Hello and welcome to today's Skillz Inc. 2023 Second Quarter Results Call. My name is Bailey and I'll be your moderator for today. I would now like to pass the conference over to Jim Leahy, Investor Relations for Skillz Inc. Please go ahead.

Good afternoon and welcome to the Skillz second quarter earnings conference call. On the call today are Andrew Paradise, Skillz Co-Founder and CEO; Casey Chafkin, Co-Founder and CSO; and Jason Roswig, President and CFO. This afternoon, Skillz issued its 2023 second quarter results release which is available on the company's Investor Relations website. Before I turn the call over to Andrew, please note that some of the management's comments today will 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 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. A reconciliation of these measures to the most directly comparable GAAP measures is available in the company's second quarter 2023 earnings release. With that, I'll turn the call over to Andrew for some opening remarks, followed by Jason for a discussion of our financial performance before we open the call for questions.

Thank you for the introduction and good afternoon to everyone. Throughout the second quarter, we made further progress on the four strategic pillars we laid out last year that we expect will position Skillz to deliver consistent top-line growth and positive cash flow. As a reminder, these four pillars are: First, enhancing our platform to improve customer and developer engagement and retention; second, up-leveling our organization; and third, improving our go-to-market efficiency. Our successful execution against these first three pillars then leads into the progress we are making with achieving our fourth key pillar, demonstrating a clear path to profitability. With the goal of generating positive adjusted EBITDA by the end of 2024 while our progress to date is encouraging, we remain confident in our ability to continue improving the business. We still have much more work to do to get Skillz positioned where it can generate consistent growth and enhance shareholder value. I'm certainly proud of the effort and commitment demonstrated by our team to date and I'm excited for the continued progress we'll achieve through our collective efforts. With that, let me turn to a brief review of our second quarter progress and then 3Q to date before I turn the call to Jason for a review of the 2Q financial results. I'll begin with some of the highlights of our efforts to enhance our platform to improve customer and developer engagement and retention. Our product team continues to develop an extensive new feature pipeline that's expected to drive higher customer retention, engagement and monetization. The cascading effects of those improvements are higher LTVs and optimization of our user acquisition payback period. Our new future product pipeline currently covers the next 18 months. Our team is continuing its development efforts as we work hard to catch up after a hiatus last year, where we focused on achieving operational efficiency. In Q2, we released daily challenges, new limited-time challenges which have been scaled across our platform to games that account for approximately half of our total revenue. While numbers are still in the early stages, we've already seen an uptick in LTV based on improved retention and engagement. We're working on ensuring we have our regular teams of new product introductions as we look to roll out a number of additional player engagement features by the end of 2023, and we look forward to sharing these with you in upcoming calls. For our developers, the changes we implemented in May which revised our revenue share agreements based on entry fees rather than net revenue have been well received. Thanks to these changes, developers increasingly see Skillz as a partner that's committed to helping them grow their business by increasing their revenue as they drive more traffic to our platform. We've also made progress with how we prioritize games that would benefit from being Skillz powered or invest in user acquisition to scale the user base versus the normal game path where developers run their own marketing plan and spend. Along those lines, we're excited to be adding more content from both existing and new developers with the potential to profitably scale. I'd like to also share an update on our deepening relationship with Exit Games which will drive benefits to our developer community. Working closely with Exit's team, we've simplified the path for our developers to incorporate their Photon multiplayer engine more comprehensively into games on our platform. Exit's best-in-class technology gives developers the ability to create games with sophisticated multiplayer functionality quickly and easily, making it simpler than ever for developers to bring an even broader range of innovative experiences to Skillz. The last topic I'd like to address for customer and developer engagement is the deceptive use of bots in our industry. Skillz is a unique inventory in this market and will continue to innovate the future of competitive gaming. While message boards have suggested that we're faking our proprietary technology claims, the reality is those that have been able to seemingly mirror our technology are doing so by using bots. The Skillz platform has never used bots and never will. Our proprietary platform provides certainty that every player is fairly matched against another real player. Skillz stands alone in our commitment to fair play for skill-based gaming. Because we seek to preserve our reputation and that of the industry we've created, we intend to address the issue and increase customers' visibility into those competitors they're using bots. We will deploy resources to combat the usage of bots in our industry, so that customers are no longer misled by certain companies. Further, we'd ask that our shareholders join us in our mission to keep the competitive gaming industry fair and transparent. Our shareholders can help drive this change by engaging with appropriate regulatory bodies in their local jurisdictions to address this practice and eradicate the deceptive use of bots. Absent taking action, consumers who engage in skill-based games will continue to be deceived and this industry will eventually lose the public's trust. It's absolutely critical for both players and developers to ensure fairness is everywhere. It's 100% of the industry and that this industry needs consumers' trust and accountability. Turning to our second pillar, up-leveling our organization. We continue to make progress in optimizing our workforce to drive consistent growth. I've discussed on prior calls the challenges we had post-IPO as we significantly scaled our organization and then very quickly were faced with the impact of the pandemic and how remote work negatively impacted our culture. I'm pleased to report we're on a good path to getting back to those core tenets of our culture; high performance, high accountability, strong collaboration and product ownership at every level. This quarter, we filled key roles, including General Counsel, Head of User Acquisition for Performance Marketing, Head of Games Marketing, and Head of People Operations. That's in addition to onboarding a team of nearly 10 recruiters to accelerate our ability to finish rebuilding. In Q3, we're focusing on key roles which will have a significant impact on our company in the second half of the year, including a Head of Player Advocacy to ensure compelling experiences for our VIPs and a GM of our developer platform to ensure we're optimizing our platform to best serve the needs of our developers and to maximize the profitability of their games. While we're not all the way there, we have made significant progress with putting the right people in the right roles and bringing our newer employees fully up to speed. We don't expect about 1,000. So even as we bring on promising new talent, we're equally focused on our performance management process and addressing new areas of our business where further changes may still be necessary. Our performance management mindset has made a tangible difference in productivity and ownership as evidenced in part by the great work our product and engineering organizations are doing to create an extensive lineup of new product features that I discussed a moment ago. Our upcoming move into our new Las Vegas headquarters will also enhance the culture for our current team members and position us to recruit new world-class talents that can help us grow. With the employment displacement in Silicon Valley, we're seeing some of the brightest, most capable potential team members and we're positioning Skillz as the employer of choice for team members that can further strengthen our cultural performance. With respect to Aarki, a leading advertising technology platform, they and their team have made consistent progress towards strengthening and optimizing the platform and turning around the business. We look forward to supporting their team to help them drive additional growth. Moving on to our third pillar, improving our go-to-market. Exiting the second quarter, our user acquisition cost was the lowest in spend since 2020, reinforcing the effectiveness of our efforts. Our payback period for UA exiting July was approximately 11 months which compares favorably to 28 months a year ago, placing us on track to reach a best-in-class payback period of 6 months in the next few quarters. In addition to the benefit from consistently rolling out new product features, top-line growth is largely driven by how much we can invest to attract and retain new players. Our UA spend is now generating solid returns and with the right systems and leadership in place to ensure we generate an appropriate ROI going forward. We launched several games in Q2 which is our biggest quarter in the last three quarters. Our goal for the second half of 2023 is to begin to scale as we plan to allocate UA funds to incubate between 5 and 10 new games, while also achieving continued improvement in our payback period. We also intend to continue adding and promoting more games to our platform to round out content in existing content categories as well as to establish footholds in promising new categories to attract an even wider and more diverse audience. I highlighted at the start of my comments that our first three pillars are the initiatives that will drive our ability to achieve our fourth pillar, demonstrating a clear path to profitability. Jason will review the details of our second quarter results in a few moments but I will share that the progress we're achieving and the further progress we expect to make over the second half of the year is encouraging. It provides me with a cautious optimism that we're on a pace to achieve our goal of generating adjusted EBITDA positive by the end of 2024. We're encouraged with our recent improvements in cash management, specifically the reduction in our operating cash burn to approximately $17 million over the past 6 months which compares favorably to our adjusted EBITDA over the same period. Given our net debt cash position of approximately $230 million, this implies 6 years of runway to return our business to high velocity profitable growth, not that we anticipate needing anywhere near that long as reflected in our goal to generate adjusted EBITDA positive by the end of next year. In closing, over the last several quarters, we've made consistent progress with our operating priorities. While I'm pleased with this progress, it should be said that we still have much work to do. Skillz Board, management team and the entire team is entirely committed to successfully execute our four pillars, so the company will have a significantly better foundation to create value for our shareholders. And with that, I'll turn it over to Jason.

Thanks, Andrew. Revenue in the second quarter was $40.2 million, down 24% year-over-year and down 10% sequentially. Our payer conversion rate, which is paying MAU, divided by MAU, was 18% in the quarter which compares favorably to 17% in Q1. Second quarter UA marketing was $7.8 million, a decrease of 74% year-over-year, a 6% decrease quarter-over-quarter. As Andrew indicated, we are confident in our ability to continue to improve our payback period with the goal of achieving a best-in-class 6-month target. Q2 engaged marketing was $17.1 million, down 45% year-over-year and down 3% quarter-over-quarter. Research and development was $8.9 million in the quarter, down 51% year-over-year. On a GAAP basis, R&D was 22% of quarterly revenue. Sales and marketing was $33.1 million, down 55% year-over-year, including $2.5 million of stock-based compensation. On a GAAP basis, sales and marketing was 82% of Q2 revenue, down 2,100 basis points year-over-year and up 350 basis points quarter-over-quarter. General and administrative expense was $30.1 million inclusive of $11.6 million in stock-based compensation, up 12% year-over-year. On a GAAP basis, G&A was 75% of revenue, up 1,200 basis points year-over-year. On a quarterly sequential basis, G&A was up 1,200 basis points as a percent of revenue. Net loss of $21.9 million decreased by $40.6 million year-over-year. Adjusted EBITDA in the quarter was negative $20.2 million, a 42% year-over-year improvement and an improvement of 3% quarter-over-quarter. Adjusted EBITDA margin of negative 50% improved 600 basis points year-over-year and decreased 700 basis points quarter-over-quarter. We ended the second quarter with $361 million of cash, comprising $328 million in cash and cash equivalents and $33 million of marketable securities. Following our repurchase in April of approximately $160 million of outstanding debt, we ended the quarter with approximately $130 million of total outstanding debt. In addition to driving a nearly $60 million benefit over the next 50 years when we repurchased the debt, we also received consensus to an amendment of the venture that increased the general restricted payments basket by $40 million from $25 million to $65 million. This provides us contractual liquidity which allows management and the Board to immediately evaluate opportunities to deploy capital to enhance shareholder value. At this time, we'll turn the call to the operator for the Q&A session.

Our first question today comes from Jason Tilchen at Canaccord.

Great. Maybe to start, how do you view the current competitive landscape for developer talent? And how has the introduction of those new developer terms several months ago impacted your relationship with developers helped attract that new talent so far?

Jason, thanks for the question. This is Andrew. I think it'd probably be best if we had Casey comment a bit on our overall strategy of how we're working against our competitors in our space.

Thank you, Andrew, and thank you, Jason, for your question. Jason, it's important to note that Skillz is essentially the only platform in the skill gaming or casual e-sports space. In the early stages of any new sector, being a fast follower can be a lucrative strategy because replicating successful games is relatively inexpensive and quick. This is evident from examples like Zynga, which utilized this strategy to break into Facebook Gaming around 2008, and we similarly followed them into the mobile gaming sector. The economic opportunity in these new categories gets validated, just as it has in Facebook, mobile, and now casual e-sports. Content creators will ramp up their investment in more intricate and complex gameplay experiences to leverage the significant economic potential ahead. As games grow in complexity, the ability to quickly replicate them diminishes, not only due to development costs but also the time to market and the subtleties that make a game exceptional, which aren't always obvious and make duplication challenging. We are seeing an inevitable increase in the complexity of skill-based games and casual e-sports as the industry expands. The gaming experiences will become richer, and the investments in their development will grow. Consequently, platforms will outperform standalone vertically integrated competitors as the next big success becomes harder to predict. We cannot be certain which studio will create the next great game, but the rising investment boosts the chances of achieving major hits. Therefore, as the only platform for skill-based games or casual e-sports, Skillz is the fastest, simplest, and most dependable way for developers to launch their products in this emerging sector. This positions Skillz as the most probable venue for the next top talent to emerge. As Andrew mentioned and you noted regarding our recent changes, these enhancements align with our competitive strength in encouraging and empowering developers to create unique competitive experiences. I’ll let Andrew discuss how creators have responded to some of these changes.

Yes. Thanks, Casey. We've received initial positive feedback from the entire developer community and have really moved every developer now over to the new model which is no small feat, reengineering the rev share in our partnership with the developers as a premier platform and getting all of our developers moved over to this traffic-based approach which frankly makes more sense for both the developers and Skillz platform. We want to align all parties on creating a network effect that, in turn, benefits all parties on the platform and accelerates the benefits for each new developer who would look to join. So we've made that happen. We've had positive feedback from our existing developers. In fact, multiple of our existing developers who may have been on pause on further investment into the platform, have actually started investing again in building new content. It's also led to several developers that had considered using Skillz to go to market in the past but they are now putting their games on the service. Additionally, we've been receiving a growing amount of very positive feedback in one-on-one discussions at developer conferences. I think in general, the feedback is that the new model is a lot better, it's easier to understand and it has rewards for developers in performing games which I think every one of our customers wants.

Great. That was really helpful. One other question. Could you share a little bit more about the types of releases we can expect in that product pipeline? You mentioned visibility for 18 months; is there anything else you can share about what we might expect on that front?

Thank you for your question. The most encouraging development this quarter was the launch of midsized features that are positively impacting retention, engagement, and monetization. About a year ago, we struggled without a significant product release for over 18 months, which halted our development and testing processes. In Q2, we introduced daily challenges, with a full rollout scheduled for this quarter and Q3, leading to double-digit improvements in our core metrics. We're also implementing key experience changes for players later this year, including a comprehensive update to our league system, which hasn't been refreshed in a long time. We expect this upgrade will enhance the experience for all players at every level and improve our core metrics significantly. Additionally, we launched instant match, allowing players to participate in real-time matches during gameplay, which is currently being tested and will roll out in Q3. We have also revamped our chat feature, which is still in testing. Furthermore, we're working towards implementing a single sign-on for all platform users. To summarize, we have daily challenges launched in Q2 and are preparing to roll out instant matching, chat, and single sign-on in Q3.

Thank you. There are no additional questions waiting at this time. So I'll pass the conference over to Andrew Paradise for any closing remarks.

All right. Well, thank you all again for joining us today. We look forward to providing updates throughout the year in our progress as we return the company to sustain profitable growth, including when to report on our third quarter results in November. I really appreciate the time and everyone's patience as we complete this turnaround. I feel confident that we can achieve many, many great things for the competitive platform forward together.

This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.