Good day, ladies and gentlemen. Thank you for standing by. Welcome to the PLAYSTUDIOS Second Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded today, August 9, 2022. I will now turn the call over to Joel Agena, Corporate Secretary and General Counsel. Please go ahead.

Thank you, operator, and hello, everyone. By now, everyone should have access to our second quarter 2022 earnings release, which is available on the PLAYSTUDIOS website at www.playstudios.com in the Investors section. Some of management's comments today will be forward-looking statements about future events, expectations and projections. Forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. You should exercise caution in interpreting and relying on them. We refer you to our SEC filings for a more detailed discussion of the risk factors that could impact future operating results and financial condition. During the call, management will discuss non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our second quarter 2022 earnings release, on the www.playstudios.com website, and on our Form 8-K filed with the SEC today. Hosting the call today, we have Andrew Pascal, PLAYSTUDIOS' Chief Executive Officer; and Scott Peterson, Chief Financial Officer of the company. They will provide some opening remarks, and then we will open the call to questions. With that, I'll turn the call over to Andrew.

Thank you, Joel, and good afternoon, everyone. Welcome to the PLAYSTUDIOS' Second Quarter 2022 Earnings Call. The second quarter proved to be quite challenging as the overall economic backdrop is impacting the consumer games industry generally and our business more specifically. Before delving into our views of the current market, our outlook and the strategies and plans we're advancing, I'd like to highlight some key events from the quarter. We continue to advance our playAWARDS platform, adding new capabilities, new partners and new benefits to our myVIP program. We saw continued strength in rewards purchases as our active players shop from benefits valued over $125 million of inventory and bought $32.5 million of real-world rewards. We advanced our Web3 strategy, consummating key strategic agreements and seeding a variety of opportunities that align with our rewarded play vision. We completed a significant amount of the redevelopment work required to reconstitute our myVEGAS Bingo product. We continue to optimize the existing Tetris game while advancing the altogether new and more casual version of the franchise. We attracted some amazing new talent into the company, expanding our capacity and capabilities in our European and Asian studios. And we generated $68.4 million of revenue and $7.3 million of adjusted EBITDA. Before sharing the specifics of our quarter, I'd like to provide a brief reminder of who we are and how we're positioned in the industry. PLAYSTUDIOS is a unique mobile gaming publisher with a portfolio of eight games, most of which incorporate our industry-first real-world loyalty program. For over 10 years, we've been rewarding free-to-play social and mobile players with real-world benefits from a diverse collection of partners. We are the pioneers of rewarded play, and we remain deeply committed to more fully realizing the potential of our model as we diversify into new…

Thank you, Andrew. We reported revenue of $68.4 million during the second quarter of 2022 compared to $70.8 million during the same quarter last year. While in app purchases declined relative to the prior year, advertising and other revenue increased primarily as a result of Tetris and MGM Slots Live. For the second quarter, we generated adjusted EBITDA of $7.3 million compared to $3.4 million during the prior year quarter. The decline in revenue was mostly offset by a decline in cost of sales. As a result, the difference in adjusted EBITDA was primarily driven by a reduction in UA costs from the higher-than-normal amounts associated with the launch of myVEGAS Bingo last year, partially offset by increased payroll associated with the ramp-up of our foreign studios and incremental public company costs that weren't in the prior year quarter. Looking at some of our other KPIs, we are still encouraged by player engagement with our loyalty platform. Program activity continues to expand. Reward purchases during the second quarter were 567,000 units, growing 6% compared to 534,000 units for the same period last year. This translated to a total retail value of $32.5 million, a 10% increase over the same period last year. Our rewards inventory continues to expand, increasing 14% over the prior year to 532 unique rewards. We continue to see strong game KPIs versus the prior year. However, the market factors described by Andrew earlier have resulted in sequential declines. Average DAU was 1.5 million and average MAU was 6.6 million, up 17.2% and 54.4%, respectively, over the prior year quarter, down 6% and 4% sequentially over the first quarter of 2022. As mentioned in prior calls, while the organic install volume and resulting active users from Tetris are meaningful, the revenue contributions are modest and driven almost…

Thank you, Scott. Before we close our prepared remarks and open the call for questions, I'd like to reinforce some of the key points. While the overall macro market and resulting consumer outlook has softened, we view the moment as an opportunity to reset and reposition ourselves for future growth. Our second quarter pace fell short of our initial expectations, but was generally in line with our industry peers. We memorialized playBLOCKS and executed on key partnerships, investments and acquisitions, positioning us to enhance our playAWARDS model with new Web3 features and capabilities. We continue to advance playAWARDS with player engagement growing by over 6% year-over-year as reward purchases topped $567,000 and redemption retail value of $32.5 million. We advanced Tetris Prime, Tetris 2.0 and myVEGAS Bingo with a view towards scaling each in the later part of the year. We're recomposing our teams and intensely focused on expanding our development capacity and productivity. We're advancing a number of strategic M&A opportunities with a view toward further demonstrating the value of our platform business. Lastly, I want to thank our dedicated teams around the globe, along with our strategic partners and investors. Thank you all for joining us today. We're happy to now open the call. Operator, please open the line for questions.

[Operator Instructions] Our first question comes from Ryan Sigdahl with Craig-Hallum. Please proceed with your question.

Hey guys. This is Will on for Ryan. Thanks for taking the questions. I just wanted to ask you first about what trends you saw sequentially throughout the quarter and maybe into July as it relates to user play and pay given some of these increasing macroeconomic challenges?

Yes. Thanks Will. Look, I think the latter part of the quarter that we just reported on, we saw some deceleration. So total player engagement softened a bit, and that was reflected both in some amount of DAU erosion and then ultimately a lower rate of conversion. So fewer monetizers that were actively spending within and across the portfolio of products. I would say that those trends generally kind of continued on through the early part of this quarter, although we've seen more recently some firming up, but it's a little bit early for us to speak more specifically to what's happening in the moment. We'll obviously be reporting on that in a few months.

Alright, great for that. And then as a follow-up, somewhat to that, I suppose, with crazy demand in Vegas right now, are you seeing an increased usage of real world rewards? And anything you can comment on, on maybe player metrics after using rewards versus players who have never redeemed.

Sure. Short answer is yes. I mean, there's heightened interest in Las Vegas as a vacation destination. I think it's in large part because it's accessible and affordable. And of course, for the players of our games, even more so as they purchase reward benefits and whether that's altogether free room nights and free experiences or discounted opportunities. We're seeing them engage with and participate at rates that are among the highest we've ever seen. So as I highlighted during the call, the underlying rewards business and our players' engagement with our rewards proposition remains very strong. As far as the behavior and what we see from players after they've engaged with the rewards program, even after they become aware of it relative to those that are not, we absolutely see an impact, we see increases in retention, the frequency with which people play and how deeply they engage with the product and ultimately what they end up spending, which is why we're such deep believers and the strength of our model. So it's really important for us to continue to more effectively merchandise the program within our apps and to elevate the visibility of our program outside of them so that we can just increase the overall scale and size of our audience that's engaging in our model and in our marketplace. And when that happens, everyone benefits.

Alright, great. And one last one for me. Any update or further updates on your direct-to-consumer platform?

We continue -- I mean the short answer is we obviously are very committed to it. We're continuing to evolve it and how it is surfaced. And within the apps, there's some challenges still even though we can enable people to purchase with us directly. People tend and want to purchase in a moment. It's a rather spontaneous choice. And so there's a fair amount of friction you have to overcome as you send someone from within your app to a dedicated portal where they can purchase and then back into the app to engage and play and start to enjoy those benefits. So that whole cycle and that return path back into the app is something that we're working on. I think as what we've seen as we've improved the merchandising and reduce some of that friction, we see increases in the adoption rate and the on-going participation in the portal. So it's still something we're deeply committed to. But I would qualify it as still a beta program that requires more refinement.

Alright, great. That’s all from me. Thanks guys.

Thank you.

[Operator Instructions] Your next question comes from Martin Yang with Oppenheimer.

This is Andrew [ph] on for Martin. Thanks for taking the questions. I just have two for you. So the first one, how would you describe the impact of more travel activities on your games in terms of player engagement, retention, rewards redemption? Do you guys see a positive correlation there? And then I'll follow up with another one.

Look, I think whenever we introduce a new partner in a collection of awards, we see increases in the level of interest that our players express just by browsing and shopping within the store and then also increases in actual participation in the program, so purchases and redemptions. And as I highlighted a moment ago, that translates to a deeper level of engagement in and among those players that are taking advantage of those benefits. So it's why we remain active in finding and qualifying new partners and keeping the overall rewards offering fresh and interesting to our players. So the short answer is yes. Whenever we introduce new partners, it stimulates increased levels of engagement and activation among our players.

Okay, great. And then, I guess, could you talk a little bit about maybe the resource allocation regarding three developer teams. For example, how many headcount is focused on content for existing games? How many focus on new games and then maybe some of the emerging projects like the Blockchain division?

Sure. Across the company, we are approximately 650 employees, and that is across the 8 different studios that we manage. As I highlighted on the call, there are two relatively new studios that we've been investing and scaling and growing. One is in Belgrade, Serbia. The other is in Hanoi, Vietnam. Between those two studios, we're approaching 300 employees. So as far as just our commitment to building capacity with really capable and talented team members, but in markets that are a lot more affordable, we've been intensely focused on that over the course of the past year. Of course, as we scale up those teams, it takes a little time to get them indoctrinated, familiar with the products and product teams that are assigned to and getting them productive and able to contribute optimally to the execution of the content and features that we're putting into those games. But those are benefits that we fully expect to start realizing here in the latter part of this year and then going forward. As far as the allocation of our overall development capacity to existing franchises as opposed to new initiatives, I would say that it's approximately 80% of our development capacity and resources, our servicing, our existing products. And so -- and then about 20% of our capacity is allocated to the two relatively new initiatives, the Tetris initiative and the Bingo initiative. So that's the general allocation. The core franchises are at scale and those products demand or require consistent cadence of future releases and live operations and new game content, and that's how and why you see the allocation that I just spoke to. And then as far as the playBLOCKS initiative, our acquisition of WonderBlocks allowed us to bring into the company a relatively small team and just over 20 people that have been actively working on an overall set of features and technologies and tools and an overall framework that's going to enable us, as I alluded to, in our other communications to tokenize our loyalty program and enable our players to start gifting and for certain classes of rewards actually go into a marketplace that we'll manage and sell and exchange them. So we're excited about that as an initiative. And I expect that we'll continue to invest in that team. Although I would say that its current scale provides us with the capacity that we need in order to see us find ourselves in the market with those features that I just alluded to.

Got it. Thank you.

Alright, thanks Andrew.

Ladies and gentlemen, we have reached the end of the question-and-answer session, and this does conclude today's conference. You may disconnect your lines at this time. Thank you all for your participation.