MYPS - NASDAQ

Good afternoon, everyone, and welcome to the PLAYSTUDIOS' Second Quarter 2025 Earnings Call. [Operator Instructions] 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 still 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 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.

[Operator Instructions] Our first question comes from the line of 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. So we're -- today, we're in 7 different jurisdictions live with our service. And we started this whole effort about 9 months ago. And so we're at a point where we completed our platform in about 7 months. Initiated our initial trials in the first 2 jurisdictions and relied upon the data and what we're seeing from those cohorts to refine the platform and the way that we're operating the service. And as we build confidence, we've opened up more jurisdictions. I can tell you that we continue to see positive improvement across all the key metrics. So retention continues to improve. Conversion rates are improving. The yields we're seeing per monetizer are improving. And we're feeling really optimistic about the evolution and the progress that we're making. And as we sit here today, 9.5, 10 months into a cycle, I think we're in a pretty good place. And we're feeling like in the coming months, we're going to continue to open up more jurisdictions, and we're at a place where we can start allocating more marketing capital and achieve the kind of return targets that are going to allow us to scale. So it's really a function of just continuing to optimize our marketing and getting comfortable with the funnel and all of its conversion metrics and seeing the retention, engagement and resulting monetization that's going to allow us to get the returns so that we can then deploy meaningful capital in scaling and growing that business. And I think that we're on plan. So we're feeling encouraged by what we're seeing as we continue to evolve the platform, the content and the features and just build the competency in running this business.

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 kind of provide guidance that's based upon all of these new initiatives until we have a clear line of sight as to 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 kind of 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, is it -- 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?

Yes, all the core functionality that's needed to actually launch the service has been in place for the last few months. So we're just continuing to refine the features, the content that we offer and all the core practices around ensuring that all the fraud detection and just the overall integrity of the service is in place. And then obviously, a big part of this is also testing and stressing all the different marketing approaches and channels and campaigns so that we can see the right unit economics that allow us to deploy meaningful capital in scaling that business. So we're advancing along all of these different fronts. And it's meaningful and it's complicated where the people we're -- and the companies we're competing with, they've been in the market mostly for a couple of years. They've got all the core capabilities and competency around operating their platforms well in place and evolve. And we're doing all these things at the same time. So we just want to make sure that we feel really good about the integrity of our system and our operating practices and our capacity to deploy capital and scaling and growing it. And that's why you've seen us in a measured way, go from 2 jurisdictions to 4 jurisdictions to now 7 jurisdictions. So I'd expect that in the coming months, we'll start to open it up and hopefully, by the end of the year, as I alluded to earlier, just be in all of the qualified jurisdictions. So it's just being measured in qualifying and making sure we're ready to go.

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.

Jason, do you want to take that one?

Yes, sure. So look, I think our goal around this category, we're obviously big fans of what's happening with -- as Sweepstakes being kind of a change in the social casino space as a catalyst for growth. Our goal is to be a market leader in this category. And there's obviously a lot of players in this category that we admire that have reached super scale that have large businesses that are highly profitable with really interesting capital efficiency. And so obviously, we're going down the route of the organic approach, and we have conviction in what we're doing there. But that doesn't mean that we wouldn't necessarily for the right opportunities, do some meaningful M&A to kind of bolster our efforts and to kind of be in the top 3 of this category as well. So that's how we kind of think about it. So it wouldn't necessarily be to solve capability gaps, it would be to kind of get market share gains quicker and accelerate our kind of path to a leadership position in the category.

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?

Well, thanks. That's a great question. So there's 2 aspects to our casual strategy. There's the existing portfolio, which consists of a collection of pretty mature products. And as I alluded to earlier, we've been focused on margin contribution and pulled back pretty materially on the investments we're making in user acquisition in support of those -- of that portfolio. While we invest in upgrading the products with more current tech that allows us to be faster and more dynamic with the features and content that we're introducing that should drive better retention and engagement, which in-app advertising model is what drives revenue. So we've been working pretty hard over the last 6 to 8 months on making those refinements and adjustments. As I've alluded to, we pulled back pretty materially in the UA investments across the casual portfolio, the legacy portfolio. And we'll continue to monitor our progress there until we get to a place where we can start to reinvest in new cohorts of players that ultimately command more revenue in terms of the sale of our ad products and units. I don't expect that we're going to see any meaningful growth out of the legacy casual portfolio. There's another dimension to the casual strategy, which, as we talked about, relates to the Tetris strategy and franchise. And so we have an existing Tetris product that we continue to work on refining and evolving, but we've put a lot of energy and most of our resources behind a new flavor of Tetris, our Tetris Block Party product, which has been in development for close to 2 years, and we're encouraged by the metrics we're seeing from that product. They're strong and they continue to improve. And the state of the market as you look to bring a new AAA quality casual game into the market, the table stakes are just very high in terms of the feature richness and the amount of content and your capacity to really run a product with a lot of dynamism and a lot of new content constantly coming into the product. And so we're not only refining the product to get to the core metrics that we need, but we're also investing in our capabilities to deliver the volume of content that's going to be required once we start investing and scaling and launching it. And so if we're going to achieve the kind of scale that we've imagined for that product, we need to make sure that we're ready for it. And so that's what's ongoing right now. So we'll continue to work to stabilize the core legacy casual portfolio. And once we find that it is investable, then we'll readdress the amount of UA investments we're making there. And we're going to continue to advance and get ourselves ready to launch and scale up our Tetris Block Party product.

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?

Look, it's the big question, right? And our approach is probably not all that different from most everybody else in the space, which is that we look at the market overall on a state-by-state basis, and we go deep into really qualifying what are the regulatory and legal risks are within each of those different markets. And what are the ongoing or active efforts both in support and opposition of the Sweepstakes model within those markets? And then we allow that to inform where it is that we're ultimately going to be deploying our capital and how aggressively we get in and across these different markets. To the extent a market that we think is relatively reliable ends up becoming higher risk, then, of course, we immediately start to moderate our spend in that market. And so it's dynamic and it will be actively managed. So it's -- and what I would also say is that we intend to be very active in trying to help bring more credibility and legitimacy to this opportunity. So the way that we're approaching Sweepstakes and how it's employed, we have a multiphase strategy. The first, we're going to stand up a service that we think is incredibly well executed, and we'll compete with everything else that's in the market. But our ultimate strategy and plan is to more deeply integrate Sweepstakes mechanics and opportunities with our existing native apps and do it in a way that's focused on stimulating and driving the incremental sale of virtual chips that we've always sold. So I think that there's a position that we can take as we come into the market, which is that we're employing Sweepstakes mechanics as a promotional tool the way that they are intended. And so I think that there's a lot that we intend to do to try and legitimize just this opportunity overall and make the case for how and why it should be embraced and supported as opposed to opposed.

Yes, Andrew. The market -- obviously, Sweepstakes mechanics market, I think you've characterized as very competitive with a bunch of sort of aggressive incumbents that have established share. So when you look to launch your app in your respective markets, how significant is the UA spend? How is that going to impact your sort of near-term EBITDA creation? Are you, I guess, most important, confident that with that spend that the quality of your app relative to your competition, that in fact, you'll achieve the retention you need to justify that?

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 a 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, the more traditional social casino industry of 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...

The other thing I would -- if I could, Mike, the other thing that I would highlight is this while I've alluded to, the market is very competitive. There's no question about it. And a lot of the players in the market are -- have integrated a lot of the core platform and its capabilities and all the content that they offer. And so the amount of differentiation in and across these products is pretty limited. One of the things that we're investing in is leveraging our vast library of proprietary game content that we have as well as leveraging a lot of the social mechanics and features that we know add progression and kind of a feature richness that drives deeper engagement and makes for a more compelling experience. And so we think that as we come into the market and we start to introduce more of our own proprietary content, we're going to further differentiate ourselves from our peers and make the case for how and why people should spend more of their time and money with our Sweepstakes alternatives as opposed to what else is out there in the market. So that's what we hope to prove out 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. And in fact, have enough capital to support both of our growth initiatives. Should they continue to show positive signs and 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.