PLAYSTUDIOS Inc - Ordinary Shares - Class A Aktie

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 the expense of delivering a fun, dynamic and carefully curated experience for many of our players. Through our reinvention work last year, we reaffirmed our commitment to quality, player value and execution. Our approach to our growth initiatives reflects this renewed focus on these core principles.

Let's briefly touch on some key updates, beginning with our sweepstakes effort. Win Zone continues to gain traction, now live in open beta across 15 states and on pace for a broader rollout in all qualified jurisdictions before year-end. As we refine the product, we're seeing steady improvements across retention, engagement and monetization, resulting in our highest returns on ad spend. With a view towards our upcoming launch, we remain focused on improving this way of efficiency and long-term player value as well as the keys to driving scale. While the broader sweepstakes market has faced regulatory contraction, reducing the TAM by roughly 25%, growth in the remaining open states remains strong and with an addressable market of $3.5 billion to $4 billion, we continue to believe the category represents a meaningful long-term opportunity. Our approach is intentionally phased. We started with a stand-alone web-based product to build capability and over time, we'll evolve it into a fully integrated promotional engine supporting chip sales across our social casino portfolio with selective strategic acquisitions as a potential accelerant.

Let's now review our second growth opportunity, Tetris Block Party. Tetris Block Party is one of our most promising upcoming launches. Our thesis has always been that Tetris should be a super scaled mobile franchise. It's one of the most beloved games of all time, yet it hasn't fully realized that potential on mobile platforms. We're hoping to change that by pairing a familiar puzzle mechanic with a deeper social meta game built around competition, progression and community. The game has been in open beta in select markets and early performance across UA, retention, engagement and monetization has been very encouraging. Based on those results, we're about to begin a focused go-to-market test ahead of a broader rollout in Q1.

Turning to our playGAMES core business, let's first look at the casino games. As I mentioned, the social casino category remains challenged, reflecting broader market conditions and ongoing shifts towards sweepstakes style offerings. These trends contributed to year-over-year declines in both DAU and ARPDAU across most of our portfolio with the exception of myKONAMI, which continues to show double-digit year-over-year increases in ARPDAU. That said, our direct-to-consumer business continues to show strong growth, benefiting from a full quarter of operations under the relaxed Apple policy changes.

Direct-to-consumer revenue was $7.7 million, a 48% quarter-over-quarter increase, representing 16.7% of total in-app purchase revenue, up from 9.1% in Q3 of 2024. DAU for the Casino segment remained stable sequentially, signaling a more resilient core player base. On the topic of our casual business, it continues to experience pressure on DAU, which accounted for most of our sequential audience decline. During the quarter, the team focused on enhancing the underlying technology of our ad monetization, improving efficiency and yield. As a result, ARPDAU for both Brainium and Tetris Prime improved meaningfully year-over-year, offsetting some of the DAU declines and setting the stage for renewed user acquisition in 2026.

Our playAWARDS loyalty platform continues to be a core differentiator for our business, bridging in-game engagement with real-world entertainment. Over the past year, we streamlined the program to focus on higher-quality partners and more aspirational rewards while also expanding the catalog of digital benefits like vanity items, customizations and status-based perks that enhance progression inside the games. This resulted in a decrease in the retail value of rewards purchased year-over-year, but an increase of 16% sequentially for the third quarter. A highlight for the quarter is our myVIP World Tournament of Slots, which started with in-app activations and social campaigns and culminated in a 3-day live event in the Bahamas, where 500 top players competed for $1 million and the title of world's best slot player. It's a clear proof point of how we connect play to real-world experiences in a way that builds deeper loyalty and longer-lasting relationships with our players.

Before I turn the call over to Scott, I'd like to spotlight our emphasis on modernizing our development approach, particularly through the adoption of AI. Across our game development pipeline, creative tooling, UA modeling and player targeting, AI is helping us move faster and operate more efficiently. We're still early in this journey, and we see meaningful long-term opportunities in how AI can reshape gameplay, production and our live ops execution.

With that, I'll hand it off to Scott.

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.

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.

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.