NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In millions, unless specified otherwise)
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business and organization
Playtika Holding Corp. (“Playtika”) and its subsidiaries (together with Playtika, the “Company”) is one of the world’s leading developers of mobile games creating fun, innovative experiences that entertain and engage its users. It has built best-in-class live game operations services and a proprietary technology platform to support its portfolio of games which enable it to drive strong user engagement and monetization. The Company’s games are free-to-play, and the Company seeks to provide novel, curated in-game content and offers to its users, at optimal points in their game journeys to drive user engagement and monetization.
Basis of presentation and consolidation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and include Playtika and all subsidiaries in which the Company has a controlling financial interest. Control generally equates to ownership percentage, whereby (i) affiliates that are more than 50% owned are consolidated; (ii) investments in affiliates of 50% or less but greater than 20% are generally accounted for using the equity method where the Company has determined that it has significant influence over the entities; and (iii) investments in affiliates of 20% or less are generally accounted for using cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
The significant accounting policies referenced in the annual consolidated financial statements of the Company as of December 31, 2021 have been applied consistently in these unaudited interim consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been recorded within the accompanying financial statements, consisting of normal, recurring adjustments, and all intercompany balances and transactions have been eliminated in the consolidation. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. For further information, reference is made to the consolidated financial statements and footnotes thereto included in the Company's financial statements for the year ended December 31, 2021.
Investment in unconsolidated entities
The Company holds certain equity investments in various unconsolidated entities that, based upon the structure of the investment, are not within the scope of equity method investment accounting that would lead to the consolidation conclusions above. Instead, these investments fall within the scope of ASC 321, Investments - Equity Securities. As permitted within that guidance, the Company has elected to account for these investments at cost less impairment, adjusted for changes in fair value from observable transactions for identical or similar investments of the same issuer as of the respective transaction dates. No change to the initial carrying amounts were recorded in the nine months ended September 30, 2022.
Use of estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company’s management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Concentration of credit risk and significant customers
Financial instruments, which potentially expose the Company to concentrations of credit risk, consist primarily of cash and cash equivalents, short-term bank deposits, restricted cash, accounts receivable and derivative contracts. The Company’s investment policy imposes certain maturity limits on the Company’s portfolio and restricts the permitted investments to the purchase of bank deposits and highly rated fixed income securities.
Apple, Facebook and Google are significant distribution, marketing, promotion and payment platforms for the Company's games. A significant portion of the Company’s revenues has been generated from players who accessed the Company's games through these platforms. Therefore, the Company's accounts receivable are derived mainly from sales through these three platforms. Accounts receivable are recorded at their transaction amounts and do not bear interest. The Company performs ongoing credit evaluations of its customers.
The following table summarizes the major accounts receivable of the Company as a percentage of the total accounts receivable as of the dates indicated:
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| |
Apple | 45% | | 42% |
Google | 34% | | 34% |
Facebook | 7% | | 8% |
Stock-based compensation expense
The Company has a stock-based compensation program which provides for equity awards including time-based stock options, restricted stock units (“RSUs”) and performance stock units (“PSUs”). Stock-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense on a straight-line basis over the requisite service period for options and RSUs and on an accelerated basis for PSUs. The Company records forfeitures as a reduction of stock-based compensation expense as those forfeitures occur.
The Company used the Black-Scholes option pricing model to estimate the fair value and compensation cost associated with stock options. As it does not have a long history of market prices for its common stock because the stock was not publicly traded prior to January 2021, the Company used observable data for a group of peer companies that grant options with substantially similar terms to assist in developing its volatility assumptions. The expected volatility of the stock was determined using weighted average measures of the implied volatility and the historical volatility for the Company’s peer group of companies for a period equal to the expected life of the options. The weighted-average risk-free interest rates were based on the interest rate for U.S. Treasury bonds. The expected term assumptions were derived using the simplified method, which is based on an average between each vesting date and the expiration date of an option. This method was chosen because there was no historical option exercise experience due to the Company being privately held. The Company does not anticipate paying cash dividends on its shares of common stock in the future. The stock options have a contractual term of 10 years. Except as otherwise provided in an agreement between the Company and the employee, if an employee is terminated (voluntarily or involuntarily), any unvested awards as of the date of termination will be forfeited.
The Company uses the associated per-share value at the time of grant to determine the compensation cost to be recognized associated with RSUs and PSUs granted. The Company periodically reviews the estimates of performance against the defined criteria to assess the expected payout of each outstanding PSU grant and adjusts the stock compensation expense accordingly.
For RSUs, shares are issued on the vesting dates net of the applicable statutory income tax withholding to be paid by the Company on behalf of its employees. As a result, fewer shares are generally issued than the number of RSUs outstanding, and the income tax withholding is recorded as a reduction to additional paid-in capital.
The Company’s stock-based compensation expense is recorded in the financial statement line item relevant to each of the award recipients. See Note 7, Equity Transactions and Stock Incentive Plan, for additional discussion.
Employee related benefits
Appreciation and retention plan
In August 2019, the Company adopted the Playtika Holding Corp. Retention Plan (the “2021-2024 Retention Plan”) in order to retain key employees and reward them for contributing to the success of the Company. Under the 2021-2024 Retention Plan, eligible employees may be granted retention awards that let them receive their pro rata portion of a retention pool of $25 million per year for each of the plan years, and may also be granted appreciation units which allow the employee to receive their pro-rata portion of an appreciation pool calculated as a specified percentage of Adjusted EBITDA for each of the plan years.
The value of each unit of the 2021-2024 Retention Plan has been amortized into compensation expense using the straight-line method, which will result in the recognition of compensation costs in the same years as the underlying EBITDA used in the plan measurement is earned. See Note 13, Appreciation and Retention Plan, for additional discussion.
Exit or disposal activities
The Company accounts for exit or disposal cost obligations under ASC 420-10, Exit or Disposal Cost Obligations, which requires that companies only record liabilities for such activities when such liabilities have been incurred. During the second quarter of 2022, the Company announced the closure of its Montreal, Los Angeles, Helsinki and London studios, along with limited other cost reduction activities. As a result, severance payments associated with these closures are being recorded as liabilities and recognized as expense over the period such payments are earned. During the three and nine months ended September 30, 2022, the Company recognized approximately $2.7 million and $6.1 million, respectively, in severance expense associated with these closure activities in operating expenses on the consolidated statements of comprehensive income. The Company expects to record an approximately $0.9 million of additional severance during the fourth quarter of 2022.
The Company concluded that certain announced activities, including the above, were triggering events for potential impairment under ASC 360, Property, Plant, and Equipment, and therefore assessed the associated asset groups for impairment. Based upon this assessment, the Company determined that no impairment was required. The recoverable amount for the Seriously Holding Corp. assets was significantly above the carrying value of the associated assets, while the recoverable amount for the Reworks Oy (“Reworks”) assets exceed the book value by a relatively small margin. Thus, to the extent the financial results at Reworks deteriorate further in the near future, discount rates increase significantly, or we do not meet our projected performance, the Company could have impairments to record in the next twelve months, and such impairments could be material.
Derivative instruments
The Company uses interest rate swap contracts to reduce its exposure to fluctuating interest rates associated with the Company’s variable rate debt, and to effectively increase the portion of debt upon which the Company pays a fixed interest rate. The Company’s interest rate swap agreements are designated as cash flow hedges under ASC 815, Derivatives and Hedging (“ASC 815”), involving the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreement, without the exchange of the underlying notional amount. These hedges are highly effective in offsetting changes in the Company’s future expected cash flows due to the fluctuation of the USD one-month LIBOR rate associated with its variable rate debt.
The Company monitors the effectiveness of its hedges on a quarterly basis, both qualitatively and quantitatively. The Company performed a regression analysis at inception of the hedging relationship and at period end in which it compared the change in the fair value of the swap transaction and the change in fair value of a hypothetical interest rate swap having terms that identically match the terms of the debt's interest rate payments based on 30 observations that are based on historical swap rates. Based on the regression results, the Company believes that, at inception and at period end, the hedging instrument is expected to be highly effective at offsetting changes in the hedged transactions attributable to the risk being hedged. For each future reporting period, the Company will continue performing retrospective and prospective assessments of hedge
effectiveness in a single regression analysis by updating the regression analysis that was prepared at inception of the hedging relationship.
The Company uses foreign currency derivative contracts to reduce its exposure to fluctuating exchange rates between the United States dollar (as the Company’s functional currency) and certain expense lines denominated in Israeli Shekels (“ILS”), Polish Zloty (“PLN”) and Romanian Leu (“RON”). The Company’s derivative contracts are designated as cash flow hedges under ASC 815. The Company monitors the effectiveness of its hedges on a quarterly basis, both qualitatively and quantitatively, and expects these hedges to remain highly effective at offsetting fluctuations in exchange rates through their respective maturity dates. See Note 8, Derivative Instruments, for additional discussion.
The fair value of derivative financial instruments is recognized as an asset or liability at each balance sheet date, with changes in fair value recorded in other comprehensive income on the consolidated statements of comprehensive income until the future underlying transactions occur. The fair value approximates the amount the Company would pay or receive if these contracts were settled at the respective valuation dates. The inputs used to measure the fair value of the Company’s interest rate swap agreements are categorized as Level 2 in the fair value hierarchy as established by ASC 820, Fair Value Measurement (“ASC 820”). The inputs used to measure the fair value of the Company’s foreign currency derivative contracts are categorized as Level 2 in the fair value hierarchy as established by ASC 820.
Net income per share attributable to common stockholders
For all periods presented herein, basic net income per share is calculated by dividing net income by the weighted-average common shares outstanding. Diluted net income per share reflects the effect of all potentially dilutive common shares outstanding by dividing net income by the weighted-average of all common and potentially dilutive shares outstanding. Performance Stock Units are considered potentially dilutive as of the first day of the reporting period in which the underlying performance metric is achieved. In the event of a loss, diluted shares are not considered because of their anti-dilutive effect.
NOTE 2. ACQUISITION
Acquisition of JustPlay.LOL Ltd
On March 21, 2022, the Company acquired all of the issued and outstanding shares of JustPlay.LOL Ltd. (“JustPlay”) consistent with the Company’s strategy to increase its breadth of entertainment genres and leverage the Company’s Boost platform to enhance game-operations. The acquisition was accounted for as a business combination.
Within the accompanying consolidated financial statements, management has recorded its final estimate of the assets acquired and liabilities assumed in the acquisition, along with an estimate of the fair value for contingent consideration payable, based upon management’s financial models for this acquisition, and upon similar allocations from prior acquisitions. The Company has engaged a third-party valuation specialist to assist the Company and such valuations were finalized during the third quarter of 2022.
The goodwill, which is non-deductible for tax purposes, is generally attributable to synergies between the Company's and JustPlay's respective studio operations and games.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed (in millions):
| | | | | |
Consideration | |
Total Consideration | $ | 42.0 | |
Less: Cash acquired | (0.7) | |
Total consideration, net of cash acquired | 41.3 | |
Less: Acquisition date fair value of contingent consideration | (11.4) | |
Consideration paid as of March 23, 2022 | $ | 29.9 | |
| |
Identifiable assets acquired and liabilities assumed | |
Accounts receivable | $ | 1.0 | |
Property and equipment | 0.1 | |
Intangible assets other than goodwill | 12.3 | |
Goodwill | 29.7 | |
Contingent consideration | (11.4) | |
Deferred tax liability | (1.5) | |
Liabilities assumed | (0.3) | |
| |
Total identifiable assets acquired and liabilities assumed | $ | 29.9 | |
The developed game assets acquired and included in the above table are being amortized on a straight-line basis over their estimated useful life of six years, which approximates the pattern in which the economic benefits of the intangible assets are expected to be realized.
Pro forma results of operations for this acquisition subsequent to the March 23, 2022 acquisition date have not been presented because the incremental results from JustPlay are not material to the consolidated statements of comprehensive income presented herein.
NOTE 3. GOODWILL
Changes in goodwill for the nine months ended September 30, 2022 were as follows (in millions):
| | | | | | | |
| Nine months ended September 30, 2022 | | |
Balance at beginning of period | $ | 788.1 | | | |
Goodwill acquired during the period | 29.7 | | | |
Foreign currency translation adjustments | (15.6) | | | |
Balance at end of period | $ | 802.2 | | | |
NOTE 4. INTANGIBLE ASSETS OTHER THAN GOODWILL, NET
The carrying amounts and accumulated amortization of the acquired intangible assets other than goodwill, net, including the impact of foreign currency exchange translation, at September 30, 2022 and December 31, 2021, were as follows (in millions):
| | | | | | | | | | | | | | | | | |
| September 30, 2022 | | |
| Weighted average remaining useful life (in years) | | Balance | | December 31, 2021 |
Historical cost basis | | | | | |
Developed games and acquired technology | 4.5 | | $ | 585.6 | | | $ | 591.0 | |
Trademarks and user base | 0.0 | | 30.9 | | | 31.2 | |
Internal use software | 2.4 | | 126.1 | | | 97.0 | |
| | | 742.6 | | | 719.2 | |
Accumulated amortization | | | | | |
Developed games and acquired technology | | | (288.0) | | | (247.9) | |
Trademarks and user base | | | (30.8) | | | (23.0) | |
Internal use software | | | (49.2) | | | (31.0) | |
| | | (368.0) | | | (301.9) | |
Intangible assets other than goodwill, net | | | $ | 374.6 | | | $ | 417.3 | |
During the three months ended September 30, 2022 and 2021, the Company recorded amortization expense in the amounts of $28.2 million and $25.6 million, respectively. During the nine months ended September 30, 2022 and 2021, the Company recorded amortization expense in the amounts of $88.3 million and $71.6 million, respectively.
As of September 30, 2022, the total expected future amortization related to intangible assets was as follows (in millions):
| | | | | |
Remaining 2022 | $ | 27.7 | |
2023 | 101.1 | |
2024 | 85.7 | |
2025 | 75.2 | |
2026 and thereafter | 84.9 | |
Total | $ | 374.6 | |
NOTE 5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities at September 30, 2022 and December 31, 2021 were as follows (in millions):
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Accrued expenses | $ | 161.2 | | | $ | 132.7 | |
Tax accruals | 133.9 | | | 162.5 | |
Employees and related expenses | 127.9 | | | 167.8 | |
Deferred revenues | 31.2 | | | 31.6 | |
| | | |
| | | |
Total accrued expenses and other current liabilities | $ | 454.2 | | | $ | 494.6 |
NOTE 6. DEBT
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
(in millions, except interest rates) | Maturity | | Interest rate | | Book value | | Face value | | Book value |
| | | | | |
Term Loan | 2028 | | 5.270% | | $ | 1,834.5 | | | $ | 1,871.5 | | | $ | 1,843.8 | |
Senior Notes | 2029 | | 4.250% | | 592.2 | | | 600.0 | | | 591.3 | |
Revolving Credit Facility | 2026 | | n/a | | — | | | — | | | — | |
Total debt | | | | | 2,426.7 | | | 2,471.5 | | | 2,435.1 | |
Less: Current portion of long-term debt | | | | | (12.4) | | | (19.0) | | | (12.2) | |
Long-term debt | | | | | $ | 2,414.3 | | | $ | 2,452.5 | | | $ | 2,422.9 | |
Book value of debt in the table above is reported net of deferred financing costs and original issue discount of $44.8 million at September 30, 2022 and deferred financing costs of $50.7 million at December 31, 2021, respectively.
Credit Agreement
On December 10, 2019, the Company entered into $2,750 million of senior secured credit facilities (the "Credit Facilities"), consisting of a $250 million revolving credit facility (the "Revolving Credit Facility"), and a $2,500 million first lien term loan (the "Old Term Loan"). The Credit Facilities were provided pursuant to a Credit Agreement, dated as of December 10, 2019 (the "Credit Agreement"), by and among Playtika, the lenders party thereto, and Credit Suisse, AG, Cayman Islands Branch, as administrative agent (in such capacity, the "Administrative Agent") and collateral agent (in such capacity, the "Collateral Agent"). On June 15, 2020, the Company increased the capacity of the Revolving Credit Facility to $350 million. On January 15, 2021, the Company increased the borrowing capacity of the Revolving Credit Facility from $350 million to $550 million.
On March 11, 2021, the Company amended the Credit Agreement pursuant to an Incremental Assumption Agreement No. 3 and Second Amendment to Credit Agreement (the “Second Amendment”). The Second Amendment, among other things, effected a refinancing of the Old Term Loan with a new $1.9 billion senior secured first lien term loan borrowed under the Credit Agreement (the “New Term Loan”), increased the Revolving Credit Facility to $600 million and extended the maturity of the Revolving Credit Facility to March 11, 2026. The New Term Loan matures on March 11, 2028 and requires scheduled quarterly principal payments in amounts equal to 0.25% of the original aggregate principal amount of the New Term Loan, with the balance due at maturity.
The Revolving Credit Facility includes a maximum first-priority net senior secured leverage ratio financial maintenance covenant of 6.25 to 1.0. At September 30, 2022, the Company’s first-priority net senior secured leverage ratio was 0.79 to 1.0.
The Company was in compliance with its financial and other covenants under the Credit Agreement as of September 30, 2022.
Interest and Fees
Borrowings under the Credit Agreement bear interest at a rate equal to, at the Company’s option, either (a) LIBOR determined by reference to the cost of funds for Eurodollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs, subject to a floor of 0% or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50%, (ii) the prime rate as determined by the administrative agent and (iii) the one-month adjusted LIBOR rate plus 1.00%, in each case plus an applicable margin. Such applicable margin is (x) with respect to the New Term Loan, 2.75% per annum in the case of any LIBOR loan or 1.75% per annum in the case of any base rate loan, subject to one 0.25% step-down based on the Company’s credit ratings and (y) in the case of the Revolving Credit Facility, a
range from 2.25% to 3.00% per annum in the case of any LIBOR loan and a range from 1.25% to 2.00% per annum in the case of any base rate loan, based on the Company’s net senior secured leverage ratio.
In addition, on a quarterly basis, the Company is required to pay each lender under the Revolving Credit Facility a commitment fee in respect of any unused commitments under the Revolving Credit Facility in the amount of 0.50% of the principal amount of the daily unused commitments of such lender, subject to step-downs to 0.375% and 0.25% based upon the Company’s senior secured leverage ratio. The Company is also required to pay customary agency fees as well as letter of credit participation fees on outstanding letters of credit.
The Credit Agreement permits voluntary prepayments and requires mandatory prepayments in certain events including, among others, 50% (subject to step-downs to 25% and 0% based upon the Company’s net total secured leverage ratio) of the Company's excess cash flow to the extent such amount exceeds $10 million, certain net cash proceeds from non-ordinary asset sale transactions (subject to reinvestment rights), and 100% of net proceeds of any issuance of debt (except for debt permitted to be incurred by the Credit Agreement). If the Company’s total secured leverage ratio remains below 2.0 to 1.0, consistent with the ratio for the year ended December 31, 2021, the Company’s required excess cash flow percentage for 2022 will step down to 0%.
The significant terms and conditions of the Credit Agreement have not changed from what was disclosed in Note 9, Debt in our Annual Report on Form 10-K filed with the SEC on March 2, 2022.
Offering of 4.250% Senior Notes due 2029
Indenture
On March 11, 2021, the Company issued $600.0 million aggregate principal amount of its 4.250% senior notes due 2029 (the “Notes”) under an indenture, dated March 11, 2021 (the “Indenture”), among the Company, the subsidiary guarantors party thereto and Wilmington Trust, National Association, as trustee (the “Trustee”).
Maturity and Interest
The Notes mature on March 15, 2029. Interest on the Notes will accrue at a rate of 4.250% per annum. Interest on the Notes is payable semi-annually in cash in arrears on March 15 and September 15 of each year.
The significant terms and conditions of the Notes have not changed from what was disclosed in Note 9, Debt in our Annual Report on Form 10-K filed with the SEC on March 2, 2022.
NOTE 7. EQUITY TRANSACTIONS AND STOCK INCENTIVE PLAN
Tender Offer
On August 29, 2022, the Company announced a tender offer for the purchase of up to 51,813,472 shares of its issued and outstanding common stock, par value $0.01 per share (each, a “Share” and collectively, “Shares”) or such lesser number of Shares as are properly tendered and not properly withdrawn, at a price of $11.58 per Share (the "Tender Offer"). On October 10, 2022, the Company announced that it accepted for purchase 51,813,472 Shares for an aggregate cost of $600 million,
excluding fees and expense related to the Tender Offer. The number of shares that the Company has accepted for purchase in the Tender Offer represented approximately 12.6% of the total number of shares outstanding as of September 30, 2022.
Overview of Stock Incentive Plan
On May 26, 2020, the Board of Directors of the Company approved the Playtika Holding Corp. 2020 Incentive Award Plan (the “Plan”).
The maximum number of shares of the Company’s common stock for which grants may be made under the Plan was 56,232,228 shares as of September 30, 2022. As of September 30, 2022, a total of 7,315,250 shares of the Company’s common stock remained available for grants of awards under the Plan.
Stock Options
The following table summarizes the Company’s stock option activity during the nine months ended September 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Stock | | Weighted | | Weighted | | |
| Options | | Average | | Average | | Intrinsic |
| Outstanding | | Remaining | | Exercise | | Value |
| (in millions) | | Term (in years) | | Price | | (in millions) |
Outstanding at January 1, 2022 | 15.8 | | | 8.8 | | $ | 22.70 | | | |
Granted | 2.6 | | | | | $ | 15.48 | | | |
Exercised | — | | | | | | | |
Cancelled | (2.7) | | | | | $ | 20.71 | | | |
Expired | (0.5) | | | | | $ | 18.71 | | | |
Outstanding at September 30, 2022 | 15.2 | | | 8.3 | | $ | 19.16 | | | $ | — | |
Exercisable at September 30, 2022 | 5.7 | | | 8.0 | | $ | 21.14 | | | $ | — | |
The Company used the Black-Scholes option pricing model for determining the estimated fair value of stock-based compensation related to stock options. The table below summarizes the assumptions used for the options granted in each respective period, as well as for options repriced during the first quarter of 2022:
| | | | | | | | | | | |
| Nine months ended September 30, |
| 2022 | | 2021 |
Risk-free interest rate | 0.67% - 2.94% | | 0.67% - 0.98% |
Expected dividend yield | — | | — |
Expected term in years | 6.1 | | 6.1 |
Expected volatility | 40.96% - 42.52% | | 38.19% - 38.56% |
On February 7, 2022, the Compensation Committee of the Board of Directors of the Company approved an amendment to 5,303,242 options granted in 2021 that are scheduled to vest after the first anniversary of the grant date (the “Adjusted Portion”). The Adjusted Portion was amended to reduce the per share exercise prices of such Adjusted Portion to $18.71. The Company accounted for the repricing as a modification and will record incremental compensation expense of approximately $8.8 million from the time of the repricing through the remaining vesting period. There were no awards to any named executive officers or other Section 16 executives included in this repricing.
RSUs
The following table summarizes the Company’s RSU activity during the nine months ended September 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Weighted | | Total Fair |
| | | | | Average | | Value of |
| | | Shares | | Grant Date | | Shares Vested |
| | | (in millions) | | Fair Value | | (in millions) |
Outstanding at January 1, 2022 | | | 11.4 | | | $ | 25.29 | | | |
Granted | | | 6.1 | | | $ | 15.49 | | | |
Vested | | | (1.8) | | | $ | 30.53 | | | $ | 31.3 | |
Cancelled | | | (1.6) | | | $ | 23.26 | | | |
Outstanding at September 30, 2022 | | | 14.1 | | | $ | 20.61 | | | |
PSUs
On February 7, 2022, the Compensation Committee of the Board of Directors of the Company approved the grant of PSUs to certain employees pursuant to the Plan. For each annual performance period consisting of calendar years 2022 through 2025, up to 25% of the PSUs will be eligible to vest based on the Company’s annual revenue growth rate during the applicable performance period relative to threshold, target and maximum achievement levels.
If the Company’s annual revenue growth rate for a performance period is between two achievement levels, the achievement percentage will be determined by linear interpolation between the applicable achievement levels. Notwithstanding the foregoing, in no event shall less than 25 PSUs vest during each performance period for Israeli participants.
As of September 30, 2022, the Company believes that achieving the performance thresholds for the 2022 and 2023 performance targets as currently outlined in the award agreements is not probable and have therefore recognized no expense for the PSUs associated with these tranches in the nine months ended September 30, 2022.
The following table summarizes the Company’s PSU activity during the nine months ended September 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Weighted | | Total Fair |
| | | | | Average | | Value of |
| | | Shares(1) | | Grant Date | | Shares Vested |
| | | (in millions) | | Fair Value | | (in millions) |
Outstanding at January 1, 2022 | | | — | | | $ | — | | | |
Granted | | | 3.5 | | | $ | 15.65 | | | |
Vested | | | — | | | $ | — | | | $ | — | |
Cancelled | | | — | | | $ | — | | | |
Outstanding at September 30, 2022 | | | 3.5 | | | $ | 15.65 | | | |
________
(1) The number of shares for the PSUs listed as granted represent the total number of PSUs granted to each recipient eligible to vest if the Company meets its highest specified performance goals for the applicable period.
Stock-Based Compensation
The following table summarizes stock-based compensation costs, net of amounts capitalized, as reported on the Company’s consolidated statement of comprehensive income (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Research and development expenses | $ | 11.3 | | | $ | 4.8 | | | $ | 38.3 | | | $ | 18.3 | |
Sales and marketing expenses | 2.8 | | | 2.4 | | | 8.5 | | | 8.4 | |
General and administrative expenses | 17.5 | | | 15.8 | | | 60.0 | | | 46.1 | |
Total stock-based compensation costs, net of amounts capitalized | $ | 31.6 | | | $ | 23.0 | | | $ | 106.8 | | | $ | 72.8 | |
During the three and nine months ended September 30, 2022, the Company capitalized $0.3 million and $1.7 million of stock-based compensation cost, respectively. During each of the three and nine months ended September 30, 2021, the Company capitalized $2.4 million of stock-based compensation cost.
As of September 30, 2022, the Company’s total unrecognized stock-based compensation expenses related to stock options, RSUs and PSUs was approximately $79.8 million, $227.3 million and $21.9 million, respectively. The expense related to stock options, RSUs and PSUs are expected to be recognized over a weighted average period of 2.3 years, 2.5 years and 2.8 years, respectively.
NOTE 8. DERIVATIVE INSTRUMENTS
Interest Rate Swap Agreements
In March 2021, the Company entered into two interest rate swap agreements, each with a notional value of $250 million. Each of these swap agreements is with a different financial institution as the counterparty to reduce the Company’s counterparty risk. Each swap requires the Company to pay a fixed interest rate of 0.9275% in exchange for receiving one-month LIBOR. The interest rate swap agreements settle monthly commencing in April 2021 through their termination dates on April 30, 2026. The estimated fair value of the Company’s interest rate swap agreements is derived from a discounted cash flow analysis. The aggregate fair value of the Company’s interest rate swap agreements was an asset of $52.5 million as of September 30, 2022 and was recorded between prepaid expenses and other current assets and other non-current assets in the accompanying consolidated balance sheets based upon the timing of the underlying expected cash flows.
Foreign currency hedge agreements
At September 30, 2022, the Company had outstanding derivative contracts to purchase certain foreign currencies, including ILS, RON, and PLN at future dates. The amount of future salary expenses the Company had hedged was approximately $181.4 million, and all contracts are expected to mature during the upcoming 12 months. The aggregate fair value of the Company’s derivative contracts was a net liability of $14.4 million as of September 30, 2022 and was recorded in accrued expenses and other current liabilities in the accompanying consolidated balance sheets. In the second quarter of 2022, in conjunction with the announced closing of its Canadian operations, the Company terminated its derivative contract to purchase CAD resulting in an immaterial gain.
NOTE 9. FAIR VALUE MEASUREMENTS
The Company accounts for fair value in accordance with ASC 820. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses a three-tier hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The first two levels in the hierarchy are considered observable inputs and the last is considered unobservable. The carrying value of accounts receivable and payables and the Company's cash and cash equivalents, short-term bank deposits and restricted cash, approximates fair value due to the short time to expected payment or receipt of cash.
The following table summarizes the fair value measurement of the Company’s long-term debt at September 30, 2022 (in millions):
| | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| Face Value | | Fair Value | | Fair Value Hierarchy |
Term Loan | $ | 1,871.5 | | | $ | 1,787.3 | | | Level 2 |
Senior Notes | 600.0 | | | 478.5 | | | Level 2 |
Total debt | $ | 2,471.5 | | | $ | 2,265.8 | | | |
The estimated fair value of the Company’s term loan is based upon the prices at which the Company’s debt traded in the days immediately preceding the balance sheet date. As the trading volume of the Company’s debt is low relative to the overall debt balance, the Company does not believe that the associated transactions represent an active market, and therefore this indication of value represents a level 2 fair value input.
The following table sets forth the assets and liabilities measured at fair value on a recurring basis in the Company’s consolidated balance sheets at September 30, 2022 (in millions):
| | | | | | | | | | | | | | | | | | | | | |
| | | | | Fair Value at |
| | | | | Pricing Category | | September 30, 2022 | | December 31, 2021 |
Cash and cash equivalents | | | | | | | | | |
Money market funds | | | | | Level 1 | | $ | 872.0 | | | $ | 310.2 | |
| | | | | | | | | |
Prepaid expenses and other current assets | | | | | | | | | |
Derivative instruments - foreign currency derivative contracts | | | | | Level 2 | | $ | — | | | $ | 1.3 | |
Derivative instruments - interest rate swaps | | | | | Level 2 | | 16.8 | | | — | |
| | | | | | | | | |
Other non-current assets: | | | | | | | | | |
Derivative instruments - interest rate swaps | | | | | Level 2 | | $ | 35.7 | | | $ | 7.9 | |
| | | | | | | | | |
| | | | | | | | | |
Accrued expenses and other current liabilities: | | | | | | | | | |
Derivative instruments - foreign currency derivative contracts | | | | | Level 2 | | $ | 14.4 | | | $ | — | |
Derivative instruments - interest rate swaps | | | | | Level 2 | | — | | | 2.4 | |
| | | | | | | | | |
| | | | | | | | | |
Contingent consideration | | | | | Level 3 | | $ | — | | | $ | 28.7 | |
| | | | | | | | | |
The Company estimates the fair value of interest rate swap contracts by discounting the future cash flows of both the fixed rate and variable rate interest payments based on market yield curves. The inputs used to measure the fair value of the Company’s interest rate swap contracts are categorized as Level 2 in the fair value hierarchy as established by ASC 820.
The fair value of the Company’s foreign currency contracts approximates the amount the Company would pay or receive if these contracts were settled at the respective valuation dates. The inputs used to measure the fair value of the Company’s foreign currency contracts are categorized as Level 2 in the fair value hierarchy as established by ASC 820.
The change in fair value of contingent consideration payable was valued using significant unobservable inputs (Level 3), was
included in the general and administrative expenses in the Company’s consolidated statements of comprehensive income and
consisted of the following (in millions):
| | | | | |
Balance as of January 1, 2022 | $ | 28.7 | |
Recorded in connection with acquisition transaction | 11.4 | |
Adjustment based on subsequent settlement agreement(1) | (28.7) | |
Fair value adjustments based upon post-acquisition performance | (11.4) | |
Balance as of September 30, 2022 | $ | — | |
_______
(1) See Note 10, Commitments and Contingencies, for additional discussion.
The Company estimated the fair value of its contingent consideration liabilities using probability-weighted discounted cash flow analyses. These fair value measurements are based on significant inputs not observable in the market and thus represent Level 3 measurements as defined in ASC 820. The extent to which the actual results differ from assumptions made within the probability-weighted analyses will result in adjustments to this liability in future periods.
The Company has not elected the fair value measurement option available under U.S. GAAP for any of its assets or liabilities that meet the option for these criteria.
NOTE 10. COMMITMENTS AND CONTINGENCIES
In December 2016, a copywriter lawsuit was filed against Wooga GmbH (a subsidiary of the Company) in the regional court of Berlin, Germany. The Plaintiff is suing for additional remuneration to his contributions for a storyline provided for one of Wooga's games and alleged reuse of parts of that storyline in one of Wooga’s other games. In its partial ruling delivered on August 18, 2020, the court dismissed the latter claim, but ordered Wooga to provide to the plaintiff revenue numbers of the game in which plaintiff’s contributions are used. Wooga complied with the court’s order. The plaintiff further pursues additional remuneration claims, including filing a statement with the court on June 13, 2022 in which plaintiff is seeking Euro 8.5 million plus interest. A hearing in court was held on June 21, 2022. The parties filed their latest statements on September 26, 2022 and now await further instructions from the court. As of September 30, 2022, the Company has recorded in its financial statements a reserve based upon its best estimate outcome. It is possible that any final amounts payable in connection with this lawsuit could exceed the Company’s currently reserved best estimate. The Company has defended this case vigorously and will continue to do so.
In November 2013, the Company’s subsidiary, Playtika, Ltd., sent an initial demand letter to Enigmatus s.r.o., a game developer in the Czech Republic, which owns various U.S. trademark registrations that resemble the Company’s Sloto-formative trademark names, demanding that it cease use of the trademark Slotopoly. In response, Enigmatus s.r.o. asserted that it was the owner of the Sloto-formative trademarks and denied that its game title infringed the Company’s trademarks. Enigmatus s.r.o. applied to register one of the Company’s trademarks in the United Kingdom and European Union, and the Company successfully opposed its applications. In December 2016, Enigmatus s.r.o., filed a trademark infringement lawsuit, Enigmatus, s.r.o. v. Playtika LTD and Caesars Interactive Entertainment, Inc., against Playtika, Ltd. and Caesars Interactive Entertainment LLC in the Federal Court of Canada asserting that the Company’s use of the Slotomania trademarks violates its proprietary and trademark rights. The plaintiff sought injunctive relief and monetary damages. Pleadings have been exchanged and the lawsuit is in the discovery stage. A hearing date for summary trial has been scheduled for June 27-29, 2023. The Company has defended this case vigorously and will continue to do so. As the case is in preliminary stages, the Company cannot estimate what impact, if any, the litigation may have on its results of operations, financial condition or cash flows.
On November 23, 2021, the Company and its directors and certain of its officers were named in a putative class action lawsuit filed in the United States District Court for the Eastern District of New York (Bar-Asher v. Playtika Holding Corp. et al.). The complaint was brought on behalf of an alleged class of purchasers of the Company’s securities between January 15, 2021 and November 2, 2021, and alleged violations of federal securities laws arising out of alleged misstatements or omissions by the defendants during the alleged class period. On March 10, 2022, the court appointed LBMotion Ltd as lead plaintiff, and the plaintiff filed an amended complaint on May 6, 2022. The amended complaint alleges violations of Section 11 and 15 of the Securities Act of 1933 and seeks, among other things, damages and attorneys’ fees and costs on behalf of the putative class. The amended complaint also added the companies that served as underwriters for the Company’s IPO as defendants in the lawsuit. On September 15, 2022, in accordance with local rules of the Court, the Company and other defendants in the case filed a letter notifying the Court of defendants’ service upon plaintiffs of, among other things, a notice of motion to dismiss plaintiffs’ amended complaint and memorandum of law in support of the defendants’ motion to dismiss plaintiffs’ amended complaint. As the case is in preliminary stages, the Company cannot estimate what impact, if any, the litigation may have on its results of operations, financial condition or cash flows. The Company has defended this case vigorously and will continue to do so.
On August 31, 2021, Playtika UK – House of Fun Limited (“Buyer”), a wholly owned subsidiary of the Company, entered into a Share Sale and Purchase Agreement (“SPA”) with the shareholders and option holders (collectively, the “Sellers”) of Reworks pursuant to which the Buyer (i) acquired 80% of all issued and registered shares and options (“Share Capital”) of Reworks in exchange for cash consideration of $400 million, subject to customary closing adjustments, and (ii) would acquire the remaining 20% of the Share Capital (“Remainder Shares and Options”) for additional cash consideration (“Earnout Payment”) in an amount to be determined based on certain performance metrics during the calendar year 2022. The Earnout Payment was expected to be calculated based on the amount of “Company EBITDA” (as defined in the SPA) in calendar year 2022 in excess of $10.3 million multiplied by 6.0, not to exceed $200 million, as further described in the SPA. In the event “Company EBITDA” (as defined in the SPA) was $10.3 million or less, the Earnout Payment would be $1.
On August 1, 2022, in connection with a contractual dispute between Buyer and the Sellers under the SPA, Buyer and the Sellers entered into an Omnibus Agreement, pursuant to which, among other things, (i) Buyer acquired title to the Remainder Shares and Options in exchange for a $45 million cash payment to the Sellers (in lieu of the Earnout Payment), (ii) Buyer and the sellers’ representative issued joint instructions to release $15.5 million from the Escrow Account (Claims) (as defined in the SPA) to the Sellers, (iii) Sellers released Buyer and its affiliates from all past, current and future claims arising out of the SPA, including but not limited to Reworks’ obligation under the SPA to spend a minimum $75 million in marketing and user acquisition activities during calendar year 2022, with exceptions for certain representations, warranties and covenants, (iv) Buyer released Sellers and each of their affiliates from all past, current and future claims arising out of the SPA, with exceptions for certain representations, warranties and covenants, and (v) certain Key Employee Agreements (as defined in the SPA) were terminated. The Earnout Payment was made in the third quarter of 2022. As of September 30, 2022, the Company has no remaining liability reflected in the financial statements herein.
On May 17, 2022, Guy David Ben Yosef filed a motion for approval of a class action lawsuit in district court in Tel Aviv-Jaffa Israel against Playtika Group Israel Ltd. (“PGI”), on behalf of all of PGI’s customers who made game token purchases in Israel as part of games marketed by PGI during the seven years preceding the filing of the motion and for all subsequent customers of such games who purchase tokens until the resolution of the claim. The motion alleges that certain of the Company’s slot, poker and solitaire-themed games, including Slotomania, Caesars Slots, Solitaire Grand Harvest, House of Fun and Poker Heat, constitute illegal gambling and are prohibited under Israeli law and are misleading under Israeli consumer protection laws and alleges unjust enrichment. The motion asserts damages of NIS 50 million. PGI’s response to the motion is due on November 27, 2022, and a pre-trial hearing in district court has been set for December 11, 2022. As the case is in preliminary stages, the Company cannot estimate what impact, if any, the litigation may have on its results of operations, financial condition or cash flows. The Company will defend this case vigorously.
The Company has received a number of demand letters pursuant to Section 220 of the Delaware General Corporation Law (“DGCL”), seeking disclosure of certain of the Company’s books and records. The Company has responded to those demands, stating its belief that the demand letters fail to fully comply with the requirements of Section 220 of the DGCL. However, in the interest of resolution and while preserving all rights, the Company has engaged in negotiations with certain of the shareholders.
NOTE 11. REVENUE FROM CONTRACTS WITH CUSTOMERS
The following table provides information about disaggregated revenue by geographic location of the Company’s players and type of platform (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Geographic location | | | | | | | |
USA | $ | 457.2 | | | $ | 443.5 | | | $ | 1,398.4 | | | $ | 1,366.9 | |
EMEA | 94.1 | | | 94.6 | | | 292.8 | | | 281.1 | |
APAC | 51.5 | | | 55.5 | | | 156.0 | | | 155.1 | |
Other | 45.0 | | | 42.3 | | | 137.1 | | | 130.9 | |
Total | $ | 647.8 | | | $ | 635.9 | | | $ | 1,984.3 | | | $ | 1,934.0 | |
| | | | | | | |
Platform type | | | | | | | |
Mobile | $ | 519.1 | | | $ | 507.5 | | | $ | 1,592.3 | | | $ | 1,546.3 | |
Web | 128.7 | | | 128.4 | | | 392.0 | | | 387.7 | |
Total revenues | $ | 647.8 | | | $ | 635.9 | | | $ | 1,984.3 | | | $ | 1,934.0 | |
Revenues through third-party platforms and through the Company’s own direct-to-consumer platforms were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
Third-party platforms | $ | 497.1 | | | $ | 498.2 | | | $ | 1,527.6 | | | $ | 1,545.9 | |
Direct-to-consumer platforms | 150.7 | | | 137.7 | | | 456.7 | | | 388.1 | |
Total revenues | $ | 647.8 | | | $ | 635.9 | | | $ | 1,984.3 | | | $ | 1,934.0 | |
Contract balances
Payments from players for virtual items are collected by platform providers or payment processors and remitted to the Company (net of the platform or clearing fees) generally within 45 days after the player transaction. The Company’s right to receive the payments collected by the platform providers or payment processors is recorded as an accounts receivable as the right to receive payment is unconditional. Deferred revenues, which represent a contract liability, represent mostly unrecognized fees billed for virtual items which have not yet been consumed at the balance sheet date. Platform fees paid to platform providers or payment processors and associated with deferred revenues represent a contract asset.
Balances of the Company’s contract assets and liabilities are as follows (in millions):
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Accounts receivable | $ | 128.0 | | | $ | 143.7 | |
Contract assets (1) | 8.6 | | | 9.4 | |
Contract liabilities (2) | 31.2 | | | 31.6 | |
_______
(1) Contract assets are included within prepaid expenses and other current assets in the Company’s consolidated balance sheets.
(2) Contract liabilities are included within accrued expenses and other current liabilities as “deferred revenues” in the Company’s consolidated balance sheets.
During the three and nine months ended September 30, 2022, the Company recognized $2.2 million and $31.6 million, respectively, of its contract liabilities that were outstanding as of December 31, 2021.
Unsatisfied performance obligations
Substantially all of the Company’s unsatisfied performance obligations relate to contracts with an original expected length of one year or less.
NOTE 12. SEGMENT INFORMATION
The Company operates its business as one operating segment and one reportable segment.
The Company’s long-lived assets, net, by country of domicile are as follows (in millions):
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| | | |
Israel | $ | 90.3 | | | $ | 73.9 | |
USA | 52.3 | | | 51.4 | |
Ukraine | 30.2 | | | 32.5 | |
Other | 38.3 | | | 34.9 | |
Total long-lived assets, net | $ | 211.1 | | | $ | 192.7 | |
NOTE 13. APPRECIATION AND RETENTION PLAN
In August 2019, the Board approved the 2021-2024 Retention Plan. Under the 2021-2024 Retention Plan, eligible employees may be granted retention awards that let them receive their pro rata portion of a retention pool of $25 million per year for each of the plan years, and may also be granted appreciation units which allow the employee to receive their pro-rata portion of an appreciation pool calculated as a specified percentage of Adjusted EBITDA in each of the plan years.
The Company recognized compensation expenses in respect of retention bonus and appreciation unit awards under its appreciation and retention plans of $27.0 million and $28.5 million during the three months ended September 30, 2022 and 2021, respectively, and $79.9 million and $88.5 million during the nine months ended September 30, 2022 and 2021, respectively.
The Company has also granted retention awards to key individuals associated with acquired companies as an incentive to retain those individuals on a long-term basis. The Company recognized compensation expenses associated with these development-related retention payments of $0.2 million and $2.3 million during the three months ended September 30, 2022 and 2021, respectively, and $7.7 million and $9.1 million during the nine months ended September 30, 2022 and 2021, respectively.
NOTE 14. INTEREST AND OTHER, NET
Interest and other, net are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Interest expense | $ | 31.5 | | | $ | 23.7 | | | $ | 81.1 | | | $ | 124.8 | |
Interest income | (5.8) | | | (0.2) | | | (9.1) | | | (0.5) | |
Foreign currency translation differences, net | (1.5) | | | 0.8 | | | 0.9 | | | 0.6 | |
Other | 0.1 | | | 0.6 | | | 1.3 | | | (0.3) | |
Total interest and other, net | $ | 24.3 | | | $ | 24.9 | | | $ | 74.2 | | | $ | 124.6 | |
NOTE 15. INCOME TAXES
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
(in millions, except tax rate) | 2022 | | 2021 | | 2022 | | 2021 |
Income before income taxes | $ | 107.1 | | | $ | 129.6 | | | $ | 268.9 | | | $ | 325.6 | |
Provision for income taxes | $ | 38.9 | | | $ | 49.1 | | | $ | 81.1 | | | $ | 119.4 | |
Effective tax rate | 36.3 | % | | 37.9 | % | | 30.2 | % | | 36.7 | % |
The effective tax rates were determined using a worldwide estimated annual effective tax rate and took discrete items into consideration. The primary differences between the effective tax rate and the 21% U.S. federal statutory rate for the three and nine months ended September 30, 2022 were due to tax provisions that do not meet the more likely than not standard, the inclusion of Global Intangible Low-Taxed Income, and nondeductible share-based compensation. The primary differences between the effective tax rate and the 21% U.S. federal statutory rate for the three and nine months ended September 30, 2021 were due to tax positions that do not meet the more likely than not standard, and rates in foreign jurisdictions and the relative amounts of income earned in those jurisdictions.
NOTE 16. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables show a summary of changes in accumulated other comprehensive income (loss), net of tax, by component for the three and nine months ended September 30, 2022 and 2021 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation | | Interest Rate Swaps | | Foreign Currency Derivative Contracts | | Total |
Balance as of January 1, 2022 | $ | (1.9) | | | $ | 4.2 | | | $ | 0.9 | | | $ | 3.2 | |
Other comprehensive income (loss) before reclassifications | (3.3) | | | 17.7 | | | 0.3 | | | 14.7 | |
Amounts reclassified from accumulated other comprehensive income (loss) | — | | | 0.8 | | | (0.1) | | | 0.7 | |
Balance as of March 31, 2022 | (5.2) | | | 22.7 | | | 1.1 | | | 18.6 | |
Other comprehensive income (loss) before reclassifications | (10.0) | | | 5.2 | | | (12.3) | | | (17.1) | |
Amounts reclassified from accumulated other comprehensive income | — | | | 0.1 | | | 1.1 | | | 1.2 | |
Balance as of June 30, 2022 | (15.2) | | | 28.0 | | | (10.1) | | | 2.7 | |
Other comprehensive income (loss) before reclassifications | (14.5) | | | 13.7 | | | (6.0) | | | (6.8) | |
Amounts reclassified from accumulated other comprehensive income (loss) | — | | | (1.2) | | | 4.0 | | | 2.8 | |
Balance as of September 30, 2022 | $ | (29.7) | | | $ | 40.5 | | | $ | (12.1) | | | $ | (1.3) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation | | Interest Rate Swaps | | Foreign Currency Derivative Contracts | | Total |
Balance as of January 1, 2021 | $ | 16.7 | | | $ | — | | | $ | — | | | $ | 16.7 | |
Other comprehensive income (loss) before reclassifications | (9.9) | | | 0.7 | | | (1.1) | | | (10.3) | |
Amounts reclassified from accumulated other comprehensive income | — | | | — | | | 0.3 | | | 0.3 | |
Balance as of March 31, 2021 | 6.8 | | | 0.7 | | | (0.8) | | | 6.7 | |
Other comprehensive income (loss) before reclassifications | 2.8 | | | (3.2) | | | 1.1 | | | 0.7 | |
Amounts reclassified from accumulated other comprehensive income | — | | | 0.5 | | | — | | | 0.5 | |
Balance as of June 30, 2021 | 9.6 | | | (2.0) | | | 0.3 | | | 7.9 | |
Other comprehensive income (loss) before reclassifications | (5.7) | | | — | | | 0.4 | | | (5.3) | |
Amounts reclassified from accumulated other comprehensive income (loss) | — | | | 0.9 | | | (0.4) | | | 0.5 | |
Balance as of September 30, 2021 | $ | 3.9 | | | $ | (1.1) | | | $ | 0.3 | | | $ | 3.1 | |
NOTE 17. NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
The following table sets forth the computation of basic and diluted net income per share attributable to common stockholders (in millions, except per share data):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Numerator: | | | | | | | |
Net income | $ | 68.2 | | | $ | 80.5 | | | $ | 187.8 | | | $ | 206.2 | |
Denominator: | | | | | | | |
Weighted-average shares used in computing net income per share attributable to common stockholders, basic | 412.7 | | | 409.6 | | | 412.3 | | | 408.6 | |
Weighted-average shares used in computing net income per share attributable to common stockholders, diluted | 412.7 | | | 411.6 | | | 412.6 | | | 410.9 | |
Net income per share, basic | $ | 0.17 | | | $ | 0.20 | | | $ | 0.46 | | | $ | 0.50 | |
Net income per share, diluted | $ | 0.17 | | | $ | 0.20 | | | $ | 0.46 | | | $ | 0.50 | |
The Company uses the treasury stock method on a grant-by-grant basis as the method for determining the dilutive effect of options and RSUs. Under this method, it is assumed that the hypothetical proceeds received upon settlement are used to repurchase common shares at the average market price during the period. The following outstanding employee equity awards were excluded from the calculation of diluted net income per share because their effect would have been anti-dilutive for the periods presented (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Stock options | 16.2 | | | 7.8 | | | 16.8 | | | 8.2 | |
RSUs | 14.2 | | | 4.6 | | | 9.5 | | | 4.6 | |
Total | 30.4 | | | 12.4 | | | 26.3 | | | 12.8 | |
In addition, 3.5 million PSUs were excluded from the calculation of diluted net income per share for the three and nine months ended September 30, 2022 because the minimum performance measures were not yet met.
NOTE 18. SUBSEQUENT EVENTS
The Company performed a review for subsequent events through the date of these financial statements. Other than the Tender Offer detailed in Note 7, Equity Transactions and Stock Incentive Plan, no other material items were noted for disclosure.