skillz(US:SKLZ)2021-03-11 16:00Part I Business Skillz operates a proprietary platform for competitive mobile gaming, monetizing through entry fees and fostering fair competition - Skillz's mission is to build the competition layer of the internet, revolutionizing mobile gaming by aligning developer and gamer interests through a prize-based monetization model2124 - The platform provides developers with an SDK, LiveOps system, payment infrastructure, and data science tools, while players benefit from fair competition and a loyalty program252836 - As of December 31, 2020, Skillz had over 9,000 registered game developers, though a small number of games historically accounted for a substantial portion of revenue37 - The company operates in 41 U.S. states and the District of Columbia, where skill-based gaming for cash prizes is permitted58 - Skillz became a public company in December 2020 through a business combination with Flying Eagle Acquisition Corporation (FEAC)62 Risk Factors The company faces risks from intense competition, reliance on third-party developers, evolving regulations, and a history of net losses - The business is highly dependent on a few key games, with Solitaire Cube, 21 Blitz, and Blackout Bingo accounting for 79% of 2020 revenue80 - The company relies heavily on third-party services like AWS and the Apple App Store, making it vulnerable to disruptions or policy changes92103 - The legality of skill-based gaming is subject to evolving laws, and the company is also subject to stringent data privacy regulations like GDPR and CCPA112114144 - Skillz has a history of net losses, with an accumulated deficit of $215.3 million as of December 31, 2020159 - The company is a "controlled company" as CEO Andrew Paradise holds 84% of the voting power, limiting other stockholders' influence197200 Unresolved Staff Comments There are no unresolved staff comments - Not applicable208 Properties The company leases office facilities in San Francisco, Portland, and Las Vegas for its operations and support functions - Skillz leases office facilities in San Francisco, CA; Portland, OR; and Las Vegas, NV209 Legal Proceedings The company is involved in ordinary course legal proceedings, with no anticipated material adverse financial impact - The company is engaged in ordinary course legal proceedings but does not anticipate any material adverse impact from their resolution210 Mine Safety Disclosures This item is not applicable to the company - Not applicable211 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Skillz Class A common stock began trading on NYSE in December 2020, with no public market for Class B, and no cash dividends are planned - Class A common stock is listed on the NYSE under the symbol "SKLZ" since December 17, 2020214 - The company has not paid and does not foresee paying any cash dividends on its common stock216 Selected Financial Data This item is not applicable - None224 Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue grew 92% to $230.1 million in 2020, but net loss widened to $122.5 million due to increased sales and marketing expenses Results of Operations Revenue increased 92% to $230.1 million in 2020, but a 128% rise in expenses led to a net loss of $122.5 million Consolidated Results of Operations (2018-2020) | | Year Ended December 31, | | | |---|---:|---:|---:| | (in thousands) | 2020 | 2019 | 2018 | | Revenue | $230,115 | $119,872 | $50,778 | | Cost of revenue | 12,281 | 5,713 | 2,112 | | Research and development | 23,225 | 11,241 | 7,547 | | Sales and marketing | 251,941 | 111,370 | 51,689 | | General and administrative | 42,289 | 16,376 | 14,975 | | Total costs and expenses | 329,736 | 144,700 | 76,323 | | Loss from operations | (99,621) | (24,828) | (25,545) | | Net loss | (122,461) | (23,605) | (27,780) | - Revenue grew 92% in 2020 and 136% in 2019, primarily driven by increased investment in sales and marketing253254 - Sales and marketing expenses increased 126% in 2020 to $251.9 million, driven by a 160% increase in user acquisition spending and a 97% increase in engagement marketing262 Liquidity and Capital Resources As of December 31, 2020, Skillz had $262.7 million in cash, with $56.2 million used in operations and $296.6 million provided by financing activities - The company's principal source of liquidity as of December 31, 2020, was $262.7 million in cash and cash equivalents282 Summary of Cash Flow Data (2018-2020) | | Year Ended December 31, | | | |---|---:|---:|---:| | (in thousands) | 2020 | 2019 | 2018 | | Net cash used in operating activities | $(56,232) | $(21,937) | $(16,948) | | Net cash used in investing activities | (3,246) | (3,223) | (867) | | Net cash provided by financing activities | 296,578 | 31,168 | 33,330 | - Net cash from financing activities in 2020 was $296.6 million, primarily from $246.5 million in Business Combination proceeds and $76.6 million from Series E preferred stock issuance291 Critical Accounting Policies and Estimates Critical accounting policies include revenue recognition upon game completion, classification of end-user incentives, and stock-based compensation valuation - Revenue is recognized when the performance obligation is satisfied, which occurs upon the completion of a game304 - End-user incentives like Ticketz and initial deposit bonuses are a reduction of revenue ($51.3 million in 2020), while other promotions are sales and marketing expenses ($91.5 million in 2020)308310368371 - Stock-based compensation is valued using the Black-Scholes model for service-based options and a Monte Carlo simulation for awards with market conditions311313 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk on its $262.7 million cash and equivalents, with foreign currency risk deemed immaterial - The company's primary market risk is interest rate risk on its $262.7 million in cash and cash equivalents, though the potential impact is considered immaterial318 - Foreign currency risk was not material for fiscal years 2020 and 2019320 Financial Statements and Supplementary Data This section presents audited consolidated financial statements for Skillz Inc., reflecting the reverse recapitalization and key financial positions Consolidated Balance Sheet Data (as of Dec 31) | | 2020 | 2019 | |---|---:|---:| | (in thousands) | | | | Total current assets | $273,219 | $35,092 | | Total assets | $282,421 | $38,856 | | Total current liabilities | $47,356 | $10,481 | | Total liabilities | $47,402 | $20,191 | | Total stockholders' equity | $235,019 | $18,665 | Consolidated Statement of Operations Data (Year Ended Dec 31) | | 2020 | 2019 | 2018 | |---|---:|---:|---:| | (in thousands) | | | | | Revenue | $230,115 | $119,872 | $50,778 | | Loss from operations | $(99,621) | $(24,828) | $(25,545) | | Net loss | $(122,461) | $(23,605) | $(27,780) | - The financial statements have been retroactively restated to reflect the reverse recapitalization from the Business Combination, with Old Skillz as the accounting acquirer353356 - Games from two developer partners accounted for 59% and 28% of the company's revenue in 2020366 Changes in and Disagreements with Accountants on Accounting and Financial Disclosures There were no changes in or disagreements with accountants on accounting and financial disclosure - None530 Evaluation of Disclosure Controls and Procedures Management concluded disclosure controls and procedures were effective as of December 31, 2020, with no material changes identified - Disclosure controls and procedures were deemed effective as of the end of the fiscal year531 - The report does not include a management assessment or auditor attestation on internal control over financial reporting, as permitted for newly public companies532 Other Information There is no other information to report - None535 Part III Directors, Executive Officers and Corporate Governance This section details Skillz's directors and executive officers, noting its status as a "controlled company" due to CEO Andrew Paradise's majority voting power - The board includes experienced leaders from technology, media, and finance, such as Andrew Paradise (CEO), Casey Chafkin (CRO), Harry E. Sloan, and Jerry Bruckheimer539540542544 - Skillz qualifies as a "controlled company" because CEO Andrew Paradise holds over 50% of the voting power, exempting it from certain NYSE governance standards549 - The board has established an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee550 Executive Compensation Executive compensation in 2020 was heavily weighted towards equity awards and business combination bonuses, with CEO Andrew Paradise receiving over $103 million 2020 Summary Compensation for Named Executive Officers (NEOs) | Name | Position | Salary ($) | Bonus ($) | Option Awards ($) | Total ($) | |---|---|---:|---:|---:|---:| | Andrew Paradise | CEO | 400,000 | 3,935,000 | 98,986,052 | 103,321,052 | | Casey Chafkin | CRO | 300,000 | 487,500 | 21,408,998 | 22,197,907 | | Scott Henry | CFO | 219,847 | 200,000 | 23,450,208 | 23,870,055 | - NEOs received significant transaction bonuses in connection with the Business Combination, with payments staggered and contingent on continued employment568 - The company adopted an Executive Severance and Change in Control Plan providing cash severance and accelerated equity vesting upon certain termination events576 - For 2021, the compensation committee approved increased base salaries and target bonuses for all NEOs580 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of March 5, 2021, CEO Andrew Paradise held 84.3% of total voting power, with all directors and executive officers holding 86.2% collectively Beneficial Ownership as of March 5, 2021 | Beneficial Owner | Class A Shares (%) | Class B Shares (%) | % of Total Voting Power | |---|---|---|---:| | Andrew Paradise (CEO) | — | 98.7% | 84.3% | | All Directors & Executive Officers (9 individuals) | 9.6% | 98.7% | 86.2% | | Atlas Venture Fund, IX L.P. | 6.4% | — | 1.3% | | Entities Affiliated with WestCap Management LLC | 6.0% | — | 1.2% | | Bonderman Family Limited Partnership | 5.9% | — | 1.2% | | Morgan Stanley Investment Management Inc. | 5.5% | — | 1.1% | Certain Relationships and Related Transactions, and Director Independence The company disclosed related party transactions, including Series E financing participation and repaid promissory notes, with four of seven directors deemed independent - In 2020, several related parties, including CEO Andrew Paradise and entities like WestCap, participated in the Series E Preferred Stock financing605 - Promissory notes from CEO Andrew Paradise (over $15.2 million) and CRO Casey Chafkin ($3.2 million) for option exercises were cancelled via share surrender prior to the Business Combination606608609610 - The Board of Directors has determined that four of its seven members are independent under NYSE rules613 Principal Accountant Fees and Services The company paid Ernst & Young LLP $2.675 million in fees for 2020, a significant increase primarily for audit services related to the business combination Accountant Fees (2019-2020) | Fee Type | 2020 | 2019 | |---|---:|---:| | (in thousands) | | | | Audit Fees | $2,675 | $40 | | Audit-Related Fees | — | — | | Tax Fees | — | — | | All Other Fees | — | — | | Total | $2,675 | $40 | - The significant increase in audit fees in 2020 was primarily for professional services rendered in connection with the Business Combination615 Part IV Exhibits and Financial Statement Schedules This section lists all exhibits filed with the Annual Report on Form 10-K, including financial statements and key agreements - This section provides an index of all exhibits filed with the Form 10-K, including key agreements related to the business combination, corporate governance, and executive compensation618619 Form 10-K Summary This item is not applicable - None623