What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-02 compared with 2021-02-26 · 141 added, 143 removed, 307 unchanged (48% of the section changed)

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We intend to continue to seek new opportunities to enhance and refine these marketing efforts to acquire new users, including identifying potential technologies to enhance our marketing and advertising capabilities.

The global pandemic associated with COVID-19 has caused major disruption to all aspects of the global economy and daily life in recent months, particularly as quarantine and stay-at-home orders have been imposed by all levels of government.

We have followed guidance by the United States, Israeli and other applicable foreign and local governments to protect our employees and operations during the pandemic and have implemented a remote environment for our business.

The global pandemic associated with COVID-19 has caused major disruption to all aspects of the global economy and daily life, particularly as quarantine and stay-at-home orders have been imposed by all levels of government.

We cannot predict the potential impacts of the COVID-19 pandemic on our business or operations, but we continuously monitor performance and other industry reports to assess the risk of future negative impacts should the disruptions of the COVID-19 pandemic continue to evolve.

Despite the challenges we have faced in light of the COVID-19 pandemic, our revenues and number of DAUs have increased while the stay-at-home orders were in place across the United States.

As individuals spend more time at home, we have seen an increase in time spent with digital entertainment, including casual gaming and games involving socially interactive experiences.

Despite the challenges we have faced in light of the COVID-19 pandemic, the stay-at-home orders that were in place across the United States sporadically throughout the pandemic have generally been favorable to our business as a result of increased time spent with digital entertainment, including casual gaming and games involving socially interactive experiences.

The COVID-19 pandemic has resulted in and may continue to result in consumers spending a greater portion of their time at home and sustained demand for entertainment options, which may continue to benefit our financial results.

However, the COVID-19 pandemic has caused an economic recession, high unemployment rates, and other disruptions, both in the United States and the rest of the world.

We cannot predict the potential impacts of the COVID-19 pandemic on our business or operations, and there is no guarantee that these near-term trends will continue, particularly if the COVID-19 pandemic increases and the adverse consequences thereof in severity or continues for a protracted period of time, which could disrupt our operations, or put greater financial pressure on the economy and users’ discretionary income or spending habits.

We cannot predict the potential impacts of the COVID-19 pandemic on our business or operations, and there is no guarantee that these favorable trends will continue, particularly if the COVID-19 pandemic increases and the adverse consequences thereof in severity or continues for a protracted period of time, which could disrupt our operations, or put greater financial pressure on the economy and users’ discretionary income or spending habits.

In addition, we could experience a decrease in user activity or spending after the COVID-19 pandemic subsides, which could adversely impact our cash flows, operating results, and financial condition.

See “Risk Factors—Risks Related to Our Business—The recent COVID-19 pandemic and similar health epidemics, contagious disease outbreaks and public perception thereof, could significantly disrupt our operations and adversely affect our business, results of operations, cash flows or financial condition” for more information.

Consolidated Operating Results of Playtika Holding Corp.

Playtika measures the performance of its business by using several key financial metrics, including revenue and operating income, and operating metrics, including Daily Active Users, Average Revenue per Daily Active User, Paying Users, and Average Revenue per Paying User.

These operating metrics help Playtika's management to understand and measure the engagement levels of the Company's players, the size of its audience and its reach.

Components of our Results of Operations

We primarily derive revenue from the sale of virtual items associated with online games.

We distribute our games to the end customer through various web and mobile platforms, such as Apple, Facebook, Google and other web and mobile platforms plus our own proprietary platforms.

We distribute our games to the end customer through various web and mobile platforms, such as Apple, Facebook, Google and other web and mobile platforms plus our own Direct-to-Consumer platforms.

Through these platforms, users can download our free-to-play games and can purchase virtual items to enhance their game-playing experience.

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Cost of revenue

Cost of revenue includes payment processing fees, customer support, hosting fees and depreciation and amortization expenses associated with assets directly involved in the generation of revenues, primarily servers.

Platform providers (such as Apple, Facebook and Google) charge a transactional payment processing fee to accept payments from our players for the purchase of in-app virtual goods.

Payment processing fees and other related expenses for in-app purchases made through our proprietary platforms are typically 3-4%, compared to a 30% platform fee for third party platforms.

Payment processing fees and other related expenses for in-app

purchases made through our Direct-to-Consumer platforms are typically 3-4%, compared to a 30% platform fee for third party platforms.

We generally expect cost of revenue to fluctuate proportionately with revenues.

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We expect research and development expenses will increase in absolute dollars as our business expands and as we increase our personnel headcount to support the expected growth in our technical development and operating activities.

We also expect that research and development expenses specifically associated with new game development will fluctuate over time.

Sales and marketing

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We also record adjustments to contingent consideration payable recorded after the acquisition date, and legal settlement expenses, as components of general and administrative expense.

We expect general and administrative expenses will increase in absolute dollars due to the additional administrative and regulatory burden of becoming and operating as a public company.

We expect general and administrative expenses will increase in absolute dollars to support our expected growth initiatives.

Interest expense and other, net

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We expect to continue to incur interest expense under our Credit Agreement, although such interest expense will fluctuate based upon the underlying variable interest rates.

In March 2021, we entered into two interest rate swap agreements, each with a notional value of $250 million, reducing our overall exposure to variable interest rates.

Provision for income taxes

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tax law, the federal statutory tax rate applicable to corporations is 21%.

Our effective tax rate can fluctuate based on various factors, including our financial results

and the geographic mix to which they relate, the applicability of special tax regimes, changes in our business or operations, examination-related developments and changes in tax law.

Our effective tax rate can fluctuate based on various factors, including our financial results and the geographic mix to which they relate, the applicability of special tax regimes, changes in our business or operations, examination-related developments and uncertain tax positions, and changes in tax law.

Results of Operations

The table below shows the results of our key financial and operating metrics for the periods indicated.

The tables below show the results of our key financial and operating metrics for the periods indicated.

Unless otherwise indicated, financial metrics are presented in millions of U.S.

Dollars, user statistics are presented in millions of users, and ARPDAU is presented in U.S.

We measure the performance of our business by using several key financial metrics, including revenue and operating income, and operating metrics, including Daily Active Users, Average Revenue per Daily Active User, Paying Users, and Average Revenue per Paying User.

These operating metrics help our management to understand and measure the engagement levels of the Company’s players, the size of its audience and its reach.

See “Basis of Presentation” and “Summary Consolidated Financial and Other Data” for additional information of these measures.

Year ended December 31,

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Revenues earned through third-party platforms $ 2,054.0 $ 2,048.5

Revenues earned through internal proprietary platforms 323.0 193.7

Revenues earned through Direct-to-Consumer platforms 529.0 323.0

Revenues $ 2,583.0 $ 2,371.5

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Revenues for the year ended December 31, 2021 increased by $211.5 million when compared to 2020.

The increase in revenues was primarily due to the acquisitions of Seriously in July 2019, contributing an aggregate $93.5 of incremental revenues compared to the year ended December 31, 2019, combined with improved monetization and increased revenues from new content and product features across our broader portfolio of games when compared to 2019.

The combination of the acquisitions and improvements to monetization, new content and product features drove an increase in both DAUs and DPUs.

The increase in revenues generated from internal proprietary platforms as a percentage of total revenues resulted from marketing activities for the games offered through these platforms.

The increase in revenues was due to incremental revenues of $32.4 million generated from the Company’s August 2021 acquisition of 80% of the issued and registered shares and options of Reworks, combined with improved monetization and increased revenues from new content and product features across our broader portfolio of games when compared to 2020.

The combination of unusually high DAUs in early 2020 related to the initial onset of COVID 19, combined with the continued focus of the

Company’s marketing efforts on player conversion rather than increasing player traffic lead to a decrease in DAUs for 2021 when compared with 2020.

The same focus on player conversion, combined with improvements to monetization, new content and new product features drove an increase in DPUs in 2021 compared with 2020.

The increase in revenues generated from Direct-to-Consumer platforms as a percentage of total revenues resulted from marketing activities for the games offered through these platforms.

Cost of revenue

Cost of revenue for the year ended December 31, 2021 increased by $16.8 million when compared with the year ended December 31, 2020.

The increase in cost of revenue was primarily due to $24.0 million in incremental platform fees incurred by us related to the acquisition of Seriously, combined with increased platform fees that generally correspond with an increase in revenues.

The increase in revenues generated from internal proprietary platforms as a percentage of total revenues resulted in a favorable impact on total platform fees, although this favorable impact was more than offset by increased amortization expense for intangible assets resulted from recent acquisitions.

The increase in cost of revenue includes approximately $9.7 million in incremental platform fees associated with the August 2021 acquisition of Reworks.

The remaining increase was primarily due to increased amortization expense for capitalized software and for intangible assets associated with recent acquisitions.

Research and development expenses

Research and development expenses for the year ended December 31, 2021 increased by $117.8 million when compared with the year ended December 31, 2020.

The increase in research and development expenses was primarily due to $11.7 million in incremental expenses incurred by us related to the acquisition of Seriously, as well as increased headcount resulting from newly formed research and development operations in Romania and Switzerland and expansions of our existing research and development operations in the Ukraine, Belarus and Israel.

Research and development expenses were adversely impacted by increased headcount and associated payroll costs in our existing research and development operations and, to a lesser extent, by the expansion of our research and development operations into new offices in Poland.

In addition, stock-based compensation costs, net of amounts capitalized, included in research and development expenses increased by $27.2 million for the year ended December 31, 2021 when compared with the year ended December 31, 2020.

Sales and marketing expenses

Sales and marketing expenses for the year ended December 31, 2021 increased by $79.7 million when compared with the year ended December 31, 2020.

The increase in sales and marketing expenses was primarily due to approximately $30.8 million in incremental expenses incurred by us related to the acquisition of Seriously, as well as increased marketing expenses related to media buy expenses.

The increase in sales and marketing expenses was primarily due to approximately $21.7 million in incremental expenses incurred by us related to the acquisition of Reworks, and to increased marketing expenses related to media buy expenses, increased stock-based compensation costs, and increased headcount and higher associated payroll costs.

General and administrative expenses

General and administrative expenses for the year ended December 31, 2020 increased by $301.5 million when compared with the year ended December 31, 2019.

The increase in general and administrative expenses was primarily due to $276.0 million in stock-based compensation, a $37.6 million expense related to a litigation settlement, and $5.0 million in incremental expenses incurred by us related to the acquisition of Seriously, all of which have no comparable amounts in the prior period.

This increase was partially offset by a $4.0 million lower expense associated with adjusting contingent consideration to fair value and lower recruiting expense in 2020 when compared to 2019.

General and administrative expenses for the year ended December 31, 2021 decreased by $177.8 million when compared with the year ended December 31, 2020.

General and administrative expenses includes stock-based compensation expenses of $64.4 million for the year ended December 31, 2021, compared with $275.1 million for the year ended December 31, 2020.

Included in general and administrative expenses for the year ended December 31, 2021, with no comparable amount for the year ended December 31, 2020, are bonus expenses of approximately $35.4 million paid as a result of the successful initial public offering of the Company’s stock in January 2021.

Included in general and administrative expenses for the year ended December 31, 2020, with no comparable amount for the year ended December 31, 2021, are expenses of approximately $37.6 million related to a litigation settlement.

Adjusting for these items, general and administrative expenses increased by approximately $35.2 million, primarily due to increased compensation costs associated with the long-term incentive plan, which was partially offset by reduced expense attributable to adjusting contingent consideration to fair value.

Comparison of the year ended December 31, 2020 versus the year ended December 31, 2019

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Revenues earned through third-party platforms $ 2,048.5 $ 1,693.9

Revenues earned through internal proprietary platforms 193.7 108.4

Revenues earned through Direct-to-Consumer platforms 323.0 193.7

Revenues $ 2,371.5 $ 1,887.6

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Revenues for the year ended December 31, 2020 increased by $483.9 million when compared to 2019.

The increase in revenues was primarily due to the acquisitions of Wooga in November 2018, Supertreat in January 2019 and Seriously in July

2019, contributing an aggregate $240.5 million of incremental revenues compared to the year ended December 31, 2018, combined with improved monetization and increased revenues from new content and product features across our broader portfolio of games when compared to 2018.

The combination of the acquisitions and improvements to monetization, new content and product features drove an increase in both DAUs and DPUs.

The increase in revenues generated from internal proprietary platforms as a percentage of total revenues resulted from the expansion of our proprietary platforms to include one additional game during 2018, combined with increased marketing activities in the existing games offered through these platforms.

The increase in revenues generated from Direct-to-Consumer platforms as a percentage of total revenues resulted from marketing activities for the games offered through these platforms.

Cost of revenue

Cost of revenue for the year ended December 31, 2020 increased by $145.9 million when compared with the year ended December 31, 2019.

The increase in cost of revenue was primarily due to $64.8 million in incremental platform fees incurred by us related to the acquisitions of Wooga, Supertreat and Seriously, combined with increased platform fees associated with the increase in revenues.

The increase in revenues generated from internal proprietary platforms as a percentage of total revenues resulted in a favorable impact on total platform fees, although this favorable impact was more than offset by incremental expense associated with the amortization of intangible assets recorded as part of the acquisitions.

The increase in revenues generated from Direct-to-Consumer platforms as a percentage of total revenues resulted in a favorable impact on total platform fees, although this favorable impact was more than offset by increased amortization expense for intangible assets resulted from recent acquisitions.

Research and development expenses

Research and development expenses for the year ended December 31, 2020 increased by $58.4 million when compared with the year ended December 31, 2019.

The increase in research and development expenses was primarily due to $34.3 million in incremental expenses incurred by us related to the acquisitions of Wooga, Supertreat and Seriously, as well as increased headcount to support existing operations, including an increase of $12.7 million in costs related to outsourced labor, offset by capitalization of research and development expenses related to platform development.

Sales and marketing expenses

Sales and marketing expenses for the year ended December 31, 2020 increased by $88.3 million when compared with the year ended December 31, 2019.

The increase in sales and marketing expenses was primarily due to approximately $104.1 million in incremental expenses incurred by us related to the acquisitions of Wooga, Supertreat and Seriously, as well as increased marketing expenses related to media buy expenses.

General and administrative expenses

General and administrative expenses for the year ended December 31, 2020 increased by $301.5 million when compared with the year ended December 31, 2019.

The increase in general and administrative expenses was primarily due to $16.6 million in incremental expenses incurred by us related to the acquisitions of Wooga, Supertreat and Seriously, as well as $57.1 million in expense associated with adjusting contingent consideration to fair value and acquisition and related expenses, compared to an aggregate of $28.0 million in the prior period.

This increase was partially offset by lower expense associated with the Company’s long-term cash incentive plan when compared to 2018.

This increase was partially offset by a $4.0 million lower expense associated with adjusting contingent consideration to fair value and lower recruiting expense in 2020 when compared to 2019.

Other Factors Affecting Net Income

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Interest expense

Interest expense in 2020 is related to amount borrowed under the December 2019 Credit Facilities, as defined below.

Interest expense in 2019 is primarily related to funds borrowed in August 2019 under the Bridge Facility, also as defined below, and amounts borrowed under the December 2019 Credit Facilities.

Interest expense in both 2021 and 2020 is primarily related to amounts borrowed under the December 2019 Credit Facilities.

Interest expense in 2019 is primarily related to funds borrowed in August 2019 under the Bridge Facility, and amounts borrowed under the December 2019 Credit Facilities.

Prior to the August 2019 Bridge Facility transaction, interest expense was not material to the Company.

On March 11, 2021, the Company amended the Credit Agreement which, among other things, effected a refinancing of the Old Term Loan with a new $1.9 billion senior secured first lien term loan borrowed under the Credit Agreement.

Also on March 11, 2021, the Company issued $600.0 million aggregate principal amount of its 4.250% senior notes due 2029 under an indenture, dated March 11, 2021.

The combination of these two March 2021 transactions significantly reduced or average interest rates on our outstanding indebtedness, driving the decrease in interest expense in 2021 when compared with 2020.

Taxes on income

The provision for income tax was $ 99.9 million for the year ended December 31, 2021 and the effective income tax rate was 24.5 %.

The tax rate is affected by recurring items such as tax rates in foreign jurisdictions and the relative amounts of income earned in those jurisdictions, which are expected to be fairly consistent in the near term, and certain tax positions taken in various jurisdictions that do not meet a more likely than not standard.

The tax rate is affected by recurring items such as tax rates in foreign jurisdictions and the relative amounts of income earned in those jurisdictions and unrecognized tax benefits.

It is also affected by items that are not consistent from year to year.

Of these items, the primary difference related to significant non-deductible stock-based compensation expense for certain restricted stock units granted during the year ended December 31, 2020.

While stock-based compensation expense will be generated each year, the significant non-deductible amount recorded during the year ended December 31, 2020 is not expected to recur.

Of these items, the primary difference related to the reversal of deferred tax liabilities due to the change in reinvestment assertion related to undistributed earnings of certain of our non-U.S.

subsidiaries during the year.

The provision for income tax was $ 102.3 million for the year ended December 31, 2020 and the effective income tax rate was 52.6 %.

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statutory tax rate was primarily due to recurring items such as tax rates in foreign jurisdictions and the relative amounts of income earned in those jurisdictions.

In addition, the effective tax rate for the year ended December 31, 2019 was affected by the tax effects of the change in reinvestment assertion related to undistributed earnings of certain of our non-U.S.

subsidiaries during the year.

In addition, the effective tax rate for the year ended December 31, 2020 was affected by significant non-deductible stock-based compensation expense for certain restricted stock units granted during the year ended December 31, 2020.

The provision for income tax was $ 147.4 million for the year ended December 31, 2019, and the effective income tax rate was 33.8 %.

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statutory tax rate was primarily due to recurring items such as tax rates in foreign jurisdictions and the relative amounts of income earned in those jurisdictions.

In addition, the effective tax rate for the year ended December 31,2019 was affected by the tax effects of recording a deferred tax liability due to the change in reinvestment assertion related to undistributed earnings of certain of our non-U.S.

subsidiaries during the year.

Prior to the second quarter of 2019, the Company considered the earnings in all its non-U.S.

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Such deferred taxes were recognized as tax expense.

The change in assertion relates both retroactively to historical earnings, as well as prospectively to future earnings, in some of the Company’s non-U.S.

subsidiaries.

As a result of the changes to the Credit Agreement, primarily a reduction in the interest rate, in addition to other considerations, the Company has reevaluated its assertion and now considers the earnings of all its non-U.S.

subsidiaries to be indefinitely reinvested.

For the year ended December 31, 2021, the Company reversed the previously accrued deferred tax liability and recognized $46.2 million of tax benefit.

Reconciliation of Adjusted EBITDA to net income

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Below is a reconciliation of Adjusted EBITDA to net income, the closest GAAP financial measure.

We define Adjusted EBITDA as net income before (i) interest expense, (ii) interest income, (iii) provision for income taxes, (iv) depreciation and amortization expense, (v) stock-based compensation, (vi) legal settlements, (vii) contingent consideration, (viii) acquisition and related expenses, (ix) long-term compensation plan, (x) M&A related retention payments, and (xi) certain other items, including impairments.

We define Adjusted EBITDA as net income before (i) interest expense, (ii) interest income, (iii) provision for income taxes, (iv) depreciation and amortization expense, (v) stock-based compensation, (vi) legal settlements, (vii) contingent consideration, (viii) acquisition and related expenses, (ix) expenses under our long-term compensation plan, (x) M&A related retention payments, and (xi) certain other items.

We calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by revenues.

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EBITDA 707.7 506.4 570.4

Share-based compensation (1)

Legal settlement (2)

Acquisition and related expenses (3)

Stock-based compensation (1)

100.4 276.0 —

One-time items, including impairment (4)

Acquisition and related expenses (2)

36.7 31.4 57.1

Legal settlement (3)

Long-term cash compensation (4)

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21.3 15.1 18.4

Other items (6)

3.9 7.5 (6.5)

Adjusted EBITDA $ 982.7 $ 941.6 $ 712.1

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Adjusted EBITDA margin 38.0 % 39.7 % 37.7 %

(1) Reflects, for the year ended December 31, 2020, stock-based compensation expense related to the issuance of certain equity awards to members of management.

(1) Reflects, for the years ended December 31, 2021 and 2020, stock-based compensation expense related to the issuance of equity awards to certain of our employees.

(2) Amounts for the year ended December 31, 2021 primarily relate to bonus expenses paid as a result of the successful initial public offering of the Company’s stock in January 2021 and the adjustment to contingent consideration payable recorded after the acquisition date.

Amounts for the years ended December 31, 2020 and 2020 include (i) contingent consideration payments with respect to our acquisitions of Seriously and Supertreat in 2019, and (ii) third-party fees for actual or planned acquisitions, including related legal, consulting and other expenditures.

(3) Reflects a legal settlement expense of $37.6 million for the year ended December 31, 2020.

See Note 12 of our audited financial statements included in this document for additional information.

(3) Includes (i) contingent consideration payments with respect to our acquisitions of Seriously and Supertreat in 2019, and (ii) third-party fees for actual or planned acquisitions, including related legal, consulting and other expenditures.

(4) Primarily reflects business optimization expenses during the year December 31, 2020, income from an early termination of a license agreement during the year ended December 31, 2019, and impairment charges on specific game assets recorded during the years ended December 31, 2018.

(4) Includes expenses recognized for grants of annual cash awards to employees pursuant to our Retention Plans, which awards are incremental to salary and bonus payments, and which plans expire in 2024.

For more information, see Note 14 of our audited financial statements included in this document.

(6) Includes retention awards to key individuals associated with acquired companies as an incentive to retain those individuals on a long-term basis.

For more information, see Note 14 of our audited financial statements included in this document.

For more information, see Note 15, Appreciation and Retention Plans, of our audited financial statements included in this document.

(5) Includes retention awards to key individuals associated with acquired companies as an incentive to retain those individuals on a long-term basis for the years ended December 31, 2021 and 2020.

For more information, see Note 15, Appreciation and Retention Plans , of our audited financial statements included in this document.

For the year December 31, 2019, includes income from an early termination of a license agreement.

(6) Includes business optimization expenses during the years ended December 31, 2021 and 2020 and income from an early termination of a license agreement during the year ended December 31, 2019.

Liquidity and Capital Resources

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Capital needs are evaluated on an individual investment basis and may require significant capital commitments.

Our primary sources of liquidity are the cash flows generated from our operations, currently available unrestricted cash and cash equivalents, and borrowings under our credit facility and revolver.

Our cash and cash equivalents totaled $520.1 million and $266.8 million at December 31, 2020 and December 31, 2019, respectively.

Our primary contractual obligations are our debt obligations.

Our primary sources of liquidity are the cash flows generated from our operations, currently available unrestricted cash and cash equivalents, short-term bank deposits, and borrowings under our Credit Facility and Revolver.

Our cash and cash equivalents and short-term bank deposits totaled $1,117.1 million and $520.1 million at December 31, 2021 and

December 31, 2020, respectively.

As of December 31, 2021 and 2020, we had $600 million and $350 million in additional borrowing capacity pursuant to our Revolving Credit Facility, respectively.

Payments of short-term debt obligations and other commitments are expected to be made from cash on the balance sheet and operating cash flows.

Long-term obligations are expected to be paid through operating cash flows, borrowings under our December 2019 Revolving Credit facility or, if necessary, additional term loans or issuances of equity.

In February 2021, the Company began exploring potential alternatives to refinance its Term Loan, although the Company does not have any agreements or commitments for such refinancing at this time.

Long-term obligations are expected to be paid through operating cash flows, or, if necessary, borrowings under our Revolving Credit facility or, if necessary, additional term loans or issuances of equity.

Our restricted cash totaled $2.0 million and $3.5 million at December 31, 2021 and December 31, 2020, respectively.

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Our ability to fund our operations, pay our debt obligations and fund planned capital expenditures depends, in part, upon economic and other factors that are beyond our control, and disruptions in capital markets could impact our ability to secure additional funds through financing activities.

We believe that our cash and cash equivalents balance and our cash flows from operations will be sufficient to meet our normal operating requirements during the next 12 months and the foreseeable future and to fund capital expenditures.

In addition, at December 31, 2020, we had capacity under our revolving credit facility to borrow $350 million.

In January 2021, we increased the borrowing capacity of the Revolving Credit Facility from $350 million to $550 million.

We believe that our cash and cash equivalents balance, short-term bank deposits, restricted cash, borrowing capacity under our Revolving Credit Facility and our cash flows from operations will be sufficient to meet our normal operating requirements during the next 12 months and the foreseeable future and to fund capital expenditures.

The following tables present a summary of our cash flows for the periods indicated (in millions):

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Net cash flows used in investing activities (609.4) (98.1) (516.5)

Net cash flows used in financing activities (181.3) (6.6) (337.4)

Net cash flows provided by (used in) financing activities 559.7 (181.3) (6.6)

Effect of foreign exchange rate changes on cash and cash equivalents (6.6) 13.3 (2.4)

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Net cash flows provided by operating activities for the year ended December 31, 2021 increased $34.0 million when compared with the year ended December 31, 2020.

Net cash flows provided by operating activities for the year ended December 31, 2019 increased $39.1 million when compared with the year ended December 31, 2018 and for the year ended December 31, 2018 increased $83.8 million compared with the year ended December 31, 2017.

Net cash flows provided by operating activities for the year ended December 31, 2020 increased $25.8 million when compared with the year ended December 31, 2019.

Net cash flow provided by operating activities for each period primarily consisted of net income generated during the period, exclusive of non-cash expenses such as depreciation, amortization and stock-based compensation, with changes in working capital impacted by normal timing differences.

Investing activities

Net cash flows used in investing activities for the year ended December 31, 2020 decreased $418.4 million when compared to the year ended December 31, 2019 mainly due to $422.7 million of consideration paid for the acquisition of Supertreat and Seriously in 2019.

Net cash flows used in investing activities for the year ended December 31, 2019 increased $374.6 million when compared to the year ended December 31, 2018, due to $422.7 million of consideration paid for the acquisition of Supertreat and Seriously and $92.4 million related to the purchase and capitalization of assets during the year ended December 31, 2019.

Net cash flows used in investing activities for the year ended December 31, 2018 included $179.2 million of consideration paid for the acquisition of Wooga and $57.0 million related to the purchase and capitalization of assets.

Net cash flows used in investing activities for the year ended December 31, 2021 increased $511.3 million when compared to the year ended December 31, 2020 mainly due to $394.1 million of consideration paid (net of cash acquired) for the 2021 acquisition of Reworks.

Net cash flows used in investing activities for the year ended December 31, 2020 decreased $418.4 million when compared to the year ended December 31, 2019, due to $422.7 million of consideration paid for the acquisition of Supertreat and Seriously in 2019.

Financing activities

Net cash flows used in financing activities for the year ended December 31, 2021 increased $741.0 million when compared to the year ended December 31, 2020.

Net cash flows used in financing activities for the year ended December 31, 2020 included $250.0 million in borrowings on our Revolving Credit Facility, and $283.3 million in repayments on our Revolving Credit Facility Term Loan pursuant to the Credit Agreement.

Net cash flows used in financing activities for the year ended December 31, 2019 included borrowings on our Bridge Facility of $2.6 billion offset by a distribution to our stockholder of $2.4 billion and $89.6 million in repayments on our short-term bank credit.

Net cash flows used in financing activities for the year ended December 31, 2019 decreased $330.8 million when compared with the year ended December 31, 2018.

Financing activities for the year ended December 31, 2019, included a dividend distribution to our stockholder of $2.4 billion, proceeds of $2.6 billion from our Bridge Facility and $2.5 billion from our Term Loan, and repayment of our Bridge Facility of $2.6 billion.

Financing activities for the year ended December 31, 2018, included a distribution to our stockholder of $400.0 million.

Financing activity cash flows for the year ended December 31, 2021 primarily relate to the Company’s initial public offering of its equity in January 2021, and the refinancing of its Old Term Loan (as defined below) in March 2021.

Financing activity cash flows for the year ended December 31, 2020 primarily relate to repayments on the Company’s bank borrowings.

Financing activities for the year ended December 31, 2019, included a dividend distribution to our stockholder, proceeds from our Bridge Facility and our Term Loan, and repayment of our Bridge Facility.

Capital resources

On August 20, 2019, we entered into the $2,583 million Bridge Facility.

On December 10, 2019, we entered into the Credit Agreement, as amended, which included $2,750 million in Credit Facilities, consisting of a $250 million Revolving Credit Facility, and a $2,500 million Term Loan, which was used to repay all borrowings under the Bridge Facility.

On June 15, 2020, we received $100 million of incremental revolving commitments in order to increase the capacity of the Revolving Credit Facility to $350 million.

In January 2021, we increased the borrowing capacity of the Revolving Credit Facility from $350 million to $550 million.

Credit Agreement

The Term Loan matures on December 10, 2024 and the Revolving Credit Facility matures on September 10, 2024 and includes a letter of credit sub-facility.

The Term Loan requires scheduled quarterly principal payments in amounts equal to 1.25% of the original aggregate principal amount of the Term Loan, with the balance due at maturity.

The Credit Agreement allows us to request one or more incremental term loan facilities, incremental revolving credit facilities and/or increases to the Term Loan or the Revolving Credit Facility in an aggregate amount of up to the sum of (w) $100 million plus (x) the amount of certain voluntary prepayments plus (y) such additional amount so long as, (i) in the case of incremental credit facilities that rank pari passu with the liens on the collateral securing the Credit Facilities, our senior secured net leverage ratio on a pro forma basis would not exceed 2.75 to 1.00, (ii) in the case of incremental credit facilities that rank junior to the liens on the collateral securing the Credit Agreement, our total secured net leverage ratio on a pro forma basis would not exceed 2.75 to 1.00 and (iii) in the case of incremental credit facilities that are unsecured, our total net leverage ratio on a pro forma basis would not exceed 2.75 to 1.00 plus (z) $200 million of incremental revolving commitments from and after the occurrence of a qualified initial public offering, in each case, subject to certain conditions and receipt of commitments by existing or additional financial institutions or institutional lenders.

All future borrowings under the Credit Agreement are subject to the satisfaction of customary conditions, including the absence of a default and the accuracy of representations and warranties, subject to certain exceptions.

Interest and fees

Borrowings under the Credit Agreement bear interest at a rate equal to, at our option, either (a) LIBOR determined by reference to the cost of funds for Eurodollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs, subject to a floor of (i) in the case of the Term Loan, 1.0% and (ii) in the case of the Revolving Credit Facility, 0.0% or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50%, (ii) the prime rate as determined by the administrative agent and (iii) the one-month adjusted LIBOR rate plus 1.00%, in each case plus an applicable margin.

Such applicable margin shall be (a) with respect to the Term Loan, 6.00% per annum in the case of any LIBOR loan or 5.00% per annum in the case of any base rate loan and (b) in the case of the Revolving Credit Facility, 3.25% per annum in the case of any LIBOR loan and 2.25% per annum in the case of any base rate loan, subject in the case of the Revolving Credit Facility to two 0.25% step-downs based on our senior secured net leverage ratio.

In addition, on a quarterly basis, we are required to pay each lender under the Revolving Credit Facility a commitment fee in respect of any unused commitments under the Revolving Credit Facility in the amount of 0.50% of the principal amount of the daily unused commitments of such lender, subject to step-downs to 0.375% and 0.25% based upon our senior secured net leverage ratio.

We are also required to pay customary agency fees as well as letter of credit participation fees on outstanding letters of credit.

The Credit Agreement permits voluntary prepayments and requires mandatory prepayments in certain events including among others, certain net cash proceeds from non-ordinary asset sale transactions (subject to reinvestment rights, except in the case of certain material intellectual property and material games), 100% of net proceeds of any issuance of debt (except for debt permitted to be incurred by the Credit Agreement), and 75% (subject to three 25% step-downs based on our senior secured net leverage ratio) of our excess cash flow to the extent such amount exceeds $10 million.

Based upon our financial

results for the year ending December 31, 2020, we expect to offer to purchase approximately $105.1 million of our outstanding debt pursuant to the excess cash flow provisions.

Some or all of these offers may be refused by the holders of the debt.

To the extent the offers are accepted by the holders of the debt, we will use these funds to prepay our debt at its face value.

Collateral and guarantors

The borrowings under the Credit Agreement are guaranteed by certain of our material, wholly-owned restricted subsidiaries that are incorporated under the laws of the United States, England and Wales and the State of Israel (subject to exceptions), and are secured by a pledge of substantially all of our existing and future property and assets and the guarantors (subject to exceptions), including a pledge of the capital stock of the domestic subsidiaries held by us and the domestic guarantors and 65% (or 100% in the case of certain of the guarantors) of the capital stock of the first-tier foreign subsidiaries held by us and the domestic guarantors, in each case subject to exceptions.

The Credit Agreement requires that we and the guarantors (a) generate at least 80.0% of the EBITDA (as defined in the Credit Agreement) of our and our restricted subsidiaries for the four fiscal quarters most recently ended prior to the end of each fiscal quarter and (b) own all “Material Intellectual Property” (defined as (i) any intellectual property rights consisting of registered trademarks or copyrights subsisting in the name or logo of any game that generates more than 5% of our and our restricted subsidiaries’ EBITDA for the then most recently ended four fiscal quarters and (ii) any intellectual property rights consisting of registered trademarks or copyrights subsisting in the names or logos of certain material games) on the last day of the four fiscal quarters most recently ended prior to the end of each fiscal quarter.

If we and the guarantors do not satisfy such requirement, then we must cause sufficient additional subsidiaries (which, subject to certain limitations, may include guarantors located in jurisdictions other than the United States, England and Wales and the State of Israel) to become guarantors in order to satisfy such requirement.

As of December 31, 2020, we were in compliance with these requirements.

Restrictive covenants

The Revolving Credit Facility includes a maximum first-priority senior secured net leverage ratio financial maintenance covenant of 6.25 to 1.00, which is applicable on the last day of any of our fiscal quarters on which the aggregate outstanding amount of the Revolving Credit Facility and letters of credit issued under the Revolving Credit Facility (excluding certain undrawn or cash collateralized letters of credit) exceeds 30% of the aggregate amount of the commitments under the Revolving Credit Facility.

At December 31, 2020, our first-priority senior secured net leverage ratio was 2.09 to 1.00.

In addition, the Credit Agreement includes negative covenants, subject to certain exceptions, restricting or limiting our ability and the ability of our restricted subsidiaries to, among other things:

(i) make non-ordinary course dispositions of assets;

(ii) make certain mergers and acquisitions;

(iii) complete dividends and stock repurchases and optional redemptions (and optional prepayments) of junior lien debt, unsecured debt and subordinated debt;

(iv) incur indebtedness;

(v) make certain loans and investments;

(vi) incur liens and certain fixed charges;

(vii) transact with affiliates;

(viii) change our or our restricted subsidiaries’ business;

(ix) enter into sale/leaseback transactions;

(x) allow limitations on negative pledges and the ability of restricted subsidiaries to pay dividends or make distributions;

(xi) change the fiscal year and (xii) modify junior lien debt, unsecured debt and subordinated debt documents.

Under the Credit Agreement, we may be required to meet specified leverage ratios in order to take certain actions, such as incurring certain debt or liens or making certain investments.

For additional information regarding our indebtedness, see Note 9, Debt to the accompanying consolidated financial statements.

On December 10, 2019, we entered into $2,750 million of senior secured credit facilities (the “Credit Facilities”), consisting of a $250 million revolving credit facility (the “Revolving Credit Facility”), and a $2,500 million first lien term loan (the “Old Term Loan”).

The Credit Facilities were provided pursuant to the Credit Agreement, dated as of December 10, 2019, by and among Playtika, the lenders party thereto, and Credit Suisse, AG, Cayman Islands Branch, as administrative agent (in such capacity, the "Administrative Agent") and collateral agent (in such capacity, the "Collateral Agent").

Proceeds borrowed under the Credit Facilities on the closing date were used to pay off the outstanding balance on our prior debt facility.

On June 15, 2020, we increased the capacity of the Revolving Credit Facility to $350 million.

On January 15, 2021, we increased the borrowing capacity of the Revolving Credit Facility from $350 million to $550 million.

On March 11, 2021, the Credit Agreement was amended pursuant to an Incremental Assumption Agreement No.

3 and Second Amendment to Credit Agreement (the “Second Amendment”).

The Second Amendment, among other things, effected a refinancing of Old Term Loan with a new $1.9 billion senior secured first lien term loan borrowed under the Credit Agreement (the “New Term Loan”), increased the Revolving Credit Facility to $600 million and extended the maturity of the Revolving Credit Facility to March 11, 2026.

The New Term Loan matures on March 11, 2028 and requires scheduled quarterly principal payments in amounts equal to 0.25% of the original aggregate principal amount of the New Term Loan, with the balance due at maturity.

Also on March 11, 2021, we issued $600.0 million aggregate principal amount of our 4.250% senior notes due 2029 (the “Notes”).

The Notes mature on March 15, 2029.

Interest on the Notes will accrue at a rate of 4.250% per annum.

Interest on the Notes is payable semi-annually in cash in arrears on March 15 and September 15 of each year, commencing on September 15, 2021.

Significant terms of the Credit Facilities, the New Term Loan and the Notes, including balances outstanding, interest and fees, mandatory and voluntary prepayment requirements, collateral and guarantors and restrictive covenants are detailed in Note 9, Debt , to the accompanying consolidated financial statements.

Critical accounting policies and estimates

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When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets.

Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from customer relationships, acquired technology and acquired trademarks from a market participant perspective, useful lives and discount rates.

Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired technology and acquired trademarks and user base from a market participant perspective, useful lives and discount rates.

Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

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With respect to new games or updates to existing games, the preliminary project stage remains ongoing until just prior to worldwide launch.

The development costs are expensed as incurred to research and development in the consolidated statement of comprehensive income.

The development costs related to new games or updates to existing games are expensed as incurred to research and development in the consolidated statements of comprehensive income.

The purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition.

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For the purposes of impairment testing, we have determined that we have one reporting unit.

When performing the annual goodwill impairment testing, we either conducts a qualitative assessment to determine whether it is more likely than not that the asset is impaired, or we elect to bypass this qualitative assessment and perform a quantitative test for impairment.

When performing the annual goodwill impairment testing, we either conduct a qualitative assessment to determine whether it is more likely than not that the asset is impaired, or we elect to bypass this qualitative assessment and perform a quantitative test for impairment.

Under the qualitative assessment, we consider both positive and negative factors, including macroeconomic conditions, industry events, financial performance and other changes, and makes a determination of whether it is more likely than not that the fair value of goodwill is less than its carrying amount.

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Our performance obligation is to display the virtual items within the game over the estimated life of the paying player or until the virtual item is consumed in game play based upon the nature of the virtual item.

We categorize our virtual items as either consumable or durable, and the substantial majority of our games sell only consumable virtual items.

We categorize our virtual items as either consumable or durable.

The substantial majority of our games sell only consumable virtual items.

Consumable virtual items represent items that can be consumed by a specific player action and do not provide the player any continuing benefit following consumption.

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This review, performed on a game-by-game basis, includes an analysis of game players’ historical play behavior, purchase behavior, and the amount of virtual currency outstanding.

Based upon this

analysis, we have estimated the rate at which virtual currency is consumed during game play within each game.

Based upon this analysis, we have estimated the rate at which virtual currency is consumed during game play within each game.

Accordingly, revenues are recognized using a user-based revenue model using these estimated consumption rates.

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Common stock valuation

The valuation of our equity considers a number of objective and subjective factors that we believe market participants would consider, including (a) our business, financial condition, and results of operations, including related industry trends affecting our operations;

Prior to our initial public offering of equity in January 2021, we, with the assistance of third-party valuation experts, used a combination of the income approach (the discounted cash flow method) and the market approach (a combination of the guideline public company method and the guideline transaction method) to estimate our equity value in connection with our stock-based compensation program discussed below.

The income approach involves applying an appropriate risk-adjusted discount rate to projected cash flows based on forecasted revenue and costs.

The guideline public company method estimates the value of a company by applying market multiples of publicly traded companies in the same or similar lines of business to the results and projected results of the company being valued.

The guideline transaction method estimates the value of a company by applying valuation multiples paid in actual transactions for comparable public and private companies.

The valuation of the our equity considers a number of objective and subjective factors that we believe market participants would consider, including (a) the our business, financial condition, and results of operations, including related industry trends affecting our operations;

(b) our forecasted operating performance and projected future cash flows;

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and (f) market conditions affecting our industry.

We used the income approach (discounted cash flow method) and the market approach (guideline public company method and guideline transaction method) to estimate our equity value.

The income approach involves applying an appropriate risk-adjusted discount rate to projected cash flows based on forecasted revenues and costs.

The guideline transaction method estimates the value of a company by applying valuation multiples paid in actual transaction for comparable public and private companies.

In applying the market and income approaches to determine a value of the common stock, a discount was applied to reach the final valuation of the common stock based on the fact that, given we are a private company, there are impediments to liquidity, including lack of publicly available information and the lack of a trading market.

We prepared, as of the valuation date, financial forecasts used in the computation of the estimated fair value of our equity for both the market and income approaches.

The financial forecasts were based on assumed revenue growth rates and operating

margin levels that considered our past experience and future expectations.

The risks associated with achieving these forecasts were assessed in selecting the appropriate cost of capital rates.

The values derived under the market and income approaches were then used to determine an initial estimated fair market value of our equity.

There is inherent uncertainty in our forecasts and projections, and if we had made different assumptions and estimates than those described previously, the amount of our equity valuation and stock-based compensation expense could have been materially different.

As of the valuation date, financial forecasts were prepared and used in the computation of the estimated fair value of our equity using both the market and income approaches.

The financial forecasts were based on assumed revenue growth rates and operating margin levels that considered past experience and future expectations.

The assumed risks associated with achieving these forecasts were assessed in selecting the appropriate cost of capital rates.

The values derived under the market and income approaches were used to determine an initial estimated fair market value of our equity.

The initial estimated value was then subjected to a discount for the lack of marketability based on the impediments to liquidity as a result of our previous status as a private company, including the lack of publicly available information and the lack of a trading market.

Subsequent to our initial public offering of equity in January 2021, we use the public trading price of our common stock on the Nasdaq stock exchange as the basis for determining the fair market value for our common stock for purposes of our stock-based compensation expense.

There is inherent uncertainty in our forecasts and projections, and if different assumptions and estimates had been made than those described previously, the amount of the equity valuation and stock-based compensation expense could have been materially different.

Options granted on June 26, 2020 had an exercise price equal to the estimated fair value of our common stock as determined by our valuation as of June 26, 2020.

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We have a stock-based compensation program, which provides for equity awards including stock options and time-based RSUs.

Share-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period for the award.

Stock-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period for the award.

We record forfeitures as a reduction of stock-based compensation expense as those forfeitures occur.

We used the Black-Scholes option pricing model to estimate the fair value and compensation cost associated with employee incentive stock options.

As we do not have a history of market prices for our common stock because the stock was not historically publicly traded, we used observable data for a group of peer companies that grant options with substantially similar terms to assist in developing our volatility assumption.

As we do not have a sufficient history of market prices for our common stock because the stock was not publicly traded prior to January 2021, we used observable data for a group of peer companies that grant options with substantially similar terms to assist in developing our pre-IPO volatility assumption.

The expected volatility of the stock was determined using weighted average measures of the implied volatility and the historical volatility for our peer group of companies for a period equal to the expected life of the option.

The expected term assumption was derived based on an average between each vesting date and the expiration date of an option.

The expected term assumption was derived using the simplified method, which is based on an average between the vesting date and the expiration date of an option.

This method was chosen because there was no historical option exercise experience due to us being privately held.

The weighted-average risk-free interest rate was based on the interest rate for U.S.

Treasury bonds.

We do not anticipate paying cash dividends on our shares of common stock on a go-forward basis.

We do not anticipate paying cash dividends on our shares of common stock in the future.

The stock options have a contractual term of 10 years.

Except as provided in an option agreement between us and the employee, if an employee is terminated (voluntarily or involuntarily), any unvested awards as of the date of termination will be forfeited.

If factors change and we employ different assumptions, stock-based compensation cost on future awards may differ significantly from what we have recorded in the past.

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If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate any remaining unearned stock-based compensation cost or incur incremental cost.

Our stock-based compensation expense is recorded in general and administrative expenses in the consolidated statements of comprehensive income.

See Note 10, Stockholders’ Deficit, Equity Transactions and Stock Incentive Plan to the accompanying consolidated financial statements, for additional discussion.

Our stock-based compensation expense is recorded in the financial statement line items relevant to each of the award recipients.

See Note 10, Equity Transactions and Stock Incentive Plan, in the accompanying audited consolidated financial statements for the three years ended December 31, 2021 for additional discussion.

Derivative Instruments

We use interest rate swap contracts to reduce our exposure to fluctuating interest rates associated with our variable rate debt, and to effectively increase the portion of debt upon which we pay a fixed interest rate.

Our interest rate swap agreements are designated as cash flow hedges under ASC 815.

These hedges are highly effective in offsetting changes in our future expected cash flows due to the fluctuation on the one-month LIBOR rate associated with our variable rate debt.

Interest rate swap is designated as a cash flow hedge involving the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreement, without the exchange of the underlying notional amount.

We monitor the effectiveness of our hedges on a quarterly basis, both qualitatively and quantitatively.

We performed a regression analysis at inception of the hedging relationship and at period end in which we compared the change in the fair value of the swap transaction and the change in fair value of a hypothetical interest rate swap having terms that identically match the terms of the debt's interest rate payments based on 30 observations that are based on historical swap rates.

Based on the regression results, we believe that, at inception and at period end, the hedging instrument is expected to be highly effective at offsetting changes in the hedged transactions attributable to the risk being hedged.

For each future reporting period, we will continue performing retrospective and prospective assessments of hedge effectiveness in a single regression analysis by updating the regression analysis that was prepared at inception of the hedging relationship.

We use foreign currency derivative contracts to reduce our exposure to fluctuating exchange rates between the United States dollar (as our functional currency) and certain revenue or expense lines denominated in Israeli Shekels (“ILS”), Polish Zloty (“PLN”) and Romanian Leu (“RON”).

Our derivative contracts are designated as cash flow hedges under ASC 815.

We expect these hedges to remain highly effective at offsetting fluctuations in exchange rates through their respective maturity dates.

The fair value of derivative financial instruments is recognized as an asset or liability at each balance sheet date, with changes in fair value recorded in other comprehensive income on the consolidated statements of comprehensive income until the future underlying transactions occur.

The fair value approximates the amount we would pay if these contracts were settled at the respective valuation dates.

The inputs used to measure the fair value of our interest rate swap agreements are categorized as Level 2 in the fair value hierarchy as established by ASC 820.

The inputs used to measure the fair value of our derivative contracts are categorized as Level 2 in the fair value hierarchy as established by ASC 820.

We record income taxes under the asset and liability method of accounting for income taxes pursuant to ASC 740, Income Taxes .

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Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically based on the more likely than not realization threshold.

This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the

duration of statutory carryforward periods, our experience with operating loss and tax credit carryforwards expiring unused and tax planning alternatives.

This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, our experience with operating loss and tax credit carryforwards expiring unused and tax planning alternatives.

We implement a two-step approach to recognize and measure uncertain tax positions.

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Recently Issued Accounting Pronouncements

See Note 1 to our audited consolidated financial statements included elsewhere in this filing for a description of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this filing.

See Note 1, Organization and Summary of Significant Accounting Policies, to our audited consolidated financial statements included elsewhere in this filing for a description of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this filing.

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