Good afternoon, everyone, and welcome to the PLAYSTUDIOS Fourth Quarter and Year-End 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference is being recorded. I would now like to turn the call over to Samir Jain, Head of Investor Relations and Treasury. Mr. Jain, you may begin.

Thank you, operator. Good afternoon, and thank you for joining us for PLAYSTUDIOS fourth quarter and year-end 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. We will also discuss certain non-GAAP financial measures during this call. These measures should not be considered as a substitute for financial results prepared in accordance with GAAP. Our results are prepared in accordance with GAAP, and a reconciliation to comparable GAAP measures will be provided in our fourth quarter earnings release and in our SEC filings. With that, I'll pass the call to Andrew.

Thank you, Samir, and welcome, everyone, to our fourth quarter and year-end 2023 earnings call. Earlier today, we published a press release containing our financial results along with the commentary for the recently completed fourth quarter year-end. Included in the release is new segment reporting alongside our usual financial disclosures. Scott will discuss these materials in greater detail later, but if you haven't had a chance to review the release, I'd encourage you to do so. So, 2023 was an eventful and somewhat challenging year for the game industry, but despite the macro and secular headwinds, it proved to be transformative for PLAYSTUDIOS. We undertook a number of new initiatives, advanced key elements of our strategy and meaningfully enhanced our overall position. So I'd like to start with some of the more noteworthy highlights. First, we closed the year strong with fourth quarter and full year revenues and adjusted EBITDA exceeding both our guidance and analyst expectations. We grew adjusted EBITDA by nearly 65% in the year and expanded our EBITDA margins by close to 700 basis points. We grew revenues by 7% despite the overall contraction in the mobile games industry. We substantially diversified our sales mix by increasing advertising revenues from 8% to 19%. We continue to add users with MAU and DAU increases of 70% and 84%, respectively. We reorganized our company around our two key business lines: playGAMES and playAWARDS enabling further efficiencies and laying the groundwork for playAWARDS to become an independent external facing business. We continue to expand playAWARDS reach by adding more players and onboarding new rewards partnerships. We more than doubled Tetris Prime's revenues and renewed partnership with the Tetris Company, extending our exclusive mobile license for up to an additional eight years. We fully incorporated Brainium into our operating framework and…

Thanks, Andrew. Good afternoon, everyone. In addition to today's press release, our Form 10-K will be filed shortly. Please look to those filings for a comprehensive summary of our quarterly and full year results. Before discussing our results, I wanted to draw your attention to new disclosures this quarter. We are now providing both revenue and EBITDA separately between our playGAMES and playAWARDS segments. We hope that this added information will better clarify our businesses and allow you to more closely track their growth over time. We finished the year strong with quarterly revenues and adjusted EBITDA ahead of consensus expectations. Fourth quarter adjusted EBITDA of $14.7 million was 22% higher than a year ago, continuing the trend of sizable gains that we've seen since the beginning of the year. For the full year, adjusted EBITDA was up 63% from 2022 and the adjusted EBITDA margin of 20% was up 680 basis points from last year's margins of 13.2%. Revenues in the quarter were down modestly versus a year ago, largely due to the end of a licensing contract in the second quarter of 2023. Adjusting for this other revenue, we would be flat versus a year ago. For the full year, our revenues were up 7% versus 2022. As a reminder, the one-year anniversary of the acquisition of Brainium occurred in October, so our results from that point forward are comparable on a year-over-year basis. DAU and MAU in the quarter were up 6% and 16%, respectively. Tetris continues to drive the bulk of these gains, though we are seeing healthy lifts across our growth portfolio. Our core social casino portfolio saw user declines in the quarter on the back of continued industry weakness. As Andrew discussed earlier, we are optimistic about this portfolio heading into 2024 and believe…

Thank you, Scott, and thanks to everyone participating in today's call. Before we end our prepared remarks and open the call for questions, I'd like to reinforce some key points. 2023 was a year of growth, development and change. We nearly doubled our EBITDA, increased revenues in a declining market and put in place the building blocks for substantial progress in the years to come. Entering '24, our business is substantially more diversified than it was just a year ago. A majority of our games are outside the social casino category and advertising revenues now make up nearly 20% of our overall sales mix. These new businesses are also our fastest-growing, implying a continued mix shift towards higher margins and larger addressable markets. With our recent license extension in place, we're committed to establishing Tetris as a world-class mobile franchise. We have exciting new games in development and are working towards introducing our first new title later this year. playAWARDS will begin qualifying its revenue opportunities this year. There continues to be a high level of interest in our program, technology, tools and unique capabilities, and we believe this will be a meaningful driver of future growth. We're making progress in our efforts in myVegas and myKONAMI and believe both games are on track for notable improvement in 2024. Brainium exited last year with substantial momentum as our efforts around new advertising initiatives began to take hold. We expect to see continued momentum this year. Our balance sheet remains strong with $133 million in cash and no debt and is supported by an operating business that generates positive cash flows. Our plan remains to use our capital to make transformative acquisitions and our goal is to make progress on that front this year. At the same time, we continue to look at other ways to use our capital to generate shareholder value, including strategic investments in our business and making use of our $50 million share repurchase authorization. Lastly, I continue to believe there's a large discrepancy between the core value of our business and the value ascribed to us in the public markets. While frustrating, rest assured, our leadership is aligned, as the teams are focused and we're all committed to strengthening our company. I want to thank you for your time today. We appreciate your support and hope you're as excited about this year as we are. I'll now turn the call over to the operator to take your questions. Operator?

[Operator Instructions] Our first question comes from Ryan Sigdahl with Craig Hallum.

I want to start with the potential commercialization of playAWARDS as a loyalty as a service platform. Is that just a focus area? Or is the pipeline actively being evaluated and worked on as we speak?

Look, it's been something we've been focused on really since the early part of this last year. We've done a lot to kind of qualify the opportunity and start to evaluate different commercial models. I would say, we're still in that phase but are encouraged by the feedback that we've received. I think that the level of interest and curiosity around the program and the potential impact has reinforced for us that there's value here. And it's now about resolving the right and best way for us to go and exploit it. And so we fully expect that we'll resolve that this year. And as we do, we'll share our thinking and provide a bit more of an outlook.

Switching over to the cost side. Is there more efficiencies that you, guys, have targeted? Or is primarily, the operating leverage and margin expansion to get to that peer median, more so to do with operating leverage and revenue growth?

I think we're always looking at how and where we might be able to find new opportunities for added productivity and efficiency. But I think that really the more significant opportunity for us is top line growth. I think if you were to look at our fully loaded cost per employee as compared to our public peers, you'll find that we are in line or actually below where they are. So we'll, again, continue to look for where we can be more productive. But our margin expansion going forward is going to come from top line growth and flow-through.

Makes sense. One more for me. Just as you think about the stock at this valuation, I know you had some prepared remarks, but are there any M&A transactions that could be more accretive than just going and repurchasing your own stock here?

Yes, we believe there are. They’re obviously difficult to find in light of how and where we’re trading. And I think it’s important for everybody to understand that while we’re always going to be looking to ensure that the transactions we would do are accretive, we also want them to be strategically significant and that they really reposition the company to enjoy yet even greater growth. So I think sometimes you have to look past the immediate impact of the transaction and how it’s engineered financially. So what does it really mean for the company in terms of its strategy and how it’s going to continue to evolve. So those are the factors that we consider as we look at our opportunities.

Our next question comes from Aaron Lee with Macquarie.

Can you just turning to guidance for a second, can you just talk about the puts and takes that get you to the high end and the low end of the range? What's contemplated from an investment and marketing standpoint? And you're just generally where you think the biggest buckets of growth will come from?

Sure. I mean I'll take this, and I'll ask Scott to add any further color. The growth is really going to come from across the portfolio on the game side of our business. We further kind of qualify and look at our portfolio in several different subcategories. There's our core portfolio. There's our growth portfolio and the products that we have in development. We see opportunities in our core portfolio, which have become under pressure because of the secular headwinds over the last two years, as we talked a lot about, social casino has suffered some contraction. But it's been overcome by the growth in the casual categories that we're now very active in. With that said, we think that social casino has stabilized, and we're seeing signs of growth there. So we think there'll be a modest amount of growth coming out of that portfolio this year. When we look at our growth products, they really relate to the current live products that we have in the casual portfolio, our Tetris Prime product which has grown meaningfully in the last year and continues to have great momentum as well as the Brainium suite. And then we have a collection of new products that we're actively investing in, in development category that it's hard to predict how and when they'll be ready to be launched into the market, but we would hope that one of them will be in a position where we can start to introduce it before the end of the year. So across the game portfolio, that's how we're thinking about growth. It's a bit moderated. And then as far as the underlying investments in user acquisition and our budget there, we'll scale that up to support the products that are worthy of it, especially if we end up launching one of the new casual Tetris products this year, there'll be pretty meaningful investments on the UA side associated with that. Otherwise, we're focused on continuing to, as I alluded to a moment ago, with Ryan, look for new opportunities to drive productivity and efficiency as we introduce these new products and continue to scale our existing ones. And so that's what's going to drive the continued kind of flow-through and margin expansion.

And the only thing I would add to that is as we said or as I said in my comments, the way we're viewing the year is its sort of going to be a sequential growth. We're going to -- we're kind of on this trajectory and you should kind of look at each quarter is hopefully getting a little bit better as we go.

Great. I appreciate all the color there. And then just turning to playAWARDS for a second. Is there anything you can share in terms of how confident you are that this will materialize this year versus slipping into next year? And how should we be thinking about the reinvestment into the playAWARDS platform from here? Should it be fairly steady from current levels? Or do you kind of expect to have to turn on the faucet a bit to accomplish some of your goals?

Yes. No, those are great questions. Look, I think that we're pretty confident about the value proposition that we have with playAWARDS. We obviously have a ton of experience with it. The complexity is in making the transition to providing it as a service to other strategic partners and publishers in the industry. So there's work to be done there and certainly hope that we'll resolve our strategy and approach before the end of the year. And as I said earlier, we'll provide some clarity in future calls as we resolve it. And then as far as the ongoing investments that we're going to continue to make in playAWARDS, they're fairly stable. I think once we're in a position and we're ready to scale servicing and supporting new game publishers as partners, there’ll be some level of added cost, but we don’t believe it will be that material relative to our current run rate. So the current investments are fairly mature, and they’ll continue.

Our next question comes from David Pang with Stifel.

I would like to hear your thoughts on what the implementation of the DMA in Europe means for PLAYSTUDIOS. Does it have any impact on your efforts on DTC?

Hi, David, it's Samir. You're just talking about the new regulations there with Apple?

The new regulations and the updated policies from Apple and Google.

Yes. So I think like everybody else in the industry, we're still waiting for this thing fully form. I mean obviously, it's quite fluid and the litigation seems like it's still ongoing. So there's a release nothing definitive there. But I think our DTC strategy is going to be much more related to what we do with myVIP and the integration into our games.

I can speak to that. Sorry, I didn't hear the acronym. So the direct-to-consumer proposition for us is something that we're obviously focused on. We're going to continue to watch and see how the various disputes between the platform providers and Epic and other game makers play out. But our general view is that we have a really unique proposition with playAWARDS. And for a long time, we've had a web-based presence where our players can now interact with us directly in order to explore the full range of benefits that we offer through our playAWARDS program. We've incorporated into our web solution, the capacity for our payers to purchase with us directly. So unlike most of our peers in the industry, we can actually offer up really unique incentives and a value proposition that's very different from everybody else to actually incentivize and encourage that direct purchase with us. So that's a program that we're actively ramping up. We're continuing to invest in new features and capabilities. So we would expect that our direct-to-consumer complement of our revenues will continue to grow. We think that there's a ton of room for us to increase the overall mix of direct-to-consumer revenue. And of course, that comes with a pretty meaningful improvement in margin and gross margin. So that should be a driver for us going forward.

And just a follow-up on that point. Do you have a long-term target on what DTC might make up?

Well, we set goals for ourselves each year as part of our planning process, and we look at where our peers are the ones that are, we think, more mature and have been far more aggressive in the way that they've approached appealing to their consumers more directly. Playtika in particular, has been a leader in this space and I think something close 25% of their revenue is direct to consumer. And so I would certainly hope that we'll be able to achieve rates that are comparable to theirs, but there's a lot of work to do there for us to achieve that level of overall mix. Our ambitions are certainly to be in line with where our peers are, at least.

[Operator Instructions] Our next question comes from Greg Gibas with Northland Securities.

Scott, I wanted to -- I think you said just later this year was kind of your commentary, but if you could go over maybe the rough timing of new game launched this year and maybe if there are any modeling implications regarding marketing or increased development expenses during certain time periods?

Yes. I mean, I think what we kind of signaled in our more formal remarks is that it's tough to predict when it is that we'll formally launch and start to scale up a new product. We have a few new products that have been in development now for over a year, both aligned with the Tetris franchise and brand. And we certainly would hope that we would introduce one before the end of the year. But the likely timing of it, we don't think we'll have any real meaningful impact on our performance for this year. So our forecast and what we've shared in terms of guidance don't really take into account any impact from a new product that we introduced in the market, both top line as well as what we might do from a UA or a marketing perspective.

Got it. Makes sense. And then wondering if you could just address the overall interest levels from perspective playAWARDS and loyalty platform customers. I know, in past quarters, you've talked about it. Being strong, I'm wondering if you’re seeing more interest there if it's kind of stabilized. And I guess, considering and we've talked about it for a little bit now, like what's kind of causing maybe the delay in an initial customer there?

Yes. I think what I'll do is I'll ask Jason Hahn, who's here with me. He heads up our corporate development and business development who's really been leading the effort on qualifying those opportunities to kind of share maybe a little bit of the color. First, as I alluded to a moment ago, the interest and I think the value of our program is pretty universally recognized. I think the complexity comes in, how we go about pursuing it. So maybe I'll let Jason talk to that.

Yes. So I think on the feedback, given some of the things that are happening in the market where it's becoming increasingly hard for mobile developers to acquire new users. I think everybody recognizes the value proposition of a program that allows you to hold on to users longer and invest in your loyal players that you already have is tremendously valuable as a value proposition. And we've demonstrated that our solution does, in fact, do that. And so we've had to spend, I'd say, the better part of the last eight months, building really tangible case studies to showcase with real data and AB testing that our platform does, in fact, undisputably create that loyalty lift and we now have that. So that was one of the pieces of feedback we got from the market, which was you need some tangible case studies. We have that. The other piece of feedback was making it very seamless for a third party to integrate the solution into your game. And so we spent also the better part of the last eight months working on technology and refining it so that any game developer can easily integrate this into their products. I think now that we've kind of addressed some of that feedback, we're just working on optimizing those things even more before we go back out to the market more formally and launch this as a final product solution. But we're kind of getting ready to productize it in that way where we can actually launch it as a dedicated product.

Thank you. There are no further questions at this time. I'll hand the floor back to management for closing remarks.

Just want to again thank everybody for their interest in the company and continued support, and we look forward to an exciting year ahead.

Thank you. This concludes today's conference. All parties may disconnect. Have a good day.