SKLZ - NYSE

Good afternoon all. I'd like to welcome you all to the Skillz Inc. Second Quarter 2025 Results Call. My name is Elliott, and I'll be moderating your call today. [Operator Instructions] I'll now turn the conference call over to your host, Joe Jaffoni from JCIR to begin. Please go ahead.

This afternoon, Skillz issued its 2025 second quarter earnings release, which is available on the company's Investor Relations website. The company is in the process of completing its unaudited interim financial statements and other disclosures for the second quarter ended June 30, 2025. Accordingly, we are announcing preliminary results for the second quarter, which are based on currently available information and are subject to revision. Actual results may differ from these preliminary financial results and other financial information as final adjustments and developments may arise between now and the time the results are finalized. In the event the company determines it will not file its quarterly report on Form 10-Q by the prescribed deadline, it will file an extension on Form 12b-25 with the Securities and Exchange Commission, which may include further disclosure. The company is also completing the financial statements and other disclosures for the year ended December 31, 2024. We were unable to file our annual report on Form 10-K for the year ended December 31, 2024, and we previously announced we received a notice from the NYSE that the company was not in compliance with its listing standards. The company is working diligently to complete the necessary work to file the Form 10-K as soon as practicable and currently expects to file the Form 10-K within the 6-month period granted by the NYSE notice. Additionally, the company intends to take the necessary steps to achieve compliance with the applicable NYSE listing standards as soon as practical. Before I turn the call over to Skillz' Founder and CEO, Andrew Paradise, please note that management's comments today may include forward-looking statements within the meaning of federal securities laws. Forward-looking statements, which are usually identified by the use of words such as will, expect, should or other similar phrases, are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. We refer you to the company's SEC filings for a more detailed discussion of the risks that could impact future operating results and financial condition. During the call, management will discuss non-GAAP financial measures, which it believes can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. The reconciliation of these measures to the most directly comparable GAAP measures is available in the company's second quarter 2025 earnings release. With that, I'll turn the call over to Andrew for some opening remarks, followed by a review of the financial performance from Skillz' CFO, Gaetano Franceschi, before we open the call for questions. Andrew?

Thank you, Joe, and good afternoon. I want to begin today's call by providing some key quarterly financial updates before turning to our fair play initiative and litigation updates. Q2 GAAP revenue was $27 million, up from $21 million in Q1 2025 and $25 million in Q2 2024. Excluding onetime adjustments, revenue grew 22% quarter-over-quarter and 4% year-over-year. Q2 paying MAU was 146,000, up from 124,000 in Q1 2025 and 122,000 in Q2 2024, which is 18% growth quarter-over-quarter and 20% growth year- over-year. Q2 adjusted EBITDA loss of $10 million, better than a loss of $16 million in Q1 2025 and a loss of $13 million in Q2 2024, which is an improvement of 36% quarter-over-quarter and 17% year-over-year. Taken together, these results reflect continued progress toward returning Skillz to consistent top line growth and positive adjusted EBITDA. Moving now on to the first of our 4 pillars. During the quarter, we made significant progress in enhancing our platform to improve player and developer engagement retention. When we discuss this pillar, we consider both short- and long-term innovation across our platform. That means improving our player experience and enhancing developer features, while prioritizing projects that will support new content, which in the gaming industry can have a long time line from development to market readiness. In the quarter, our product teams delivered several platform launches contributing to our quarterly sequential revenue growth. We enhanced our loyalty program in Q2, marking one of the most significant platform changes in several years. We recalibrated rewards to incentivize players to become high-value users without negatively impacting retention. The revamped program introduced secured milestones, personalized incentives and one of the largest monthly prize pools in mobile gaming. This initiative paired with improvements to our trophy system and live event experience are being well received by our players. Additionally, we introduced ACH deposit and instant withdrawal, positioning Skillz as a leader in withdrawal times while providing players with funding optionality. Our previous average withdrawal time line was a known pain point for some players. We listen to player feedback and implement a solution that makes us one of the fastest and safest platforms to transact within our category. We also launched the first version of our Skillz Arcade, a single app experience that allows players to seamlessly switch between more than a dozen games. Our goal is to build one of the largest single apps for prize-based competition with additional features to be layered in as we continue to improve the arcade experience. We previously discussed our long-term focus on new content pipeline generation, including a 3-year commitment of $75 million to support the Developer Accelerator program. This program aims to help defray costs for developers and encourage them to build their games for our platform as they work to create the next successful hit. Since announcing this in February, we've identified several opportunities to invest in a variety of genres. While there's still a lot of work to be done, we're encouraged to see some of the early deliverables from our product road map benefiting the player and developer experience. With respect to up-leveling our organization, we continue to strengthen our global team. This includes key hires across our product, marketing, analytics and operations teams that contributed to this quarter's results. For our third pillar, our go-to-market focus on user acquisition and monetization. This has been an area where we saw significant improvement with meaningful quarter-over-quarter growth in paying MAU. To highlight again, paying MAU or MAU for Q2 grew 18% versus Q1 with 146,000 PMAU, representing our highest level in 7 quarters. The improvement in PMAU is primarily driven by new platform launches and effective marketing to new and lapsed users. User acquisition spend in Q2 was lower than recent quarters, while we increased the volume of new paying users. We will continue to optimize customer acquisition costs while strategically scaling traffic. We believe our improved marketing efficiency and execution on our product road map will continue to benefit our monetization efforts, on our progress to demonstrate a clear path to profitability. With the information just provided, we believe we are making the steady strides needed to achieve our goal of generating positive adjusted EBITDA. While we talked in detail about the sequential growth of the platform business, I'd also like to highlight that Aarki's revenue growth is also accelerating. This AI-powered ad tech business is continuing to innovate in the mobile marketing space, and we're pleased with the team's execution across their strategic initiatives. In the quarter, Aarki delivered 2 key innovations. On iOS, it rolled out SKAN4 native privacy-centric models that drive both acquisition and retention without IDFA, identifier for advertiser, reliance. On Android, Aarki moved its top-of-funnel deep learning to graphics processing unit accelerated training on over 1 billion examples per day, enabling real-time bid optimization at scale. These advances expand Aarki's addressable market, sharpen ROAS for its customers and strengthen the integration with Skillz competition platform. With both businesses growing revenue, we're pleased with the progress in Q2. Turning to an update on our fair play initiative. As we discussed on previous calls, protecting players and preserving fair competition is core to our values. We continue to pursue litigation against Papaya and Voodoo games for their alleged use of bots, a practice we believe undermines consumer trust and harms the entire industry. These 2 cases are ongoing in the Southern District of New York, and Papaya and Voodoo will have to answer to U.S. laws and U.S. consumers they have, in our opinion, defrauded. With respect to our Papaya litigation, the court recently issued a public order that Papaya must unseal, and I'll quote from the order, "One, its admission of its historical use of bots; and two, references to its executives' assertions of their rights against self-incrimination under the fifth amendment." We believe the elimination of bot fraud is critical to protecting players and restoring trust in this industry that we pioneered. As a leading U.S.-based platform for fair skill-based competition, we're confident that a level playing field, one that does not include the use of bots, will benefit players and shareholders. I'll conclude my comments by reiterating our view that our current valuation gives no weight to the combined value of our operating platform and the progress we've made towards achieving our goals. As we continue to execute on our business strategy, we expect our unique platform to generate returns for our shareholders. And with that, I'll turn it over to Gaetano.

Thank you, Andrew, and good afternoon, everyone. Turning to the second quarter financial results, revenue was $27 million, up 30% sequentially and up 8% year-over-year. Excluding onetime adjustments, revenue grew 22% sequentially and 4% year-over-year. Paying MAU of 146,000 was up 18% sequentially and up 20% year-over-year. Our paid user conversion rate, which is paying MAU divided by MAU, was 19% in Q1, up from 15% a year ago. Turning to costs and expenses. Research and development expenses were $5 million, up 13% year-over-year. Excluding stock- based compensation, R&D expenses were 17% of Q2 revenue. Sales and marketing expenses were $18 million, down 16% year- over-year. Excluding stock-based compensation, sales and marketing expenses were 62% of Q2 revenue. Q2 UA marketing was $3 million, while Q2 engagement marketing was $9 million. General and administrative expenses were $8 million. Excluding stock- based compensation and funds received as part of an insurance settlement in Q2, G&A expenses were 49% of Q2 revenue. Q2 net loss of $9 million compares to a net income of $26 million in the same quarter last year. Excluding an insurance recovery in Q2 and $46 million in Avia settlement in the prior year, Q2 net loss improved by $3 million year-over-year. Adjusted EBITDA loss in the second quarter was $10 million, up 36% sequentially and up 17% year-over-year. Net cash used in operating activities for Q2 was $21 million. Excluding litigation settlements, insurance recovery and the semiannual debt payment, Q2 net cash used in operating activities was $8 million. We ended the second quarter with $239 million of cash, comprised of $229 million in cash and cash equivalents and $10 million in restricted cash. At the end of Q2, we had $129.7 million of total principal due on our outstanding debt. With our improving cash burn, we have the flexibility to deploy capital to enhance shareholder value. At this time, we'll turn the call back to the operator for the Q&A session.