Playtika Holding Corp. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; the provided text does not give a separate Q4 income statement or Q4 results. Amounts are in U.S. dollars.
Business context
Playtika develops and operates free-to-play mobile games, generating revenue primarily from in-game purchases. Its portfolio included 24 games, of which 11 were actively managed and promoted. The top ten games generated 98.9% of FY2021 revenue; Slotomania and Bingo Blitz together generated approximately half. In August 2021, Playtika acquired 80% of Reworks Oy, the developer of Redecor.
Financial and operating results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $2,583.0 million | $2,371.5 million |
| Operating income | $562.2 million | $387.2 million |
| Net income | $308.5 million | $92.1 million |
| Net income margin | 11.9% | 3.9% |
| Adjusted EBITDA (non-GAAP) | $982.7 million | $941.6 million |
| Adjusted EBITDA margin (non-GAAP) | 38.0% | 39.7% |
| Cash provided by operating activities | $551.7 million | $517.7 million |
| Cash used in investing activities | $609.4 million | $98.1 million |
| Cash provided by (used in) financing activities | $559.7 million | ($181.3 million) |
Revenue increased 8.9%, operating income rose 45.2%, and net income more than tripled. Adjusted EBITDA increased 4.4%, while its margin declined from 39.7% to 38.0%. Operating cash flow rose $34.0 million. Investing outflows increased mainly due to $394.1 million of net cash consideration for Reworks.
At year-end, cash and cash equivalents were $1,017.0 million, short-term bank deposits were $100.1 million, and restricted cash was $2.0 million. The company reported $600 million of undrawn revolving credit capacity. Debt had a $2,485.8 million face value and $2,435.1 million book value; the term loan’s book value was $1,843.8 million and the notes’ book value was $591.3 million. FY2021 cash interest paid was $93.9 million.
Operating indicators were mixed: average DAUs fell to 10.4 million from 11.2 million, while average MAUs were nearly flat at 34.0 million versus 34.2 million. Average daily paying users increased to 300,000 from 285,000, daily payer conversion rose to 2.9% from 2.6%, and ARPDAU increased to $0.68 from $0.58.
Material changes and unusual items
- Direct-to-consumer revenue increased to $529.0 million from $323.0 million; third-party-platform revenue was nearly flat at $2,054.0 million. The company says DTC growth reflected marketing activity.
- The Reworks acquisition contributed $32.4 million of revenue after its August closing. The purchase included $400 million cash consideration for 80%; the remaining 20% is subject to an earnout of up to $200 million based on 2022 performance.
- FY2021 included $100.4 million of stock-based compensation, down from $276.0 million in FY2020. FY2020 also included a $37.6 million litigation-settlement expense. FY2021 G&A included approximately $35.4 million in IPO-related bonuses.
- Interest expense declined to $149.2 million from $198.3 million, following the March 2021 term-loan refinancing and issuance of $600 million of 4.25% notes due 2029. The company also entered into $500 million total notional interest-rate swaps.
- The effective tax rate fell to 24.5% from 52.6%. FY2021 included a $46.2 million tax benefit from reversing deferred taxes previously recorded on certain undistributed foreign earnings.
Outlook, risks and contingencies
Management stated that operating cash flows, available cash and deposits, and revolving-credit capacity should fund ordinary operating needs and planned capital expenditures for the next 12 months and the foreseeable future. The filing provides no quantified revenue or earnings guidance. Playtika said it does not anticipate paying cash dividends in the foreseeable future.
Key risks include dependence on a small number of games and paying users; reliance on Apple, Google and Facebook platforms, which generated 73.4% of FY2021 revenue; competition and the effectiveness and cost of user acquisition; privacy changes that may affect ad targeting; and significant debt and restrictive covenants. Social-casino legality, loot-box rules, privacy regulation, cybersecurity, and tax examinations also pose risks. The company disclosed $114.2 million of unrecognized tax benefits, with Israeli tax years 2017–2019 under examination; it could not estimate the range of possible changes.
Playtika has significant operations in Israel, Belarus and Ukraine. Russia’s February 2022 invasion of Ukraine is a subsequent event; the company said it could not estimate the effect on its business or financial results. A securities class action filed in November 2021 alleges misstatements or omissions; the company could not estimate its impact. Other disclosed matters include a Canadian trademark case, a German copyright case, and an appeal in the NEXRF patent case after dismissal at trial level.
The independent auditor issued an unqualified opinion on the financial statements. Management concluded internal control over financial reporting was effective, but the auditor did not attest to that assessment. Reworks was excluded from management’s year-end control assessment under the permitted acquisition transition period.
Important facts for investors to verify
- Whether user and monetization trends continue: DAUs declined even as payer conversion, paying users and ARPDAU improved.
- Reworks’ 2022 performance, the remaining-share earnout and the assumptions behind acquisition valuations; the auditor identified these valuations as a critical audit matter.
- Adjusted EBITDA and margin reconciliations, including substantial cash retention-plan and acquisition-related adjustments, and their comparability with other companies.
- Debt balances, interest-rate exposure, covenant headroom and the company’s ability to meet maturities or refinance.
- Potential outcomes of the Israeli tax examination, securities litigation and other legal matters, and operational effects from geopolitical developments in Ukraine and Belarus.
- Platform concentration, game concentration and the impact of privacy or platform-policy changes on distribution, payment fees and marketing.