PLAYSTUDIOS, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

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The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of our condensed
consolidated results of operations and financial condition. The discussion
should be read in conjunction with the unaudited condensed consolidated
financial statements and notes thereto contained in this Quarterly Report on
Form 10-Q. This discussion contains forward-looking statements and involves
numerous risks and uncertainties, including, but not limited to, those described
in the "Risk Factors" section of this Quarterly Report on Form 10-Q. Actual
results may differ materially from those contained in any forward-looking
statements. Unless the context otherwise requires, references to "we", "us",
"our", and "the Company" are intended to mean the business and operations of
PLAYSTUDIOS, Inc. and its consolidated subsidiaries.

Our actual results and the timing of certain events may differ significantly
from the results discussed in the forward-looking statements. Factors that might
cause such a discrepancy include, but are not limited to, those discussed in the
"Risk Factors" set forth in Part II, Item 1A of this Quarterly Report on Form
10-Q. All forward-looking statements in this report are based on information
available to us as of the date hereof, and we assume no obligation to update any
such forward-looking statements to reflect future events or circumstances,
except as required by law.

Insight

We are a developer and publisher of free-to-play casual games for mobile and
social platforms each of which incorporate our unique playAWARDS loyalty
program. Over our eleven-year history, we developed a portfolio of free-to-play
social casino games that are considered to be among the most innovative and
unique in the genre. They include the award-winning POP! Slots, myVEGAS Slots,
my KONAMI Slots, myVEGAS Blackjack, myVEGAS Bingo and MGM Slots Live. Our games
are based on original content, real-world slot game content, as well as
third-party licensed brands and are downloadable and playable for free on
multiple social and mobile-based platforms, including the Apple App Store,
Google Play Store, Amazon Appstore, and Facebook.

Each of our games is powered by our proprietary playAWARDS program and
incorporates loyalty points that are earned by players as they engage with our
games. These loyalty points enable our players to earn real-world rewards from a
portfolio of entertainment, retail, technology, travel, leisure, and gaming
brands across the globe. The rewards are provided by our collection of awards
partners, all of whom provide their rewards at no cost to us, in exchange for
product integration, marketing support, and participation in our loyalty
program. The program is enabled by our playAWARDS platform which consists of a
robust suite of tools that enable our awards partners to manage their rewards in
real time, measure the value of our players' engagement, and gain insight into
the effectiveness and value they derive from the program. Through our
self-service platform, awards partners can launch new rewards, make changes to
existing offers, and in real time see how players are engaging with their
brands. The platform tools also provide awards partners the ability to measure
the off-line value our players generate as consumers and patrons of their
real-world establishments.

PLAYSTUDIOS' playAWARDS platform embodies all of the features, tools, and
capabilities needed to deliver loyalty programs tailored for the games industry.
Our consumer-facing brand for our loyalty program is myVIP. The myVIP program is
an aspirational benefits framework, with in-game mechanics and rewards features,
along with a player development and hosting program. The program dynamically
ranks and assigns players to tiers based on their accumulation of tier points,
which are a proxy for their overall engagement with our games. The tier points
are separate from and are not interchangeable with the loyalty points earned in
the playAWARDS program. Qualified players are provided access to enhanced
benefits that increase with each tier. Higher tiers provide access to a VIP
player portal whereby players can view and purchase special chip bundles, redeem
loyalty points for a curated set of rewards, and communicate directly with a
dedicated personal host. The VIP player portal, concierge, and host programs
enhance the in-game and real-world reward experience with both in-game and
in-person, invitation-only special events. We believe that the myVIP program
drives increased player engagement and retention, and therefore extends each
game's life-cycle and revenue potential.

We primarily generate our revenue from the sale of virtual currency, which
players can choose to purchase at any time to enhance their playing experience.
Once purchased, our virtual currency cannot be withdrawn from the game,
transferred from one game to another or from one player to another, or be
redeemed for monetary value. Players who install our games receive free virtual
currency upon the initial launch of the game, and they may also collect virtual
currency free of charge at periodic intervals or through targeted marketing
promotions. Players may exhaust the free virtual currency and may choose to
purchase additional virtual currency. Additionally, players can send free
"gifts" of virtual currency to their friends on Facebook. Our revenue from
virtual currency has been generated world-wide, but is largely concentrated in
North America.
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We also generate revenue from in-game advertising. Advertisements can be in the
form of an impression, click-throughs, banner ads, or offers, where players are
rewarded with virtual currency or loyalty points for watching a short video.

Impact of COVID-19

The ongoing COVID-19 pandemic and variants thereof and resulting social
distancing, shelter-in-place, quarantine, and similar governmental orders put in
place around the world have caused widespread disruption in global economies,
productivity, and financial markets and have materially altered the way in which
we conduct our day-to-day business. We have followed guidance by the U.S.,
Israel, Hong Kong, 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. We cannot predict the potential impacts of the
COVID-19 pandemic and variants thereof or the distribution of vaccines on our
business or operations, but we will continue to actively monitor the related
issues and may take further actions that alter our business operations,
including as may be required by federal, state, local, or foreign authorities or
that we determine are in the best interests of our employees, players, partners,
and stockholders.

In addition to the potential direct impacts to our business, the global economy
has been, and is likely to continue to be, significantly weakened as a result of
the actions taken in response to the COVID-19 pandemic and variants thereof, and
future government intervention remains uncertain. A weakened global economy may
impact our players and their purchasing decisions within our games, in
particular as a result of the limitations associated with redeeming real-world
rewards due to government-mandated or other restrictions on travel and other
activities and limitations on our players' discretionary spending, consumer
activity during the pandemic and its impact on advertising investments, and the
ability of our business partners, including our awards partners, to navigate
this complex social, health, and economic environment, any of which could result
in disruption to our business and results of our operations.

The duration and extent of the impact from the COVID-19 pandemic and variants
thereof depends on future developments that cannot be accurately predicted at
this time, such as the severity and transmission rate of the virus, the
existence of any additional waves of the COVID-19 pandemic and variants thereof,
the extent and effectiveness of containment actions, progress towards widespread
rapid testing, effective treatment alternatives, and the success and timing of
vaccination efforts, and the impact of these and other factors on our employees,
players, and business partners. We have recently observed labor shortages,
increasing competition for talent, and increasing employee attrition. If we are
not able to respond to and manage the impact of such events effectively, our
business may be harmed.

See “Risk Factors” for more information on the COVID-19 pandemic.

Key factors affecting our performance

A number of factors affect the performance of our business and the comparability of our results from period to period, including:

•Third-Party Platform Agreements-We derive a substantial portion of our revenue
from in-game purchases of virtual currency that are processed by platform
providers such as the Apple App Store, Google Play Store, Amazon Appstore, and
on Facebook. The platform providers charge us a transaction fee to process
payments from our players for their purchase of in-game virtual currency. These
platform fees are generally set at 30% of the in-game purchase. Each platform
provider has broad discretion to set its platform fees and to change and
interpret its terms of service and other policies with respect to us and other
developers in its sole discretion, and those changes may be unfavorable to us.

•Player Acquisition-Establishing and maintaining a loyal network of players and
paying players is vital for our success. As such, we spend a significant amount
on advertising and other forms of player acquisition, such as traditional
marketing and advertising, email and push notifications, and cross promoting
between our games in order to grow our player base. These expenditures are
generally related to new content launches, game enhancements, and ongoing
programs to drive new player acquisition and the reactivation of lapsed player
engagement. Our player acquisition strategy is centered on a payback period
methodology, and we strive to optimize spend between the acquisition of new
players and the reactivation of inactive players.

•Player Monetization-Our revenue has been primarily driven through the sale of
virtual currency. Paying players purchase virtual currency in our games because
of the perceived value, which is dependent on the relative ease of obtaining
equivalent virtual currency by simply playing our game. The perceived value of
our virtual currency can be impacted by various actions that we take in our
games including offering discounts for virtual currency or giving away virtual
currency in promotions. Managing game economies is difficult and relies on our
assumptions and judgment. If we fail to manage our virtual economies properly or
fail to promptly and successfully respond to any such disruption, our
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our reputation may suffer and our players may be less likely to play our games and purchase virtual currency from us in the future, which could adversely affect our business, financial condition and results of operations.

•Investment in Game Development-In order to maintain interest from existing
players and add new players and achieve our desired revenue growth, we must
continually improve the content, offers, and features in our existing games, as
well as develop and release new games. As a result, we invest a significant
amount of our technological and creative resources to ensure that we support an
appropriate cadence of innovative content that our players will find appealing.
These expenditures generally occur in advance of the release of new content or
the launch of a new game, and the resulting revenue may not exceed the
development costs, or the game or feature may be abandoned in its entirety.

•Investment in our playAWARDS and myVIP programs-In order to drive player
engagement and retention we invest a significant amount of resources to enhance
the playAWARDS and myVIP programs. We continually evaluate these programs
through an iterative feedback process with our players and awards partners and
update them so that both our players and awards partners are able to optimize
their personalized experience. As a result, we continuously incur expenses to
enhance and update these programs. However, the results may not generate revenue
and the enhancements may require additional significant modifications or be
abandoned in their entirely.

•Real-World Rewards-We currently offer real-world rewards relating to, among
other things, dining, live entertainment shows, and hotel rooms, and we plan to
continue to expand and diversify our rewards loyalty program in order to
maintain and enhance the perceived value offering to our players. Our players'
willingness to make in-game purchases is directly impacted by our ability to
provide desirable rewards. The real-world rewards we offer to our players are
provided at no cost to us by our awards partners, and there is no obligation for
us to pay or otherwise compensate either our awards partners or players for any
player redemptions under our awards partner agreements.

Key Performance Indicators and Non-GAAP Measures

We manage our business by regularly reviewing several key operating metrics to
track historical performance, identify trends in player activity, and set
strategic goals for the future. Our key performance metrics are impacted by
several factors that could cause them to fluctuate on a quarterly basis, such as
platform providers' policies, seasonality, player connectivity, and the addition
of new content to games. We believe these measures are useful to investors for
the same reasons. In addition, we also present certain non-GAAP performance
measures. These performance measures are presented as supplemental disclosure
and should not be considered superior to or as a substitute for the consolidated
financial statements prepared under US GAAP. The non-GAAP measures presented in
this Quarterly Report on Form 10-Q should be read together with the unaudited
condensed consolidated financial statements and the respective related notes
thereto included elsewhere in this Quarterly Report on Form 10-Q. The key
performance indicators and non-GAAP measures presented in this Quarterly Report
on Form 10-Q may differ from similarly titled measures presented by other
companies and are not a substitute for financial statements prepared in
accordance with US GAAP.

Key Performance Indicators

Daily Active Users ("DAU")

DAU is defined as the number of individuals who played a game on a particular
day. We track DAU by the player ID, which is assigned for each game installed by
an individual. As such, an individual who plays two different games on the same
day is counted as two DAU while an individual who plays the same game on two
different devices is counted as one DAU. Average DAU is calculated as the
average of the DAU for each day during the period presented. We use DAU as a
measure of audience engagement to help us understand the size of the active
player base engaged with our games on a daily basis.

Monthly Active Users (“MAUs”)

MAU is defined as the number of individuals who played a game in a particular
month. As with DAU, an individual who plays two different games in the same
month is counted as two MAU while an individual who plays the same game on two
different devices is counted as one MAU. Average MAU is calculated as the
average of MAU for each calendar month during the period presented. We use MAU
as a measure of audience engagement to help us understand the size of the active
player base engaged with our games on a monthly basis.
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Daily Paying Users (“DPU”)

DPU is defined as the number of individuals who made a purchase in a mobile game
during a particular day. As with DAU and MAU, we track DPU based on account
activity. As such, an individual who makes a purchase on two different games in
a particular day is counted as two DPU while an individual who makes purchases
in the same game on two different devices is counted as one DPU. Average DPU is
calculated as the average of the DPU for each day during the period presented.
We use DPU to understand the size of our active player base that makes in-game
purchases. This focus directs our strategic goals in setting player acquisition
and pricing strategy.

Daily Payer Conversion

Daily Payer Conversion is defined as DPU as a percentage of DAU on a particular
day. Average Daily Payer Conversion is calculated as the average DPU divided by
average DAU for a given period. We use Daily Payer Conversion to understand the
monetization of our active players.

Average daily income per DAU (“ARPDAU”)

ARPDAU is defined for a given period as the average daily revenue per average
DAU, and is calculated as game and advertising revenue for the period, divided
by the number of days in the period, divided by the average DAU during the
period. We use ARPDAU as a measure of overall monetization of our players.

Non-GAAP Measures

Adjusted EBITDA (“AEBITDA”) and AEBITDA margin

Adjusted EBITDA, or AEBITDA, as used herein, is a non-GAAP financial performance
measure that is presented as a supplemental disclosure and is reconciled to net
income (loss) as the most directly comparable GAAP measure. We define AEBITDA as
net income (loss) before interest, income taxes, depreciation and amortization,
restructuring and related costs (consisting primarily of severance and other
restructuring related costs), stock-based compensation expense, changes in fair
value of warrant liabilities and other income and expense items (including
special infrequent items, foreign currency gains and losses, and other non-cash
items). We also use AEBITDA Margin, another non-GAAP measure, which we calculate
as the percentage of AEBITDA to revenue.

We use AEBITDA and AEBITDA Margin to monitor and evaluate the performance of our
business operations, facilitate internal comparisons of our operating
performance, and to analyze and evaluate decisions regarding future budgets and
initiatives. We believe that both measures are useful because they provide
investors with information regarding our operating performance that is used by
our management in its reporting and planning processes. AEBITDA and AEBITDA
Margin as calculated herein may not be comparable to similarly titled measures
and disclosures reported by other companies.
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The following table sets forth the reconciliation of AEBITDA and AEBITDA Margin
to net income (loss) and net income (loss) margin, the most directly comparable
GAAP measure (in thousands, except percentages).

                                         Three Months Ended September 30,              Nine Months Ended September 30,
                                             2022                  2021                    2022                   2021
Net income (loss)                     $        3,629           $   11,236          $        (16,080)          $   10,119
Depreciation & amortization                    8,583                7,213                    25,265               20,145
Income tax expense                            (1,763)                (329)                   (6,186)              (4,819)
Stock-based compensation expense               3,554                  833                    13,563                3,680
Change in fair value of warrant
liability                                     (4,676)             (11,876)                   (1,139)             (11,986)
Special infrequent(1)                              -                    -                         -                7,500
Restructuring and related(2)                     796                2,303                    10,969                2,379
Other                                           (367)                 267                      (213)                 546
AEBITDA                                        9,757                9,647                    26,179               27,564

GAAP Revenue                                  72,127               70,571                   210,931              215,490

Margin as a % of revenue
Net income (loss) margin                         5.0   %             15.9  %                   (7.6)  %              4.7  %
AEBITDA margin                                  13.5   %             13.7  %                   12.4   %             12.8  %



(1) Amounts published during the nine months ended September 30, 2021 consist of a transaction bonus and a charitable contribution under the terms of the merger agreement related to the Acies Merger.

(2)Amounts reported during the three and nine months ended September 30, 2021
consist of severance-related costs and fees related to evaluating various merger
and acquisition opportunities. Amounts reported during the three months ended
September 30, 2022 consist of fees related to potential mergers and
acquisitions. Amounts reported during the nine months ended September 30, 2022
consist of (i) non-cash impairment charge related to the suspension of Kingdom
Boss development, (ii) fees related to evaluating various merger and acquisition
opportunities, and (iii) fees related to the Tender Offer for the Warrants.

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