Playtika(PLTK) - 2022 Q4 - Annual Report

Part I Business Playtika develops and monetizes a portfolio of acquired mobile games through its proprietary platform, with revenues split between casual and casino-themed titles FY 2022 Financial Highlights | Metric | Value (USD) | | :--- | :--- | | Revenues | $2,615.5 million | | Net Income | $275.3 million | | Credit Adjusted EBITDA | $805.1 million | | Net Income Margin | 10.5% | | Credit Adjusted EBITDA Margin | 30.8% | - The company's growth strategy heavily relies on acquiring games and then enhancing their profitability by applying its proprietary Playtika Boost Platform and live operations services[41][47][53] - The top ten games generated 98.1% of revenues in FY2022, with the two largest games, Slotomania and Bingo Blitz, accounting for approximately half of total revenues[61] - The company is subject to significant government regulation concerning social gaming, loot boxes, and data privacy laws like GDPR and CCPA, which are continuously evolving[72][74][80] - As of December 31, 2022, the company employed approximately 3,800 people, with about 75% of them engaged in research and development activities[64][89] Risk Factors Key risks include platform dependency, game concentration, high debt, and geopolitical and regulatory issues - A majority of revenue is generated from a limited number of games, with the top two, Slotomania and Bingo Blitz, accounting for about half of revenues in 2022 and 2021[102] - The business is highly dependent on third-party platforms like the iOS App Store, Facebook, and Google Play Store, which generated 71.5% of revenues in 2022[97] - The company has significant indebtedness, with $2,466.8 million outstanding as of December 31, 2022, which could limit operational flexibility and expose it to interest rate risk[125] - Significant operations are located in politically sensitive regions, including Israel, Ukraine, and Belarus, exposing the company to risks of military and political instability[201][206][218] - The company faces legal and regulatory risks, including lawsuits alleging its social casino games constitute illegal gambling and evolving regulations around loot boxes[143][148] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - Not applicable[300] Properties The company leases approximately 20 global facilities, which are considered sufficient for current needs - The company leases facilities in approximately 20 locations globally and believes its current properties are adequate for its operational needs[301] Legal Proceedings The company is involved in several legal proceedings regarding securities, trademarks, and illegal gambling claims - A securities class action lawsuit (Bar-Asher v. Playtika Holding Corp. et al.) was filed, alleging violations of federal securities laws[305] - A motion for a class action lawsuit was filed in Israel alleging that several of the company's games constitute illegal gambling, with asserted damages of NIS 50 million[306] - The company received seven demands for arbitration in late 2022 and early 2023, all alleging that its games constitute illegal gambling under applicable state law[309] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[310] Part II Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on Nasdaq, it does not plan to pay dividends, and it completed a $600 million tender offer in Q4 2022 - The company's common stock is traded on the Nasdaq Global Select Market under the ticker symbol PLTK[313] - The company does not anticipate paying cash dividends on its common stock in the foreseeable future[315] Q4 2022 Equity Purchases | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 1 - Oct 31, 2022 | 51,813,472 | $11.58 | | Nov 1 - Nov 30, 2022 | — | n/a | | Dec 1 - Dec 31, 2022 | — | n/a | | Total | 51,813,472 | $11.58 | Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations FY2022 revenue grew slightly to $2.62 billion, but higher operating expenses led to a decrease in net income and Credit Adjusted EBITDA Key Financial and Operating Metrics (2020-2022) | Metric (in millions, except where noted) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Revenues | $2,615.5 | $2,583.0 | $2,371.5 | | Operating income | $471.4 | $562.2 | $387.2 | | Net income | $275.3 | $308.5 | $92.1 | | Credit Adjusted EBITDA | $805.1 | $848.7 | $858.9 | | Average DAUs | 9.4 | 10.4 | 11.2 | | Average DPUs (in thousands) | 314 | 300 | 285 | | ARPDAU (in USD) | $0.76 | $0.68 | $0.58 | - Revenues increased by $32.5 million in 2022, primarily due to a $34.3 million contribution from the Reworks acquisition[340] - Research and development expenses rose by $85.6 million in 2022, driven by increased headcount, payroll costs, and severance payments[343] - Net cash from operating activities decreased to $493.7 million in 2022, while net cash used in financing was $652.0 million, largely due to the $600 million tender offer[371][372][376] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate, investment, and foreign currency risks, which it manages with derivatives - The company is exposed to interest rate risk from its variable-rate Term Loan; a hypothetical 100 basis point change in rates would have impacted 2022 interest expense by $13.7 million[420][425] - To mitigate interest rate risk, the company entered into interest rate swap agreements with a total notional value of $500 million in March 2021 and another $500 million in January 2023[421][422] - The company faces foreign currency risk from expenses in ILS, PLN, and RON, and had hedged approximately $187.4 million of future salary expenses as of year-end 2022[427][429] Financial Statements and Supplementary Data This section contains the audited consolidated financial statements and the independent auditor's unqualified opinion Reports of Independent Registered Public Accounting Firm The auditor issued unqualified opinions on financial statements and internal controls, noting one Critical Audit Matter - The auditor issued an unqualified opinion on the consolidated financial statements and the company's internal control over financial reporting[433][441] - A Critical Audit Matter was identified related to the impairment test of the Reworks asset group, highlighting the judgment involved in estimating future cash flows[437][438] Consolidated Financial Statements The statements show total assets of $2.70 billion, a stockholders' deficit of $568.6 million, and net income of $275.3 million for FY2022 Consolidated Balance Sheet Data (as of Dec 31) | (in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Total Current Assets | $1,024.9 | $1,335.7 | | Total Assets | $2,697.6 | $2,803.3 | | Total Current Liabilities | $461.8 | $569.7 | | Long-term Debt | $2,411.2 | $2,422.9 | | Total Liabilities | $3,266.2 | $3,181.0 | | Total Stockholders' Deficit | $(568.6) | $(377.7) | Consolidated Statement of Comprehensive Income Data (Year Ended Dec 31) | (in millions) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Revenues | $2,615.5 | $2,583.0 | $2,371.5 | | Income from operations | $471.4 | $562.2 | $387.2 | | Net income | $275.3 | $308.5 | $92.1 | | Comprehensive income | $289.7 | $295.0 | $111.7 | Consolidated Statement of Cash Flows Data (Year Ended Dec 31) | (in millions) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $493.7 | $551.7 | $517.7 | | Net cash used in investing activities | $(74.6) | $(609.4) | $(98.1) | | Net cash provided by (used in) financing activities | $(652.0) | $559.7 | $(181.3) | Notes to Consolidated Financial Statements Notes detail accounting for acquisitions, debt structure, stock compensation programs, and a significant uncertain tax position in Israel - The company acquired 80% of Reworks Oy in August 2021 for $400 million cash plus contingent consideration, acquiring the remaining 20% in August 2022 for $45 million[537][545] - In March 2022, the company acquired JustPlay.LOL Ltd. for $29.9 million in initial cash consideration plus contingent consideration[546][549] Debt Outstanding (as of Dec 31, 2022) | Debt Instrument | Book Value (in millions) | Face Value (in millions) | Maturity | | :--- | :--- | :--- | :--- | | Term Loan | $1,831.2 | $1,866.8 | 2028 | | Senior Notes | $592.4 | $600.0 | 2029 | | Total Debt | $2,423.6 | $2,466.8 | | - In 2022, the company conducted an option repricing and an option exchange, resulting in incremental compensation expense[604][608] - The company has a significant uncertain tax position related to its 'Preferred Technology Enterprise' status in Israel, with a potential aggregate exposure of approximately $120 million[670] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants - None[679] Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective as of year-end 2022 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[681] - Management's annual report on internal control over financial reporting concluded that these controls were effective as of December 31, 2022, which was confirmed by the independent auditor[684][685] Other Information The company reports no other information for this item - None[686] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[687] Part III Directors, Executive Officers and Corporate Governance Information is incorporated by reference from the company's 2023 Proxy Statement - The required information for this item is incorporated by reference from the company's 2023 Proxy Statement[688] Executive Compensation Information is incorporated by reference from the company's 2023 Proxy Statement - The required information for this item is incorporated by reference from the company's 2023 Proxy Statement[690] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information is incorporated by reference from the company's 2023 Proxy Statement - The required information for this item is incorporated by reference from the company's 2023 Proxy Statement[691] Certain Relationships and Related Transactions, and Director Independence Information is incorporated by reference from the company's 2023 Proxy Statement - The required information for this item is incorporated by reference from the company's 2023 Proxy Statement[692] Principal Accounting Fees and Services Information is incorporated by reference from the company's 2023 Proxy Statement - The required information for this item is incorporated by reference from the company's 2023 Proxy Statement[693] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the annual report - This item lists all financial statements, schedules, and exhibits filed with the 10-K report[694] - Schedule II - Valuation and Qualifying Accounts is provided, detailing changes in the deferred income tax valuation allowance[695][697] Form 10-K Summary The company indicates that there is no Form 10-K summary - None[700]