Playtika Holding Corp. — Q1 2021 Form 10-Q
Business context and reporting period: The filing covers the three months ended March 31, 2021, compared with Q1 2020. Playtika develops free-to-play mobile games and earns revenue primarily from sales of virtual items. Results are unaudited.
Financial and operating performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $638.9 million | $534.2 million |
| Operating income | $130.3 million | $113.2 million |
| Net income | $35.7 million | $35.8 million |
| Diluted EPS | $0.09 | $0.09 |
| Adjusted EBITDA (non-GAAP) | $258.0 million | $186.1 million |
| Adjusted EBITDA margin (non-GAAP) | 40.4% | 34.8% |
| Net cash used in operating activities | $56.4 million | $48.0 million |
- Revenue increased 19.6%; operating income rose about 6%, while net income was essentially unchanged. Adjusted EBITDA increased about 39%; it excludes, among other items, stock-based compensation and long-term cash compensation.
- Operating expenses rose to $508.6 million from $421.0 million. Cost of revenue was $183.0 million; research and development $85.2 million; sales and marketing $140.1 million; and general and administrative $100.3 million.
- Cash and cash equivalents were $963.8 million at quarter-end, with another $50.0 million in short-term bank deposits. Total debt had a $2.5 billion face value ($2.446 billion book value); there were no revolver borrowings and $600 million of revolver capacity available. Current liabilities were $422.5 million.
- Cash used in investing activities was $71.9 million, including $50 million placed in short-term bank deposits. Financing activities provided $577.0 million, mainly from the IPO and debt refinancing.
- Average DAUs declined to 10.4 million from 11.6 million and average MAUs to 31.4 million from 37.1 million. Average daily paying users increased to 296,000 from 272,000; daily payer conversion rose to 2.8% from 2.3%, and ARPDAU to $0.68 from $0.50.
Material changes and unusual items
- Management attributed revenue growth to improved monetization, new content and product features, and increased engagement across its game portfolio. Growth in revenue through proprietary platforms contributed to total revenue of $115.9 million, up from $61.2 million; third-party platform revenue was $523.0 million, compared with $473.0 million.
- Q1 2021 included $24.3 million of stock-based compensation and approximately $35.2 million of IPO-related bonus expense. Long-term cash compensation expense was $29.8 million, versus $11.0 million in Q1 2020.
- Interest expense and other, net increased to $75.7 million from $58.3 million. The March refinancing generated a $22.9 million write-off of deferred financing costs and $14.5 million of debt-modification expense; management said interest expense before these charges was lower year over year.
- In March, Playtika refinanced its term loan with a $1.9 billion secured term loan and issued $600 million of 4.250% senior notes due 2029. The new term loan matures in 2028; the revolver was expanded to $600 million and extended to 2026.
Outlook, risks and contingencies
- The filing provides no specific revenue or earnings guidance. Management said cash, revolver availability and operating cash flows should be sufficient for normal operating requirements and capital expenditures over the next 12 months and foreseeable future.
- The company identified dependence on third-party distribution and payment platforms, a concentration of revenue in a limited number of games and paying users, competition, indebtedness and restrictive covenants, cybersecurity and intellectual-property risks, and uncertainty related to COVID-19. Management reported no material changes to the risk factors in its 2020 Form 10-K.
- Apple, Google and Facebook accounted for 52%, 30% and 8% of accounts receivable, respectively, at March 31, 2021. Management also noted that a significant portion of revenue is generated through these platforms.
- Ongoing matters include a German storyline-remuneration lawsuit, a Canadian trademark dispute, and a U.S. patent-infringement case that was stayed pending rulings on dismissal motions. The filing says the potential impact of the Canadian and patent cases cannot be estimated clearly; the German reserve could be less than any ultimate amount payable.
- Debt includes floating-rate exposure. Playtika entered into two $250 million interest-rate swaps and reported that a hypothetical 100-basis-point rate change would affect annual interest expense by $14 million. It also had ILS forward contracts totaling 174.1 million shekels, maturing during the rest of 2021.
- Management concluded disclosure controls were effective as of March 31, 2021. The company reported no material subsequent events through the financial-statement review date.
Important facts for investors to verify
- Whether revenue and monetization gains can persist as DAUs and MAUs decline.
- How much reported Adjusted EBITDA growth reflects ongoing operations versus excluded compensation, IPO-related and other items.
- Operating cash flow remains negative despite positive net income; monitor working-capital movements and cash conversion.
- Debt repayment capacity, interest-rate exposure, covenant headroom and the effect of the refinancing on future interest expense.
- Developments in the disclosed lawsuits and any changes in platform policies, fees or revenue concentration.