Skillz Inc. [SKLZ] Filings

10-Q 1 sklz-20220331.htm 10-Q sklz-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______to______

Commission file number: 001-39243

SKILLZ INC.

(Exact name of registrant as specified in its charter)

Delaware

84-4478274

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

PO Box 445

San Francisco, California

94104

(Address of Principal Executive Offices)

(Zip Code)

(415) 762-0511

Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, par value $0.0001 per share	SKLZ	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of May 2, 2022, the registrant had outstanding 340,808,740 shares of Class A common stock and 68,717,138 shares of Class B common stock.

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SKILLZ INC.

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			Page

Note Regarding Forward Looking Statements

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)			1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3. Quantitative and Qualitative Disclosures About Market Risk			34
Item 4. Controls and Procedures			35

PART II - OTHER INFORMATION

Item 1. Legal Proceedings			37
Item 1A. Risk Factors			37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			37
Item 3. Defaults Upon Senior Securities			37
Item 4. Mine Safety Disclosures			37
Item 5. Other Information			37
Item 6. Exhibits			37
Signatures			38

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, about Skillz Inc. (“we,” “us,” “our,” or the “Company”) and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this report, including statements regarding guidance, our future results of operations or financial condition, business strategy and plans, user growth and engagement, product initiatives, and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “going to,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these words or other similar terms or expressions. We caution you that the foregoing may not include all of the forward-looking statements made in this report.

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. These forward-looking statements are subject to risks, uncertainties, and other factors described in Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, as supplemented by our other Securities and Exchange Commission filings, including among other things:

•Our rapid growth may not be sustainable and 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.

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•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 COVID-19 or another 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.

These statements are based on our historical performance and on our current plans, estimates and projections in light of information currently available to us, and therefore you should not place undue reliance on them. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Forward-looking statements made in this Quarterly Report on Form 10-Q speak only as of the date on which such statements are made, and we undertake no obligation to update them in light of new information or future events, except as required by law.

You should carefully consider the above factors, as well as the factors discussed in other risks described in Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, as supplemented by our other Securities and Exchange Commission filings. The factors identified above should not be construed as an exhaustive list of factors that could affect our future results and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us. If any of these trends, risks or uncertainties actually occurs or continues, our business, revenue and financial results could be harmed, the trading price of our Class A common stock could decline and you could lose all or part of your investment.

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PART I

ITEM 1. FINANCIAL STATEMENTS

SKILLZ INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except for number of shares and par value per share amounts)


	March 31,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	114,558	$	241,332
Marketable securities, current	369,566		319,055
Accounts receivable, net	13,230		13,497
Prepaid expenses and other current assets	21,967		16,704
Total current assets	519,321		590,588
Property and equipment, net	8,629		9,988
Operating lease right-of-use assets, net	13,977		14,511
Marketable securities, non-current	169,725		182,629
Non-marketable equity securities	55,649		55,649
Intangible assets, net	75,066		79,137
Goodwill	86,436		86,845
Other long-term assets	3,733		3,478
Total assets	$	932,536	$	1,022,825
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	13,305	$	19,753

Operating lease liabilities, current	2,005		2,110
Other current liabilities	57,607		64,969
Total current liabilities	72,917		86,832
Operating lease liabilities, non-current	13,199		13,567
Common stock warrant liabilities, non-current	1,831		6,293
Long-term debt, non-current	279,713		278,889
Other long-term liabilities	13,238		13,544
Total liabilities	380,898		399,125
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock $0.0001 par value; 10 million shares authorized — 0 issued and outstanding as of March 31, 2022 and December 31, 2021	—		—
Common stock $0.0001 par value; 625 million shares authorized; Class A common stock – 500 million shares authorized; 341 million and 340 million shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively; Class B common stock – 125 million shares authorized; 69 million shares issued and outstanding as of March 31, 2022 and December 31, 2021	40		40
Additional paid-in capital	1,121,697		1,043,600
Accumulated other comprehensive loss	(2,294)		(248)
Accumulated deficit	(567,805)		(419,692)
Total stockholders’ equity	551,638		623,700
Total liabilities and stockholders’ equity	$	932,536	$	1,022,825

See accompanying Notes to the Condensed Consolidated Financial Statements.

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SKILLZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited, in thousands, except for number of shares and per share amounts)


	Three Months Ended March 31,
	2022		2021
Revenue	$	93,438	$	83,677
Costs and expenses:
Cost of revenue	9,265		4,256
Research and development	18,653		7,282
Sales and marketing	117,332		96,323
General and administrative	92,792		27,284
Total costs and expenses	238,042		135,145
Loss from operations	(144,604)		(51,468)
Interest expense, net	(8,157)		(24)
Change in fair value of common stock warrant liabilities	4,462		(2,108)
Other (expense) income, net	(27)		50
Loss before income taxes	(148,326)		(53,550)
(Benefit from) provision for income taxes	(213)		42
Net loss	$	(148,113)	$	(53,592)
Net loss per share attributable to common stockholders:
Basic	$	(0.37)	$	(0.15)
Diluted	$	(0.37)	$	(0.16)
Weighted average shares outstanding:
Basic	401,653,954		356,818,954
Diluted	401,653,954		359,827,649

Other comprehensive loss:
Change in unrealized loss on available-for-sale investments, net of tax	(2,046)		—
Total other comprehensive loss:	(2,046)		—
Comprehensive loss	$	(150,159)	$	(53,592)

See accompanying Notes to the Condensed Consolidated Financial Statements.

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SKILLZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, in thousands, except for number of shares)


	Preferred stock			Common stock			Additional paid-in capital		Accumulated Other Comprehensive Loss		Accumulated deficit		Total stockholders’ equity
	Shares	Amount		Shares	Amount
Balance at December 31, 2020	—	—		369,797,524	37		295,065		—		(238,315)		56,787
Issuance of common stock upon exercise of stock options and release of restricted stock units	—	—		268,426	—		12		—		—		12
Issuance of common stock upon exercise of warrants and other, net	—	—		8,741,863	—		172,519		—		—		172,519
Net cash contributions from follow-on offering	—	—		17,000,000	2		402,238		—		—		402,240
Stock-based compensation	—	—		—	—		10,945		—		—		10,945
Other comprehensive loss	—	—		—	—		—		—		—		—
Net income	—	—		—	—		—		—		(53,592)		(53,592)
Balance at March 31, 2021	—	$	—	395,807,813	$	39	$	880,779	$	—	$	(291,907)	$	588,911

Balance at December 31, 2021	—	$	—	408,753,837	$	40	$	1,043,600	$	(248)	$	(419,692)	$	623,700
Issuance of common stock upon exercise of stock options and release of restricted stock units	—	—		879,936	—		236		—		—		236


Stock-based compensation	—	—		—	—		77,925				—		77,925
Other comprehensive loss	—	—		—	—		—		(2,046)		—		(2,046)
Other, net	—	—		—	—		(64)		—		—		(64)
Net loss	—	—		—	—		—		—		(148,113)		(148,113)
Balance at March 31, 2022	—	$	—	409,633,773	$	40	$	1,121,697	$	(2,294)	$	(567,805)	$	551,638

See accompanying Notes to the Condensed Consolidated Financial Statements.

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SKILLZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	Three Months Ended March 31,
		2022		2021
Operating Activities
Net loss		$	(148,113)	$	(53,592)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		5,539		555
Stock-based compensation		77,925		10,945
Accretion of unamortized debt discount and amortization of debt issuance costs		824		9

Amortization of premium (accretion of discount) for marketable securities		984		—
Deferred income taxes		(318)		—
Change in fair value of common stock warrant liabilities		(4,462)		2,108
Changes in operating assets and liabilities:
Accounts receivable, net		267		—
Prepaid expenses and other assets		(5,676)		(4,499)
Operating lease right-of-use assets		534		(13,453)
Accounts payable		(5,613)		(4,060)

Operating lease liabilities		(473)		14,386
Other accruals and liabilities		(4,868)		8,448
Net cash used in operating activities		(83,450)		(39,153)
Investing Activities
Purchases of property and equipment, including internal-use software		(107)		(659)

Purchases of marketable securities		(149,495)		—
Proceeds from maturities of marketable securities		83,265		—
Proceeds from sales of marketable securities		25,593		—
Net cash used in investing activities		(40,744)		(659)
Financing Activities
Principal payments on finance leases obligations		(840)		—
Payments for debt issuance costs		(1,976)		—
Proceeds from issuance of common stock in follow-on offering, net of underwriting commissions, and offering costs		—		402,817
Payments made towards deferred offering costs		—		(13,167)
Net proceeds from exercise of stock options and issuance of common stock		236		12



Net cash (used in) provided by financing activities		(2,580)		389,662
Net change in cash, cash equivalents and restricted cash		(126,774)		349,850
Cash, cash equivalents and restricted cash – beginning of year		244,252		265,648
Cash, cash equivalents and restricted cash – end of period		$	117,478	$	615,498
Supplemental cash flow data:
Cash paid during the period for:
Interest		$	86	$	15
Noncash investing and financing activities:
Deferred offering costs and issuance costs in accounts payable and accrued liabilities		$	28	$	1,449
Warrant exercise receivable		$	—	$	104,558
Warrant liability reclassified to additional paid-in capital		$	—	$	67,961

See accompanying Notes to the Condensed Consolidated Financial Statements.

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SKILLZ INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in tables are in thousands, unless otherwise noted)

1. Description of the Business and Basis of Presentation

Business

Skillz (the “Company” or “Skillz”) is a mobile eSports platform, driving the future of entertainment by accelerating the convergence of sports, video games and media. The Company’s principal activities are to develop and support a proprietary online-hosted technology platform that enables independent game developers to host tournaments and provide competitive gaming activity (“Competitions”) to end-users worldwide.

Basis of Presentation

The Company’s condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as determined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and pursuant to the regulations of the U.S. Securities and Exchange Commission (“SEC”).

Unaudited Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and in accordance with the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited condensed consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of the Company’s management, necessary for the fair presentation of the results of operations for the interim periods. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on March 1, 2022.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the periods presented. Estimates are used in several areas including, but not limited to, stock-based compensation, valuation of common stock warrants, the fair values of goodwill and intangible assets and the useful lives of the Company’s intangible assets. The Company bases these estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities. Actual results could differ materially from these estimates.

Revenue Recognition

The Company generates substantially all its revenues by providing 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. Skillz provides developers with a software development kit (“SDK”) 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.

The Company recognizes revenue for its services in accordance with the FASB Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).

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SKILLZ INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in tables are in thousands, unless otherwise noted)

Revenues from Contracts with Customers

The Company applies the five-step model to achieve the core principle of ASC 606. 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. 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”).

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 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 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. The game developers’ revenue share, however, is calculated solely based upon entry fees paid by net cash deposits received from end-users. End-user incentives are not paid for by game developers. In addition, the Company reduces revenue for end-user incentives which are treated as a reduction of revenue.

The Company collects the entry fees and related charges from end-users on behalf of game developers using the end-user’s pre-authorized credit card or PayPal account and withholds its fees before making the remaining disbursement to the game developer; thus, the game developer’s ability and intent to pay is not subject to significant judgment.

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. The Company recognizes revenue upon completion of a game, which is when its performance obligation to the game developer is satisfied. The Company does not have 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, the Company has the right to receive payment for the services rendered. 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 developer agreements, the developer, if required by the Company, must continue to make its games available on the platform for a period of up to twelve months. As the Company is able to terminate the developer agreements at its convenience, the Company has concluded the contract term for revenue recognition does not extend beyond the contractual notification period. The Company did not have any transaction price allocated to performance obligations that are unsatisfied (or partially satisfied) as of March 31, 2022 and 2021.

Games provided by two developer partners, accounted for 41% and 38% of the Company’s revenue in the three months ended March 31, 2022, and 42% and 41% of the Company’s revenue in the three months ended March 31, 2021.

End-User Incentive Programs

To drive traffic to the platform, the Company provides promotions and incentives to end-users in various forms. 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 the Company pays or promises to pay the incentive. Promotions and incentives recorded as sales and marketing expense are recognized when the related cost is incurred by the Company. In either case, the promotions and incentives are recognized when they are used by end-users to enter into a paid Competition.

•Marketing promotions and discounts accounted for as a reduction of revenue. 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 the Company’s agreement with its developers, the Company considers that the game developers have a valid expectation that certain incentives will be offered to end-users. The determination of a valid expectation is based on the evaluation of all information reasonably available to the game developers regarding the Company’s customary business practices, published policies and specific statements.

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SKILLZ INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in tables are in thousands, unless otherwise noted)

An example of an incentive for which the game developer has a valid expectation is Ticketz, which are a virtual currency earned for every Competition played based on the amount of the entry fee (“Ticketz”). Ticketz can be redeemed for prizes, including bonus cash prizes, a promotional incentive that cannot be withdrawn and can only be used by end-users to enter into paid entry fee contests (“Bonus Cash”). 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 the Skillz platform. Bonus Cash can only be used by end-users to enter into future paid entry fee Competitions and cannot be withdrawn by end-users.

For the three months ended March 31, 2022 and 2021, the Company recognized a reduction of revenue of $16.3 million and $17.6 million, respectively, related to these end-user incentives.

•Marketing promotions accounted for as sales and marketing expense. When the Company concludes that the game developers do not have a valid expectation that the incentive will be offered, the Company records the related cost as sales and marketing expense. The Company’s assessment is based on an evaluation of all information reasonably available to the game developers regarding the Company’s customary business practices, published policies and specific statements. These promotions are offered to end-users to draw, re-engage, or generally increase end-users’ use of the Company’s 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 Company targets groups of end-users differently, offering specific promotions it thinks 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. The Company also hosts 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 Skillz enabled paid entry fee competitions. 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 the prizes should be paid, all at its discretion. The league parameters vary from one league to the next and are not reasonably known to the game developers. League prizes in the form of cash can be withdrawn or used by end-users to enter into future paid entry fee competitions.

For the three months ended March 31, 2022 and 2021, the Company recognized sales and marketing expense of $37.0 million and $33.3 million, respectively, related to these end-user incentives.

From time to time, the Company issues credits or refunds to end-users that are unsatisfied by the level of service provided by the game developer. There is no contractual obligation for the Company to refund such end-users nor is there a valid expectation by the game developers for the Company to issue such credits or refunds to end-users on their behalf. The Company accounts for credits or refunds, which are not recoverable from the game developer, as sales and marketing expenses when incurred.

Total marketing promotions accounted for as sales and marketing expense recognized in three months ended March 31, 2022 and 2021 were $42.1 million and $36.0 million, respectively.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents consist of cash, commercial paper, money market funds and U.S government agency securities with maturities of three months or less when purchased.

Restricted cash maintained under an agreement that legally restricts the use of such funds is not included within cash and cash equivalents and is reported within other long-term assets. Restricted cash is comprised of $2.9 million which is pledged in the form of a letter of credit for the Company’s new headquarters in San Francisco.

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SKILLZ INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in tables are in thousands, unless otherwise noted)

A reconciliation of the Company’s cash and cash equivalents in the condensed consolidated balance sheets to cash, cash equivalents and restricted cash in the condensed consolidated statement of cash flows is as follows:


	March 31,		December 31,
	2022		2021
Cash and cash equivalents	$	114,558	$	241,332
Restricted cash	2,920		2,920
Cash, cash equivalents and restricted cash	$	117,478	$	244,252

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash, cash equivalents, restricted cash, and marketable securities. Although the Company deposits its cash with multiple well-established financial institutions, the deposits, at times, may exceed federally insured limits. The Company has not experienced any losses on its deposits of cash and cash equivalents. Marketable securities are primarily consisted of U.S government, corporate debt securities, asset backed securities, commercial paper, and debt instruments issued by foreign governments. The Company limits the amount of credit exposure to any one issuer. Management believes that the institutions are financially stable and, accordingly, minimal credit risk exists.

Accounts Receivable, Net

Accounts receivable, net, is comprised of trade accounts receivable recorded at the invoiced amounts for programmatic media campaigns, net of an allowance for credit losses. The allowance for credit losses is recorded as an offset to accounts receivable and changes in such are classified as general and administrative expense in the consolidated statements of operations and comprehensive loss. The Company assesses collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when there are specific customers with known disputes or collectability issues. In determining the amount of the allowance for credit losses, the Company considers historical collectability based on past due status and makes judgments about the creditworthiness of customers based on ongoing credit evaluations. The Company also considers customer-specific information, current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data. At March 31, 2022, the Company’s allowance for credit losses on accounts receivable was not significant to the condensed consolidated financial statements.

Fair Value Measurement

The Company applies fair value accounting for financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the condensed consolidated financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value measurements for assets and liabilities, the Company considers the principal or most advantageous market in which it would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

•Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

•Level 2 — Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in tables are in thousands, unless otherwise noted)

•Level 3 — Unobservable inputs reflecting management’s estimate of assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Certain financial instruments, including debt, are not measured at fair value on a recurring basis in the consolidated balance sheets. The fair value of debt was estimated using primarily level 2 inputs including quoted market prices or present value of future payments discounted by the market interest rates or the fixed rates based on current rates offered to the Company for debt with similar terms and maturities.

Investments

The Company considers all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. The fair values of these investments approximate their carrying values. In general, investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year are classified as non-current marketable securities.

Marketable securities are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. Changes in fair value, excluding credit losses and impairments, are recorded in other comprehensive loss. Fair value is calculated based on publicly available market information or other estimates determined by management. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, credit quality of debt instrument issuers, and the extent to which the fair value is less than cost. To determine credit losses, the Company employs a systematic methodology that considers available quantitative and qualitative evidence. In addition, the Company considers specific adverse conditions related to the financial health of, and business outlook for, the investee. If the Company plans to sell the security or it is more likely than not that the Company will be required to sell the security before recovery, then a decline in fair value below cost is recorded as an impairment charge in other (expense) income, net and a new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, the Company may incur future impairments.

The Company has elected to measure its existing investments in non-marketable equity securities at cost, less impairments, with remeasurements to fair value only upon the occurrence of observable price changes in orderly transactions for the identical or similar securities of the same issuer (“measurement alternative”). This election is reassessed each reporting period to determine whether non-marketable equity securities have a readily determinable fair value, in which case they would no longer be eligible for this election and would be measured at fair value. The Company evaluates its non-marketable equity securities for impairment at each reporting period based on a qualitative assessment that considers various potential impairment indicators. Impairment indicators might include, but would not necessarily be limited to, a significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee, a significant adverse change in the regulatory, economic, or technological environment of the investee, a bona fide offer to purchase, an offer by the investee to sell, or a completed auction process for the same or similar securities for an amount less than the carrying amount of the investments in those securities. If an impairment exists, a loss is recognized in the condensed consolidated statements of operations and comprehensive loss for the amount by which the carrying value exceeds the fair value of the investment. Gains and losses resulting from the remeasurement of non-marketable equity securities, including impairment, are recorded through other (expense) income, net in the condensed consolidated statement of operations and comprehensive loss. The Company separately presents investments in non-marketable equity securities within long-term assets on the condensed consolidated balance sheets.

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SKILLZ INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in tables are in thousands, unless otherwise noted)

Advertising and Promotional Expense

Advertising and promotional expenses are included in sales and marketing expenses within the condensed consolidated statements of operations and comprehensive loss and are expensed when incurred. For the three months ended March 31, 2022 and 2021, advertising expenses, not including marketing promotions related to the Company’s end-user incentive programs, were $59.7 million and $54.5 million, respectively.

Public and Private Common Stock Warrant Liabilities

As part of the Company’s initial public offering, it issued to third party investors 69.0 million units, consisting of one share of Class A common stock and one-fourth of one warrant, at a price of $10.00 per unit. Each whole warrant entitled the holder to purchase one share of Class A common stock at an exercise price of $11.50 per share (the “Public Warrants”). Simultaneously, the Company completed the private sale of 10,033,333 warrants at a purchase price of $1.50 per warrant (the “Private Warrants”) of which 5,016,666 Private Warrants were subsequently forfeited. Each Private Warrant allows the holder to purchase one share of Class A common stock at $11.50 per share. There were zero Public Warrants and 4,535,728 Private Warrants outstanding as of March 31, 2022.

The Private Warrants and the shares of common stock issuable upon the exercise of the Private Warrants are not transferable, assignable or salable, subject to certain limited exceptions. Additionally, the Private Warrants are exercisable for cash or on a cashless basis, and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

The Company evaluated the Public and Private Warrants under ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, (“ASC 815-40”), and concluded that they do not meet the criteria to be classified in stockholders’ equity. Specifically, the exercise of the Public and Private Warrants may be settled in cash upon the occurrence of a tender offer or exchange that involves 50% or more of the Company’s Class A stockholders. As there are two classes of common stock, not all of the stockholders need to participate in such tender offer or exchange to trigger the potential cash settlement and the Company does not control the occurrence of such an event, the Company concluded that the Public Warrants and Private Warrants do not meet the conditions to be classified in equity. Since the Public and Private Common Stock Warrants meet the definition of a derivative under ASC 815, the Company recorded these warrants as liabilities on the balance sheet at fair value, with subsequent changes in their respective fair values recognized in the condensed consolidated statement of operations and comprehensive loss at each reporting date. Because the Public Warrants were publicly traded and thus had an observable market price in an active market, they were valued based on their trading price as of each reporting date.

The Private Warrants are valued using the Black-Scholes-Merton Option (“BSM”) pricing model that is based on the individual characteristics of the warrants on the valuation date, which include the Company’s stock price and assumptions for expected volatility, expected life and risk-free interest rate, as well as the present value of the minimum cash payment component of the instrument for the warrants, when applicable. Changes in the assumptions used could have a material impact on the resulting fair value of each warrant. The primary inputs affecting the value of the warrant liability are the Company’s stock price and volatility in the Company's stock price, as well as assumptions about the probability and timing of certain events, such as a change in control or future equity offerings. Increases in the fair value of the underlying stock or increases in the volatility of the stock price generally result in a corresponding increase in the fair value of the warrant liability; conversely, decreases in the fair value of the underlying stock or decreases in the volatility of the stock price generally result in a corresponding decrease in the fair value of the warrant liability.

Stock-Based Compensation

The Company measures and recognizes compensation expense for all stock-based awards based on estimated grant-date fair values recognized over the requisite service period. For awards that vest solely based on a service condition, the Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period. The compensation expense related to awards with performance conditions is recognized over the requisite service period when the performance conditions are probable of being achieved. The compensation expense related to awards with market conditions is recognized

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in tables are in thousands, unless otherwise noted)

on an accelerated attribution basis over the requisite service period identified as the derived service period over which the market conditions are expected to be achieved, and is not reversed if the market condition is not satisfied. See Note 9 for more information. The Company accounts for forfeitures as they occur. If an employee stock-based award is canceled without the concurrent grant or offer of a replacement award, the cancellation should be treated as a settlement for no consideration and any previously unrecognized compensation cost shall be recognized at the cancellation date. Stock-based awards granted to employees are primarily stock options and restricted stock units.

The Company has primarily granted restricted stock units (“RSUs”), which have a service based vesting condition over a four-year period, to its employees and members of the Board of Directors since the start of 2021. The Board of Directors determines the fair value of each share of underlying common stock based on the closing price of the Company's common stock on the date of the grant.

For awards with market conditions, the Company determines the grant date fair value utilizing a Monte Carlo valuation model, which incorporates various assumptions including expected stock price volatility, expected term, risk-free interest rates, expected date of a qualifying event, expected capital raise percentage and market capitalization milestones. Given the Company’s limited market trading history, it has estimated the volatility of its common stock on the date of grant of awards with market conditions based on the weighted average historical stock price volatility of comparable publicly-traded companies in its industry group. The Company estimated the expected term of its awards with market conditions based on various exercise scenarios, as these awards are not considered “plain vanilla.” The Company utilized a risk-free interest rate based on the U.S. Treasury yield curve in effect at the time of grant. The Company estimated the expected date of a qualifying event, the expected capital raise percentage and the expected achievement date of market capitalization milestones based on management’s expectations at the time of measurement of the award’s value.

Segments

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. During the three months ended March 31, 2022, the Company continued to operate as a single operating and reportable segment as the CODM reviews financial information presented on a consolidated basis for the purposes of making operating decisions, allocation of resources, and evaluating financial performance.

Recently Issued Accounting Pronouncements Not Yet Adopted

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers, instead of fair value at the acquisition date in accordance with Topic 805. The amendments in ASU 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. The amendments in ASU 2021-08 are effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is evaluating the effect of adopting this new accounting guidance.

3. Business Combinations

Acquisition of Aarki, Inc.

On July 16, 2021, the Company completed the acquisition of Aarki, Inc. (“Aarki”) and acquired 100% of the outstanding equity and voting interest of Aarki under the terms of the Agreement and Plan of Merger. The Company transferred $162.3 million in consideration comprised of $95.3 million in cash and the remaining $67.1 million comprised of 4.4 million shares of Skillz Class A common stock to the existing Aarki stockholders. The addition of Aarki’s technology-driven marketing platform is expected to result in significant efficiencies in user-acquisition costs, which can be reinvested to acquire more users to accelerate growth and provide a broader product offering, including media buying capabilities to better serve game developers.

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SKILLZ INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in tables are in thousands, unless otherwise noted)

The following table summarizes the fair value of the purchase price to acquire Aarki:


Description	Amount
Cash	$	95,296
Common stock issued (1)	67,051
Total purchase price	$	162,347

_______________

(1) The fair value of the Skillz Class A Common Stock issued in the merger was based on 4,401,663 shares issued on the July 16, 2021 acquisition date at the closing price of the Company’s common stock on such date of $15.23 per share.

The following is an allocation of the purchase price as of July 16, 2021, the acquisition closing date, based on an estimate of the fair value of the assets acquired and liabilities assumed by the Company in the acquisition:


Description	Amount
Cash and cash equivalents	$	11,309
Accounts receivable, net	13,700
Prepaid expenses and other current assets	356
Property, plant and equipment, net	5,075
Intangible assets, net	86,800
Other long-term assets	91
Accounts payable	(445)
Accrued professional fees	(3,145)
Other current liabilities	(16,471)
Deferred tax liabilities	(20,075)
Other long-term liabilities	(1,693)
Identifiable net assets acquired	75,502
Goodwill	86,845
Total purchase price	$	162,347

The following is a summary of identifiable intangible assets acquired and their expected lives as of the acquisition closing date:


Type	Weighted-average useful life (in years)	Fair Value
Developed technology	8	$	60,400
Customer relationships	3	26,200
Trademark and trade name	0.3	200
Total identifiable intangible assets acquired		$	86,800

During the first quarter of 2022, the Company recorded a measurement period adjustment of $0.4 million to increase the carrying value of the identifiable net assets acquired, with a corresponding decrease to goodwill. The adjustment is related to a subsequent adjustment to Aarki’s federal and state tax payable as of the acquisition closing date.

The following table presents details of changes to the Company’s goodwill balance for the three months ended March 31, 2022:


	Goodwill
Balance at December 31, 2021	$	86,845
Goodwill adjustment	(409)
Balance as of March 31, 2022	$	86,436

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in tables are in thousands, unless otherwise noted)

4. Balance Sheet Components

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following as of March 31, 2022 and December 31, 2021:


	March 31,		December 31,
	2022		2021
Credit card processing reserve	$	10,450	$	9,527
Prepaid expenses	10,427		5,681
Other current assets	1,090		1,496
Prepaid expenses and other current assets	$	21,967	$	16,704

Intangible Assets, Net

The components of intangible assets consisted of the following as of March 31, 2022:


	Weighted Average Remaining Useful Life (in years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Developed technology	7.33	$	60,400	$	(5,348)	$	55,052
Customer relationships	2.33	26,200		(6,186)		20,014
Trademark and trade name	0.00	200		(200)		—
Intangible assets, net		$	86,800	$	(11,734)	$	75,066

The following table sets forth the activity related to finite-lived intangible assets:


	Three Months Ended March 31,
	2022
Beginning balance at December 31, 2021	$	79,137

Amortization	(4,071)
Ending balance at March 31, 2022	$	75,066

The following table summarizes amortization expense associated with finite-lived intangible assets recognized in the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2022 as follows:


	Three Months Ended March 31,
	2022
Cost of revenue	$	1,888
Sales and marketing	2,183
General and administrative	—
Total amortization expense	$	4,071

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SKILLZ INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in tables are in thousands, unless otherwise noted)

The following table outlines the estimated future amortization expense related to finite intangible assets as of March 31, 2022:


	Amount
2022	$	12,212
2023	16,283
2024	12,281
2025	7,550
2026	7,550
Thereafter	19,190
Total	$	75,066

Other Current Liabilities

Other current liabilities consisted of the following as of March 31, 2022 and December 31, 2021:


	March 31,		December 31,
	2022		2021
Accrued sales and marketing expenses	$	13,425	$	28,895
Accrued compensation	10,737		12,108
Accrued publisher fees	7,242		3,912
End-user liability, net	3,562		4,118
Accrued developer revenue share	1,147		1,655
Short-term lease obligations	2,043		2,447
Accrued legal expenses	4,757		5,126
Accrued interest expense	8,773		956
Other accrued expenses	5,921		5,752
Other current liabilities	$	57,607	$	64,969

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in tables are in thousands, unless otherwise noted)

5. Fair Value Measurements

As of March 31, 2022 and December 31, 2021, the recorded values of cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate their respective fair values due to the short-term nature of the instruments.

Cash and cash equivalents held by the Company as of March 31, 2022 and December 31, 2021 were $114.6 million and $241.3 million, respectively, and were comprised of cash on hand, money market funds, and highly liquid investments with original contractual maturity dates of three months or less. Cash and money market funds are classified within Level 1 of the fair value hierarchy. Highly liquid investments such as commercial papers and corporate bonds are classified within Level 2 of the fair value hierarchy.

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021:


	As of March 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Available-for-Sale Investments
Asset backed securities	$	—	$	113,038	$	—	$	113,038
Certificates of deposits	—		6,000		—		6,000
Corporate notes and bonds	—		234,237		—		234,237
Commercial paper	—		129,202		—		129,202
Foreign government securities	—		18,151		—		18,151
US Government Securities	44,974		27,959		—		72,933
Total assets	$	44,974	$	528,588	$	—	$	573,562
Liabilities:


Private Common Stock Warrants	—		—		1,831		1,831
Total liabilities	$	—	$	—	$	1,831	$	1,831


	As of December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Available-for-Sale Investments
Asset backed securities	$	—	$	111,552	$	—	$	111,552
Certificates of deposits	—		6,002		—		6,002
Corporate notes and bonds	—		206,989		—		206,989
Commercial paper	—		109,391		—		109,391
Foreign government securities	—		8,181		—		8,181
US Government Securities	86,787		—		—		86,787
Total assets	$	86,787	$	442,114	$	—	$	528,902
Liabilities:


Private Common Stock Warrants	—		—		6,293		6,293
Total liabilities	$	—	$	—	$	6,293	$	6,293

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in tables are in thousands, unless otherwise noted)

Available-for-Sale Investments

Available-for-sale investments were classified within Level 1 or Level 2 because the Company’s use quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value. The market values of Level 2 investments are determined based on observable inputs for the securities other than quoted prices, such as interest rates, yield curves, and credit spreads, or quoted prices for identical or similar securities in markets that are not considered active. There were no transfers between levels during the periods presented.

Private Common Stock Warrants

The Private Warrants were classified within Level 3 as they were valued based on a BSM pricing model, which involved the use of certain unobservable inputs, such as expected volatility estimated based on the average historical stock price volatility of comparable companies.

The following is a rollforward of balances for Private Warrants:


	Private Warrants
Balance at December 31, 2021	$	6,293
Fair market value adjustment	(4,462)
Balance as of March 31, 2022	$	1,831

6. Investments

Investment Components

The components of investments were as follows:


	As of March 31, 2022
	Adjusted Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value		Cash and Cash Equivalents		Marketable Securities - Current		Marketable Securities - Non-current
Asset backed securities	$	113,392	$	3	$	(357)	$	113,038	$	—	$	6,364	$	106,674
Certificates of deposits	6,005		—		(5)		6,000		—		6,000		—
Corporate notes and bonds	235,942		2		(1,707)		234,237		—		171,187		63,051
Commercial paper	129,290		4		(93)		129,202		26,282		102,921		—
Money market funds	5,615		—		—		5,615		5,615		—		—
Foreign government securities	18,289		—		(137)		18,151		—		18,151		—
US government and agency securities	72,938		1		(5)		72,934		7,989		64,943		—
Total investments	$	581,471	$	10	$	(2,304)	$	579,177	$	39,886	$	369,566	$	169,725

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SKILLZ INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in tables are in thousands, unless otherwise noted)


	As of December 31, 2021
	Adjusted Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value		Cash and Cash Equivalents		Marketable Securities - Current		Marketable Securities - Non-current
Asset backed securities	$	111,619	$	1	$	(68)	$	111,552	$	—	$	5,372	$	106,180
Certificates of deposits	6,002		—		—		6,002		—		6,002		—
Corporate notes and bonds	207,169		21		(201)		206,990		3,026		132,688		71,276
Commercial paper	109,391		—		—		109,391		24,193		85,198		—
Money market funds	51,768		—		—		51,768		51,768		—
Foreign government securities	8,186		—		(5)		8,181		—		3,008		5,173
US government securities	86,783		4		—		86,787		—		86,787		—
Total investments	$	580,918	$	26	$	(274)	$	580,671	$	78,987	$	319,055	$	182,629

Non-marketable equity securities are investments in privately held companies without readily determinable fair values. The carrying value of the Company’s investments without readily determinable fair values was $55.6 million as of March 31, 2022 and December 31, 2021, and was classified within “Investments in non-marketable equity securities” in the condensed consolidated balance sheets. The Company did not record any adjustments to the carrying value of its non-marketable equity securities accounted for under the measurement alternative, and did not recognize any gains or losses related to the sale of non-marketable equity securities in the three months ended March 31, 2022.

Unrealized Losses on Marketable Securities

The Company did not have any marketable securities with unrealized losses for more than 12 months. Unrealized losses from fixed-income securities are primarily attributable to changes in interest rates.

Marketable Securities Maturities


	Adjusted		Estimated
	Cost Basis		Fair Value
March 31, 2022
Due in one year or less	$	370,511	$	369,566
Due after one year through five years	171,074		169,725
Due after five years through ten years	—		—
Total	$	541,585	$	539,291

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SKILLZ INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in tables are in thousands, unless otherwise noted)

7. Long-Term Debt

Components of long-term debt were as follows as of March 31, 2022 and December 31, 2021:


	March 31,		December 31,
	2022		2021
2021 Senior Secured Notes	$	300,000	$	300,000
Unamortized discount and issuance costs	(20,287)		(21,111)
Net carrying amount	$	279,713	$	278,889
Current portion of long-term debt	$	—	$	—
Non-current portion of long-term debt	$	279,713	$	278,889

2021 Senior Secured Notes

In December 2021, the Company entered into a $300 million 10.25% secured notes in a private placement to certain institutional buyers. The interest is payable semiannually on June 15 and December 15 of each year, beginning on June 15, 2022. The effective interest rate on the notes is 12.14%. The notes will mature on December 15, 2026 unless repurchased or redeemed earlier. The secured notes contain customary covenants restricting the Company’s ability to incur debt, incur liens, make distributions to stockholders, make certain transactions with our affiliates, as well as certain other financial covenants. The Company was in compliance with all covenants as of March 31, 2022.

In accounting for the senior secured notes, unamortized discount and issuance costs were deducted from the carrying value in the condensed consolidated balance sheet. Issuance costs will be recognized as interest expense over the five-year term of the senior secured notes. The senior secured notes are classified as Level 2 financial instruments, and its fair value is presented for disclosure purposes only. The Company determined the fair value of the notes is $261 million as of March 31, 2022 based on secondary market quotes.

Interest is paid semi-annually. Accrued interest as of March 31, 2022 was $8.8 million, and was recorded within other current liabilities in the Company’s condensed consolidated balance sheets. No cash has been paid for interest as of March 31, 2022.

The following table outlines maturities of the principle related to the Company’s long-term debt, including the current portion, as of March 31, 2022:


	Amount
2022 (excluding the three months ended March 31, 2022)	$	—
2023	—
2024	—
2025	—
2026	300,000
Total	$	300,000

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SKILLZ INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in tables are in thousands, unless otherwise noted)

8. Leases

The Company is a party to various non-cancelable operating lease agreements for certain of its offices. The Company is a party to various non-cancelable finance lease agreements for certain network equipment. The leases have original lease periods expiring between 2022 to 2030. Some leases include one or more options to renew. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. The lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.

The Company adopted Accounting Standards Update 2016-02, Leases (“ASC 842”), which supersedes the guidance in Accounting Standards Codification (“ASC”) 840, Leases (“ASC 840”), effective January 1. 2021. As the Company elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the Jumpstart Our Business Startups Act of 2012, ASU 842 was not adopted until the fourth quarter of 2021. The comparative information for the three months ended March 31, 2021 have been adjusted to reflect impact of the adoption of ASC 842 as of January 1, 2021. The adoption did not impact the Company’s prior year consolidated statements of operations and comprehensive loss and statements of stockholders’ equity for the three-month period ended March 31, 2021. There was no impact on the Company’s prior year total cash used in operating activities in the Company’s condensed consolidated statement of cash flows; however, the Company has adjusted the operating lease right-of-use assets ($13.5 million decrease), operating lease liabilities ($14.4 million increase) and other accruals and liabilities ($0.9 million decrease) line items within changes in operating assets and liabilities in our condensed consolidated statement of cash flows for the three months ended March 31, 2021 included herein.

As of March 31, 2022, the Company does not have additional operating and finance leases not yet commenced.

9. Commitments and Contingencies

Legal Matters

The Company is a party to certain cl

Skillz Inc. [SKLZ] Filings
10-Q	[2022-05-06]
10-K	[2022-03-01]
10-Q	[2021-11-09]
S-1	[2021-08-17]
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