Playtika Holding Corp. — Q3 2022 Form 10-Q
Business context and reporting period. Playtika develops and operates free-to-play mobile and web games, monetizing primarily through virtual-item sales. This unaudited filing covers the quarter and nine months ended September 30, 2022; comparisons are with the same 2021 periods. The company reports one operating and reportable segment.
Financial and operating performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $647.8 million | $635.9 million | $1,984.3 million | $1,934.0 million |
| Operating income | $131.4 million | $154.5 million | $343.1 million | $450.2 million |
| Net income | $68.2 million | $80.5 million | $187.8 million | $206.2 million |
| Diluted EPS | $0.17 | $0.20 | $0.46 | $0.50 |
| Credit Adjusted EBITDA margin | 31.4% | 34.1% | 30.4% | 34.8% |
- Revenue rose 1.9% in Q3 and 2.6% year to date. Management attributed growth to selected non-slot games, the Reworks acquisition, and monetization and content improvements, partly offset by declines in certain slot games.
- Operating income declined 15.0% in Q3 and 23.8% year to date. Higher research and development, sales and marketing, and other operating costs outpaced revenue growth.
- Average DAUs fell to 9.0 million in Q3 from 10.4 million; average MAUs fell to 30.2 million from 35.4 million. Average DPUs rose to 310,000 from 293,000, payer conversion to 3.4% from 2.8%, and ARPDAU to $0.78 from $0.67.
- Cash from operations was $316.3 million for the nine months, versus $383.8 million in 2021. Investing activities used $16.2 million, compared with $569.4 million, largely reflecting lower acquisition spending. Financing activities used $43.2 million.
Balance sheet, debt and liquidity
- At September 30, 2022, cash and cash equivalents were $1,255.4 million; total assets were $2,993.4 million and total liabilities were $3,081.8 million. Stockholders’ deficit was $88.4 million.
- Debt book value was $2,426.7 million: a term loan and senior notes, with no revolver borrowings. The company reported $600 million of available revolving-credit capacity and compliance with debt covenants; its first-priority net senior secured leverage ratio was 0.79x.
- After quarter-end, the company completed a tender offer for 51.8 million shares at $11.58 per share, for $600 million excluding expenses—approximately 12.6% of shares outstanding at September 30. Management said cash and cash equivalents after the offer were approximately $650 million.
Material changes, outlook and risks
- Cost increases included higher headcount and compensation, stock-based compensation, marketing, and amortization. Nine-month stock-based compensation expense was $106.8 million, versus $72.8 million.
- In Q2, Playtika announced closures of its Montreal, Los Angeles, Helsinki and London studios and other cost reductions. It recorded $6.1 million of related severance expense through September and expected approximately $0.9 million more in Q4. No impairment was recorded, but management warned Reworks could require a potentially material impairment if performance deteriorates or assumptions change.
- The March 2022 acquisition of JustPlay had $42.0 million total consideration, including contingent consideration. A separate Reworks contractual dispute was settled in August 2022; Playtika paid $45 million for the remaining shares and released $15.5 million from escrow, with no remaining liability reported at quarter-end.
- No specific revenue or earnings guidance is provided in the filing. Management said available cash, operating cash flows and revolver capacity should fund normal operating needs and capital expenditures for the next 12 months and foreseeable future; the tender offer materially reduced cash after quarter-end.
- Key risks include discretionary consumer spending amid inflation or recession, reliance on a limited number of games and third-party distribution platforms, indebtedness and floating-rate exposure, and operational or cyber disruption related to the war in Ukraine and operations in Ukraine and Belarus. Apple and Google represented 45% and 34% of receivables, respectively, at September 30.
- Contingencies include an Israeli proposed class action alleging certain games constitute illegal gambling, a securities class action, and other intellectual-property litigation. The filing says the company cannot estimate the impact of certain cases; the German copywriter case has a recorded reserve, but final amounts could exceed it.
Most important facts for investors to verify
- Whether payer growth and improved monetization can offset falling DAUs and MAUs, including declines in certain slot titles.
- The cash, share count and capital-allocation effects of the completed $600 million tender offer, and liquidity remaining after it.
- Debt interest-rate sensitivity, refinancing and covenant terms, including the impact of higher floating rates.
- Progress and costs from studio closures, Reworks performance and any impairment indicators.
- Developments in the disclosed litigation, the potential outcomes of which are not fully estimable in the filing.