Greetings. Welcome to the PLAYSTUDIOS First Quarter 2023 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Samir Jain, Head of Treasury and Investor Relations. You may begin.

Thank you, operator. Good afternoon, and thank you for joining us for PLAYSTUDIOS first quarter 2023 earnings call. Joining me on the call today are our 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. I would like to remind everyone that we will discuss certain non-GAAP financial measures during this call. These measures should not be considered as a substitute for financial results prepared in accordance with GAAP. Our results are prepared in accordance with GAAP and a reconciliation to comparable GAAP measures will be provided in our first quarter earnings release and in our SEC filings. With that, I'll pass the call to Andrew.

Thank you, Samir. Welcome to our first quarter 2023 earnings call. It's been an eventful start to the year and we're excited to share our progress. PLAYSTUDIOS has a 12-year history of developing and publishing free-to-play mobile games. Since becoming an operating business, we have consistently posted year-over-year revenue growth. Our success can be attributed to the quality and creative execution of our diversified portfolio of 17 games, along with our industry-only loyalty program that enables players to play the games they love while earning real-world benefits. Our strong operating performance is a result of our unique strategy, which we believe will continue to drive our growth. While we have achieved meaningful success, we are early in our journey and we believe there's substantial growth ahead. We are constantly evaluating new opportunities to expand our portfolio and provide our players with the best possible leisure experiences. Results this quarter were quite strong. Our revenue and adjusted EBITDA for the quarter were ahead of both Street and company expectations as we demonstrated our capacity to balance top line growth with margin and profit expansion. Adjusted EBITDA margins grew 940 basis points from year-ago levels and 710 basis points from last quarter. Margins have been steadily expanding over recent quarters and we see a clear path to achieving rates that are in line with our industry peers. I want to emphasize that our adjusted EBITDA growth is happening in conjunction with revenue growth, a rare distinction in the current environment. We will remain focused on optimizing our performance and further improving our return on invested capital. Margin gains are being driven by cost discipline and efficiencies. As part of our efforts to further these goals, we recently initiated a comprehensive restructuring plan that called for the consolidation of several studios and a…

Good afternoon, everyone. During the quarter, we reported revenue of $80.1 million, a significant increase from the $70.5 million we reported in the same quarter last year. It's important to note that even when we adjust for the impact of Brainium, our revenue was still up year-over-year. This is a testament to the company-wide growth we've experienced with particular momentum in our collection of growth games. Adjusted EBITDA during the quarter was $17.8 million, up 96% from year-ago results. The growth was primarily driven by the addition of Brainium, higher revenues overall and lower UA spend. Adjusted EBITDA margins were 22.2%, up 700 basis points from last quarter and 930 basis points from a year ago. Expense ratios were lower across the board and savings were broad-based. The higher mix of advertising revenues from Brainium and Tetris also lifted margins, which is expected to continue throughout the year. While we are working to increase advertising in other games, we are early in the process and don't expect a material impact this year. We remain focused on managing costs while still investing in growth opportunities. During the quarter, we initiated a comprehensive restructuring plan, which called for the consolidation of studios and an approximately 10% net reduction in our global headcount. We expect these changes to drive further cost savings and efficiency gains over time. DAU, daily active users and MAU, monthly active users were 3.6 and $13.1 million, respectively, which represented 129% and 89% increase over the prior year quarter. However, when adjusted for Brainium, DAU was flat with year-ago levels, while MAU was up nearly 10%. This performance is particularly notable given the broadly negative industry trends. ARPDAU, average revenue per daily active user was down due to the increasing weight of Tetris and Brainium, which are advertising-driven businesses.…

Thank you, Scott. Before we end our prepared remarks and open the call for questions, I'd like to touch on a few highlights. We had an excellent quarter with revenue and adjusted EBITDA well above our Street expectations. Our business is growing across the board and doing so in a more profitable way. Adjusted EBITDA margins in the quarter expanded by over 900 basis points versus a year ago. Our efforts around efficiencies and cost containment are working. We are early in the implementation of our restructuring plan and still see numerous opportunities ahead. Tetris continues to perform strongly and is building momentum with the release of the Tetris movie at the end of March. We remain enthusiastic about our entire portfolio of growth games and expect them to contribute meaningfully to our 2023 performance. playAWARDS was integrated into Tetris at the end of the quarter and remains on track to be added to Brainium's games by year-end. We remain committed to expanding the reach of playAWARDS through third-party adoption of our Loyalty-as-a-Service platform. On the back of this momentum, we are raising our 2023 guidance. At the midpoint of our projections, year-over-year revenue and adjusted EBITDA growth are forecasted to be 9% and 44%, respectively. These gains are despite the continued economic and industry challenges. Finally, we continued to repurchase shares under our buyback program and believe our stock is underpriced and represents tremendous value. In closing, I'd like to share that in keeping with PLAYSTUDIOS's progressive and forward-looking philosophy, this entire call was compiled using Generative AI, text-to-text and voice cloning tools. It's just one example that illustrates how we're taking full advantage of new technologies and finding exciting ways to apply AI practices throughout our company. With that, I'll turn it over to the operator to introduce the real members of our team. Operator, please open the lines.

Thank you. [Operator Instructions] And our first question comes from the line of David Pang with Stifel.

Thanks for the question. So hoping to hear any key takeaways or learnings from the integration of playAWARDS to Tetris. And separately, could you talk about the gross margin improvement that you saw in the quarter? And what are the drivers here? And how we should think about gross margin for the remainder of the year?

David, this is Andrew. So first of all, we did the integration playAWARDS into Tetris towards the end of this last quarter. So, middle to end of the quarter. And across the board, we saw pretty meaningful growth with Tetris, but it was attributed in our view to a number of different factors, just one of them being the integration of playAWARDS. So, we're currently actively working on qualifying and teasing out its impact exclusive of the premier of the movie and the just strong momentum that we were carrying organically forward with that product. So, we'll speak to it a bit more specifically probably on our next call. As far as the gross margin improvement, that's more a function of the composition of revenue and the increase in advertising-based revenue as an overall complement.

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

Congrats on the strong quarter. With regard to Tetris, can you just give us a color around how trends looked especially around the lift from the Tetris movie and then the co-promotional activity and how sustainable you expect that lift to be?

Look, we don't typically break out specific metrics by game. But what I can tell you is that over the course of really the past year, we've been making a lot of different optimizations and improvements to the Tetris products, which have helped it grow. We saw audience growth and revenue growth through the back half of last year and that momentum continued into the first quarter. There was definitely a lift in a bump that we saw as a result of the introduction of the premier of the movie on Apple TV, which was great. We did a lot of really cool cross-promotion and had a ton of support, which again helped us grow the audience. And so we -- as we sit here today, we continue to see growth. So, I can't really speak to how sustainable the added lift as a result of the movie premiere what that looks like and how long we can or should expect that to continue. But independent of that added lift, we were seeing pretty healthy growth. So -- and I don't see any reason why that should change in the relative near term.

As a follow-up, can you just discuss the content licensing arrangement with IGT that you announced recently and some of the opportunities around that?

Yes. So, we're excited about our new relationship with IGT. We obviously, real money gambling content or the games that for at least our casino products, the games that people are playing in traditional real-world casinos are really well received. We've proven that out and that's been demonstrated in our KONAMI product. And so to have now access to the IGT library of content and games that we can incorporate into our products, we think is going to be really well received by our players. So, we're excited about that as a relationship and to get the content, the games that people are finding and loving in the real world into our products that they can now play remotely.

And our next question comes from the line of Ryan Sigdahl with Craig Hallum.

This is Will on for Ryan. Just a few for us here. Firstly, curious on your thoughts. This is a bit on the IGT partnership. But curious how you guys think about new in-app content versus maybe the game mechanics overall?

If I understand the question, our games are really very dynamic and organic. They continue to evolve constantly. I mean every day, we are introducing new games, new features into most of our products. And so the IGT relationship and getting access to their game content allows us to further expand and broaden the content that we can introduce into our casino products. And it also allows to introduce casino content that our players are familiar with around real-world casinos. So, both are benefits. As far as the mechanics of the games, it's certainly helpful that these are proven games that have been very popular in the traditional real-world casinos. So, the underlying proposition and math and design and volatility of these experiences is very proven as are the brands. So, to be able to take proven game content and incorporate into our products, we think is positive.

And then as a quick follow-up, in terms of a time line for the integration of playAWARDS maybe throughout Brainium, what should we, I guess, expect as far as cadence goes for integration?

We're -- so those products are -- there's some core infrastructure that we have to put in place in order for us to deliver our program into those products. And we're doing that work now. And then there's a pretty broad portfolio of them. So, we've established some priorities and we'll start to see the introduction of our playAWARDS program into some of those games by the end of this quarter, the early part of next. And then once we've kind of proven it out within the initial group of pilot products, then we'll go ahead and expand across the balance of the portfolio.

And our next question comes from the line of Omar Dessouky with Bank of America.

This is Arthur on for Omar. So, you guys mentioned that revenue was up year-over-year, excluding the contribution of Brainium. I'm just wondering if you could just comment on the trend of the core casino portfolio, like how that looks year-over-year sequentially? And then I have one follow-up question on Brainium.

I mean the year-over-year trends, they're down modestly. Sequentially, quarter-over-quarter, fairly stable. So, our understanding is that, that's pretty consistent with generally where the markets trended for the core casino products. And you said you had a follow-on question?

So, I think you guys previously put up like $22 million revenue run rate forecast for Brainium in 2022. I'm just wondering like in terms of your expectation, are you assuming that Brainium will grow versus that $22 million like projected run rate in your sort of like [2022] outlook?

We do believe that there is growth potential across the Brainium portfolio. It's tough to predict, particularly in light of just the broader macroeconomic backdrop and really not having any more comfort or visibility obviously into how things are going to play out here through the summer in the back half of the year. We're kind of comfortable with a more conservative assumption on Brainium and its growth.

And we have reached the end of the question-and-answer session. I'll now turn the call back over to Andrew Pascal for closing remarks.

Thank you. We appreciate everybody tuning in and taking the time to understand our performance in this past quarter. Of course, if you have any further questions, always feel free to reach out to us directly. And we appreciate your time. Thanks, everybody.

And this concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.