What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-03-14 compared with 2024-03-12 · 96 added, 156 removed, 330 unchanged (43% of the section changed)

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We are a developer and publisher of free-to-play casual games for mobile and social platforms.

Over our twelve-year history, we developed a portfolio of free-to-play social casino games that are considered to be among the most innovative and unique in the genre.

Over our 13-year history, we developed a portfolio of free-to-play social casino games that are considered to be among the most innovative and unique in the genre.

In 2021, we added our Tetris®-branded mobile game and in late 2022 we acquired Brainium, a developer and publisher of free-to-play casual games.

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Our games are based on original content as well as third-party licensed brands and are downloadable and playable for free on multiple social and mobile-based platforms, including the Apple App Store, Google Play Store, Amazon Appstore, and Facebook.

Each of our legacy social casino games and our Tetris®-branded mobile game is powered by our proprietary playAWARDS program and incorporates loyalty points that are earned by players as they engage with our games.

Each of our legacy social casino games and our Tetris®-branded mobile games are powered by our proprietary playAWARDS program and incorporates loyalty points that are earned by players as they engage with our games.

The rewards are provided by our collection of rewards partners, with the majority of rewards partners providing their rewards at no cost to us, in exchange for product integration, marketing support, and participation in our loyalty program.

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The platform tools also provide rewards partners the ability to measure the off-line value our players generate as consumers and patrons of their real-world establishments.

PLAYSTUDIOS' playAWARDS platform embodies all of the features, tools, and capabilities needed to deliver loyalty programs tailored for the games industry.

Our playAWARDS platform embodies all of the features, tools, and capabilities needed to deliver loyalty programs tailored for the games industry.

Our consumer-facing brand for our loyalty program is myVIP.

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Higher tiers provide access to a myVIP player portal where players can view and purchase special chip bundles, redeem loyalty points for a curated set of rewards, and communicate directly with a dedicated personal host.

The VIP player portal, concierge, and host programs, enhance the in-game and real-world reward experience with both in-game and in-person, invitation-only special events.

The myVIP player portal, concierge, and host programs, enhance the in-game and real-world reward experience with both in-game and in-person, invitation-only special events.

We believe that the myVIP program drives increased player engagement and retention, and therefore extends each game's life-cycle and revenue potential.

We have primarily generated our revenue from the sale of in-game virtual currency, which players can choose to purchase at any time to enhance their playing experience.

We have primarily generated our revenue from the sale of in-game virtual currencies, which players can choose to purchase at any time to enhance their playing experience.

Once purchased, our virtual currency cannot be withdrawn from the game, transferred from one game to another or from one player to another, or be redeemed for monetary value.

Players who install our games receive free virtual currency upon the initial launch of the game, and they may also collect virtual currency free of charge at periodic intervals or through targeted marketing promotions.

Players may exhaust the free virtual currency and may choose to purchase additional virtual currency.

Additionally, players can send free “gifts” of virtual currency to their friends on Facebook.

Our revenue from virtual currency has been generated world-wide, but is largely concentrated in North America.

Players who install our games receive free virtual currencies upon the initial launch of the game, and they may also collect virtual currencies free of charge at periodic intervals or through targeted marketing promotions.

Players may exhaust the free virtual currencies and may choose to purchase additional virtual currencies.

Additionally, players can send free “gifts” of virtual currencies to their friends on Facebook.

Our revenue from virtual currencies has been generated world-wide, but is largely concentrated in North America.

We also generate revenue from in-game advertising.

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In addition, our Tetris®-branded mobile game and our Brainium games generate most of their revenue through in-game advertising.

Smaller Reporting Company ("SRC") Accommodations

As an SRC, we have elected to use scaled disclosure accommodations permitted by the SEC, which means that this section does not include all disclosures required for larger reporting companies.

Specifically:

• We have presented only two years of audited financial statements instead of three.

• We are not required to include the contractual obligations table that larger companies must disclose.

• Our executive compensation disclosures are reduced under Item 402 of Regulation S-K.

Key Factors Affecting Our Performance

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Each platform provider has broad discretion to set its platform fees and to change and interpret its terms of service and other policies with respect to us and other developers in its sole discretion, and those changes may be unfavorable to us.

• Player Acquisition— Establishing and maintaining a loyal network of players and paying players is vital for our success.

• User Acquisition— Establishing and maintaining a loyal network of players and paying players is vital for our success.

As such, we spend a significant amount on advertising and other forms of player acquisition, such as traditional marketing and advertising, email and push notifications, and cross promoting between our games in order to grow our player base.

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However, the results may not generate revenue and the enhancements may require additional significant modifications or be abandoned in their entirety.

• Real-World Rewards— We currently offer real-world rewards relating to, among other things, dining, live entertainment shows, and hotel rooms, and we plan to continue to expand and diversify our rewards loyalty program in order to maintain and enhance the perceived value offering to our players.

maintain and enhance the perceived value offering to our players.

Our players’ willingness to make in-game purchases is directly impacted by our ability to provide desirable rewards.

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We manage our business by regularly reviewing several key operating metrics to track historical performance, identify trends in player activity, and set strategic goals for the future.

Our key performance metrics are impacted by several factors

that could cause them to fluctuate on a quarterly basis, such as platform providers’ policies, seasonality, player connectivity, and the addition of new content to games.

Our key performance metrics are impacted by several factors that could cause them to fluctuate on a quarterly basis, such as platform providers’ policies, seasonality, player connectivity, and the addition of new content to games.

We believe these measures are useful to investors for the same reasons.

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Purchases is defined as the total number of rewards purchased for the period identified in which a player exchanges loyalty points for a reward.

Purchases are not adjusted for refunds.

Purchases are net of refunds.

Purchases only include purchases of real-world partner rewards and exclude any PLAYSTUDIOS digital rewards.

Purchases are redeemed by the player directly with the rewards partner within the specified terms and conditions of the reward.

The Company does not receive any compensation or revenue from Purchases.

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pp = percentage points

Net Revenue by Segment

Net Revenue by Reportable Segment

Year Ended December 31,

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pp = percentage points

Net revenue increased $22.2 million, or 7.8%, to $306.7 million during the year ended December 31, 2023 compared to $284.5 million during the year ended December 31, 2022.

The increase was primarily due to full year realization of the Brainium portfolio of games, which was acquired in October 2022 as well as an increase in advertising revenue from the Tetris game.

The increase was offset by a $13.7 million decrease in virtual currency primarily driven by decreases in DPU and ARPDAU despite overall increases in DAU and MAU.

DAU and MAU increased 83.8% and 70.1%, respectively, compared to year ended December 31, 2022, driven by the addition of the Brainium portfolio of games.

Our daily conversion rate and ARPDAU both decreased compared to year ended December 31, 2022 due to addition of high-volume, low-monetizing Brainium portfolio of games and the Tetris application diluting both metrics.

Net revenue decreased $17.3 million, or 5.7%, to $289.4 million during the year ended December 31, 2024 compared to $306.7 million during the year ended December 31, 2023.

The decrease was primarily due to a $19.1 million decrease in virtual currency revenue primarily driven by decreases in Average DPU.

The decrease was partially offset by growth in advertising revenue.

The following table shows net revenues and key performance indicators for our playAWARDS division (in thousands):

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2024 2023 Change % Change

Virtual currency revenue

$ 54 $ — $ 54 nm

Other revenue

8 4,172 (4,164) (99.8) %

Net revenue $ 62 $ 4,172 $ (4,110) (98.5) %

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$ 114,135 $ 105,847 $ 8,288 7.8 %

Net revenue decreased by $1.7 million, or 28.5%, due to the non-renewal of a licensing arrangement with a customer.

The key performance indicators presented above are used by management to assess the playAWARDS segment's operating performance, however are not indicative revenue metrics.

Net revenue decreased by $4.1 million, or 98.5%, due to the non-renewal of a licensing arrangement with a customer, offset by increases in virtual currency revenue.

The key performance indicators presented above are used by management to assess the playAWARDS segment's operating performance, however there is no relationship between the key performance indicators and revenue metrics.

Operating Expenses

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Cost of revenue decreased by $5.1 million, or 6.5%, during the year ended December 31, 2024 compared to the year ended December 31, 2023.

The decrease was due to a decline in virtual currency revenue.

As a percentage of net revenue, cost of revenue decreased from 29.4% for the year ended December 31, 2022 to 25.0% for the year ended December 31, 2023.

The decrease was due to an increase in advertising revenue which does not incur platform fees, and a reduction in royalty expenses associated with our revenue.

The decrease was due to a decline in virtual currency revenue partially offset an increase direct to consumer sales, which incur lower processing fees.

Selling and Marketing

Selling and marketing expenses decreased by $9.7 million, or 13.1%, during the year ended December 31, 2024 compared to the year ended December 31, 2023.

The decrease was primarily due to a $8.4 million reduction of user acquisition costs.

This increase was partially offset by a $1.1 million increase of payroll expenses and $0.8 million increase of other selling and marketing expenses.

As a percentage of net revenue, selling and marketing expenses decreased from 27.8% for the year ended December 31, 2022 to 23.9% for the year ended December 31, 2023.

The decrease was primarily due to decrease in user acquisition expenses of $13.7 million.

This decrease was offset by increases to marketing expenses of $1.3 million, IT software of $0.7 million, outside service costs of $0.6 million, stock compensation of $0.6 million, and other selling and marketing expenses of $0.8 million.

Research and Development

Research and development expenses increased by $7.0 million, or 11.0%, during the year ended December 31, 2023 compared to the year ended December 31, 2022.

The increase was primarily due to an increase in additional payroll expenses of $3.8 million, an increase of IT expenses of $2.0 million, an increase in facilities costs of $1.0 million, and an increase in other research and development expenses of $0.2 million.

As a percentage of net revenue, research and development expenses increased from 21.8% for the year ended December 31, 2022 to 22.6% for the year ended December 31, 2023.

Research and development expenses decreased by $2.6 million, or 3.7%, during the year ended December 31, 2024 compared to the year ended December 31, 2023.

The decrease was primarily due to decreases to stock compensation of $2.2 million, payroll and related costs of $0.9 million, and other research and development costs of $1.3 million.

This decrease was offset by increases to IT software of $0.9 million and outside service costs of $0.9 million.

General and Administrative

General and administrative expenses increased by $1.0 million, or 2.3%, during the year ended December 31, 2024 compared to the year ended December 31, 2023.

The increase was primarily due to $4.6 million of additional payroll expenses and $0.2 million of other general and administrative costs.

As a percentage of net revenue, general and administrative expenses increased from 13.9% for the year ended December 31, 2022, to 14.5% for the year ended December 31, 2023.

The increase was primarily due to increases to employee costs of $1.5 million, IT software of $1.4 million, and stock compensation of $1.0 million.

This increase was offset by decreases to insurance of $1.0 million, legal expenses of $0.6 million, outside service costs of $0.5 million, and other general and administrative expenses of $0.8 million.

Depreciation and Amortization

Depreciation and amortization expenses increased by $0.2 million, or 0.4%, during the year ended December 31, 2024 compared to the year ended December 31, 2023.

The increase was primarily due to the acquisitions of Brainium and WonderBlocks, increased amortization as a result of additional licenses, and additional depreciation of property and equipment.

As a percentage of net revenue, depreciation and amortization expenses increased from 12.2% for the year

ended December 31, 2022 to 14.6% for the year ended December 31, 2023.

The increase was primarily due to the acquisition of intangible assets in connection with the business combination of Pixode, as well as increased amortization as a result of license renewals.

This was offset by a decrease of internal-use software amortization in connection with write-downs of certain assets during the year ended December 31, 2024.

See Note 10— Intangible Assets and Internal-Use Software, Net .

Restructuring Expenses

Restructuring expenses decreased by $4.4 million during the year ended December 31, 2023 compared to the year ended December 31, 2022.

The decrease was primarily due to $6.3 million less of non-cash impairment charges and a decrease of $1.6 million related to fees for various merger and acquisition opportunities.

This decrease was offset by an increase of $2.6 million related to management restructurings and severance and an increase of $0.7 million related to other restructuring expenses.

As a percentage of net revenue, restructuring expenses decreased from 4.5% for the year ended December 31, 2022 to 2.8% for the year ended December 31, 2023.

Restructuring expenses increased by $17.1 million during the year ended December 31, 2024 compared to the year ended December 31, 2023.

The increase was primarily due to increases of non-cash impairment of $7.2 million, management restructurings of $4.0 million, and non-recurring legal expenses of $7.4 million.

This increase was offset by decreases of $0.4 million of various merger and acquisition opportunities and $1.1 million of other restructuring expenses.

Other Income, Net

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Interest income, net 4,902 4,858 44 0.9 %

Other income, net 513 1,491 (978) (65.6) %

Other (expense) income, net (182) 513 (695) (135.5) %

Total other income, net $ 5,576 $ 7,967 $ (2,391) (30.0) %

The change in fair value of warrant liabilities is related to the warrants discussed in Note 12— Warrant Liabilities to our consolidated financial statements herein.

The change in fair value of warrant liabilities is related to the warrants discussed in Note 12— Accrued and Other Current Liabilities to our consolidated financial statements herein.

Interest income, net is related to interest earned on cash and cash equivalents offset by fees and expenses associated with the Credit Agreement as discussed in Note 14— Long-Term Debt to our consolidated financial statements herein.

Other income, net primarily relates to gains or (losses) from equity investments.

Other income, net primarily relates to gains or (losses) from equity investments and gains or (losses) from foreign currency transactions with our foreign subsidiaries.

Provision for Income Taxes

Income tax expense was approximately $16.9 million for the year ended December 31, 2023, as compared to an income tax benefit of $5.8 million for the year ended December 31, 2022.

The income tax expense for the year ended December 31, 2023 reflected an effective income tax rate of negative 669.7%, which was less than the statutory tax rate of 21% primarily due to the recording of a valuation allowance on deferred tax assets, the effect of additional foreign taxes paid related to a settlement with the Israel Tax Authority, impacts from foreign branch income, and other nondeductible expenses.

Income tax expense was approximately $1.4 million for the year ended December 31, 2024, as compared to an income tax expense of $16.9 million for the year ended December 31, 2023.

The income tax expense for the year ended December 31, 2024 reflected an effective income tax rate of negative 5.1%, which was less than the statutory tax rate of 21% primarily due to the recording of a valuation allowance on deferred tax assets, impacts from short falls associated with stock-based compensation, impacts from foreign branch income, and other nondeductible expenses.

The income tax benefit reflected an effective income tax rate of negative 669.7% for the year ended December 31, 2023, which was less than the statutory federal rate of 21.0% primarily due to the recording of a valuation allowance on deferred tax assets, the effect of additional foreign taxes paid related to a settlement with the Israel Tax Authority, impacts from foreign branch income, and other nondeductible expenses.

The decrease in our effective tax rate was partially offset by benefits from the exercise of non-qualified stock options, changes to the fair value adjustment of the warrant liability, and the deduction of foreign taxes paid.

The income tax benefit reflected an effective income tax rate of 24.6% for the year ended December 31, 2022, which was greater than the statutory federal rate of 21.0% primarily due to benefits from the exercise of non-qualified stock options, state taxes, and research and development credits.

The increase in our effective tax rate was partially offset by the reduction of our foreign tax credit carryforward and conversion to foreign tax deductions, as well as a valuation allowance on a portion of our California research credits.

Comparison of the year ended December 31, 2022 versus the year ended December 31, 2021

See Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations of the 2022 Annual Report on Form 10-K for our results of operations for the year ended December 31, 2022 as compared to the year ended December 31, 2021, with the exception of Net Revenue by Segment , which is detailed below.

Net Revenue by Segment

Year Ended December 31,

2022 2021 Change % Change

$ 284,476 $ 287,419 $ (2,943) (1.0) %

5,833 — 5,833 100.0 %

Net revenue $ 290,309 $ 287,419 $ 2,890 1.0 %

playGAMES revenue was $284.5 million for the year ended December 31, 2022 compared to $287.4 million for year ended December 31, 2021.

The following table shows net revenues and key performance indicators for our playGAMES division:

Year Ended December 31,

2022 2021 Change % Change

Virtual currency $ 261,620 $ 280,087 $ (18,467) (6.6) %

Advertising 21,839 6,964 14,875 213.6 %

Other revenue 1,017 368 649 176.4 %

Net revenue $ 284,476 $ 287,419 $ (2,943) (1.0) %

Average DAU 1,917 1,244 673 54.1 %

Average MAU 7,932 4,111 3,821 92.9 %

Average DPU 29 34 (5) (14.7) %

Average Daily Payer Conversion 1.5 % 2.7 % (1.2)pp (44.4) %

ARPDAU (in dollars) $ 0.41 $ 0.63 (0.22) (34.9) %

pp = percentage points

Net revenue decreased $2.9 million, or 1.0%, to $284.5 million during the year ended December 31, 2022 compared to $287.4 million during the year ended December 31, 2021.

The decrease was primarily driven by $18.5 million decrease in virtual currency primarily driven by decreases in DPU and ARPDAU despite overall increases in DAU and MAU.

DAU and MAU increased 54.1% and 92.9%, respectively, compared to year ended December 31, 2021, driven by the addition of the Brainium portfolio of games.

This decrease was offset by the acquisition of the Brainium portfolio of games, which was acquired in October 2022 as well as an increase in advertising revenue from the Tetris game.

Our daily conversion rate and ARPDAU both decreased compared to year ended December 31, 2021 due to addition of high-volume, low-monetizing Brainium portfolio of games and the Tetris application diluting both metrics.

The following table shows net revenues and key performance indicators for our playAWARDS division:

Year Ended December 31,

2022 2021 Change % Change

Net revenue $ 5,833 $ — $ 5,833 100.0 %

Available Rewards (in units) 556 477 79 16.6 %

Purchases (in units) 2,224 1,970 254 12.9 %

Retail Value of Purchases (in dollars) 127,803 114,426 13,377 11.7 %

Net revenue increased by $5.8 million due to a licensing arrangement with a customer.

The key performance indicators presented above are used by management to assess the playAWARDS segment's operating performance, however are not indicative revenue metrics.

Comparison of our Segment Results of Operations

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29.4 % 28.9 % 0.5 % 1.7 %

(248.8) % (89.0) % (159.8) % 179.7 %

playGAMES AEBITDA was $88.7 million for the year ended December 31, 2023 compared to $59.0 million for year ended December 31, 2022, an increase of 50.3%.

nm - not meaningful

playGAMES AEBITDA was $85.1 million for the year ended December 31, 2024 compared to $88.7 million for year ended December 31, 2023, a decrease of 4.1%.

playGAMES AEBITDA margin was 29.4% for the year ended December 31, 2024 compared to 28.9% for year ended December 31, 2023.

The current year benefited from the full years' realization of Brainium's portfolio of games acquired in October 2022 and an increase in revenue from the Tetris game, both which do not incur significant platform fees driving a reduction in cost of sales, and a reduction in overall user acquisition expenses.

These increases were offset by the increase in payroll and benefits from Brainium and other general and administrative expenses.

The decrease to playGAMES AEBITDA was a result of decreased virtual currency revenue primarily driven by decreases in DPU.

playGAMES AEBITDA margin was 29.4% for the year ended December 31, 2024 compared to 28.9% for year ended December 31, 2023, primarily as a result of lower user acquisition costs.

playAWARDS AEBITDA was $(13.7) million for the year ended December 31, 2024 compared to $(10.4) million for year ended December 31, 2023.

The decrease in AEBITDA can be attributed to lower net revenue and an increase in employee costs associated with the myVIP program and the further advancement of the playAWARDS platform.

Comparison of the year ended December 31, 2022 versus the year ended December 31, 2021

Year Ended December 31,

2022 2021 Change % Change

playGAMES $ 58,999 $ 57,865 $ 1,134 2.0 %

playAWARDS (5,189) (8,990) 3,801 (42.3) %

Corporate and other (15,557) (9,329) (6,228) 66.8 %

Consolidated AEBITDA

$ 38,253 $ 39,546 $ (1,293) (3.3) %

Segment AEBITDA Margin:

20.7 % 20.1 % 0.6 % 3.0 %

(89.0) % nm nm nm

nm - not meaningful

playGAMES AEBITDA was $59.0 million for the year ended December 31, 2022 compared to $57.9 million for year ended December 31, 2021.

The increase in playGAMES AEBITDA was driven by the increase in net revenues from the Tetris game as well as consolidation of the Brainium portfolio of games.

These products generate net revenues from advertising, which has lower cost of sales and higher margins.

The increase was offset by a decline in net revenues from virtual currencies.

playAWARDS AEBITDA was $(5.2) million for the year ended December 31, 2022 compared to $(9.0) million for December 31, 2021.

The increase in AEBITDA was primarily driven by a licensing arrangement with a customer that commenced in 2022.

The decrease in AEBITDA can be attributed to the non-renewal of a licensing arrangement with a customer.

Non-GAAP Measures

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Consolidated AEBITDA, as used herein, is a non-GAAP financial performance measure that is presented as a supplemental disclosure and is reconciled to net income as the most directly comparable GAAP measure.

We define Consolidated AEBITDA as net income before interest, income taxes, depreciation and amortization, restructuring and related costs (consisting primarily of severance and other restructuring related costs), stock-based compensation expense, changes in fair value of warrant liabilities, and other income and expense items (including special infrequent items, foreign currency gains and losses, and other non-cash items).

We define Consolidated AEBITDA as net income before interest, income taxes, depreciation and amortization, restructuring and related costs (consisting primarily of severance, asset impairments, and other restructuring related costs), stock-based compensation expense, changes in fair value of warrant liabilities, and other income and expense items (including special infrequent items, foreign currency gains and losses, and other non-cash items).

We also use Consolidated AEBITDA Margin, another non-GAAP measure, which we calculate as Consolidated AEBITDA as a percentage of net revenue.

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$ 289,429 $ 310,886

$ 310,886 $ 290,309 $ 287,419

Net (loss) income $ (19,393) $ (17,783) $ 10,737

Net (loss) income margin (6.2) % (6.1) % 3.7 %

Net loss $ (28,687) $ (19,393)

Net loss margin (9.9) % (6.2) %

Depreciation & amortization 45,440 45,259

Income tax expense (benefit) 16,873 (5,835) (258)

Income tax expense 1,399 16,873

Stock-based compensation expense 18,113 18,722

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Change in fair value of contingent consideration 85 (950)

Special infrequent (1)

Restructuring and related (1)

(4,655) (4,207)

(4,207) (980) 565

Consolidated AEBITDA

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19.5 % 20.0 %

(1) Amounts reported during the year ended December 31, 2021 represent a $5.0 million transaction bonus and a $2.5 million charitable contribution per the terms of the Merger Agreement.

(2) Amounts reported include mergers and acquisition related expenses, management restructuring and severance, assets impairments and write-downs, and extraordinary expenses related to the war in Israel and other various nonrecurring expenses.

(1) Amounts reported include mergers and acquisition related expenses, management restructuring and severance, asset impairments and write-downs, extraordinary expenses related to the war in Israel, and other various nonrecurring expenses.

(2) Amounts reported in “Other, net” include interest expense, interest income, gains/losses from investments, foreign currency gains/losses, and non-cash gains/losses on the disposal of assets.

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As of December 31, 2024, we had cash and cash equivalents of $109.2 million, which consisted of cash on hand and money market mutual funds.

As of December 31, 2024 we had restricted cash of $1.2 million.

Historically, we have funded our operations, including capital expenditures, primarily through cash flow from operating activities.

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Accordingly, we may need to engage in equity or debt financings to secure additional funds or we may decide to do so opportunistically.

On June 24, 2021, in connection with the Closing, Old PLAYSTUDIOS terminated and replaced its then existing revolving credit facility with Silicon Valley Bank (the “Revolver”).

We, one of our subsidiaries, JPMorgan Chase Bank, N.A., as administrative agent and JPMorgan Chase Bank, N.A., Silicon Valley Bank and Wells Fargo Securities, LLC, as joint bookrunners and joint lead arrangers entered into a credit agreement (the “Credit Agreement”) which provides for a five year revolving credit facility in an aggregate principal amount of $75 million.

Borrowings under the Credit Agreement may be borrowed, repaid, and re-borrowed by us, and are available for working capital, general corporate purposes, and permitted acquisitions.

On June 24, 2021, in connection with the closing of the Acies Merger, the Company terminated and replaced the Revolver (as defined below).

The Company, a subsidiary of the Company, JPMorgan Chase Bank, N.A., as administrative agent and JPMorgan Chase Bank, N.A., Silicon Valley Bank and Wells Fargo Securities, LLC, as joint bookrunners and joint lead arrangers entered into a credit agreement (the “Credit Agreement”) which provides for a five-year revolving credit facility in an aggregate principal amount of $75.0 million.

Borrowings under the Credit Agreement may be borrowed, repaid and re-borrowed by the Company, and are available for working capital, general corporate purposes, and permitted acquisitions.

Commitment fees and interest rates are determined on the basis of either a Eurodollar rate or an Alternate Base Rate plus an applicable margin.

The applicable margins are initially 2.50%, in the case of Eurodollar loans, and 1.50%, in the case of Alternate Base Rate loans.

The applicable margin is subject to adjustment based upon our Total Net Leverage Ratio (as defined in the Credit Agreement).

The applicable margin is subject to adjustment based upon the Company's Total Net Leverage Ratio (as defined in the Credit Agreement).

Eurodollar rates and the Alternate Base Rate are subject to floors of 0.00% and 1.00%, respectively.

The Credit Agreement contains various affirmative and negative financial and operational covenants applicable to us and our subsidiaries.

We are also obligated to comply with two financial maintenance covenants as of the end of each fiscal quarter, commencing with the quarter ended September 30, 2021:

(i) we must maintain a Total Net Leverage Ratio not to exceed 3.50:1.00 (subject to increase to 4.00:1.00 following consummation of certain material acquisitions) and (ii) we must maintain a Fixed Charge Coverage Ratio of not less than 1.25:1.00.

The Credit Agreement contains various affirmative and negative financial and operational covenants applicable to the Company and its subsidiaries.

The Credit Agreement includes customary reporting requirements, conditions precedent to borrowing and affirmative, negative and financial covenants.

Specific financial covenants include the following, commencing with the quarter ended September 30, 2021:

• Total Net Leverage Ratio of 3.50:1.00 (subject to increase to 4.00:1.00 following consummation of certain material acquisitions)

• Fixed Charge Coverage Ratio of not less than 1.25:1.00.

On May 13, 2022, the Company entered into the Amendment No.

1 to the Credit Agreement, which amended the Credit Agreement to, among other things, exclude from the definition of Fixed Charge Coverage Ratio certain funds, up to $15,000,000, expended or to be expended by the Company in connection with the Tender Offer.

1 to the Credit Agreement, which amended the Credit Agreement to, among other things, exclude from the definition of Fixed Charge Coverage Ratio certain funds, up to $15.0 million, expended or to be expended by the Company in connection with the Tender Offer.

On August 9, 2022, the Company entered into the Amendment No.

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1 to the Credit Agreement) to, among other things, (i) increase the total current available line of credit from $75.0 million to $81.0 million, (ii) change the basis for calculation of interest under the facility from LIBOR to SOFR, and (iii) exclude from the calculation of the Fixed Charge Coverage Ratio (A) up to $6.0 million for the acquisition of, and improvements to, the real property located at 10150 Covington Cross Drive, Las Vegas, Nevada 89144 incurred on or prior to the first anniversary of the effective date of Amendment No.

2 to the Credit Agreement, and (B) up to $20,000,000 for the repurchase or redemption of up to 10,996,631 warrants to purchase shares of Class A common stock of the Company, and shares of Class A common stock of the Company, on or before December 31, 2023, of which as of the date of Amendment No.

2 to the Credit Agreement, the Company had used $1,792,463 to redeem outstanding warrants to purchase Class A common stock in connection with the Tender Offer.

2 to the Credit Agreement, and (B) up to $20.0 million for the redemption or repurchase of up to $11.0 million warrants to purchase shares of Class A common stock of the Company, and shares of Class A common stock of the Company, on or before December 31, 2023, of which as of the date of Amendment No.

2 to the Credit Agreement the Company had used $1.8 million to redeem outstanding warrants to purchase Class A common stock in connection with the Tender Offer.

On August 16, 2023, the Company, a subsidiary of the Company, the Lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, entered into an Amendment No.

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3”), to, among other things, exclude from the Restricted Payments covenant certain repurchases of Equity Interests of the Company deemed to occur upon the exercise, settlement or vesting of stock options, warrants or other equity-based awards if and to the extent such Equity Interests represent a portion of the exercise price of, or satisfy any tax withholding obligations with respect to, such options, warrants or other equity-based awards.

On June 7, 2024, the Company, a subsidiary of the Company, the Lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, entered into an Amendment No.

4 to Credit Agreement (the “Amendment No.

4”) to, among other things, (i) modify the definition of “Fixed Charge Coverage Ratio” to exclude from the calculation of Restricted Payments amounts paid for the repurchase, prior to June 30, 2024, of approximately 11.7 million shares of Class A common stock of the Company, and (ii) modify the definition of “Consolidated Fixed Charges” to take into account any tax refunds received in the applicable measurement period.

On July 1, 2024, the Company, a subsidiary of the Company, the Lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, entered into the Amendment No.

5 to Credit Agreement (the “Amendment No.

5”) to, among other things, exclude from the covenant set forth in Section 6.01 of the Credit Agreement regarding the incurrence of Indebtedness (as defined therein) the contingent consideration obligations relating to the Pixode acquisition.

As of December 31, 2024, we do not have any outstanding amounts under the Credit Agreement.

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Effect of exchange rate on cash and cash equivalents (638) (345)

Decrease in cash and cash equivalents $ (1,111) $ (79,502)

Net change in cash, cash equivalents, and restricted cash

$ (23,105) $ (1,111)

Operating Activities

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022.

During the year ended December 31, 2024, operating activities provided $45.7 million of net cash as compared to $51.7 million during the year ended December 31, 2023.

The increase in net cash provided from operating activities primarily related to the full year realization of the Brainium portfolio of games as well as increased advertising revenue from the Tetris game.

The change in cash provided from operating activities primarily related to lower net revenue.

Investing Activities

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022.

During the year ended December 31, 2024, investing activities used $26.3 million of net cash as compared to $32.3 million during the year ended December 31, 2023.

The decrease of cash used in investing activities was primarily due to the $70.4 million of cash paid related to the Brainium and WonderBlocks acquisitions and $5.6 million of additional property and equipment purchased in the year ended December 31, 2022 compared to the current year.

The decrease was partially offset by $4.4 million of cash paid related to licensing agreements in the current year and $1.6 million of other investing activities.

The change in cash used in investing activities was primarily due to $7.5 million less cash used to purchase intangible assets and internal-use software and $2.3 million less purchases of property and equipment.

The decrease was offset by $3.4 million of cash paid for the Pixode acquisition and $0.4 million of other cash payments for investing activities.

Financing Activities

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022.

During the year ended December 31, 2024, financing activities used $41.9 million of net cash, while financing activities used $20.2 million of net cash during the year ended December 31, 2023.

This increase is primarily due to an increase of share repurchases made during the year ended December 31, 2022.

Contractual Obligations, Commitments, and Contingencies

The following table summarizes our contractual obligations as of December 31, 2023 (in thousands):

Total Less than 1 year Years 2 and 3 Years 4 and 5 More than 5 years

Operating leases $ 10,655 $ 4,580 $ 4,317 $ 1,758 $ —

Minimum guarantee obligations 31,760 7,760 12,000 12,000 —

Other licensing agreements

7,400 7,400 — — —

Total $ 49,815 $ 19,740 $ 16,317 $ 13,758 $ —

Our other long-term liabilities in the consolidated balance sheet include unrecognized tax benefits and related interest and penalties.

As of December 31, 2023, we had gross unrecognized tax benefits of $0.3 million and an additional $0.1 million for interest and penalties classified as long-term liabilities.

At this time, we are unable to make a reasonably reliable estimate of the timing of payments in individual years in connection with these tax liabilities;

therefore, such amounts are not included in the above contractual obligation table.

The change in cash used in financing activities was due to an additional $15.7 million of share repurchases, $3.5 million in increased minimum guarantee payments made, and $2.8 million of less proceeds received from stock option exercises.

Critical Accounting Policies and Estimates

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The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods.

Our estimates are based on our

historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about items that are not readily apparent from other sources.

Our estimates are based on our historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about items that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

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The Company believes that a straight-line basis for amortization best represents the pattern through which the Company derives value from internal-use software.

The Company evaluates the useful lives of these assets and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

The Company evaluates the

useful lives of these assets and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

Business Combinations

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In addition, both paying and non-paying players can earn loyalty points.

Therefore, the loyalty points earned by

players are marketing offers and do not provide players with material rights.

Accordingly, the loyalty points do not require any allocation to the transaction price of virtual currency.

Therefore, the loyalty points earned by players are marketing offers and do not provide players with material rights.

Accordingly, the earned loyalty points do not require any allocation to the transaction price of virtual currency.

Loyalty points or other virtual currencies may be included in certain bundled purchases through certain platforms.

Loyalty points or other virtual currencies are not available to be purchased separately and there is no stand alone selling price.

If loyalty points or other forms of virtual currencies are included in bundled purchases, the Company will allocate a portion of the transaction price to each of the virtual currencies using the residual approach.

Additionally, certain of the Company’s games participate in an additional program which ranks players into different tiers based on tier points earned during a given time frame.

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The Company has the performance obligation to display and provide access to the virtual currency purchased by the Company’s player within the game whenever the player accesses the game until the virtual currency is consumed.

Payment is required at the time of purchase and the transaction price is fixed.

required at the time of purchase and the transaction price is fixed.

The transaction price, which is the amount paid for the virtual currency by the player, is allocated entirely to this single performance obligation.

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Therefore, the Company concluded that it is the principal and as a result, revenues are reported gross of payment processing fees.

Payment processing

fees are recorded as a component of “Cost of revenue” in the accompanying Consolidated Statements of Operations.

Payment processing fees are recorded as a component of “Cost of revenue” in the accompanying Consolidated Statements of Operations.

The Company reports its advertising revenue net of amounts retained by advertising service providers.

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Under ASC 740, the Company determines deferred tax assets and liabilities based on the temporary difference between the consolidated financial statements and tax bases of assets and liabilities using the enacted tax rates in effect for the year in which it expects the differences to be recovered or settled.

The Company establishes valuation allowances when necessary, based on the weight of the available positive and negative evidence, to reduce deferred tax assets to the amount that is more likely than not to be realized.

establishes valuation allowances when necessary, based on the weight of the available positive and negative evidence, to reduce deferred tax assets to the amount that is more likely than not to be realized.

The Company accounts for uncertain tax positions in accordance with ASC 740, which requires companies to adjust their consolidated financial statements to reflect only those tax positions that are more likely than not to be sustained upon examination by taxing authorities based on the technical merits of the issue.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis