, then we should expect from your core business a sequential decline in Q4 revenue from Q3?

Yes.

Okay. And then, Andrew, just curious, what are the best ways you think to sort of stop the decline in social casino?

I believe it's quite difficult. If you examine the overall category and all the participants, the declines we're experiencing are not unique to us. Many of the larger operators are also facing declines, although ours are somewhat more pronounced. There is a small group, including us, that is seeing both daily active user declines and revenue drops that are either consistent with or slightly worse than our results. I would argue that these companies tend to have a significant focus on the North American market. Therefore, the trend of losing players to alternatives, particularly sweepstakes, is very evident. Our hope is that when we announce our sweepstakes alternative, we can retain players within our ecosystem instead of losing them entirely. We anticipate that this might help stabilize our situation. Additionally, as markets like California, which is crucial for us due to our traditional social casino games and the strong loyalty program from Las Vegas-based rewards, decline, we expect some stability and recovery in player numbers and performance in that region. While this is yet to be confirmed, we are positioning ourselves with a hedge as sweepstakes continues to grow in active markets and eventually becomes legalized. We plan to capitalize on that opportunity alongside our traditional social casino products, offering a rewarded play alternative to sweepstakes to regain some of the market share we've lost. We understand that we have to demonstrate this potential, but we are optimistic about the opportunities ahead.

Last one from us. Clearly, sweeps present a significant catalyst, and we hope it serves as a driver for you. You mentioned that your trading is essentially based on cash value. In that context, Andrew, when considering states where sweeps are active and likely to remain operational, these states are increasingly seen as potential catalysts for iGaming legalization. A similar perspective applies to how prediction markets in nonregulated states could drive OSB legalization. Given this logic, do you believe there are strategic opportunities or alternatives for you to collaborate with iGaming operators, especially since you're launching your sweeps products and building a database? Your inherent value to an iGaming operator could be significantly high if it does indeed lead to legalization.

Yes, we have a significant presence of players throughout the U.S. In addition to our active monthly and daily users, we have a large database that allows us to engage with tens of millions of players by reactivating them with new offerings, including various types of casino-style games, whether they are iGaming, sweepstakes, casual, or traditional social games. We see potential in how we can utilize these assets in the markets. We hope some form of sweepstakes will persist in the coming years. It seems likely that more jurisdictions will emerge, and some may become fully regulated with established iGaming providers, potentially giving these providers an edge. However, we anticipate that there will be oversight, regulation, and taxation of the sweepstakes market, creating real opportunities in states where these activities are conducted. The aim is to legitimize and regulate these markets instead of restricting and limiting them, which would require implementing an iGaming regulatory framework to vet providers and launch services. In summary, we see various ways to take advantage of this flexibility, whether as direct providers in these markets, forming strategic partnerships with iGaming operators, or using our content to serve these markets. Currently, much of the game content comes from third-party slot content providers. As we develop our own sweepstakes solution, we've established a remote game server platform to deliver our slot content, which should improve our gross margin. In the future, we also have the option to offer this content to other providers in the market. Overall, we believe there are numerous opportunities for us to leverage our assets as the market evolves.

Our next question comes from the line of Martin Yang with Oppenheimer & Company.

I want to ask about your D2C effort. It seems to be consistently improving. Anything you could call out this quarter regarding what is driving that sequential growth and whether or not you have implemented maybe new channels, new partners to continue to improve your D2C revenue percentage?

Yes. Thank you, Martin. Well, I think, first of all, the most fundamental thing is that we're merchandising it far more effectively within our apps. And so with the more relaxed policies, it allows us to do that. So it's easier for our players to launch the off-platform store and transact and then get back into the game in their cycle of play. So reducing that friction and improving the monetization has been the primary driver of the growth that we're enjoying, and it's continuing to improve, which is great to see. With that said, there's a number of additional things that we're doing to more effectively merchandise, promote, tailor-specific offers that should drive even more exposure and participation in the kind of off-platform store. So we hope that this trend will continue and account for an ever bigger part of our overall complement of revenue.

And then relating to gross margin, for example, this quarter, when you think about the relationship between your D2C revenue percentage and gross margin expansion, is this a somewhat linear relationship that we could expect to go on a go-forward basis? And how would a ramp-up on your sweepstake games come to affect gross margin beyond the next quarter or two?

I think it's a great question. I mean I maybe invite Scott to weigh in and answer. I think the short answer, I'd be curious to hear what he says is it's difficult to forecast because we are certainly expecting that the complement of our direct-to-consumer revenue to improve. We're seeing that trend continue into the fourth quarter. And then we're going to be launching things like sweepstakes which inherently is a web-based solution and all that revenue we book ourselves. But as far as how the countervailing things that are going to happen that might affect gross margins, I don't know, I'll invite Scott to speak to that at this point and whether that's even something we can maybe answer and provide a bit more clarity around.

Yes, thank you, Andrew. You're right. We've been focused on increasing our direct-to-consumer revenue over the past few quarters, and we are excited to see that progress. I wouldn't describe it as a straightforward trend. There are factors that influence the overall percentage. We do expect it to decrease, but not in the linear way you might suggest.

Yes, go ahead.

Let me summarize what I'm hearing, and then we can ask Martin to address this question. The factors that will enhance margins include increased direct-to-consumer revenue, the growth of the sweepstakes business, assuming that the redemptions net of revenue stabilize and align with industry standards, and the additional ad-based revenue compared to our previous experience. These elements are expected to drive improved margins, and we are focused on scaling and growing them.

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.

Thanks, everyone.