Good afternoon, everyone, and welcome to the PLAYSTUDIOS Third Quarter 2025 Earnings Call. [Operator Instructions] 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 2 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…

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.

[Operator Instructions] Our first question comes from the line of 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?

Thanks, Ryan. So I don't -- first of all, I think the feedback about Win Zone has been generally positive. I think given the number of players that we had at the World Tournament of Slots and the subset of them that are actually in jurisdictions where it's available is -- it's a pretty small sample size. So we wouldn't read too much into the feedback that we received on the Win Zone specifically. With that said, we look more towards the actual data that we're generating from the players that are in the 15 markets where we're live today. And as I alluded to during my opening comments, we're encouraged by the consistent improvement that we see across those metrics, whether it be retention or conversion rates to monetization and some of what we're seeing in terms of the monetization behavior. So I think that, generally speaking, we're making good headway. And as I alluded to, we expect that we're going to open up more jurisdictions and with the hope and expectation that by the end of the year, we'll be live in all of the available jurisdictions and in a position where we can start to then deploy more meaningful UA capital and start scaling up that part 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 real close 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, et cetera. 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 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 1 quarter left and you're 1 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. I mean, look, as Andrew kind of mentioned in terms of some of our new launches, we've got -- we're hoping that we'll be able to get more clarity as we get in the middle of this quarter and perhaps step on the gas if the metrics are there. Other than that, that's one of the reasons why we didn't get specific. But then also the trends that we saw in third quarter are sort of continuing at least through now. And so that's kind of the way you should be looking at it.

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 [ decay ] in social casino?

Look, I think it's challenging. And if you really look at the category overall and all the participants in it, the declines obviously aren't specific to us. You'll see that a lot of the scaled operators are seeing declines as well. Ours are a bit more exaggerated. I think that -- and there's a collection, a small collection of us that are seeing the kinds of both DAU declines and revenue declines that are consistent or a bit worse than ours. And I would argue that those -- all those companies -- and maybe I should just speak for us, have a pretty high concentration of play in North America. And so this dynamic of our losing players and play to the alternatives, sweepstakes notably is just very real. And so what we're hopeful of is that 2 things as we open up and start to make it known that we have a sweepstakes alternative, then we can keep people within our ecosystem as opposed to losing them altogether. So hopefully, that will be somewhat stabilizing. And then secondarily, as markets fall out like California, which is a primary and very significant market for us with our traditional social casino games because of the loyalty program and the dominance that Las Vegas-based rewards has, making the benefits that much more accessible to people that are in the Southwest region, we think that hopefully, we'll see some stability and recovery in terms of players and performance that are in that region. And that still needs to be proven out. But I think that we're kind of positioning ourselves so that we've got a bit of a hedge as sweepstakes continues to grow within the markets where it is still active and over time becomes legal and legitimized, we'll be prepared and ready to take advantage of and exploit that opportunity in the markets where it's not, then we'll be able to leverage our more traditional social casino products with a rewarded play alternative to sweepstakes to go reclaim and recapture some of that market share that we've lost. So we appreciate that that's what we have to prove out, but we're hopeful that that's the opportunity ahead of us.

Last one from us. Obviously, sweeps is a really compelling catalyst, hopefully a driver for you. You also made the point you're basically trading for your cash value here. So under that context, you look at, Andrew, states where sweeps are active and not going to be shut down, a lot of these states are being viewed as potential or sweeps in these states are being viewed as a potential catalyst for iGaming legalization. I think a similar view would be on how prediction markets in nonregulated states could be a catalyst for OSB legalization. So do you think -- assuming that's true, which I think is at least logical, do you think there are strategic opportunities for you or strategic alternatives for you to partner or otherwise with iGaming operators given that you're launching your sweeps products, you're going to be building a database and your inherent value to an iGaming operator if, in fact, it does unlock legalization could be very high?

Yes. I mean I think the truth of it is we've got a fairly significant footprint of players across -- throughout the U.S. Independent of the active MAU and DAU that we have in our network today, we have a very substantial database that we can market to tens of millions of players and reactivate with new propositions, new forms of casino-style games, whether it's iGaming or whether it's sweepstakes gaming or whether it's casual or more traditional social gaming. And so I do think that there's optionality for us in resolving how best to take advantage of those assets in these markets. What we hope is that some form of sweepstakes is going to survive over the course of the next few years. There will be undoubtedly more jurisdictions that fall out. I think that's likely. And there'll be some jurisdictions that, as you point out, ultimately flip to being more fully regulated with a collection of iGaming providers, which likely positions the existing iGaming providers as having some advantage. But we also think that there'll be some form of oversight and regulation and taxation potentially of the sweepstakes market or business. And that, to me, feels like a very real opportunity for most of the states where this activity is being conducted today that it can, in fact, be legitimized and it can be regulated to the degree that allows them to take advantage of the sizable active market that exists right now as opposed to going through an exercise of restricting, limiting it and then putting in place the iGaming kind of regulatory infrastructure so that the providers can then be vetted and services launched and then go through the cycle of scaling those up. So we think that maybe the short answer is that, yes, there's that optionality is available to us, and we think that there's a lot of different ways to exploit it, whether it's being direct providers within those markets or whether it's strategically partnering up with iGaming providers to those markets or leveraging our content and providing it to the participants in those markets. That's a big part of the traditional sweepstakes business today. A lot of the game content, most of it is provided by these third-party slot content providers and producers. And so as part of our building our own sweepstakes solution, we've built our own RGS platform that allows us to remotely serve our slot content into our game for our benefit which should also have a gross margin benefit. But at some point in the future, we retain the option of making that same content available to any of the other providers that are in the market. So I hope I answered your question. I think that there's a lot of opportunity for us to exploit our assets in these markets as we get clear as to how they shake out.

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 2?

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. I mean -- thanks, Andrew. I mean, you're right. Look, we do -- we've been working the last few quarters [ and forever ] about increasing our DTC revenue. And so we're thrilled that it's coming to fruition. I'm not -- I wouldn't say it's linear. But the way -- [ Dean ], do you want to add like how we forecast it or how we...

Yes, I think it also includes some things. It's not quite -- in that sense that there's [ ad monetization ] that affects that percentage if you're just looking at the overall percentage. We do expect it to continue to drop, but not quite linearly as you might imply as well as I think as…

Let me summarize…

Yes, go ahead.

Let me summarize what I'm hearing, and then we can ask Martin if we'd answer this question. So the things that are going to improve margins are more direct-to-consumer revenue, the sweepstakes business as it scales and grows, assuming that the redemptions net of revenue normalize and are in line with where everybody else is, the complement of ad-based revenue that we generate relative to our past experience, those are things that should drive improved margins. So -- and those are all things that we're obviously intensely focused on scaling and growing.

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.