Playtika Holding Corp. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Playtika develops and operates free-to-play mobile games, monetizing primarily through virtual-item sales. Amounts below are U.S. dollars.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $642.8 million | $659.6 million | $1,299.0 million | $1,336.5 million |
| Operating income | $139.2 million | $91.3 million | $291.6 million | $211.7 million |
| Net income | $75.7 million | $36.4 million | $159.8 million | $119.6 million |
| Diluted EPS | $0.21 | $0.09 | $0.44 | $0.29 |
| Credit Adjusted EBITDA | $215.0 million | $201.5 million | $437.7 million | $399.0 million |
| Credit Adjusted EBITDA margin | 33.4% | 30.5% | 33.7% | 29.9% |
| Net cash from operating activities | Not separately provided | Not separately provided | $227.5 million | $241.1 million |
Q2 operating margin was approximately 21.7%, versus 13.8% a year earlier. Revenue declined 2.5% in Q2 and 2.8% for the half year. Net income increased 108% in Q2 and 34% for the half year. Credit Adjusted EBITDA is a non-GAAP measure; the company cautions it should not be viewed as a substitute for GAAP performance or cash flow.
Balance sheet and liquidity
- At June 30, cash and cash equivalents were $955.1 million, versus $768.7 million at December 31, 2022; cash, including restricted cash, totaled $957.1 million.
- Book debt was $2,417.5 million, including $1,824.6 million on the term loan and $592.9 million on senior notes. Approximate net debt, using cash and cash equivalents, was $1.46 billion. No revolver borrowings were outstanding; $600 million of capacity remained available.
- Current assets were $1,225.0 million and current liabilities were $410.6 million. The company reported a $344.9 million stockholders’ deficit.
- For the first half, investing cash outflow was $33.0 million and financing cash outflow was $11.4 million. Cash and restricted cash increased by $186.7 million.
- Cash paid for interest in the first half was $73.4 million, up from $45.0 million in 2022. The company said it expects available cash, operating cash flow and revolver capacity to meet normal operating needs and planned capital expenditures for the next 12 months and foreseeable future.
Material changes and management commentary
- Management attributed lower revenue to declines in certain casual and slot-themed games, partly offset by growth in select casual titles and improved monetization, content and product features.
- Average DAUs fell to 8.6 million from 9.8 million in Q2 2022; average MAUs fell to 28.3 million from 35.3 million. Average DPUs were 307,000 versus 310,000. Daily payer conversion rose to 3.6% from 3.2%, and ARPDAU increased to $0.83 from $0.74.
- Operating expenses declined year over year, including lower research and development, sales and marketing, and general and administrative costs. Management cited headcount reductions, lower media buying, and prior-year expenses that did not recur. Interest expense rose due to higher average variable rates, partly offset by increased interest income on cash.
- The company recorded a $9.7 million JustPlay.LOL-related intangible-asset impairment in Q2; MD&A also describes the write-off as affecting cost of revenue.
- On June 19, the credit agreement was amended to use Term SOFR-based rates for dollar-denominated amounts beginning in Q3. The company reported a 1.07-to-1.0 first-priority net senior secured leverage ratio against a 6.25-to-1.0 maintenance covenant and said it was in compliance.
- On August 1, the company announced a definitive agreement to acquire Youda Games for initial cash consideration of €81.3 million, with total consideration potentially reaching €150 million subject to an earnout and customary adjustments. Closing was expected in Q3 2023, subject to customary conditions.
Risks, contingencies and outlook
- No specific revenue or earnings guidance is provided in the filing. Management’s liquidity outlook is based on expected operating cash flows, cash on hand and available revolving-credit capacity.
- Key disclosed risks include dependence on a limited number of games, paying users and third-party platforms; competition and discretionary consumer spending; significant debt and variable-rate exposure; foreign-exchange exposure; and international operating risks.
- Interest-rate swaps covered $1.0 billion of notional principal. Management estimated that a hypothetical 100-basis-point rate change would affect annual interest expense by $8.6 million before swap effects. Foreign-currency hedges covered approximately $183 million of forecast salary expenses.
- Legal matters include gaming-related claims and arbitrations, securities and shareholder litigation, and trademark and copyright disputes. The company generally said it could not estimate potential impacts for matters in preliminary stages. An Israeli customs deficit notice relating to an aircraft purchase claimed approximately $3.6 million; the company disputed the tax and VAT, intended to pay under protest and challenge the notice.
- The company said there were no material changes to the risk factors in its 2022 Form 10-K. Management concluded disclosure controls were effective as of June 30, 2023.
Important facts for investors to verify
- Whether revenue and active-user declines stabilize, and whether higher conversion and ARPDAU can offset lower audience levels.
- How sustainable the improvement in operating and Credit Adjusted EBITDA margins is, considering cost reductions and nonrecurring prior-year expenses.
- Debt interest-rate sensitivity, swap coverage and cash generation, especially as the term loan carries a floating rate.
- The purchase price, closing status, earnout terms and expected financial contribution of the Youda Games acquisition.
- Potential financial exposure and developments in gaming-related litigation, the aircraft tax dispute and other contingencies.