Playtika(PLTK) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Playtika reported Q1 2024 revenues of $651.2 million, with net income declining to $53.0 million due to increased marketing expenses, while total assets remained stable and operating cash flow increased to $29.6 million Consolidated Balance Sheets Total assets slightly increased to $3,175.0 million as of March 31, 2024, while total liabilities decreased, leading to an improved stockholders' deficit of $(180.4) million Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $3,175.0 | $3,144.7 | | Cash and cash equivalents | $1,029.7 | $1,015.5 | | Goodwill | $987.2 | $984.9 | | Total Liabilities | $3,325.1 | $3,396.5 | | Long-term debt | $2,397.2 | $2,399.6 | | Total Stockholders' Deficit | $(180.4) | $(221.5) | Consolidated Statements of Comprehensive Income Revenues slightly decreased to $651.2 million in Q1 2024, while a 32.5% surge in sales and marketing expenses led to a 37.0% drop in net income to $53.0 million Q1 2024 vs. Q1 2023 Performance (in millions, except per share data) | Metric | Q1 2024 | Q1 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $651.2 | $656.2 | -0.8% | | Cost of revenue | $177.0 | $185.7 | -4.7% | | Sales and marketing | $190.4 | $143.7 | +32.5% | | Income from operations | $98.1 | $152.4 | -35.6% | | Net income | $53.0 | $84.1 | -37.0% | | Diluted EPS | $0.14 | $0.23 | -39.1% | - The company recorded a $7.0 million impairment charge in Q1 2024, which was not present in the same period last year[19] Consolidated Statements of Stockholders' Deficit Stockholders' deficit improved to $(180.4) million in Q1 2024, driven by $53.0 million net income, partially offset by a $37.1 million cash dividend - A cash dividend of $0.10 per share, totaling $37.1 million, was declared during the quarter[22][56] - Stock-based compensation added $24.2 million to additional paid-in capital[22] Consolidated Statements of Cash Flows Net cash from operating activities increased to $29.6 million, but cash used in investing activities more than doubled to $35.9 million, resulting in a net cash decrease of $14.2 million Cash Flow Summary (in millions) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $29.6 | $20.5 | | Net cash used in investing activities | $(35.9) | $(15.4) | | Net cash used in financing activities | $(5.5) | $(6.1) | | Net change in cash | $(14.2) | $(1.4) | Notes to the Consolidated Financial Statements Notes detail revenue streams, debt structure, and legal contingencies, highlighting dependence on Apple, Google, and Facebook, $2.4 billion in debt, ongoing lawsuits, and $440.2 million in US revenue - A significant portion of revenues and accounts receivable are concentrated with Apple, Google, and Facebook platforms. As of March 31, 2024, Apple and Google represented 57% and 27% of total accounts receivable, respectively[34][35] - Total debt outstanding as of March 31, 2024, was $2.413 billion, consisting of a Term Loan and Senior Notes[47] - The company is defending against several legal proceedings, including a class-action lawsuit (Bar-Asher v. Playtika), a derivative action (Bushansky v. Antokol), and lawsuits in Israel, Tennessee, and Alabama alleging certain games constitute illegal gambling[79][80][81][84][85] Revenue by Platform (in millions) | Platform | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Third-party platforms | $479.7 | $504.7 | | Direct-to-consumer platforms | $171.5 | $151.5 | - Subsequent to the quarter's end, the company is actively monitoring the conflict in Israel, where it employs approximately 1,060 professionals (33% of its global workforce), following attacks in April 2024[100] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes revenue decline to underperforming games and increased sales and marketing expenses of $46.7 million from acquisitions, leading to a decrease in Credit Adjusted EBITDA to $185.6 million, while liquidity remains strong with over $1 billion in cash Results of Operations Q1 2024 revenues decreased to $651.2 million due to game underperformance, while sales and marketing expenses surged by $46.7 million from acquisitions, leading to a net income decline to $53.0 million - Revenue decline was primarily due to a mix of growth in select casual games and acquisitions being more than offset by declines in other casual titles and certain slot-themed games[124] - Sales and marketing expenses increased by $46.7 million, almost entirely due to increased media buy expenses driven by the acquisitions of InnPlay and Youda[127] - General and administrative expenses remained flat, as the impact of headcount reductions and lower stock-based compensation was offset by increased severance expense and adjustments to contingent consideration[128] Key Operating Metrics | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Average DAUs (millions) | 8.8 | 9.1 | | Average DPUs (thousands) | 309 | 326 | | Average Daily Payer Conversion | 3.5% | 3.6% | | ARPDAU | $0.81 | $0.80 | Reconciliation of Credit Adjusted EBITDA to Net Income Credit Adjusted EBITDA decreased to $185.6 million in Q1 2024, with margin falling to 28.5%, reflecting adjustments for taxes, interest, D&A, stock-based compensation, and impairment charges Credit Adjusted EBITDA Reconciliation (in millions) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net income | $53.0 | $84.1 | | Provision for income taxes | $21.9 | $39.7 | | Interest expense and other, net | $23.2 | $28.6 | | Depreciation and amortization | $39.2 | $39.1 | | Stock-based compensation | $23.7 | $29.2 | | Impairment charges | $7.0 | — | | Credit Adjusted EBITDA | $185.6 | $222.7 | Liquidity and Capital Resources The company maintains strong liquidity with $1,029.7 million in cash and equivalents and $600 million available under its revolving credit facility, deemed sufficient for the next 12 months - Primary sources of liquidity are cash from operations, available cash and cash equivalents, and borrowings under the Credit Facility and Revolver[140] - As of March 31, 2024, the company had $1,029.7 million in cash and cash equivalents and $600 million in additional borrowing capacity under its Revolving Credit Facility[17][140] - Net cash provided by operating activities was $29.6 million for the quarter, an increase from $20.5 million in the prior year period[142][143] Quantitative and Qualitative Disclosures About Market Risk Playtika's primary market risks are interest rate and foreign currency fluctuations, mitigated by $1.0 billion in interest rate swaps and hedging $192.9 million of future foreign currency expenses - The company uses interest rate swaps with a total notional value of $1.0 billion to mitigate risk on its floating-rate Term Loan[112][154][155] - A hypothetical 100 basis point increase or decrease in interest rates would impact annual interest expense by $8.5 million[158] - The company faces foreign currency risk from expenses in EUR, ILS, PLN, and RON. As of March 31, 2024, it had hedged approximately $192.9 million of future salary expenses[161][164] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2024[166] - No material changes in internal control over financial reporting were identified during the quarter ended March 31, 2024[167] PART II. OTHER INFORMATION Legal Proceedings This section refers to Note 7 of the financial statements for a detailed description of the company's ongoing legal proceedings - For a description of legal proceedings, the report refers to Note 7, Commitments and Contingencies, in Part I, Item 1[169] Risk Factors The company highlights significant risks from its substantial operations in Israel, heightened by ongoing regional conflict and geopolitical instability, which could adversely affect business and financial results - The company's significant operations, senior management, and many employees are based in Israel, making it vulnerable to political, economic, and military instability in the region[170] - The ongoing war with Hamas since October 7, 2023, and recent escalations with Iran, pose a material risk to the company's operations and financial condition[171] - There have been no material changes to the risk factors described in the Annual Report on Form 10-K for the year ended December 31, 2023[173] [Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECU RITIES%20AND%20USE%20OF%20PROCEEDS) The company reported no unregistered sales of equity securities or use of proceeds during the quarter - None reported for the period[174] Other Information No officers or directors adopted or terminated any Rule 10b5-1 trading arrangements during the first quarter of 2024 - No officers or directors adopted or terminated any Rule 10b5-1 trading arrangement during the three months ended March 31, 2024[177] Exhibits This section lists all exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL financial data files - The filing includes CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[179] - Inline XBRL documents are included as part of the filing[179]