scpl-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-38889

SCIPLAY CORPORATION

(Exact name of registrant as specified in its charter)


Nevada						83-2692460
(State or other jurisdiction of						(I.R.S. Employer Identification No.)
incorporation or organization)

6601 Bermuda Road, Las Vegas, Nevada 89119

(Address of principal executive offices)

(Zip Code)

(702) 897-7150

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $.001 par value	SCPL	The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant has the following number of shares outstanding of each of the registrant’s classes of common stock as of August 4, 2023:

Class A Common Stock: 21,218,896

Class B Common Stock: 103,547,021

SCIPLAY CORPORATION

INDEX TO FINANCIAL INFORMATION

AND OTHER INFORMATION

THREE AND SIX MONTHS ENDED JUNE 30, 2023


		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)	6

	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2023 and 2022	6

	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2023 and 2022	7

	Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022	8

	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022	9

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022	10

	Notes to Condensed Consolidated Financial Statements	11

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4.	Controls and Procedures	28

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3.	Defaults Upon Senior Securities	30

Item 4.	Mine Safety Disclosures	30

Item 5.	Other Information	30

Item 6.	Exhibits	31

FORWARD-LOOKING STATEMENTS

Throughout this Quarterly Report on Form 10-Q, we make “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results or strategies and can often be identified by the use of terminology such as “may,” “will,” “estimate,” “intend,” “plan,” “continue,” “believe,” “expect,” “anticipate,” “target,” “should,” “could,” “potential,” “opportunity,” “goal,” or similar terminology. The forward-looking statements contained in this Quarterly Report on Form 10-Q are generally located in the material set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” but may be found in other locations as well. These statements are based upon management’s current expectations, assumptions and estimates and are not guarantees of timing, future results or performance. Therefore, you should not rely on any of these forward-looking statements as predictions of future events. Actual results may differ materially from those contemplated in these statements due to a variety of risks and uncertainties and other factors, including, among other things:

•our ability to attract and retain players;

•expectations of growth in total consumer spending on social gaming, including social casino gaming;

•our reliance on third-party platforms and our ability to track data on those platforms;

•our ability to continue to launch and enhance games that attract and retain a significant number of paying players;

•our ability to expand in international markets;

•our reliance on a small percentage of our players for nearly all of our revenue;

•our ability to adapt to, and offer games that keep pace with, changing technology and evolving industry standards;

•competition;

•our dependence on the optional purchases of coins, chips and bingo cards (collectively referred to as “coins, chips and cards”) to supplement the availability of periodically offered free coins, chips and cards;

•our ability to access additional financing and restrictions and covenants in debt agreements, including those that could result in acceleration of the maturity of our indebtedness;

•the discontinuation or replacement of the London Interbank Offer Rate, which may adversely affect interest rates;

•fluctuations in our results due to seasonality and other factors;

•dependence on skilled employees with creative and technical backgrounds;

•U.S. and international economic and industry conditions, including increases in benchmark interest rates and the effects of inflation;

•public perception of our response to environmental, social and governance issues;

•changes in, or the elimination of, our share repurchase program;

•our ability to use the intellectual property rights of Light & Wonder, Inc. (“Light & Wonder”, “L&W” and “Parent”) and other third parties, including the third-party intellectual property rights licensed to Light & Wonder, under our intellectual property license agreement (“IP License Agreement”) with our Parent;

•protection of our proprietary information and intellectual property, inability to license third-party intellectual property and the intellectual property rights of others;

•security and integrity of our games and systems;

•security breaches, cyber-attacks or other privacy or data security incidents, challenges or disruptions;

•reliance on or failures in information technology and other systems;

•loss of revenue due to unauthorized methods of playing our games;

•the possibility that the conditions to the completion of the Merger (as defined below) may not be satisfied on the anticipated schedule or at all;

•the possibility that the Merger may not be consummated or that Light & Wonder and SciPlay may be unable to achieve expected operational, strategic and financial benefits of the Merger;

•the possibility of any event, change or other circumstances that could give rise to the termination of the Merger Agreement (as defined below);

•the outcome of any legal proceedings that may be instituted following announcement of the Merger;

•failure to retain key management and employees of SciPlay;

•unfavorable reaction to the Merger by customers, competitors, suppliers and employees; and

•unpredictability and severity of catastrophic events, including but not limited to acts of terrorism, war or hostilities or the COVID-19 pandemic, as well as management’s response to any of the aforementioned factors;

•the impact of legal and regulatory restrictions on our business, including significant opposition in some jurisdictions to interactive social gaming, including social casino gaming, and how such opposition could lead these jurisdictions to adopt legislation or impose a regulatory framework to govern interactive social gaming or social casino gaming specifically, and how this could result in a prohibition on interactive social gaming or social casino gaming altogether, restrict our ability to advertise our games, or substantially increase our costs to comply with these regulations;

•laws and government regulations, both foreign and domestic, including those relating to our Parent and to data privacy and security, including with respect to the collection, storage, use, transmission, sharing and protection of personal information and other consumer data, and those laws and regulations that affect companies conducting business on the internet, including ours;

•the continuing evolution of the scope of data privacy and security regulations, and our belief that the adoption of increasingly restrictive regulations in this area is likely within the U.S. and other jurisdictions;

•risks related to foreign operations, including the complexity of foreign laws, regulations and markets; the uncertainty of enforcement of remedies in foreign jurisdictions; the effect of currency exchange rate fluctuations; the impact of foreign labor laws and disputes; the ability to attract and retain key personnel in foreign jurisdictions; the economic, tax and regulatory policies of local governments; and compliance with applicable anti-money laundering, anti-bribery and anti-corruption laws;

•influence of certain stockholders, including decisions that may conflict with the interests of other stockholders;

•our ability to achieve some or all of the anticipated benefits of being a standalone public company;

•our dependence on distributions from SciPlay Parent Company, LLC (“SciPlay Parent LLC”) to pay our taxes and expenses, including substantial payments we will be required to make under the Tax Receivable Agreement (the “TRA”);

•failure to establish and maintain adequate internal control over financial reporting;

•stock price volatility;

•litigation and other liabilities relating to our business, including litigation and liabilities relating to consumer protection, gambling-related matters, employee matters, alleged service and system malfunctions, alleged intellectual property infringement and claims relating to our contracts, licenses and strategic investments;

•our ability to complete acquisitions and integrate businesses successfully;

•our ability to pursue and execute new business initiatives;

•our expectations of future growth that will place significant demands on our management and operations;

•natural events and health crises that disrupt our operations or those of our providers or suppliers;

•changes in tax laws or tax rulings, or the examination of our tax positions;

•levels of insurance coverage against claims; and

•our dependence on certain key providers.

Additional information regarding risks and uncertainties and other factors that could cause actual results to differ materially from those contemplated in forward-looking statements is included from time to time in our filings with the SEC, including the Company’s current reports on Form 8-K, quarterly reports on Form 10-Q and annual reports on Form 10-K, including the latest annual report filed with the SEC on March 1, 2023 (“2022 Form 10-K”) (including under the headings “Forward Looking Statements” and “Risk Factors”). Forward-looking statements speak only as of the date they are made and, except for our ongoing obligations under the U.S. federal securities laws, we undertake no and expressly disclaim any

obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.

This Quarterly Report on Form 10-Q may contain references to industry market data and certain industry forecasts. Industry market data and industry forecasts are obtained from publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of that information is not guaranteed. Although we believe industry information to be accurate, it is not independently verified by us and we do not make any representation as to the accuracy of that information. In general, we believe there is less publicly available information concerning international social gaming industries than the same industries in the U.S. Some data is also based on our good faith estimates, which are derived from our review of internal surveys or data, as well as the independent sources referenced above. Assumptions and estimates of our and our industry's future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A “Risk Factors” in our 2022 Form 10-K. These and other factors could cause future performance to differ materially from our assumptions and estimates.

Due to rounding, certain numbers presented herein may not precisely recalculate.

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited)

SCIPLAY CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, in millions, except per share amounts)



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Revenue	$	189.9	$	160.1	$	376.3	$	318.1
Operating expenses:
Cost of revenue(1)	58.2		47.9		115.9		96.1
Sales and marketing(1)	42.9		46.6		89.8		86.6
General and administrative(1)	24.1		14.7		46.2		31.4
Research and development(1)	12.5		11.3		25.2		22.8
Depreciation, amortization and impairments	11.2		5.5		17.1		10.2
Restructuring and other	1.8		1.1		3.2		3.3
Operating income	39.2		33.0		78.9		67.7
Other income (expense), net	3.8		—		9.8		(0.5)
Net income before income taxes	43.0		33.0		88.7		67.2
Income tax expense	1.6		0.7		5.5		2.9
Net income	41.4		32.3		83.2		64.3
Less: Net income attributable to the noncontrolling interest	35.8		26.6		72.1		54.2
Net income attributable to SciPlay	$	5.6	$	5.7	$	11.1	$	10.1

Basic and diluted net income attributable to SciPlay per share:
Basic	$	0.26	$	0.23	$	0.51	$	0.41
Diluted	$	0.25	$	0.23	$	0.49	$	0.41

Weighted average number of shares of Class A common stock used in per share calculation:
Basic shares	21.4		24.6		21.7		24.6
Diluted shares	22.3		24.8		22.8		24.8
(1) Excludes depreciation, amortization and impairments.

See accompanying notes to condensed consolidated financial statements.

SCIPLAY CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in millions)



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Net income	$	41.4	$	32.3	$	83.2	$	64.3
Other comprehensive loss:
Foreign currency translation loss, net of tax	(0.7)		(4.3)		(2.2)		(5.9)
Total comprehensive income	40.7		28.0		81.0		58.4
Less: Comprehensive income attributable to the noncontrolling interest	35.2		23.1		70.3		49.4
Comprehensive income attributable to SciPlay	$	5.5	$	4.9	$	10.7	$	9.0


















See accompanying notes to condensed consolidated financial statements.

SCIPLAY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in millions, except par value)



	As of
	June 30, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	394.9	$	330.1
Accounts receivable, net	63.7		51.0
Prepaid expenses and other current assets	5.6		8.0
Total current assets	464.2		389.1
Property and equipment, net	4.3		3.0
Operating lease right-of-use assets	3.7		4.8
Goodwill	215.6		217.6
Intangible assets and software, net	72.1		74.8
Deferred income taxes	72.3		74.5
Other assets	1.9		1.9
Total assets	$	834.1	$	765.7
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	19.2	$	18.4
Accrued liabilities	41.0		35.2
Due to affiliate	3.2		3.8
Total current liabilities	63.4		57.4

Operating lease liabilities	1.9		3.1
Liabilities under TRA	60.2		60.2
Other long-term liabilities	25.1		29.4
Total liabilities	150.6		150.1
Commitments and contingencies (see Note 8)
Stockholders’ equity:
Class A common stock, par value $0.001 per share, 625.0 shares authorized, 25.3 and 24.9 shares issued, 21.2 and 22.1 shares outstanding as of June 30, 2023 and December 31, 2022, respectively	—		—
Class B common stock, par value $0.001 per share, 130.0 shares authorized, 103.5 shares issued and outstanding as of June 30, 2023 and December 31, 2022	0.1		0.1
Additional paid-in capital	91.4		72.0
Retained earnings	85.7		74.6
Treasury stock, at cost, 4.1 and 2.7 shares, respectively	(60.2)		(37.1)
Accumulated other comprehensive loss	(0.8)		(0.4)
Total SciPlay stockholders’ equity	116.2		109.2
Noncontrolling interest	567.3		506.4
Total stockholders’ equity	683.5		615.6
Total liabilities and stockholders’ equity	$	834.1	$	765.7

See accompanying notes to condensed consolidated financial statements.

SCIPLAY CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited, in millions)



	Class A common stock			Class B common stock			Additional paid-in capital		Retained earnings		Treasury stock		Accumulated other comprehensive income (loss)		Noncontrolling interest		Total
	Shares	Amount		Shares	Amount
December 31, 2022	22.1	$	—	103.5	$	0.1	$	72.0	$	74.6	$	(37.1)	$	(0.4)	$	506.4	$	615.6
Net income	—	—		—	—		—		5.5		—		—		36.3		41.8
Stock-based compensation	—	—		—	—		1.2		—		—		—		3.0		4.2
Settlement of liability awards	—	—		—	—		0.8		—		—		—		3.6		4.4
Vesting of RSUs, net of tax withholdings and other	0.3	—		—	—		(0.2)		—		—		—		(0.7)		(0.9)
Distributions to Parent and affiliates, net	—	—		—	—		—		—		—		—		(0.1)		(0.1)
Repurchases of stock	(0.5)	—		—	—		6.8		—		(8.2)		—		(6.8)		(8.2)
Economic rebalancing(1)	—	—		—	—		(0.1)		—		—		—		0.1		—
Currency translation	—	—		—	—		—		—		—		(0.3)		(1.2)		(1.5)
March 31, 2023	21.9	$	—	103.5	$	0.1	$	80.5	$	80.1	$	(45.3)	$	(0.7)	$	540.6	$	655.3
Net income	—	—		—	—		—		5.6		—		—		35.8		41.4
Stock-based compensation	—	—		—	—		0.7		—		—		—		2.2		2.9
Vesting of RSUs, net of tax withholdings and other	0.2	—		—	—		—		—		—		—		(0.1)		(0.1)
Distributions to Parent and affiliates, net	—	—		—	—		—		—		—		—		(0.4)		(0.4)
Repurchases of stock	(0.9)	—		—	—		12.3		—		(14.9)		—		(12.3)		(14.9)
Economic rebalancing(1)	—	—		—	—		(2.1)		—		—		—		2.1		—
Currency translation	—	—		—	—		—

SEC Form 10-Q filed by SciPlay Corporation