SCIPLAY CORPORATION
The following discussion is intended to enhance the reader's understanding of
our operations and current business environment and should be read in
conjunction with the description of our business (see Part I, Item 1 of this
Annual Report on Form 10-K) and our Consolidated Financial Statements and Notes
(see Part IV, Item 15 of this Annual Report on Form 10-K).
This "Management's Discussion and Analysis of Financial Condition and Results of
Operations" contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 and should be read in
conjunction with the disclosures and information contained and referenced under
"Forward-Looking Statements" and "Risk Factors" included in this Annual Report
on Form 10-K.
BUSINESS OVERVIEW
43-------------------------------------------------------------------------------- We are a leading developer and publisher of digital games on mobile and web platforms. We operate primarily in the social gaming market, which is characterized by gameplay online or on mobile devices, that is social, competitive, and self-directed in pace and session length. We also operate in the hyper-casual market, which is characterized by simpler core loops and more repetitive gameplay than casual games. We generate a substantial portion of our revenue from in-app purchases in the form of virtual coins, chips and cards, which players can use to play slot games, table games or bingo games. Players who install our social games typically receive free coins, chips or cards upon the initial launch of the game and additional free coins, chips or cards at specific time intervals. Players may exhaust the coins, chips or cards that they receive for free and may choose to purchase additional coins, chips or cards in order to extend their time of game play. Once obtained, coins, chips and cards (either free or purchased) cannot be redeemed for cash nor exchanged for anything other than game play within our apps. We generate additional revenue in the hyper-casual market from the receipt of advertising revenue. Players who install our hyper-casual games receive free, unlimited gameplay that requires viewing of periodic in-game advertisements. We currently offer a variety of social casino games, including Jackpot Party® Casino, Gold Fish® Casino, Quick Hit® Slots, 88 Fortunes® Slots, MONOPOLY® Slots and Hot Shot Casino®. We continue to pursue our strategy of expanding into the casual games market. Current casual game titles include Bingo Showdown®, Solitaire Pets™ Adventure and Backgammon Live as well as other titles in the hyper-casual market through our acquisition of Alictus, including games such as Candy Challenge 3D™, Boss Life™ andDeep Clean Inc. 3D™. During the year endedDecember 31, 2022 , we launched seven hyper-casual games, including the top hitsMaster Doctor 3D and Fade Master 3D, and we continued development of SpellSpinner: Fantasy Quest, a casual game. Our social casino games typically include slots-style game play and occasionally include table games-style game play, while our casual games blend solitaire-style or bingo game play with adventure game features and our hyper-casual games include many simple core loop mechanics. All of our games are offered and played across multiple platforms, including Apple,
Trends and Recent Updates
Throughout 2022, we deployed significant updates across a number of our portfolio games, and we expect to deploy further updates to games in future years.
In March of 2022, we acquired privately held Alictus, a
OnMay 9, 2022 , our Board of Directors approved a share repurchase program under which the Company is authorized to repurchase, from time to time throughMay 9, 2024 , up to an aggregate amount of$60.0 million of our outstanding Class A common stock. Repurchases may be made at the discretion of the Board of Directors through one or more open market transactions, privately negotiated transactions, including block trades, accelerated share repurchases, issuer tender offers or other derivative contracts or instruments, "10b5-1" plan, or other financial arrangements or other arrangements. Since the initiation of the program and throughFebruary 24, 2023 , we returned$41.7 million of capital to shareholders through the repurchase of 3.0 million shares of common stock. 2022 was another record year for total revenue, and we continue to see higher player engagement compared with the pre-COVID-19 time period. Our year-over-year total revenue growth was 10.7%. This result is primarily attributable to the revenue generated by Jackpot Party® Casino and Quick Hit® Slots, coupled with the additional revenue generated following our acquisition of Alictus, and partially offset by a decline in revenue generated by Bingo Showdown®. We believe that there is an opportunity for continued improvement of operating results in 2023 and beyond, as we continue to execute on our strategic game updates, enhanced analytics, international expansion, and an upcoming new game release. 44 --------------------------------------------------------------------------------
KEY PERFORMANCE INDICATORS AND NON-GAAP MEASURES
We manage our business by tracking several key performance indicators, each of which is tracked by our internal analytics systems and more fully described below and referred to in our discussion of operating results. Our key performance indicators are impacted by several factors that could cause them to fluctuate on a quarterly basis, such as platform providers' policies, restrictions, seasonality, user connectivity and addition of new content to certain portfolios of games. Future growth in players and engagement will depend on our ability to retain current players, attract new players, launch new games and features and expand into new markets and distribution platforms.
For additional information on our strategy and key initiatives to date, see also "Strategy" in Part I, Item 1.
The KPIs discussed below include only in-app purchases, as advertising revenue is not material for the periods presented.
Mobile Penetration
Mobile penetration is defined as the percentage of total revenue generated from mobile platforms. We believe this indicator provides useful information in understanding revenue generated from mobile platforms such as smartphones and tablets.
Average Monthly Active Users (MAU)
MAU is defined as the number of individual users who played a game during a particular month. An individual who plays multiple games or from multiple devices may, in certain circumstances, be counted more than once. However, we use third-party data to limit the occurrence of multiple counting. Average MAU for a period is the average of MAUs for each month for the period presented. We believe this indicator provides useful information in understanding the number of users reached across our portfolio of games on a monthly basis.
Average Daily Active Users (DAU)
DAU is defined as the number of individual users who played a game on a particular day. An individual who plays multiple games or from multiple devices may, in certain circumstances, be counted more than once. However, we use third-party data to limit the occurrence of multiple counting. Average DAU for a period is the average of the monthly average DAUs for the period presented. We believe this indicator provides useful information in understanding the number of users reached across our portfolio of games on a daily basis.
Average Revenue Per Daily Active User (ARPDAU)
ARPDAU is calculated by dividing revenue for the period by the average DAU for the period and then dividing by the number of days in the period. We believe this indicator provides useful information reflecting game monetization.
Average Monthly Paying Users (MPU)
MPU is defined as the number of individual users who made an in-game purchase during a particular month. An individual who made purchases in multiple games or from multiple devices may, in certain circumstances, be counted more than once. However, we use third-party data to limit the occurrence of multiple counting. Average MPU for a period is the average of MPUs for each month for the period presented. We believe this indicator provides useful information in understanding the number of users reached across our portfolio of games making in-game purchases on a monthly basis.
Average Monthly Revenue Per Paying User (AMRPPU)
AMRPPU is calculated by dividing average monthly revenue by average MPUs for the applicable time period. We
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--------------------------------------------------------------------------------believe this indicator provides useful information reflecting game monetization.
Payer Conversion Rate
Payer conversion rate is calculated by dividing average MPU for the period by the average MAU for the same period. We believe this indicator provides useful information reflecting game monetization.
Non-GAAP Financial Measures
Adjusted EBITDA, or AEBITDA, as used herein, is a non-GAAP financial measure that is presented as supplemental disclosure and is reconciled to net income attributable toSciPlay as the most directly comparable GAAP measure as set forth in the below table. We define AEBITDA to include net income attributable toSciPlay before: (1) net income attributable to noncontrolling interest; (2) interest expense; (3) income tax expense; (4) depreciation and amortization; (5) restructuring and other, which includes charges or expenses attributable to: (a) employee severance; (b) management changes; (c) restructuring and integration; (d) M&A and other, which includes: (i) M&A transaction costs; (ii) purchase accounting adjustments (including contingent acquisition consideration); (iii) unusual items (including legal settlements related to major litigation); and (iv) other non-cash items; and (e) cost-savings initiatives; (6) stock-based compensation; (7) loss (gain) on debt financing transactions; and (8) other (income) expense including foreign currency (gains) and losses. We also use AEBITDA margin, a non-GAAP measure, which we calculate as AEBITDA as a percentage of revenue. Our management uses AEBITDA and AEBITDA margin to, among other things: (i) monitor and evaluate the performance of our business operations; (ii) facilitate our management's internal comparisons of our historical operating performance and (iii) analyze and evaluate financial and strategic planning decisions regarding future operating investments and operating budgets. In addition, our management uses AEBITDA and AEBITDA margin to facilitate management's external comparisons of our results to the historical operating performance of other companies that may have different capital structures and debt levels. Our management believes that AEBITDA and AEBITDA margin are useful as they provide investors with information regarding our financial condition and operating performance that is an integral part of our management's reporting and planning processes. In particular, our management believes that AEBITDA is helpful because this non-GAAP financial measure eliminates the effects of restructuring, transaction, integration or other items that management believes have less bearing on our ongoing underlying operating performance. Management believes AEBITDA margin is useful as it provides investors with information regarding the underlying operating performance and margin generated by our business operations.
COMPONENTS OF RESULTS OF OPERATIONS
Revenue
We generate our revenue primarily from the sale of coins, chips and cards, which players of our games can use to play slot games, table games and bingo games. Revenue from the sale of coins, chips and cards is generated on mobile and web platforms. Other revenue primarily represents advertising revenue, which is generated from providing advertising platforms with access to our game software platform, which facilitates the placement of advertising inventory. Advertising revenue was less than 4% of our total revenue for the year endedDecember 31, 2022 . We expect our overall revenue to continue to grow as we continue to increase our market share and execute our strategy. As player platform preferences change and continue to migrate to mobile, we expect revenue generated on web platforms to continue to decline.
Operating Expenses
Operating expenses consist primarily of cost of revenue, sales and marketing
expenses, general and administrative expenses, research and development ("R&D"),
depreciation and amortization ("D&A"), and restructuring and other expenses,
each more fully described below. D&A expense is excluded from cost of revenue
and other operating expenses, and is separately presented on the consolidated
statements of income.
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--------------------------------------------------------------------------------Cost of Revenue
Cost of revenue consists primarily of fees paid to platform providers such as Facebook,
General and Administrative
General and administrative expenses consist primarily of salaries, benefits, and stock-based compensation for our executives, finance, information technology, human resources and other administrative employees, and includes administrative parent services (see Note 10). In addition, general and administrative expenses include outside consulting, legal and accounting services, facilities and other supporting overhead costs not allocated to other departments. We expect that our aggregate amount of general and administrative expenses will increase for the foreseeable future as we continue to grow our business.
Research and Development
Research and Development expenses consist primarily of costs associated with game development, such as associated salaries, benefits, and other supporting overhead costs associated with game development. Continued investment in enhancing existing games and developing new games is important to attaining our strategic objectives. As a result, we expect the aggregate amount of R&D expenses to increase for the foreseeable future as we grow our business, focus on retention of our development team and grow our facilities.
Restructuring and Other
Our restructuring and other expenses include charges or expenses attributable
to: (a) employee severance; (b) management changes; (c) restructuring and
integration; (d) M&A and other, which includes (i) M&A transaction costs; (ii)
purchase accounting adjustments (including contingent acquisition
consideration); (iii) unusual items (including legal settlements related to
major litigation); and (iv) other non-cash items; and (e) cost-savings
initiatives. Restructuring and other expenses will increase or decrease based on
management actions and/or occurrence of charges described herein.
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--------------------------------------------------------------------------------RESULTS OF OPERATIONS
Summary of Results of Operations
Years ended December 31, Variance
($ in millions, except percentages) 2022 2021 2022 vs. 2021
Revenue $ 671.0 $ 606.1 $ 64.9 11 %
Operating expenses 522.5 474.4 48.1 10 %
Operating income 148.5 131.7 16.8 13 %
Net income 150.8 125.0 25.8 21 %
Net income attributable to SciPlay 22.4 19.3 3.1 16 %
AEBITDA $ 186.8 $ 185.9 $ 0.9 - %
Net income margin 22.5 % 20.6 % 1.9 pp nm
AEBITDA margin 27.8 % 30.7 % (2.9) pp nmpp = percentage points. nm = not meaningful.
The following table reconciles Net income attributable to
Years ended December 31,
($ in millions, except percentages) 2022 2021
Net income attributable to SciPlay $ 22.4 $ 19.3
Net income attributable to noncontrolling interest 128.4 105.7
Net income 150.8 125.0
Restructuring and other(1) 5.1 31.5
Depreciation and amortization 21.4 15.5
Income tax expense 0.7 5.7
Stock-based compensation 11.8 7.2
Other (income) expense, net (3.0) 1.0
AEBITDA(2) $ 186.8 $ 185.9
Revenue $ 671.0 $ 606.1
Net income margin (Net income/Revenue) 22.5 % 20.6 %
AEBITDA margin (AEBITDA/Revenue)(2) 27.8 % 30.7 %
(1) Includes $24.5 million legal settlement charge for the year ended December 31, 2021 (see Note 11).
(2) Refer to "Key Performance Indicators and Non-GAAP Measures" section above for the definitions of AEBITDA and
AEBITDA margin presented in this table.
Revenue, Key Performance Indicators and Other Metrics
Years ended December 31, Variance
($ in millions) 2022 2021 2022 vs. 2021
Mobile in-app purchases $ 584.1 $ 537.3 $ 46.8 9 %
Web in-app purchases and other(1) 86.9 68.8 18.1 26 %
Total revenue $ 671.0 $ 606.1 $ 64.9 11 %
(1) Other primarily represents advertising revenue, which was
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--------------------------------------------------------------------------------Revenue information by geography is summarized as follows:
Years ended December 31, Variance
($ in millions) 2022 2021 2022 vs. 2021
North America(1) $ 615.5 $ 555.5 $ 60.0 11 %
International 55.5 50.6 4.9 10 %
Total revenue $ 671.0 $ 606.1 $ 64.9 11 %
(1)
The following reflects our Key Performance Indicators and Other Metrics:
Years ended December 31, Variance
(in millions, except ARPDAU, AMRPPU, and percentages) 2022 2021 2022 vs. 2021
In-App Purchases(1):
Mobile Penetration 90 % 89 % 1.0 pp nm
Average MAU 6.0 6.2 (0.2) (3.2) %
Average DAU 2.3 2.3 - - %
ARPDAU $ 0.78 $ 0.71 $ 0.07 9.9 %
Average MPUs 0.6 0.5 0.1 7.9 %
AMRPPU $ 94.58 $ 95.26 $ (0.68) (0.7) %
Payer Conversion Rate 9.6 % 8.5 % 1.1 pp nm
(1) The above KPIs include only in-app purchases, as advertising revenue is not material for the periods presented.
pp = percentage points.
nm = not meaningful.
The increase in mobile penetration percentage primarily reflects a continued trend of players migrating from web to mobile platforms to play our games.
Average MAU decreased due to the turnover in users, and average DAU remained relatively flat due to higher player engagement.
ARPDAU increased, while average DAU remained flat. AMRPPU decreased while average MPU increased due to introduction of new content and features resulting in increased paying player interaction.
All-time high payer conversion rate was due to the growing popularity of our games as we focused on live operations to enhance game play and engagement.
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Operating Expenses
Years ended December 31, Variance Percentage of Revenue
2022 vs. 2021
($ in millions) 2022 2021 2022 vs. 2021 2022 2021 Change
Operating expenses:
Cost of revenue(1) $ 204.0 $ 190.0 $ 14.0 7.4 % 30.4 % 31.3 % (0.9) pp
Sales and marketing(1) 177.6 135.3 42.3 31.3 % 26.5 % 22.3 % 4.2 pp
General and administrative(1) 67.6 62.4 5.2 8.3 % 10.1 % 10.3 % (0.2) pp
Research and development(1) 46.8 39.7 7.1 17.9 % 7.0 % 6.6 % 0.4 pp
Depreciation and amortization 21.4 15.5 5.9 38.1 % 3.2 % 2.6 % 0.6 pp
Restructuring and other 5.1 31.5 (26.4) nm nm nm
Total operating expenses $ 522.5 $ 474.4 $ 48.1 10.1 %
(1) Excludes depreciation and amortization.
nm = not meaningful.
pp = percentage points.
Cost of Revenue
Cost of revenue increased due to higher platform fees in line with revenue
growth and a
Sales and Marketing
Sales and marketing expenses increased primarily due to higher marketing spend of$37.1 million coupled with higher salaries and benefits of$3.6 million primarily related to an average increased headcount of 44%. Sales and marketing expense as a percentage of revenue increased primarily due to higher marketing spend. General and Administrative General and administrative expenses increased primarily due to a$6.8 million increase in salaries and benefits related to an average increase in headcount of 35%, coupled with a$4.6 million increase in stock-based compensation, which was partially offset by a$5.4 million decrease in legal expenses.
Research and Development
Research and development expenses increased primarily as a result of$4.7 million in higher salary and benefits costs primarily due to an average increase in headcount of 14%, coupled with higher software costs and professional service fees.
Depreciation and Amortization
Depreciation and amortization expenses increased primarily due to additional amortization associated with intangible assets acquired in conjunction with the Alictus and Koukoi acquisitions.
Restructuring and Other
Restructuring and other expense decreased primarily as a result of the prior year's$24.5 million charge related to our settlement of theWashington State Matter (see our 2021 Annual Report on Form 10-K).
Net Income
Net income primarily increased as a result of the prior year'sWashington State settlement charge of$24.5 million , coupled with continued growth in revenue as average monthly paying users and payer conversion rates continued to increase 50 -------------------------------------------------------------------------------- throughout 2022 (as described above). Net income in 2022 also benefited by$7.0 million related to a change in the forecasted tax rate applicable to certain foreign deferred tax items.
Net income margin increased by 1.9 percentage points as a result of the above stated drivers.
Noncontrolling Interest
Net income attributable to noncontrolling interest increased due to the increase in Net income as described above.
AEBITDA
AEBITDA increased primarily due to the increase in revenue, largely offset by the increase in operating costs resulting from higher marketing spend and salaries and benefits costs (as described above). Higher operating costs impacted AEBITDA margin, which decreased by 2.9 percentage points given the increase in revenue of 10.7% and the increase in AEBITDA of 0.5%.
For 2021 and 2020 consolidated results comparison, see Part II, Item 7 of our 2021 Annual Report on Form 10-K.
RECENTLY ISSUED ACCOUNTING GUIDANCE
For a description of recently issued accounting pronouncements, see Note 1.
CRITICAL ACCOUNTING ESTIMATES
Information regarding significant accounting policies is included in the Notes to the audited consolidated financial statements. As stated in Note 1, the preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. We believe that the estimates, assumptions, and judgments involved in the following accounting policies have the greatest potential impact on our consolidated financial statements: •Revenue recognition; •Business acquisitions; •Income taxes;
•Variable interest entities (VIE); and
•Legal contingencies.
Revenue Recognition
Our revenue recognition policy described fully in Note 1 requires us to make
significant judgments and estimates. The guidance in ASC 606 requires that we
apply judgments or estimates to determine the performance obligations, the
standalone selling prices of our performance obligations to customers and the
timing of transfer of control of the respective performance obligations. The
evaluation of each of these criteria in light of contract specific facts and
circumstances is inherently judgmental, but certain judgments could
significantly affect the timing or amount of revenue recognized if we were to
reach a different conclusion than we have. The critical judgments we are
required to make in our assessment of contracts with customers that could
significantly affect the timing or amount of revenue recognized are:
•Satisfaction of our performance obligation for in-app purchase revenue - We
estimate the amount of outstanding purchased coins, chips or cards at period end
based on customer behavior, because we are unable to distinguish between the
consumption of purchased or free coins, chips or cards. Based on an analysis of
the customers' historical play behavior, the timing difference between when
virtual currencies are purchased by a customer and when those
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virtual currencies are consumed in game play is relatively short. Future usage
patterns may differ from historical usage patterns, and therefore the estimated
average playing periods may change in the future, and such changes could be
material.
•Principal-agent considerations for in-app purchase revenue - We recognize
in-app purchase revenues on a gross basis because we have control over the
content and functionality of games before players access our games on our
platform providers platforms. We evaluated our current agreements with our
platform providers and end-user agreements and based on the preceding, we
determined that we are the principal in such arrangements. Any future changes in
these arrangements or to our games and related method of distribution may result
in a different conclusion, and such change would have a material impact on our
gross revenues.
Business Acquisitions
We account for business acquisitions in accordance with ASC 805.
In business combinations, the acquiring entity is required to recognize all (and only) acquired assets and liabilities assumed in the transaction and establish the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed, with certain exceptions for contract assets and contract liabilities in accordance with ASC 606. If the Company determines the assets acquired do not meet the definition of a business under the acquisition method of accounting, the transaction is accounted for as an acquisition of assets rather than a business combination. In an asset acquisition, the acquiring entity is required to allocate the cost of the group of assets acquired to the individual assets acquired or liabilities assumed based on the relative fair values of net identifiable assets acquired other than non-qualifying assets (for example cash) and does not give rise to goodwill. Determining the fair value of assets acquired and liabilities assumed requires management judgment and often involves the use of significant estimates and assumptions with respect to the timing and amounts of future cash inflows and outflows, discount rates, market prices and asset lives, among other items. Any changes in the underlying assumptions can impact the estimates of fair value by material amounts, which can in turn materially impact our results of operations. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these fair values, we could record impairment charges. In addition, we have estimated the useful lives of certain acquired assets, and these lives are used to calculate Depreciation and amortization expense. If our estimates of the useful lives change, Depreciation & amortization expense could be accelerated or slowed. For example, for the acquisition completed during 2022, if the intangible assets useful lives were extended by two years, the total annual depreciation and amortization would decrease by approximately$1.5 million , and if the useful lives were shortened by two years, the total annual depreciation and amortization would increase by approximately$3.1 million . The carrying amount of intangible assets, net associated with the acquisitions completed during 2022 was$29.4 million as ofDecember 31, 2022 .
Income Taxes
We are subject to the income tax laws of theU.S. federal, state and foreign jurisdictions in which we operate. These tax laws are complex, and the manner in which they apply to our facts is sometimes open to interpretation. In establishing the provision for income taxes, we must make judgments about the application of these inherently complex tax laws. Our income tax positions and analysis are based on currently enacted tax law. Future changes in tax law could significantly impact the provision for income taxes, the amount of taxes payable and the deferred tax asset and liability balances in future periods. Deferred tax assets generally represent the excess of tax basis in our investment and tax benefits for tax deductions available in future tax returns. Certain estimates and assumptions are required to determine whether it is more likely than not that all or some portion of the benefit of a deferred tax asset will not be realized. In making this assessment, management analyzes and estimates the impact of future taxable income, available carry-backs and carry-forwards, reversing temporary differences and available prudent and feasible tax planning strategies. Should a change in facts or circumstances lead to a change in judgment about the ultimate realizability of a deferred tax asset, we record or adjust the related valuation allowance in the annual period that the change in facts and circumstances occurs, along with a corresponding increase or decrease in the provision for income taxes. For discussion of our income taxes, see Note 9.
Variable Interest Entities (VIE)
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As described in Note 1, SciPlay's sole material asset is its member's interest
in SciPlay Parent LLC . Due to SciPlay's power to control combined with its
significant economic interest in SciPlay Parent LLC , we concluded that SciPlay
is the primary beneficiary of the VIE, and therefore it will consolidate the
financial results of SciPlay Parent LLC and its subsidiaries. Any future changes
to the economic interest and/or the SciPlay Parent LLC Agreement, among other
factors, may result in a different conclusion, and such change would have a
material impact on SciPlay financial statements, as SciPlay Parent LLC and its
subsidiaries would not be consolidated but rather accounted for under the equity
method of accounting.
Legal Contingencies
We are subject to certain legal proceedings, demands, claims and threatened
litigation that arise in the normal course of our business. We review the status
of each significant matter quarterly and assess our potential financial
exposure. If the potential loss from any claim or legal proceeding is considered
probable and the amount can be reasonably estimated, we record a liability and
an expense for the estimated loss. If we determine that a loss is reasonably
possible and the range of the loss can be reasonably estimated, then we disclose
the range of the possible loss. Significant judgment is required in the
determination of whether a potential loss is probable, reasonably possible, or
remote and in the determination of whether a potential exposure is reasonably
estimable. Our accruals are based on the best information available at the time.
As additional information becomes available, we reassess the liabilities and
disclosures related to our pending claims and litigation and may revise our
estimates. Potential legal liabilities and the revision of estimates of legal
liabilities could have a material impact on our results of operations, cash
flows, and financial position. For discussion of our legal proceedings, see Note
11, which is incorporated by reference into Item 3 of this Annual Report on Form
10-K.
LIQUIDITY, CAPITAL RESOURCES AND WORKING CAPITAL
SciPlay is a holding company, with no material assets other than its ownership ofSciPlay Parent LLC interests, no operating activities on its own and no independent means of generating revenue or cash flow. Operations are carried out bySciPlay Parent LLC and its subsidiaries, and we depend on distributions fromSciPlay Parent LLC to pay our taxes and expenses.SciPlay Parent LLC's ability to make distributions to us is restricted by the terms of the Revolver, and may be restricted by any future credit agreement we or our subsidiaries enter into, any future debt or preferred equity securities we or our subsidiaries issue, other contractual restrictions or applicableNevada law. We have funded our operations primarily through cash flows from operating activities. Based on our current plans and market conditions, we believe that cash flows generated from our operations and borrowing capacity under the Revolver will be sufficient to satisfy our anticipated cash requirements for the foreseeable future. However, we intend to continue to make significant investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new games and features or enhance our existing games, improve our operating infrastructure or acquire complementary businesses, personnel and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be harmed.
Our total cash on hand was
Our capital requirements as ofDecember 31, 2022 principally include obligations associated with our future minimum operating lease obligations, license minimum guarantees, obligations under the TRA and obligations related to contingent acquisition consideration and redeemable noncontrolling interest for Alictus. These commitment amounts are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions and the approximate timing of the actions under the contracts. We also have certain agreements in place whereby we are obligated to pay royalties based on future events that are uncertain. The TRA we entered into with the L&W Member in connection with the IPO provides for the payment by us to the L&W Member of 85% of the amount of tax benefits, if any, that we actually realize (or in some cases are deemed to realize) as a result of (i) increases in the tax basis of assets ofSciPlay Parent LLC (a) in connection with the IPO, (b) resulting from any redemptions or exchanges of LLC Interests pursuant to the Operating Agreement or (c) resulting from certain 53 -------------------------------------------------------------------------------- distributions (or deemed distributions) bySciPlay Parent LLC and (ii) certain other tax benefits related to our making of payments under the TRA. The annual tax benefits are computed by comparing the income taxes due including such tax benefits and the income taxes due without such benefits. The amount of aggregate payments due under the TRA may vary based on a number of factors, including the amount and timing of the taxable incomeSciPlay Parent LLC generates each year and applicable tax rates, with payments generally due within a specified period of time following the filing of our tax return for the taxable year with respect to which the payment obligation arises. The TRA will remain in effect until all such tax benefits have been utilized or expired unless we exercise our right to terminate the TRA. The TRA will also terminate if we breach our obligations under the TRA or upon certain change of control events specified in the agreement. If the TRA is terminated in accordance with its terms, our payment obligations would be accelerated based upon certain assumptions, including the assumption that we would have sufficient future taxable income to utilize such tax benefits.
Revolving Credit Facility
We have a$150.0 million Revolver by and amongSciPlay Games, LLC (formerly known asSciPlay Holding Company, LLC ) ("SciPlay Games"), as the borrower,SciPlay Parent LLC , as a guarantor, the subsidiary guarantors party thereto, the lenders party thereto andBank of America, N.A ., as administrative agent and collateral agent. The interest rate is either Adjusted LIBOR (as defined in the Revolver) plus 2.250% (with one 0.250% leverage-based step-down to the margin and one 0.250% leverage-based step-up to the margin) or ABR plus 1.250% (with one 0.250% leverage-based step-down to the margin and one 0.250% leverage-based step-up to the margin) at our option. We are required to pay to the lenders a commitment fee of up to 0.500% per annum on the average daily unused portion of the revolving commitments through maturity, which will be the five-year anniversary of the closing date of the Revolver. The commitment fee varies based on the total net leverage ratio and is subject to a floor of 0.375%.As ofDecember 31, 2022 , the commitment fee was 0.375% per annum. The Revolver provides for up to$15.0 million in letter of credit issuances, which requires customary issuance and administration fees, and a fronting fee of 0.125%. OnFebruary 28, 2022 , we entered into Amendment No. 2 to the Revolver, by and among SciPlay Games,SciPlay Parent LLC , the several banks and other financial institutions or entities from time to time party thereto andBank of America, N.A ., as administrative agent, collateral agent and issuing lender (such amendment, "Amendment No. 2"). Amendment No. 2, among other things, (i) amended certain interest rate provisions related to Sterling-denominated revolving loans, (ii) increased SciPlay Games' and its subsidiaries' capacity to acquire non-loan parties and (iii) allowed for the acquisition of Alictus. The Revolver contains covenants that, among other things, restrict our ability to incur additional indebtedness; incur liens; sell, transfer or dispose of property and assets; invest; make dividends or distributions or other restricted payments; and engage in affiliate transactions, with the exception of certain payments under the TRA and payments in respect of certain tax distributions under the Operating Agreement. In addition, the Revolver requires us to maintain a maximum total net leverage ratio not to exceed 2.50:1.00 and to maintain a minimum fixed charge coverage ratio of no less than 4.00:1.00. Such covenants are tested quarterly at the end of each fiscal quarter. As ofDecember 31, 2022 , there were no borrowings outstanding, and we were in compliance with the financial covenants under the Revolver. The Revolver is secured by a (i) first priority pledge of the equity securities of SciPlay Games,SciPlay Parent LLC's restricted subsidiaries and each subsidiary guarantor party thereto and (ii) first priority security interests in, and mortgages on, substantially all tangible and intangible personal property and material fee-owned real property ofSciPlay Parent LLC ,SciPlay Games and each subsidiary guarantor party thereto, in each case, subject to customary exceptions. 54 --------------------------------------------------------------------------------
Changes in Cash Flows
The following table presents a summary of our cash flows for the periods
indicated:
Years Ended December 31,
($ in millions) 2022 2021
Net cash provided by operating activities $ 150.4 $ 163.8
Net cash used in investing activities (113.7) (14.8)
Net cash used in financing activities (70.3) (53.6)
Effect of exchange rate changes on cash and cash equivalents and restricted cash
(0.7) 0.1
(Decrease) increase in cash and cash equivalents and restricted cash
$
(34.3)
Net cash provided by operating activities decreased primarily due to the payment
of the
Net cash used in investing activities increased primarily due to a$102.2 million increase in cash paid for business acquisition as a result of the Alictus acquisiton, coupled with a$2.5 million increase in capital expenditures primarily related to increased internal development costs, partially offset by$6.0 million in proceeds from maturities of time deposits. Net cash used in financing activities increased primarily due to a$37.1 million increase in the repurchase of Class A common stock shares, partially offset by a$12.7 million net decrease in taxes paid related to net share settlement of equity awards and employee stock purchase plan settlements, coupled with a$6.9 million decrease in distributions to Light & Wonder driven by lowerSciPlay Corporation tax payments.
Credit Agreement and Other Debt
For additional information regarding our credit agreement and other debt and interest rate risk, see the "Revolving Credit Facility" section in this Item 7 above and Note 1.
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