Overview
We are one of the world’s leading developers of mobile games creating fun,
innovative experiences that entertain and engage our users. We have built
best-in-class live game operations services and a proprietary technology
platform to support our portfolio of games which enable us to drive strong user
engagement and monetization. Our games are free-to-play, and we are experts in
providing novel, curated in-game content and offers to our users, at optimal
points in their game journeys. Our players love our games because they are fun,
creative, engaging, and kept fresh through a steady release of new features that
are customized for different player segments.
Components of our Results of Operations
Revenues
We primarily derive revenue from the sale of virtual items associated with
online games.
We distribute our games to the end customer through various web and mobile
platforms, such as Apple, Facebook, Google and other web and mobile platforms
plus our own direct-to-consumer platforms. Through these platforms, users can
download our free-to-play games and can purchase virtual items to enhance their
game-playing experience. Players can purchase virtual items through various
widely accepted payment methods offered in the games. Payments from players for
virtual items are non-refundable and relate to non-cancellable contracts that
specify our obligations and cannot be redeemed for cash nor exchanged for
anything other than virtual items within our games.
Our games are played primarily on various third-party platforms for which the
platform providers collect proceeds from our customers and pay us an amount
after deducting platform fees. We are primarily responsible for fulfilling the
virtual items, have the control over the content and functionality of games and
have the discretion to establish the virtual items’ prices. Therefore, we are
the principal and, accordingly revenues are recorded on a gross basis. Payment
processing fees paid to platform providers are recorded within cost of revenue.
Cost of revenue
Cost of revenue includes payment processing fees, customer support, hosting fees
and depreciation and amortization expenses associated with assets directly
involved in the generation of revenues, including servers and internal use
software. Platform providers (such as Apple, Facebook and Google) charge a
transactional payment processing fee to accept payments from our players for the
purchase of in-app virtual goods. Payment processing fees and other related
expenses for in-app purchases made through our direct-to-consumer platforms are
typically 3-4%, compared to a 30% platform fee for third party platforms. We
generally expect cost of revenue to fluctuate proportionately with revenues.
Research and development
Research and development consists of salaries, bonuses, benefits, other
compensation, including stock-based compensation and allocated overhead, related
to engineering, research, and development. In addition, research and development
expenses include depreciation and amortization expenses associated with assets
associated with our research and development efforts. We expect research and
development expenses will increase in absolute dollars as our business expands
and as we increase our personnel headcount to support the expected growth in our
technical development and operating activities. We also expect that research and
development expenses specifically associated with new game development will
fluctuate over time.
Sales and marketing
Sales and marketing consists of costs related to advertising and user
acquisition, including costs related to salaries, bonuses, benefits, and other
compensation, including stock-based compensation and allocated overhead. In
addition, sales and marketing expenses include depreciation and amortization
expenses associated with assets related to our sales and marketing
-24-
——————————————————————————–
efforts. We plan to continue to invest in sales and marketing to retain and
acquire users. However, sales and marketing expenses may fluctuate as a
percentage of revenues depending on the timing and efficiency of our marketing
efforts.
General and administrative
General and administrative expenses consist of salaries, bonuses, benefits, and
other compensation, including stock-based compensation, for all our corporate
support functional areas, including our senior leadership. In addition, general
and administrative expenses include outsourced professional services such as
consulting, legal and accounting services, taxes and dues, insurance premiums,
and costs associated with maintaining our property and infrastructure. General
and administrative expenses also include depreciation and amortization expenses
associated with assets not directly attributable to any of the expense
categories above. We also record adjustments to contingent consideration payable
recorded after the acquisition date, and legal settlement expenses, as
components of general and administrative expense. We expect non-discrete general
and administrative expenses will increase in absolute dollars to support our
expected growth initiatives.
Interest expense and other, net
Interest expense is primarily related to borrowings under our Credit Agreement
dated as of December 10, 2019 (as amended, the “Credit Agreement”). Our interest
expense includes amortization of deferred financing costs and is offset by
interest income earned on the investment of excess cash and cash equivalents. We
expect to continue to incur interest expense under our Credit Agreement,
although such interest expense will fluctuate based upon the underlying variable
interest rates. In March 2021, we entered into two interest rate swap
agreements, each with a notional value of $250 million, reducing our overall
exposure to variable interest rates.
Provision for income taxes
The provision for income taxes consists of current income taxes in the various
jurisdictions where we are subject to taxation, primarily the United States, the
United Kingdom and Israel, as well as deferred income taxes reflecting the net
tax effects of temporary differences between the carrying amounts of assets and
liabilities in each of these jurisdictions for financial reporting purposes and
the amounts used for income tax purposes. Under current U.S. tax law, the
federal statutory tax rate applicable to corporations is 21%. Our effective tax
rate can fluctuate based on various factors, including our financial results and
the geographic mix to which they relate, the applicability of special tax
regimes, changes in our business or operations, examination-related developments
and uncertain tax positions, and changes in tax law.
Consolidated Operating Results of Playtika Holding Corp
We measure the performance of our business by using several key financial
metrics, including revenue and operating income, and operating metrics,
including Daily Active Users, Average Revenue per Daily Active User, Paying
Users, and Average Revenue per Paying User. These operating metrics help our
management to understand and measure the engagement levels of our players, the
size of our audience and our reach. See “Basis of Presentation” and “Summary
Consolidated Financial and Other Data” for additional information of these
measures.
Daily Active Users
We define Daily Active Users, or DAUs, as the number of individuals who played
one of our games during a particular day. Under this metric, an individual who
plays two different games on the same day is counted as two DAUs. Similarly, an
individual who plays the same game on two different platforms (e.g., web and
mobile) or on two different social networks on the same day would be counted as
two Daily Active Users. Average Daily Active Users for a particular period is
the average of the DAUs for each day during that period. We believe that Daily
Active Users is a useful metric to measure the scale and usage of our game
platform.
Daily Paying Users
We define Daily Paying Users, or DPUs, as the number of individuals who
purchased, with real world currency, virtual currency or items in any of our
games on a particular day. Under this metric, an individual who makes a purchase
of virtual
-25-
——————————————————————————–
currency or items in two different games on the same day is counted as two DPUs.
Similarly, an individual who makes a purchase of virtual currency or items in
any of our games on two different platforms (e.g., web and mobile) or on two
different social networks on the same day could be counted as two DPUs. Average
DPUs for a particular period is the average of the DPUs for each day during that
period. We believe that Daily Paying Users is a useful metric to measure game
monetization.
Daily Payer Conversion
We define Daily Payer Conversion as (i) the total number of DPUs, (ii) divided
by the number of DAUs on a particular day. Average Daily Payer Conversion for a
particular period is the average of the Daily Payer Conversion rates for each
day during that period. We believe that Daily Payer Conversion is a useful
metric to describe the monetization of our users.
Average Revenue per Daily Active User
We define Average Revenue per Daily Active User, or ARPDAU, as (i) the total
revenue in a given period, (ii) divided by the number of days in that period,
(iii) divided by the average DAUs during the period. We believe that ARPDAU is a
useful metric to describe monetization.
Monthly Active Users
We define Monthly Active Users, or MAUs, as the number of individuals who played
one of our games during a calendar month. Under this metric, an individual who
plays two different games in the same calendar month is counted as two MAUs.
Similarly, an individual who plays the same game on two different platforms
(e.g., web and mobile) or on two different social networks during the same month
would be counted as two MAUs. Average Monthly Active Users for a particular
period is the average of the MAUs for each month during that period. We believe
that Monthly Active Users is a useful metric to measure the scale and reach of
our platform, but we base our business decisions primarily on daily performance
metrics, which we believe more accurately reflect user engagement with our
games.
Results of Operations
The table below shows the results of our key financial and operating metrics for
the periods indicated. Unless otherwise indicated, financial metrics are
presented in millions of U.S. Dollars, user statistics are presented in millions
of users, and ARPDAU is presented in U.S. Dollars.
Three months ended
March 31,
(in millions, except percentages, Average DPUs and ARPDAU) 2022 2021
Revenues $ 676.9 $ 638.9
Total cost and expenses 556.5 508.6
Operating income 120.4 130.3
Net income 83.2 35.7
Adjusted EBITDA 220.5 258.0
Non-financial performance metrics
Average DAUs 10.1 10.4
Average DPUs (in thousands) 323 296
Average Daily Payer Conversion 3.2 % 2.8 %
ARPDAU $ 0.74 $ 0.68
Average MAUs 31.7 31.4
-26-
——————————————————————————–
Comparison of the three and three months ended March 31, 2022 versus the three
and three months ended March 31, 2021
Three months ended
March 31,
2022 2021
(in millions) (Unaudited)
Revenues $ 676.9 $ 638.9
Cost of revenue $ 186.9 $ 183.0
Research and development 112.7 85.2
Sales and marketing 179.7 140.1
General and administrative 77.2 100.3
Total costs and expenses $ 556.5 $ 508.6
Revenues
Revenues for the three months ended March 31, 2022 increased by $38.0 million
when compared with the same period of 2021. The increase in revenues was
primarily due to the acquisition of Reworks in the third quarter of 2021, our
ongoing improvements to monetization, new content and product features, and
increased engagement across our broader portfolio of games.
Cost of revenue
Cost of revenue for the three months ended March 31, 2022 increased by $3.9
million when compared with the same period of 2021. The favorable impact of
reduced platform fees associated with a higher percentage of our revenues being
derived through our direct-to-consumer platforms was more than offset by the
increased platform fees associated with revenue from Reworks, and an increase in
amortization expense for recently capitalized software development costs.
Research and development expenses
Research and development expenses for the three months ended March 31, 2022
increased by $27.5 million when compared with the same periods of 2021. In
addition to the impact of increased expenses associated with the acquisition of
Reworks, the increase in research and development expenses was primarily due to
increased headcount and payroll costs, and increased facilities costs associated
with additional leased premises.
Sales and marketing expenses
Sales and marketing expenses for the three months ended March 31, 2022 increased
by $39.6 million when compared with the same period of 2021. In addition to the
impact of increased expenses associated with the acquisition of Reworks, the
increases in sales and marketing expenses for the three month period ending
March 31, 2022 were primarily due to increased media buy expenses, increased
headcount and payroll costs, and increased facilities costs associated with
additional leased premises.
General and administrative expenses
General and administrative expenses for the three months ended March 31, 2022
decreased by $23.1 million when compared with the same period of 2021. Included
in general and administrative expenses for the three months ended March 31,
2022, with no comparable amounts for the three months ended March 31, 2021, is a
reduction of contingent consideration of $23.0 million. Included in general and
administrative expenses for the three months ended March 31, 2021, with no
comparable amounts for the three months ended March 31, 2022, are bonus expenses
of approximately $35.4 million paid as a result of the successful initial public
offering of our stock in January 2021. Excluding these specific discrete items,
general and
-27-
——————————————————————————–
administrative expenses would have increased during the three months ending
March 31, 2022 when compared with 2021, primarily as a result of increased
headcount and payroll costs and expenses incurred in connection with the
evaluation of strategic alternatives for the Company.
Other Factors Affecting Net Income
Three months ended
March 31,
2022 2021
(in millions) (Unaudited)
Interest expense $ 23.7 $ 78.0
Interest income (0.8) (0.2)
Foreign currency exchange, net 4.6
(0.8)
Other –
(1.3)
Provision for income taxes 9.7 18.9
Interest expense
In March 2021, we refinanced our existing term loan with a combination of a new
term loan and fixed-rate senior notes. The refinancing transaction was
considered a debt-modification for accounting purposes. As a result, a portion
of the original issue discount incurred when the original term loan was entered
into has been carried over to the new term loan, and approximately $22.9 million
of this original issue discount was written off as interest expense during the
first quarter 2021. In addition, we recorded approximately $14.5 million in
expense associated with the Refinancing Transaction. Excluding the impact of
these discrete components of interest expense, interest expense declined by
approximately $16.9 million for the three months ended March 31, 2022 when
compared to 2021, primarily as a result of lower interest rates on our
outstanding indebtedness.
Provision for income taxes
The effective income tax rate for the three months ended March 31, 2022 was
10.4% compared to 34.6% for the three months ended March 31, 2021. The effective
tax rates were determined using a worldwide estimated annual effective tax rate
and took discrete items into consideration. The primary difference between the
effective tax rate and the 21% federal statutory rate for the three months ended
March 31, 2022 was due to a discrete tax benefit for the release of a valuation
allowance on certain foreign deferred tax assets resulting from the commencement
of changes to our organizational structure. The primary difference between the
effective tax rate and the 21% federal statutory rate for the three months ended
March 31, 2021 was due to a discrete tax benefit for the release of a valuation
allowance on certain foreign deferred tax assets.
Reconciliation of Adjusted EBITDA to Net Income
Adjusted EBITDA is a non-GAAP financial measure and should not be construed as
an alternative to net income as an indicator of operating performance, nor as an
alternative to cash flow provided by operating activities as a measure of
liquidity, or any other performance measure in each case as determined in
accordance with GAAP.
Below is a reconciliation of Adjusted EBITDA to net income, the closest GAAP
financial measure. We define Adjusted EBITDA as net income before (i) interest
expense, (ii) interest income, (iii) provision for income taxes, (iv)
depreciation and amortization expense, (v) stock-based compensation, (vi)
contingent consideration, (vii) acquisition and related expenses, (viii) expense
under our long-term compensation plans, (ix) M&A-related retention payments, and
(x) certain other items. We calculate Adjusted EBITDA Margin as Adjusted EBITDA
divided by revenues.
We supplementally present Adjusted EBITDA and Adjusted EBITDA Margin because
these are key operating measures used by our management to assess our financial
performance. Adjusted EBITDA adjusts for items that we believe do not reflect
the ongoing operating performance of our business, such as certain noncash
items, unusual or infrequent items or items that change from period to period
without any material relevance to our operating performance. Management believes
Adjusted EBITDA and Adjusted EBITDA Margin are useful to investors and analysts
in highlighting trends in our operating
-28-
——————————————————————————–
performance, while other measures can differ significantly depending on
long-term strategic decisions regarding capital structure, the tax jurisdictions
in which we operate and capital investments. Management uses Adjusted EBITDA and
Adjusted EBITDA Margin to supplement GAAP measures of performance in the
evaluation of the effectiveness of our business strategies, to make budgeting
decisions, and to compare our performance against other peer companies using
similar measures. We evaluate Adjusted EBITDA and Adjusted EBITDA Margin in
conjunction with our results according to GAAP because we believe they provide
investors and analysts a more complete understanding of factors and trends
affecting our business than GAAP measures alone.
Adjusted EBITDA and Adjusted EBITDA Margin as calculated herein may not be
comparable to similarly titled measures reported by other companies within the
industry and are not determined in accordance with GAAP. Our presentation of
Adjusted EBITDA and Adjusted EBITDA Margin should not be construed as an
inference that our future results will be unaffected by unusual or unexpected
items.
Three months ended
March 31,
(in millions) 2022 2021
Net income $ 83.2 $ 35.7
Provision for income taxes 9.7 18.9
Interest expense and other, net 27.5
75.7
Depreciation and amortization 39.5 33.2
EBITDA 159.9 163.5
Stock-based compensation(1) 39.8 24.3
Contingent consideration (23.0) –
Long-term cash compensation(2) 24.9
29.8
Acquisition and related expenses(3) 9.0
35.7
M&A related retention payments(4) (1.9) 3.1
Other one-time items(5) 11.8 1.6
Adjusted EBITDA $ 220.5 $ 258.0
Net income margin 12.3 % 5.6 %
Adjusted EBITDA margin 32.6 % 40.4 %
_______
(1) Reflects, for the three months ended March 31, 2022 and 2021, stock-based
compensation expense related to the issuance of equity awards to certain of our
employees.
(2) Includes expenses recognized for grants of annual cash awards to employees
pursuant to our Retention Plans, which awards are incremental to salary and
bonus payments, and which plans expire in 2024. For more information, see Note
13, Appreciation and Retention Plan, of our consolidated financial statements
included in this document.
(3) Amount for the three months ended March 31, 2022, primarily relates to
expenses incurred by the Company in connection with the evaluation of strategic
alternatives for the Company. Amount for the three months ended March 31, 2021
primarily relates to bonus expenses paid as a result of the successful initial
public offering of the Company’s stock in January 2021.
(4) Includes retention awards to key individuals associated with acquired
companies as an incentive to retain those individuals on a long-term basis. The
amount for the three months ended March 31, 2022, primarily relates to the
reduction of contingent consideration payable to employees of the Company that
were also selling Shareholders of Reworks. This portion of the contingent
consideration is being accounted for as an M&A retention payment to these
employees, with changes in the amounts recognized as compensation expense.
(5) Amount for the three months ended March 31, 2022, consists of $8.8 million
incurred by the Company severance and $3.0 million incurred by the Company for
relocation and support provided to employees due to the war in Ukraine.
-29-
——————————————————————————–
Liquidity and Capital Resources
Capital spending
We incur capital expenditures in the normal course of business and performs
ongoing enhancements and updates to our social and mobile games to maintain our
quality standards. Cash used for capital expenditures in the normal course of
business is typically made available from cash flows generated by operating
activities. We may also pursue acquisition opportunities for additional
businesses or social or mobile games that meet our strategic and return on
investment criteria. Capital needs are evaluated on an individual opportunity
basis and may require significant capital commitments.
Liquidity
Our primary sources of liquidity are the cash flows generated from our
operations, currently available unrestricted cash and cash equivalents,
short-term bank deposits, and borrowings under our Credit Facility and Revolver.
Our cash and cash equivalents and short-term bank deposits totaled $1,107.9
million and $1,117.1 million at March 31, 2022 and December 31, 2021,
respectively. As of both March 31, 2022 and December 31, 2021, we had $600
million in additional borrowing capacity pursuant to our Revolving Credit
Facility. Payments of short-term debt obligations and other commitments are
expected to be made from cash on the balance sheet and operating cash flows.
Long-term obligations are expected to be paid through operating cash flows, or,
if necessary, borrowings under our Revolving Credit Facility or, if necessary,
additional term loans or issuances of equity.
Our restricted cash totaled $2.0 million at both March 31, 2022 and December 31,
2021. Restricted cash primarily consists of deposits to secure obligations under
our operating lease agreements and to secure company-issued credit cards. The
classification of restricted cash as current and long-term is dependent upon the
intended use of each particular reserve.
Our ability to fund our operations, pay our debt obligations and fund planned
capital expenditures depends, in part, upon economic and other factors that are
beyond our control, and disruptions in capital markets could impact our ability
to secure additional funds through financing activities. We believe that our
cash and cash equivalents balance, short-term bank deposits, restricted cash,
borrowing capacity under our Revolving Credit Facility and our cash flows from
operations will be sufficient to meet our normal operating requirements during
the next 12 months and the foreseeable future and to fund capital expenditures.
Cash flows
The following tables present a summary of our cash flows for the periods
indicated (in millions):
© Edgar Online, source Glimpses