Q3 2024 Playstudios Inc Earnings Call
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Speaker Change: Greetings and welcome to the Place Studios 3rd quarter 2024 earnings call and webcast. At this time, I'm up to spend certainly listening to the mode. If anyone wants to require operator assistance, please press star zero under telephone keypad.
Speaker Change: A question and answer session will follow the formal presentation. He may be placing the question Qt any time by pressing star-1 under telephone keypad.
As a reminder, this conference is being recorded.
Speaker Change: It's not my pleasure to turn the whole over to Samir Jain, head of Treasury and of this relations. Samir, please go ahead.
Samir Jain: Thank you operator. Good afternoon and thank you for joining us for play studio's third quarter 2024 earnings call.
Samir Jain: Joining me on the call today are Chairman and CEO Andrew Pascal and our CFO, Scott Peterson. Before we begin, let me remind you that during the course of this call, we'll make forward-looking statements. These statements are based on our current expectations and beliefs and are subject to resonance-sorties that could cause actual results to differ materially.
Samir Jain: Please refer to our SEC filings for discussion of the risks and uncertainties that may affect our future results
Speaker Change: I'd like to remind everyone that we will discuss certain non-GAAP financial measures during this call. These measures should not be considered as a substitute for financial results prepared in accordance with GAAP.
Speaker Change: Our results are prepared in accordance with GAAP and a reconciliation to comparable GAAP measures will be provided in our third quarter earnings release and in our ICC filings. With that, I'll pass the call to Andrew.
Andrew: Great. Thank you, Samir, and welcome, everyone, to our third quarter 2024 earnings call. As always, our commentary today is in addition to the financial disclosures we made in our press release, so I encourage you to take a look at the release for a summary of our recent performance.
Andrew: I'll begin with a few thoughts on the quarter and the company's outlook, after which Scott will follow with a discussion of our financials. We'll then open the call up for your questions.
Andrew: Revenue and adjusted EBIT on the quarter were ahead of consensus estimates and generally in line with our expectations.
Andrew: On a year-over-year basis, revenues were down 6% while adjusted EBITDA increased 8%.
Andrew: We remain focused on stabilizing revenue and increasing profitability.
Andrew: After carefully evaluating the potential impact of retooling our business on both revenues and profitability, we concluded that the resetting of our cost structure is critical to our success going forward.
Andrew: This reinvention plan, if you will, which was launched in October, consists of a reduction in our total workforce of over 30 percent, the suspension of select subscale games, the consolidation of key functions, and a new technology strategy focused on improving the productivity of R&D capacity.
Andrew: While we'll provide more visibility into the overall financial impact of this plan when we provide guidance for the coming year, I can share that we expect these changes to result in a normalized annual cost savings of approximately $25 to $30 million.
Andrew: Consistent with this focus, I was encouraged that our adjusted EBITDA margins of 20.5% grew 270 basis points versus a year ago and 100 basis points compared to the second quarter.
Andrew: Games were driven by efficiencies, lower cost of sales, and reduced user acquisition spend. I believe the more recent measures we've taken will further improve our profitability, bringing us closer to the margin profile of our peers.
Andrew: Now, let's dig deeper into our Play Games division, where we continue to focus on three key initiatives.
Andrew: First, stabilizing our social casino portfolio and returning it to positive sales growth. Second, scaling and expanding our portfolio of growth games, which include Tetris and Brainian. And third, expanding the breadth of our offering through acquisitions and new categories.
Andrew: We're making progress on all fronts.
Andrew: In social casino, year-over-year ARPDAU and revenue per paying user have been increasing in both MyVegas and MyKonami since the beginning of the year. As popular games with a significant base of daily and monthly players, increasing these metrics is the key to improving results.
Andrew: It's been a more challenging year for Popslots, however. There are a number of reasons why, but I believe we've made the appropriate changes to get the game back on course.
Andrew: Though early compared to the second quarter, POP showed sequential increases in revenue and ARPDAU. We're looking to build on this momentum and return the game back to growth.
Speaker Change: Our direct-to-consumer business still represents a significant untapped opportunity, accounting for 7.2% of total revenues this quarter, up from 4.5% last quarter. Our goal is to continue to increase the complement of revenues attributed to this channel, with an ultimate target of over 20%.
Speaker Change: and continue to make progress optimizing the games in our growth portfolio.
Speaker Change: Brandon had another strong quarter, posting year-over-year growth in revenues and ARPDAU. Higher sales are being driven by the introduction of new advertising formats, such as banners and rewarded video, while increased profitability is a function of operating leverage.
Speaker Change: Results within our Tetris franchise were mixed in the quarter as the brand's 40th anniversary had a more muted effect than we anticipated. Similarly, we continue to test and assess user acquisition strategies for Tetris Block Puzzle, which is still in the early stages of its optimization cycle.
Speaker Change: Lastly, let's quickly touch on the initiatives.
Speaker Change: integration of our recent acquisition PIXO is progressing smoothly.
Speaker Change: The team has begun work to combine Pixode's highly engaging puzzle game with the Tetris brand.
Speaker Change: As a reminder, Pixode uses the proven raid and defend mechanic that's been popularized in super-scaled games such as Coin Master and Monopoly Go.
Speaker Change: By leveraging the Tetris brand, we believe this game has the potential to substantially upend the block puzzle category. We're still in the early days of development, but our hope is to have a game ready for sometime in 2025.
Speaker Change: We're also working to better understand the rapidly growing sweet steaks promotional model and how it can potentially revitalize our social casino portfolio.
Speaker Change: Given its increasing popularity, along with our unique and relevant collection of strategic assets, we've elected to incubate our own sweet-stick solution to evolve our rewarded play and promotional capabilities.
Speaker Change: Now let's turn our attention to play awards.
Speaker Change: Our product teams have been dedicated to integrating our refreshed MyVIP loyalty program into our primary titles by year-end. Leveraging our industry-leading collection of rewards and benefits, the program enriches the value proposition for our players and creates a strategic point of difference for our games.
Speaker Change: This quarter, we added 11 new partners, including brands such as Hoover, Atlantis Bahamas, Borgata, and a collection of national theme parks.
Speaker Change: At quarter end, we had 133 partners offer nearly $2.3 million in retail rewards per day. No other game publisher offers anything close. Once fully integrated, we look from IVIP to further enhance the lifetime value of our players and drive greater long-term value.
Speaker Change: Lastly, I want to discuss our capital position and plans for investing our available cash.
Speaker Change: We restarted our share repurchase program in the third quarter, and including transactions we completed in the spring, we've repurchased nearly 10% of our total issued stock this year. We continue to believe that the intrinsic value of our company is greater than its public valuation and bind back our stock for its value for all shareholders.
Speaker Change: At the same time, our large cash holdings and annual cash generation allow us to invest in our businesses and pursue external acquisitions. On the latter, we remain committed to pursuing strategic and creative M&A transactions and are actively searching for compelling opportunities.
Speaker Change: I'm now turning the call over to Scott to discuss the quarterly results and our outlook for the year. Scott?
Scott Peterson: Thanks, Andrew. In addition to today's press release, our Form 10-Q will be filed shortly. Please look to those filings for a comprehensive summary of our third quarter results.
Scott Peterson: Net revenues in the quarter were 71.2 million, a 6% decrease versus a year ago. Our portfolio of social gains accounted for the majority of the decline due to continued weakness in the category. While we don't expect industry trends to reverse anytime soon, we are hopeful that the rate of pressure will ease in the coming quarters.
Scott Peterson: Similarly, we were encouraged that our social casino portfolio showed sequential revenue growth versus the second quarter, particularly in our largest game, Pop Slots.
Scott Peterson: Our longer-term focus in social casino remains on improving performance of our game to drive growth regardless of the industry backdrop.
Speaker Change: Performance in our casual portfolio was mixed this quarter with some slowing in Tetris and continued strength at Brainium. Some of the drivers of these results included the scaling of advertising, product updates, and full adoption of our loyalty offering.
Speaker Change: Third quarter consolidated adjusted EBITDA was $14.6 million, an 8% increase versus $13.5 million a year ago.
Speaker Change: adjusted EBITDA margins of 20.5% expanded 270 basis points versus a year ago and 100 basis points versus last quarter.
Speaker Change: Gains were driven by an increase in direct-to-consumer sales, a higher mix of advertising revenues, and lower user acquisition spend.
Speaker Change: As discussed in previous calls, we believe there's an opportunity to increase our margins considerably and that we can eventually reach a consolidated adjusted EBITDA margin closer to our peers.
Speaker Change: DAU was $3 million and MAU was $12.7 million in the third quarter, down 16% and 8% respectively from the same period last year.
Speaker Change: DAU declines were broad-based, but largely driven by social casino and Brainium. ARPDAU for the quarter was 26 cents, up 13% from year-ago results.
Speaker Change: Continuing a trend we've seen since the beginning of the year, we saw double digit year-over-year percentage ARPDAU gains in MyVegas, MyKonami, and Brainium.
Speaker Change: Also encouraging was the double-digit year-over-year and sequential ARPDAU gain for POP slots. We're hopeful that these early results can lead to positive long-term momentum.
Speaker Change: Turning to Play Awards, we continue to make progress expanding the functionality and scope of the platform. We closed the quarter with 532 available rewards and 133 rewards partners. Brands added this quarter include Universal Studios, Hoover, Atlantis, Bahamas, and Borgata.
Speaker Change: Nearly 450,000 rewards were purchased during the quarter at a retail value of $25 million.
Speaker Change: As Andrew mentioned, in October we began the process of resetting our cost structure through a plan which consists of a reduction in our total workforce, the suspension of select subscale gains, the consolidation of key functions, and a new technology strategy.
Speaker Change: As a result of this reset, we will be recording a charge in the fourth quarter of between $14 and $16 million, approximately half of which is related to severance and contract termination payments, with the other half related to non-cash charges for the impairment of capitalized software costs and fixed assets.
Speaker Change: We ended the year with approximately $105 million in cash, no borrowings, and full availability of our $81 million revolver.
Speaker Change: As Andrew mentioned, we restarted our share repurchase program and year-to-date have bought back $29.2 million of our stock, or 10% of our total issued stock, through the end of the quarter.
Speaker Change: Our share repurchase authorization currently stands at $45 million. Beyond repurchases, our capital allocation goals remain the same, investing in our businesses and pursuing strategic and accretive M&A.
Speaker Change: Our 2024 Financial Guidance of Revenues in the range of $285 and $295 million and Consolidated Adjusted EBITDA between $55 and $65 million remain unchanged.
Speaker Change: I will now turn the call back to Andrew for some closing remarks.
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Speaker Change: Before we end our prepared remarks and open the call for questions, I'd like to touch on a few highlights.
Speaker Change: We recently launched a comprehensive restructuring which will simplify our business, focus our talent and drive further margin improvements and profitability.
Speaker Change: Despite continuing industry pressures, which are impacting our sales, we were able to grow Adjusted EBITDA by 8% versus a year ago and increase our margin by 270 basis points over the same period. Increased monetization efforts at Las Vegas and Brainy are working.
Speaker Change: For the third quarter in a row, we saw double-digit year-over-year gains in ARPDAU across both titles. We look for momentum to continue to 2025.
Speaker Change: Pixone has been integrated into our operations, and we're making progress on our new Tetris title. Our goal remains to have the new game complete and in the market at some point in 2025.
Speaker Change: And we formally constituted our Sweepstakes Promotions Initiative and look forward to leveraging this promotional mechanic to reinvigorate our social casino portfolio. With that, I'll turn it over to the operator. Operator, please open the line for questions.
Speaker Change: Thank you. We'll now be conducting a question and answer session. If you'd like to be placed into the question queue, please press star 1 on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star 2 if you'd like to move your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1. One moment please while we poll for questions.
Speaker Change: Our first question is coming from Aaron Lee from Macquarie, your line is now live.
Aaron Lee: Hey, good afternoon. Thanks for taking my question.
Aaron Lee: I wanted to start with the double-digit ARPDAT increases for MyVegas and Brainium, and some of the titles you talked about. Can you comment on what the drivers of this growth were and whether you think these gains are sustainable over the coming quarters?
Speaker Change: In the casual portfolio, which is the branding portfolio, as we alluded to, the increases are being driven by some new ad units that we've incorporated into those games.
Speaker Change: And so we hope and expect that we'll continue to enjoy that lift in performance. There are still yet even more ad products and opportunities that we feel we've not yet exploited within that portfolio, and we will in the coming months.
Speaker Change: Within the social casino portfolio, the improvements are being driven primarily by increases in both conversion and PPU, which is up slightly, as well as improvements in RPP. So we can agree to which people that are converting are actually spending.
Speaker Change: So that's translated to the left of the image too.
Speaker Change: Okay, gotcha. That's helpful.
Speaker Change: and then just going, turning to sweepstakes for a second.
Speaker Change: You touched on this in your prepared remarks briefly but any more color you can provide on the initiatives that you're working on to kind of
Speaker Change: reverse some of those headwinds that you're seeing in the My VIP Ability Program. I think you talked about some Swoose Tech's promotional initiatives, but just any more color on what you're working on there.
Speaker Change: Sure.
Speaker Change: As we alluded to on the last call, we believe that the emergence of sweepstakes is a promotional mechanic and
Speaker Change: a driver of monetization is proving to be significant. The scale and magnitude of the games and services that are exploiting sweepstakes is
Speaker Change: very substantial today. I believe it's a $3 billion plus market. And if you look at the games and the underlying services that are being provided, the content, they are free-to-play social casino products.
Speaker Change: And so, what we recognize is that there's an opportunity for us to leverage and exploit our games and our content and our large network of players.
Speaker Change: and use the sweepstakes promotional mechanic to reinvigorate them drive a higher level of engagement, activation and monetization.
Speaker Change: for in exchange for our players deeper engagement. We're just going to enrich the set of capabilities that we have there.
Speaker Change: So, we have a formal team that we've now constituted internally that's advancing all the underlying technology and tools that we'll be using to take advantage of that emotional opportunity going forward.
Speaker Change: Okay, great. Appreciate the color. Sounds very interesting. Cool. Yeah, we're pretty excited about it.
Speaker Change: Thank you. Next question is coming from Ryan Sigdahl from Craig Hallam. Your line is now live.
Speaker Change: Good afternoon, this is Will on Forion. Thanks for taking our questions. Just wanted to follow up quickly on sort of what you saw with Popslots during the quarter. Sounds like a little bit of sequential improvement. Curious maybe going into October and Q4 how the whole portfolio has trended so far.
Speaker Change: Look, I think overall what we've highlighted is that within the portfolio there have been mixed results for the past few quarters. That while we saw some improved performance from MyVegas and Konami, it was more than offset by some of the erosion that we were seeing in the top slots.
Speaker Change: We don't typically break out and speak more specifically to the metrics for each product.
Speaker Change: But, as we alluded to in the opening of the call, we've seen things stabilize with Popslots.
Speaker Change: A lot of the reinvention exercise that we just went through and I alluded to is about bringing a different level of focus and simplicity to the teams that are focused on advancing that product.
Speaker Change: And so, you know, our outlook, we're encouraged. We're encouraged by some of the performance that we're seeing and the opportunities that we have ahead of us to continue to improve its performance.
Speaker Change: So, you know, once we get through this quarter and provide a bit more guidance as to our outlook in the coming year, we'll provide a bit more cover.
Speaker Change: Sounds great. And then maybe following up a bit on sort of monetizing play awards to a greater scale, maybe through a partnership. How have negotiations sort of gone with any potential partners? And any update there would be great.
Speaker Change: So, as we've alluded to in the past few quarters, we went out into the market and started to test the overall interest in our loyalty program and providing it as a service.
Speaker Change: The response was very instructive. People universally recognized how unique the program is to us and were intrigued and wanted to learn more. They also provided fairly specific feedback about some of the points of friction that we'd have to overcome in order to provide it as a service.
Speaker Change: and the Play Awards team has been working pretty diligently on advancing the platform and its capabilities so that we can in fact provide it as a service to third parties.
Speaker Change: With that said, what I will tell you is that we're pumping the brakes a bit on the whole Play Awards as a service opportunity.
Speaker Change: We've invested a lot in it. We still believe it as a long-term driver of our value, but in keeping with the whole refocusing of the company and simplification and really bearing down on the core franchises that are the more immediate drivers of performance and return growth.
Speaker Change: We're going to moderate the investments that we make in generalizing and leveraging PlayAwards as a platform, at least in the relative midterm, and we'll revisit that as we get deeper into the coming year.
Speaker Change: Good to know. Thanks, guys.
Speaker Change: Thank you. As a reminder, that's star one to be placed into question Q. Our next question is coming from Mike Hickey from Benchmark. Your line is now live.
Mike Hickey: Hey Andrew, Scott, Samir, thanks for taking our questions. Just curious on RIF here, pretty meaningful, how's that going to impact
Speaker Change: your existing live services or pipeline.
Speaker Change: When we think about 25 revenue growth, I think we have an idea where you want EBITDA margin to be, but how is this going to impact your revenue growth in 25 and your existing gains.
Speaker Change: Well, that's an excellent question. And I think, you know, it's always been very tough to predict.
Speaker Change: We've certainly worked very hard in the whole redesign of the company and eliminating what is effectively a third of the team in our capacity. We've done everything we can to ensure that we minimize the adverse impact that that will have on our revenue performance.
Speaker Change: but it's difficult to predict.
Speaker Change: What we believe is that while there may be...
Speaker Change: some very near-term.
Speaker Change: lack of predictability or sensibility.
Speaker Change: that the moves and the changes that we've now implemented are going to ultimately translate to our bringing yet even more focus to the right products and initiatives with the best of our talent that is then able to bring about the performance that we think is possible, the unrealized performance and growth that we see in the portfolio.
Speaker Change: So, and it's...
Speaker Change: along with the way of saying hard to really understand what the more immediate adverse impact might be but we pretty firmly believe the changes we've now instituted are going to ultimately enable us to perform better and then have more resources that we can then invest in our future growth.
Speaker Change: So as we get into the new year, I think we'll have a much clearer line of sight on, you know, the overall impact of this restructuring.
Speaker Change: Okay, thank you. The, and then on the...
Speaker Change: the rewards. Hi. This is Scott. I just wanted to add that everything Andrew just said obviously is true. But we still were confident enough to not change our guidance, our year end guidance. So we're still
Speaker Change: feeling like between what we previously published is still gonna we feel like we're going to make it.
Speaker Change: On your rewards, do you think there's
Speaker Change: something wrong with the offering or the mix that you have I mean you look at your
Speaker Change: Dow declined of 16%. I know Social Casino is under pressure but I'm guessing that's worse than the market.
Speaker Change: I mean, do you think you need to sort of reinvigorate your rewards here? What's the disconnect that's not giving you better retention from your player base?
Speaker Change: I actually think that, you know, the down aggregate is down, but it's disproportionately impacted by
Speaker Change: the casual portfolio and Tetris more specifically where we had that spike in engagement and activity in the first quarter. It really resulted in
Speaker Change: just a ton of organic interest in growth. And so those users kind of normalized and the people that were picking up the product more as a novelty, not necessarily as committed long-term new players.
Speaker Change: We've kind of now worked through, so we don't, again, give visibility into the specific composition of our DAU, but it was impacted disproportionately by the declines more in the casual portfolio.
Speaker Change: Okay, last question. Do you think there's any...
Speaker Change: When you look at your
Speaker Change: player base and their engagement.
Speaker Change: your consumer demand to travel to Vegas? I mean is that in part you think the problem or do you think demand for travel is still there or maybe it doesn't matter? Thanks guys.
Speaker Change: actively engaged with, and the more we do to leverage the partnerships that we have in really unique and creative ways, the more it activates our audience.
Speaker Change: So, for example, just last week we concluded our World Tournament of Slots series.
Speaker Change: for over the preceding four to five months.
Speaker Change: We ran a whole collection of...
Speaker Change: in-game events and activations and had unique slot games that we'd introduced.
Speaker Change: that provided our players with an opportunity to win an entry into a real-world slot tournament where we were going to crown the world's best slot player and give away a million dollars.
Speaker Change: and so the level of interest and engagement was incredibly high.
Speaker Change: We had 500 players who participated in that event.
Speaker Change: It was a complement of our own players, a majority, over 80% of the players came from our network, but then we also had nearly 100 players that were provided by our partner which gave us access to some really highly valued and compelling players.
Speaker Change: I think the more what we recognize is that we really need to double down on the more creative executions of different events and activities.
Speaker Change: across the collection of partners we have that that's something that our players really respond to. So we have a bunch of examples of that. We're going to be doing a lot more of that going forward.
Speaker Change: I think generally what that reinforces is that the program is very compelling, but it requires that the underlying rewards and benefits have to align with what the players are interested in and want to take advantage of.
Speaker Change: sort of the core slot and social casino players that we have. They still value everything that we offer in and around the casino industry and casino portfolio partners.
Speaker Change: We need to continue to evolve and test the collection of partners that we offer for our casual games to make sure that those rewards and those partners specifically align with and appeal to those players. That's something we continue to actively work on.
Speaker Change: Thanks, guys. Good luck.
Speaker Change: Yeah, thanks.
Speaker Change: Thank you. Next question is coming from Danny Fletcher from J.P. Morgan. Your line is now live.
Danny Fletcher: Hey, thanks for the questions. For the first, can you maybe unpack what has driven Tetris to slow in the quarter? And if there are any changes you plan on making there, then I have a follow-up. Thanks.
Speaker Change: Yeah.
Speaker Change: As I alluded to a moment ago, the declines in Tetris are just a function of its audience, which spiked in the first part of the year as a result of
Speaker Change: The just social engagement activity that resulted from the 16 year old kid that Beat Tetris for the first time
Speaker Change: So, the Willis effect, as we call it, drove just a spike of growth and performance in the first part of the year, and that's continued to normalize over the last couple of quarters.
Speaker Change: As far as all the plans that we have going forward, I can tell you that Tetris Prime, which is the primary product that we have right now,
Speaker Change: in production has a very rich roadmap and set of features that are going to continue to make the game ever more engaging in terms of its events and activities and play modes.
Speaker Change: and so you'll see those features and the density of kind of events and activities that we actually conduct in-game just improve in the coming months and quarters.
Speaker Change: We, as I alluded to on our last call, had completed a comprehensive refresh of that product, which also provides us with a ton of latitude to incorporate these new features that I mentioned.
Speaker Change: So, a rich road map going forward that hopefully will continue to drive engagement among our existing audience and then will continue to hopefully convert and retain a lot of organic traffic that continues to be very strong for that game.
Speaker Change: Gotcha, and then any color you can provide on a timeline for how long it takes to incubate the sweepstake capabilities and maybe what drove the decision to build rather than buy in this category. Thanks.
Speaker Change: I'll take the second part of the question first. The bill versus buy is a function of economics.
Speaker Change: of overall execution. And so we felt that when we looked at our capabilities and the systems and tools that we already have in place that support our sweepstakes activities that we currently execute, we felt that the incremental effort required on our part to develop those capabilities.
Speaker Change: and the resulting economics that we would then be able to retain and not have to share more than justify
Speaker Change: the Perceived Risk and Time-to-Market Assessment. So, for that reason, we constitute our own effort.
Speaker Change: As far as the time frame and when we expect to be in the market with
Speaker Change: sweepstakes capabilities will be certainly in the first half of this coming year.
Speaker Change: We hope that by the end of the first quarter, we'll be in the market testing and validating our solution and its capabilities.
Speaker Change: and then be in a position where we can incorporate those capabilities and really start to actively promote it in the second quarter time frame.
Speaker Change: That's current. Thanks.
Speaker Change: Yeah.
Speaker Change: Thank you. Next question is coming from David Pang from Steeple. Your line is now live.
David Pang: Great, thanks. I just wanted to follow up on the sweepstakes initiative. Are there any issues of offering the sweepstakes product on mobile and
David Pang: Secondly, can you just talk about how the sweepstake offering could co-exist with your existing player awards offering?
David Pang: Sure.
Speaker Change: So we currently offer within Play Awards a variety of sweepstakes alternatives.
David Pang: engage in playing our games and as they do
David Pang: they accumulate a loyalty currency. They can then go into the loyalty or the benefit store and then they can use that currency to buy a whole variety of different reward types, one of which are sweepstakes.
David Pang: And so you go in and you can use your currency to actually convert and opt into different sweepstakes opportunities.
David Pang: So that's the existing set of capabilities that we have.
David Pang: It's a bit different from the current model that's being exploited by a lot of these sweepstakes providers.
David Pang: where, as people acquire or accumulate more free-to-play game currency, they are rewarded with, as an inducement, increments of free sweepstakes.
David Pang: entries Which they can then actually switch the mode of their game and actually put those at risk They can they can effectively play with them and they can win them and lose them and then ultimately they can convert them for real world value
David Pang: And so that is the added capability that we'll be implementing.
David Pang: We're going to do it in some respects, very much like some of the leading providers in the market, which is with a dedicated web solution. But clearly, what we have is an opportunity to integrate those capabilities into our existing apps, or at least expose that value proposition to our existing players.
David Pang: so that they too can be converted and participate in this promotional opportunity as a complement to their engagement in our core primary games. And I would highlight that's the fundamental difference for us.
David Pang: We fully intend to leverage the sweepstakes model to drive deeper engagement with our existing programs, games,
David Pang: franchise products. So, it's not necessarily just intended to be a standalone alternative to our existing products. It is truly intended to be an enhanced value proposition or offering for those players that engage with our existing products more deeply.
Speaker Change: Got it. Thank you.
David Pang: Yeah.
Speaker Change: Thank you. Next question is coming from Greg Gabas from Northland Securities, your line is now live.
Greg Gabas: Hey, thanks, Andrew, Scott, Samir. Appreciate it. You know, I guess I wanted to follow up on the $25 to $30 million cost savings. You know, where would you say we stand today? Like, did you start implementing these in Q3? And I guess I wanted to ask,
Speaker Change: you know, maybe when you expect to fully realize and fully realize those savings.
Speaker Change: Yeah, so the reduction in our workforce was initiated last week.
Speaker Change: And we'll complete that exercise in the next week to 10 days.
Speaker Change: There are different statutes and practices that we have to adhere to across the various jurisdictions that we're in but we fully expect that we'll complete that exercise as I said in the next week and a half.
David Pang: That is a majority of the cost reductions that we're going to experience. There are others. There are a number of other structural things that we're going to be doing.
David Pang: that will also further reduce our overall operating expenses. We fully expect that those will be realized and implemented throughout the balance of this year so that we enter the new year with the reset base cost structure for the business.
David Pang: and of course all of the more immediate cash implications of the restructuring will be born in the current quarter.
Speaker Change: Great. That's very helpful. And as it relates to, I think, you said $14 to $16 million in Q4. I think you said the kind of severance, contract payouts, capitalized software costs. You just wanted to get a little bit more color on maybe, for modeling purposes, how those should be accounted for, those charges. Great. Thank you, Scott.
Scott Peterson: I'm sorry, could you say that last part again?
Scott Peterson: Yeah, just from a modeling perspective, you know, how we should think about accounting for those charges when they're reported in Q4.
Scott Peterson: I guess it may be either like a rough breakout or will they all be kind of one-time add-backs. In our reconciliation we have a kind of a restructuring and other category they'll be they'll be included there I mean but as I said in my speech it's
Scott Peterson: of the 14 to 16 approximately half is impairment of like you know right off the software cap and then the other half is going to be severance with some other contract terminations etc but it'll be added back and it will be disclosed in our reconciliation of EBITDA.
Speaker Change: perfect that's helpful
Speaker Change: The new Tetris title, you know, you talked about it completed and in market in 2025. Any more kind of specific solar on the timeframe there?
Speaker Change: I don't think so, you know, we
Speaker Change: We're always reluctant to provide overly specific time frames for when a new game is ready to be launched because
Speaker Change: It's just not that deterministic
Speaker Change: If it all goes well, it will be relatively early in the year in the first half of the year, certainly. And if it takes a bit longer for us
Speaker Change: to optimize the product and to hit and see all the performance metrics that we need in order to really lean into it and start to invest in it aggressively, well then it'll stretch into the latter part of the year.
Speaker Change: As we actually get it into the market and we're able to test and validate and get a sense for where it is in the cycle, we can certainly provide a bit of color, but it's hard to predict with any certainty.
Speaker Change: Thank you.
Speaker Change: Okay, that's fair. Thank you.
Speaker Change: Thank you. Next question is from Martin Yang from Oppenheimer. Your line is now live.
Martin Yang: Hi, thank you for taking my question. My first question on the games that are being optimized and impacted. Can you give us more details on, you know, which side of the business is a more social casino or a more casual portfolio that has seen more games being streamlined?
Speaker Change: It really impacts both, although I would say, you know, within the social casino portfolio, you know, we have the core titles, which are MyVegasMobile, Top Slots, MGM Slots Live, and MyKonami Slots.
Speaker Change: streamlined.
Speaker Change: some resources and third-party development resources and support are being leveraged so that we can more efficiently service those products.
Speaker Change: So they're all being impacted, although we're going to continue to invest in them going forward because we believe that there is still opportunity for us to convert more of our players to monetizers and extract more value out of the people that are monetizing.
Speaker Change: So we believe in the growth potential of that core portfolio. There's then a collection of four or five other gains within the social casino category that we're going to continue to sustain, albeit at more modest rates of investment.
Speaker Change: So our classic game that's on the web, our Blackjack product, our Bingo product, will be in a mode that we refer to as a sustain mode.
Speaker Change: So in each case, we'll be restructuring those products and pulling out cost structure.
Speaker Change: And there's one product that we're going to cancel altogether. Within the casual portfolio, we've had a number of Tetris initiatives that we're advancing. One that is the primary product that's live in production, Tetris Prime.
Speaker Change: And then we have three that have been in development, two block puzzle products, our Tetris block puzzle and our product that we're doing with Pixode.
Speaker Change: And then there's Tetris World Tour. We're actually suspending and canceling the World Tour Initiative and advancing the two-part party block puzzle initiatives.
Speaker Change: And then within the Braining portfolio, we are actually going through an evolution of their core titles where we're updating the technologies that we use to execute those products.
Speaker Change: So that we can more easily extend them and incorporate things like the new ad units that I alluded to earlier, but even more importantly, new features and capabilities that allow us to operate those products with a higher level of sophistication.
Speaker Change: So, you know as I just touched on, there isn't really an area of the portfolio that wasn't critically assessed
Speaker Change: either refactored, canceled, or reduced into some form of a maintenance or sustain mode in order to optimize the overall financial performance of the firm.
Speaker Change: Thank you, Andrew. Appreciate the detailed rundown. My next question is about...
Speaker Change: your plan to introduce new state games and How do you think about leveraging your existing IP or existing audience? You know how much synergy do you expect to have in early space of launching those games?
Speaker Change: We think that our existing audience is certainly curious about and actively playing the existing collection of sweeps-enabled products.
Speaker Change: So we think that our existing audience has a very strong interest in this promotional opportunity.
Speaker Change: And so, for that, that's the reason why it's obviously gotten a lot of our attention recently.
Speaker Change: As far as how relevant are our capabilities, and our content, and our tools, we think very. We think we've got incredible brands, franchise products that we've invested in quite a bit.
Speaker Change: and we have a sizable audience.
Speaker Change: We have a lot of content, really unique slot games and experiences and features that we believe will translate well and be relevant here.
Speaker Change: And we believe that there's also the capacity to not only offer a sweepstakes solution as a discrete and separate complement to our existing portfolio, but to actually enable our existing products with sweeps capabilities.
Speaker Change: So we think that we actually have a pretty interesting opportunity to leverage this new promotional mechanic to reinvigorate our social casino offering. So that's our focus.
Speaker Change: Got it. Thank you. That's it for me.
Speaker Change: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further closing comments.
Speaker Change: I appreciate everybody's continued interest you know obviously we've just gone through a pretty dramatic kind of refactoring and reinvention of our business so you know we look forward to seeing how the results translate and to you know speaking to that more directly in our next call so again thanks for your time and energy and look forward to our next call