FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Redbox's transformation into a multi-faceted entertainment company creates multiple areas for future growth. The Company's expansion into AVOD and our intended eventual expansion into SVOD channels allows Redbox to participate in a very large and rapidly growing market. The Company believes it can create long-term value through its focus on:

Impact of COVID-19 and Emerging Industry Trends

Omicron, including additional delays of productions and movie releases by studios, further drove periods of no new releases and resulted in studios exploring and pursuing alternative release strategies for their films, including straight to streaming services, day-and-date releases, and PVOD releases.

Business Update, Going Concern and Strategic Alternatives

For a further discussion on the Sixth Amendment, refer to Note 6: Debt in Redbox's Notes to Condensed Consolidated Financial Statements included elsewhere in this Form 10-Q.

Selected Financial Data and Key Metrics

Components of Results of Operations

Stock-based compensation expense represents compensation costs in connection with the Redbox Equity Plan and the Redwood Holdco Management Incentive Plan.

Results of Operations for the Three Months Ended March 31, 2022 and 2021

(1) Refer to "Use of Non-GAAP Measures" below for discussion of this measure and

Three months ended March 31, 2022 compared to the three months ended March 31, 2021

Product Cost. Product Cost was $27.3 million, a decrease of $1.0 million or 3.4%, compared to $28.3 million for the same period in 2021 due to variable cost savings, partially offset by increased costs for ad-supported (AVOD) content.

Gross Margin. Gross margin was $35.9 million, a decrease of $12.5 million or 25.9%, compared to gross margin of $48.5 million for the three months ended March 31, 2021 due primarily to lower net revenue as discussed above.

Adjusted EBITDA is calculated as follows:

(a) Business optimization costs include employee retention costs, IT costs as

well as consulting costs for certain projects.

Includes costs related to project costs and initiatives, as well as bank,

legal and other fees in connection with the Company's debt financing (b) activities. During the three months ended March 31, 2022, the Company

incurred $3.1 million in one-time legal and advisory expenses as the Company

(c) Includes costs to support the Company's On Demand and AVOD offerings, along

with costs related to the Company's service and media network businesses.

(d) Restructuring related costs include such items as employee severance charges

and costs incurred related to removing kiosks.

may have on the Company's business, its ability to achieve its operational and strategic goals or its ability to finance its business or refinance its indebtedness.

The Company has taken and continues to take actions to reduce expenses and manage working capital to preserve cash on-hand. These actions include, but are not limited to:

? managing labor hours spent on field and servicing operations based upon

? extending payment terms with vendors;

? delaying hiring for non-critical roles;

? delaying timing on annual pay increases;

? reducing long-term incentive compensation; and

? a first lien term loan B facility (the "Term Loan B"), in an original aggregate

? a first lien term loan B-1 facility (the "Term Loan B-1"), in an original

aggregate principal amount of $85.8 million;

? a first lien term loan B-2 facility (the "Term Loan B-2"), in an original

aggregate principal amount of $25.0 million;

a first lien revolving credit facility, in an aggregate principal amount of up

? to $30.0 million (provided, that the commitments under such revolving facility

were terminated in connection with the Sixth Amendment and such amounts, if

repaid, may not be reborrowed); and

? a first lien incremental revolving credit facility, in an aggregate principal

amount of up to $50.0 million.

On September 30, 2020, RAR entered into the second amendment to its Credit Agreement (the "Second Amendment") to, among other things, to increase the total net leverage covenant during the remaining term of the Credit Agreement and revise the quarterly amortization payment schedule.

? a first lien term loan B facility, in an original aggregate principal amount of

? a first lien term loan B-1 facility, in an original aggregate principal amount

? a first lien revolving credit facility, in an aggregate principal amount of up

As of March 31, 2022 and December 31, 2021, the borrowing interest rate for the Senior Facilities was 9.25%, respectively.

Required minimum principal amortization payments under the Senior Facilities as of March 31, 2022, are as follows:

In addition, the Senior Facilities require RAR to prepay outstanding term loan borrowings, subject to certain exceptions, with:

a certain percentage set forth in the Credit Agreement governing the Senior

? Facilities of RAR's annual excess cash flow, as defined under the Senior

a certain percentage of the net cash proceeds of certain non-ordinary course

? asset sales, other dispositions of property or certain casualty events, in each

case subject to certain exceptions and reinvestment rights; and

? the net cash proceeds of any issuance or incurrence of debt, other than

proceeds from debt permitted under the Senior Facilities.

In addition to paying interest on outstanding principal under the Union Revolving Credit Facility, Redbox Entertainment, LLC is required to pay a commitment fee at a rate equal to 0.50% per annum to the lenders in respect of the unutilized commitments thereunder.

All obligations under the Union Revolving Credit Facility are guaranteed by all direct and indirect wholly owned subsidiaries of the Company's Redbox Entertainment, LLC entity.

Total change in cash, cash equivalents and restricted cash $ (4,820) $ 8,215

Net cash used in operating activities during the three months ended March 31, 2022 was $14.8 million compared to net cash used in operating activities of $14.1 million for the three months ended March 31, 2021. The $0.7 million decrease in operating cash flows was primarily driven by the following:

? $13.7 million decrease in net income;

? $20.1 million increase in net cash inflows from changes in working capital

primarily due to an increase in trade payables; and

$7.1 million decrease in net non-cash income and expense included in net income

? primarily reflecting the non-cash pretax gain on the change in fair value on

(1) See Note 6: Debt in Redbox's Notes to Condensed Consolidated Financial

Statements included elsewhere in this Form 10-Q.

(2) See Note 13: Commitments and Contingencies in Redbox's Notes to Condensed

obligated to pay to return the space a kiosk occupies to its original (3) condition upon removal of a kiosk and are presented as occurring in 2025 and

beyond as the timing of kiosk removals cannot be reasonably determined. The

Balance represents primarily firm commitments for service parts for kiosk (4) maintenance/repairs/upgrades, and expenditures related to information

Income tax liabilities for uncertain tax positions were excluded as the (5) Company is not able to make a reasonably reliable estimate of the amount and

period of related future payments. As of December 31, 2021, the Company had

$2.2 million of gross unrecognized tax benefits for uncertain tax positions.

Critical Accounting Policies and Estimates

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) to simplify the accounting for income taxes. This guidance removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The guidance also clarifies and simplifies other areas of ASC 740. The adoption of ASU 2019-12 did not have a material impact on the Company's consolidated financial statements and related disclosures.

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