Playtika Holding Corp. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Playtika develops and operates free-to-play mobile games and generates revenue mainly from sales of virtual items. Unless stated otherwise, amounts are in U.S. dollars.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $630.1 million | $647.8 million | $1,929.1 million | $1,984.3 million |
| Operating income | $90.0 million | $131.4 million | $381.6 million | $343.1 million |
| Net income | $37.9 million | $68.2 million | $197.7 million | $187.8 million |
| Diluted EPS | $0.10 | $0.17 | $0.54 | $0.46 |
| Credit Adjusted EBITDA (non-GAAP) | $205.6 million | $203.5 million | $643.3 million | $602.5 million |
Q3 operating margin was approximately 14.3%, versus 20.3% a year earlier; net margin was 6.0%, versus 10.5%. Credit Adjusted EBITDA margin was 32.6%, versus 31.4%. For the first nine months, operating margin was approximately 19.8%, versus 17.3%, and Credit Adjusted EBITDA margin was 33.3%, versus 30.4%.
- Cash flow: Nine-month operating cash flow was $336.3 million, compared with $316.3 million. Investing used $215.3 million, including $160.6 million of net cash for business combinations; financing used $12.1 million. Cash, cash equivalents and restricted cash ended the period at $880.1 million.
- Liquidity and debt: Cash and cash equivalents were $878.2 million. Debt book value was $2,419.3 million, comprising a $1,826.1 million term loan and $593.2 million senior notes; no revolver borrowings were outstanding, with $600 million available. The term loan carried an 8.180% stated rate at period end; the notes bear 4.25% and mature in 2029. The company reported compliance with debt covenants and a first-priority net secured leverage ratio of 1.16x against a 6.25x covenant limit.
- Balance sheet: Total assets were $2,977.6 million and total liabilities were $3,259.5 million; stockholders’ deficit was $281.9 million. Goodwill increased to $1,005.2 million, principally reflecting acquisitions.
Changes versus comparable periods
- Revenue declined 2.7% in Q3 and 2.8% for the nine-month period. Management attributed the declines to weakness in certain casual and slot-themed games, partly offset by growth in select casual titles, acquisitions and monetization improvements.
- Q3 net income fell $30.3 million year over year, while nine-month net income rose $9.9 million. Q3 operating income included a $41.6 million impairment charge for Redecor; nine-month impairment charges totaled $51.3 million, including a $9.7 million JustPlay.LOL write-off.
- Lower research and development and sales and marketing expenses, including effects of headcount reductions and lower media-buy spending, supported nine-month operating income. Higher interest expense partly offset these savings: nine-month interest expense rose to $113.3 million from $81.1 million, primarily due to higher average variable rates.
- Average DAUs fell to 8.4 million from 9.0 million in Q3 and to 8.7 million from 9.7 million for nine months. ARPDAU increased to $0.81 from $0.78 in Q3 and to $0.81 from $0.75 for nine months. Average MAUs also declined.
- Direct-to-consumer revenue increased to $161.0 million from $150.7 million in Q3; third-party-platform revenue declined to $469.1 million from $497.1 million. Direct-to-consumer sales generally incur lower payment fees than third-party platform sales.
Outlook, risks and unusual items
- The filing gives no specific revenue, earnings or other quantitative guidance. Management said cash, operating cash flow and available revolver capacity should fund normal operating requirements and capital expenditures for the next 12 months and foreseeable future.
- Playtika acquired the Youda Games portfolio in August and InnPlay Labs in September. Purchase-price allocations were preliminary and expected to be finalized in Q4 2023. InnPlay consideration includes earnouts of up to $220 million; Youda’s total consideration may reach EUR 150 million. Acquisition-related contingent consideration totaled $77.4 million on the balance sheet.
- Management said Redecor updates were intended to improve performance, but it was too early to assess their effect. Approximately $44 million of remaining Redecor carrying value could be impaired if performance does not improve.
- After quarter end, the October 7 attack on Israel and ensuing war had no direct material financial impact as of the filing date, according to the company. Playtika said approximately 1,100 employees are based in Israel and about 150 had been called up for military reserve duty. Further escalation could disrupt operations.
- Other risks include dependence on a limited number of games, third-party distribution and payment platforms, and a small share of users for a significant portion of revenue; competition; variable-rate debt; and legal and regulatory matters. The filing describes multiple pending disputes, including claims alleging that social casino games constitute illegal gambling, securities litigation, and a tax dispute over an aircraft import assessment of approximately $3.6 million, paid under protest.
Important facts for investors to verify
- Whether Redecor’s recent operating changes improve results and avoid further impairment.
- Final purchase-price allocations and performance-based earnouts for Youda and InnPlay, and the acquisitions’ contribution to growth and cash flow.
- Trends in daily and monthly active users, monetization, and the mix of direct-to-consumer versus third-party-platform revenue.
- Interest-rate exposure, debt service costs and covenant headroom as variable borrowing rates change.
- Operational effects of the Israel war, including reserve-duty staffing disruptions, and developments in the company’s legal and tax contingencies.