Financial Data and Key Metrics Changes - Revenue increased by 12% year-over-year to $93 million [11] - Paying monthly active users rose by 22% year-over-year to 569,000 users [11] - Revenue after engagement marketing grew by 8% year-over-year to $51 million [11] - Adjusted EBITDA improved by $17 million compared to Q4 2021 [11] Business Line Data and Key Metrics Changes - The company focused on improving marketing efficiency, resulting in reduced spending while maintaining revenue after engagement marketing [12] - Product innovations were unveiled, including a private beta of a hot gaming product and a system-wide chat feature to enhance user engagement [13] Market Data and Key Metrics Changes - The U.S. market remains the core focus, with over 95% of paying users based in the U.S. [23] - Approximately 60% of smartphones in the U.S. are Android, presenting a significant opportunity for user growth [23][24] Company Strategy and Development Direction - The company aims to transition to profitable growth, targeting a year-over-year revenue growth rate above 30% and an adjusted EBITDA margin better than negative 30% by the end of 2022 [10] - Continued investment in developers and content diversification is a priority, with partnerships established with UFC and NFL to create branded mobile games [14][43] Management's Comments on Operating Environment and Future Outlook - Management expressed a commitment to building revenue and increasing profitable growth through improved marketing efficiency and enhanced user engagement [15] - The future of interactive entertainment is viewed as a massive and fast-growing opportunity, with plans to pursue profitable growth while investing in exciting technologies [16] Other Important Information - The company is exploring the potential of cloud-based gaming, which could enhance user engagement and lower user acquisition costs [22] - Management is cautious about the impact of marketing spend reductions on paying users and average revenue per user (ARPU), noting that the product remains sticky [29][30] Q&A Session Summary Question: Engagement from users on Android versus iOS during cloud gaming testing - Management indicated that data collection is still in early stages, but they believe cloud gaming can increase lifetime value and lower user acquisition costs [22] Question: Impact of efficient marketing spend on paying users and ARPU - Initial reductions in marketing spend led to a slight decrease in paying monthly active users, but the product's stickiness helped maintain user numbers [29] Question: Timing for launches of new games with UFC and NFL - Developers gain access to IP without upfront payments, fostering innovation and interest in building content [50] - The timeline for NFL game launches is aligned with the kickoff for the next season [52] Question: Stock-based compensation figures for Q2 onward - A significant portion of Q1's stock-based compensation was a one-time expense, suggesting a lower run rate moving forward [54] Question: Efforts to optimize supply paths and improve DSP value - Management noted that buyers are focused on efficiency and return on ad spend, but no significant trend towards narrowing DSPs was observed [62] Question: Future features and partnerships to generate revenue - The company is focused on enhancing social features, competition formats, and reducing friction for developers to bring new games to market [92][94]

[PART I](index=4&type=section&id=PART%20I) [Business Overview](index=4&type=section&id=Item%201.%20Business) Skillz Inc. operates a proprietary platform for competitive mobile gaming, monetizing through prizes and supporting developers - Skillz's platform monetizes user engagement primarily through prizes, creating a compelling alternative for developers and users compared to traditional in-game advertisements or purchases[22](index=22&type=chunk) - The company's SDK includes over 200 features in a less than 16-megabyte package, enabling seamless over-the-air updates and social features like in-game chat, friends, tournaments, and leagues[23](index=23&type=chunk)[25](index=25&type=chunk) - As of December 31, 2021, Skillz had over **10,000 registered game developers** who have launched game integrations on its system[35](index=35&type=chunk) - Skillz enables cash prizes in **41 U.S. states** and the District of Columbia, covering approximately **90% of the U.S. population**, by using proprietary algorithms to ensure games are skill-based and comply with applicable laws[56](index=56&type=chunk) - The company acquired Aarki in 2021, a technology-driven marketing platform, to enhance user acquisition efficiencies[48](index=48&type=chunk) [Overview](index=5&type=section&id=Overview) [Our Platform](index=5&type=section&id=Our%20Platform) [Our Developer Community](index=6&type=section&id=Our%20Developer%20Community) [Our Gamer Community](index=7&type=section&id=Our%20Gamer%20Community) [Gaming for Good](index=7&type=section&id=Gaming%20for%20Good) [Games on Our Platform](index=7&type=section&id=Games%20on%20Our%20Platform) [Our Distribution](index=8&type=section&id=Our%20Distribution) [Our Marketing](index=8&type=section&id=Our%20Marketing) [Our Customer Advocacy](index=9&type=section&id=Our%20Customer%20Advocacy) [Our People](index=9&type=section&id=Our%20People) [Our Competition](index=10&type=section&id=Our%20Competition) [Our Intellectual Property](index=10&type=section&id=Our%20Intellectual%20Property) [Government Regulation and Compliance](index=10&type=section&id=Government%20Regulation%20and%20Compliance) [Corporate Information](index=11&type=section&id=Corporate%20Information) [Available Information](index=11&type=section&id=Available%20Information) [Risk Factors](index=12&type=section&id=Item%201A.%20Risk%20Factors) Skillz Inc. faces risks from growth sustainability, key game reliance, competition, operational vulnerabilities, evolving regulations, and financial challenges - A limited number of games (Solitaire Cube, 21 Blitz, Blackout Bingo) and their developers (Tether, Big Run) accounted for a substantial portion of revenue (**72% in 2021, 81% from Tether and Big Run combined**), posing a risk if these games become less popular or are removed[73](index=73&type=chunk) - The company has a history of net losses, with an accumulated deficit of **$419.7 million** as of December 31, 2021, and may not achieve profitability in the near future[144](index=144&type=chunk) - Skillz relies heavily on Amazon Web Services (AWS) for its technology infrastructure, making it vulnerable to failures or disruptions in AWS services[105](index=105&type=chunk)[106](index=106&type=chunk) - The company's business is subject to evolving U.S. and foreign laws regarding skill-based gaming, consumer protection, and data privacy (e.g., GDPR, CCPA), with potential for increased scrutiny, regulation, and operating costs[99](index=99&type=chunk)[100](index=100&type=chunk)[101](index=101&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk) - As of December 31, 2021, the aggregate indebtedness under senior secured notes was **$300 million**, which could adversely affect financial health and strategic execution[179](index=179&type=chunk) [SUMMARY RISK FACTORS](index=12&type=section&id=SUMMARY%20RISK%20FACTORS) [Risks Related to Our Business and Industry](index=13&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) [Risks Related to Ownership of Our Class A Common Stock](index=33&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Class%20A%20Common%20Stock) [Risks Related to Our Indebtedness](index=35&type=section&id=Risks%20Related%20to%20Our%20Indebtedness) [Unresolved Staff Comments](index=37&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company has no unresolved staff comments from the SEC [Properties](index=37&type=section&id=Item%202.%20Properties) Skillz's principal operations are in San Francisco with a remote workforce, supplemented by leased offices in Portland, Las Vegas, and global sites - Principal business operations are in San Francisco, California, with a primarily remote workforce since 2020 due to COVID-19[186](index=186&type=chunk) - Acquired leases for offices and data centers globally, including in the U.S. and Hong Kong, and a **4,850 sq ft Philippines office**, through the Aarki acquisition in 2021[186](index=186&type=chunk) [Legal Proceedings](index=37&type=section&id=Item%203.%20Legal%20Proceedings) Skillz faces ongoing legal proceedings, including a securities class action and a former employee lawsuit with an **$11.6 million** jury verdict - Securities class action lawsuits (Jedrzejczyk v. Skillz Inc., et al., and Shultz v. Skillz Inc., et al.) were filed in May and June 2021, alleging violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5, and Sections 11, 12(a)(2), and 15 of the Securities Act[188](index=188&type=chunk) - A former employee's lawsuit for breach of contract, retaliation, and wrongful termination resulted in a jury verdict of **$11.6 million in compensatory damages** against the company in September 2021[489](index=489&type=chunk) [Mine Safety Disclosures](index=37&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Skillz Inc [PART II](index=38&type=section&id=PART%20II) [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=38&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Skillz Inc.'s Class A common stock is listed on NYSE, with no public market for Class B, no cash dividends, and details on unregistered equity sales - Class A common stock (SKLZ) listed on NYSE since December 17, 2020; no public market for Class B common stock[192](index=192&type=chunk) - As of February 24, 2022, there were **553 holders of record** for Class A common stock and one for Class B common stock[193](index=193&type=chunk) - The company has not paid and does not intend to pay cash dividends on common stock for the foreseeable future[194](index=194&type=chunk) - In connection with the Aarki acquisition on July 16, 2021, Skillz issued **4.4 million shares** of Class A common stock (valued at approximately **$67.1 million**) as part of the consideration[203](index=203&type=chunk) [Market Information for Common Stock](index=38&type=section&id=Market%20Information%20for%20Common%20Stock) [Holders of our Common Stock](index=38&type=section&id=Holders%20of%20our%20Common%20Stock) [Dividend Policy](index=38&type=section&id=Dividend%20Policy) [Securities Authorized for Issuance Under Equity Compensation Plans](index=38&type=section&id=Securities%20Authorized%20for%20Issuance%20Under%20Equity%20Compensation%20Plans) [Stock Performance Graph](index=38&type=section&id=Stock%20Performance%20Graph) [Unregistered Sales of Equity Securities](index=39&type=section&id=Unregistered%20Sales%20of%20Equity%20Securities) [Reserved](index=39&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=40&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Skillz Inc. reported **67% revenue growth** in 2021, but net loss widened due to increased operating expenses; the Aarki acquisition targets user acquisition efficiency Key Financial Highlights (2021 vs 2020) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change (%) | | :--------------------------------- | :------------------ | :------------------ | :--------- | | Revenue | $384,089 | $230,115 | 67% | | Cost of Revenue | $24,711 | $12,281 | 101% | | Research and Development | $46,017 | $23,225 | 98% | | Sales and Marketing | $465,457 | $251,941 | 85% | | General and Administrative | $135,026 | $42,289 | 219% | | Net Loss | $(181,377) | $(145,510) | 25% | | Adjusted EBITDA | $(181,488) | $(66,113) | 174% | Key User Metrics (2021 vs 2020 vs 2019) | Metric | 2021 | 2020 | 2019 | | :--------------------------------- | :----- | :----- | :----- | | Average MAUs (millions) | 3 | 2.6 | 1.6 | | ARPU | $10.90 | $7.50 | $6.30 | | Paying MAU to MAU Ratio | 17% | 13% | 10% | | Paying MAU (millions) | 0.5 | 0.3 | 0.2 | | Monthly ARPPU | $62 | $59 | $62 | - The acquisition of Aarki, Inc. on July 16, 2021, for **$162.3 million** (comprised of **$95.3 million cash** and **$67.1 million in Class A common stock**), is expected to drive significant efficiencies in user acquisition costs[213](index=213&type=chunk) - Cash deposits represented approximately **10% of total entry fees** in 2021, while prior cash winnings not withdrawn accounted for approximately **81% of total entry fees**[215](index=215&type=chunk) - In December 2021, the company issued **$300 million in senior secured notes** due 2026 with an annual interest rate of **10.25%**, payable semi-annually[256](index=256&type=chunk) [Overview](index=40&type=section&id=Overview) [Our Financial Model](index=41&type=section&id=Our%20Financial%20Model) [Key Components of Results of Operations](index=42&type=section&id=Key%20Components%20of%20Results%20of%20Operations) [Changes from Prior Period Reports](index=43&type=section&id=Changes%20from%20Prior%20Period%20Reports) [Results of Operations](index=44&type=section&id=Results%20of%20Operations) [Non-GAAP Financial Measures](index=47&type=section&id=Non-GAAP%20Financial%20Measures) [Liquidity and Capital Resources](index=48&type=section&id=Liquidity%20and%20Capital%20Resources) [Contractual Obligations and Commitments](index=50&type=section&id=Contractual%20Obligations%20and%20Commitments) [Critical Accounting Estimates](index=50&type=section&id=Critical%20Accounting%20Estimates) [Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Skillz Inc. faces interest rate risk on its **$241.3 million cash** and **$501.7 million marketable securities**, with no material foreign currency risk identified - As of December 31, 2021, cash and cash equivalents totaled **$241.3 million**, and marketable securities totaled **$501.7 million**, primarily invested in money market funds, corporate debt, U.S. government securities, and commercial paper[287](index=287&type=chunk) - An immediate **10% change in interest rates** is not expected to have a material effect on the fair market value of cash, cash equivalents, and marketable securities due to the low-risk profile of investments[287](index=287&type=chunk) - No material foreign currency risk was identified for the years ended December 31, 2021 and 2020[288](index=288&type=chunk) [Interest Rate Risk](index=53&type=section&id=Interest%20Rate%20Risk) [Foreign Currency Risk](index=53&type=section&id=Foreign%20Currency%20Risk) [Financial Statements and Supplementary Data](index=54&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Skillz Inc.'s audited consolidated financial statements, with an unqualified opinion on financials but an adverse opinion on internal controls due to material weaknesses - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements but an adverse opinion on the effectiveness of internal control over financial reporting as of December 31, 2021, due to material weaknesses[295](index=295&type=chunk)[296](index=296&type=chunk)[306](index=306&type=chunk) Consolidated Balance Sheet Highlights (in thousands) | Metric | December 31, 2021 | December 31, 2020 | | :-------------------------- | :------------------ | :------------------ | | Total Assets | $1,022,825 | $282,421 | | Total Liabilities | $399,125 | $225,634 | | Total Stockholders' Equity | $623,700 | $56,787 | Consolidated Statements of Operations and Comprehensive Loss Highlights (in thousands) | Metric | 2021 | 2020 | 2019 | | :------------------------------------------ | :--------- | :--------- | :--------- | | Revenue | $384,089 | $230,115 | $119,872 | | Total Costs and Expenses | $671,211 | $329,736 | $144,700 | | Loss from Operations | $(287,122) | $(99,621) | $(24,828) | | Net Loss | $(181,377) | $(145,510) | $(23,605) | | Basic Net Loss per Share | $(0.47) | $(0.49) | $(0.09) | | Diluted Net Loss per Share | $(0.69) | $(0.49) | $(0.09) | Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 2021 | 2020 | 2019 | | :-------------------------------- | :--------- | :--------- | :--------- | | Net cash used in operating activities | $(180,154) | $(56,232) | $(21,937) | | Net cash used in investing activities | $(643,924) | $(3,246) | $(3,223) | | Net cash provided by financing activities | $802,682 | $296,578 | $31,168 | [Reports of Independent Registered Public Accounting Firm](index=55&type=section&id=Reports%20of%20Independent%20Registered%20Public%20Accounting%20Firm) [Consolidated Financial Statements](index=60&type=section&id=Consolidated%20Financial%20Statements) [Notes to the Consolidated Financial Statements](index=63&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosures](index=102&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosures) There were no changes in or disagreements with accountants on accounting and financial disclosures [Evaluation of Disclosure Controls and Procedures](index=102&type=section&id=Item%209A.%20Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Skillz management concluded disclosure controls were ineffective as of December 31, 2021, due to material weaknesses in ITGCs and management review documentation; remediation efforts are underway - Disclosure controls and procedures were deemed not effective as of December 31, 2021, due to material weaknesses in internal control over financial reporting[544](index=544&type=chunk) - Identified material weaknesses include ineffective ITGCs (user access and program change management) and insufficient documentation for management review in certain accounting processes[551](index=551&type=chunk) - Remediation efforts are underway, focusing on improving ITGCs and enhancing management review control training and documentation[551](index=551&type=chunk) - The previously reported material weakness related to warrant accounting has been remediated as of December 31, 2021[552](index=552&type=chunk) [Evaluation of Disclosure Controls and Procedures](index=102&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) [Management's Report on Internal Control Over Financial Reporting](index=102&type=section&id=Management's%20Report%20on%20Internal%20Control%20Over%20Financial%20Reporting) [Material Weaknesses](index=103&type=section&id=Material%20Weaknesses) [Remediation of Material Weaknesses](index=103&type=section&id=Remediation%20of%20Material%20Weaknesses) [Changes in Internal Control over Financial Reporting](index=104&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) [Limitations on Effectiveness of Controls and Procedures](index=104&type=section&id=Limitations%20on%20Effectiveness%20of%20Controls%20and%20Procedures) [Other Information](index=104&type=section&id=Item%209B.%20Other%20Information) This item reports that there is no other information required to be disclosed [Disclosures Regarding Foreign Jurisdictions that Prevent Inspections](index=104&type=section&id=Item%209C.%20Disclosures%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item reports that there are no disclosures regarding foreign jurisdictions that prevent inspections [PART III](index=104&type=section&id=PART%20III) [Directors, Executive Officers and Corporate Governance](index=104&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) This section incorporates by reference information on directors, executive officers, and corporate governance from the definitive Proxy Statement [Executive Compensation](index=105&type=section&id=Item%2011.%20Executive%20Compensation) This section incorporates by reference executive compensation details, including summary compensation and equity awards, from the definitive Proxy Statement [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=105&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section incorporates by reference information on security ownership of beneficial owners, management, and related stockholder matters from the definitive Proxy Statement [Certain Relationships and Related Transactions, and Director Independence](index=105&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) This section incorporates by reference information on certain relationships, related transactions, and director independence from the definitive Proxy Statement [Principal Accountant Fees and Services](index=105&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) This section incorporates by reference information on principal accountant fees and services from the definitive Proxy Statement [PART IV](index=106&type=section&id=PART%20IV) [Exhibits and Financial Statement Schedules](index=106&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules.) This section lists the financial statements and exhibits filed as part of the Annual Report on Form 10-K, including consolidated financial statements and a detailed table of exhibits [Financial Statements](index=106&type=section&id=Financial%20Statements) [Exhibits](index=106&type=section&id=Exhibits) [Form 10-K Summary](index=107&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item indicates that no Form 10-K Summary is provided [Signatures](index=108&type=section&id=Signatures) This section contains the required signatures for the Annual Report on Form 10-K, affirming authorization and responsibility by key executives and directors - The report is signed by Andrew Paradise (CEO and Chairman), Ian Lee (CFO), Stanley Mbugua (Chief Accounting Officer), Casey Chafkin (Chief Revenue Officer and Director), and other directors[578](index=578&type=chunk)[582](index=582&type=chunk)

Skillz Inc. (NYSE:SKLZ) Q4 2021 Results Conference Call February 23, 2022 5:30 PM ET Company Participants Stefan Gerhard - Vice President, Finance Andrew Paradise - Chief Executive Officer Casey Chafkin - Chief Revenue Officer Ian Lee - Chief Financial Officer Conference Call Participants Michael Graham - Canaccord Drew Crum - Stifel Brad Erickson - RBC Operator Good evening. Thank you for attending today's Skillz Fourth Quarter 2021 Earnings Call. My name is Selena, and I will be your moderator. [Operator ...

Skillz Inc. (NYSE:SKLZ) Canaccord Genuity Digital Gaming Summit Conference Call November 30, 2021 1:30 PM ET Company Participants Andrew Paradise - Chief Executive Officer Conference Call Participants Michael Graham - Canaccord Genuity Michael Graham You're live. All right. Good afternoon everyone, Thank you for being a part of our Digital Gaming Summit; really pumped to have Skillz here this afternoon. We're joined by Andrew Paradise who's the Founder and CEO. Andrew, thank you so much for taking the time ...

(Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ☐ For the transition period from ______to______ TABLE OF CONTENTS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Commission file number: 001-39243 SKILLZ INC. (Exact name of registrant as specified in its charter) (State or other juri ...

Skillz Inc. (NYSE:SKLZ) Q3 2021 Earnings Conference Call November 3, 2021 5:30 PM ET Company Participants Stefan Gerhard - Vice President, Finance Andrew Paradise - Chief Executive Officer Casey Chafkin - Chief Revenue Officer Ian Lee - Chief Financial Officer Conference Call Participants Michael Graham - Canaccord Clark Lampen - BTIG Dan Parr - RBC Capital Markets Brian Fitzgerald - Wells Fargo Operator Good afternoon. Thank you for attending today's Skillz Third Quarter 2021 Earnings Conference Call. My ...

Financial Data and Key Metrics Changes - Skillz operates a transaction-based revenue model with an average entry fee of $3 per player per tournament, generating approximately $0.90 of revenue per competition, equating to a 15% take rate [5] - The company reported a gross margin of 95%, indicating potential profitability if growth investments were slowed [17] - The adjusted EBITDA margin before user acquisition costs was 17% in Q2 of the current year, with a long-term target of 30% [17][18] Business Line Data and Key Metrics Changes - Skillz has seen a significant increase in the number of tournaments, powering over 2 billion tournaments annually, which is highly automated [4][5] - The company is focused on diversifying its revenue streams by increasing the number of games and genres available on its platform, moving from a concentration on a few titles to a broader range [20][22] Market Data and Key Metrics Changes - The mobile gaming market has grown significantly, with projections indicating there will be 10 billion smartphones and tablets by 2025, up from 5 billion [8] - Skillz's user acquisition costs have been impacted by changes in the advertising landscape, particularly due to IDFA changes and the pandemic, but are expected to stabilize [59] Company Strategy and Development Direction - Skillz aims to expand beyond mobile gaming into non-gaming applications for competition, such as fitness and education [12] - The recent acquisition of Aarki is intended to enhance data capture and improve user acquisition efficiency, allowing Skillz to participate in 5 trillion auctions monthly [12][46] - The company is investing in synchronous gaming technology through its partnership with Exit Games, which is expected to accelerate entry into more complex gaming genres [60] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the challenges of hiring and retaining talent in a competitive market, which has affected user acquisition efforts [9] - The company is optimistic about its growth trajectory, targeting a significant increase in paying users and improved conversion rates over time [36] - Management believes that the long-term potential of the gaming market justifies current investments in user acquisition despite widening EBITDA losses [15] Other Important Information - Skillz has a strong retention rate among developers, with nearly 100% retention, indicating a successful revenue-sharing model [23] - The company is focused on optimizing its marketing spend, with a significant portion allocated to user acquisition and engagement marketing [29] Q&A Session Summary Question: What has improved and what has been more challenging since starting Skillz? - Management noted the growth of the mobile gaming market and the challenge of hiring talent as significant factors [9] Question: What are the main priorities for the next three to five years? - The focus is on optimizing the value chain, expanding content, and exploring non-gaming applications [12] Question: When do you expect adjusted EBITDA losses to peak? - Management emphasized a focus on profitable user acquisition and improving payback periods, indicating a disciplined approach to growth [16] Question: How do you measure virality in user acquisition? - Virality is measured through both attributed installs and organic growth, with various initiatives to encourage sharing and engagement [33] Question: Can you elaborate on the Trivia Crack partnership? - Management highlighted the significance of the partnership with Trivia Crack, noting its potential impact on revenue growth [26] Question: How do you view the impact of COVID on user acquisition? - Management indicated that while there was a temporary spike in engagement, the mobile gaming market has stabilized post-COVID [52] Question: What is the expected impact of the Aarki acquisition? - The acquisition is expected to lower user acquisition costs and improve conversion rates, with a multi-quarter integration timeline [46]

TABLE OF CONTENTS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 OR 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: 001-39243 SKILLZ INC. (Exact name of registrant as specified in its charter) Delaware 46-2682070 (Stat ...

Financial Data and Key Metrics Changes - The company made important investments to accelerate user growth, content increase, and platform technology advancements, setting the stage for long-term growth [8] - The company expects Aarki to contribute $13 million in revenue for the remainder of 2021 before synergies [15][29] Business Line Data and Key Metrics Changes - The conversion rate from playing to paying users is expected to increase to 40% or higher over the long term [14] - The company is focusing on optimizing the value chain from impression level down to end-user lifetime value (LTV) [37] Market Data and Key Metrics Changes - The company is experiencing elevated customer acquisition costs (CPIs) and is making investments to mitigate these high CPIs [36] - In July, the pace of industry pricing increases began to stabilize, with expectations for pricing to flatten before decreasing later in the year [42] Company Strategy and Development Direction - The company is focusing on expanding into genres such as racing, fighting, and first-person shooter games through its investment in Exit [18] - The long-term vision includes centralizing competition on the Internet and expanding beyond mobile to non-gaming applications like fitness [39] Management Comments on Operating Environment and Future Outlook - Management noted that Q2 revenue growth was in line with expectations despite tough comparisons due to COVID-19 impacts last year [36] - The company is optimistic about the integration of Aarki and its potential to improve targeting and efficiency in user acquisition [31] Other Important Information - The company is working on new content and international opportunities as potential growth drivers for the second half of the year [35] - The NFL competitors challenge has generated significant interest, with hundreds of game proposals submitted, and 14 semifinalists are currently in the development phase [54] Q&A Session Summary Question: Conversion to paying players and Exit games investment - Management believes there is significant upside in increasing the conversion rate to paying users and expects the Exit investment to accelerate expansion into new game genres [14][18] Question: Average LTV for CAC and Aarki's impact - LTV remains strong, and the company is working on initiatives to lower customer acquisition costs, with Aarki expected to enhance performance through better targeting [27][31] Question: Growth drivers for the second half of the year - Key growth drivers include new games, international opportunities, and optimizing the value chain for better predictive LTV [35][37] Question: User acquisition versus engagement marketing - Engagement marketing focuses on retention and monetization of existing users, while user acquisition is preferred for long-term growth [48] Question: Take rate and IDFA impact - The take rate is influenced by various factors, and management expects the impact of IDFA to be neutral, with potential decreases in cost per install [56][59]

[Note Regarding Forward-Looking Statements](index=3&type=section&id=Note%20Regarding%20Forward%20Looking%20Statements) [Forward-Looking Statements Disclosure](index=3&type=section&id=Forward-Looking%20Statements%20Disclosure) This section warns readers that the report contains forward-looking statements subject to significant risks and uncertainties - The report contains forward-looking statements regarding future operations, financial condition, business strategy, user growth, and product initiatives, which are subject to substantial risks and uncertainties[10](index=10&type=chunk) - Readers should not rely on forward-looking statements as predictions of future events, as they are based on current expectations and projections and are subject to various risks and uncertainties detailed in the Annual Report on Form 10-K/A and other SEC filings[11](index=11&type=chunk)[14](index=14&type=chunk)[15](index=15&type=chunk) - Key risk factors include sustainability of rapid growth, effective growth management, history of losses, reliance on third-party developers and service providers, brand and reputation maintenance, competitive entertainment industry, regulatory compliance, intellectual property protection, economic downturns, cybersecurity, and the impact of global pandemics like COVID-19[12](index=12&type=chunk)[16](index=16&type=chunk) [PART I - FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents Skillz Inc.'s unaudited condensed consolidated financial statements and explanatory notes for Q1 2021 and FY 2020 [Condensed Consolidated Balance Sheets](index=5&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) The balance sheet shows a significant increase in total assets, primarily driven by a substantial rise in cash and cash equivalents and warrant exercise receivables Condensed Consolidated Balance Sheets (Unaudited, in thousands) | Metric | March 31, 2021 | December 31, 2020 | | :-------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $612,578 | $262,728 | | Warrant exercise receivable | $104,558 | — | | Total current assets | $732,117 | $273,219 | | Total assets | $741,423 | $282,421 | | Total current liabilities | $40,098 | $47,356 | | Common stock warrant liabilities | $112,378 | $178,232 | | Total liabilities | $152,512 | $225,634 | | Total stockholders' equity | $588,911 | $56,787 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) The company experienced significant revenue growth year-over-year, but also a substantial increase in operating expenses, leading to a higher net loss for the three months ended March 31, 2021 Condensed Consolidated Statements of Operations (Unaudited, in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $83,677 | $43,559 | | Cost of revenue | $4,256 | $2,767 | | Research and development | $7,282 | $4,366 | | Sales and marketing | $96,323 | $46,825 | | General and administrative | $27,284 | $4,833 | | Total costs and expenses | $135,145 | $58,791 | | Loss from operations | $(51,468) | $(15,232) | | Net loss | $(53,592) | $(15,522) | | Net loss per share – basic | $(0.15) | $(0.06) | | Net loss per share – diluted | $(0.16) | $(0.06) | [Condensed Consolidated Statements of Stockholders' Equity (Deficit)](index=7&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20STOCKHOLDERS'%20EQUITY%20(DEFICIT)) Stockholders' equity significantly increased from December 31, 2020, to March 31, 2021, primarily due to substantial increases in additional paid-in capital from common stock issuances Condensed Consolidated Statements of Stockholders' Equity (Unaudited, in thousands) | Metric | Balance at December 31, 2020 | Balance at March 31, 2021 | | :-------------------------- | :--------------------------- | :------------------------ | | Common stock | $37 | $39 | | Additional paid-in capital | $295,065 | $880,779 | | Accumulated deficit | $(238,315) | $(291,907) | | Total stockholders' equity | $56,787 | $588,911 | - Issuance of common stock upon exercise of warrants and other, net, contributed **$172.5 million** to additional paid-in capital[26](index=26&type=chunk) - Net cash contributions from a follow-on offering added **$402.2 million** to additional paid-in capital[26](index=26&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) The company experienced a significant net change in cash, cash equivalents, and restricted cash, primarily driven by substantial cash provided by financing activities Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands) | Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(39,153) | $(9,109) | | Net cash used in investing activities | $(659) | $(860) | | Net cash provided by financing activities | $389,662 | $146 | | Net change in cash, cash equivalents and restricted cash | $349,850 | $(9,823) | | Cash, cash equivalents and restricted cash – end of year | $615,498 | $18,725 | - Financing activities were significantly boosted by **$402.8 million** in proceeds from a follow-on offering, net of underwriting commissions and offering costs[31](index=31&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=NOTES%20TO%20THE%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) These notes detail the company's business, accounting policies, financial components, and significant events, providing a comprehensive understanding of the financial statements [1. Description of the Business and Basis of Presentation](index=9&type=section&id=1.%20Description%20of%20the%20Business%20and%20Basis%20of%20Presentation) Skillz Inc. operates a mobile eSports platform enabling game developers to host competitive gaming activities, with its financial statements prepared under U.S. GAAP - Skillz is a mobile eSports platform that provides a proprietary online-hosted technology platform for independent game developers to host tournaments and competitive gaming activities for end-users worldwide[34](index=34&type=chunk) - The business combination on December 16, 2020, between Flying Eagle Acquisition Corp (FEAC) and Old Skillz was accounted for as a reverse recapitalization, with Old Skillz treated as the accounting acquirer for financial reporting purposes[35](index=35&type=chunk)[38](index=38&type=chunk)[40](index=40&type=chunk) [2. Summary of Significant Accounting Policies](index=10&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's significant accounting policies, including the use of estimates, revenue recognition, cash definitions, fair value measurement, advertising, and accounting for warrants - Revenue is primarily generated by providing monetization services to game developers through the Skillz SDK, enabling competitive gaming and increasing end-user retention[46](index=46&type=chunk)[48](index=48&type=chunk)[50](index=50&type=chunk) - End-user incentives are categorized: **$17.6 million** (2021) and **$10.0 million** (2020) were recognized as a reduction of revenue, while **$33.3 million** (2021) and **$15.6 million** (2020) were recognized as sales and marketing expense[55](index=55&type=chunk)[58](index=58&type=chunk) - Public Common Stock Warrants are classified as Level 1 fair value measurements, while Private Common Stock Warrants are classified as Level 3, valued using the Black-Scholes-Merton Option pricing model due to unobservable inputs[74](index=74&type=chunk)[75](index=75&type=chunk)[105](index=105&type=chunk) - The company has elected to use the extended transition period for complying with new or revised financial accounting standards as an emerging growth company (EGC)[84](index=84&type=chunk) [3. Business Combination](index=17&type=section&id=3.%20Business%20Combination) This note details the December 16, 2020, merger between FEAC and Old Skillz, accounted for as a reverse recapitalization, specifying share exchange, cash consideration, earnout release, and a private placement - The merger involved an exchange ratio of **0.7471 shares** of common stock for each Old Skillz common stock[92](index=92&type=chunk) - Holders of Old Skillz received **191,932,860 shares** of Class A common stock and **76,663,551 shares** of Class B common stock, and **$566.2 million** in cash consideration[93](index=93&type=chunk) - Earnout conditions were fully satisfied in March 2021, releasing **10 million shares** (5 million to Sponsor, 5 million to Old Skillz stockholders) as Class A or Class B common stock[94](index=94&type=chunk) - A private placement of **15,853,052 shares** of Class A common stock generated an aggregate purchase price of **$158.5 million**[95](index=95&type=chunk) [4. Balance Sheet Components](index=18&type=section&id=4.%20Balance%20Sheet%20Components) This note breaks down specific balance sheet items, including prepaid expenses, property and equipment, and other current liabilities, showing changes between December 2020 and March 2021 Prepaid Expenses and Other Current Assets (in thousands) | Item | March 31, 2021 | December 31, 2020 | | :------------------------------ | :------------- | :---------------- | | Credit card processing reserve | $6,861 | $5,854 | | Prepaid expenses | $6,740 | $3,772 | | Other current assets | $1,380 | $865 | | Total | $14,981 | $10,491 | Property and Equipment, Net (in thousands) | Item | March 31, 2021 | December 31, 2020 | | :-------------------------------- | :------------- | :---------------- | | Capitalized internal-use software | $6,568 | $6,167 | | Total property and equipment | $8,792 | $8,133 | | Accumulated depreciation and amortization | $(3,394) | $(2,841) | | Property and equipment, net | $5,398 | $5,292 | Other Current Liabilities (in thousands) | Item | March 31, 2021 | December 31, 2020 | | :------------------------------ | :------------- | :---------------- | | Accrued sales and marketing expenses | $13,340 | $7,204 | | Accrued compensation | $6,330 | $3,825 | | End-user liability, net | $4,479 | $2,789 | | Other current liabilities | $29,860 | $19,618 | [5. Fair Value Measurements](index=19&type=section&id=5.%20Fair%20Value%20Measurements) This note details fair value measurements of financial instruments, classifying Public Common Stock Warrants as Level 1 and Private Common Stock Warrants as Level 3, reporting their fair values - Cash and cash equivalents of **$612.6 million** (March 31, 2021) and **$262.7 million** (December 31, 2020) are classified within Level 1 of the fair value hierarchy[104](index=104&type=chunk) Fair Value of Public and Private Common Stock Warrants (in thousands) | Liability | March 31, 2021 (Level 1) | March 31, 2021 (Level 3) | March 31, 2021 (Total) | December 31, 2020 (Level 1) | December 31, 2020 (Level 3) | December 31, 2020 (Total) | | :-------------------------- | :----------------------- | :----------------------- | :--------------------- | :-------------------------- | :-------------------------- | :------------------------ | | Public Common Stock Warrants | $62,490 | — | $62,490 | $124,545 | — | $124,545 | | Private Common Stock Warrants | — | $49,888 | $49,888 | — | $53,687 | $53,687 | | Total fair value | $62,490 | $49,888 | $112,378 | $124,545 | $53,687 | $178,232 | - The fair value of Private Warrants liability decreased by **$3.8 million** during the three months ended March 31, 2021[105](index=105&type=chunk) [6. Commitments and Contingencies](index=19&type=section&id=6.%20Commitments%20and%20Contingencies) The company is involved in various legal claims, but management believes their resolution will not materially impact its financial position, operations, or cash flows - The company records a liability when a loss from legal matters is probable and estimable; otherwise, it discloses a reasonably possible loss[106](index=106&type=chunk) - Management does not expect pending legal matters to have a material adverse impact on the company's financial condition, results of operations, or cash flows as of March 31, 2021[106](index=106&type=chunk) [7. Common Stock Warrants](index=20&type=section&id=7.%20Common%20Stock%20Warrants) This note details outstanding Public and Private Warrants, their exercise price, expiration, and redemption conditions, also reporting Public Warrant exercises during Q1 2021 - As of March 31, 2021, there were **8.2 million** Public Warrants and **5.0 million** Private Warrants outstanding, each exercisable at **$11.50** per share[108](index=108&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk) - During the three months ended March 31, 2021, **9.1 million** Public Warrants were exercised, generating **$104.6 million** in proceeds, recorded as a warrant exercise receivable[108](index=108&type=chunk) - Public Warrants expire on December 16, 2025, and may be redeemed by the company if the Class A common stock price equals or exceeds **$18.00** for 20 trading days within a 30-trading day period[109](index=109&type=chunk) [8. Stockholders' Equity](index=20&type=section&id=8.%20Stockholders'%20Equity) This note describes the company's authorized capital stock, including Class A and Class B common stock with differing voting rights, and details the March 2021 public offering - The company is authorized to issue **635 million shares**, comprising **500 million** Class A common stock (one vote per share), **125 million** Class B common stock (20 votes per share), and **10 million** preferred stock[112](index=112&type=chunk)[113](index=113&type=chunk) - In March 2021, the company completed a public offering, issuing **17,000,000 shares** of Class A common stock for **$408.0 million** (before **$5.9 million** issuance costs)[114](index=114&type=chunk) - Certain stockholders also sold **19.8 million shares** in the public offering, incurring **$6.8 million** in transaction costs for the company[114](index=114&type=chunk)[116](index=116&type=chunk) [9. Stock-Based Compensation](index=21&type=section&id=9.%20Stock-Based%20Compensation) This note summarizes stock-based compensation expense for Q1 2021 and 2020, details the 2020 Omnibus Incentive Plan, and provides activity for stock options and restricted stock units Stock-Based Compensation Expense (in thousands) | Expense Category | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Research and development | $1,207 | $205 | | Sales and marketing | $1,838 | $116 | | General and administrative | $7,900 | $36 | | Total | $10,945 | $357 | - The 2020 Omnibus Incentive Plan, effective December 2020, permits granting stock-based awards, including options and RSUs, with up to **47.8 million shares** reserved, subject to annual increases[118](index=118&type=chunk)[119](index=119&type=chunk) - As of March 31, 2021, unrecognized stock-based compensation expense was **$180.4 million**, to be recognized over a weighted-average period of **3.42 years**[125](index=125&type=chunk) [10. Income Taxes](index=23&type=section&id=10.%20Income%20Taxes) This note reports the income tax provision and effective tax rates for Q1 2021 and 2020, noting the company's historical loss position and full valuation allowance Income Tax Provision (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------- | :-------------------------------- | :-------------------------------- | | Income tax provision | $42 | $25 | | Effective tax rate | -0.082% | -0.162% | - The company maintains a full valuation allowance for all its deferred tax assets due to its historical overall loss position[127](index=127&type=chunk) [11. Related-Party Transactions](index=23&type=section&id=11.%20Related-Party%20Transactions) This note states no significant related-party transactions occurred in Q1 2021 or 2020, other than executive stock option grants and a secondary sale - No significant related-party transactions occurred, except for stock option grants to executives and a secondary sale as part of the follow-on offering[128](index=128&type=chunk) [12. Net Loss Per Share](index=23&type=section&id=12.%20Net%20Loss%20Per%20Share) This note details the computation of basic and diluted net loss per share for Class A and Class B common stock, adjusted for reverse recapitalization, and lists antidilutive equivalents Net Loss Per Share Computation (in thousands, except per share data) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss – Basic | $(53,592) | $(15,522) | | Weighted average common shares outstanding – basic | 356,818,954 | 278,348,903 | | Net loss per share attributable to common stockholders – basic | $(0.15) | $(0.06) | | Net loss – Diluted | $(57,391) | $(15,522) | | Weighted average common shares outstanding – diluted | 359,827,649 | 278,348,903 | | Net loss per share attributable to common stockholders – diluted | $(0.16) | $(0.06) | - Common and preferred stock warrants, common stock options, and restricted stock units totaling **60.8 million** (2021) and **44.0 million** (2020) were considered antidilutive and excluded from diluted EPS[133](index=133&type=chunk) [13. Subsequent Events](index=24&type=section&id=13.%20Subsequent%20Events) This note discloses events after the reporting period, including Public Warrant exercises and the Chief Financial Officer's retirement - In April and May 2021, **426,168** Public Warrants were exercised at **$11.50** per share[134](index=134&type=chunk) - The CFO, Mr Henry, will retire effective June 20, 2021, with an estimated **$7.0 million** in stock-based compensation expense related to his stock options vesting through the separation date[135](index=135&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition, operations, business model, and key metrics, analyzing revenue and expense trends for Q1 2021 versus the prior year [Overview](index=25&type=section&id=Overview) Skillz operates a mobile eSports marketplace connecting developers and users, benefiting from network effects, with growth in MAUs, paying MAUs, and ARPU - Skillz operates a marketplace connecting developers and users through competitive gaming, fostering trust and benefiting from a network effect where compelling content attracts users, and a growing audience attracts more developers[137](index=137&type=chunk) Key User Metrics (Three Months Ended March 31) | Metric | 2021 | 2020 | | :-------------------------------- | :--- | :--- | | Monthly Active Users (MAUs) | 2.7 million | 2.6 million | | Monthly Average Revenue Per User (ARPU) | $10.35 | $5.57 | | Paying MAU to MAU ratio | 17% | 10% | | Paying MAU | 0.5 million | 0.3 million | | Monthly Average Revenue Per Paying User (ARPPU) | $60 | $56 | - Top games (Solitaire Cube, 21 Blitz, Blackout Bingo) accounted for **76% of revenue** in Q1 2021, with Tether and Big Run being the primary developer partners[138](index=138&type=chunk) - The number of games generating over **$1 million** in annualized Gross Merchandise Volume (GMV) increased **54% to 40** in Q1 2021 from 26 in Q1 2020[138](index=138&type=chunk) [Our Financial Model](index=25&type=section&id=Our%20Financial%20Model) Skillz's financial model monetizes competitive gaming through a Take Rate from player entry fees, supported by strong unit economics, user engagement, and predictable long-term revenue - Revenue is generated by receiving a percentage of player entry fees in paid contests, after deducting end-user prize money, end-user incentives (revenue reduction), and developer profit share (the 'Take Rate')[143](index=143&type=chunk)[144](index=144&type=chunk) - GMV (Gross Merchandise Volume) is composed of approximately **11% cash deposits**, **82% prior cash winnings**, and **7% end-user incentives** for the three months ended March 31, 2021 and 2020[144](index=144&type=chunk) - The company expects the average Three-Year Lifetime Value (LTV) of its 2018, 2019, and 2020 cohorts to be **3.8x total user acquisition costs** (**2.5x** after accounting for sales and marketing end-user incentives)[146](index=146&type=chunk) - Paying users spent an average of **62 minutes per day** in game play on the platform in Q1 2021, demonstrating strong engagement[147](index=147&type=chunk) [Key Components of Results of Operations](index=27&type=section&id=Key%20Components%20of%20Results%20of%20Operations) This section defines key operational components: Revenue, Cost of Revenue, Research and Development, Sales and Marketing, and General and Administrative expenses, explaining their composition and expected fluctuations - Revenue is derived from monetization services provided to game developers, including end-user registration, player matching, fraud monitoring, and billing/settlement services, with Skillz typically withholding **16% to 20%** of total entry fees as commission[149](index=149&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) - Cost of revenue primarily includes payment processing fees, customer support costs, direct software costs, amortization of internal use software, and server costs[152](index=152&type=chunk) - Sales and marketing expenses consist mainly of direct advertising costs and end-user incentives not recorded as a revenue reduction, expected to fluctuate in absolute dollars and as a percentage of revenue[155](index=155&type=chunk) - General and administrative expenses are expected to increase due to scaling headcount and costs associated with operating as a public company[157](index=157&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) For Q1 2021, revenue increased by 92% to $83.7 million, but total costs surged by 130%, leading to a net loss of $53.6 million, up from $15.5 million in the prior year Summary of Results of Operations (in thousands, except percentages) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | % Change | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | :------- | | Revenue | $83,677 | $43,559 | 92% | | Cost of revenue | $4,256 | $2,767 | 54% | | Research and development | $7,282 | $4,366 | 67% | | Sales and marketing | $96,323 | $46,825 | 106% | | General and administrative | $27,284 | $4,833 | 465% | | Total costs and expenses | $135,145 | $58,791 | 130% | | Loss from operations | $(51,468) | $(15,232) | 238% | | Net loss | $(53,592) | $(15,522) | 245% | - The increase in sales and marketing costs was primarily due to a **101% increase** in user acquisition spend (**$54.2 million** in 2021 vs **$27.0 million** in 2020) and a **111% increase** in engagement marketing spend (**$36.0 million** in 2021 vs **$17.1 million** in 2020)[165](index=165&type=chunk) - General and administrative costs surged due to a **$10.8 million** increase in headcount costs (including **$8.2 million** stock-based compensation), **$9.0 million** in professional expenses for the follow-on offering, and **$2.4 million** in public company-related insurance costs[166](index=166&type=chunk) [Non-GAAP Financial Measures](index=31&type=section&id=Non-GAAP%20Financial%20Measures) This section introduces Adjusted EBITDA as a non-GAAP measure for operational performance, providing a reconciliation from net loss by excluding non-cash and non-recurring items - Adjusted EBITDA is defined as net income (loss) excluding interest income (expense), change in fair value of common stock warrant liabilities, other income (expense), income tax provision, depreciation and amortization, stock-based compensation, and certain other non-cash or non-recurring items[173](index=173&type=chunk) Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(53,592) | $(15,522) | | Interest expense, net | $24 | $316 | | Stock-based compensation | $10,945 | $357 | | Change in fair value of common stock warrant liabilities | $2,108 | — | | Provision for income taxes | $42 | $25 | | Depreciation and amortization | $555 | $308 | | Other non-operating costs (income) | $(50) | $(51) | | Transaction related expenses | $8,839 | — | | Adjusted EBITDA | $(31,129) | $(14,567) | [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is strong, with cash and cash equivalents significantly increasing due to financing activities, including a follow-on offering and warrant exercises - As of March 31, 2021, principal liquidity sources were **$612.6 million** in cash and cash equivalents, primarily invested in money market funds[176](index=176&type=chunk) - Net cash provided by financing activities was **$389.7 million** for Q1 2021, mainly from **$402.8 million** in net proceeds from a follow-on offering[179](index=179&type=chunk)[184](index=184&type=chunk) - Net cash used in operating activities was **$39.2 million** for Q1 2021, primarily due to a net loss of **$53.6 million**, partially offset by non-cash expenses and changes in operating assets and liabilities[179](index=179&type=chunk)[181](index=181&type=chunk) - The company's existing cash resources are sufficient to cover operating activities for at least one year past the financial statements' issuance date[178](index=178&type=chunk) [Contractual Obligations and Commitments](index=33&type=section&id=Contractual%20Obligations%20and%20Commitments) This section summarizes the company's contractual obligations as of March 31, 2021, primarily consisting of operating lease obligations Contractual Obligations and Other Commitments (in thousands) | Obligation | Total | Less than 1 Year | 1 – 3 Years | 3 – 5 Years | More than 5 Years | | :------------------------ | :---- | :--------------- | :---------- | :---------- | :---------------- | | Operating lease obligations | $23,487 | $1,874 | $4,867 | $4,952 | $11,794 | [Off-Balance Sheet Arrangements](index=33&type=section&id=Off-Balance%20Sheet%20Arrangements) The company confirms no off-balance sheet financing arrangements or relationships with unconsolidated entities during the periods presented - The company did not have any off-balance sheet financing arrangements or relationships with unconsolidated entities during the periods presented[187](index=187&type=chunk) [Critical Accounting Policies and Estimates](index=33&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section refers to the Annual Report on Form 10-K/A for critical accounting policies and estimates, noting no material changes - There have been no material changes to the critical accounting policies and estimates as previously disclosed in the Annual Report on Form 10-K/A filed May 13, 2021[188](index=188&type=chunk) [Recent Accounting Pronouncements](index=33&type=section&id=Recent%20Accounting%20Pronouncements) This section directs readers to Note 2 of the consolidated financial statements for information on recent accounting pronouncements - For information about recent accounting pronouncements, their adoption timing, and potential impact, refer to Note 2 to the consolidated financial statements[189](index=189&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks, specifically interest rate risk and foreign currency risk, concluding that neither poses a material threat - The company is exposed to market risks, including changes in interest rates and inflation, but an immediate **10% change** in interest rates would not materially affect the fair value of its cash and cash equivalents due to their low-risk profile[190](index=190&type=chunk)[191](index=191&type=chunk) - There was no material foreign currency risk for the three months ended March 31, 2021 and 2020[192](index=192&type=chunk) [Item 4. Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls were ineffective as of March 31, 2021, due to a material weakness in warrant accounting, with remediation efforts underway - As of March 31, 2021, the company's disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting[194](index=194&type=chunk) - The material weakness is related to the classification and accounting for warrants issued by Special Purpose Acquisition Companies (SPACs), specifically the application of ASC 815, as clarified by the SEC Staff Statement of April 12, 2021[195](index=195&type=chunk) - Remediation efforts include clarifying the accounting of contracts settled in the company's own stock and implementing additional review procedures and enhanced accounting policies[196](index=196&type=chunk) [PART II - OTHER INFORMATION](index=35&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in legal claims, but management believes their resolution will not materially affect its financial condition or results of operations - The company is a party to certain claims, suits, and proceedings arising in the ordinary course of business[199](index=199&type=chunk) - Management believes that the resolution of pending legal matters is not expected to have a material adverse impact on the company's financial condition or results of operations as of March 31, 2021[199](index=199&type=chunk) [Item 1A. Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K/A - There have been no material changes from the risk factors previously disclosed in Amendment No 1 on Form 10-K/A to the Annual Report on Form 10-K for the year ended December 31, 2020[200](index=200&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section indicates no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds to report[202](index=202&type=chunk) [Item 3. Defaults Upon Senior Securities](index=36&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section reports no defaults upon senior securities during the period - No defaults upon senior securities to report[203](index=203&type=chunk) [Item 4. Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[204](index=204&type=chunk) [Item 5. Other Information](index=36&type=section&id=Item%205.%20Other%20Information) This section indicates no other information to report - No other information to report[205](index=205&type=chunk) [Item 6. Exhibits](index=37&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications and XBRL documents - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer (Sections 302 and 906 of Sarbanes-Oxley Act) and Inline XBRL documents[206](index=206&type=chunk) [Signatures](index=38&type=section&id=Signatures) [Report Signatures](index=38&type=section&id=Report%20Signatures) This section contains the official signatures for the Quarterly Report on Form 10-Q, confirming its submission by the registrant - The report was duly signed on behalf of Skillz Inc by Andrew Paradise, Chief Executive Officer and Chairman, on May 14, 2021[208](index=208&type=chunk)[209](index=209&type=chunk)