PLAYSTUDIOS, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Financial statements are unaudited; dollar amounts below are in millions unless stated otherwise. The June 2021 business combination was accounted for as a reverse recapitalization, so prior-period results represent Old PLAYSTUDIOS and may not be fully comparable with future results.
Business context and performance
PLAYSTUDIOS develops free-to-play mobile and social games featuring its playAWARDS loyalty program. Revenue is primarily from virtual-currency sales, with a smaller advertising stream.
- Q3 revenue: $70.6 million, up 1.2% year over year. Virtual-currency revenue was essentially flat at $69.3 million; advertising rose to $1.3 million from $0.4 million.
- Nine-month revenue: $215.5 million, up 4.7%. Virtual currency was $212.2 million, up 3.6%, and advertising was $3.3 million, up 233.7%.
- Audience and monetization: Q3 average DAU declined 15.7% to 1.17 million and MAU declined 12.7% to 3.57 million. Average DPU was approximately 33,000, broadly flat. Daily payer conversion increased to 2.8% from 2.4%; ARPDAU rose to $0.65 from $0.54. Management attributed revenue resilience to improved conversion and monetization despite a smaller audience.
Financial results and liquidity
- Q3 operating results: Operating expenses were $71.4 million, up 12.1%, producing an operating loss of $0.8 million versus operating income of $6.0 million a year earlier. Net income was $11.2 million versus $5.1 million; diluted EPS was $0.08 versus $0.05.
- Nine-month results: Operating expenses increased 24.8% to $221.7 million, resulting in an operating loss of $6.2 million versus operating income of $28.2 million. Net income declined 57.1% to $10.1 million from $23.6 million; diluted EPS was $0.08 versus $0.23.
- Margins: Cost of revenue was 31.6% of Q3 revenue versus 34.2%, and 32.4% for nine months versus 34.1%. Adjusted EBITDA, a non-GAAP measure, was $9.6 million in Q3 (13.7% margin), down from $13.3 million (19.1%); nine-month adjusted EBITDA was $27.6 million (12.8%), down from $49.3 million (23.9%).
- Cash flow: Nine-month operating cash flow was $20.8 million, down from $33.7 million. Investing used $30.3 million, including $19.5 million of additions to internal-use software and $9.5 million for notes receivable and other investments. Financing provided $186.7 million, largely from the business combination and PIPE financing. Ending cash was $226.0 million.
- Balance sheet and debt: Current assets were $261.8 million and current liabilities $27.9 million at September 30. The company had no borrowings under its new five-year, $75 million revolving credit facility. Total liabilities were $32.1 million; cash substantially exceeded reported liabilities.
Changes, outlook and significant matters
- Q3 net income included an $11.9 million noncash gain from remeasuring warrant liabilities. The warrants were classified as liabilities; fair-value changes can cause material quarterly earnings fluctuations. Nine-month results also included a $4.8 million income-tax benefit, compared with $5.1 million of tax expense in the prior-year period.
- Expense growth reflected higher marketing, research and development, general and administrative costs, and amortization. Management said marketing spending was expected to increase for the rest of 2021 to promote myVEGAS Bingo and Kingdom Boss, then expected to launch in Q4. The filing provides no numerical revenue or earnings guidance.
- The June business combination and concurrent PIPE issued 25 million shares at $10 per share; net cash proceeds from the transaction were $185.3 million. The transaction also settled MGM’s $20 million profit-share buyout liability. A $50 million share repurchase authorization was approved on November 10, 2021, after quarter-end.
- A Tel Aviv lawsuit by TeamSava and related parties seeks 27.3 million NIS. The company disputes the claims, intends to defend them, and has not accrued a loss because it cannot reasonably estimate the probability or amount.
- Management reported disclosure controls were ineffective at September 30 due to a material weakness in warrant accounting that had led to a prior-period restatement. Remediation was underway, but management gave no assurance it would be fully effective.
- Key risks include declining player counts, dependence on Apple and Google and other platforms, competition and player-acquisition costs, reliance on MGM-related rewards and licensed content, COVID-19 impacts, privacy and cybersecurity requirements, and potential dilution from warrants, earnout shares and equity awards. The Founder Group’s Class B shares carry 20 votes per share and controlled approximately 74.6% of voting power.
Important facts for investors to verify
- Whether improved payer conversion and ARPDAU can offset continued declines in DAU and MAU, and whether new-game marketing spending generates sustainable returns.
- The drivers and durability of lower nine-month operating cash flow and declining adjusted EBITDA; assess the non-GAAP reconciliation alongside GAAP results.
- The effect of warrant-liability remeasurement and discrete tax items on reported earnings, and progress remediating the material weakness in financial reporting controls.
- The status and potential financial exposure of the TeamSava litigation, and the continuing renewal and value of MGM-related game and rewards arrangements.
- Potential dilution from approximately 11.0 million warrants, up to 15 million earnout shares and other equity awards, as well as the timing and execution of the post-quarter $50 million repurchase authorization.