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. 42 --------------------------------------------------------------------------------
We are a leading developer and publisher of digital games on mobile and web platforms. We operate in the social gaming market, which is characterized by gameplay online, on mobile phones or on tablets that are social and competitive, and self-directed in pace and session length. We generate substantially all of our revenue from in-app purchases in the form of coins, chips and cards, which players can use to play slot games, table games or bingo games. Players
whoinstall our games 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 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. We currently plan to launch an additional casual game in 2022. 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. All of our games are offered and played across multiple platforms, including Apple, Google, Facebook, Amazon, and Microsoft. In addition to our internally created game content, our content library includes recognizable, game content from Scientific Games. This content allows players wholike playing land-based game content to enjoy some of those same titles in our free-to-play games. We have access to Scientific Games' library of more than 1,500 iconic casino titles, including titles and content from third-party licensed brands such as MONOPOLY™, THE FLINTSTONES™, JAMES BOND™, and PLAYBOY™. We believe our access to this content, coupled with our years of experience developing in-house content, uniquely positions us to create compelling social games. As described in Note 12, on March 1, 2022, we acquired 80% of all issued and outstanding share capital of privately held Alictus. Alictus has developed and published a number of games that have achieved #1 free game status in the iOS U.S. App Store, including Candy Challenge 3D™, Rob Master3D™, Deep Clean Inc.™, Oh God!™, Money Buster!™, and Collect Cubes™. The Alictus acquisition allows us to further scale in the casual market while diversifying our revenue streams.
Recent trends and updates
March 2020, the World Health Organizationdeclared the rapidly spreading COVID-19 outbreak a pandemic. In response to the COVID-19 pandemic, governments across the world are implementing measures to prevent its spread, including the temporary closure of all non-essential businesses and travel restrictions. While many of our current and potential players may have had significantly more free time to play our games during the earlier stages of the pandemic, they may have also experienced sustained consumer unease and lower discretionary income. Although the increased player engagement we experienced during the first half of 2020 as a result of the stay-at-home measures across the U.S.receded, we are still seeing higher player engagement as compared to the pre-COVID-19 time period. We are not able to predict and quantify the ultimate impact of further COVID-19 developments on our results of operations in future periods. Throughout 2021, we deployed significant updates across a number of our portfolio games, and we expect to deploy further updates to games in future years. While we have continued testing in certain international markets, we have not yet achieved the anticipated international market share growth. We plan to continue to explore opportunities and increase our investments in the expansion of international markets throughout 2022 and in future years. In July of 2021, we acquired privately held Koukoi, a Finland-based developer and operator of casual mobile games which allows us to expand our casual games portfolio. See Note 1. On July 15, 2021, Scientific Games submitted a proposal to our board of directors to acquire the approximately 19% remaining equity interest in SciPlaynot already owned by them. On December 22, 2021, Scientific Games announced that it had withdrawn its offer and that it will retain its 81% economic interest and 98% voting interest in the Company. Despite a challenging 2020 comparable that heavily benefited from global stay-at-home measures, 2021 was another record year for total revenue. Our year over year total revenue growth of 4% was below the overall industry growth. This result is primarily attributable to the previously disclosed event isolated in Jackpot Party® Casino during the third quarter and 43 -------------------------------------------------------------------------------- a delayed release of the third version of Quick Hit® Slots. Our fourth quarter compared to the third quarter of 2021 total revenue growth of 5% is above overall industry growth, showing a strong rebound from the above noted factors impacting Jackpot Party® Casino and Quick Hit® Slots. We believe that there is an opportunity for continued improvement of operating results in 2022 and beyond, as we continue to execute on our strategic game updates, enhanced analytics, international expansion, and an upcoming new game release.
KEY PERFORMANCE INDICATORS AND NON-GAAP MEASUREMENTS
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 more information on our strategy and key initiatives so far, see also “Strategy” in Part I, Item 1.
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
whoplayed a game during a particular month. An individual whoplays 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
whoplayed a game on a particular day. An individual whoplays 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 daily earnings per 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 Payment Users (MPU)
MPU is defined as the number of individual users
whomade an in-game purchase during a particular month. An individual whomade 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 Income Per Paid User (AMRPPU)
AMRPPU is calculated by dividing the average monthly revenue by the average MPU for the applicable time period. We
We believe that this indicator provides useful information that reflects the monetization of the game.
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 to
SciPlayas the most directly comparable GAAP measure as set forth in the below table. We define AEBITDA to include net income attributable to SciPlaybefore: (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 expense (income) 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 OPERATING RESULTS
We generate substantially all of our revenue 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 currently an insignificant portion of our total revenue. 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,
R&D, 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.
Cost of income
Cost of revenue consists primarily of fees paid to platform providers such as Facebook, Google, Apple, Amazon and Microsoft, which generally represent approximately 30% of our revenue; licensing fees, which include intellectual property 45 -------------------------------------------------------------------------------- royalties paid to both affiliated and unaffiliated third parties; hosting fees; and other direct expenses incurred to generate revenue. We expect the aggregate amount of cost of revenue to increase for the foreseeable future as we grow our revenue and expand our business.
Sales and marketing
Sales and marketing expenses consist primarily of advertising costs related to marketing and player acquisition and retention, salaries and benefits for our sales and marketing employees and fees paid to consultants. We intend to continue to invest in sales and marketing to grow our player base both for our existing games and future games we may deploy. As a result, we expect the aggregate amount of sales and marketing expenses to increase for the foreseeable future as we grow our revenues and business and deploy new games. As deployed games mature, we generally expect sales and marketing expenses as a percentage of revenue attributable to such games to decrease.
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 & Development
Research & 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 others
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.
RESULTS OF OPERATIONS
Summary of results of operations
Years ended December 31, Variance ($ in millions, except percentages) 2021 2020 2021 vs. 2020 Revenue
$ 606.1 $ 582.2 $ 23.94 % Operating expenses 474.4 427.2 47.2 11 % Operating income 131.7 155.0 (23.3) (15) % Net income 125.0 146.0 (21.0) (14) % Net income attributable to SciPlay 19.3 20.9 (1.6) (8) % AEBITDA $ 185.9 $ 188.7 $ (2.8)(1) % Net income margin 20.6 % 25.1 % (4.5) pp nm AEBITDA margin 30.7 % 32.4 % (1.7) pp nm pp = percentage points. nm = not meaningful.
The following table reconciles the net profit attributable to
46 -------------------------------------------------------------------------------- Years ended December 31, ($ in millions, except percentages) 2021 2020 Net income attributable to SciPlay
$ 19.3 $ 20.9Net income attributable to noncontrolling interest 105.7 125.1 Net income 125.0 146.0 Restructuring and other(1) 31.5 2.0 Depreciation and amortization 15.5 9.7 Income tax expense 5.7 8.4 Stock-based compensation 7.2 22.0 Other expense, net 1.0 0.6 AEBITDA(2) $ 185.9 $ 188.7Revenue $ 606.1 $ 582.2Net income margin (Net income/Revenue) 20.6 % 25.1 % AEBITDA margin (AEBITDA/Revenue)(2) 30.7 % 32.4 %
Revenue, key performance indicators, and other metrics
Years ended December 31, Variance ($ in millions) 2021 2020 2021 vs. 2020 Mobile
$ 537.3 $ 505.9 $ 31.46 % Web and other 68.8 76.3 (7.5) (10) % Total revenue $ 606.1 $ 582.2 $ 23.94 %
Geographic revenue information is summarized as follows:
Years ended December 31, Variance ($ in millions) 2021 2020 2021 vs. 2020 North America(1)
$ 555.5 $ 533.3 $ 22.24 % International 50.6 48.9 1.7 3 % Total revenue $ 606.1 $ 582.2 $ 23.94 %
The following reflects our key performance metrics and other metrics:
Years ended December 31, Variance (in millions, except ARPDAU, AMRPPU, and percentages) 2021 2020 2021 vs. 2020 Mobile Penetration(1) 89 % 87 % 2.0 pp nm Average MAU(1) 6.2 7.4 (1.2) (16.2) % Average DAU(1) 2.3 2.7 (0.4) (14.8) % ARPDAU(1)
$ 0.71 $ 0.60 $ 0.1118.3 % Average MPUs(1) 0.5 0.5 - - % AMRPPU(1) $ 95.26 $ 92.75 $ 2.512.7 % Payer Conversion Rate(1) 8.5 % 7.1 % 1.4 pp nm
(1) KPIs include only the results of players in the current period. pp = percentage points. nm = not significant.
The increase in mobile penetration rate mainly reflects a continuing trend of players migrating from the web to mobile platforms to play our games.
Average MAU and average DAU decreased due to user rotation. As a result, ARPDAU increased as a function of the lower average DAU. AMRPPU increased while the average MPU was consistent with the previous year due to the introduction of new content and features that resulted in greater interaction with paid players.
The highest payer conversion rate of all time was due to the growing popularity of our games, as we focused on live operations to improve gaming and participation.
Operating Expenses Years ended December 31, Variance Percentage of Revenue 2021 vs. 2020 ($ in millions) 2021 2020 2021 vs. 2020 2021 2020 Change Operating expenses: Cost of revenue(1)
$ 190.0 $ 185.3$ 4.7 2.5 % 31.3 % 31.8 % (0.5) pp Sales and marketing(1) 135.3 130.7 4.6 3.5 % 22.3 % 22.4 % (0.1) pp General and administrative(1) 62.4 66.2 (3.8) (5.7) % 10.3 % 11.4 % (1.1) pp Research and development(1) 39.7 33.3 6.4 19.2 % 6.6 % 5.7 % 0.9 pp Depreciation and amortization 15.5 9.7 5.8 59.8 % 2.6 % 1.7 % 0.9 pp Restructuring and other 31.5 2.0 29.5 nm nm nm Total operating expenses $ 474.4 $ 427.2 $ 47.211.0 % (1) Excludes depreciation and amortization. nm = not meaningful. pp = percentage points. Cost of Revenue
Revenue cost increased due to higher platform rates in line with revenue growth and
Sales and marketing
Sales and marketing expenses increased due to higher user acquisition spend of
$2.6 millioncoupled with higher salaries and benefits of $1.7 millionrelated to an average increased headcount of 11%. Sales and marketing expense as a percentage of revenue remained relatively flat.
General and Administrative
General and administrative expenses decreased primarily due to a decrease in stock-based compensation of
$14.8 milliondue to a lower achievement of performance-based restricted stock plans. This decrease was partially offset by a $3.5 millionincrease in salaries and benefits related to an average increased headcount of 21% coupled with a $2.7 millionincrease in legal fees.
Research & Development
Research and development costs increased mainly as a result of
Depreciation and amortization
Depreciation expenses increased primarily as a result of the depreciation associated with Come2Play and the intangible assets recently acquired by Koukoi.
Restructuring and Other Restructuring and other expense increased primarily as a result of the
$24.5 millioncharge related to our settlement of the Washington StateMatter (see Note 11) coupled with an increase of $5.1 millionin legal and professional services fees primarily associated with the Scientific Games buyback offer and acquisition due diligence. Additionally, Restructuring and other expense includes a $1.5 millioncredit related to the remeasurement of our contingent acquisition consideration. Net Income Net income primarily decreased as a result of the Washington Statesettlement charge of $24.5 millioncoupled with higher legal and professional services (described in Restructuring and other section above), partially offset by continued growth in mobile revenue as average monthly revenue per paying customer and payer conversion rates continued to increase throughout 2021 (as described above).
The net income margin decreased by (4.5) percentage points as a result of the above factors.
Net income attributable to non-controlling interests decreased due to the decrease in net income described above.
AEBITDA decreased primarily due to the increase in operating costs resulting from increases in salaries and benefits, partially offset by revenue growth (as described above).
The AEBITDA margin decreased by (1.7) percentage points as a result of the aforementioned boosters.
For a comparison of the consolidated results for 2020 and 2019, see Part II, Item 7 of our 2020 Annual Report on Form 10-K.
RECENTLY ISSUED ACCOUNTING GUIDE
For a description of recently issued accounting statements, 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); i
• Legal contingencies.
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 - 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 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 - We recognize 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.
We account for commercial 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. 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 50 --------------------------------------------------------------------------------
acquired or assumed liabilities based on the relative fair values of identifiable net assets acquired other than unqualified assets (for example, cash) and do 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. Income Taxes We are subject to the income tax laws of the
U.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. For periods prior to the IPO, the provision for income taxes is calculated as if SciPlaycompleted separate tax returns apart from its Parent ("Separate-return Method"), which requires significant judgments. Certain legal entities that are included in these financial statements under the Separate-return Method were included in tax filings of affiliated entities that are not part of these financial statements. 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)
As described in Note 1,
SciPlay'ssole material asset is its member's interest in SciPlay Parent LLC. Due to SciPlay'spower to control combined with its significant economic interest in SciPlay Parent LLC, we concluded that SciPlayis the primary beneficiary of the VIE, and therefore it will consolidate the financial results of SciPlay Parent LLCand 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 SciPlayfinancial statements, as SciPlay Parent LLCand 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. 51 --------------------------------------------------------------------------------
LIQUIDS, CAPITAL RESOURCES AND WORKING CAPITAL
SciPlayis a holding company, with no material assets other than its ownership of SciPlay Parent LLCinterests, no operating activities on its own and no independent means of generating revenue or cash flow. Operations are carried out by SciPlay Parent LLCand its subsidiaries, and we depend on distributions from SciPlay Parent LLCto pay our taxes and expenses. SciPlay Parent LLC'sability 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 applicable Nevadalaw. 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 in hand was
Revolving credit service
We have a
$150.0 millionRevolver by and among SciPlay Holding, as the borrower, SciPlay Parent LLC, as a guarantor, the subsidiary guarantors party thereto, the lenders party thereto and Bank 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 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, which fee varies based on the total net leverage ratio and is subject to a floor of 0.375%. As of December 31, 2021, the commitment fee was 0.375% per annum. The Revolver provides for up to $15.0 millionin letter of credit issuances, which requires customary issuance and administration fees, and a fronting fee of 0.125%. On May 27, 2021, SciPlay Holding, entered into Amendment No. 1 to that certain $150.0 millionRevolver, by and among SciPlay Holding, SciPlay Parent LLC, the several banks and other financial institutions or entities from time to time party thereto and Bank of America, N.A., as administrative agent, collateral agent and issuing lender (such amendment, "Amendment No. 1"). Amendment No. 1 amended, among other things, certain negative covenants in the Revolver to permit SciPlay Holdingto merge or consolidate with and into its direct subsidiary, Phantom EFX, LLC, which was renamed SciPlay Games, LLC(" SciPlayGames") immediately following such merger. Substantially simultaneously with the merger, SciPlay Games expressly assumed all obligations of SciPlay Holdingas the successor borrower under the Revolver. 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 of December 31, 2021, 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 Holding, SciPlay Parent LLC'srestricted 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 of SciPlay Parent LLC, SciPlay Holdingand each subsidiary guarantor party thereto, in each case, subject to customary exceptions. 52 -------------------------------------------------------------------------------- As described in Note 12, on February 28, 2022, we entered into Amendment No. 2 to the Revolver, by and among SciPlay Holding, SciPlay Parent Company, LLC, the several banks and other financial institutions or entities from time to time party thereto and Bank of America, N.A., as administrative agent, collateral agent and issuing lender (such amendment, "Amendment No. 2"). Amendment No. 2, among other things, (i) amends certain interest rate provisions related to Sterling-denominated revolving loans, (ii) increases SciPlay Games' and its subsidiaries capacity to acquire non-loan parties and (iii) allows for the acquisition of Alictus.
Changes in cash flows
The following table presents a summary of our cash flows for the periods indicated: Years Ended December 31, ($ in millions) 2021 2020 Net cash provided by operating activities
$ 163.8 $ 193.4Net cash used in investing activities (14.8) (19.7) Net cash used in financing activities (53.6) (16.0)
Effect of exchange rate fluctuations on cash and cash equivalents and restricted cash
Increased cash and cash equivalents and restricted cash
Net cash provided by operating activities decreased mainly due to lower earnings.
Net cash used in investing activities decreased primarily due to a
$6.9 milliondecrease in acquisition activity, partially offset by a $2.0 millionincrease in capital expenditures primarily related to increased internal development costs. Net cash used in financing activities increased primarily due to a $17.6 millionincrease in distributions to Parent and affiliates, a $12.8 millionincrease in net redemptions of common stock under stock-based compensation plans, a $5.2 millionincrease in minimum guarantee license payments, and a $1.3 millionincrease in payments made under the TRA.
Credit agreement and other debts
For additional information regarding our credit agreement and other debt and interest rate risk, see "Contractual Obligations" in this Item 7 below; Part II, Item 7A "Quantitative and Qualitative Disclosures About Market Risk"; and Note 1. Contractual Obligations Our contractual obligations as of
December 31, 2021principally include obligations associated with our future minimum operating lease obligations, license minimum guarantees, obligations under the TRA and an obligation related to Come2Play contingent acquisition consideration as set forth in the table below: Cash Payments Due In Less than 1 More than 5 Total year 1 - 3 years 4 - 5 years years Operating leases $ 8.2 $ 2.5
1.0 1.0 - - - Obligations under the TRA 68.8 4.1 12.7 8.9 43.1 License royalty minimum guaranteed payments 14.9 3.7 10.7 0.5 - Total contractual obligations(1)
$ 92.9 $ 11.3
The commitment amounts in the table above 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. The table does not include obligations under 53 --------------------------------------------------------------------------------
agreements that we can cancel without significant penalty. We have agreements under which we are required to pay royalties based on future events that are uncertain and therefore not included in the table above.
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