Playtika Holding Corp. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Playtika develops free-to-play mobile games and generates revenue primarily from virtual-item sales. Financial results are unaudited and presented under U.S. GAAP.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $659.6 million | $659.2 million | $1,336.5 million | $1,298.1 million |
| Operating income | $91.3 million | $165.4 million | $211.7 million | $295.7 million |
| Net income | $36.4 million | $90.0 million | $119.6 million | $125.7 million |
| Adjusted EBITDA (non-GAAP) | $238.9 million | $264.4 million | $459.4 million | $522.4 million |
| Adjusted EBITDA margin | 36.2% | 40.1% | 34.4% | 40.2% |
| Net cash from operating activities | Six-month period: $241.1 million | Prior-year period: $189.9 million |
Q2 operating margin was approximately 13.8%, versus 25.1% a year earlier; six-month operating margin was approximately 15.8%, versus 22.8%. Diluted EPS was $0.09 for Q2 and $0.29 for the six-month period, compared with $0.22 and $0.31, respectively, in 2021.
At June 30, cash and cash equivalents were $1,165.8 million and short-term bank deposits were $75.3 million. Current assets were $1,486.8 million and current liabilities $616.4 million. Debt had a carrying value of $2,429.7 million, comprising a term loan and 4.25% senior notes; no revolver borrowings were outstanding, with $600 million of capacity available. The company reported covenant compliance and a first-priority net senior secured leverage ratio of 0.81x. Management said available liquidity and operating cash flows were expected to cover normal requirements and capital spending for the next 12 months and foreseeable future.
Changes and management commentary
- Q2 revenue was essentially flat year over year; six-month revenue rose approximately 3%. Growth from Reworks, casual games, new content and monetization was offset in Q2 by declines in the casino portfolio, particularly House of Fun and Slotomania, and more challenging market conditions in May and June.
- Average DAUs declined to 9.8 million in Q2 from 10.4 million; average daily paying users increased to 310,000 from 300,000, and ARPDAU increased to $0.74 from $0.70. For the six-month period, DAUs were 10.0 million versus 10.4 million and ARPDAU was $0.74 versus $0.69.
- Operating income and adjusted EBITDA fell as expenses increased. Q2 research and development expense rose $33.4 million and general and administrative expense rose $33.6 million year over year. Higher headcount, compensation, facilities, marketing and Reworks-related costs were among the drivers. Adjusted EBITDA is a non-GAAP measure and includes add-backs for items such as stock compensation, retention-plan expense, contingent consideration, acquisition costs and restructuring-related items.
- Cash from operations increased year over year in the first half. Investing activities used $67.3 million, including $29.9 million net cash paid for the JustPlay acquisition; financing activities used $11.6 million. The filing does not report a free-cash-flow measure.
Outlook, risks and unusual items
- The filing provides no quantified revenue or earnings guidance. Management expects research and development costs to rise as the business expands and plans continued sales and marketing investment; it notes that marketing expense may fluctuate.
- Playtika announced closure of its Montreal, Los Angeles, Helsinki and London studios and other cost-reduction actions. It recorded approximately $3.4 million of related severance expense through June 30 and expected about $3.3 million more in the second half of 2022.
- On August 1, 2022, the buyer and sellers of Reworks agreed to transfer the remaining shares and options for $45 million, resolve specified SPA claims and release escrow funds. The filing reflects the agreement as evidence of an obligation existing at June 30: it records a $45 million liability, including $18.1 million as compensation payable to employee sellers and $26.9 million as contingent consideration. The filing also describes $25 million of earnout-related income in Q1 and $30 million of expense in Q2.
- Playtika acquired JustPlay in March for $42.0 million total consideration, with $29.9 million paid at acquisition and $11.4 million of estimated contingent consideration. The purchase-price allocation was preliminary and expected to be finalized in Q3 2022.
- Key exposures include reliance on third-party app and payment platforms, a limited number of games and paying users, competition and discretionary consumer spending, inflation and economic weakness, and operations in Ukraine and Belarus amid the war and related sanctions and cyber risks. The company also uses variable-rate debt; it estimated that a 100-basis-point rate change would affect annual term-loan interest expense by approximately $13.8 million.
- Contingencies include a German copyright-remuneration claim seeking €8.5 million plus interest, an Israeli proposed class action asserting NIS 50 million in damages, and a U.S. securities class action. The company says it cannot estimate the impact of certain cases; it has recorded a reserve for the German matter and states the final amount could exceed that estimate. A separate U.S. patent case was dismissed and affirmed on appeal.
Most important facts for investors to verify
- Whether the declines in DAUs and core casino games stabilize, and whether higher payer conversion and ARPDAU can sustain revenue.
- Drivers of the substantial year-over-year decline in GAAP operating income and adjusted EBITDA, including recurring versus excluded compensation and restructuring costs.
- Final Reworks and JustPlay purchase accounting, earnout treatment and any further cash or compensation obligations.
- Debt costs and sensitivity to interest rates, covenant headroom, and the durability of operating cash generation and liquidity.
- Progress and additional costs from studio closures, and outcomes or reserve changes in the disclosed litigation and regional operating risks.