PLAYSTUDIOS, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. The company develops free-to-play mobile and social games, earning revenue from virtual currency, advertising and other sources. Figures below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $77.8 | $68.4 | $157.9 | $138.8 |
| Gross profit / margin | $58.9 / 75.7% | $47.4 / 69.4% | $119.5 / 75.7% | $96.9 / 69.8% |
| Operating loss | $(1.8) | $(5.6) | $(4.1) | $(20.4) |
| Net income (loss) | $(0.8) | $5.5 | $(3.3) | $(19.7) |
| Adjusted EBITDA (non-GAAP) | $16.3 | $7.3 | $34.0 | $16.4 |
| Adjusted EBITDA margin | 20.9% | 10.8% | 21.6% | 11.8% |
Q2 diluted loss per share was $0.01; six-month diluted loss per share was $0.03. Gross profit is calculated as revenue less cost of revenue; margins are derived from reported amounts.
- Revenue mix: Q2 virtual currency revenue was $61.6 million, down 3.5%; advertising revenue was $14.3 million, up 311.6%; other revenue was $1.8 million. For the first half, virtual currency revenue fell 2.9% to $126.0 million while advertising revenue rose 262.8% to $27.4 million.
- Operating cash flow: $23.9 million for the first half, versus $20.9 million in 2022. Investing used $14.2 million and financing used $15.6 million, including $15.5 million of share repurchases. Cash declined $6.3 million from year-end.
- Balance sheet: Cash and equivalents were $127.7 million at June 30, compared with $134.0 million at December 31, 2022. Current assets were $169.5 million and current liabilities $38.2 million. Total liabilities were $50.2 million; there were no borrowings outstanding under the $81 million revolving credit facility. Lease liabilities totaled $13.7 million.
Changes versus prior comparable period
- Revenue grew 13.8% in both Q2 and the first half, principally from advertising expansion, including contributions from the Brainium acquisition and Tetris-branded games. Management attributed advertising growth to more impressions and increased opportunities for players to engage with ads.
- Virtual currency revenue declined, which management attributed primarily to fewer daily paying users. Average daily payer conversion fell from 2.0% to 0.7%; average daily revenue per daily active user declined from $0.51 to $0.23 in Q2. Average daily active users rose 148.5% to 3.651 million, reflecting the addition of games with advertising-led monetization.
- Operating loss narrowed, but the company remained loss-making. Lower cost of revenue and selling and marketing expense were partly offset by higher research and development, general and administrative, and depreciation and amortization costs.
- Depreciation and amortization rose 34.1% in Q2 to $11.1 million, mainly due to acquisitions, license renewals and property depreciation. Q2 net loss also contrasts with prior-year net income, which included a $12.3 million income tax benefit.
Outlook, risks and unusual items
- Outlook: No specific revenue, earnings or other quantitative guidance is provided. Management said existing cash, operating cash generation and available credit are expected to fund operations and capital expenditures for at least the next 12 months, while noting potential funding needs for growth initiatives or acquisitions.
- Restructuring: A reorganization begun in February 2023 reduced global headcount by approximately 14%, substantially completed by quarter-end. The company reported $3.2 million of related costs and estimated total charges of approximately $3.5 million; estimates may change.
- Share repurchases: The company repurchased $15.5 million of stock in the first half. By June 30 it had acquired 4.7 million shares for $20.0 million under its $50 million program, with $30.0 million remaining and the program scheduled to run through November 10, 2023.
- Contingencies: Disclosed matters include a TeamSava claim seeking 27.3 million NIS, a securities class action, and player claims alleging illegal gambling under Alabama and Kentucky law. The company disputes the claims, has not accrued losses, and says it cannot reasonably estimate the probability or amount of loss for these matters.
- Operating risks: Dependence on app and social platforms, including their fees and policy decisions; changes in player spending and game monetization; competition and game-development execution; and foreign-exchange exposure. Apple represented 45.1% and Google 21.2% of receivables at June 30. The company does not hedge foreign-currency exposure.
- Other items: Warrant fair-value changes reduced Q2 results by $1.8 million. The filing reports effective disclosure controls and no material change in internal control over financial reporting during the quarter. It reports no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- Whether advertising growth can offset continued weakness in virtual currency revenue and payer conversion, and how much reported growth reflects acquired games.
- Whether active-user and monetization metrics remain comparable across legacy, Tetris and Brainium games, given their different counting methods and revenue models.
- Cash generation after software-development investment, buybacks and restructuring costs, and the extent to which adjusted EBITDA reconciles to GAAP results.
- Progress and final costs of the reorganization, and use of the remaining repurchase authorization.
- Developments in the disclosed litigation and potential exposure, which the company says cannot currently be estimated for certain claims.