Business context and reporting period
PLAYSTUDIOS develops free-to-play mobile and social games, principally social casino titles, incorporating its playAWARDS loyalty program. Revenue comes mainly from virtual-currency purchases, with advertising and other revenue also contributing. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2022; financial amounts below are in millions unless noted.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $68.4 | $70.8 | $138.8 | $144.9 |
| Operating loss | $(5.6) | $(13.0) | $(20.4) | $(5.4) |
| Net income (loss) | $5.5 | $(7.0) | $(19.7) | $(1.1) |
| Adjusted EBITDA, non-GAAP | $7.3 | $3.4 | $16.4 | $17.9 |
| Adjusted EBITDA margin, non-GAAP | 10.7% | 4.8% | 11.8% | 12.4% |
Q2 gross profit, calculated as revenue less cost of revenue, was $47.4 million (69.4% margin), versus $47.8 million (67.5%) a year earlier. Six-month gross profit was $96.9 million (69.8%), versus $97.4 million (67.2%). GAAP operating margins were negative 8.2% in Q2 2022 and negative 14.1% in Q2 2021; for the six-month periods they were negative 14.7% and negative 3.8%, respectively.
Q2 net income included a $12.3 million income tax benefit despite a $6.8 million pretax loss. For the six months, the company reported a $4.4 million tax benefit, but a $24.1 million pretax loss. The reported effective tax rates were 181.5% for Q2 and 18.3% for the six-month period; tax benefits and rates were affected by jurisdictional mix, credits, nondeductible items, and valuation allowances.
Revenue from virtual currency fell 8.5% in Q2 and 9.2% for the six months year over year. Advertising revenue rose to $3.5 million in Q2 from $1.1 million and to $7.6 million for six months from $1.9 million. Average DAU increased 17.2% in Q2 and 20.4% for six months, while average DPU declined 14.7% and 14.3%, respectively. Daily payer conversion fell to 2.0% from 2.7% in Q2 and to 2.0% from 2.8% for six months; ARPDAU declined to $0.51 from $0.62 and to $0.50 from $0.64.
Cash provided by operating activities was $20.9 million for the six months, compared with $15.1 million a year earlier. Investing activities used $12.1 million, versus $21.2 million; financing activities used $1.1 million, compared with $187.2 million provided in 2021, which included Business Combination and PIPE proceeds. Cash and cash equivalents were $220.6 million at June 30, 2022, up from $213.5 million at year-end. Current assets were $244.0 million and current liabilities $34.8 million. The company had no borrowings under its revolving credit facility; the facility was $75 million at June 30. There was no funded long-term debt reported on the balance sheet. Warrant liabilities totaled $8.3 million.
Material changes and unusual items
- Management attributed user growth to the addition of Tetris and MGM Slots Live. The higher-volume, lower-monetizing Tetris app diluted conversion and ARPDAU; lower paying-user counts drove the virtual-currency revenue decline.
- Six-month operating expenses rose 5.9% to $159.2 million, including $10.2 million of restructuring and related expense. This included an $8.4 million noncash impairment charge associated with the suspension of Kingdom Boss development, along with tender-offer and potential M&A-related costs.
- In an April–May warrant tender offer, holders tendered approximately 1.8 million public warrants for $1.00 each; none of the private warrants were tendered, and a proposed warrant-agreement amendment was not approved. The company reported $1.8 million paid for the warrants and $1.1 million of related fees and expenses.
- Class A shares outstanding were 111.9 million at June 30, compared with 110.1 million at December 31, 2021; Class B shares were 16.1 million. Stock-based compensation expense was $10.0 million for the first six months, versus $2.9 million a year earlier.
Outlook, risks, and contingencies
The filing provides no specific revenue, earnings, or other numerical guidance. Management said cash, operating cash generation, and available credit were expected to fund operations and capital expenditures for the foreseeable future, while noting potential needs for investment or additional financing to support growth, game development, infrastructure, or acquisitions.
Subsequent to quarter-end, the company purchased its Las Vegas headquarters property on July 29 for approximately $5 million, terminating the lease and eliminating about $2.1 million of remaining lease payments. On August 2, a subsidiary acquired substantially all assets of WonderBlocks for $2.0 million less specified indebtedness, with up to $3 million in additional milestone-based payments. On August 9, a credit agreement amendment increased available capacity to $81 million, changed the interest-rate basis from LIBOR to SOFR, and modified covenant exclusions for specified property and warrant-repurchase spending.
Material disclosed risks include dependence on Apple, Google, Amazon, and Facebook for distribution and payment processing; competition and player monetization; reliance on licensed content and rewards partners, including MGM; privacy, cybersecurity, and regulatory exposure; economic conditions and inflation; and the ability to retain talent and execute acquisitions. The company cited labor shortages, employee attrition, and uncertainty from COVID-19 and its effects on players, partners, and reward redemption.
The company disclosed a shareholder securities class action alleging misstatements and omissions concerning Kingdom Boss development and company prospects; it says it intends to defend the case and has made no accrual because loss cannot be reasonably estimated. It also disclosed TeamSava litigation seeking 27.3 million NIS; the company disputes the claims and likewise has not accrued a loss. Management reported disclosure controls effective at the reasonable-assurance level and no material change in internal control over financial reporting during the quarter.
Key investor verification points
- Assess whether growth in DAU and MAU can translate into improved paying-user conversion, ARPDAU, and virtual-currency revenue.
- Review the sustainability of Q2 net income, which depended on a large income tax benefit despite an operating and pretax loss; compare GAAP results with non-GAAP Adjusted EBITDA.
- Track the effects of the Kingdom Boss suspension, impairment, and restructuring on future costs, product pipeline, and cash generation.
- Confirm the costs, covenant implications, and execution status of the headquarters purchase, WonderBlocks acquisition, and warrant-repurchase authorization.
- Monitor platform and licensing dependence, MGM rewards and agreement performance requirements, remaining warrants and potential share dilution, and developments in the disclosed lawsuits.