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What changed in Skillz Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Skillz Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+350 added−372 removedSource: 10-K (2024-08-29) vs 10-K (2023-03-31)

Top changes in Skillz Inc.'s 2023 10-K

350 paragraphs added · 372 removed · 253 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWe are building the competition layer of the internet by re-inventing competitive mobile gaming. We want to bring out the best in everyone through competition. We believe in the potential for all people to unleash their inner champions through competition and for developers to bring their art to the world and achieve their dreams of financial success.
Biggest changeWe are all born with skills and when we are able to apply those skills through competition, we can achieve great things. That is the guiding principle behind why we are building the competition layer of the internet by re-inventing competitive mobile gaming. Our company’s mission is to bring out the best in everyone through competition.
With our highly automated system, we are able to run LiveOps for the games on our platform with what we believe is a fraction of the resourcing required by a typical game developer. We run multivariate testing on our system settings in order to optimize user engagement and retention for games on our platform.
With our highly automated system, we are able to run LiveOps for the games on our platform with what we believe is a fraction of the resourcing required by a typical game developer. We run multivariate testing on our system settings to optimize user engagement and retention for games on our platform.
Key features of our proprietary data science technologies include anti-cheat, anti-fraud, player rating and matching, and segmentation engine. We believe our technology capabilities are industry-leading and have helped to differentiate our product offerings and fuel our growth. Strong anti-cheat and anti-fraud protections are among the most critical elements required to foster a healthy competitive ecosystem.
Key features of our proprietary data science technologies include anti-cheat, anti-fraud, player rating and matching, and segmentation engine. We believe our technology capabilities are industry-leading and have helped to differentiate our product offerings and fuel our growth and promote fair play. Strong anti-cheat and anti-fraud protections are among the most critical elements required to foster a healthy fair-play competitive ecosystem.
Our Developer Community We have a growing community of developers using our platform to bring their art to the world. Content creation has been democratized in recent years with the introduction of standardized game development and distribution platforms and, as of December 31, 2022 , we had over 16,000 registered game developers launch game integration on our system.
We have a growing community of developers using our platform to bring their art to the world. Content creation has been democratized in recent years with the introduction of standardized game development and distribution platforms. As of December 31, 2023, we had over 16,000 registered game developers launch game integration on our system.
The contents of, or information accessible through, our websites are not incorporated by reference into this Annual Report or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only. 11 TAB LE OF CONTENTS
The contents of, or information accessible through, our websites are not incorporated by reference into this Annual Report or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.
In addition to traditional paid advertising channels, we cross-promote our product offerings to our existing user base across our gaming ecosystem using a combination of content, contests and special offers. We have significant opportunities to extend our marketing channels to offline media and deploy omni-channel marketing strategies to further expand our business.
In addition to traditional paid advertising channels, we cross-promote our product offerings to our existing user base across our gaming ecosystem using a combination of content, contests and special offers. 8 TABLE OF CONTEN T S We have significant opportunities to extend our marketing channels to offline media and deploy omni-channel marketing strategies to further expand our business.
As of December 31, 2022 over 500 developers had a game on our platform with at least one installed user. Our self-serve platform enables our developer customers to integrate and monitor their game performance through sophisticated dashboards.
As of December 31, 2023 over 600 developers had a game on our platform with at least one installed user. Our self-serve platform enables our developer customers to integrate and monitor their game performance through sophisticated dashboards.
We actively monitor metrics such as player liquidity inside each game (based on number of daily active users), the stability of each game (based on crash rates), user satisfaction (based on app store ratings), and user issues (as reported on support tickets).
We actively monitor metrics such as, but not limited to, player liquidity inside each game (based on number of daily active users), the stability of each game (based on crash rates), user satisfaction (based on app store ratings), and user issues (as reported on support tickets).
Our Class A common stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “SKLZ.” Unless the context requires otherwise, the words “Skillz,” “we,” “Company,” “us” and “our” refer to Skillz Inc. and our wholly-owned subsidiaries. Available Information Our website is located at www.skillz.com, and our investor relations website is located at http://investors.skillz.com/.
Our Class A common stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “SKLZ.” Unless the context requires otherwise, the words “Skillz,” “we,” “Company,” “us” and “our” refer to Skillz Inc. and our wholly-owned subsidiaries. 11 TABLE OF CONTEN T S Available Information Our website is located at www.skillz.com, and our investor relations website is located at http://investors.skillz.com/.
We believe that as a result of our values, we have been able to identify, attract, engage and retain great people. Our seven core values define who we are, who we would like to be, and how we make decisions: Diversity, Equity and Inclusion .
We believe that as a result of our values, we have been able to identify, attract, engage and retain great people. Our seven core values define who we are, who we would like to be, and how we make decisions: Building a World Class Team.
ITEM 1. BUSINESS In this Annual Report, when we use the terms the “Company,” “Skillz,” “we,” “us” and “our,” unless otherwise indicated or the context otherwise requires, we are referring to Skillz Inc. and its wholly-owned subsidiaries. Overview We were founded on one simple belief: everyone loves to compete.
ITEM 1. BUSINESS In this Annual Report, when we use the terms the “Company,” “Skillz,” “we,” “us” and “our,” unless otherwise indicated or the context otherwise requires, we are referring to Skillz Inc. and its wholly-owned subsidiaries. Overview We were founded on one simple belief: competition holds the power to unleash possibilities in all of us .
Our live operations, or LiveOps, system manages and optimizes the user experience across the thousands of games on our platform. We have built a highly automated system to power LiveOps for the games on our platform.
Live Operations Delivering live operations in games is critical to user retention and engagement. Our live operations, or LiveOps, system manages and optimizes user experience across the thousands of games on our platform. We have built a highly automated system to power LiveOps on our platform.
Games that do not meet our quality thresholds or are not determined by our proprietary algorithm to be skill-based are not prize enabled. We maintain player data and handle all communications with the players on behalf of our developers. This data model allows us to deliver effective monetization for the benefit of developers on our platform.
Games that do not meet our quality thresholds or are not determined by our proprietary algorithm to be skill-based are not prize enabled. We maintain player data and handle all communications with the players on behalf of our developers.
Historically, a small number of games have accounted for a substantial portion of our revenue. 6 TAB LE OF CONTENTS Games on our platform initially go live with free-to-play capabilities, before applying for prized competitions. We carefully curate which games are enabled for prizes based on a number of criteria, to ensure we provide an enticing competitive mobile gaming experience.
Games on our platform initially go live with free-to-play capabilities, before applying for prized competitions. We carefully curate which games are enabled for prizes based on a number of criteria, to ensure we provide an enticing competitive mobile gaming experience.
At Skillz, we believe that every employee contributes to shaping the future of interactive entertainment. We are a multinational technology company with over 240 employees located in 7 countries as of December 31, 2022, inclusive of employees of Aarki, which we acquired during 2021. Our business success is driven in large part by our highly skilled workforce.
At Skillz, we believe that every employee contributes to shaping the future of interactive entertainment. We are a multinational technology company with over 225 employees located in 11 countries as of December 31, 2023 . Our business success is driven in large part by our highly skilled workforce.
As of December 31, 2022, we enabled cash prizes in 45 states and the District of Columbia, covering approximately 90% of the U.S. population. Skillz enables cash prizes in all states except for Arkansas, Connecticut, Delaware, Louisiana and South Dakota.
As of December 31, 2023, we enabled cash prizes in 45 states and the District of Columbia. Skillz enables cash prizes in all states except for Arkansas, Connecticut, Delaware, Louisiana and South Dakota.
An example of a turn-based synchronous game would be a dominoes game in which users take turns in real-time and the winner is determined when the game ends.
An example of a turn-based synchronous game would be a dominoes game in which users take turns in real-time and the winner is determined when the game ends. An example of a synchronous game would be a real-time strategy game where users are making multiple moves simultaneously and then the winner is determined when the game ends.
We enable game genres that can be played: (i) asynchronously; (ii) synchronously; or (iii) turn-based synchronously. An example of an asynchronous game would be a match-3 puzzle game or bingo game where users play the exact same game at different times and then the scores are compared when both contestants have played to determine the winner.
An example of an asynchronous game would be a match-3 puzzle game or bingo game where users play the exact same game at different times and then the scores are compared when both contestants have played to determine the winner.
This allows the developers to do what they do best — build great games — while we help them on all other fronts by delivering services such as payments, analytics, LiveOps, prize fulfillment and customer service.
This allows the developers to do what they do best — build great games — while we help them on all other fronts by delivering services such as payments, analytics, LiveOps, prize fulfillment and customer service. Historically, a small number of games have accounted for a substantial portion of our revenue.
By monetizing user engagement primarily through prizes, we create a compelling alternative for both developers and users of competitive games. With our system, the more users enjoy playing in contests for prizes and the longer they play, the more revenue we generate for developers. We believe this dynamic generates significantly stronger monetization for developers compared to traditional mobile game monetization.
With our system, the more users enjoy playing in contests for prizes and the longer they play, the more revenue we generate for developers. We believe this dynamic generates significantly stronger monetization for developers compared to traditional mobile game monetization.
Our players enjoy social experiences around our games, by communicating during and after competitions, on topics ranging from sharing gameplay strategies to building healthy rivalries and making personal connections. Our Friends feature allows players to challenge a friend to a match and broadcasts that player’s affinity for Skillz to their social network.
Our players enjoy social experiences around our games, by communicating during and after competitions, on topics ranging from sharing gameplay strategies to building healthy rivalries and making personal connections.
We give gamers confidence to transact on our platform by delivering on our values of trust and fairness. We enable game developers to focus on what they do best: build great content. We provide developers of all sizes with a comprehensive technology platform enabling them to compete with the largest and most sophisticated mobile game developers in the world.
We give gamers confidence to transact on our platform by delivering on our values of trust and fairness. We enable game developers to focus on what they do best: build great content.
It is possible that a number of laws and regulations may be adopted or construed to apply to us that could restrict the online and mobile industries, including with respect to player privacy, taxation, content suitability, copyright, distribution and antitrust.
Additionally, existing and future laws that permit skill-based gaming may be accompanied in the future by restrictions or taxes that make it less feasible or impractical to operate in these jurisdictions. 10 TABLE OF CONTEN T S It is possible that a number of laws and regulations may be adopted or construed to apply to us that could restrict the online and mobile industries, including with respect to player privacy, taxation, content suitability, copyright, distribution and antitrust.
The customer support team responds to all user inquiries including support for game crashes, payment issues, and loyalty program inquiries. For the year ended December 31, 2022 , our customer support team achieved a 92% Player CSAT and 44 Player NPS rating for cash players.
Our Customer Advocacy We provide 24/7 support and trust and safety services to our developers’ end-users. The customer support team responds to all user inquiries including support for game crashes, payment issues, and loyalty program inquiries. For the year ended December 31, 2023 , our customer support team achieved a 95% Player customer satisfaction score (CSAT) for cash players.
Changes in current laws or regulations or the imposition of new laws and regulations in the U.S. or elsewhere regarding these activities may impede the growth of social game services and impair our business, financial condition or results of operations. 10 TAB LE OF CONTENTS Compliance Because we handle, collect, store, receive, transmit and otherwise process certain personal information of users and employees, we are also subject to federal, state and foreign laws related to the privacy and protection of such data, including the General Data Protection Regulation of the European Union (“GDPR”) and the California Consumer Privacy Act (“CCPA”).
Compliance Because we handle, collect, store, receive, transmit and otherwise process certain personal information of users and employees, we are also subject to federal, state and foreign laws related to the privacy and protection of such data, including the General Data Protection Regulation of the European Union (“GDPR”) and the California Consumer Privacy Act (“CCPA”).
Our Platform Overview We are re-inventing competitive mobile gaming and thereby expanding the mobile gaming market. Our technology platform aligns the interests of developers and gamers with respect to user monetization, rather than putting them at odds. Traditional mobile games utilize in-game advertisements or purchases, which we believe creates friction in the user experience, hurting engagement and retention.
Aarki is headquartered in San Francisco, CA, with offices in Europe, the Middle East and Asia. Our Platform Overview We are re-inventing competitive mobile gaming and thereby expanding the mobile gaming market. Our technology platform aligns the interests of developers and gamers with respect to user monetization, rather than putting them at odds.
Developer onboarding has been optimized to enable developers to quickly and easily set up an account, access technical documentation, download the SDK and access customer support. Our developer portal has been built such that an average game developer can implement our SDK in about a day, with little or no technical support.
The first step for a game developer integrating our tournament management system is to sign up for a free account on our developer portal. Developer onboarding has been optimized to enable developers to quickly and easily set up an account, access technical documentation, download the SDK and access customer support.
Tickets earned through the loyalty rewards and awards programs can be redeemed in our in-app Ticketz Store for various prizes ranging from Skillz-branded apparel to luxury goods and vehicles. 8 TAB LE OF CONTENTS Our Customer Advocacy We provide 24/7 support and trust and safety services to our developers’ end-users.
Tickets earned through the loyalty rewards and awards programs can be redeemed in our in-app Ticketz Store for various prizes ranging from Skillz-branded apparel to luxury goods and vehicles. Primarily, our users convert Ticketz to bonus cash. Approximately 96% and 94% of Ticketz were converted to bonus cash in 2023 and 2022, respectively.
Once a game goes live on our platform, the developer portal provides game developers with a single system through which they can access analytics on user behavior and monetization for their games. 5 TAB LE OF CONTENTS Live Operations Delivering live operations in games is critical to user retention and engagement.
Our developer portal has been built such that an average game developer can implement our SDK in about a day, with little or no technical support. Once a game goes live on our platform, the developer portal provides game developers with a single system through which they can access analytics on user behavior and monetization for their games.
We control access to our proprietary technology by entering into confidentiality and invention assignment agreements with our employees and contractors. We actively seek patent protection covering our inventions and as of December 31, 2022 , we had over 110 patents granted or pending worldwide.
We actively seek patent protection covering our inventions and as of December 31, 2023 , we had over 130 patents granted or pending worldwide.
Our developers compete for end users with other forms of consumer discretionary entertainment that vie for the users’ time and disposable income. This includes companies that provide video entertainment, music entertainment, social networking and other forms of leisure entertainment. The large companies in our ecosystem may play multiple roles, given the breadth of their businesses.
This includes companies that provide video entertainment, music entertainment, social networking and other forms of leisure entertainment. The large companies in our ecosystem may play multiple roles, given the breadth of their businesses. Examples of these larger companies include Sony, Amazon, Meta, Apple, Alphabet, and Unity. Most of these companies are also our partners.
Our proprietary platform revolutionizes and democratizes the mobile gaming industry by “leveling the playing field” for developers worldwide, enabling us to deliver gaming experiences that our player community trusts and loves. The trust and fairness we foster with our player community is part of the foundation upon which our business is built.
We are creating opportunities for all people to experience an epic win and for game developers to turn their craft into financial success. Our proprietary platform revolutionizes and democratizes the mobile gaming industry by “leveling the playing field” for developers worldwide, enabling us to deliver gaming experiences that our player community trusts and loves.
An example of a synchronous game would be a real-time strategy game where users are making multiple moves simultaneously and then the winner is determined when the game ends. 7 TAB LE OF CONTENTS Our Distribution Our developers distribute their games through direct app downloads from our websites, as well as third-party platforms, such as the Apple App Store, which traditionally has been the main distribution channel for our developers’ games.
Our Distribution Our developers distribute their games through direct app downloads from our websites, as well as third-party platforms, such as the Apple App Store, which traditionally has been the main distribution channel for our developers’ games.
Our Competition We primarily compete with alternative monetization services for mobile game content. This includes platforms that facilitate in-app advertisements and purchases. We principally compete on a number of factors, including a robust technology toolset designed with the ability to convert, engage and retain users.
We principally compete on a number of factors, including a robust technology toolset designed with the ability to convert, engage and retain users. Our developers compete for end-users with other forms of consumer discretionary entertainment that vie for the users’ time and disposable income.
Skillz offers industry competitive wages and benefits. We also offer our employees a holistic total rewards package, with premier health and welfare programs for employees and family members. We believe our employees should have the support they need to maintain a strong work/life balance, grow personally and professionally, and save for their future.
We believe our employees should have the support they need to maintain a strong work/life balance, grow personally and professionally, and save for their future. While the philosophy around our benefits is the same worldwide, specific benefits vary regionally due to local regulations and preferences.
Examples of these larger companies include Sony, Amazon, Meta, Apple, Alphabet, and Unity. Most of these companies are also our partners. Our Intellectual Property Our business relies substantially on the creation, use and protection of intellectual property. We protect our intellectual property by relying on international, federal, state and common law rights.
Our Intellectual Property Our business relies substantially on the creation, use and protection of intellectual property. We protect our intellectual property by relying on international, federal, state and common law rights. We control access to our proprietary technology by entering into confidentiality and invention assignment agreements with our employees and contractors.
Developer Console Our intuitive developer dashboard enables our developer partners to rapidly integrate and monitor the performance of their games on our platform. The first step for a game developer integrating our tournament management system is to sign up for a free account on our developer portal.
Our “Friends” feature allows players to challenge a friend to a match and broadcasts that player’s affinity for Skillz to their social network. 5 TABLE OF CONTEN T S Developer Console Our intuitive developer dashboard enables our developer partners to rapidly integrate and monitor the performance of their games on our platform.
(“New Skillz”) and (ii) the Old Skillz stockholders and the holders of Old Skillz options and warrants exchanged their Old Skillz capital stock and Old Skillz options for equity interests in New Skillz. Our mailing address is P.O. Box 445, San Francisco, California 94104, and our telephone number is (415) 762-0511.
(“New Skillz”) and (ii) the Old Skillz stockholders and the holders of Old Skillz options and warrants exchanged their Old Skillz capital stock and Old Skillz options for equity interests in New Skillz. On June 23, 2023, the Company’s effectuated the one-for twenty reverse stock split of its issued and outstanding shares of Common Stock.
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Our Gamer Community We built a virtual world in which our gamer community shares in the thrill of victory or the agony of defeat, enjoying healthy rivalry, great achievements and valued recognition. Our social features such as chat, friend tournaments and leagues allow players to interact and build relationships, strengthening our player community.
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The trust and fairness we foster with our player community is part of the foundation upon which our business is built. Fair Play Our proprietary platform provides certainty that every player is fairly matched against another real player. That is the bedrock of competition, and a critical tenet of skill-based gaming.
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This community helps generate organic user growth, supplementing our paid user acquisition strategies. As illustrated in the table below, we believe our end-user demographic is the mass market and resembles the population at large. Gaming for Good We believe we have pioneered the next iteration of the charity walk-a-thon.
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Unfortunately, we believe there are competitors that do not follow ethical fairness practices and utilize bots to deceive players, often matching their consumers against bots instead of real opponents. In 2024, following a jury verdict finding AviaGames willfully infringed one of Skillz’s patents, the Company entered into a settlement.
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Through our initiative, Gaming for Good, or G4G, our platform enables mass-participatory video game tournaments that harness the power of community through competition. Through our platform, non-profits can reach a dramatically broadened universe of younger, first-time donors. A diverse range of charitable initiatives have benefited from the power of our platform and gamer community.
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The evidence we made public at trial showed the competitor and their executives are using bots to build their business, which we believe deceives consumers and harms our company’s competitive position. Instead of being matched with real opponents, as advertised, the evidence showed that consumers were unknowingly competing against bots.
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We have been honored to be trusted by some of the world’s leading non-profits, such as the World Wildlife Fund, the American Red Cross, the NAACP, and the American Cancer Society, to engage their audiences and expand their reach. Games on Our Platform We offer a wide range of gaming experiences for users.
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We believe the evidence made public at trial showed the competitor’s use of bots allowed it to engineer the outcome of the matches and directly pocket the consumers’ money.
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At Skillz, we believe a diverse and inclusive workplace leads to greater innovation, agility, performance and engagement, enabling both business growth and societal impact. We envision a world where everyone plays games and we need everyone represented as we build that world, which is why we are dedicated to building a diverse team and inclusive environment as we scale.
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Winning this first case was a big milestone, but we are far from done in our quest to uphold fair play and protect consumers from what we believe is fraudulent inducement, misrepresentation and the outright theft of billions of hard-earned consumer dollars. We will continue to do everything in our power to help stop those dishonest practices.
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At Skillz, we ensure employees from diverse backgrounds are engaged, can be their authentic selves, build skills and achieve their greatest potential. Further, Skillz is committed to pay equity and representation from the bottom to the top: we were the first gaming company and the first eSports company to take the ParityPledge. Competitive Compensation and Benefits.
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We are 100% committed to this effort and believe that in addition to the trial verdict and settlement award won in 2024, we will prevail in similar circumstances in the future while at the same time, eliminating ‘bad actors’ from the gaming industry.
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While the philosophy around our benefits is the same worldwide, specific benefits vary regionally due to local regulations and preferences. In addition, nearly every employee at Skillz is eligible for equity awards to share in the Company’s financial success. Training and Development. At Skillz, we foster a strong culture of learning, innovation and growth.
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Additionally, the Company is in the early stages of two lawsuits filed against our competitors, Papaya Gaming (as defined below) and Voodoo (as defined below), alleging that those competitors engaged in false advertising and unfair business practices in connection with their use of bots in mobile games, unbeknownst to customers.
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In 2021, we were named by Fast Company one of the Best Workplaces for Innovators. We believe that investing in the growth and development of Skillzians will directly enhance our overall company performance.
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We also note that class action lawsuits have already been filed against two of our competitors (AviaGames and Voodoo). We are hopeful that government authorities will take note of Skillz’s progress identifying fraudulent bot use in the industry and take action to protect consumers.
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In support of this, we offer mentorship programs and employee trainings designed to help Skillzians develop and manage their careers, drive accountability, and promote a culture of 9 TAB LE OF CONTENTS continuous feedback. We also provide robust manager training that shares effective tools and frameworks around recruiting, managing, and developing our team members.
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As we uncover proof of fraudulent use of bots at any company in this industry we intend to initiate additional actions that help protect both Skillz and consumers. Our goal is not to reduce competition, but rather to ensure that all organizations in our industry maintain the same level of commitment to providing a transparent and fair player experience.
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Additionally, existing and future laws that permit skill-based gaming may be accompanied in the future by restrictions or taxes that make it less feasible or impractical to operate in these jurisdictions.
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Skillz will continue to combat the deceptive usage of bots until all systemic fraud in our industry is eliminated. Our Turnaround Efforts To propel Skillz toward sustained top-line growth and positive cash flow, we've established four strategic pillars. First, enhancing our platform to improve consumer and developer engagement and retention. Second, upleveling our organization. Third, improving our go-to-market efficiency.
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Our successful execution against the first three pillars then leads to the progress we are making with achieving our fourth key pillar: demonstrating a clear path to profitability with a goal of generating positive Adjusted EBITDA by the end of 2024. 4 TABLE OF CONTEN T S While our progress to-date is encouraging and we remain confident in our ability to continue improving the business, progress takes time to fully achieve our business turnaround objectives.
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Our Segments Skillz Skillz is a leading eSports gaming platform. Its platform enables game developers to monetize their content through multi-player competition.
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By utilizing Skillz’ monetization services, developers can enhance their end-user experiences by enabling them to compete in head-to-head matches, live tournaments, leagues, and charity events while also increasing player retention through referral bonus programs, loyalty perks, on-system achievements, and rewards / prizes. Skillz provides its monetization services to developers via a downloadable software development kit (“SDK”).
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The SDK integrates with developers’ existing games. Monetization services include end-user registration, player matching, fraud & fair play monitoring, and settlement for player billings and payouts. Skillz is headquartered in Las Vegas, NV with offices in Los Angeles, CA, Canada, and India. Aarki Aarki is an AI company that delivers advertising solutions to drive revenue growth for mobile app developers.
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Aarki enables brands to effectively engage audiences in a privacy-first world by using billions of contextual bidding signals coupled with proprietary machine learning and behavioral models. Aarki works with hundreds of advertisers globally and manages approximately 5 million mobile ad requests per second from over 10 billion devices.
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Traditional mobile games utilize in-game advertisements or purchases, which we believe creates friction in the user experience, hurting engagement and retention. By monetizing user engagement primarily through prizes, we create a compelling alternative for both developers and users of competitive games.
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We provide developers of all sizes with a comprehensive technology platform enabling them to compete with the largest and most sophisticated mobile game developers in the world. 6 TABLE OF CONTEN T S Our Developer Community The global video game market size was estimated at $217.1 billion in 2022 and is expected to grow at a compound annual growth rate (CAGR) of 13.4% from 2023 to 2030.
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The market's expansion is attributed to the ongoing trend of online gaming, the emergence of high bandwidth network connectivity, and the continuous demand for 3D games. In addition, an upsurge in the penetration of smartphones has made video games more accessible, portable, and social.
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This has further driven the industry’s growth with the emergence of technologically advanced and more powerful smartphones. Market players are also focusing on developing advanced gaming products and services to attract a larger customer base, which is positively influencing the overall industry. However, mobile video game developers increasingly struggle to get their content discovered and monetized.
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The introduction of standardized game development platforms and universally known distribution platforms such as the AppStore, Google Play, and Galaxy Store have resulted in a flood of game content to the market. Meanwhile, traditional methods used by game developers to monetize their content (e.g., via Ads or In-Game Purchase) have not kept pace.
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As a result, a massive amount of great game content is not being discovered or monetized to its fullest potential. Skillz provides a service to the game developers aimed at improving the monetization of their game content. The monetization service provided by Skillz allows developers to offer multiplayer competition to their end-users which increases end-user retention and engagement.
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This data model allows us to deliver effective monetization for the benefit of developers on our platform. 7 TABLE OF CONTEN T S Games on Our Platform We offer a wide range of gaming experiences for users. We enable game genres that can be played: (i) asynchronously; (ii) synchronously; or (iii) turn-based synchronously.
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At Skillz, we believe a team with diverse business and geographic backgrounds leads to greater innovation, performance and engagement, enabling differential business growth. We believe that hiring employees in countries that have significant talent in gaming is important as we continue to make progress in our turnaround.
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As such, we have opened an office in India to attract and retain top gaming talent. 9 TABLE OF CONTEN T S Competitive Compensation and Benefits. Skillz offers industry competitive wages and benefits. We also offer our employees a holistic total rewards package, with premier health and welfare programs for employees and family members.
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In addition, nearly every employee at Skillz is eligible for equity awards to share in the Company’s financial success. Our Competition We primarily compete with alternative monetization services for mobile game content. This includes platforms that facilitate in-app advertisements and purchases.
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Changes in current laws or regulations or the imposition of new laws and regulations in the U.S. or elsewhere regarding these activities may impede the growth of social game services and impair our business, financial condition or results of operations.
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As a result of the reverse stock split, every 20 shares of issued and outstanding Common Stock were combined and converted into one issued and outstanding share of Common Stock, and the number of authorized shares of Common Stock was reduced proportionately. The par value per share of Common Stock remains unchanged.
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The Company’s Class A Common Stock began trading on a split-adjusted basis on the NYSE at market open on June 26, 2023. All share and per-share amounts have been retrospectively adjusted to reflect the impact of the reverse stock split. Our mailing address is 6625 Badura Ave, Las Vegas, NV 89118, and our telephone number is (415) 762-0511.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese risks include, but are not limited to: • Our future growth depends on our ability to attract and retain end-users, and do so in a cost-effective manner; • Our business could be harmed if we fail to manage our growth effectively; • We have a history of losses and we may be unable to achieve profitability; • We rely on our third-party developer partners to continue to offer a competitive experience in existing and new games on our platform; • A limited number of games account for a substantial portion of our revenue; • We rely on third-party service providers including cloud computing services, payment processors, and infrastructure service providers, and if we cannot manage our relationships with such providers or lose access to such services, our business, financial condition, results of operations and prospects could be adversely affected; • Failure to maintain our brand and reputation could harm our business, financial condition and results of operations; • The broader entertainment industry is highly competitive and our existing and potential users may be attracted to competing forms of entertainment; • Our business is subject to a variety of U.S. and foreign laws, which are subject to change and could adversely affect our business; • Failure to obtain, maintain, protect or enforce our intellectual property rights could harm our business, results of operations and financial condition; • Economic downturns and political and market conditions beyond our control could adversely affect our business, financial condition and results of operations; • The occurrence of a data breach or other failure of our cybersecurity; • Failure to properly contain a global pandemic in a timely manner could materially affect how we and our business partners are operating; • Failure to timely and effectively remediate the material weaknesses in our internal controls over financial reporting or additional material weaknesses or other deficiencies in the future; and • Failure to mitigate the commercial, reputational and regulatory risks to our business that may arise as a consequence of our need to restate our financial statements. 12 TAB LE OF CONTENTS Risks Related to Our Business and Industry We identified certain misstatements to our previously issued financial statements and have restated certain of our Consolidated Financial Statements, which has created additional risks and uncertainties that may have a material adverse effect on our business, financial position and results of operations.
Biggest changeThese risks include, but are not limited to: • Our ability to attract and retain end-users, and do so in a cost-effective manner; • Our ability to manage our growth effectively; • Our ability to achieve profitability given our history of losses; • Our reliance on our third-party developer partners to continue to offer a competitive experience in existing and new games on our platform; • Risks related to the fact that a limited number of games account for a substantial portion of our revenue; • Our reliance on third-party service providers including cloud computing services, payment processors, and infrastructure service providers, and our ability to manage our relationships with such providers or lose access to such services; • Our ability to maintain our brand and reputation; • The competitiveness of the broader entertainment industry, and the potential that our existing and potential users may be attracted to competing forms of entertainment; • Risk related to a variety of U.S. and foreign laws which our business is subject to, and which are subject to change and could adversely affect our business; • Our ability to obtain, maintain, protect or enforce our intellectual property rights; • Risks related to economic downturns and political and market conditions beyond our control; • Risk related to the occurrence of a data breach or other failure of our cybersecurity; • Failure to properly contain a global pandemic in a timely manner and any related impact on how we and our business partners are operating; • Our ability to timely and effectively remediate the material weaknesses in our internal controls over financial reporting or additional material weaknesses or other deficiencies in the future; and • Our ability to mitigate the commercial, reputational and regulatory risks to our business that may arise as a consequence of our need to restate our financial statements. 12 TABLE OF CONTEN T S Risks Related to Our Business and Industry We identified certain misstatements to our previously issued financial statements and have restated certain of our Consolidated Financial Statements, which has created additional risks and uncertainties that may have a material adverse effect on our business, financial position and results of operations.
In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting, our ability to obtain additional financing may be impaired and our stock price may decline as a result.
In such a case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting, our ability to obtain additional financing may be impaired and our stock price may decline as a result.
Our growth will depend on our ability to attract and retain end-users who participate in paid-entry fee contests, and the loss of such end-users, or failure to attract new end-users in a cost-effective manner, would adversely affect our business, financial condition, results of operations and prospects.
Our growth will depend on the ability to attract and retain end-users who participate in paid-entry fee contests, and the loss of such end-users, or failure to attract new end-users in a cost-effective manner, would adversely affect our business, financial condition, results of operations and prospects.
In addition, changes in general market, economic and political conditions in domestic and foreign economies or financial markets, including fluctuation in stock markets resulting from, among other things, trends in the economy as a whole may reduce users’ disposable income. Political instability or adverse political developments could also harm our business, financial condition and results of operations.
In addition, changes in the general market, economic and political conditions in domestic and foreign economies or financial markets, including fluctuation in stock markets resulting from, among other things, trends in the economy as a whole may reduce users’ disposable income. Political instability or adverse political developments could also harm our business, financial condition and results of operations.
Our vendors and other third parties with whom we do business, such as our developer partners, are also subject to the foregoing risks, and we do not have any control over them.
Our vendors and other third parties with whom we do business with, such as our developer partners, are also subject to the foregoing risks, and we do not have any control over them.
Most recently, in July 2020, the Court of Justice the European Union (“CJEU”) invalidated the EU-U.S. Privacy Shield Framework (“Privacy Shield”) under which personal data could be transferred from the EEA to the United States.
Most recently, in July 2020, the Court of Justice of the European Union (“CJEU”) invalidated the EU-U.S. Privacy Shield Framework (“Privacy Shield”) under which personal data could be transferred from the EEA to the United States.
Mr. Paradise’s equity interest in us may be diluted due to future equity issuances by us or his own actions in selling shares of Class B common stock in each case, which could result in a loss of the “controlled company” exemption under the NYSE listing rules.
Paradise’s equity interest in us may be diluted due to future equity issuances by us or his own actions in selling shares of Class B common stock in each case, which could result in a loss of the “controlled company” exemption under the NYSE listing rules.
Compliance with these rules and regulations can be burdensome. Our management and other personnel need to devote a substantial amount of time to these compliance initiatives. In addition, these rules and regulations have and will continue to increase our historical legal and financial compliance costs and will make some activities more time-consuming and costly.
Compliance with these rules and regulations can be burdensome. Our management and other personnel need to devote a substantial amount of time to these compliance initiatives. In addition, these rules and regulations have and will continue to increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
Challenges and risks from such investments and acquisitions include: • negative effects on business initiatives and strategies from the changes and potential disruption that may follow the acquisition; • diversion of our management’s attention; • declining employee morale and retention issues resulting from changes in compensation, or changes in management, reporting relationships, or future prospects; • the need to integrate the operations, systems, technologies, products and personnel of each acquired company, the inefficiencies and lack of control that may result if such integration is delayed or not implemented, and unforeseen difficulties and expenditures that may arise in connection with integration; • the difficulty in determining the appropriate purchase price of acquired companies may lead to the overpayment of certain acquisitions and the potential impairment of intangible assets and goodwill acquired in the acquisitions; • the difficulty in successfully evaluating and utilizing the acquired products, technology or personnel; • the potential incurrence of debt, contingent liabilities, amortization expenses or restructuring charges in connection with any acquisition; • the need to implement controls, procedures and policies appropriate for a larger, U.S.-based public company at companies that prior to acquisition may not have as robust controls, procedures and policies, in particular, with respect to the effectiveness of cyber and information security practices and incident response plans, compliance with privacy and other regulations protecting the rights of developers and users, and compliance with U.S.-based economic policies and sanctions which may not have previously been applicable to the acquired company’s operations; • the difficulty in accurately forecasting and accounting for the financial impact of an acquisition transaction, including accounting charges and integrating and reporting results for acquired companies that have not historically followed U.S.
Challenges and risks from such investments and acquisitions include: • negative effects on business initiatives and strategies from the changes and potential disruption that may follow the acquisition; • diversion of our management’s attention; • declining employee morale and retention issues resulting from changes in compensation, or changes in management, reporting relationships, or future prospects; • the need to integrate the operations, systems, technologies, products and personnel of each acquired company, the inefficiencies and lack of control that may result if such integration is delayed or not implemented, and unforeseen difficulties and expenditures that may arise in connection with integration; • the difficulty in determining the appropriate purchase price of acquired companies may lead to the overpayment for certain acquisitions and the potential impairment of intangible assets and goodwill acquired in the acquisitions; • the difficulty in successfully evaluating and utilizing the acquired products, technology or personnel; • the potential incurrence of debt, contingent liabilities, amortization expenses or restructuring charges in connection with any acquisition; 27 TABLE OF CONTEN T S • the need to implement controls, procedures and policies appropriate for a larger, U.S.-based public company at companies that prior to acquisition may not have as robust controls, procedures and policies, in particular, with respect to the effectiveness of cyber and information security practices and incident response plans, compliance with privacy and other regulations protecting the rights of developers and users, and compliance with U.S.-based economic policies and sanctions which may not have previously been applicable to the acquired company’s operations; • the difficulty in accurately forecasting and accounting for the financial impact of an acquisition transaction, including accounting charges and integrating and reporting results for acquired companies that have not historically followed U.S.
Accordingly, Mr. Paradise will be able to control matters submitted to our stockholders for approval, including the election of directors, amendments of our organizational documents and any merger, consolidation, sale of all or substantially all of our assets or other major corporate transactions. Mr.
Paradise will be able to control matters submitted to our stockholders for approval, including the election of directors, amendments of our organizational documents and any merger, consolidation, sale of all or substantially all of our assets or other major corporate transactions. Mr.
If the games offered on our platform do not meet consumer expectations, if they are not marketed in a timely and effective manner, or if end-users decide to withdraw prior winnings rather than apply such winnings as entry fees to enter subsequent paid contests on our platform our revenue and financial performance will be negatively affected.
If the games offered on our platform do not meet consumer expectations, if they are not marketed in a timely and effective manner, or if end-users decide to withdraw prior winnings rather than apply such winnings as entry fees to enter subsequent paid contests on our platform our revenue cash flow and financial performance will be negatively affected.
Expanding our international focus may subject us to risks that we have not faced before or increase risks that we currently face, including risks associated with: 24 TAB LE OF CONTENTS • inability to host certain games in certain foreign countries; • challenges caused by distance, language and cultural differences; • developing and customizing games and other offerings that appeal to the tastes and preferences of players in international markets; • competition from local game makers with significant market share in those markets and with a better understanding of player preferences; • utilizing, protecting, defending and enforcing our intellectual property rights; • negotiating agreements with local distribution platforms that are sufficiently economically beneficial to us and protective of our rights; • the inability to extend proprietary rights in our brand, content or technology into new jurisdictions; • implementing alternative payment methods for virtual items in a manner that complies with local laws and practices and protects us from fraud; • compliance with applicable foreign laws and regulations, including privacy laws and laws relating to content and consumer protection (for example, the United Kingdom’s Office of Fair Trading’s 2014 principles relating to in-app purchases in free-to-play games that are directed toward children 16 and under); • compliance with anti-bribery laws, including the Foreign Corrupt Practices Act; • credit risk and higher levels of payment fraud; • currency exchange rate fluctuations; • protectionist laws and business practices that favor local businesses in some countries; • double taxation of our international earnings and potentially adverse tax consequences due to changes in the tax laws of the U.S. or the foreign jurisdictions in which we operate; • political, economic and social instability; • public health crises, which can result in varying impacts to our employees, players, vendors and commercial partners internationally; • higher costs associated with doing business internationally; • export or import regulations; and • trade and tariff restrictions.
Expanding our international focus may subject us to risks that we have not faced before or increase risks that we currently face, including risks associated with: • inability to host certain games in certain foreign countries; • challenges caused by distance, language and cultural differences; • developing and customizing games and other offerings that appeal to the tastes and preferences of players in international markets; • competition from local game makers with significant market share in those markets and with a better understanding of player preferences; • utilizing, protecting, defending and enforcing our intellectual property rights; • negotiating agreements with local distribution platforms that are sufficiently economically beneficial to us and protective of our rights; • the inability to extend proprietary rights in our brand, content or technology into new jurisdictions; • implementing alternative payment methods for virtual items in a manner that complies with local laws and practices and protects us from fraud; • compliance with applicable foreign laws and regulations, including privacy laws and laws relating to content and consumer protection (for example, the United Kingdom’s Office of Fair Trading’s 2014 principles relating to in-app purchases in free-to-play games that are directed toward children 16 and under); • compliance with anti-bribery laws, including the Foreign Corrupt Practices Act; • credit risk and higher levels of payment fraud; • currency exchange rate fluctuations; 26 TABLE OF CONTEN T S • protectionist laws and business practices that favor local businesses in some countries; • double taxation of our international earnings and potentially adverse tax consequences due to changes in the tax laws of the U.S. or the foreign jurisdictions in which we operate; • political, economic and social instability; • public health crises, which can result in varying impacts to our employees, players, vendors and commercial partners internationally; • higher costs associated with doing business internationally; • export or import regulations; and • trade and tariff restrictions.
However, cybersecurity attacks, including breaches, computer malware, computer hacking and insider threats have become more prevalent in our industry, and our systems may not be adequately designed with the necessary reliability and redundancy to avoid performance delays or outages that could be harmful to our business.
However, cybersecurity incidents, including breaches, computer malware, computer hacking and insider threats have become more prevalent in our industry, and our systems may not be adequately designed with the necessary reliability and redundancy to avoid performance delays or outages that could be harmful to our business.
While substantially all of our business operations can be performed remotely in the case of a pandemic or epidemic, in the past, many of our employees juggled additional work-related and personal challenges, including adjusting communication and work practices to collaborate remotely with work colleagues and business partners, managing technical and communication challenges of working from home on a daily basis, looking after children as a result of remote-learning and school closures, making plans for childcare and caring for themselves, family members or other dependents who are or may become ill which have impacted and may impact in the future, our business and operations.
While substantially all of our business operations can be performed remotely in the case of a pandemic or epidemic, in the past, many of our employees would be required to juggle additional work-related and personal challenges, including adjusting communication and work practices to collaborate remotely with work colleagues and business partners, managing technical and communication challenges of working from home on a daily basis, looking after children as a result of remote-learning and school closures, making plans for childcare and caring for themselves, family members or other dependents who are or may become ill which have impacted and may impact in the future, our business and operations.
Our indebtedness could have important consequences including: • making it more difficult for us to satisfy our obligations with respect to our debt, and any failure to comply with the obligations under our debt instruments, including restrictive covenants, could result in an event of default under the indenture governing our senior secured notes or agreements governing future indebtedness; • increasing our vulnerability to adverse general economic and industry conditions; • limiting our flexibility in planning for, or reacting to, changes in the economy and our industry; • placing us at a competitive disadvantage compared to our competitors with less indebtedness; • making it more difficult to borrow additional funds in the future to fund growth, acquisitions, working capital, capital expenditures and other purposes; and • potentially requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund our other business needs.
Our indebtedness could have important consequences including: • making it more difficult for us to satisfy our obligations with respect to our debt, and any failure to comply with the obligations under our debt instruments, including restrictive covenants, could result in an event of default under the indenture governing our senior secured notes or agreements governing future indebtedness; • increasing our vulnerability to adverse general economic and industry conditions; • limiting our flexibility in planning for, or reacting to, changes in the economy and our industry; • placing us at a competitive disadvantage compared to our competitors with less indebtedness; • making it more difficult to borrow additional funds in the future to fund growth, acquisitions, working capital, capital expenditures and other purposes; and 40 TABLE OF CONTEN T S • potentially requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund our other business needs.
Any of the foregoing impacts, individually or in aggregate, may have a material adverse effect on our business, financial position and results of operations. We have identified material weaknesses in our internal control over financial reporting as of December 31, 2021 and December 31, 2022.
Any of the foregoing impacts, individually or in aggregate, may have a material adverse effect on our business, financial position and results of operations. We have identified material weaknesses in our internal control over financial reporting as of December 31, 2022 and December 31, 2023.
We cannot assure you that the measures we take to prevent or hinder cyber-attacks, protect our systems, data and user information and to prevent outages, data or information loss, fraud and to prevent or detect security breaches, including a disaster recovery strategy for server and equipment failure and back-office systems and the use of third parties for certain cybersecurity services, will provide sufficient security.
We cannot assure you that the measures we take to prevent or hinder cybersecurity incidents, protect our systems, data and user information and to prevent outages, data or information loss, fraud and to prevent or detect security breaches, including a disaster recovery strategy for server and equipment failure and back-office systems and the use of third parties for certain cybersecurity services, will provide sufficient security.
The credit facility and the indenture governing the senior secured notes include covenants restricting, among other things, our ability to do the following under certain circumstances: • incur or guarantee additional indebtedness or issue certain disqualified or preferred stock; • pay dividends or make other distributions on, or redeem or purchase any equity interests or make other restricted payments; • make certain acquisitions or investments; • create or incur liens; • transfer or sell assets; • incur restrictions on the payment of dividends or other distributions from our restricted subsidiaries; • alter the business that we conduct; • enter into transactions with affiliates; and • consummate a merger or consolidation or sell, assign, transfer, lease or otherwise dispose of all or substantially all our assets.
The credit facility and the indenture governing the senior secured notes include covenants restricting, among other things, our ability to do the following under certain circumstances: • incur or guarantee additional indebtedness or issue certain disqualified or preferred stock; • pay dividends or make other distributions on, or redeem or purchase any equity interests or make other restricted payments; • make certain acquisitions or investments; • create or incur liens; • transfer or sell assets; • incur restrictions on the payment of dividends or other distributions from our restricted subsidiaries; • alter the business that we conduct; • enter into transactions with affiliates; • conduct buy-back or share repurchase programs; and • consummate a merger or consolidation or sell, assign, transfer, lease or otherwise dispose of all or substantially all our assets.
The Company then conducted a review of other foreign jurisdictions and determined it was liable for indirect taxation in various countries. See Note 12, Commitments and Contingencies, for further details.
The Company then conducted a review of other foreign jurisdictions and determined it was liable for indirect taxation in various countries. See Note 10 , Commitments and Contingencies, for further details.
Delaware law and provisions in our Third Amended and Restated Certificate of Incorporation (our “Charter”) and Amended and Restated Bylaws (our “Bylaws”) could make a takeover proposal more difficult. Our organizational documents are governed by Delaware law.
Delaware law and provisions in our Fourth Amended and Restated Certificate of Incorporation (our “Charter”) and Amended and Restated Bylaws (our “Bylaws”) could make a takeover proposal more difficult. Our organizational documents are governed by Delaware law.
If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, 32 TAB LE OF CONTENTS regulatory authorities may initiate legal proceedings against us, and there could be a material adverse effect on our business, financial condition, cash flows and results of operations.
If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us, and there could be a material adverse effect on our business, financial condition, cash flows and results of operations.
We would then be required to comply with corporate governance protections of the NYSE listing requirements described above. 35 TAB LE OF CONTENTS The dual class structure of our common stock has the effect of concentrating voting power with our Chief Executive Officer and Co-Founder, which will limit an investor’s ability to influence the outcome of important transactions, including a change in control.
We would then be required to comply with corporate governance protections of the NYSE listing requirements described above. The dual class structure of our common stock has the effect of concentrating voting power with our Chief Executive Officer and Co-Founder, which will limit an investor’s ability to influence the outcome of important transactions, including a change in control.
A number of established, well-financed companies producing online gaming, and/or interactive entertainment products and services compete with our platform, and other well-capitalized companies may introduce competitive services.
A number of established, well-financed companies producing online games, and/or interactive entertainment products and services compete with our platform, and other well-capitalized companies may introduce competitive services.
Furthermore, there exists today an increasing number of types of open source software licenses, almost none of which 22 TAB LE OF CONTENTS have been tested in courts of law to provide guidance of their proper legal interpretations, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our use of the open source software.
Furthermore, there exists today an increasing number of types of open source software licenses, almost none of which have been tested in courts of law to provide guidance of their proper legal interpretations, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our use of the open source software.
In addition, we may be subject to changes in the policies or structures of online platforms for purchase and download mobile applications that may negatively impact the number of organic downloads of our games. 18 TAB LE OF CONTENTS If the growth of high-bandwidth capabilities, particularly for mobile devices, is slower than we expect, end-user growth, retention, and engagement may be seriously harmed.
In addition, we may be subject to changes in the policies or structures of online platforms for purchase and download mobile applications that may negatively impact the number of organic downloads of our games. If the growth of high-bandwidth capabilities, particularly for mobile devices, is slower than we expect, end-user growth, retention, and engagement may be seriously harmed.
However, we cannot guarantee that we have entered into such agreements with each party who has developed intellectual property on our behalf or each party that has or 28 TAB LE OF CONTENTS may have had access to our confidential information, know-how and trade secrets and cannot assure you that these agreements will be effective in controlling access to, and use and distribution of, our platform and proprietary information.
However, we cannot guarantee that we have entered into such agreements with each party who has developed intellectual property on our behalf or each party that has or may have had access to our confidential information, know-how and trade secrets and cannot assure you that these agreements will be effective in controlling access to, and use and distribution of, our platform and proprietary information.
While the CJEU upheld the adequacy of standard contractual clauses, a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism and potential 27 TAB LE OF CONTENTS alternative to the Privacy Shield, it made clear that reliance on them alone may not necessarily be sufficient in all circumstances.
While the CJEU upheld the adequacy of standard contractual clauses, a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism and potential alternative to the Privacy Shield, it made clear that reliance on them alone may not necessarily be sufficient in all circumstances.
As discussed in Part II – 9A, ”Controls and Procedures”, of this Annual Report, our management concluded that material weaknesses existed as of December 31, 2022.
As discussed in Part II – 9A, ”Controls and Procedures”, of this Annual Report, our management concluded that material weaknesses existed as of December 31, 2023.
In addition, there may be issues related to this infrastructure that are not identified during the testing phases of design and implementation, which may only become evident after we have started to fully use the underlying equipment or software, that could further degrade the user 19 TAB LE OF CONTENTS experience or increase our costs.
In addition, there may be issues related to this infrastructure that are not identified during the testing phases of design and implementation, which may only become evident after we have started to fully use the underlying equipment or software, that could further degrade the user experience or increase our costs.
It is also likely that as our business grows and evolves, particularly if we expand to other countries, we will become subject to laws in additional jurisdictions or other jurisdictions may claim that we are required to comply with their laws. State and federal laws in the U.S. distinguish between games of skill and games of chance.
It is also likely that as our business grows and evolves, particularly if we expand to other countries, we will become subject to laws in additional jurisdictions or other jurisdictions may claim that we are required to comply with their laws. 20 TABLE OF CONTEN T S State and federal laws in the U.S. distinguish between games of skill and games of chance.
So long as more than 50% of the voting power for the election of our directors is held by an individual, a group or another company, we will qualify as a “controlled company” within the meaning of the NYSE corporate governance standards. As December 31, 2022, Mr. Paradise controls 82% of the voting power of our outstanding capital stock.
So long as more than 50% of the voting power for the election of our directors is held by an individual, a group or another company, we will qualify as a “controlled company” within the meaning of the NYSE corporate governance standards. As of December 31, 2023, Mr. Paradise controlled 82% of the voting power of our outstanding capital stock.
Additionally, tax authorities may impose indirect taxes on Internet-related commercial activity based on existing statutes and regulations which, in some cases, were established prior to the advent of the Internet. Tax authorities may interpret laws originally enacted for mature industries and apply it to newer industries, such as Skillz.
Additionally, tax authorities may impose indirect taxes on internet-related commercial activity based on existing statutes and regulations which, in some cases, were established prior to the advent of the Internet. Tax authorities may interpret laws originally enacted for mature industries and apply it to newer industries, such as the skill-based gaming industry.
The calculation of our key 30 TAB LE OF CONTENTS metrics and examples of how user activity and our systems may impact the calculation of these metrics is described in detail under the heading titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our third-party developers and investors rely on our key metrics as a representation of our performance.
The calculation of our key metrics and examples of how user activity and our systems may impact the calculation of these metrics is described in detail under the heading titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our third-party developers and investors rely on our key metrics as a representation of our performance.
Additionally, rapidly evolving technology and capabilities, evolving changes in the sources, capabilities and targets for cybersecurity attacks, as well as the increasing sophistication of cyber criminals increase the risk of material data compromise or business disruption.
Additionally, rapidly evolving technology and capabilities (including artificial intelligence), evolving changes in the sources, capabilities and targets for cybersecurity attacks, as well as the increasing sophistication of cyber criminals increase the risk of material data compromise or business disruption.
For instance, the Children’s Online Privacy Protection Act (“COPPA”) requires companies to obtain parental consent before collecting personal information from children under the age of 13. We are also subject to international laws, regulations and standards in many jurisdictions, which apply broadly to the collection, use, retention, security, disclosure, transfer and other processing of personal information.
For instance, the Children’s Online Privacy Protection Act (“COPPA”) requires companies to obtain parental consent before collecting personal information from children under the age of 13. 29 TABLE OF CONTEN T S We are also subject to international laws, regulations and standards in many jurisdictions, which apply broadly to the collection, use, retention, security, disclosure, transfer and other processing of personal information.
As a result, we are presently a “controlled company” within the meaning of the NYSE corporate governance standards and will not be subject to the requirements that would otherwise require us to have: (i) a majority of independent directors; (ii) a nominating committee comprised solely of independent directors; (iii) compensation of our executive officers determined by a majority of the independent directors or a compensation committee comprised solely of independent directors; and (iv) director nominees selected, or recommended for the Board’s selection, either by a majority of the independent directors or a nominating committee comprised solely of independent directors.
As a result, we are presently a “controlled company” within the meaning of the NYSE corporate governance standards and will not be subject to the requirements that would otherwise require us to have: (i) a majority of independent directors; (ii) a nominating committee comprised solely of independent directors; (iii) compensation of our executive officers determined by a majority of the independent directors or a compensation committee comprised solely of independent directors; and (iv) director nominees selected, or recommended for the Board’s selection, either by a majority of the independent directors or a nominating committee comprised solely of independent directors. 38 TABLE OF CONTEN T S Mr.
Any delays in obtaining or difficulty in maintaining regulatory approvals needed for expansion within existing jurisdictions or into new jurisdictions may negatively affect our opportunities for growth, including the growth of our customer base, or delay our ability to recognize revenue from our 20 TAB LE OF CONTENTS offerings in any such jurisdictions.
Any delays in obtaining or difficulty in maintaining regulatory approvals needed for expansion within existing jurisdictions or into new jurisdictions may negatively affect our opportunities for growth, including the growth of our customer base, or delay our ability to recognize revenue from our offerings in any such jurisdictions.
Any downgrade in our credit rating or the ratings of our indebtedness, or adverse conditions in the debt capital markets, could: 37 TAB LE OF CONTENTS • adversely affect the trading price of, or market for, our existing or future debt; • increase interest expense under future debt; • increase the cost of, and adversely affect our ability to refinance, our existing debt; and • adversely affect our ability to raise additional debt.
Any downgrade in our credit rating or the ratings of our indebtedness, or adverse conditions in the debt capital markets, could: • adversely affect the trading price of, or market for, our existing or future debt; • increase interest expense under future debt; • increase the cost of, and adversely affect our ability to refinance, our existing debt; and • adversely affect our ability to raise additional debt.
Although alternative providers could host our platform on a substantially similar basis, such transition could potentially be disruptive and we could incur significant costs in connection with such transition. Our use of third-party open source software could negatively affect our ability to offer our products and services through our platform and subject us to possible litigation.
Although alternative providers could host our platform on a substantially similar basis, such transition could potentially be disruptive and we could incur significant costs in connection with such transition. 23 TABLE OF CONTEN T S Our use of third-party open source software could negatively affect our ability to offer our products and services through our platform and subject us to possible litigation.
Paradise owns less than a majority of the outstanding shares of our capital stock. These anti-takeover provisions as well as certain provisions of Delaware law could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many of our stockholders.
Paradise owns less than a majority of the outstanding shares of our capital stock. 39 TABLE OF CONTEN T S These anti-takeover provisions as well as certain provisions of Delaware law could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many of our stockholders.
Prior winnings represented more than 81% of total paid-entry fees for the year ended December 31, 2022.
Prior winnings represented more than 81% of total paid-entry fees for the year ended December 31, 2023.
In addition, our decisions may not result in the long-term benefits that we expect, in which case the success of our platform, business, financial condition or results of operations could be harmed. Historically, a limited number of games have accounted for a substantial portion of our revenue.
In addition, our decisions may not result in the long-term benefits that we expect, in which case the success of our platform, business, financial condition or results of operations could be harmed. 14 TABLE OF CONTEN T S Historically, a limited number of games have accounted for a substantial portion of our revenue.
If any of these events were to occur, our business, financial condition results of operations and prospects could be materially adversely affected. Additionally, our payment processors require us to comply with payment card network operating rules, which are set and interpreted by the payment card networks.
If any of these events were to occur, our business, financial condition, results of operations and prospects could be materially adversely affected. 25 TABLE OF CONTEN T S Additionally, our payment processors require us to comply with payment card network operating rules, which are set and interpreted by the payment card networks.
If other banks and financial institutions with whom we have banking relationships enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, we may be unable to access, and we may lose, some or all of our existing cash and cash equivalents and investments to the extent those funds are not insured or otherwise protected by the FDIC. 33 TAB LE OF CONTENTS Global climate change, the occurrence of an earthquake, other natural disaster or other significant business interruption at or near any of our facilities could cause damage to our facilities and equipment and interfere with our operations.
If other banks and financial institutions with whom we have banking relationships enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, we may be unable to access, and we may lose, some or all of our existing cash and cash equivalents and investments to the extent those funds are not insured or otherwise protected by the FDIC. 36 TABLE OF CONTEN T S Global climate change, the occurrence of an earthquake, other natural disaster or other significant business interruption at or near any of our facilities could cause damage to our facilities and equipment and interfere with our operations.
GAAP; • the fact that we may be required to pay contingent consideration in excess of the initial fair value, and contingent consideration may become payable at a time when we do not have sufficient cash available to pay such consideration; • under purchase accounting, we may be required to write off deferred revenue which may impair our ability to recognize revenue that would have otherwise been recognizable which may impact our financial performance or that of the acquired company; • risks associated with our expansion into new international markets and doing business internationally, including those described under the risk factor caption “Our strategy to expand internationally will be subject to increased challenges and risks”; • in the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political and regulatory risks associated with specific countries; • the need to transition operations, third-party developers and players onto our existing or new platforms and the potential loss of, or harm to, our relationships with employees, third-party developers, players and other suppliers as a result of integration of new businesses; • the implications of our management team balancing levels of oversight over acquired businesses which continue their operations under contingent consideration provisions in acquisition agreements; • our dependence on the accuracy and completeness of statements and disclosures made or actions taken by the companies we acquire or their representatives, when conducting due diligence and evaluating the results of such due diligence; and • liability for activities of the acquired company before the acquisition, including intellectual property and other litigation claims or disputes, cyber and information security vulnerabilities, violations of laws, rules and regulations, commercial disputes, tax liabilities and other known and unknown liabilities. 26 TAB LE OF CONTENTS The benefits of an acquisition or investment may also take considerable time to develop, and we cannot be certain that any particular acquisition or investment will produce the intended benefits, which could adversely affect our business, financial condition, results of operations, prospects or reputation.
GAAP; • the fact that we may be required to pay contingent consideration in excess of the initial fair value, and contingent consideration may become payable at a time when we do not have sufficient cash available to pay such consideration; • under purchase accounting, we may be required to write off deferred revenue which may impair our ability to recognize revenue that would have otherwise been recognizable which may impact our financial performance or that of the acquired company; • risks associated with our expansion into new international markets and doing business internationally, including those described under the risk factor caption “Our strategy to expand internationally will be subject to increased challenges and risks”; • in the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political and regulatory risks associated with specific countries; • the need to transition operations, third-party developers and players onto our existing or new platforms and the potential loss of, or harm to, our relationships with employees, third-party developers, players and other suppliers as a result of integration of new businesses; • the implications of our management team balancing levels of oversight over acquired businesses which continue their operations under contingent consideration provisions in acquisition agreements; • our dependence on the accuracy and completeness of statements and disclosures made or actions taken by the companies we acquire or their representatives, when conducting due diligence and evaluating the results of such due diligence; and • liability for activities of the acquired company before the acquisition, including intellectual property and other litigation claims or disputes, cyber and information security vulnerabilities, violations of laws, rules and regulations, commercial disputes, tax liabilities and other known and unknown liabilities.
In addition to the market factors noted above and elsewhere in these risk factors, our ability to successfully attract games to our platform and the ability of such games to achieve commercial success will depend on our ability to: • achieve benefits from our player acquisition costs; • achieve viral organic growth and gain user interest in our featured games through free or paid channels; • adapt to changing player preferences; • adapt to new technologies and feature sets for mobile and other devices; • attract, retain and motivate talented and experienced third-party game developers to our platform; • partner with mobile platforms and obtain featuring opportunities; • continue to adapt to an increasingly diverse set of mobile devices, including various operating systems and specifications, limited bandwidth, and varying processing power and screen sizes; • achieve and maintain successful end-user engagement; • host games that can build upon or become franchise games; • accurately forecast the timing and expense of our operations, including costs to secure and retain game developers and end-user adoption; • minimize and quickly resolve bugs or outages negatively impacting our platform or games on our platform; and • acquire and successfully integrate high quality mobile game assets, personnel or companies.
In addition to the market factors noted above and elsewhere in these risk factors, our ability to successfully attract games to our platform and the ability of such games to achieve commercial success will depend on our ability to: • achieve benefits from player acquisition costs; • achieve viral organic growth and gain user interest in our featured games through free or paid channels; • adapt to changing player preferences; • adapt to new technologies and feature sets for mobile and other devices; • attract, retain and motivate talented and experienced third-party game developers to our platform; • partner with mobile platforms and obtain featuring opportunities; • continue to adapt to an increasingly diverse set of mobile devices, including various operating systems and specifications, limited bandwidth, and varying processing power and screen sizes; • achieve and maintain successful end-user engagement; • host games that can build upon or become franchise games; • accurately forecast the timing and expense of our operations, including costs to secure and retain game developers and end-user adoption; • minimize and quickly resolve bugs or outages negatively impacting our platform or games on our platform; and • acquire and successfully integrate high quality mobile game assets, personnel or companies. 15 TABLE OF CONTEN T S These and other uncertainties make it difficult to know whether our platform will succeed in continuing to host successful games and new games and features in accordance with our operating plan.
Furthermore, we acquire and engage users primarily through digital ad networks, our game developers and affiliate partners. We use paid marketing channels to achieve our objectives. We optimize our marketing investment across all our channels in 15 TAB LE OF CONTENTS order to generate strong returns on our marketing spending.
Furthermore, we acquire and engage users primarily through digital ad networks, our game developers and affiliate partners. We use paid marketing channels to achieve our objectives. We optimize our marketing investment across all our channels in order to generate strong returns on our marketing spending.
Moreover, our inability to maintain our existing contracts with third-party services providers, or to replace them with equivalent third parties, may result in our inability to access geolocation and identity verification data necessary for our day-to- 23 TAB LE OF CONTENTS day operations.
Moreover, our inability to maintain our existing contracts with third-party services providers, or to replace them with equivalent third parties, may result in our inability to access geolocation and identity verification data necessary for our day-to-day operations.
If we are unable to sustain sufficient interest in our gaming platform in comparison to other forms of entertainment, including new forms of entertainment, our business model may not continue to be viable. 13 TAB LE OF CONTENTS The specific industries in which we operate are characterized by dynamic customer demand and technological advances, and there is intense competition among online gaming and entertainment providers.
If we are unable to sustain sufficient interest in our gaming platform in comparison to other forms of entertainment, including new forms of entertainment, our business model may not be viable. 13 TABLE OF CONTEN T S The specific industries in which we operate are characterized by dynamic customer demand and technological advances, and there is intense competition among online gaming and entertainment providers.
Our competitors may also develop products, features or services that are similar to ours or that achieve greater market acceptance. Such competitors may also undertake more far-reaching and successful product development efforts or marketing campaigns, or may adopt more aggressive pricing policies. Furthermore, new competitors may enter the gaming industry.
Our competitors may also develop products, features or services that are similar to ours or that achieve greater market acceptance. Such competitors may also undertake more far-reaching and successful product development efforts or marketing campaigns, or may adopt more aggressive pricing policies.
Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A common stock.
If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A common stock.
This type of activity may subject us to liability and negative publicity, which would increase our operating costs and adversely affect our business, financial condition, operating results, reputation and future prospects. 16 TAB LE OF CONTENTS Maintaining and enhancing our brand and reputation is critical to our business prospects.
This type of activity may subject us to liability and negative publicity, which would increase our operating costs and adversely affect our business, financial condition, operating results, reputation and future prospects. 16 TABLE OF CONTEN T S Maintaining and enhancing our brand and reputation is critical to our business prospects.
For example, on March 10, 2023, Silicon Valley Bank (“SVB”) was placed into receivership with the Federal Deposit Insurance Corporation (“FDIC”), which resulted in all funds held at SVB, including our funds held at SVB, being temporarily inaccessible by SVB’s customers. As of March 30, 2023, we have approximately $22.0 million of cash with SVB.
For example, on March 10, 2023, Silicon Valley Bank (“SVB”) was placed into receivership with the Federal Deposit Insurance Corporation (“FDIC”), which resulted in all funds held at SVB, including our funds held at SVB, being temporarily inaccessible by SVB’s customers. As of December 31, 2023, we had approximately $3.5 million of cash remaining with SVB.
Further, our games and contests may be considered discretionary items for users. Factors affecting the level of consumer spending for such discretionary items include general economic conditions, and other factors, such as consumer confidence in future economic conditions, fears of recession, the availability and cost of consumer credit, levels of unemployment, tax rates, interest rates, and inflationary pressure.
Factors affecting the level of consumer spending for such discretionary items include general economic conditions, and other factors, such as consumer confidence in future economic conditions, fears of recession, the availability and cost of consumer credit, levels of unemployment, tax rates, interest rates, and inflationary pressure.
Our ability to refinance our outstanding indebtedness or future indebtedness will depend on market conditions and our financial position at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms when needed, which could result in a default on our indebtedness. 38 TAB LE OF CONTENTS
Our ability to refinance our outstanding indebtedness or future indebtedness will depend on market conditions and our financial position at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms when needed, which could result in a default on our indebtedness. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
We intend to evaluate and pursue acquisitions and strategic investments. Each of these acquisitions will require unique approaches to integration due to, among other factors, the structure of the acquisitions, their locations and cultural differences among their teams and ours.
Each of these acquisitions will require unique approaches to integration due to, among other factors, the structure of the acquisitions, their locations and cultural differences among their teams and ours.
For the year ended December 31, 2022, Solitaire Cube and 21 Blitz (each developed by Tether Studios, LLC (“Tether”)) and Blackout Bingo (developed by Big Run Studios Inc. (“Big Run”)) combined accounted for 71% of our revenue. For the year ended December 31, 2022, Tether accounted for 39% of our revenue and Big Run accounted for 41% of our revenue.
For the year ended December 31, 2023, Solitaire Cube and 21 Blitz (each developed by Tether Studios, LLC (“Tether”)) and Blackout Bingo (developed by Big Run Studios Inc. (“Big Run”)) combined accounted for 70% of our revenue. For the year ended December 31, 2023, Tether accounted for 44% of our revenue and Big Run accounted for 36% of our revenue.
The governments in many of the jurisdictions in which we operate implemented restrictive measures such as travel bans, quarantine and self-isolation at various times during the pandemic and may do so again in the future. 17 TAB LE OF CONTENTS The full extent to which pandemics and epidemics may impact our business, operations and financial results will depend on numerous factors that we may not be able to accurately predict, including: the duration and scope of the pandemic or epidemic, including any potential future waves of the pandemic or epidemic; governmental, business and individuals’ actions that have been and will be taken in the future in response to such pandemic or epidemic; the effect on players and their willingness and ability to pay entry fees for the games on our platform; the effect on our third party developers and their willingness and ability to engage with our services and our platform; disruptions or restrictions on our employees’ ability to work and travel; and interruptions related to our cloud networking and platform infrastructure and partners, and developer and user service and support providers.
The full extent to which pandemics and epidemics may impact our business, operations and financial results will depend on numerous factors that we may not be able to accurately predict, including: the duration and scope of the pandemic or epidemic, including any potential future waves of the pandemic or epidemic; governmental, business and individuals’ actions that have been and will be taken in the future in response to such pandemic or epidemic; the effect on players and their willingness and ability to pay entry fees for the games on our platform; the effect on our third party developers and their willingness and ability to engage with our services and our platform; disruptions or restrictions on our employees’ ability to work and travel; and interruptions related to our cloud networking and platform infrastructure and partners, and developer and user service and support providers.
Additionally, such failure may also force us to increase our hiring of independent contractors or consultants, which may increase our costs and reduce our profitability. We must also devote substantial managerial and financial resources to monitoring and managing our workforce. Our future success will depend on our ability to manage the levels and related costs of our workforce.
Additionally, such failure may also force us to increase our hiring of independent contractors or consultants, which may increase our costs and reduce our profitability. We must also devote substantial managerial and financial resources to monitoring and managing our workforce.
We only enable games for paid entry-fee contests in states in which skill-based gaming is permitted and not required to be licensed as gambling under applicable state law. As of December 31, 2022, we operated in 45 states and the District of Columbia, covering approximately 90% of the U.S. population.
We only enable games for paid entry-fee contests in states in which skill-based gaming is permitted and not required to be licensed as gambling under applicable state law. As of December 31, 2023, we are permitted to operate skills-based gaming in 45 states and the District of Columbia.
Compliance with any such legislation may have a material adverse effect on our business, financial condition results of operations and prospects, either as a result of our determination that a jurisdiction should be blocked, or because a local license or approval may be costly for us or our business partners to obtain and/or such licenses or approvals may contain other commercially undesirable conditions.
Compliance with any such legislation may have a material adverse effect on our business, financial condition results of operations and prospects, either as a result of our determination that a jurisdiction should be blocked, or because a local license or approval may be costly for us or our business partners to obtain and/or such licenses or approvals may contain other commercially undesirable conditions. 21 TABLE OF CONTEN T S Changes in tax laws or tax rulings could materially affect our effective tax rates, financial position and results of operations.
Additionally, if third parties we work with, such as players, vendors or developers violate applicable laws or our policies, such violations may also put our players’ information at risk and could in turn have an adverse effect on our business, financial condition, results of operations, reputation or prospects.
Additionally, if third parties we work with, such as players, vendors or developers violate applicable laws or our policies, such violations may also put our players’ information at risk and could in turn have an adverse effect on our business, financial condition, results of operations, reputation or prospects. 30 TABLE OF CONTEN T S Failure to obtain, maintain, protect or enforce our intellectual property rights could harm our business, results of operations, financial condition and prospects.
Such disruptions have not had a material impact, individually or in the aggregate to date; however, future disruptions from unauthorized access to, fraudulent manipulation of, or tampering with our computer systems and technological infrastructure, or those of third parties, could result in a wide range of negative outcomes, including violations of applicable privacy laws which can result in significant fines, governmental investigations and enforcement actions, legal and financial exposure, contractual liability and damage to our reputation, each of which could materially adversely affect our business, financial condition, results of operations, reputation and prospects.
Such disruptions have not had a material impact, individually or in the aggregate to date; however, future disruptions from unauthorized access to, fraudulent manipulation of, or tampering with our computer systems and technological infrastructure, or those of third parties, could result in a wide range of negative outcomes, including violations of applicable privacy laws which can result in significant fines, governmental investigations and enforcement actions, legal and financial exposure, contractual liability and damage to our reputation, each of which could materially adversely affect our business, financial condition, results of operations, reputation and prospects. 19 TABLE OF CONTEN T S Additionally, the games offered through our platform may contain errors, bugs, flaws or corrupted data, and these defects may only become apparent after their launch.
Third parties with whom we do not have any formal relationships control the design of mobile devices and operating systems. These parties frequently introduce new devices, and from time to time they may introduce new operating systems or modify existing ones. Network carriers may also impact the ability of users to download apps or access specified content on mobile devices.
Third parties with whom we do not have any formal relationships control the design of mobile devices and operating systems. These parties frequently introduce new devices, and from time to time they may introduce new operating systems or modify existing ones.
Changes in tax laws or tax rulings could materially affect our effective tax rates, financial position and results of operations. The tax regimes we are subject to or operate under are unsettled and may be subject to significant change. In the course of our business, there will be many transactions and calculations where the ultimate tax determination is uncertain.
The tax regimes we are subject to or operate under are unsettled and may be subject to significant change. In the course of our business, there will be many transactions and calculations where the ultimate tax determination is uncertain.
These provisions could also discourage proxy contests and make it more difficult for our stockholders to elect directors of their choosing and to cause us to take other corporate actions that our stockholders desire. 36 TAB LE OF CONTENTS Our Charter designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings and the federal district courts as the sole and exclusive forum for other types of actions and proceedings, in each case, that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain what such stockholders believe to be a favorable judicial forum for disputes with us or our directors, officers or other employees.
Our Charter designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings and the federal district courts as the sole and exclusive forum for other types of actions and proceedings, in each case, that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain what such stockholders believe to be a favorable judicial forum for disputes with us or our directors, officers or other employees.
End-user liability as of December 31, 2022 amounted to $9.0 million and is reflected on our balance sheet within other current liabilities. We may be required to return these funds to end-users if they choose to withdraw them from their account.
End-user liability as of December 31, 2023 amounted to $6.6 million and is reflected on our balance sheet within other current liabilities. Typically, these funds are returned to end-users if they choose to withdraw them from their account.
We incorporate technology from third parties into our platform. We cannot be certain that our licensors are not infringing, misappropriating or otherwise violating the intellectual property rights of others or that our suppliers and licensors have sufficient rights to such technology in all jurisdictions in which we may operate.
We cannot be certain that our licensors are not infringing, misappropriating or otherwise violating the intellectual property rights of others or that our suppliers and licensors have sufficient rights to such technology in all jurisdictions in which we may operate. In addition, some of our license agreements may be terminated by our licensors for convenience.
Shares of our Class B common stock have 20 votes per share, while shares of our Class A common stock have one vote per share. Mr. Paradise holds all of the issued and outstanding shares of our Class B common stock and, as of December 31, 2022, 82% of the voting power of our capital stock on a fully-diluted basis.
Paradise holds all of the issued and outstanding shares of our Class B common stock and, as of December 31, 2023, held 82% of the voting power of our capital stock on a fully-diluted basis. Accordingly, Mr.
In July 2021, we completed the acquisition of Aarki and acquired 100% of its outstanding equity and voting interests. Our ability to grow through future acquisitions will depend on the availability of suitable acquisition and investment candidates at an acceptable cost, our ability to compete effectively to attract these candidates and the availability of financing to complete larger acquisitions.
Our ability to grow through future acquisitions will depend on the availability of suitable acquisition and investment candidates at an acceptable cost, our ability to compete effectively to attract these candidates and the availability of financing to complete larger acquisitions.
Our operations and business have been affected by the COVID-19 pandemic and may be materially and adversely impacted by future pandemics, epidemics and other health emergencies. The Company faces risks related to health epidemics and other outbreaks of communicable diseases, which could significantly disrupt operations and may materially and adversely affect its business, financial conditions and results of operations.
The Company faces risks related to health epidemics and other outbreaks of communicable diseases, which could significantly disrupt operations and may materially and adversely affect its business, financial conditions and results of operations.
The application of such laws may be inconsistent from jurisdiction to jurisdiction. Companies and governmental agencies may restrict access to platforms, our website, mobile applications or the Internet generally, which could lead to the loss or slower growth of players on the Skillz platform.
Companies and governmental agencies may restrict access to platforms, our website, mobile applications or the Internet generally, which could lead to the loss or slower growth of players on the Skillz platform. Players generally need to access the Internet and in particular platforms or our website to play the games available on the Skillz platform.
If our revenue does not increase to offset any additional expenses, if we fail to manage or experience unexpected increases in operating expenses or if we are required to take additional charges related to impairments or restructurings, our business, financial condition, results of operations and prospects may be materially adversely affected.
In addition, we cannot assure you that digital advertising costs will not continue to increase in 2024 or any other future period. 32 TABLE OF CONTEN T S If our revenue does not increase to offset any additional expenses, if we fail to manage or experience unexpected increases in operating expenses or if we are required to take additional charges related to impairments or restructurings, our business, financial condition, results of operations and prospects may be materially adversely affected.
In such event, we may not have sufficient available cash to repay such debt at the time it becomes due, or be able to refinance such debt on acceptable terms or at all. Any of the foregoing could materially adversely affect our business, financial condition and results of operations.
In such event, we may not have sufficient available cash to repay such debt at the time it becomes due, or be able to refinance such debt on acceptable terms or at all.
Management transitions can be time-consuming, difficult to manage and could cause disruption to our business. 31 TAB LE OF CONTENTS We believe that two critical components of our success and our ability to retain our best people are our culture and our competitive compensation practices. Further, many of our employees receive a total compensation package that includes equity awards.
We believe that two critical components of our success and our ability to retain our best people are our culture and our competitive compensation practices. Further, many of our employees receive a total compensation package that includes equity awards.
Additionally, the games offered through our platform may contain errors, bugs, flaws or corrupted data, and these defects may only become apparent after their launch. If a particular game is unavailable when users attempt to play it or navigation through our platform is slower than they expect, users may be unable to properly engage in the games we host.
If a particular game is unavailable when users attempt to play it or navigation through our platform is slower than they expect, users may be unable to properly engage in the games we host.
We may be unable, without significant cost or at all, to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights.
We may be unable, without significant cost or at all, to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights. 31 TABLE OF CONTEN T S We may be required to spend significant resources in order to monitor and protect our intellectual property rights, and some violations may be difficult or impossible to detect.
Our technology infrastructure is critical to the performance of our platform and offerings and to the satisfaction of our developer partners and users. We devote significant resources to network and data security to protect our systems and data.
Our technology infrastructure is critical to the performance of our platform and offerings and to the satisfaction of our developer partners and users.
We are subject to laws and regulations concerning privacy, information security, data protection, consumer protection and protection of minors, and these laws and regulations are continually evolving. Our actual or perceived failure to comply with these laws and regulations could harm our business, financial condition, results of operations, reputation or prospects.
Our actual or perceived failure to comply with these laws and regulations could harm our business, financial condition, results of operations, reputation or prospects.
Furthermore, the distribution platforms may not enforce their standard terms and policies for application developers consistently and uniformly across all applications and with all publishers. A platform provider may also change its fee structure, add fees associated with access to and use of its platform and alter how developers and publishers are able to advertise on the platform.
A platform provider may also change its fee structure, add fees associated with access to and use of its platform and alter how developers and publishers are able to advertise on the platform.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES Our principal business operations are located in San Francisco, California, Los Angeles, California, and Las Vegas, Nevada for in office collaboration of product, operations, and revenue teams. We also lease offices in smaller offices and coworking spaces in major U.S. cities.
Biggest changeITEM 2. PROPERTIES In March 2023, we purchased a new office building in Las Vegas, Nevada, where our principal business operations for in office collaboration of product, operations, and revenue teams are located for our Skillz segment. Effective in February 2024, the building is being utilized as the Company’s headquarters.
In connection with our acquisition of Aarki, Inc. in 2021, we assumed leases for a number of offices and coworking spaces around the world, including data centers in the U.S. and Hong Kong and a workspace in the Philippines.
We also lease offices in smaller offices and coworking spaces in major U.S. cities. In connection with our acquisition of Aarki in 2021, we assumed leases for a number of offices and coworking spaces around the world, including data centers in the U.S. and Hong Kong and a workspace in the Philippines for our Aarki segment.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHolders of our Common Stock As of March 27, 2023, there were 449 holders of record of our Class A common stock and one holder of record of our Class B common stock. The number of record holders does not include Depository Trust Company participants or beneficial owners holding shares through nominee names.
Biggest changeHolders of our Common Stock As of August 15, 2024, there were 234 holders of record of our Class A common stock and one holder of record of our Class B common stock. The number of record holders does not include Depository Trust Company participants or beneficial owners holding shares through nominee names.
The payment of any cash dividends will be within the discretion of the Board at such time. Securities Authorized for Issuance Under Equity Compensation Plans Refer to Note 16, “Stock Based Compensation,” in this Form 10-K.
The payment of any cash dividends will be within the discretion of the Board at such time. Securities Authorized for Issuance Under Equity Compensation Plans Refer to Note 14, “Stock Based Compensation,” in this Form 10-K.
Removed
Stock Performance Graph This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Skillz Inc. under the Securities Act of 1933, as amended, or the Exchange Act.
Added
On June 23, 2023, the Company’s effectuated the one-for twenty reverse stock split of its issued and outstanding shares of Common Stock.
Removed
The following graph compares the cumulative total stockholder return on our Class A common stock with the cumulative total return on the Standard & Poor’s (“S&P”) 500 Index and the Nasdaq Composite Index.
Added
As a result of the reverse stock split, every 20 shares of issued and outstanding Common Stock were combined and converted into one issued and outstanding share of Common Stock, and the number of authorized shares of Common Stock was reduced proportionately. The par value per share of Common Stock remains unchanged.
Removed
The graph assumes an initial investment of $100 in our common stock at the market close on December 31, 2020 and $100 invested on the same date in each of the S&P 500 Index and the Nasdaq Composite Index. Data for the S&P 500 Index and the Nasdaq Composite Index assume reinvestment of dividends.
Added
The Company’s Class A Common Stock began trading on a split-adjusted basis on the NYSE at market open on June 26, 2023. All share and per-share amounts have been retrospectively adjusted to reflect the impact of the reverse stock split.
Removed
Total return equals stock price appreciation plus reinvestment of dividends. 40 TAB LE OF CONTENTS Unregistered Sales of Equity Securities [None.] ITEM 6. [Reserved] 41 TABLE OF CONTENTS
Added
Unregistered Sales of Equity Securities None. 44 TABLE OF CONTEN T S Repurchases The following table provides information about the purchases of our common stock made through the three months ended December 31, 2023: Periods Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions)(a) October 1, 2023 through 686,960 $ 4.95 686,960 $ 61,598,873 November 1, 2023 through 1,627,948 $ 5.90 1,627,948 $ 52,000,002 December 1, 2023 through — $ — — $ 52,000,002 Total 2,314,908 $ 5.62 2,314,908 (a) In August 2023, our Board of Directors approved a share repurchase authorization for up to $65.0 million of our common stock.
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The share repurchase authorization, which was announced on August 21, 2023, has a term of 12 months and may be suspended or discontinued by our Board of Directors at any time. ITEM 6. [Reserved] 45 TABLE OF CONTENTS

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeSee Note 2, Summary of Significant Accounting Policies, for further details. 47 TABLE OF CONTENTS Results of Operations The following table sets forth a summary of our results of operations for the periods indicated and reflects the revisions as discussed in Note 3, Restatement of Previously Issued Financial Statements (in thousands, except share and per share data): Year Ended December 31, 2022 2021 2020 (As Restated) (As Restated) Revenue $ 269,709 $ 380,154 $ 229,047 Costs and expenses: Cost of revenue 30,718 25,243 12,281 Research and development 52,265 46,232 23,225 Sales and marketing 277,014 466,691 254,269 General and administrative 163,018 135,802 42,462 Impairment of goodwill and long-lived assets 168,051 — — Total costs and expenses 691,066 673,968 332,237 Loss from operations (421,357) (293,814) (103,190) Interest expense, net (23,992) (1,222) (1,325) Change in fair value of common stock warrant liabilities 6,004 87,922 (23,049) Other income (expense), net 125 49 (21,400) Loss before income taxes (439,220) (207,065) (148,964) Provision (benefit) for income taxes (345) (19,140) 115 Net loss $ (438,875) $ (187,925) $ (149,079) Net loss per share attributable to common stockholders: Basic $ (1.07) $ (0.49) $ (0.51) Diluted $ (1.07) $ (0.71) $ (0.51) Weighted average shares outstanding: Basic 409,969,539 384,625,249 294,549,146 Diluted 409,969,539 388,549,673 294,549,146 Other comprehensive loss: Change in unrealized loss on available-for-sale investments, net of tax (1,315) (248) — Total other comprehensive loss $ (1,315) $ (248) $ — Total comprehensive loss $ (440,190) $ (188,173) $ (149,079) Revenue Year Ended December 31, 2021 to 2022 % Change 2020 to 2021 % Change (In thousands, except percentages) 2022 2021 2020 (As Restated) (As Restated) Revenue $ 269,709 $ 380,154 $ 229,047 (29) % 66 % 2022 Compared to 2021 Revenue decreased by $110.4 million, or 29%, to $269.7 million in 2022 from $380.2 million in 2021.
Biggest changeComparison for the years ended December 31, 2023 and 2022 (in thousands) Year Ended December 31, 2023 to 2022 Change Increase/(Decrease) 2023 2022 $ % Revenue $ 152,079 $ 269,709 $ (117,630) (44) % Costs and expenses: Cost of revenue 15,379 30,718 (15,339) (50) % Research and development 28,148 52,265 (24,117) (46) % Sales and marketing 122,855 277,014 (154,159) (56) % General and administrative 96,654 163,018 (66,364) (41) % Impairment of goodwill and long-lived assets 3,335 168,051 (164,716) (98) % Total costs and expenses 266,371 691,066 (424,695) (61) % Loss from operations (114,292) (421,357) 307,065 (73) % Gain on extinguishment of debt 15,205 2,553 12,652 496 % Interest expense, net (2,852) (26,545) 23,693 (89) % Change in fair value of common stock warrant liabilities 278 6,004 (5,726) (95) % Other income, net 540 125 415 332 % Loss before income taxes (101,121) (439,220) 338,099 (77) % Provision (benefit) for income taxes 239 (345) 584 (169) % Net loss $ (101,360) $ (438,875) 337,515 (77) % 51 TABLE OF CONTENTS Revenue 2023 Compared to 2022 Revenue decreased by $117.6 million, or 44%, to $152.1 million in 2023 from $269.7 million in 2022.
We believe our marketplace benefits from a powerful network effect: compelling content attracts users to our platform, while the increasing size of our audience attracts more developers to create new interactive experiences on our platform. Skillz was founded in 2012 by Andrew Paradise and Casey Chafkin with the vision to make eSports accessible to everyone possible.
We believe our marketplace benefits from a powerful network effect: compelling content attracts users to our platform, while the increasing size of our audience attracts more developers to create new interactive experiences on our platform. Skillz was founded in 2012 by Andrew Paradise and Casey Chafkin with the vision to make eSports accessible to everyone.
The most significant component of our cash used during this period was a net loss of $438.9 million, which included non-cash expenses of $108.2 million related to stock-based compensation, including $65.1 million related to the cancellation of performance stock units granted to our CEO, non-cash goodwill and long-lived asset impairment charge of $168.1 million, non-cash income of $6.0 54 TABLE OF CONTENTS million for the change in fair value related to Private Common Stock Warrants, $17.9 million related to depreciation and amortization, a gain on extinguishment of debt for $2.6 million, and net cash outflows of $32.4 million from changes in operating assets and liabilities.
The most significant component of our cash used during this period was a net loss of $438.9 million, which included non-cash expenses of $108.2 million related to stock-based compensation, including $65.1 million related to the cancellation of performance stock units granted to our CEO, non-cash goodwill and long-lived asset impairment charge of $168.1 million, non-cash income of $6.0 million for the change in fair value related to Private Common Stock Warrants, $17.9 million related to depreciation and amortization, a gain on extinguishment of debt for $2.6 million, and net cash outflows of $32.4 million from changes in operating assets and liabilities.
Cash Flows from Financing Activities Net cash used in financing activities was $10.6 million for the year ended December 31, 2022, which was primarily due to the $7.3 million payment for redemption of senior secured notes, $2.0 million in payments for debt issuance costs and $2.6 million in principal payments on finance lease obligations.
Net cash used in financing activities was $10.6 million for the year ended December 31, 2022, which was primarily due to the $7.3 million payment for redemption of senior secured notes, $2.0 million in payments for debt issuance costs and $2.6 million in principal payments on finance lease obligations.
Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Adjusted EBITDA in the same fashion. Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.
Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Adjusted EBITDA in the same manner. Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.
We also incur costs related to the amortization of intangible assets which include developed technology. Research and Development Research and development expenses consist of software development costs, comprised mainly of product and platform development, server and software costs that support research and development activities, and to a lesser extent, allocation of rent, maintenance and utilities costs according to headcount.
We also incur costs related to the amortization of intangible assets which include developed technology. Research and Development Research and development expenses consist of software development costs, composed mainly of product and platform development, server and software costs that support research and development activities, and to a lesser extent, allocation of rent, maintenance and utilities costs according to headcount.
That commission is shared between Skillz and the game developers; however, the game developers’ share is calculated solely based upon entry fees paid by net cash deposits received from end-users, adjusted for certain costs incurred by Skillz to provide monetization services. 46 TABLE OF CONTENTS Costs and Expenses Cost of Revenue Our cost of revenue consists of variable costs.
That commission is shared between Skillz and the game developers; however, the game developers’ share is calculated solely based upon entry fees paid by net cash deposits received from end-users, adjusted for certain costs incurred by Skillz to provide monetization services. Costs and Expenses Cost of Revenue Our cost of revenue consists of variable costs.
By generating higher player to payor conversion, retention and engagement, we are able to monetize users at a higher rate than what our developers would generate through advertisements or in-game purchases. Our platform allows users to participate in fair competition, while rewarding developers who create games that keep players engaged.
By generating higher player to payor conversion, retention and engagement, we are able to monetize users at higher rates than what our developers would generate through advertisements or in-game purchases. Our platform allows users to participate in fair competition, while rewarding developers who create games that keep players engaged.
We are entitled to a revenue share based on total entry fees for paid Competitions, regardless of how they are paid, net of end-user prizes (i.e., winnings from the Competitions) and other costs to provide the Monetization Services. Entry fees used to enter paid competitions can include net cash deposits, cash from prior winnings, and end-user incentives.
The Company is entitled to a revenue share based on total entry fees for paid competitions, regardless of how they are paid, net of end-user prizes (i.e., winnings from the competitions) and other costs to provide the Monetization Services. Entry fees used to enter paid competitions can include net cash deposits, cash from prior winnings, and end-user incentives.
Our key data science technologies drive our player rating and matching, anti-cheat and anti-fraud, and user experience personalization engine. • Our unit economics — Our proprietary and highly scalable software platform operates at a low direct cost (i.e. direct software and server costs), contributing to our gross margins.
Our key data science technologies drive our player rating and matching, anti-cheat and anti-fraud, and user experience personalization engine. • Our unit economics — Our proprietary and highly scalable software platform produces revenue at a low direct cost (i.e. direct software and server costs), contributing to our gross margins.
End-user incentives for which game developers do not have a valid expectation of being offered to end-users to engage on the platform, such as limited-time Bonus Cash offers, are accounted for as a sales and marketing expense. Refer to Note 2 of our consolidated financial statements for further information.
End-user incentives for which game developers do not have a valid expectation of being offered to end-users to engage on the platform, such as limited-time Bonus Cash offers, are accounted for as a sales and marketing expense. Refer to Note 2, Summary of Significant Accounting Policies, of our consolidated financial statements for further information.
Decreases in engagement marketing could result in lower revenue as paying users no longer receive those end-user incentives, which include Bonus Cash which can only be used to enter into paid contests. User acquisition (“UA”) marketing is a sales and marketing expense to acquire new paying users to the platform.
Decreases in engagement marketing could result in lower revenue as paying users no longer receive those end-user incentives, which include Bonus Cash which can only be used to enter into paid contests. 47 TABLE OF CONTENTS User acquisition (“UA”) marketing is a sales and marketing expense to acquire new paying users to the platform.
In 2022, 46% of our salary costs were spent on product development. Our easy-to-integrate SDK contains over 200 features in a less than 16-MB package which allows for over-the-air upgrades. Our intuitive Developer Console dashboard enables our developers to rapidly integrate and monitor the performance of their games.
In 2023, 38% of our salary costs were spent on product development. Our easy-to-integrate SDK contains over 200 features in a less than 16-MB package which allows for over-the-air upgrades. Our intuitive Developer Console dashboard enables our developers to rapidly integrate and monitor the performance of their games.
Our agreements with game developers can generally be terminated for convenience by either party upon thirty days prior written notice, and in certain of our larger developer agreements, the developer, if required by us, must continue to make its games available on the platform for a period of up to twelve months.
The Company’s agreements with game developers can generally be terminated for convenience by either party upon thirty days prior written notice, and in certain of the Company’s larger agreements, the game developer, if required by the Company, must continue to make its games available on the platform for a period of up to twelve months.
Bonus Cash relates to all Bonus Cash that has been lost during the period (i.e., when the related cost has been incurred by the Company). Refer to Note 2 of our consolidated financial statements for further information. Prizes include Cash, Bonus Cash, physical merchandise and items sponsored by third-parties.
Bonus Cash relates to all Bonus Cash that has been lost during the period (i.e., when the related cost has been incurred by the Company). Refer to Note 2, Summary of Significant Accounting Policies, of our consolidated financial statements for further information. Prizes include cash, Bonus Cash, physical merchandise and items sponsored by third-parties.
These promotions are offered to end-users to draw, re-engage, or generally increase end-users’ use of our platform. An example of this type of incentive is limited-time Bonus Cash offers, which are targeted to specific end-users, typically those who deposit more frequently or have not made a deposit recently, via email or in-app promotions.
These promotions are offered to end-users to draw, re-engage, or generally increase their use of the Skillz platform. An example of this type of incentive is limited-time Bonus Cash offers, which are targeted to specific end-users, typically those who deposit more frequently or have not made a deposit recently, via email or in-app promotions.
The determination of a valid expectation is based on the evaluation of all information reasonably available to the game developers regarding our customary business practices, published policies and specific statements.
The determination of a valid expectation is based on an evaluation of all information reasonably available to game developers regarding the Company’s customary business practices, published policies and specific statements.
Promotions and incentives recorded as sales and marketing expense are recognized when we incur the related cost. Our primary end-user incentive is Bonus Cash, which is a promotional incentive that cannot be withdrawn and can only be used by end-users to enter into paid-entry fee contests.
Promotions and incentives recorded as sales and marketing expense are recognized when we incur the related cost. 58 TABLE OF CONTENTS Our primary end-user incentive is Bonus Cash, which is a promotional incentive that cannot be withdrawn and can only be used by end-users to enter paid-entry fee contests.
We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. Revenue Recognition We generate substantially all of our revenues by providing a service to game developers aimed at improving the monetization of their game content.
We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. Revenue Recognition The Company generates substantially all its revenues through its Skillz segment by providing a service to game developers aimed at improving the monetization of their game content.
Our operating cash flows are also affected by our working capital needs to support growth in personnel-related expenditures and fluctuations in accounts payable and other current assets and liabilities. Net cash used in operating activities was $179.6 million for the year ended December 31, 2022.
Our operating cash flows are also affected by our working capital needs to support growth in personnel-related expenditures and fluctuations in accounts payable and other current assets and liabilities. Net cash used in operating activities was $71.8 million for the year ended December 31, 2023.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Skillz Inc. (for purposes of this section, “Skillz,” “we,” “us” and “our”).
Forward-Looking Statements The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Skillz Inc. (for purposes of this section, “Skillz,” “we,” “us” and “our”).
Total entry fees include entry fees paid by end-users using cash depo sits, prior winnings from en d-users’ accounts and end-user incentives used to enter paid entry fee contests.
Total entry fees include entry fees paid by end-users using cash depo sits, prior winnings from en d-users’ accounts that have not been withdrawn and end-user incentives used to enter paid entry fee contests.
The monetization service we provide allows developers to offer multi-player competition to their end-users which increases end-user retention and engagement. We provide developers with a software development kit (“SDK”) that they can download and integrate with their existing games.
The monetization service provided by Skillz allows developers to offer multi-player competition to their end-users which increases end-user retention and engagement. Skillz provides developers with a software development kit (“SDK”) that they can download and integrate with their existing games.
These promotions are typically pricing actions in the form of discounts that reduce the end-user entry fees and are offered on behalf of the game developers. Although not required based on our agreement with the developers, we consider that the game developers have a valid expectation that certain incentives will be offered to end-users.
These promotions are typically pricing actions in the form of discounts that reduce end-user entry fees. These are offered on behalf of the game developers. Although not required based on the Company’s agreement with its game developers, the Company considers that game developers have a valid expectation that certain incentives will be offered to end-users.
Over the course of 2022, our focus was on driving higher efficiency from our marketing investment by (1) reducing spend on low-return engagement marketing programs, which we expect will result in lower engagement marketing as a percentage of 43 TABLE OF CONTENTS revenue and (2) driving UA efficiency by optimizing spend across networks, driving higher organic traffic, and migrating a proportion of UA marketing spend to Aarki, Inc.
Over the course of 2022 and 2023, our focus was on driving higher efficiency from our marketing investment by (1) reducing spend on low-return engagement marketing programs, which we expect will result in lower engagement marketing as a percentage of revenue and (2) driving UA efficiency by optimizing spend across networks, and driving higher organic traffic.
The SDK acts as an application programming interface enabling communication of data between Skillz and the game developers, which when integrated with the developer’s game content, facilitates end-user registration into Competitions, managing and hosting end-user Competition accounts, matching players of similar skill levels, collecting end-user entry fees, distributing end-user prizes, resolving end-user disputes pertaining to their participation in Competitions, and running third-party marketing campaigns (“Monetization Services”). 56 TABLE OF CONTENTS We provide Monetization Services to game developers enabling them to offer competitive games to their end-users.
The SDK acts as an application programming interface enabling communication of data between Skillz and the game developers, which when integrated with the developer’s game content, facilitates end-user registration into competitions, managing and hosting end-user competition accounts, matching players of similar skill levels, collecting end-user entry fees, distributing end-user prizes, resolving end-user disputes pertaining to their participation in competitions, and running third-party marketing campaigns (collectively, “Monetization Services”).
When we conclude that the game developers do not have a valid expectation that the incentive will be offered, we record the related cost as sales and marketing expense. Our assessment is based on an evaluation of all information reasonably available to the game developers regarding our customary business practices, published policies and specific statements.
When the Company concludes that game developers do not have a valid expectation that an incentive will be offered, Management records the related cost as sales and marketing expense. Management’s assessment is based on an evaluation of all information reasonably available to game developers regarding the Company’s customary business practices, published policies and specific statements.
Annual interest started to accrue from December 20, 2021 at a stated rate of 10.25% and will be payable semiannually on June 15 and December 15 of each year, beginning on June 15, 2022. The notes mature on December 15, 2026.
The notes were sold in a private placement to qualified institutional buyers. Annual interest started to accrue from December 20, 2021 at a stated rate of 10.25% and will be payable semiannually on June 15 and December 15 of each year, beginning on June 15, 2022. The notes mature on December 15, 2026.
Our Financial Model Skillz’s financial model aligns the interests of gamers and developers, driving value for our stockholders. By monetizing through competition, our system eliminates friction that exists in traditional monetization models between the developer and the gamer. The more gamers enjoy our platform, the longer they play, creating more value for Skillz and our developers.
By monetizing through competition, our system eliminates friction that exists in traditional monetization models between the developer and the gamer. The more gamers enjoy our platform, the longer they play, creating more value for Skillz and our developers.
General and Administrative General and administrative expenses consist of personnel-related expenses for our corporate, executive, finance, and other administrative functions, expenses for outside professional services, and allocation of rent, maintenance and utilities costs according to headcount. Personnel related expenses consist of salaries, benefits, stock-based compensation and restructuring charges.
General and Administrative General and administrative expenses consist of personnel-related expenses for our corporate, executive, finance, human resources and other administrative functions, expenses for outside professional services, and an allocation for rent, maintenance and utilities costs which are allocated according to headcount. Personnel related expenses consist of salaries, benefits, and stock-based compensation.
The decrease was primarily driven by a discrete benefit related to the partial release of valuation allowance related to the acquisition of Aarki in the prior period. 2021 Compared to 2020 Provision for income taxes decreased by $19.3 million to a benefit of $19.1 million in 2021 from $0.1 million in 2020.
Provision (benefit) for income taxes 2023 Compared to 2022 Provision for income taxes decreased by $0.6 million to $0.2 million in 2023 from a benefit from income taxes of $0.3 million. The decrease was primarily driven by a discrete benefit related to the partial release of valuation allowance related to the acquisition of Aarki in the prior period.
We do not recognize contract assets or contract liabilities as the payment of the transaction price is concurrent with the fulfillment of the services. At the time of game completion, we have the right to receive payment for the services rendered.
The Company does not recognize contract assets or contract liabilities as the payment of the transaction price is concurrent with fulfillment of the services. At the time of game completion, the Company has a right to receive payment for services rendered.
Adjusted EBITDA “Adjusted EBITDA” is defined as net loss, excluding interest expense, net; change in fair value of common stock warrant liabilities; other income (expense), net; provision (benefit) for income taxes; depreciation and amortization; stock-based compensation expense and related payroll tax expense; and certain other non-cash or non-recurring items impacting net loss from time to time, including, but not limited to change in fair value adjustments of common stock warrant liabilities, impairment charges, and acquisition related expenses for transaction costs, loss contingency accruals, restructuring charges and 52 TABLE OF CONTENTS one-time nonrecurring expenses, as they are not indicative of business operations.
These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. 53 TABLE OF CONTENTS Adjusted EBITDA “Adjusted EBITDA” is defined as net income (loss), excluding interest income (expense), net; change in fair value of common stock warrant liabilities; other income (expense), net; provision for (benefit from) income taxes; depreciation and amortization; stock-based compensation expense and related payroll tax expense; and certain other non-cash or non-recurring items impacting net loss from time to time, including, but not limited to impairment charges, loss contingency accruals, restructuring charges and one-time nonrecurring expenses, as they are not indicative of business operations.
The SDK serves as a data interface between Skillz and the game developers that enables Skillz to provide monetization services to the developer. Specifically, thes e monetization services include end-user registration services, player matching, fraud and fair play monitoring, and billing and settlement services.
Skillz provides developers with a 3SDK that they can download and integrate with their existing games. The SDK serves as a data interface between Skillz and the game developers that enables Skillz to provide monetization services to the developer. Specifically, thes e monetization services include end-user registration services, player matching, fraud and fair play monitoring, and billing and settlement services.
These activities are not distinct from each other as we provide an integrated service enabling the game developers to provide the competitive game service to the end-users, and as a result, they do not represent separate performance obligations.
The Company provides Monetization Services to game developers enabling them to offer competitive games to their end-users. These activities are not distinct from each other as the Company provides an integrated service enabling game developers to provide the competitive game service to the end-users, and as a result, they do not represent separate performance obligations.
We determine whether or not to run a league, what prizes should be awarded, over what time period the league should run, and to which end-users the prizes should be paid, all at our discretion. The league parameters vary from one league to the next and are not reasonably known to the game developers.
Skillz determines whether (or not) to run a league, what prizes should be awarded, over what time period the league should run, and to which end-users’ prizes should be paid, all at the Company’s discretion. The parameters vary from one league to the next and are not reasonably known, nor communicated to game developers.
(2) ‘Cash deposits’ represents currency deposits into the end-user’s Skillz account during the respective period. (3) ‘End user incentives’ is based on amounts recorded as a reduction of revenue or sales and marketing expense during the respective period. End-user incentives primarily consist of (i) Bonus Cash, (ii) Ticketz (which can be redeemed for Bonus Cash) and (iii) promotional offers.
(3) ‘End-user incentives’ are based on amounts recorded as a reduction of revenue or sales and marketing expense during the respective period. End-user incentives primarily consist of (i) Bonus Cash, (ii) Ticketz (which can be redeemed for Bonus Cash) and (iii) promotional offers.
The notes contain customary covenants restricting our and certain of our subsidiaries’ ability to incur debt, incur liens, make distributions to holders of our stock, make certain transactions with our affiliates, as well as certain financial covenants specified in the indentures. We were in compliance with all covenants applicable to the notes as of December 31, 2022 and 2021.
The notes contain customary covenants restricting our and certain of our subsidiaries’ ability to incur debt, incur liens, make distributions to holders of our stock, make certain transactions with our affiliates, as well as certain financial covenants specified in the indentures.
The following table summarizes the components of GMV, including average GMV per active user and average GMV per paying active user for the years ended December 31, 2022, 2021 and 2020: 44 TABLE OF CONTENTS Year Ended December 31, 2022 2021 2020 As a percentage of GMV(%) Prior winnings (1) 81 % 81 % 82 % Cash deposits (2) 12 % 10 % 11 % End user incentives (3) 7 % 9 % 7 % As components of average GMV per paying monthly active user ($) Prior winnings $ 285.7 $ 320.8 $ 334.3 Cash deposits $ 43.2 $ 42.6 $ 46.2 End user incentives $ 25.5 $ 32.5 $ 29.0 As components of average GMV per monthly active user ($) Prior winnings $ 52.4 $ 55.8 $ 42.3 Cash deposits $ 7.9 $ 7.4 $ 5.9 End user incentives $ 4.7 $ 5.6 $ 3.7 (1) ‘Prior winnings’ include Cash and Bonus Cash that are in the end-user’s account as a result of winnings from Competitions.
The following table summarizes additional components of GMV, including average GMV per active user and average GMV per paying active user for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 As a percentage of GMV(%) Prior winnings (1) 81 % 81 % Cash deposits (2) 11 % 12 % End-user incentives (3) 8 % 7 % As components of average GMV per paying monthly active user ($) Prior winnings $ 364.1 $ 285.7 Cash deposits $ 52.9 $ 43.2 End-user incentives $ 31.8 $ 25.5 As components of average GMV per monthly active user ($) Prior winnings $ 62.4 $ 52.4 Cash deposits $ 9.1 $ 7.9 End-user incentives $ 5.5 $ 4.7 48 TABLE OF CONTENTS (1) ‘Prior winnings’ include cash and Bonus Cash that are in the end-user’s account as a result of winnings from competitions.
When Bonus Cash used as entry fees for a paid Competition is returned to an end-user as winnings, we do not record a sales and marketing expense or a reduction of revenue for such Bonus Cash.
When Bonus Cash is used towards entry fees for a paid Competition and is returned to an end-user as winnings, we do not record any additional sales and marketing expenses or reductions to revenue.
The net cash provided by investing activities included $167.8 million in proceeds from sales of marketable securities and $599.5 million in proceeds from maturities of marketable securities, partially offset by $454.1 million in purchases of marketable securities. Net cash used in investing activities was $643.9 million for the year ended December 31, 2021.
The net cash provided by investing activities included $167.8 million in proceeds from sales of marketable securities and $599.5 million in proceeds from maturities of marketable securities, partially offset by $454.1 million in purchases of marketable securities.
We also host engagement marketing leagues run over a period of days or weeks, which award league prizes in the form of cash or luxury goods to end-users with the most medals at the end of the league. End-users accumulate medals by winning paid entry fee competitions we enable.
The Company also hosts engagement marketing leagues, which run over a period of days or weeks. Prizes are awarded to winners in the form of cash or luxury goods to end-users earning the most medals at the end of the league. End-users accumulate medals by winning Skillz enabled paid entry fee competitions.
These net cash outflows were slightly offset by decreases of $5.6 million and $11.6 million in accounts receivable and prepaid expenses and other assets, respectively. Net cash used in operating activities was $180.2 million for the year ended December 31, 2021.
These net cash outflows were slightly offset by decreases of $5.6 million and $11.6 million in accounts receivable and prepaid expenses and other assets, respectively. Cash Flows from Investing Activities Net cash provided by investing activities was $168.3 million for the year ended December 31, 2023.
We believe that the use of Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Company’s financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors.
By providing this non-GAAP measure, we intend to provide investors with an additional tool to use in evaluating ongoing operating results and trends and in comparing the Company’s financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors.
We used the net proceeds from the offering for general corporate purposes, which included investments in marketable securities classified as available-for-sale in operating activities. We may also use the proceeds for potential acquisitions of other companies, products, or technologies that we may identify in the future.
We used the net proceeds from the offering for general corporate purposes. We may also use the proceeds for potential acquisitions of other companies, products, or technologies that we may identify in the future.
The following table provides a summary of cash flow data (in thousands): Year Ended December 31, 2022 2021 2020 Net cash used in operating activities $ (179,597) $ (180,154) $ (56,232) Net cash provided by (used in) investing activities $ 311,386 $ (643,924) $ (3,246) Net cash provided by (used in) financing activities $ (10,605) $ 802,682 $ 296,578 Cash Flows from Operating Activities Our cash flows from operating activities are significantly affected by the growth of our business primarily related to research and development, sales and marketing, and general and administrative activities.
The following table provides a summary of cash flow data (in thousands): Year Ended December 31, 2023 2022 Net cash used in operating activities $ (71,758) $ (179,597) Net cash provided by investing activities $ 168,301 $ 311,386 Net cash used in financing activities $ (149,951) $ (10,605) Cash Flows from Operating Activities Our cash flows from operating activities are significantly affected by the growth of our business primarily related to research and development, sales and marketing, and general and administrative activities.
Revenue is recognized at the time the performance obligation is satisfied by transferring control of the promised service in an amount that reflects the consideration that we expect to receive in exchange for the Monetization Services. We recognize revenue upon completion of a game, which is when our performance obligation to the game developer is satisfied.
Revenue is recognized at the time the performance obligation is satisfied by transferring control of the promised service in an amount that reflects the consideration that the Company expects to receive in exchange for the Monetization Services.
Personnel related expenses consist of salaries, benefits, stock-based compensation and restructuring charges. We expect sales and marketing expenses will fluctuate both in terms of absolute dollars and as a percentage of revenue in the future.
Sales and marketing expenses also include allocations of rent, maintenance and utilities costs which are allocated according to headcount. Personnel related expenses consist of salaries, benefits, and stock-based compensation. We expect sales and marketing expenses will fluctuate both in terms of absolute dollars and as a percentage of revenue in the future.
Once acquired, each user cohort contributes to revenue 45 TABLE OF CONTENTS over its life such that at three months, approximately 20% of users in a cohort continue to be paying users and the balance of PMAUs have churned.
Once acquired, each user cohort contributes to revenue over its life such that at three months, approximately 20% of users in a cohort continue to be paying users and the balance of PMAUs have churned. Thereafter, our retention curve continues to flatten with a limited portion of users continuing to contribute to revenue in each cohort for subsequent years.
Evaluating whether a promotion or incentive is a payment to a customer may require significant judgment. Promotions and incentives which are consideration payable to a customer are recognized as a reduction of revenue at the later of when revenue is recognized or when we pay or promise to pay the incentive.
Promotions and incentives which are consideration payable to a customer are recognized as a reduction of revenue at the later of when revenue is recognized or when the Company pays or promises to pay the incentive.
We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively with GAAP financial information, may be helpful to investors in assessing our operating performance.
We believe that non-GAAP financial information, when taken collectively with GAAP financial information, may be helpful to investors in assessing our operating performance.
To the extent that final tax outcomes of these matters are different than the amounts recorded, such differences could have a material impact Recent Accounting Pronouncements See Note 2 to our consolidated financial statements for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and our results of operations.
See Note 2, Summary of Significant Accounting Policies. Recent Accounting Pronouncements See Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and our results of operations.
The game developers earn revenue share from monthly net cash deposits received from end-users, calculated based on paid entry fees attributable to their games as a percentage of total entry fees. End-user incentives are not paid for by game developers.
The game developers earn monthly revenue share from end-users, calculated based on end users’ paid entry fees attributable to their games as a percentage of total entry fees. End-user incentives are not paid for by game developers. In addition, the Company accounts for end-user incentives either as a reduction of revenue or as sales and marketing expense (as noted below).
General and administrative expenses also include expenses related to a loss contingency accrual. We expect our general and administrative expenses, excluding impact of the CEO award cancellation of performance stock units to stock based compensation expenses, to decrease for the foreseeable future as we reposition the Company for profitability.
General and administrative expenses also include expenses related to a loss contingency accrual (for pending legal matters). We expect our general and administrative expenses to decrease for the foreseeable future as we reposition the Company for profitability.
Leases We have operating lease arrangements for office space, and finance lease agreements for certain network equipment. As of December 31, 2022, we had lease payment obligations of $23.3 million, with $5.3 million payable within 12 months.
Contractual Obligations and Commitments Our material cash requirements include the following contractual and other obligations. Leases We have operating lease arrangements for office space, and finance lease agreements for certain network equipment. As of December 31, 2023, we had lease payment obligations of $18.4 million, with $3.6 million payable within 12 months.
Further, if the Bonus Cash is returned to an end-user and is used to enter subsequent competitions and the end-user continues to win, we do not record any sales and marketing expense or a reduction of revenue each time the Bonus Cash is returned to the winning end-user. • Marketing promotions and discounts accounted for as a reduction of revenue.
Likewise, if Bonus Cash is returned to an end-user and is used to enter subsequent competitions, which they continue to win, we do not record any additional sales and marketing expenses or reductions to revenue. • Marketing promotions and discounts accounted for as reductions to revenue.
The impairments were driven primarily by a sharp decrease in our stock price and market capitalization that we experienced throughout the year, as well as downward adjustments to our operating forecasts, which were considered triggering events for our goodwill and long-lived assets and indicated the assets may not be recoverable.
The impairments were driven primarily by a sharp decrease in our stock price and market capitalization that we experienced throughout the year, as well as downward adjustments to our operating forecasts, which were considered triggering events for our goodwill and long-lived assets and indicated the assets may not be recoverable. 52 TABLE OF CONTENTS Gain on extinguishment of debt The gain on debt extinguishment of $15.2 million and $2.6 million for the years ended December 31, 2023 and 2022, respectively, was related to the 2021 Senior Secured Notes.
Our future cash requirements will depend on many factors, including our rate of revenue growth and the expansion of our sales and marketing activities. We also may invest in or acquire complementary businesses, applications or technologies.
Our existing liquidity resources are sufficient to continue operating activities for at least one year past the issuance date of the consolidated financial statements. Our future cash requirements will depend on many factors, including our rate of revenue growth and the expansion of our sales and marketing activities. We also may invest in or acquire complementary businesses, applications or technologies.
Refer to Note 14, Common Stock Warrants, of the notes to the consolidated financial statements for further discussion. 2021 Compared to 2020 The change in fair value of warrant liabilities increased by $111.0 million to $87.9 million in 2021 from $(23.0) million in 2020.
Change in fair value of common stock warrant liabilities 2023 Compared to 2022 The change in fair value of warrant liabilities decreased by $5.7 million to $0.3 million in 2023 from $6.0 million in 2022. Refer to Note 12, Common Stock Warrants, of the notes to the consolidated financial statements for further discussion.
Assuming acquisition cost per user is constant, decreases in UA marketing typically result in lower revenue as a result of having fewer new paying users. We reduced our UA marketing spend in 2022 to $117.3 million from approximately $241.5 million in 2021.
Assuming acquisition cost per user is constant, decreases in UA marketing expense typically result in lower revenue as a result of having fewer new paying users.
By utilizing the Skillz monetization services, game developers can enhance the player experience by enabling them to compete in head-to-head matches, live tournaments, leagues, and charity tournaments and increase player retention through referral bonus programs, loyalty perks, on-system achievements and bonus cash. Skillz provides developers with a SDK that they can download and integrate with their existing games.
The monetization service provided by Skillz allows developers to offer multi-player competition to their end-users which increases end-user retention and engagement. 49 TABLE OF CONTENTS By utilizing the Skillz monetization services, game developers can enhance the player experience by enabling them to compete in head-to-head matches, live tournaments, leagues, and charity tournaments and increase player retention through referral bonus programs, loyalty perks, on-system achievements and Bonus Cash.
As of December 31, 2022, our principal sources of liquidity were our cash and cash equivalents in the amount of $362.5 million, which are primarily invested in money market funds and marketable securities with maturity less than three months, and marketable securities in the amount of $184.0 million.
As of December 31, 2023, our principal sources of liquidity were our cash and cash equivalents in the amount of $302.0 million, which are primarily invested in money market funds and marketable securities with maturity less than three months, and marketable securities in the amount of $1.1 million. 55 TABLE OF CONTENTS In December 2021, the Company offered $300.0 million in aggregate principal senior secured notes due 2026 in a private offering.
Historically, our top games and related developers have accounted for a substantial portion of our revenue earned from the Skillz platform. For the years ended December 31, 2022, 2021 and 2020, the games Solitaire Cube, 21 Blitz (each developed by Tether Studios, LLC (“Tether”)) and Blackout Bingo (developed by Big Run Studios Inc.
For the years ended December 31, 2023 and 2022, the games Solitaire Cube, 21 Blitz (each developed by Tether Studios, LLC (“Tether”)) and Blackout Bingo (developed by Big Run Studios Inc. (“Big Run”)) combined accounted for 70% and 71% of our revenue, respectively.
GMV represents entry fees that may be paid using cash deposits, prior winnings and end-user incentives. 42 TABLE OF CONTENTS The following supplemental financial information table summarizes key operating metrics for the years ended December 31, 2022, 2021 and 2020: Year Ended December 31, 2022 2021 2020 Gross marketplace volume (“GMV”) (000s) (1) $ 1,642,282 $ 2,435,782 $ 1,592,389 Paying monthly active users (“PMAUs”) (000s) (2) 386 513 324 Monthly active users (“MAUs”) (000s) (3) 2,105 2,949 2,559 Average GMV per paying monthly active user (4) $ 354.4 $ 395.9 $ 409.6 Average GMV per monthly active user (5) $ 65.0 $ 68.8 $ 51.9 Average revenue per paying monthly active user (“ARPPU”) (6) $ 59.7 $ 62.0 $ 59.0 Average revenue per monthly active user (“ARPU”) (7) $ 11.0 $ 10.9 $ 7.5 Paying MAU to MAU ratio 18 % 18 % 13 % Average end-user incentives, included as sales and marketing expense, per paying active user (8) 25.33 30.78 26.27 Average end-user incentives, included as sales and marketing expense, per playing active user (9) 4.65 5.35 3.33 (1) “GMV” or “Gross Marketplace Volume” means the total entry fees paid by users for contests hosted on Skillz’s platform.
Year Ended December 31, 2023 2022 Gross marketplace volume (“GMV”) (000s) (1) $ 963,580 $ 1,642,282 Paying monthly active users (“PMAUs”) (000s) (2) 179 386 Monthly active users (“MAUs”) (000s) (3) 1,045 2,105 Average GMV per paying monthly active user (4) $ 448.8 $ 354.4 Average GMV per monthly active user (5) $ 76.9 $ 65.0 Average revenue per paying monthly active user (“ARPPU”) (6) $ 70.0 $ 59.7 Average revenue per monthly active user (“ARPU”) (7) $ 11.9 $ 11.0 Paying MAU to MAU ratio 17 % 18 % Average end-user incentives, included as sales and marketing expense, per paying active user (8) 30.09 25.33 Average end-user incentives, included as sales and marketing expense, per playing active user (9) 5.15 4.65 (1) “GMV” or “Gross Marketplace Volume” means the total entry fees paid by users for contests hosted on Skillz’s platform.
Revenues from Contracts with Customers We apply the five-step model to achieve the core principle of ASC 606. We determined that our customer in the provision of our technology platform and services is the game developer. Our ordinary activities consist of providing game developers services through access to our technology platform using the Skillz SDK.
The Company determined that its customer in the provision of its technology platform and services is the game developer. The Company’s ordinary activities consist of providing game developers services through access to its technology platform using the Skillz SDK.
Key Components of Results of Operations Revenue Sk illz provides a service to the game developers aimed at improving the monetization of their game content. The monetization service provided by Skillz allows developers to offer multi-player competition to their end-users which increases end-user retention and engagement.
Key Components of Results of Operations Revenue Sk illz provides a service to the game developers aimed at improving the monetization of their game content.
Our easy-to-integrate software development kit (“SDK”) and developer console allow our developers to monitor, integrate and update their games seamlessly over the air. We ingest and analyze over 300 data points from each game play session, enhancing our data-driven algorithms and LiveOps systems. Moreover, we have developed a robust platform enabling fun, fair and meaningful competitive gameplay.
We ingest and analyze over 300 data points from each game play session, enhancing our data-driven algorithms and LiveOps systems. Moreover, we have developed a robust platform enabling fun, fair and meaningful competitive gameplay. Historically, our top games and related developers have accounted for a substantial portion of our revenue earned from the Skillz platform.
(“Big Run”)) combined accounted for 71%, 72%, and 79% of our revenue, respectively. For the years ended December 31, 2022, 2021 and 2020 Tether accounted for 39%, 42%, and 59% of our revenue, respectively. For the years ended December 31, 2022, 2021 and 2020 Big Run accounted for 41%, 39%, and 28% of our revenue, respectively.
For the years ended December 31, 2023 and 2022, Tether accounted for 44% and 39% of our revenue, respectively. For the years ended December 31, 2023 and 2022, Big Run accounted for 36% and 41% of our revenue, respectively.
The reduction in UA marketing and engagement marketing expenses has resulted in a substantial reduction in revenue and is expected to continue to result in a reduction in revenue.
UA marketing spend during fiscal year 2023 was approximately $29.4 million, as compared to approximately $117.3 million in fiscal year 2022.The reduction in UA marketing and engagement marketing expenses during fiscal year 2022 and 2023 has resulted in a substantial reduction in revenue and is expected to continue to result in a reduction in revenue.
Another example is initial deposit Bonus Cash which is a promotional incentive that can be earned in fixed amounts when an end-user makes an initial deposit on our platform. 57 TABLE OF CONTENTS Bonus Cash can only be used by end-users to enter into future paid-entry fee Competitions and cannot be withdrawn until it is won by another end-user. • Marketing promotions accounted for as sales and marketing expense.
An example of an incentive for which the game developer has a valid expectation is the initial deposit Bonus Cash that can be earned in fixed amounts when an end-user makes their first deposit on the Skillz platform. Bonus Cash can only be applied by end-users towards future paid-entry fee competitions and cannot be withdrawn.
Thereafter, our retention curve continues to flatten with a limited portion of users continuing to contribute to revenue in each cohort for subsequent years. A cohort is all the users acquired in the period presented. A user is considered part of a cohort based on the first time they make a deposit and enter a paid tournament.
A cohort is all the users acquired in the period presented. A user is considered part of a cohort based on the first time they make a deposit and enter a paid tournament. Once a user is considered part of a cohort, they are always counted in that cohort.
Sales and Marketing Sales and marketing expenses consist primarily of direct advertising costs, engagement marketing expenses that are not recorded as a reduction of revenue, UA marketing expenses and amortization of intangible assets which include customer relationships. Sales and marketing expenses also include allocations of rent, maintenance and utilities costs according to headcount.
We expect research and development expenses will fluctuate both in terms of absolute dollars and as a percentage of revenue in the future. 50 TABLE OF CONTENTS Sales and Marketing Sales and marketing expenses consist primarily of direct advertising costs, engagement marketing expenses that are not recorded as a reduction of revenue, UA marketing expenses and amortization of intangible assets which include customer relationships.
We target groups of end-users differently, offering specific promotions we think will best stimulate engagement. Similar to Bonus Cash earned from a redemption of Ticketz or an initial deposit, limited-time Bonus Cash can only be used by end-users to enter into future paid entry fee competitions and cannot be withdrawn by end-users.
Similar to Bonus Cash earned from the redemption of “Ticketz”, which are virtual currency earned for every competition played based on the amount of the entry fee, or an initial deposit, limited-time Bonus Cash can only be used by end-users to enter future paid entry fee competitions and cannot be withdrawn.
As of December 31, 2022, over 500 developers had a game on our platform with at least one installed user. Our culture is built upon a set of values established by our founders, aligning the company and its employees in a common vision. Our seven values are: Honor; Mission; Collaboration; Productivity; Willingness; Frugality; and Balance.
Our culture is built upon a set of values established by our founders, aligning the Company and its employees in a common vision. Our seven values are: Honor; Mission; Collaboration; Productivity; Willingness; Frugality; and Balance. Our approach has focused on trust and fairness for users enabling game developers to focus on what they do best: build great content.
Bonus Cash used as entry fees for paid Competitions can include newly issued Bonus Cash and/or Bonus Cash that had been returned from prior winnings to an end-user.
Bonus Cash used as entry fees for paid Competitions can include newly issued Bonus Cash and / or Bonus Cash returned to end-users from prior winnings. We recognize the entire cost of Bonus Cash as sales and marketing expenses or a reduction of revenue (as discussed below).
Research and development expenses as a percentage of revenue increased to 19% in 2022 compared to 12% in 2021. 2021 Compared to 2020 Research and development costs increased by $23.0 million, or 99%, to $46.2 million in 2021 from $23.2 million in 2020.
Cost of revenue as a percentage of revenue decreased to 10% in 2023 from 11% in 2022. Research and Development 2023 Compared to 2022 Research and development costs decreased by $24.2 million, or 46%, to $28.1 million in 2023 from $52.3 million in 2022.
(8) For the year ended 2022, amount includes restructuring charges related to employee termination benefits. (9) For the year ended 2022, amounts represent one-time nonrecurring expenses related to IPO bonuses for certain employees, net of amounts forfeited by terminated employees.
(4) For the year ended 2022, amounts represent one-time nonrecurring expenses related to IPO bonuses for certain employees, net of amounts forfeited by terminated employees. (5) For the year ended 2023, amount represents the settlement of a litigation matter relating to a former employee as discussed in Note 19, Subsequent Events.
The SDK serves as a data interface between Skillz and the game developers that enables us to provide monetization services to the developer. We recognize revenue for our services in accordance with the FASB Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).
The SDK serves as a data interface between Skillz and the game developers that enables Skillz to provide monetization services to the developer.
(5) For the year ended 2020, this represents an impairment charge of a lease deposit and prepayment in connection with a lease agreement related to our new corporate facilities in San Francisco. (6) For the year ended 2022, amount includes impairment of goodwill and long-lived assets related to the developed technology, customer relationships, computer equipment, and lease ROU assets.
(2) For the year ended 2022, amount includes impairment of goodwill and long-lived assets related to the developed technology, customer relationships, computer equipment, and lease ROU. (3) For the year ended 2022, amount includes restructuring charges related to employee termination benefits.
The following table reconciles net loss to Adjusted EBITDA for the periods indicated and reflects the revisions as discussed in Note 3, Restatement of Previously Issued Financial Statements (in thousands): Year Ended December 31, 2022 2021 2020 (As Restated) (As Restated) Net loss $ (438,875) $ (187,925) $ (149,079) Interest expense, net (1) 23,992 1,222 1,325 Stock-based compensation (2) 108,202 60,331 23,757 Change in fair value of common stock warrant liabilities (6,004) (87,922) 23,049 Provision (benefit) for income taxes (345) (19,140) 115 Depreciation and amortization 17,871 11,665 1,609 Other (income) expense, net (3) (125) (49) 21,400 Acquisition related expenses (4) — 7,983 — Impairment charges (5)(6) 168,051 — 3,395 Loss contingency accrual (7) — 11,557 — Restructuring charges (8) 4,830 — — One-time nonrecurring expenses (9)(10)(11) 26 14,630 4,747 Adjusted EBITDA $ (122,377) $ (187,648) $ (69,682) (1) For the year ended 2022, amount includes $2.6 million gain on extinguishment of debt for our 2021 senior secured notes.
The following table reconciles net loss to Adjusted EBITDA for the periods indicated (in thousands): Year Ended December 31, 2023 2022 Net loss $ (101,360) $ (438,875) Interest expense, net 2,852 26,545 Stock-based compensation (1) 43,692 108,202 Change in fair value of common stock warrant liabilities (278) (6,004) Provision (benefit) for income taxes 239 (345) Depreciation and amortization 1,961 17,871 Gain on extinguishment of debt (15,205) (2,553) Other income, net (540) (125) Impairment charges (2) 3,335 168,051 Restructuring charges (3) — 4,830 One-time nonrecurring expenses (4) — 26 Loss contingency accrual (5) (3,524) — Adjusted EBITDA $ (68,828) $ (122,377) (1) For the year ended 2022, amount includes stock-based compensation recognized for the cancellation of the Chief Executive Officers’ award of 805,000 performance share units granted on September 14, 2021 (the “CEO Performance Stock Units”).

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