What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-26 compared with 2023-02-28 · 133 added, 112 removed, 311 unchanged (44% of the section changed)

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Our players love our games because they are fun, creative, engaging, and kept fresh through a release of new features that are customized for different player segments.

War in Israel

On October 7, 2023, the State of Israel was attacked by Hamas, and the State of Israel subsequently declared war on Hamas.

While this war has not had a direct material financial impact on the Company as of the date of this filing, the Company employs approximately 1,100 professionals in Israel.

The Company is actively monitoring the developments in this war.

Key Factors Affecting Our Business

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While our games are free-to-play, we generate substantially all of our revenues from players’ purchases of in-game virtual items.

Our financial performance is dependent, in part, on our ability to convert more active players into paying players and sustainably grow user spend over the long term.

Our financial performance is dependent, in part, on our ability to convert active players into paying players and sustainably grow user spend over the long term.

Our players’ willingness to consistently make in-app purchases is impacted by our ability to deliver engaging content and personalized user experiences.

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• Offering of new games and release of new content, offers, and features .

Our revenue growth has been driven by improving the content, offers, and features in our existing games and the acquisition of new games.

Our key revenue drivers include improving the content, offers, and features in our existing games and the acquisition of new games.

In order to enhance the content, offers, and features in our existing games and to develop or acquire new games, we must invest a significant amount of our technological and creative resources, ensuring that we support an effective cadence of novel content creation that drives conversion and continued monetization.

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We believe that we will be able to continue to grow our user base, including through traditional marketing and advertising, informal marketing campaigns, and cross-promoting between our games, including new games we develop or acquire.

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.

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.

Components of our Results of Operations

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In addition, research and development expenses include depreciation and amortization expenses associated with assets associated with our research and development efforts.

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.

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

Sales and marketing

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In addition, general and administrative expenses include outsourced professional services such as consulting, legal and accounting services, taxes and dues, insurance premiums, and costs associated with maintaining our property and infrastructure.

General and administrative expenses also include depreciation and amortization expenses associated with assets not directly attributable to any of the expense categories above.

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 to support our expected growth initiatives.

General and administrative expenses also include depreciation and amortization expenses associated with assets not directly attributable to any of the

expense categories above.

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

Impairment of intangible assets

Our impairment of intangible assets represents charges recorded for the excess of the carrying amount over estimated fair value of our identifiable intangible assets.

This occurs when it is determined the carrying value of a long-lived asset may not be recoverable based upon a comparison of aggregate undiscounted projected future cash flows to the carrying amount of the asset.

Interest expense and other, net

Our interest expense includes interest incurred under our December 2019 Credit Agreement and amortization of deferred financing costs, both of which are partially offset by interest income earned on the investment of excess cash and cash equivalents.

Our interest expense includes interest incurred under our December 2019 Credit Agreement and amortization of deferred financing costs.

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.

Interest income consists of interest earned on cash, cash equivalents and short-term bank deposits.

We entered into multiple interest rate swap agreements in March 2021 and in January 2023, accumulating to a total notional value of $1.0 billion, reducing our overall exposure to variable interest rates.

Interest income consists of interest earned on cash and cash equivalents.

Foreign currency translation adjustments, net, include gains and losses resulting from remeasurement of certain non-USD denominated balance sheet times.

Provision for income taxes

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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.

We calculate net income as revenue minus cost of revenues, research and development, sales and marketing and general and administrative expenses, interest and taxes.

We calculate net income as revenue minus cost of revenues, research and development, sales and marketing, general and administrative expenses, interest and taxes.

Results of Operations

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.

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General and administrative expenses 303.5 332.4

Impairment of intangible assets 51.3 —

Total costs and expenses $ 2,065.4 $ 2,144.1

Revenues for the year ended December 31, 2022 increased by $32.5 million when compared to 2021.

This year-over-year comparison includes incremental revenues of $34.3 million generated from the Company’s August 2021 acquisition Reworks.

Absent this acquisition, revenues in 2022 declined when compared with 2021 as improved monetization and increased revenues from new content and product features across our broader portfolio of games were unable to offset the incremental revenues recognized in 2021 due to the Covid pandemic.

The combination of unusually high DAUs in early

2021, 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 2022 when compared with 2021.

The same focus on player conversion, combined with improvements to monetization, new content and new product features drove an increase in DPUs in 2022 compared to 2021.

Revenues for the year ended December 31, 2023 decreased by $48.5 million when compared with the year ended December 31, 2022.

Our acquisition of the Youda Games’ card game portfolio and InnPlay Labs contributed to revenues for the year ended December 31, 2023, without which the year-over-year decrease in our revenues would have been greater.

Revenue growth from our casual games were unable to offset the revenue declines coming from our social casino-themed

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, 2022 increased by $6.7 million when compared with the year ended December 31, 2021.

The increase in cost of revenue includes approximately $10.0 million in incremental platform fees associated with the August 2021 acquisition of Reworks.

Absent this acquisition, cost of revenues for 2022 would have declined when compared to 2021, primarily as a result of the increase in revenues generated through our Direct-to-Consumer platforms, partially offset by increased depreciation and amortization expenses.

Cost of revenue for the year ended December 31, 2023 decreased by $17.2 million when compared with the year ended December 31, 2022.

The decrease in cost of revenue includes an approximate $16.8 million decrease in platform fees associated with reduced revenues and a greater percentage of revenue generated from our Direct-to-Consumer platforms, as well as a $3.3 million decrease in depreciation and amortization expenses.

Offsetting the decrease is an increase in server hosting costs due to higher fees and the acquisitions of Youda and InnPlay.

Research and development expenses

Research and development expenses for the year ended December 31, 2022 increased by $85.6 million when compared with the year ended December 31, 2021.

Research and development expenses were adversely impacted by increased headcount and associated payroll costs in our existing research and development operations, including costs incurred in connection with severance payments incurred during the fourth quarter 2022 in connection with our workforce reduction.

In addition, stock-based compensation costs, net of amounts capitalized, included in research and development expenses increased by $15.7 million for the year ended December 31, 2022 when compared with the year ended December 31, 2021.

Research and development expenses for the year ended December 31, 2023 decreased by $65.9 million when compared with the year ended December 31, 2022.

Research and development expenses were primarily impacted by an approximate $58 million decrease in headcount and associated payroll costs in our existing research and development operations, as well as costs incurred in connection with severance and retention payments incurred in 2022 with no corresponding expense in 2023.

In addition, research and development related outsourcing costs decreased from 2022 to 2023 due to a reduction in the number of ongoing projects.

Sales and marketing expenses

Sales and marketing expenses for the year ended December 31, 2022 increased by $22.0 million when compared with the year ended December 31, 2021.

The increase in sales and marketing expenses was primarily related to increased amortization expense, increased media buy expenses, increased stock-based compensation costs, and increased headcount and higher associated payroll costs.

Sales and marketing expenses for the year ended December 31, 2023 decreased by $18.0 million when compared with the year ended December 31, 2022.

The decrease in sales and marketing expenses was primarily related to decreased offline media expenses, depreciation and amortization expense, and decreased headcount and lower associated payroll costs.

General and administrative expenses

General and administrative expenses for the year ended December 31, 2022 increased by $9.0 million when compared with the year ended December 31, 2021.

General and administrative expenses includes stock-based compensation expenses of $69.5 million for the year ended December 31, 2022, compared with $64.4 million for the year ended December 31, 2021.

Included in general and administrative expenses for the year ended December 31, 2021, with no comparable amount for the year ended December 31, 2022, 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.

Adjusting for these items, general and administrative expenses increased by approximately $39.3 million, primarily due to increased compensation costs associated with the long-term incentive plan and costs associated with exploring strategic alternatives, which were partially offset by reduced expense attributable to adjusting contingent consideration to fair value.

General and administrative expenses for the year ended December 31, 2023 decreased by $28.9 million when compared with the year ended December 31, 2022.

Included in general and administrative expenses for the year ended December 31, 2022, with no comparable amounts for the year ended December 31, 2023, are $7.5 million of costs related to the acquisition of Reworks and to certain office closures, and reversals of $14.1 million of contingent consideration expense related to the JustPlay and Reworks acquisitions.

General and administrative expenses for the year December 31, 2023 include a $1.0 million tax assessment paid under protest.

Further, the Company incurred $6.6 million and $24.7 million in costs related to strategic alternatives, for the years ended December 31, 2023 and 2022, respectively.

Adjusting for these items, the remaining decrease of general and administrative expenses of approximately $19.8 million is primarily due to decreased compensation costs and, to a lesser degree, a decrease in costs associated with relocation and support provided to employees due to the war in Ukraine.

Impairment of intangible assets

During the year ended December 31, 2023, the Company recorded an impairment charge of $41.6 million related to the Redecor game title based upon lower than expected performance of that title based upon lower than expected performance of that title.

The Company has recently released certain changes to the game operations and mechanics in an effort to improve the performance of this title.

Given the recent nature of the game updates, it is too early to determine if such changes will have a positive impact on the game.

To the extent these recent changes to the game do not boost the performance of the Redecor title, the remaining balance of the Redecor game title of approximately $41 million may be impaired in future periods.

Also included in the year ended December 31, 2023 is a $9.7 million write-off of JustPlay.LOL Ltd’s game title.

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

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Total costs and expenses $ 2,144.1 $ 2,020.8

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

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.

Revenues for the year ended December 31, 2022 increased by $32.5 million when compared to the year ended December 31, 2021.

This year-over-year comparison includes incremental revenues of $34.3 million generated from the Company’s August 2021 acquisition Reworks.

The combination of unusually high DAUs in early 2021, 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 2022 when compared with 2021.

The same focus on player conversion, combined with improvements to monetization, new content and new product features drove an increase in DPUs in 2022 compared to 2021.

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.

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The increase in cost of revenue includes approximately $10.0 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, 2022 increased by $85.6 million when compared with the year ended December 31, 2021.

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.

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Sales and marketing expenses for the year ended December 31, 2022 increased by $22.0 million when compared with the year ended December 31, 2021.

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, 2021 decreased by $177.8 million when compared with the year ended December 31, 2020.

General and administrative expenses for the year ended December 31, 2022 increased by $9.0 million when compared with the year ended December 31, 2021.

General and administrative expenses includes stock-based compensation expenses of $69.5 million for the year ended December 31, 2022, compared with $64.4 million for the year ended December 31, 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.

Other Factors Affecting Net Income

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Interest expense in 2023, 2022 and 2021 is primarily related to amounts borrowed under the December 2019 Credit Facilities.

The decrease in interest expense in 2022 when compared with 2021 is driven primarily by lower average interest rates.

The increase in interest income in 2022 when compared with 2021 is driven primarily by more active investment of excess cash in income-bearing investments.

The increase in interest expense in 2023 when compared with 2022 is primarily related to higher average interest rates.

The decrease in interest expense in 2022 when compared with 2021 is driven primarily by the refinancing of our Term Loan with a new facility bearing a lower interest rate spread.

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 our average interest rates on our outstanding indebtedness, driving the decrease in interest expense in 2021 when compared with 2020.

The combination of these two March 2021 transactions significantly reduced our average interest rates on our outstanding indebtedness.

Interest income

Interest income in 2022, 2021 and 2020 is primarily related to interest earned on cash, cash equivalents and short term bank deposits, of which there were greater amounts in 2022.

Interest income in 2023, 2022 and 2021 is primarily related to interest earned on cash, cash equivalents and short term bank deposits.

The increase in interest income in 2023 when compared with previous years is driven primarily by higher interest rates and from more active investment of excess cash in income-bearing investments.

Taxes on income

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The difference between the effective income tax rate and the U.S.

statutory tax rate is due to recurring items such as tax rates in foreign jurisdictions and the relative amounts of income earned in those jurisdictions, unrecognized tax benefits, and GILTI inclusion.

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

statutory tax rate is primarily due to adverse impacts of certain recurring items including tax rates in foreign jurisdictions and the relative amounts of income earned in those jurisdictions, unrecognized tax benefits, and GILTI inclusion.

These adverse impacts are partially offset by the favorable impact of the Israeli Preferred Technology Enterprise regime.

The full rate reconciliation is available in Note 21, Income Taxes.

The provision for income tax was $85.5 million for the year ended December 31, 2022 and the effective income tax rate was 23.7%.

The difference between the effective income tax rate and the U.S.

statutory tax rate was primarily due to adverse impacts of certain recurring items such as tax rates in foreign jurisdictions and the relative amounts of income earned in those jurisdictions, unrecognized tax benefits, and GILTI inclusion.

These adverse impacts are partially offset by the recurring favorable impact of the Israeli Preferred Technology Enterprises regime.

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

Of these items, the primary differences related to the reversal of a valuation allowance relating to foreign net operating losses and return-to-provision adjustments.

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The difference between the effective income tax rate and the U.S.

statutory tax rate was due to recurring items such as

tax rates in foreign jurisdictions and the relative amounts of income earned in those jurisdictions, unrecognized tax benefits, and GILTI inclusion.

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

These adverse impacts are partially offset by the recurring favorable impact of the Israeli Preferred Technology Enterprises regime.

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

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%.

The difference between the effective income tax rate and the U.S.

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

Upon aggregating all of the components of our results of operations above, net income for the year ended December 31, 2023 decreased by $40.3 million when compared with 2022.

Net income for the year ended December 31, 2021 increased $216.4 million when compared to 2020.

Net income for the year ended December 31, 2022 decreased by $33.2 million when compared to 2021.

Reconciliation of Credit Adjusted EBITDA to net income

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

Our Credit Agreement defines Adjusted EBITDA (which we call “Credit 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, and (ix) certain other items.

Our Credit Agreement defines Adjusted EBITDA (which we call “Credit Adjusted EBITDA”) as net income before (i) interest expense, (ii) interest income, (iii) provision for income taxes, (iv) depreciation and amortization expense, (v) impairment of intangible assets, (vi) stock-based compensation, (vii) contingent consideration, (viii) acquisition and related expenses, and (ix) certain other items.

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

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110.0 123.5 100.4

Impairment of intangible assets 51.3 — —

Contingent consideration 1.4 (14.3) (6.6)

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6.5 24.7 43.3

Legal settlement (3)

Other items (3)

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Credit Adjusted EBITDA margin 32.4 % 30.8 % 32.9 %

(1) Reflects, for all years, stock-based compensation expense related to the issuance of equity awards to certain of our employees.

(2) Amounts for the year ended December 31, 2022 primarily relate to expenses incurred by the Company in connection with the evaluation of strategic alternatives for the Company.

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.

Amounts for the year ended December 31, 2020 include 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.

(4) Amount for the year ended December 31, 2022 consists of $13.2 million incurred by the Company for severance, $4.1 million incurred by the Company for relocation and support provided to employees due to the war in Ukraine and $16.4 million incurred related to the announced restructuring activities.

Amounts for the years ended December 31, 2021 and 2020 include business optimization expenses.

(1) Reflects, for all years, stock-based compensation expense related to the issuance of equity awards to our employees.

(2) The amounts for the years ended December 31, 2023 and 2022 primarily relate to expenses incurred by the Company in connection with the evaluation of strategic alternatives for the Company.

The amount for the year ended December 31, 2021 primarily relates to bonus expenses paid as a result of the successful initial public offering of the Company’s stock in January 2021.

(3) The amount for the year ended December 31, 2023 consists primarily of $1.8 million incurred by the Company for severance and $1.0 million for tax assessment paid under protest.

The amount for the year ended December 31, 2022 consists of $13.2 million incurred by the Company for severance, $4.1 million incurred by the Company for relocation and support provided to employees due to the war in Ukraine and $16.4 million incurred related to the announced restructuring activities.

The amount for the year ended December 31, 2021 includes business optimization expenses.

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, short-term bank deposits, and borrowings under our Credit Facility and Revolver.

Our cash and cash equivalents and short-term bank deposits totaled $768.7 million and $1,117.1 million at December 31, 2022 and December 31, 2021, respectively.

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

Our cash and cash equivalents totaled $1,029.7 million and $768.7 million at December 31, 2023 and December 31, 2022, respectively.

As of December 31, 2023 and 2022, we had $600 million in additional borrowing capacity pursuant to our Revolving Credit Facility.

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

Payments of short-term debt obligations, dividends to shareholders 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, 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 $1.7 million at December 31, 2023 and December 31, 2022, respectively.

Restricted cash primarily consists of deposits to secure obligations under our operating lease agreements and to secure company-issued credit cards.

Restricted cash primarily consists of deposits to secure obligations under our operating lease agreements and to secure

company-issued credit cards.

The classification of restricted cash as current and long-term is dependent upon the intended use of each particular reserve.

In February 2024, our Board of Directors elected to declare a cash dividend of $0.10 per share of the Company’s outstanding common stock.

We will maintain a focus on financial discipline through a balanced approach of evaluation of M&A opportunities and stockholder dividends while maintaining adequate capital requirements for ongoing operations.

The Board will continue to evaluate the economic environment, our cash needs, optimal uses of cash, and other applicable factors, and may elect to make additional changes to dividends (if any) in future periods.

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, 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.

We believe that our cash and cash equivalents balance, 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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Operating activities

Net cash flows provided by operating activities for the year ended December 31, 2022 decreased $58.0 million when compared with the year ended December 31, 2021.

Net cash flows provided by operating activities for the year ended December 31, 2023 increased $21.9 million when compared with the year ended December 31, 2022.

Net cash flows provided by operating activities for the year ended December 31, 2022 decreased $58.0 million when compared with the year ended December 31, 2021.

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, 2022 decreased $534.8 million when compared to the year ended December 31, 2021 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, 2021 increased $511.3 million when compared to the year ended December 31, 2020, 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, 2023 increased $165.6 million when compared to the year ended December 31, 2022 mainly due to $159.6 million of consideration paid (net of cash acquired) for the 2023 acquisitions of Youda Games and G.S InnPlay Labs Ltd.

Net cash flows used in investing activities for the year ended December 31, 2022 decreased $534.8 million when compared to the year ended December 31, 2021, mainly due to $394.1 million of consideration paid (net of cash acquired) for the 2021 acquisition of Reworks and $100.0 million used for investment in short-term bank deposits in 2021, offset by $100.1 million of proceeds from short-term bank deposits in 2022.

Financing activities

Net cash flows used in financing activities for the year ended December 31, 2022 was $652.0 million when compared to net cash flows provided by financing activities of $559.7 million for the year ended December 31, 2021.

Financing activity cash flows for the year ended December 31, 2022 primarily related to the Company’s Tender Offer in October 2022.

Financing activity cash flows for the year ended December 31, 2021 primarily related 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.

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

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 in March 2021.

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

Net cash flows used in financing activities for the year ended December 31, 2023, was $18.2 million primarily related to repayments on bank borrowings.

Net cash flows used in financing activities of $652.0 million for the year ended December 31, 2022 primarily related to the Company’s Tender Offer in October 2022.

Net cash flows provided by financing activities of $559.7 million for the year ended December 31, 2021, primarily related 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.

Capital resources

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”).

such capacity, the "Administrative Agent") and collateral agent (in such capacity, the "Collateral Agent").

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.

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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.

On June 19, 2023, the Company amended the Credit Agreement pursuant to a Third Amendment to Credit Agreement (the “Third Amendment”).

The Third Amendment amended the Credit Agreement to bear interest or incur fees and other amounts denominated in Dollars to be based on the Adjusted Term Secured Overnight Financing Rate (“SOFR”) plus an applicable spread adjustment, rather than the previously permitted Adjusted Eurocurrency Rate, starting in the third quarter of 2023.

The amendment did not have an impact on the Company’s consolidated financial statements or the effectiveness of the Company’s interest rate swap agreements.

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

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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 12, Debt , to the accompanying consolidated financial statements.

Critical accounting policies and estimates

We prepare our financial statements in conformity with U.S.

Certain accounting policies require that we apply significant judgment in defining the appropriate assumptions for calculating financial estimates.

Certain accounting policies require that we apply significant judgment in determining the appropriate assumptions for calculating financial estimates.

By their nature, these judgments will be subject to an inherent degree of uncertainty.

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We consider accounting estimates to be critical accounting policies when:

• the estimates involve matters that are highly uncertain at the time the accounting estimate is made;

• the estimates involve matters that are highly uncertain at the time the accounting estimates are made;

• different estimates or changes to estimates could have a material impact on the reported financial positions, changes in financial position or results of operations.

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Business combinations

We apply the provisions of ASC 805, Business Combination and allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values.

We apply the provisions of ASC 805, Business Combinations and allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values.

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.

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 acquired technology and acquired trademarks and user base 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, acquired trademarks and the acquired 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.

We also apply the provisions of ASU 2021-08, Business Combinations (Topic 805) (“ASU 2021-08)” which requires that we recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”) and that at the acquisition date, we account for related revenue contracts in accordance with ASC 606 as if we had originated the contracts.

When business combinations include an earnout payment or contingent consideration that embodies an unconditional obligation for us to transfer assets on a specific agreed-upon date, that liability is measured at fair value as of the acquisition date and as of each reporting date until the obligation is resolved.

Significant estimates in valuing such liabilities include, but are not limited to, future financial models and discount rates.

Software development costs

We review internal use software development cost associated with infrastructure and new games or updates to existing games to determine if the costs qualify for capitalizing.

We review internal use software development costs associated with infrastructure and new games or updates to existing games to determine if the costs qualify for capitalizing.

The development costs incurred during the application development stage that are related to infrastructure are capitalized.

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If, after assessing the qualitative factors, we determine it is more likely than not the asset is impaired, we then perform a quantitative test in which the estimated fair value of the reporting unit is compared with its carrying amount, including goodwill.

If, after assessing the qualitative factors, we determine that it is not more likely than not the asset is impaired, goodwill is considered not to be impaired and no additional steps are necessary.

If a quantitative analysis is necessary, we compare the fair value of our reporting unit to our carrying value.

We determine the estimated fair value based on a combination of EBITDA and estimated future cash flows discounted at rates commensurate with the capital structure and cost of capital of comparable market participants, giving appropriate consideration to the prevailing borrowing rates within the industry in general.

EBITDA multiples and discounted cash flows are common measures used to value businesses in our industry.

If the estimated fair value exceeds carrying value, goodwill is considered not to be impaired and no additional steps are necessary.

However, if the carrying amount exceeds estimated fair value, an impairment loss is recognized in an amount equal to the excess, limited to the amount of goodwill allocated to the reporting unit.

The annual evaluation of goodwill requires the use of estimates about future operating results, valuation multiples, and discount rates to determine their fair value.

We determine the estimated fair value based on a combination of market multiples and estimated future cash flows discounted at rates commensurate with the capital structure and cost of capital of comparable market participants, giving appropriate consideration to the prevailing borrowing rates within the industry in general.

Market multiples and discounted cash flows are common measures used to value businesses in our industry.

If the estimated fair value exceeds carrying value, goodwill is considered not to be impaired.

However, if the carrying amount exceeds estimated fair value, an impairment loss is recognized in an amount equal to the excess.

The annual evaluation of goodwill requires the use of estimates about future operating results, valuation multiples, and discount rates to determine its fair value.

Changes in these assumptions can materially affect these estimates.

Thus, to the extent the revenues volumes deteriorate in the near future, discount rates increase significantly, or we do not meet our projected performance, we could have impairments to record in the next twelve months, and such impairments could be material.

Thus, to the extent our profitability deteriorates in the near future, discount rates increase significantly, or we do not meet our projected performance, we could have impairments to record in the next twelve months, and such impairments could be material.

Impairment of long-lived assets

Our long-lived assets to be held or used, including right-of-use (“ROU”) assets, and identifiable intangible assets that are subject to amortization are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, in accordance with ASC 360, Accounting for the Impairment or Disposal of Long-Lived Assets.

Impairment indicators include any significant changes in the manner of the Company’s use of the assets and significant negative industry or economic trends.

We recognize impairment based on the difference between the fair value of the asset and its carrying value.

Fair value is generally measured based on either quoted market prices, if available, or a discounted cash flow analysis.

Upon determination that the carrying value of a long-lived asset may not be recoverable based upon a comparison of aggregate undiscounted projected future cash flows to the carrying amount of the asset, an impairment charge is recorded for the excess of the carrying amount over fair value.

We recognize impairment based on the difference between the estimated fair value of the asset and its carrying value.

Fair value is generally estimated based on either quoted market prices, if available, or a discounted cash flow analysis.

There is inherent uncertainty in our forecasts and projections used in any impairment analysis, and different assumptions and estimates could have lead to different impairment test results, and those results could have been materially different.

The preparation of cash flow projections for use in any impairment indicators test or fair value analysis requires management to make critical estimates, judgments and assumptions with regards to estimated future cash flows, as they are, by their nature, subjective and actual results may differ materially from such estimates.

nature, subjective and actual results may differ materially from such estimates.

Cash flow estimates are unpredictable and inherently uncertain, since they are based on the current regulatory, political and economic climates, recent operating information and projections.

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over time) which is usually up to one month.

We have determined through a review of game play

behavior that players generally do not purchase additional virtual currency until their existing virtual currency balances have been substantially consumed.

We have determined through a review of game play behavior that players generally do not purchase additional virtual currency until their existing virtual currency balances have been substantially consumed.

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.

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Durable virtual items represent items that are accessible to the player over an extended period of time.

We sell durable virtual items primarily through games acquired in recent acquisitions.

We recognize revenues from the sale of durable virtual items ratably over the estimated average life of the paying player, which is estimated on a game-by-game basis and generally ranges from three months up to one year.

We estimate the average life of the paying player based on historical paying player patterns and playing behaviors within each of the specific games that offer durable virtual items.

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

As we do not have a long 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 volatility assumptions.

As we do not have a long history of market prices for our common stock because our 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 volatility assumptions.

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 options.

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

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

The fair value of options granted prior to February 2024 was determined based upon the assumption that we would not pay cash dividends on shares of our common stock.

Option grants subsequent to February 2024 will use an appropriate dividend yield in our calculation of estimated fair value.

The stock options have a contractual term of 10 years.

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We use the associated per-share value at the time of grant to determine the compensation cost to be recognized associated with RSUs and PSUs granted.

We periodically review the estimates of performance against the defined criteria to assess the expected payout of each outstanding PSU grant and adjust the stock compensation expense accordingly.

For PSUs, we periodically review the estimates of performance against the defined criteria to assess the expected payout of each outstanding grant and adjust the stock compensation expense accordingly.

For RSUs, shares are issued on the vesting dates net of the applicable statutory income tax withholding to be paid by us on behalf of our employees.

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

See Note 13, Equity Transactions and Stock Incentive Plan, in the accompanying audited consolidated financial statements for the three years ended December 31, 2022 for additional discussion.

See Note 13, Equity Transactions and Stock Incentive Plan, to the financial statements included elsewhere in this filing for additional discussion.

Derivative instruments

Interest rate swap agreements

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.

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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 it 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 at least 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.

We performed a regression analysis at the 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 historical swap rates.

We believe that the hedging instruments are 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.

Foreign currency hedge agreements

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 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 monitor the effectiveness of our hedges on a quarterly basis, both qualitatively and quantitatively, and expects these hedges to remain highly effective at offsetting fluctuations in exchange rates through their respective maturity dates.

See Note 14, Derivative Instruments, for additional discussion.

We monitor the effectiveness of our hedges on a quarterly basis, both qualitatively and quantitatively, and expect these hedges to remain highly effective at offsetting fluctuations in exchange rates through their respective maturity dates.

See Note 14, Derivative Instruments, to the financial statements included elsewhere in this filing for additional discussion.

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.

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Recently issued accounting pronouncements

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.

See Note 1, Organization and Summary of Significant Accounting Policies, to the 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