PLAYSTUDIOS, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Financial statements are unaudited; amounts below are in millions of dollars unless stated otherwise.
Business context
PLAYSTUDIOS develops and operates free-to-play mobile and social games, including social casino titles. Revenue primarily comes from virtual currency purchases, with additional advertising and other revenue. Its playAWARDS loyalty program offers players real-world rewards through partner businesses.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $72.1 | $70.6 | $210.9 | $215.5 |
| Operating loss | $(3.2) | $(0.8) | $(23.6) | $(6.2) |
| Net income (loss) | $3.6 | $11.2 | $(16.1) | $10.1 |
| Adjusted EBITDA | $9.8 | $9.6 | $26.2 | $27.6 |
| Adjusted EBITDA margin | 13.5% | 13.7% | 12.4% | 12.8% |
| Cash from operating activities | — | $31.2 | $20.8 |
Q3 gross margin, calculated as revenue less cost of revenue before depreciation and amortization, was approximately 69.9%, versus 68.4% a year earlier. Nine-month gross margin was approximately 69.8%, versus 67.6%. Operating margins were approximately (4.4)% for Q3 and (11.2)% for the nine-month period.
Q3 net income included $4.7 million of non-cash income from the change in fair value of warrant liabilities and a $1.8 million income tax benefit. For the first nine months, the company recorded an $8.4 million non-cash impairment charge related to suspending development of Kingdom Boss; the period also included $1.1 million of net warrant fair-value income and a $6.2 million tax benefit.
Liquidity, cash flow and debt
At September 30, cash and cash equivalents were $212.1 million, total current assets were $236.7 million, and current liabilities were $27.4 million. The company reported no borrowings under its revolving credit facility; total available capacity had been increased to $81 million. Total liabilities were $30.4 million. Cash declined $1.4 million from year-end 2021.
For the first nine months, operating activities provided $31.2 million; investing activities used $26.1 million, including $10.9 million for property and equipment and $15.6 million for internal-use software; financing activities used $5.6 million. Management stated existing cash, operating cash generation and available credit should fund operations and capital expenditures for the foreseeable future, while noting potential future needs for investment or acquisitions.
Changes versus the prior comparable periods
- Q3 revenue rose 2.2%, while nine-month revenue declined 2.1%. Virtual currency revenue fell 5.3% in Q3 and 7.9% year to date; advertising revenue increased 189.3% and 248.2%, respectively. Q3 and nine-month other revenue included short-term licensing arrangements.
- Average DAU and MAU rose 24.6% and 87.1% in Q3, and 21.7% and 74.4% year to date, driven partly by Tetris and MGM Slots Live. Average paying users fell, and payer conversion and ARPDAU declined; management attributed dilution in these monetization measures to Tetris’s high volume and lower monetization.
- Operating costs and expenses increased 5.5% in Q3 and 5.8% year to date. Year-to-date operating loss widened to $23.6 million, while net results shifted to a $16.1 million loss from $10.1 million of income.
- Adjusted EBITDA was nearly flat in Q3 but declined 5.0% for the first nine months. The comparison reflects changing warrant fair-value gains and, in 2022, the Kingdom Boss impairment and other restructuring-related costs.
Outlook, transactions and risks
- The filing provides no quantified revenue, earnings or other formal guidance. Management cited continued investment in games, technology and acquisitions and identified uncertainty around player spending, competition, labor costs and economic conditions.
- In August, the company acquired substantially all assets of WonderBlocks for $3.6 million of total recorded consideration, including $1.6 million contingent consideration, to support potential Web3 features for playAWARDS.
- After quarter-end, Brainium Studios was acquired on October 12 for $70 million at closing, subject to purchase-price adjustments, with up to $27.3 million additional contingent consideration. Purchase accounting was not finalized in the filing.
- The company purchased its Las Vegas headquarters property for approximately $5 million in July and terminated the related lease. Future minimum lease commitments reported at quarter-end were $13.2 million.
- Material risks include dependence on Apple, Google, Amazon and Facebook for distribution and payments; reliance on a small share of paying players and on partner-provided rewards, including MGM; game monetization and development execution; privacy, cybersecurity and regulatory exposure; and acquisition integration and contingent-payment risk.
- Two litigation matters warrant attention: a TeamSava claim seeking 27.3 million NIS, for which no loss accrual was recorded, and a securities class action alleging misstatements concerning Kingdom Boss and financial projections, also without an accrual because loss could not be reasonably estimated.
- The filing reports a $50 million stock repurchase authorization, extended through November 10, 2023; no Class A shares had been repurchased under the program as of September 30. The company also remains subject to warrant-related dilution and non-cash fair-value volatility. Founder Group control exceeds 70% of voting power through the dual-class structure.
Important facts for investors to verify
- Whether declining virtual currency revenue, payer conversion and ARPDAU stabilize, and whether growth in advertising and other revenue can offset that weakness.
- How the Kingdom Boss impairment and elevated operating costs affect future operating performance and cash generation.
- Brainium’s final purchase accounting, integration results and any contingent consideration payable; also the progress and economics of WonderBlocks.
- The status and potential exposure of the TeamSava and securities class-action litigation.
- Future cash deployment, including acquisitions, the repurchase program and warrant activity, alongside compliance with credit-facility covenants.