Item 1. Condensed Consolidated Financial Statements (unaudited)
SCIPLAY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in millions, except per share amounts)
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Revenue
|
$
|
146.6
|
|
|
$
|
151.2
|
|
|
$
|
451.7
|
|
|
$
|
435.1
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Cost of revenue(1)
|
46.2
|
|
|
48.0
|
|
|
141.3
|
|
|
138.5
|
|
Sales and marketing(1)
|
32.9
|
|
|
33.7
|
|
|
101.7
|
|
|
97.0
|
|
General and administrative(1)
|
13.1
|
|
|
21.3
|
|
|
46.8
|
|
|
46.7
|
|
Research and development(1)
|
9.8
|
|
|
8.8
|
|
|
28.8
|
|
|
24.3
|
|
Depreciation and amortization
|
4.4
|
|
|
2.7
|
|
|
11.3
|
|
|
6.9
|
|
Restructuring and other
|
1.7
|
|
|
0.2
|
|
|
3.1
|
|
|
1.7
|
|
Operating income
|
38.5
|
|
|
36.5
|
|
|
118.7
|
|
|
120.0
|
|
Other income (expense), net
|
0.1
|
|
|
(0.2)
|
|
|
(0.4)
|
|
|
0.9
|
|
Net income before income taxes
|
38.6
|
|
|
36.3
|
|
|
118.3
|
|
|
120.9
|
|
Income tax expense
|
1.6
|
|
|
1.2
|
|
|
5.5
|
|
|
5.9
|
|
Net income
|
37.0
|
|
|
35.1
|
|
|
112.8
|
|
|
115.0
|
|
Less: Net income attributable to the noncontrolling interest
|
31.1
|
|
|
29.6
|
|
|
95.7
|
|
|
98.5
|
|
Net income attributable to SciPlay
|
$
|
5.9
|
|
|
$
|
5.5
|
|
|
$
|
17.1
|
|
|
$
|
16.5
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income attributable to SciPlay per share:
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Basic
|
$
|
0.24
|
|
|
$
|
0.24
|
|
|
$
|
0.71
|
|
|
$
|
0.72
|
|
Diluted
|
$
|
0.24
|
|
|
$
|
0.23
|
|
|
$
|
0.69
|
|
|
$
|
0.69
|
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Weighted average number of shares of Class A common stock used in per share calculation:
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Basic shares
|
24.5
|
|
|
22.8
|
|
|
24.0
|
|
|
22.8
|
|
Diluted shares
|
24.8
|
|
|
24.1
|
|
|
24.9
|
|
|
24.0
|
|
(1) Excludes depreciation and amortization.
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See accompanying notes to condensed consolidated financial statements.
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SCIPLAY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in millions)
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Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Net income
|
$
|
37.0
|
|
|
$
|
35.1
|
|
|
$
|
112.8
|
|
|
$
|
115.0
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss), net of tax
|
1.9
|
|
|
(0.3)
|
|
|
1.3
|
|
|
(0.2)
|
|
Total comprehensive income
|
38.9
|
|
|
34.8
|
|
|
114.1
|
|
|
114.8
|
|
Less: comprehensive income attributable to the noncontrolling interest
|
32.7
|
|
|
29.4
|
|
|
96.8
|
|
|
98.4
|
|
Comprehensive income attributable to SciPlay
|
$
|
6.2
|
|
|
$
|
5.4
|
|
|
$
|
17.3
|
|
|
$
|
16.4
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
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SCIPLAY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in millions, except par value)
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As of
|
|
September 30, 2021
|
|
December 31, 2020
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
330.8
|
|
|
$
|
268.9
|
|
Accounts receivable, net
|
35.6
|
|
|
36.6
|
|
Prepaid expenses and other current assets
|
17.1
|
|
|
5.9
|
|
Total current assets
|
383.5
|
|
|
311.4
|
|
Property and equipment, net
|
3.7
|
|
|
4.4
|
|
Operating lease right-of-use assets
|
7.2
|
|
|
8.5
|
|
Goodwill
|
130.2
|
|
|
129.8
|
|
Intangible assets and software, net
|
52.6
|
|
|
30.3
|
|
Deferred income taxes
|
77.3
|
|
|
82.5
|
|
Other assets
|
1.8
|
|
|
1.9
|
|
Total assets
|
$
|
656.3
|
|
|
$
|
568.8
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
21.5
|
|
|
$
|
23.2
|
|
Accrued liabilities
|
33.2
|
|
|
22.9
|
|
Due to affiliate
|
2.3
|
|
|
5.5
|
|
Total current liabilities
|
57.0
|
|
|
51.6
|
|
|
|
|
|
Operating lease liabilities
|
5.9
|
|
|
7.5
|
|
Liabilities under TRA
|
64.3
|
|
|
68.5
|
|
Other long-term liabilities
|
17.8
|
|
|
5.7
|
|
Total liabilities
|
145.0
|
|
|
133.3
|
|
Commitments and contingencies (see Note 8)
|
|
|
|
Stockholders’ equity:
|
|
|
|
Class A common stock, par value $0.001 per share, 625.0 shares authorized, 24.5 and 22.8 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
|
—
|
|
|
—
|
|
Class B common stock, par value $0.001 per share, 130.0 shares authorized, 103.5 and 103.5 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
|
0.1
|
|
|
0.1
|
|
Additional paid-in capital
|
44.9
|
|
|
46.1
|
|
Retained earnings
|
50.0
|
|
|
32.9
|
|
Accumulated other comprehensive income
|
1.1
|
|
|
0.9
|
|
Total SciPlay stockholders’ equity
|
96.1
|
|
|
80.0
|
|
Noncontrolling interest
|
415.2
|
|
|
355.5
|
|
Total stockholders’ equity
|
511.3
|
|
|
435.5
|
|
Total liabilities and stockholders’ equity
|
$
|
656.3
|
|
|
$
|
568.8
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
|
SCIPLAY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited, in millions)
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock
|
|
Class B common stock
|
|
Additional paid-in capital
|
|
Retained earnings
|
|
Accumulated other comprehensive income (loss)
|
|
Noncontrolling interest
|
|
Total
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
December 31, 2020
|
22.8
|
|
|
$
|
—
|
|
|
103.5
|
|
|
$
|
0.1
|
|
|
$
|
46.1
|
|
|
$
|
32.9
|
|
|
$
|
0.9
|
|
|
$
|
355.5
|
|
|
$
|
435.5
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.3
|
|
|
—
|
|
|
32.6
|
|
|
37.9
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
|
—
|
|
|
—
|
|
|
1.4
|
|
|
1.8
|
|
Vesting of RSUs, net of tax withholdings
|
1.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.3)
|
|
|
—
|
|
|
—
|
|
|
(10.0)
|
|
|
(12.3)
|
|
Distributions to Parent and affiliates, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.3)
|
|
|
(0.3)
|
|
Currency translation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.4)
|
|
|
(2.2)
|
|
|
(2.6)
|
|
March 31, 2021
|
24.4
|
|
|
$
|
—
|
|
|
103.5
|
|
|
$
|
0.1
|
|
|
$
|
44.2
|
|
|
$
|
38.2
|
|
|
$
|
0.5
|
|
|
$
|
377.0
|
|
|
$
|
460.0
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.9
|
|
|
—
|
|
|
32.0
|
|
|
37.9
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.7
|
|
|
—
|
|
|
—
|
|
|
2.1
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Parent and affiliates, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13.8)
|
|
|
(13.8)
|
|
Currency translation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.3
|
|
|
1.7
|
|
|
2.0
|
|
June 30, 2021
|
24.4
|
|
|
$
|
—
|
|
|
103.5
|
|
|
$
|
0.1
|
|
|
$
|
44.9
|
|
|
$
|
44.1
|
|
|
$
|
0.8
|
|
|
$
|
399.0
|
|
|
$
|
488.9
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.9
|
|
|
—
|
|
|
31.1
|
|
|
37.0
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
Vesting of RSUs, net of tax withholdings and other
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.1)
|
|
|
—
|
|
|
—
|
|
|
(0.5)
|
|
|
(0.6)
|
|
Distributions to Parent and affiliates, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(16.0)
|
|
|
(16.0)
|
|
Currency translation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.3
|
|
|
1.6
|
|
|
1.9
|
|
September 30, 2021
|
24.5
|
|
|
$
|
—
|
|
|
103.5
|
|
|
$
|
0.1
|
|
|
$
|
44.9
|
|
|
$
|
50.0
|
|
|
$
|
1.1
|
|
|
$
|
415.2
|
|
|
$
|
511.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock
|
|
Class B common stock
|
|
Additional paid-in capital
|
|
Retained earnings
|
|
Accumulated other comprehensive income (loss)
|
|
Noncontrolling interest
|
|
Total
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
December 31, 2019
|
22.7
|
|
|
$
|
—
|
|
|
103.5
|
|
|
$
|
0.1
|
|
|
$
|
41.7
|
|
|
$
|
12.0
|
|
|
$
|
0.3
|
|
|
$
|
223.4
|
|
|
$
|
277.5
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.4
|
|
|
—
|
|
|
26.7
|
|
|
31.1
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
(0.1)
|
|
|
0.1
|
|
Currency translation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.2)
|
|
|
(0.6)
|
|
|
(0.8)
|
|
March 31, 2020
|
22.7
|
|
|
$
|
—
|
|
|
103.5
|
|
|
$
|
0.1
|
|
|
$
|
41.9
|
|
|
$
|
16.4
|
|
|
$
|
0.1
|
|
|
$
|
249.4
|
|
|
$
|
307.9
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6.6
|
|
|
—
|
|
|
42.2
|
|
|
48.8
|
|
Distributions to Parent and affiliates, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11.6)
|
|
|
(11.6)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
|
—
|
|
|
—
|
|
|
4.1
|
|
|
5.1
|
|
Vesting of RSUs, net of tax withholdings
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Currency translation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
0.7
|
|
|
0.9
|
|
June 30, 2020
|
22.8
|
|
|
$
|
—
|
|
|
103.5
|
|
|
$
|
0.1
|
|
|
$
|
42.9
|
|
|
$
|
23.0
|
|
|
$
|
0.3
|
|
|
$
|
284.8
|
|
|
$
|
351.1
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.5
|
|
|
—
|
|
|
29.6
|
|
|
35.1
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.9
|
|
|
—
|
|
|
—
|
|
|
8.0
|
|
|
9.9
|
|
Vesting of RSUs, net of tax withholdings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.1)
|
|
|
—
|
|
|
—
|
|
|
(0.2)
|
|
|
(0.3)
|
|
Distributions to Parent and affiliates, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.2)
|
|
|
(0.2)
|
|
Currency translation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.1)
|
|
|
(0.2)
|
|
|
(0.3)
|
|
September 30, 2020
|
22.8
|
|
|
$
|
—
|
|
|
103.5
|
|
|
$
|
0.1
|
|
|
$
|
44.7
|
|
|
$
|
28.5
|
|
|
$
|
0.2
|
|
|
$
|
321.8
|
|
|
$
|
395.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
|
SCIPLAY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
September 30,
|
|
2021
|
|
2020
|
Net cash provided by operating activities
|
$
|
126.3
|
|
|
$
|
131.9
|
|
Cash flows from investing activities:
|
|
|
|
Capital expenditures
|
(8.0)
|
|
|
(5.0)
|
|
Acquisition of business, net of cash acquired
|
(5.7)
|
|
|
(12.6)
|
|
Net cash used in investing activities
|
(13.7)
|
|
|
(17.6)
|
|
Cash flows from financing activities:
|
|
|
|
Payments under tax receivable agreement
|
(3.8)
|
|
|
(2.5)
|
|
Payments on license obligations
|
(2.6)
|
|
|
—
|
|
Payments of contingent consideration
|
(1.0)
|
|
|
—
|
|
Distributions to Scientific Games and affiliates, net
|
(30.1)
|
|
|
(11.8)
|
|
Taxes paid related to net share settlement of equity awards and other
|
(13.2)
|
|
|
(0.3)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
(50.7)
|
|
|
(14.6)
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
—
|
|
|
—
|
|
Increase in cash, cash equivalents and restricted cash
|
61.9
|
|
|
99.7
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
268.9
|
|
|
110.6
|
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
330.8
|
|
|
$
|
210.3
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
Cash paid for income taxes
|
$
|
4.5
|
|
|
$
|
1.5
|
|
Cash paid for contingent consideration included in operating activities
|
—
|
|
|
4.0
|
|
Supplemental non-cash transactions:
|
|
|
|
Non-cash additions to intangible assets related to license agreements
|
$
|
16.8
|
|
|
$
|
1.1
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
|
SCIPLAY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in USD, table amounts in millions, except per share amounts)
(1) Description of the Business and Summary of Significant Accounting Policies
Background and Nature of Operations
SciPlay Corporation was formed as a Nevada corporation on November 30, 2018 as a subsidiary of Scientific Games Corporation (“Scientific Games”, “SGC”, and “Parent”) for the purpose of completing a public offering and related transactions (collectively referred to herein as the “IPO”) in order to carry on the business of SciPlay Parent LLC and its subsidiaries (collectively referred to as “SciPlay”, the “Company”, “we”, “us”, and “our”). The IPO was completed on May 7, 2019. As the managing member of SciPlay Parent LLC, SciPlay operates and controls all of the business affairs of SciPlay Parent LLC and its subsidiaries.
On July 15, 2021, Scientific Games submitted a proposal to our board of directors to acquire all the outstanding equity interest in SciPlay not already owned by Scientific Games (approximately 19%). The offer to all SciPlay shareholders (other than Scientific Games and its subsidiaries) is the receipt of 0.250 shares of Scientific Games common stock for each share of SciPlay Class A common stock. The transaction is subject to the negotiation and execution of a mutually acceptable merger agreement with a special committee of our board of directors, and we cannot guarantee that the proposal will result in a merger or any other transactions.
We develop, market and operate a portfolio of social games played on various mobile and web platforms, including Jackpot Party® Casino, Quick Hit® Slots, Gold Fish® Casino, Hot Shot Casino®, Bingo Showdown®, MONOPOLY® Slots, 88 Fortunes® Slots and Solitaire Pets™ Adventure. Our games are available in various formats. We have one operating segment with one business activity, developing and monetizing social games.
Basis of Presentation
The accompanying financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). All intercompany balances and transactions have been eliminated in consolidation.
In the opinion of management, we have made all adjustments necessary to present fairly our consolidated statements of income, consolidated statements of comprehensive income, condensed consolidated balance sheets, consolidated statements of changes in stockholders’ equity and condensed consolidated statements of cash flows for the periods presented. Such adjustments are of a normal, recurring nature. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related Notes included in our 2020 Form 10-K. Interim results of operations are not necessarily indicative of results of operations to be expected for a full year.
Variable Interest Entities (“VIE”) and Consolidation
Subsequent to the IPO, our sole material asset is our member’s interest in SciPlay Parent LLC. In accordance with the Operating Agreement of SciPlay Parent LLC (the “Operating Agreement”), we have all management powers over the business and affairs of SciPlay Parent LLC and to conduct, direct and exercise full control over the activities of SciPlay Parent LLC. Class A common stock issued in the IPO do not hold majority voting rights but hold 100% of the economic interest in the Company, which results in SciPlay Parent LLC being considered a VIE. Due to our power to control the activities most directly affecting the results of SciPlay Parent LLC, we are considered the primary beneficiary of the VIE. Accordingly, beginning with the IPO, we consolidate the financial results of SciPlay Parent LLC and its subsidiaries.
Significant Accounting Policies
There have been no changes to our significant accounting policies described within the Notes of our 2020 Form 10-K, except as noted below.
Minimum guarantees under licensing agreements
We enter into long-term license agreements with third parties in which we are obligated to pay a minimum guaranteed amount of royalties, typically periodically over the life of the contract. These license agreements provide us with access to a portfolio of major brands to be used across our games. We account for the minimum guaranteed obligations within Current liabilities and Other long-term liabilities at the onset of the license arrangement and record a corresponding licensed asset within intangible assets, net. The licensed intangible assets related to the minimum guaranteed obligations are amortized over the term of the license agreement with the amortization expense recorded in Depreciation and amortization. The long-term liability related to the minimum guaranteed obligations is reduced as royalty payments are made as required under the license agreement. We assess the recoverability of license agreements whenever events arise or circumstances change that indicate the carrying value of the licensed asset may not be recoverable. Recoverability of the licensed asset and the amount of impairment, if any, are determined using our policy for intangible assets with finite useful lives.
The following reflects amortization expense related to these licenses and recorded in depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Amortization expense
|
$
|
1.1
|
|
|
$
|
0.5
|
|
|
$
|
3.4
|
|
|
$
|
0.9
|
|
The following are our total minimum guaranteed obligations for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
September 30,
|
|
December 31,
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
6.0
|
|
|
$
|
2.6
|
|
Other long-term liabilities
|
11.8
|
|
|
0.3
|
|
Total minimum guarantee obligation
|
$
|
17.8
|
|
|
$
|
2.9
|
|
Weighted average remaining term (in years)
|
4.2
|
|
2.4
|
Revolving Credit Facility
On May 27, 2021, SciPlay Holding Company, LLC (“SciPlay Holding”), a wholly-owned indirect subsidiary of SciPlay Corporation (the “Company”), entered into Amendment No. 1 to that certain $150.0 million revolving credit agreement, dated as of May 7, 2019 (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. 1”).
Amendment No. 1 amended, among other things, certain negative covenants in the Revolver to permit SciPlay Holding to merge or consolidate with and into its direct subsidiary, Phantom EFX, LLC, which was renamed SciPlay Games, LLC (“SciPlay Games”) immediately following such merger. Substantially simultaneously with the merger, SciPlay Games expressly assumed all obligations of SciPlay Holding as the successor borrower under the Revolver.
The Revolver was undrawn as of September 30, 2021. We were in compliance with the financial covenants under the Revolver as of September 30, 2021.
New Accounting Guidance - Not Yet Adopted
The FASB issued ASU No. 2020-04 and subsequently ASU No. 2021-01, Reference Rate Reform (Topic 848) in March 2020 and January 2021, respectively. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, including derivative instruments impacted by changes in the interest rates used for discounting cash flows for computing variable margin settlements, subject to meeting certain criteria, that reference LIBOR or other reference rates expected to be discontinued, in 2022 or potentially 2023 (pending possible extension). The ASUs establish certain contract modification principles that entities can apply in other areas that may be affected by reference rate reform and certain elective hedge accounting expedients and exceptions. The ASUs may be applied
prospectively. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
We do not expect that any other recently issued accounting guidance will have a significant effect on our consolidated financial statements.
Revenue Recognition
We generate revenue from the sale of coins, chips and cards, which players can use to play casino-style slot games, table games and bingo games (i.e., spin in the case of slot games, bet in the case of table games and use of bingo cards in the case of bingo games). We distribute our games through various global social web and mobile platforms such as Facebook, Apple, Google, Amazon and Microsoft. The games are primarily WMS, Bally, Barcrest® and SHFL® branded games. In addition, we also offer third-party branded games and original content.
Disaggregation of Revenue
We believe disaggregation of our revenue on the basis of platform and geographical locations of our players is appropriate because the nature and the number of players generating revenue could vary on such basis, which represent different economic risk profiles.
The following table presents our revenue disaggregated by type of platform:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Mobile
|
$
|
130.8
|
|
|
$
|
131.8
|
|
|
$
|
399.5
|
|
|
$
|
377.3
|
|
Web and other
|
15.8
|
|
|
19.4
|
|
|
52.2
|
|
|
57.8
|
|
Total revenue
|
$
|
146.6
|
|
|
$
|
151.2
|
|
|
$
|
451.7
|
|
|
$
|
435.1
|
|
The following table presents our revenue disaggregated based on the geographical location of our players:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
North America(1)
|
$
|
134.0
|
|
|
$
|
138.5
|
|
|
$
|
413.3
|
|
|
$
|
399.1
|
|
International
|
12.6
|
|
|
12.7
|
|
|
38.4
|
|
|
36.0
|
|
Total revenue
|
$
|
146.6
|
|
|
$
|
151.2
|
|
|
$
|
451.7
|
|
|
$
|
435.1
|
|
(1) North America revenue includes revenue derived from the U.S., Canada and Mexico.
|
|
|
|
|
Contract Assets, Contract Liabilities and Other Disclosures
We receive customer payments based on the payment terms established in our contracts. Payment for the purchase of coins, chips and cards is made at purchase, and such payments are non-refundable in accordance with our standard terms of service. Such payments are initially recorded as a contract liability, and revenue is subsequently recognized as we satisfy our performance obligations.
The following table summarizes our opening and closing balances in contract assets, contract liabilities and accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
Contract Assets(1)
|
|
Contract Liabilities(2)
|
Beginning of period balance
|
$
|
36.6
|
|
|
$
|
0.2
|
|
|
$
|
0.6
|
|
Balance as of September 30, 2021
|
35.6
|
|
|
0.2
|
|
|
0.6
|
|
(1) Contract assets are included within Prepaid expenses and other current assets in our consolidated balance sheets.
(2) Contract liabilities are included within Accrued liabilities in our consolidated balance sheets.
|
During the nine months ended September 30, 2021 and 2020, we recognized $0.6 million and $0.6 million, respectively, of revenue that was included in the opening contract liability balance. Substantially all of our unsatisfied performance obligations relate to contracts with an original expected length of one year or less.
Concentration of Credit Risk
Our revenue and accounts receivable are generated via certain platform providers, which subject us to a concentration of credit risk. The following tables summarize the percentage of revenues and accounts receivable generated via our platform providers in excess of 10% of our total revenues and total accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Concentration
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30, 2021
|
|
September 30, 2020
|
|
September 30, 2021
|
|
September 30, 2020
|
Apple
|
47.3%
|
|
46.5%
|
|
46.9%
|
|
46.0%
|
Google
|
36.6%
|
|
37.0%
|
|
37.0%
|
|
37.3%
|
Facebook
|
12.5%
|
|
12.8%
|
|
12.4%
|
|
13.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable Concentration as of
|
|
September 30,
|
|
December 31,
|
|
2021
|
|
2020
|
Apple
|
49.9%
|
|
49.2%
|
Google
|
34.1%
|
|
35.4%
|
Facebook
|
11.7%
|
|
11.5%
|
Acquisitions
In July of 2021, we acquired privately held Koukoi Games Oy, a Finland-based developer and operator of casual mobile games, for $5.4 million cash consideration, net of cash acquired, that allows us to expand our casual games portfolio. The transaction was accounted for as an asset acquisition, with substantially all of the cash consideration transferred allocated to intellectual property, which was assigned a 5-year useful life.
(2) Intangible Assets and Software, net and Goodwill
The following table presents certain information regarding our intangible assets and software:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Balance
|
Balance as of September 30, 2021
|
|
|
|
|
|
Intellectual property
|
$
|
49.3
|
|
|
$
|
(39.1)
|
|
|
$
|
10.2
|
|
Customer relationships
|
30.5
|
|
|
(21.5)
|
|
|
9.0
|
|
Software
|
27.2
|
|
|
(16.6)
|
|
|
10.6
|
|
Licenses
|
23.6
|
|
|
(3.4)
|
|
|
20.2
|
|
Brand names and other
|
6.7
|
|
|
(4.1)
|
|
|
2.6
|
|
Total intangible assets and software
|
$
|
137.3
|
|
|
$
|
(84.7)
|
|
|
$
|
52.6
|
|
|
|
|
|
|
|
Balance as of December 31, 2020
|
|
|
|
|
|
Intellectual property
|
$
|
42.2
|
|
|
$
|
(37.2)
|
|
|
$
|
5.0
|
|
Customer relationships
|
30.5
|
|
|
(19.8)
|
|
|
10.7
|
|
Software
|
21.9
|
|
|
(13.8)
|
|
|
8.1
|
|
Licenses
|
7.7
|
|
|
(3.5)
|
|
|
4.2
|
|
Brand names
|
6.1
|
|
|
(3.8)
|
|
|
2.3
|
|
Total intangible assets and software
|
$
|
108.4
|
|
|
$
|
(78.1)
|
|
|
$
|
30.3
|
|
The following reflects amortization expense related to intangible assets and software included within depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Amortization expense
|
$
|
3.9
|
|
|
$
|
2.3
|
|
|
$
|
9.9
|
|
|
$
|
5.8
|
|
The table below reconciles the changes in the carrying value of goodwill for the period from December 31, 2020 to September 30, 2021.
|
|
|
|
|
|
|
|
|
|
|
Total
|
Balance as of December 31, 2020
|
|
$
|
129.8
|
|
Foreign currency adjustments
|
|
0.4
|
|
Balance as of September 30, 2021
|
|
$
|
130.2
|
|
(3) Leases
Our operating leases primarily consist of real estate leases such as offices. Our leases have remaining terms of approximately 3.5 years. We do not have any finance leases. Our total variable and short-term lease payments and operating lease expenses were immaterial for all periods presented.
Supplemental balance sheet and cash flow information related to operating leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
2021
|
|
2020
|
Operating lease right-of-use assets
|
$
|
7.2
|
|
|
$
|
8.5
|
|
Accrued liabilities
|
2.2
|
|
|
2.0
|
|
Operating lease liabilities
|
5.9
|
|
|
7.5
|
|
Total operating lease liabilities
|
$
|
8.1
|
|
|
$
|
9.5
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows for operating leases for the nine months ended September 30, 2021 and 2020, respectively
|
$
|
1.8
|
|
|
$
|
1.8
|
|
Weighted average remaining lease term, years
|
3.5
|
|
4.3
|
Weighted average discount rate
|
5.0
|
%
|
|
5.0
|
%
|
Lease liability maturities:
|
|
|
|
|
|
|
Operating Leases
|
Remainder of 2021
|
$
|
0.6
|
|
2022
|
2.5
|
|
2023
|
2.5
|
|
2024
|
2.4
|
|
2025
|
0.7
|
|
|
|
Less: Imputed Interest
|
(0.6)
|
|
Total
|
$
|
8.1
|
|
As of September 30, 2021, we did not have material additional operating leases that have not yet commenced.
(4) Income Taxes
We hold an economic interest of 19.2% in SciPlay Parent LLC subsequent to the IPO. The 80.8% economic interest that we do not own represents a noncontrolling interest for financial reporting purposes. SciPlay Parent LLC is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As such, SciPlay Parent LLC is not subject to income tax in most jurisdictions, and SciPlay Parent LLC’s members, of which we are one, are liable for income taxes based on their allocable share of SciPlay Parent LLC’s taxable income. The effective income tax rates for the three and nine months ended September 30, 2021 were 4.1% and 4.6%, respectively, and 3.3% and 4.9% for the three and nine months ended September 30, 2020. The effective income tax rates were determined using an estimated annual effective tax rate after considering any discrete items for such periods. Our effective tax rate differs from the U.S. statutory rate of 21% primarily because we generally do not record income taxes for the noncontrolling interest portion of U.S. pre-tax income.
TRA
During the nine months ended September 30, 2021 and September 30, 2020, payments totaling $3.8 million and $2.5 million, respectively, were made to Scientific Games pursuant to the TRA. As of September 30, 2021 and December 31, 2020, the total TRA liability was $68.3 million and $72.5 million, of which $4.0 million was included in Accrued liabilities in both periods.
(5) Related Party Transactions
The following is the summary of expenses paid to Scientific Games and settled in cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Financial Statement Line Item
|
Royalties to Scientific Games for third-party IP
|
$
|
0.7
|
|
|
$
|
1.7
|
|
|
$
|
2.1
|
|
|
$
|
5.4
|
|
|
Cost of revenue
|
Parent services
|
1.4
|
|
|
1.9
|
|
|
4.4
|
|
|
4.3
|
|
|
General and administrative
|
TRA payments (see Note 4)(1)
|
3.8
|
|
|
—
|
|
|
3.8
|
|
|
2.5
|
|
|
Accrued liabilities
|
Distributions to Scientific Games and affiliates, net(1)
|
16.0
|
|
|
0.2
|
|
|
30.1
|
|
|
11.8
|
|
|
Noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
(1) Under the terms of the Operating Agreement, SciPlay Corporation relies on distributions from SciPlay Parent LLC to pay its obligations under the TRA and any other tax obligations. All distributions must be on a pari-passu basis, thus initiating a pro-rata distribution to Parent and affiliates.
|
The following is the summary of balances due to affiliates:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Royalties to Scientific Games for third-party IP
|
|
|
|
|
$
|
0.4
|
|
|
$
|
2.5
|
|
Parent services
|
|
|
|
|
1.5
|
|
|
0.8
|
|
Reimbursable expenses to Scientific Games and its subsidiaries
|
|
|
|
|
0.4
|
|
|
2.2
|
|
|
|
|
|
|
$
|
2.3
|
|
|
$
|
5.5
|
|
Parent Equity Awards
See Note 6 for disclosures related to Parent’s equity awards.
(6) Stockholders’ Equity and Noncontrolling Interest
Noncontrolling Interest
We are a holding company, and our sole material assets are SciPlay Parent LLC Interests (“LLC Interests”) that we purchased from SciPlay Parent LLC and SG Social Holding Company I, LLC, representing an aggregate 19.2% economic interest in SciPlay Parent LLC. The remaining 80.8% economic interest in SciPlay Parent LLC is owned indirectly by SGC, through the ownership of LLC Interests by the indirect wholly owned subsidiaries of SGC, the SG Members.
Stock-Based Compensation
The following table summarizes stock-based compensation expense that is included in general and administrative expenses:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SciPlay awards
|
$
|
—
|
|
|
$
|
9.8
|
|
|
$
|
5.1
|
|
|
$
|
14.7
|
|
Parent awards
|
0.1
|
|
|
0.1
|
|
|
0.3
|
|
|
0.4
|
|
Total
|
$
|
0.1
|
|
|
$
|
9.9
|
|
|
$
|
5.4
|
|
|
$
|
15.1
|
|
As of September 30, 2021, we had $15.0 million in unrecognized stock-based compensation expense that is expected to be recognized over a weighted-average expected vesting period of 1.3 years, of which $5.3 million relates to performance-based restricted stock units.
(7) Earnings per Share
The table below sets forth a calculation of basic earnings per share ("EPS") based on net income attributable to SciPlay divided by the basic weighted average number of Class A common stock outstanding during the period. Diluted EPS of Class A common stock is computed by dividing net income attributable to SciPlay by the weighted average number of shares of Class A common stock outstanding adjusted to give effect to all potentially dilutive securities, using the treasury stock method. No material number of restricted stock units was excluded from the calculation of diluted weighted-average common shares outstanding for the three and nine month periods ended September 30, 2021 and 2020.
We excluded Class B common stock from the computation of basic and diluted EPS, as holders of Class B common stock do not have economic interest in us, and, therefore, a separate presentation of EPS of Class B common stock under the two-class method has not been presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30, 2021
|
|
September 30, 2020
|
|
September 30, 2021
|
|
September 30, 2020
|
Numerator:
|
|
|
|
|
|
|
|
Net income
|
$
|
37.0
|
|
|
$
|
35.1
|
|
|
$
|
112.8
|
|
|
$
|
115.0
|
|
Less: net income attributable to the noncontrolling interest
|
31.1
|
|
|
29.6
|
|
|
95.7
|
|
|
98.5
|
|
Net income attributable to SciPlay
|
$
|
5.9
|
|
|
$
|
5.5
|
|
|
$
|
17.1
|
|
|
$
|
16.5
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average shares of Class A common stock for basic EPS
|
24.5
|
|
|
22.8
|
|
|
24.0
|
|
|
22.8
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Stock-based compensation grants
|
0.3
|
|
|
1.3
|
|
|
0.9
|
|
|
1.2
|
|
Weighted average shares of Class A common stock for diluted EPS
|
24.8
|
|
|
24.1
|
|
|
24.9
|
|
|
24.0
|
|
Basic and diluted net income attributable to SciPlay per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.24
|
|
|
$
|
0.24
|
|
|
$
|
0.71
|
|
|
$
|
0.72
|
|
Diluted
|
$
|
0.24
|
|
|
$
|
0.23
|
|
|
$
|
0.69
|
|
|
$
|
0.69
|
|
(8) Litigation
From time to time, we are subject to various claims, complaints and legal actions in the normal course of business. In addition, we may receive notifications alleging infringement of patent or other intellectual property rights. There have been no material changes to these matters since our 2020 Form 10-K was filed with the SEC, except as described below.
Washington State Matter
On April 17, 2018, a plaintiff, Sheryl Fife, filed a putative class action complaint, Fife v. Scientific Games Corporation, against SGC in the United States District Court for the Western District of Washington. The plaintiff seeks to represent a putative class of all persons in the State of Washington who purchased and allegedly lost virtual coins playing SGC’s online social casino games, including but not limited to Jackpot Party® Casino and Gold Fish® Casino. The complaint asserts claims for alleged violations of Washington’s Recovery of Money Lost at Gambling Act, Washington’s consumer protection statute, and for unjust enrichment, and seeks unspecified money damages (including treble damages as appropriate), the award of reasonable attorneys’ fees and costs, pre- and post-judgment interest, and injunctive and/or declaratory relief. On July 2, 2018, SGC filed a motion to dismiss the plaintiff’s complaint with prejudice, which the trial court denied on December 18, 2018. SGC filed its answer to the putative class action complaint on January 18, 2019. On August 24, 2020, the trial court granted plaintiff’s motion for leave to amend her complaint and to substitute a new plaintiff, Donna Reed, for the initial plaintiff, and re-captioned the matter Reed v. Scientific Games Corporation. On August 25, 2020, the plaintiff filed a first amended complaint against SGC, asserting the same claims, and seeking the same relief, as the complaint filed by Sheryl Fife. On September 8, 2020, SGC filed a motion to compel arbitration of plaintiff’s claims and to dismiss the action, or, in the alternative, to transfer the action to the United States District Court for the District of Nevada. On April 9, 2021, the plaintiff filed a motion to certify the putative class and for a preliminary injunction. On April 26, 2021, the district court stayed the lawsuit, pending its ruling on SGC’s motion to compel arbitration of plaintiff’s claims and to
dismiss the action, or, in the alternative, to transfer the action to the United States District Court for the District of Nevada. On June 17, 2021, the district court denied that motion, and on June 23, 2021, SGC filed a notice of appeal from the district court’s denial of that motion, and also filed a motion to stay all district court proceedings, pending the appeals court’s ruling on the Company’s arbitration appeal. Although the case was brought against Scientific Games, pursuant to the
Intercompany Services Agreement, we would expect to cover or contribute to any damage awards due to the matter arising as a result of our business. We believe it is reasonably possible that a conclusion of this matter may result in an unfavorable outcome with no current estimated range of possible loss.
SciPlay IPO Matter (New York)
On or about October 14, 2019, the Police Retirement System of St. Louis filed a putative class action complaint in New York state court against SciPlay, certain of its executives and directors, and SciPlay’s underwriters with respect to its initial public offering (the “PRS Action”). The complaint was amended on November 18, 2019. The plaintiff seeks to represent a class of all persons or entities who acquired Class A common stock of SciPlay pursuant and/or traceable to the Registration Statement filed and issued in connection with SciPlay’s initial public offering, which commenced on or about May 3, 2019. The complaint asserts claims for alleged violations of Sections 11 and 15 of the Securities Act, 15 U.S.C. § 77, and seeks certification of the putative class; compensatory damages of at least $146.0 million, and the award of the plaintiff’s and the class’s reasonable costs and expenses incurred in the action.
On or about December 9, 2019, Hongwei Li filed a putative class action complaint in New York state court asserting substantively similar causes of action under the Securities Act of 1933 and substantially similar factual allegations as those alleged in the PRS Action (the “Li Action”). On December 18, 2019, the New York state court entered a stipulated order consolidating the PRS Action and the Li Action into a single lawsuit. On December 23, 2019, the defendants moved to dismiss the consolidated action.
On August 28, 2020, the court issued an oral ruling granting in part and denying in part the defendants’ motion to dismiss. On December 14, 2020, plaintiffs in the consolidated action filed a motion to certify the putative class. On May 12, 2021, the parties in the consolidated action reached an agreement in principle to settle the consolidated action. On July 27, 2021, the parties in the consolidated action entered into a settlement agreement to settle the consolidated action. On August 11, 2021, the New York court granted preliminary approval to the parties’ proposed settlement, stayed non-settlement related proceedings in the consolidated action pending final approval of the settlement and scheduled a hearing for final approval of the settlement on November 15, 2021.
SciPlay IPO Matter (Nevada)
On or about November 4, 2019, plaintiff John Good filed a putative class action complaint in Nevada state court against SciPlay, certain of its executives and directors, SGC, and SciPlay’s underwriters with respect to SciPlay’s initial public offering. The plaintiff seeks to represent a class of all persons who purchased Class A common stock of SciPlay in or traceable to SciPlay’s initial public offering that it completed on or about May 7, 2019. The complaint asserts claims for alleged violations of Sections 11 and 15 of the Securities Act, 15 U.S.C. § 77, and seeks certification of the putative class; compensatory damages, and the award of the plaintiff’s and the class’s reasonable costs and expenses incurred in the action. On February 27, 2020, the trial court entered a stipulated order that, among other things, stayed the lawsuit pending entry of an order resolving the motion to dismiss that was pending in the SciPlay IPO matter in New York state court. On September 29, 2020, the trial court entered a stipulated order that extended the stay pending a ruling on class certification in the SciPlay IPO matter in New York state court. On May 12, 2021, the parties in the Nevada lawsuit reached an agreement in principle to settle the lawsuit and so informed the Nevada court, which vacated non-settlement related proceedings in the lawsuit, pending final approval of the settlement agreement by the New York court.
Based on our assessment under ASC 410 and ASC 450 and consideration of the two SciPlay IPO matters above, we determined that both loss and insurance proceeds loss recovery, which we believe is recoverable under our insurance policy, are deemed probable and reasonably estimable. As a result, we recorded approximately $8.3 million in Accrued liabilities and $8.0 million in Prepaid expenses and other current assets as of September 30, 2021, with no material impact on our statement of income for the three and nine month period ended September 30, 2021.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is intended to enhance the reader’s understanding of our operations and current business environment from management’s perspective and should be read in conjunction with the description of our business included under Part I, Item 1 “Condensed Consolidated Financial Statements” and Part II, Item 1A “Risk Factors” in this Quarterly
Report on Form 10-Q and under Part I, Item 1 “Business”, Item 1A “Risk Factors” and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2020 Form 10-K. The terms “we” and “our” as used herein refer to SciPlay and its consolidated subsidiaries.
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 Quarterly Report on Form 10-Q and “Risk Factors” included in our 2020 Form 10-K.
You can access our filings with the SEC through the SEC website at https://www.sec.gov or through our website, and we strongly encourage you to do so. We routinely post information that may be important to investors on our website at https://www.sciplay.com/investors/, and we use this website address as a means of disclosing material information to the public in a broad, non-exclusionary manner for purposes of the SEC’s Regulation Fair Disclosure (Reg FD). The contents of our website are not incorporated by reference in this Form 10-Q and shall not be deemed “filed” under the Securities Exchange Act of 1934, as amended.
BUSINESS OVERVIEW
We are a leading developer and publisher of digital games on mobile and web platforms. We currently offer eight core games, including social casino games, Jackpot Party® Casino, Gold Fish® Casino, Quick Hit® Slots and Hot Shot Casino®, and casual games, 88 Fortunes® Slots, Bingo Showdown®, MONOPOLY® Slots and Solitaire Pets™ Adventure. 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 slots-style or bingo game play with adventure game features. All of our games are offered and played on multiple platforms, including Apple, Google, Facebook, Amazon, and Microsoft. In addition to our internally created games, our content library includes recognizable, real-world slot and table games content from Scientific Games. This content allows players who like playing land-based slot machines 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. We also have access to content from third-party licensed brands such as MONOPOLY™, THE FLINTSTONES™, JAMES BOND™, MICHAEL JACKSON™ and PLAYBOY™.2
We generate substantially all of our revenue from the sale of coins, chips and cards, which players of our games can use to play casino-style slot games and table games and bingo games. Players who install 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.
As described in 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 SciPlay not already owned by them.
2 The MONOPOLY name and logo, the distinctive design of the game board, the four corner squares, the MR. MONOPOLY name and character, as well as each of the distinctive elements of the board, cards, and the playing pieces are trademarks of Hasbro for its property trading game and game equipment and are used with permission. © 2021 Hasbro. All Rights Reserved. Licensed by Hasbro.
and James Bond indicia © 1962-2021 Danjaq, LLC and MGM.
and all other James Bond related trademarks are trademarks of Danjaq, LLC. All Rights Reserved.
THE FLINTSTONES™ and all related characters and elements © & ™ Hanna-Barbera.
Michael Jackson™; Rights of the Publicity and Persona Rights: Triumph International, Inc. © 2021 Triumph International, Inc. Licensing Representative: Authentic Brands Group, LLC
©2021 Playboy Enterprises International, Inc. PLAYBOY, PLAYMATE, PLAYBOY BUNNY, and the Rabbit Head Design are trademarks of Playboy Enterprises International, Inc. and used under license by SciPlay Games, LLC.
Recent Events
In March 2020, the World Health Organization declared the rapidly spreading COVID-19 outbreak a pandemic. In response to the COVID-19 pandemic, governments across the world implemented measures to prevent its spread, including the temporary closure of all non-essential businesses and travel restrictions. Many of our current and potential players had significantly more free time to play our games during this time. We are still seeing a higher level of paying player engagement as compared to the pre-COVID 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.
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.
RESULTS OF OPERATIONS
Summary of Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
September 30,
|
|
Variance
|
|
September 30,
|
|
Variance
|
($ in millions)
|
2021
|
|
2020
|
|
2021 vs. 2020
|
|
2021
|
|
2020
|
|
2021 vs. 2020
|
Revenue
|
$
|
146.6
|
|
|
$
|
151.2
|
|
|
$
|
(4.6)
|
|
|
(3)
|
%
|
|
$
|
451.7
|
|
|
$
|
435.1
|
|
|
$
|
16.6
|
|
|
4
|
%
|
Operating expenses
|
108.1
|
|
|
114.7
|
|
|
(6.6)
|
|
|
(6)
|
%
|
|
333.0
|
|
|
315.1
|
|
|
17.9
|
|
|
6
|
%
|
Operating income
|
38.5
|
|
|
36.5
|
|
|
2.0
|
|
|
5
|
%
|
|
118.7
|
|
|
120.0
|
|
|
(1.3)
|
|
|
(1)
|
%
|
Net income
|
37.0
|
|
|
35.1
|
|
|
1.9
|
|
|
5
|
%
|
|
112.8
|
|
|
115.0
|
|
|
(2.2)
|
|
|
(2)
|
%
|
Net income attributable to SciPlay
|
5.9
|
|
|
5.5
|
|
|
0.4
|
|
|
7
|
%
|
|
17.1
|
|
|
16.5
|
|
|
0.6
|
|
|
4
|
%
|
AEBITDA
|
$
|
44.7
|
|
|
$
|
49.3
|
|
|
$
|
(4.6)
|
|
|
(9)
|
%
|
|
$
|
138.5
|
|
|
$
|
143.7
|
|
|
$
|
(5.2)
|
|
|
(4)
|
%
|
Net income margin
|
25.2
|
%
|
|
23.2
|
%
|
|
2.0
|
pp
|
|
nm
|
|
25.0
|
%
|
|
26.4
|
%
|
|
(1.4)
|
pp
|
|
nm
|
AEBITDA margin
|
30.5
|
%
|
|
32.6
|
%
|
|
(2.1)
|
pp
|
|
nm
|
|
30.7
|
%
|
|
33.0
|
%
|
|
(2.3)
|
pp
|
|
nm
|
pp = percentage points.
nm = not meaningful.
|
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 SciPlay as the most directly comparable GAAP measure as set forth in the below table. We define AEBITDA to include net income attributable to SciPlay 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; (iii) unusual items (including certain legal settlements) and (iv) other non-cash items; (e) contingent acquisition consideration and (f) 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.
The following table reconciles Net income attributable to SciPlay to AEBITDA and AEBITDA margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
($ in millions, except percentages)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Net income attributable to SciPlay
|
$
|
5.9
|
|
|
$
|
5.5
|
|
|
$
|
17.1
|
|
|
$
|
16.5
|
|
Net income attributable to noncontrolling interest
|
31.1
|
|
|
29.6
|
|
|
95.7
|
|
|
98.5
|
|
Net income
|
37.0
|
|
|
35.1
|
|
|
112.8
|
|
|
115.0
|
|
Restructuring and other
|
1.7
|
|
|
0.2
|
|
|
3.1
|
|
|
1.7
|
|
Depreciation and amortization
|
4.4
|
|
|
2.7
|
|
|
11.3
|
|
|
6.9
|
|
Income tax expense
|
1.6
|
|
|
1.2
|
|
|
5.5
|
|
|
5.9
|
|
Stock-based compensation
|
0.1
|
|
|
9.9
|
|
|
5.4
|
|
|
15.1
|
|
Other (income) expense, net
|
(0.1)
|
|
|
0.2
|
|
|
0.4
|
|
|
(0.9)
|
|
AEBITDA
|
$
|
44.7
|
|
|
$
|
49.3
|
|
|
$
|
138.5
|
|
|
$
|
143.7
|
|
Revenue
|
$
|
146.6
|
|
|
$
|
151.2
|
|
|
$
|
451.7
|
|
|
$
|
435.1
|
|
Net income margin (Net income/Revenue)
|
25.2
|
%
|
|
23.2
|
%
|
|
25.0
|
%
|
|
26.4
|
%
|
AEBITDA margin (AEBITDA/Revenue)
|
30.5
|
%
|
|
32.6
|
%
|
|
30.7
|
%
|
|
33.0
|
%
|
Revenue, Key Performance Indicators and Other Metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
September 30,
|
|
Variance
|
|
|
September 30,
|
|
Variance
|
($ in millions)
|
2021
|
|
2020
|
|
2021 vs. 2020
|
|
|
2021
|
|
2020
|
|
2021 vs. 2020
|
Mobile
|
$
|
130.8
|
|
|
$
|
131.8
|
|
|
$
|
(1.0)
|
|
|
(1)
|
%
|
|
|
$
|
399.5
|
|
|
$
|
377.3
|
|
|
$
|
22.2
|
|
|
6
|
%
|
Web and other
|
15.8
|
|
|
19.4
|
|
|
(3.6)
|
|
|
(19)
|
%
|
|
|
52.2
|
|
|
57.8
|
|
|
(5.6)
|
|
|
(10)
|
%
|
Total revenue
|
$
|
146.6
|
|
|
$
|
151.2
|
|
|
$
|
(4.6)
|
|
|
(3)
|
%
|
|
|
$
|
451.7
|
|
|
$
|
435.1
|
|
|
$
|
16.6
|
|
|
4
|
%
|
Revenue information by geography is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
September 30,
|
|
Variance
|
|
|
September 30,
|
|
Variance
|
($ in millions)
|
2021
|
|
2020
|
|
2021 vs. 2020
|
|
|
2021
|
|
2020
|
|
2021 vs. 2020
|
North America(1)
|
$
|
134.0
|
|
|
$
|
138.5
|
|
|
$
|
(4.5)
|
|
|
(3)
|
%
|
|
|
$
|
413.3
|
|
|
$
|
399.1
|
|
|
$
|
14.2
|
|
|
4
|
%
|
International
|
12.6
|
|
|
12.7
|
|
|
(0.1)
|
|
|
(1)
|
%
|
|
|
38.4
|
|
|
36.0
|
|
|
2.4
|
|
|
7
|
%
|
Total revenue
|
$
|
146.6
|
|
|
$
|
151.2
|
|
|
$
|
(4.6)
|
|
|
(3)
|
%
|
|
|
$
|
451.7
|
|
|
$
|
435.1
|
|
|
$
|
16.6
|
|
|
4
|
%
|
(1) North America revenue includes revenue derived from the U.S., Canada and Mexico.
|
Revenue
For the three months ended September 30, 2021, revenues decreased due to an event isolated in Jackpot Party® Casino partially offset by strong monetization metrics and record growth at Gold Fish® Casino.
For the nine months ended September 30, 2021, revenues increased as a result of the introduction of new content and features leading to elevated player engagement primarily led by Gold Fish® Casino and Jackpot Party® Casino.
Paying player engagement, as evidenced by AMRPPU, and payer conversion continues to be higher than pre-COVID periods.
The following reflects our Key Performance Indicators and Other Metrics:
We manage our business by tracking several key performance indicators, each of which is tracked by our internal analytics systems 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 a description of the definitions of our key performance indicators and other metrics and their usefulness to our investors, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2020 Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except ARPDAU, AMRPPU, and percentages)
|
Three Months Ended
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
Variance
|
|
|
September 30,
|
|
Variance
|
2021
|
|
2020
|
|
2021 vs. 2020
|
|
|
2021
|
|
2020
|
|
2021 vs. 2020
|
Mobile Penetration
|
89
|
%
|
|
87
|
%
|
|
2.0
|
pp
|
|
nm
|
|
|
88
|
%
|
|
87
|
%
|
|
1.0
|
pp
|
|
nm
|
Average MAU
|
6.1
|
|
|
7.3
|
|
|
(1.2)
|
|
|
(16.4)
|
%
|
|
|
6.3
|
|
|
7.6
|
|
|
(1.3)
|
|
|
(17.1)
|
%
|
Average DAU
|
2.3
|
|
|
2.6
|
|
|
(0.3)
|
|
|
(11.5)
|
%
|
|
|
2.4
|
|
|
2.7
|
|
|
(0.3)
|
|
|
(11.1)
|
%
|
ARPDAU
|
$
|
0.69
|
|
|
$
|
0.63
|
|
|
$
|
0.06
|
|
|
9.5
|
%
|
|
|
$
|
0.70
|
|
|
$
|
0.59
|
|
|
$
|
0.11
|
|
|
18.6
|
%
|
Average MPUs
|
0.5
|
|
|
0.5
|
|
|
—
|
|
|
—
|
%
|
|
|
0.5
|
|
|
0.5
|
|
|
—
|
|
|
—
|
%
|
AMRPPU
|
$
|
93.67
|
|
|
$
|
94.10
|
|
|
$
|
(0.43)
|
|
|
(0.5)
|
%
|
|
|
$
|
94.26
|
|
|
$
|
92.94
|
|
|
$
|
1.32
|
|
|
1.4
|
%
|
Payer conversion rate
|
8.5
|
%
|
|
7.3
|
%
|
|
1.2
|
pp
|
|
nm
|
|
|
8.4
|
%
|
|
6.8
|
%
|
|
1.6
|
pp
|
|
nm
|
pp = percentage points.
nm = not meaningful.
|
The increase in mobile penetration percentage for both comparable periods primarily reflects a continued trend of players migrating from web to mobile platforms to play our games.
Average MAU and average DAU for both comparable periods decreased due to the turnover in users. ARPDAU increased as a function of lower average DAU for periods presented.
For the three months ended September 30, 2021, AMRPPU decreased with consistent average MPU as payer engagement decreased as a result of an event isolated in Jackpot Party® Casino partially offset by record growth at Gold Fish® Casino. For the nine months ended September 30, 2021, AMRPPU increased with consistent average MPU due to the introduction of new content and features resulting in increased paying player interaction.
Payer conversion rates have remained at peak levels due to consistent payer interaction with the games by our players as a result of the introduction of new content and features into our games.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
Variance
|
|
Percentage of Revenue
|
($ in millions)
|
2021
|
|
2020
|
|
2021 vs. 2020
|
|
2021
|
|
2020
|
|
2021 vs. 2020 Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue(1)
|
$
|
46.2
|
|
|
$
|
48.0
|
|
|
$
|
(1.8)
|
|
|
(4)
|
%
|
|
31.5
|
%
|
|
31.7
|
%
|
|
(0.2)
|
pp
|
Sales and marketing(1)
|
32.9
|
|
|
33.7
|
|
|
(0.8)
|
|
|
(2)
|
%
|
|
22.4
|
%
|
|
22.3
|
%
|
|
0.1
|
pp
|
General and administrative(1)
|
13.1
|
|
|
21.3
|
|
|
(8.2)
|
|
|
(38)
|
%
|
|
8.9
|
%
|
|
14.1
|
%
|
|
(5.2)
|
pp
|
Research and development(1)
|
9.8
|
|
|
8.8
|
|
|
1.0
|
|
|
11
|
%
|
|
6.7
|
%
|
|
5.8
|
%
|
|
0.9
|
pp
|
Depreciation and amortization
|
4.4
|
|
|
2.7
|
|
|
1.7
|
|
|
63
|
%
|
|
nm
|
|
nm
|
|
nm
|
Restructuring and other
|
1.7
|
|
|
0.2
|
|
|
1.5
|
|
|
750
|
%
|
|
nm
|
|
nm
|
|
nm
|
Total operating expenses
|
$
|
108.1
|
|
|
$
|
114.7
|
|
|
$
|
(6.6)
|
|
|
(6)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Excludes depreciation and amortization.
pp = percentage points.
nm = not meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
Variance
|
|
Percentage of Revenue
|
($ in millions)
|
2021
|
|
2020
|
|
2021 vs. 2020
|
|
2021
|
|
2020
|
|
2021 vs. 2020 Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue(1)
|
$
|
141.3
|
|
|
$
|
138.5
|
|
|
$
|
2.8
|
|
|
2
|
%
|
|
31.3
|
%
|
|
31.8
|
%
|
|
(0.5)
|
pp
|
Sales and marketing(1)
|
101.7
|
|
|
97.0
|
|
|
4.7
|
|
|
5
|
%
|
|
22.5
|
%
|
|
22.3
|
%
|
|
0.2
|
pp
|
General and administrative(1)
|
46.8
|
|
|
46.7
|
|
|
0.1
|
|
|
—
|
%
|
|
10.4
|
%
|
|
10.7
|
%
|
|
(0.3)
|
pp
|
Research and development(1)
|
28.8
|
|
|
24.3
|
|
|
4.5
|
|
|
19
|
%
|
|
6.4
|
%
|
|
5.6
|
%
|
|
0.8
|
pp
|
Depreciation and amortization
|
11.3
|
|
|
6.9
|
|
|
4.4
|
|
|
64
|
%
|
|
nm
|
|
nm
|
|
nm
|
Restructuring and other
|
3.1
|
|
|
1.7
|
|
|
1.4
|
|
|
82
|
%
|
|
nm
|
|
nm
|
|
nm
|
Total operating expenses
|
$
|
333.0
|
|
|
$
|
315.1
|
|
|
$
|
17.9
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Excludes depreciation and amortization.
pp = percentage points.
nm = not meaningful
|
Cost of revenue
For the three and nine months ended September 30, 2021, cost of revenue as a percentage of revenue decreased primarily due to a $1.0 million and a $3.3 million decrease, respectively, in royalties for third-party IP.
Sales and marketing
For the three months ended September 30, 2021, sales and marketing expense decreased primarily due to a $1.5 million decrease in user acquisition spend as a result of higher per user acquisition cost.
For the nine months ended September 30, 2021, sales and marketing expense increased due to $2.0 million increase in user acquisition spend and a $1.4 million increase in salaries and benefits on an 11% increase in sales and marketing headcount.
General and administrative
For the three months ended September 30, 2021, general and administrative expenses decreased primarily due to a $9.8 million decrease in stock-based incentive compensation due to a lower achievement of performance-based restricted stock plans.
Research and development
For the three and nine months ended September 30, 2021, research and development expenses increased primarily as a result of an increase in salary and benefit costs as a result of a 5% and 7% increase in research and development headcount for the same respective periods.
Depreciation and amortization
For both comparable periods, depreciation and amortization increased due to additional long-term license agreements with third parties (see Note 1).
Net income and AEBITDA
For the three months ended September 30, 2021, net income increased primarily due to lower general and administrative expenses which was partially offset by higher depreciation and amortization and research and development as discussed above. AEBITDA decreased primarily due to a decrease in revenue related to the easing of stay-at-home orders. Net income margin increased by 2.0 percentage points primarily due to lower general and administrative expenses which was partially offset by higher depreciation and amortization, restructuring and other and research and development. AEBITDA margin decreased by 2.1 percentage points primarily due to higher general and administrative and research and development expenses.
For the nine months ended September 30, 2021, net income decreased primarily due to increase in research and development and depreciation and amortization as discussed above. AEBITDA decreased primarily due to an increase in operating expenses as described above, which was partially offset by increase in revenue. Net income margin decreased by 1.4 percentage points primarily due to increase in depreciation and amortization and research and development. AEBITDA margin decreased by 2.3 percentage points primarily due to higher general and administrative expenses and research and development expenses.
RECENTLY ISSUED ACCOUNTING GUIDANCE
For a description of recently issued accounting pronouncements, see Note 1.
CRITICAL ACCOUNTING ESTIMATES
For a description of our policies regarding our critical accounting estimates, see “Critical Accounting Estimates” in our 2020 Form 10-K. There have been no significant changes in our critical accounting estimate policies or the application or the results of the application of those policies to our condensed consolidated financial statements.
LIQUIDITY, CAPITAL RESOURCES AND WORKING CAPITAL
Introduction
SciPlay is a holding company, with no material assets other than its ownership of LLC Interests, no operating activities on its own and no independent means of generating revenue or cash flow. Operations are carried out by SciPlay Parent LLC and its subsidiaries, and we depend on distributions from SciPlay 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 (as defined below) by and among SciPlay Games, LLC, as the successor 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, 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 Nevada 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.
Dividend Policy
We have never paid any cash dividends on our common stock and do not presently intend to pay cash dividends on our common stock. However, we reconsider our dividend policy on a regular basis and may determine in the future to declare or pay cash dividends on our common stock. Under the terms of the Revolver, we are limited in our ability to pay cash dividends or make certain other restricted payments (other than stock dividends) on our common stock.
Revolving Credit Facility
For a description of the Revolver, see “Liquidity, Capital Resources and Working Capital” in our 2020 Form 10-K. There have been no material changes related to the Revolver disclosed in our 2020 Form 10-K except as described below.
On May 27, 2021, SciPlay Holding Company, LLC (“SciPlay Holding”), a wholly-owned indirect subsidiary of SciPlay Corporation (the “Company”), entered into Amendment No. 1 to that certain $150.0 million revolving credit agreement, dated as of May 7, 2019 (the “Revolver”), by and among SciPlay Holding, SciPlay Parent Company, LLC, the several banks and other financial institutions or entities from time to time party thereto and Bank of America, N.A., as administrative agent, collateral agent and issuing lender (such amendment, “Amendment No. 1”).
Amendment No. 1 amended, among other things, certain negative covenants in the Revolver to permit SciPlay Holding to merge or consolidate with and into its direct subsidiary, Phantom EFX, LLC, which was renamed SciPlay Games, LLC (“SciPlay Games”) immediately following such merger. Substantially simultaneously with the merger, SciPlay Games expressly assumed all obligations of SciPlay Holding as the successor borrower under the Revolver.
The Revolver was undrawn as of September 30, 2021. We were in compliance with the financial covenants under the Revolver as of September 30, 2021. See Note 1.
Changes in Cash Flows
The following table presents a summary of our cash flows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
September 30,
|
($ in millions)
|
2021
|
|
2020
|
Net cash provided by operating activities
|
$
|
126.3
|
|
|
$
|
131.9
|
|
Net cash used in investing activities
|
(13.7)
|
|
|
(17.6)
|
|
Net cash used in financing activities
|
(50.7)
|
|
|
(14.6)
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
—
|
|
|
—
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|
Increase in cash, cash equivalents and restricted cash
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$
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61.9
|
|
|
$
|
99.7
|
|
Net cash provided by operating activities decreased primarily due to lower earnings and a $2.9 million unfavorable change in working capital, offset by a $4.0 million decrease in contingent consideration payments.
Net cash used in investing activities decreased primarily due to a $6.9 million decrease in acquisition activity, which was partially offset by a $3.0 million increase in capital expenditures.
Net cash used in financing activities increased primarily due to an $18.3 million increase in distributions to Parent and affiliates, a $12.6 million increase for taxes paid related to net share settlement of equity awards and a $2.6 million increase in payments made for license obligations.
Off Balance Sheet Obligations
As of September 30, 2021, we did not have any significant off-balance sheet arrangements.