Playtika Holding Corp. — Q1 2022 10-Q
Reporting period: Three months ended March 31, 2022. Playtika develops free-to-play mobile and web games and earns revenue primarily from sales of virtual items.
Financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $676.9 million | $638.9 million | +6% |
| Operating income | $120.4 million | $130.3 million | -8% |
| Net income | $83.2 million | $35.7 million | +133% |
| Diluted EPS | $0.20 | $0.09 | +$0.11 |
| Adjusted EBITDA (non-GAAP) | $220.5 million | $258.0 million | -15% |
| Adjusted EBITDA margin | 32.6% | 40.4% | -7.8 percentage points |
| Operating cash flow | $58.1 million | $(56.4) million | Improved |
Gross profit was $490.0 million, or approximately 72.4% of revenue, compared with $455.9 million, or 71.4%, a year earlier. Operating margin was approximately 17.8%, down from 20.4%; net margin rose to 12.3% from 5.6%. The lower effective tax rate and reduced interest expense contributed to higher net income despite lower operating income.
Cash and cash equivalents were $885.8 million and short-term bank deposits were $222.1 million at quarter-end, totaling $1.108 billion; restricted cash was $2.0 million. Total debt book value was $2.433 billion, including $12.2 million current maturities. The $600 million revolver was undrawn, and the company reported covenant compliance. Stockholders’ deficit was $240.0 million.
Cash, cash equivalents and restricted cash declined $131.2 million during the quarter. Investing cash outflow was $180.3 million, including $122.1 million placed in short-term bank deposits and $29.3 million paid for the JustPlay acquisition, net of cash acquired.
Changes and management commentary
- Revenue increased $38.0 million, which management attributed primarily to the Reworks acquisition, monetization improvements, new content and product features, and engagement across the portfolio.
- Average DAUs declined to 10.1 million from 10.4 million, while average DPUs increased to 323,000 from 296,000; payer conversion rose to 3.2% from 2.8% and ARPDAU to $0.74 from $0.68. Average MAUs were 31.7 million versus 31.4 million.
- Research and development expense rose $27.5 million and sales and marketing rose $39.6 million, reflecting Reworks, higher headcount and payroll, facilities costs, and increased media buying. Cost of revenue increased $3.9 million.
- General and administrative expense fell $23.1 million. Q1 2022 included an approximately $23 million reduction in contingent consideration; Q1 2021 included approximately $35.4 million in IPO-related bonuses. Excluding these items, G&A increased, including costs related to evaluating strategic alternatives.
- Interest expense and other, net fell to $27.5 million from $75.7 million, mainly because Q1 2021 included refinancing-related charges and a write-off of original issue discount. The 2022 effective tax rate was 10.4%, versus 34.6%, primarily reflecting a discrete tax benefit from releasing a valuation allowance on certain foreign deferred tax assets.
Acquisition, outlook and risks
Playtika acquired JustPlay.LOL Ltd. on March 23, 2022 for total consideration of $59.9 million, including $30.0 million of contingent consideration; $29.3 million was paid by quarter-end, net of cash acquired. The initial purchase-price allocation is subject to change, and JustPlay’s post-acquisition results were excluded as immaterial. The filing provides no quantified revenue or earnings guidance. Management said available cash, deposits, revolver capacity and operating cash flows should meet normal operating needs and capital expenditures for the next 12 months and foreseeable future.
Adjusted EBITDA declined despite revenue growth; it is a non-GAAP measure and includes adjustments for items such as stock compensation, retention-plan costs and other items. Q1 2022 adjustments included $8.8 million of severance and $3.0 million of relocation and employee support costs related to the war in Ukraine. Other key risks include dependence on a limited number of games, third-party app-store and distribution platforms, and a small share of paying users; substantial indebtedness and floating-rate exposure; competition; and COVID-19 uncertainty. The company has significant operations in Ukraine and Belarus and disclosed risks from conflict, sanctions, disruption and cyberattacks. It also reported loss of commercial general liability insurance coverage in Ukraine.
Contingencies include a German copyright claim, a Canadian trademark suit, an appealed patent case, and a putative securities class action. The company said it could not estimate the impact of certain pending cases. Management concluded disclosure controls were effective as of March 31, 2022.
Important facts for investors to verify
- Whether revenue growth and improved payer metrics can offset declining DAUs and the sharp year-over-year decline in Adjusted EBITDA margin.
- The final JustPlay purchase-price allocation, contingent consideration assumptions and contribution to results after acquisition.
- Cash generation, working-capital trends, acquisition and investment spending, and the company’s ability to service approximately $2.43 billion of debt.
- Exposure to Ukraine and Belarus operations, sanctions, cyber and business-continuity risks, and the effect of lost insurance coverage in Ukraine.
- The assumptions behind non-GAAP Adjusted EBITDA and one-time adjustments, and the progress and potential costs of evaluating strategic alternatives.