Firy Inc.

Previous wording

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”). MD&A is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the year ended December 31, 2025 (the “Annual Report”), and our financial statements and the accompanying Notes to Financial Statements (Part I, Item 1 of this Form 10-Q).

Current wording

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 Firy Inc. (for purposes of this section, “Firy,” “we,” “us” and “our”). MD&A is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the year ended December 31, 2025 (the “Annual Report”), and our financial statements and the accompanying Notes to Financial Statements (Part I, Item 1 of this Form 10-Q).

Previous wording

This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), about Skillz and our industry that involve numerous risks and uncertainties, including, but not limited to, those described in Part I, Item 1A, “Risk Factors” in our Annual Report and Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q. All statements other than statements of historical facts contained, including statements regarding 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.

Current wording

This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), about Firy and our industry that involve numerous risks and uncertainties, including, but not limited to, those described in Part I, Item 1A, “Risk Factors” in our Annual Report and Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans, user growth and engagement, product initiatives, ability to collect legal judgments issued in our favor, 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.

Previous wording

Paired with RZR (formerly Aarki), our AI-powered advertising technology segment, Skillz operates an ecosystem that combines content, audience, and performance into a unified growth engine. RZR delivers advertising solutions that drive revenue growth for brands and mobile apps by leveraging billions of contextual bidding signals, proprietary machine learning, and behavioral models to engage audiences in a privacy-first world. We are increasingly focused on expanding into emerging performance channels such as connected television, as well as enhancing cross-channel measurement and optimization capabilities. As Skillz onboards new developers, RZR’s platform is designed to power game title growth through user acquisition and monetization, continuously enhancing its machine learning engine, which in turn delivers better outcomes for developers and greater efficiency for the Skillz platform.

Current wording

As Skillz onboards new developers, RZR’s platform is designed to power game title growth through user acquisition and monetization, continuously enhancing its machine learning engine, which in turn delivers better outcomes for developers and greater efficiency for the Skillz platform.

Previous wording

Engagement marketing is a sales and marketing expense representing rewards and awards that developers do not have a valid expectation of being offered to end-users to engage on our platform. Engagement marketing may be impacted by end-user incentives, which include Bonus Cash that could only be used to enter into paid contests.

Current wording

Engagement marketing is a sales and marketing expense representing rewards and awards that developers do not have a valid expectation of being offered to end-users to engage on our platform. Engagement marketing may be impacted by end-user incentives, which include Bonus Cash that can only be used to enter into paid contests.

Previous wording

User acquisition (“UA”) marketing is a sales and marketing expense to acquire new paying users to our platform. UA marketing spend for the three months ended March 31, 2026 was approximately $3.2 million, as compared to approximately $4.6 million in the three months ended March 31, 2025. We are currently unable to reasonably estimate the quantitative impact, or range of impact, that changes in UA marketing will have on forward-looking revenue as a result of the number of interrelated factors impacting revenue, including, but not limited to, retention of existing users on the platform, average revenue per paying monthly active user, efficacy of various marketing programs on existing users, elasticity of the digital advertising supply curve, and impact of varying levels of player liquidity on the existing user ecosystem.

Current wording

User acquisition (“UA”) marketing is a sales and marketing expense to acquire new paying users to our platform. UA marketing spend for the six months ended June 30, 2026 was approximately $4.4 million, as compared to approximately $8.1 million in the six months ended June 30, 2025. We are currently unable to reasonably estimate the quantitative impact, or range of impact, that changes in UA marketing will have on forward-looking revenue as a result of a number of interrelated factors impacting revenue, including, but not limited to, retention of existing users on the platform, average revenue per paying monthly active user, efficacy of various marketing programs on existing users, elasticity of the digital advertising supply curve, and impact of varying levels of player liquidity on the existing user ecosystem.

Previous wording

As previously disclosed, on August 29, 2025, we received a Notice from Tether indicating that Tether is terminating all of its various agreements with us, including our terms or services, effective as of September 1, 2025. Tether’s Notice provides that Tether is terminating the Tether Agreements for convenience, while also asserting grounds for termination for cause (effective September 28, 2025) in the event its termination for convenience is not held as effective by a competent tribunal. We believe the termination notice to be invalid and in breach of Tether’s obligations under the Tether Agreements.

Current wording

As previously disclosed, on August 29, 2025, we received a Notice from Tether indicating that Tether is terminating all of its various agreements with us, including our terms of service, effective as of September 1, 2025. Tether’s Notice provides that Tether is terminating the Tether Agreements for convenience, while also asserting grounds for termination for cause (effective September 28, 2025) in the event its termination for convenience is not held as effective by a competent tribunal. We believe the termination notice to be invalid and in breach of Tether’s obligations under the Tether Agreements.

Previous wording

Following receipt of the Notice, on September 1, 2025, we filed suit in the Court of Chancery of the State of Delaware, seeking injunctive and declaratory relief in relation to Tether’s breach of the Tether Agreements. The Company is also disputing Tether’s allegations with respect to the grounds for termination of the Tether Agreements for cause. We intend to defend our position, but can provide no assurances regarding the outcome of the claim and the impact it may have on our business. See the risk factor entitled “Historically, a limited number of games have accounted for a substantial portion of our revenue. If these games were to become less popular or be removed from our platform and we are unable to identify and market suitable replacements, our business and prospects could suffer” in Part I, Item 1A, Risk Factors of this Annual Report for additional information on risks related to Tether’s Notice. The removal of Solitaire Cube and 21 Blitz contrary to the terms set forth in the agreements and/or before Skillz can provide a suitable replacement to such games may cause a material adverse effect on our platform business and results of operations.

Current wording

Following receipt of the Notice, on September 1, 2025, we filed suit in the Court of Chancery of the State of Delaware, seeking injunctive and declaratory relief in relation to Tether’s breach of the Tether Agreements. The Company is also disputing Tether’s allegations with respect to the grounds for termination of the Tether Agreements for cause. We intend to defend our position, but can provide no assurances regarding the outcome of the claim and the impact it may have on our business. The removal of Solitaire Cube and 21 Blitz contrary to the terms set forth in the agreements and/or before Skillz can provide a suitable replacement to such games may cause a material adverse effect on our platform business and results of operations.

Previous wording

On April 23, 2026, a jury in the U.S. District Court for the Southern District of New York found Papaya Gaming Ltd. and Papaya Gaming Inc. (together, “Papaya”) liable for false advertising and ordered Papaya to pay $420 million in damages. The jury also issued advisory figures of $719 million in profits-based disgorgement and $652 million in cost-savings disgorgement. The court is set to issue a decision in June 2026 with respect to which theory to accept. Refer to Note 8, “Commitments and Contingencies” for further discussion.

Current wording

On April 23, 2026, a jury in the U.S. District Court for the Southern District of New York found Papaya Gaming Ltd. and Papaya Gaming Inc. (together, “Papaya”) liable for false advertising and returned awards of $420 million in actual damages, $719 million in profits-based disgorgement, and $652 million in advisory cost-savings disgorgement, with the court to determine which recovery theory will apply. Post-trial motions, oppositions, and replies were filed by the court’s June 19, 2026 deadline. The court issued an opinion and order awarding $719 million in disgorgement of unjust profits, plus approximately $10.1 million in fees and costs to Skillz on July 27, 2026. A final judgment in the matter was entered on July 31, 2026. The Company intends to vigorously pursue full collection of the judgment; however, no assurance can be given as to the timing or amount of any ultimate recovery, including in light of any appeal or further proceedings. Refer to Note 8, “Commitments and Contingencies” for further discussion.

Previous wording

•In March 2025, the Company and a vendor settled a dispute. In exchange for mutual releases of all claims, the Company paid the vendor $2.8 million that was fully accrued as of December 31, 2024. Refer to Note 8, “Commitments and Contingencies,” of the notes to the condensed consolidated financial statements included in this Form 10-Q for more information.

Current wording

•In March 2025, the Company and a vendor settled a dispute. In exchange for mutual releases of all claims, the Company paid the vendor $2.8 million.

Previous wording

Total revenue increased by $7.2 million, or 33%, to $29.1 million for the three months ended March 31, 2026 from $21.9 million for the same period in the prior year. This was primarily due to higher revenue from our RZR segment, together with additional revenue from our Skillz segment.

Current wording

Total revenue increased by $5.8 million, or 23%, to $31.0 million for the three months ended June 30, 2026 from $25.2 million for the same period in the prior year. This was primarily due to higher revenue from our RZR segment, together with additional revenue from our Skillz segment.

Previous wording

RZR revenue increased by $5.3 million, or 120%, to $9.8 million for the three months ended March 31, 2026 from $4.4 million for the same period in the prior year. This was primarily due to higher advertising revenue from greater demand.

Current wording

RZR revenue increased by $4.4 million, or 75%, to $10.3 million for the three months ended June 30, 2026 from $5.9 million for the same period in the prior year. This was primarily due to higher advertising revenue from greater demand.

Previous wording

Skillz revenue increased by $2.0 million, or 12%, to $19.7 million for the three months ended March 31, 2026 from $17.6 million for the same period in the prior year. This was primarily due to higher average entry fees, partially offset by reduced tournament play.

Current wording

Skillz revenue increased by $1.4 million, or 7%, to $20.8 million for the three months ended June 30, 2026 from $19.4 million for the same period in the prior year. This was primarily due to higher average entry fees and a $3.7 million benefit recognized to reduce our indirect taxes liabilities, partially offset by reduced tournament play and higher end-user incentives.

Previous wording

Cost of revenue increased by $0.6 million, or 21%, to $3.6 million for the three months ended March 31, 2026 from $3.0 million for the same period in the prior year. This was primarily due to higher software license, server and payment processing costs from our Skillz segment.

Current wording

Cost of revenue increased by $0.7 million, or 21%, to $3.9 million for the three months ended June 30, 2026 from $3.2 million for the same period in the prior year. This was primarily due to higher software license, server and payment processing costs from our Skillz and RZR segments.

Previous wording

Research and development costs increased by $0.2 million, or 5%, to $5.1 million for the three months ended March 31, 2026 from $4.8 million for the same period in the prior year. This was primarily due to higher employee related costs from our Skillz and RZR segments.

Current wording

Research and development costs increased by $2.0 million, or 42%, to $6.9 million for the three months ended June 30, 2026 from $4.8 million for the same period in the prior year. This was primarily due to higher employee-related costs from our Skillz and RZR segments.

Previous wording

Sales and marketing costs decreased by $0.7 million, or 4%, to $17.3 million for the three months ended March 31, 2026 from $18.0 million for the same period in the prior year. This was primarily due to lower engagement and user acquisition marketing expenses, partially offset by higher employee related costs from our Skillz segment. The overall decrease was partially offset by higher employee related costs from our RZR segment.

Current wording

Sales and marketing costs decreased by $2.8 million, or 17%, to $13.6 million for the three months ended June 30, 2026 from $16.4 million for the same period in the prior year. This was primarily due to lower user acquisition marketing expenses and engagement marketing expenses from our Skillz segment, partially offset by higher employee-related costs from our Skillz and RZR segments.

Previous wording

Interest expense, net of interest income increased by $1.2 million, or 113%, to $2.3 million for the three months ended March 31, 2026 from $1.1 million for the same period in the prior year. This was primarily related to lower interest income earned as the Company held less interest bearing investments.

Current wording

Interest expense, net of interest income increased by $1.1 million, or 83%, to $2.4 million for the three months ended June 30, 2026 from $1.3 million for the same period in the prior year. This was primarily related to lower interest income earned as the Company held fewer interest-bearing investments.

Previous wording

The provision for income taxes was $0.1 million for the three months ended March 31, 2026, representing a 90% increase when compared to the provision for income taxes for the three months ended March 31, 2025. This was primarily due to a book loss, state and foreign taxes and equity award activities, mostly offset by a full valuation allowance on our deferred tax assets.

Current wording

The provision for income taxes was $0.1 million for the three months ended June 30, 2026, representing a 605% increase when compared to the benefit from income taxes for the three months ended June 30, 2025. This was primarily due to a book loss, state and foreign taxes and equity award activities, mostly offset by a full valuation allowance on our deferred tax assets.

Previous wording

As of March 31, 2026, our principal sources of liquidity are our cash and cash equivalents in the amount of $185.4 million, which are primarily invested in money market funds with maturities of less than three months.

Current wording

As of June 30, 2026, our principal sources of liquidity are our cash and cash equivalents in the amount of $164.0 million, which are primarily invested in money market funds with maturities of less than three months.

Previous wording

In December 2021, the Company offered and sold $300.0 million in aggregate principal senior secured notes due 2026 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 is payable semiannually on June 15 and December 15 of each year, beginning on June 15, 2022. The notes will mature on December 15, 2026. We used the net proceeds from the offering for general corporate purposes. 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. After giving effect to open market repurchases of our senior secured notes, $129.7 million of the senior secured notes remained outstanding as of March 31, 2026. We were in compliance with all covenants applicable to our secured notes as of March 31, 2026.

Current wording

In December 2021, the Company offered and sold $300.0 million in aggregate principal senior secured notes due 2026 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 is payable semiannually on June 15 and December 15 of each year, beginning on June 15, 2022. The notes will mature on December 15, 2026. We used the net proceeds from the offering for general corporate purposes. 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. After giving effect to open market repurchases of our senior secured notes, $129.7 million of the senior secured notes remained outstanding as of June 30, 2026. We were in compliance with all covenants applicable to our secured notes as of June 30, 2026. On August 4, 2026, we delivered a notice of partial redemption to redeem $80.0 million in aggregate principal amount of the senior secured notes at a redemption price of 100.00% of the principal amount of the notes, plus accrued and unpaid interest, with such redemption occurring on August 14, 2026. On August 14, 2026, the Company redeemed $80.0 million in aggregate principal amount of the Company’s outstanding 2021 Senior Secured Notes at a redemption price of 100.00% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest. As of August 14, 2026, after consummation of that redemption, there was $49.7 million aggregate principal amount of the Senior Secured Notes outstanding.

Previous wording

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. Our operating cash flows are also affected by working capital needs to support growth in personnel-related expenditures and fluctuations in accounts payable and other current assets and liabilities.

Current wording

Our cash flows from operating activities are significantly affected by the growth of our businesses primarily related to research and development, sales and marketing, and general and administrative activities. Our operating cash flows are also affected by working capital needs to support growth in personnel-related expenditures and fluctuations in accounts payable and other current assets and liabilities.

Previous wording

Net cash used in operating activities decreased by $4.2 million to $6.7 million for the three months ended March 31, 2026 from $10.9 million for the same period in the prior year. This was primarily due to a lower net loss in addition to changes in operating assets and liabilities related to cash receipts and disbursements in the normal course of business from our Skillz and RZR segments for the three months ended March 31, 2026.

Current wording

Net cash used in operating activities decreased by $7.1 million to $24.7 million for the six months ended June 30, 2026 from $31.7 million for the same period in the prior year. This was primarily due to changes in operating assets and liabilities related to cash receipts and disbursements in the normal course of business from our Skillz and RZR segments for the six months ended June 30, 2026.

Previous wording

Net cash used in investing activities decreased by $0.8 million to $1.0 million for the three months ended March 31, 2026 from $1.7 million for the same period in the prior year. This was primarily due to $0.6 million of capitalized software development costs and $0.4 million for purchases of property and equipment from our Skillz and RZR segments.

Current wording

Net cash used in investing activities increased by $0.8 million to $4.2 million for the six months ended June 30, 2026 from $3.4 million for the same period in the prior year. This was primarily due to $2.2 million of asset acquisitions from our Skillz segment, partially offset by reduced equipment purchases from our Skillz and RZR segments.

Previous wording

Net cash used in financing activities decreased by $4.4 million to $0.5 million for three months ended March 31, 2026 from $4.9 million for the same period in the prior year. This was primarily due to share repurchase activities that occurred during the prior year period.

Current wording

Net cash used in financing activities decreased by $5.8 million to $2.3 million for the six months ended June 30, 2026 from $8.1 million for the same period in the prior year. This was primarily due to $7.7 million of share repurchase activities that occurred during the prior year period, partially offset by $2.3 million of restricted stock vestings that occurred during the current year period.

Previous wording

We have operating lease arrangements for office space. As of March 31, 2026, we had lease payment obligations of $1.1 million, of which $0.5 million is payable within 12 months.

Current wording

We have operating lease arrangements for office space. As of June 30, 2026, we had lease payment obligations of $5.2 million, of which $1.3 million is payable within 12 months.

Previous wording

The Company’s long-term debt consists of the 2021 Senior Secured Notes. As of March 31, 2026, the total principal amount of $129.7 million, gross of discount and issuance costs of $1.6 million, is due on December 15, 2026.

Current wording

The Company’s long-term debt consists of the 2021 Senior Secured Notes. As of June 30, 2026, the total principal amount of $129.7 million, gross of discount and issuance costs of $1.0 million, is due on December 15, 2026. On August 4, 2026, we delivered a notice of partial redemption to redeem $80.0 million in aggregate principal amount of the 2021 Senior Secured Notes at a redemption price of 100.00% of the principal amount of the 2021 Senior Secured Notes, plus accrued and unpaid interest, with such redemption occurring on August 14, 2026. On August 14, 2026, the Company redeemed $80.0 million in aggregate principal amount of the Company’s outstanding 2021 Senior Secured Notes at a redemption price of 100.00% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest. As of August 14, 2026, after consummation of that redemption, there was $49.7 million aggregate principal amount of the Senior Secured Notes outstanding.