Playtika Holding Corp. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Playtika develops free-to-play mobile games and generates revenue primarily from virtual-item sales. Amounts below are in U.S. dollars; financial amounts are in millions unless noted.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $659.2 | $650.5 | $1,298.1 | $1,184.7 |
| Gross profit / margin | $475.3 / 72.1% | $457.9 / 70.4% | $931.2 / 71.7% | $826.2 / 69.7% |
| Operating income (loss) / margin | $165.4 / 25.1% | $(72.0) / (11.1)% | $295.7 / 22.8% | $41.2 / 3.5% |
| Net income (loss) | $90.0 | $(139.6) | $125.7 | $(103.8) |
| Diluted EPS | $0.22 | $(0.37) | $0.31 | $(0.27) |
| Adjusted EBITDA / margin | $264.4 / 40.1% | $283.2 / 43.5% | $522.4 / 40.2% | $469.4 / 39.6% |
Q2 revenue rose 1.3% year over year; first-half revenue grew 9.6%. Management attributed growth to improved monetization, new content and features, and engagement across its game portfolio. Q2 average DAUs declined to 10.4 million from 11.8 million, while average DPUs were 300,000 versus 315,000. Payer conversion increased to 2.9% from 2.7%, and ARPDAU rose to $0.70 from $0.61. Average MAUs were 36.1 million in both Q2 periods.
Q2 Adjusted EBITDA declined 6.6% year over year despite revenue growth; its margin fell 3.4 percentage points. For the first half, Adjusted EBITDA increased 11.3% and margin rose 0.6 points. This non-GAAP measure excludes, among other items, stock-based compensation, long-term cash compensation, acquisition-related costs and legal settlements.
Cash flow, liquidity and debt
- First-half operating cash flow was $189.9, versus $183.1 in 2020. Investing used $98.6, including $50.0 placed in short-term deposits; financing provided $570.7, principally reflecting the IPO and debt refinancing.
- Cash and cash equivalents were $1,179.7 at June 30, 2021; short-term deposits were $50.0 and restricted cash was $2.7. Total cash, cash equivalents and restricted cash increased to $1,182.4 from $523.6 at year-end 2020. Management stated available liquidity and operating cash flow should meet normal requirements and capital expenditures for the next 12 months and foreseeable future.
- Debt book value was $2,440.8 ($2,495.3 face value): a $1.9 billion term loan and $600 million of 4.25% senior notes due 2029. The term loan matures in 2028; its stated rate was 2.843% at June 30. No revolver borrowings were outstanding; the $600 million facility was available. Cash and deposits less debt book value imply net debt of approximately $1,211.1.
- The company refinanced its term loan in March and issued the notes. It recorded $22.9 of prior financing-cost write-offs and $14.5 of debt-modification expense. First-priority net secured leverage was 0.75x, compared with a 6.25x revolving-facility covenant limit; the company reported compliance.
Material changes, outlook and risks
Operating expenses reflect significant year-over-year comparability effects. Q2 2020 included $260.3 of stock-based compensation and a $37.6 legal settlement, versus $25.5 of stock compensation and no comparable settlement in Q2 2021. These items materially affected reported profit comparisons. R&D and sales and marketing expenses increased in 2021, mainly with higher headcount, compensation and marketing investment. First-half 2021 G&A also included $35.2 of IPO-related bonus expense. The IPO raised $470.4 net proceeds, and the company completed a 400-for-1 stock split in January 2021.
The filing provides no specific numerical revenue or earnings guidance. Management expects continued investment in R&D and sales and marketing, and says interest expense will fluctuate with variable rates. Two interest-rate swaps hedge $500 million of variable-rate exposure through 2026; a hypothetical 100-basis-point rate change would affect annual interest expense by $14.0 after swaps. The company also had forward contracts to purchase 130.6 million ILS, maturing within 12 months.
Key disclosed risks include reliance on third-party distribution and payment platforms (including Apple, Google and Facebook), concentration of revenue among a limited number of games and paying users, competition, indebtedness and covenants, international operations, cybersecurity, regulation, and COVID-19 uncertainty. Apple represented 54% of accounts receivable at June 30, up from 38% at year-end. The company reported no material changes to the risk factors in its 2020 Form 10-K. A patent case was dismissed on July 7, 2021 after the court found the asserted patents invalid; the plaintiff indicated an intent to appeal. Other disclosed litigation includes a German copyright case with a recorded reserve that could be insufficient and a Canadian trademark case whose impact the company could not estimate.
Important facts for investors to verify
- Whether revenue and monetization trends can persist despite lower Q2 DAUs and DPUs, and the extent to which proprietary-platform growth continues.
- How much of reported earnings and Adjusted EBITDA reflects recurring operations versus stock compensation, retention costs, IPO bonuses, acquisition costs and other adjustments.
- Debt repayment capacity, refinancing terms, variable-rate exposure, covenant headroom and the use of the $600 million revolver availability.
- Platform concentration and exposure to changes in Apple, Google or Facebook policies, fees and payment arrangements.
- Developments in the patent appeal, copyright and trademark litigation, and any change in reserves or potential exposure.