Good afternoon and welcome you all to the Skillz Inc. 2024 Third Quarter Earnings Results Call. My name is Nadia and I'll be moderating your call today. I would now like to pass the conference call over to your host, Richard Land from JCIR to begin. So Richard, please go ahead.

Good afternoon and welcome to the Skillz 2024 Third Quarter Earnings Conference Call. On the call today are Andrew Paradise, Skillz Co-founder and CEO, and Gaetano Franceschi, CFO. This afternoon, Skillz issued its 2024 third quarter results release reporting the preliminary unaudited second quarter results, 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 fiscal quarter ended June 30, 2024. Accordingly, we are announcing preliminary results for the second quarter, which are based on currently available information and are subject to revision as management completes its internal review. Our independent registered public accounting firm has not finalized its review of these preliminary financial results. In the event, the Company determined it will not file its quarterly report on Form 10-Q by the prescribed deadline that we'll file an extension on Form 12b-25 with the Securities and Exchange Commission. In addition, the Company was not able to file its form 10-K for the fiscal year ended December 31, 2023 during a requisite extension period. The company was also not able to file its form 10-Q for the fiscal quarter ended March 31, 2024 by the required deadline. As a result, we previously announced we received the notice from the NYSE that the Company was not in compliance with NYSE listing standards. The Company is working diligently to complete the necessary work to file the 2023 Form 10-K and first quarter of 2024 form 10-Q as soon as practicable and currently expects to file the Form 10-K within the six-month period granted by the NYSE notice. The company also intends to take all necessary steps to achieve compliance with applicable NYSE listing standards as soon as practical. Because our results are preliminary and subject to completion of our internal review procedures and review and audit by our independent registered public accounting firm, actual results and other financial information may differ from these preliminary results due to final adjustments and other developments that may arise between now and the time the results are finalized. Before I turn the call over to Andrew, please note that some of 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 the Company’s financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in the Company's second quarter 2024 earnings release. With that, I'll turn the call over to Andrew for some opening remarks, followed by Gaetano for a discussion of the Company’s financial performance, before we open the call for questions.

Thank you, Richard and good afternoon. Before turning to an update on the progress made against our four pillars, I want to share the ongoing strides we're making in our Fair Play initiative and key litigation matters. We continue to be very active with sounding the alarm to have all gaming companies in this space provide consumers with certainty that they're being matched with real players of similar skill to ensure fair competition. Our efforts, both public and behind the scenes in this regard, are necessary to make sure this industry can survive and thrive as consumers have their hard-earned money on the line. While our proprietary platform delivers on this promise of fairness to players for more than a year, we've highlighted our strong conviction that companies such as Avia Games, Papaya Gaming, and Voodoo Games are using bots to deceive players into believing they're competing against real human opponents. In fact, we believe these players on these platforms are facing robots or gameplay with predetermined outcomes. This manipulation alters match results to their advantage, defrauding American players of billions of hard-earned dollars. As part of our fight for fairness, we filed lawsuits against Papaya Games and Voodoo Games in the Southern District of New York. We filed these suits to protect our interests as well as the interests of our stakeholders. While these lawsuits are ongoing and will take some time to come to trial, I want to highlight the irony of Papaya's recent court filings. These companies want to exploit American consumers and American companies like ours, but try to hide behind foreign law by refusing to turn over relevant discovery materials regarding their use of bots. As evidenced by the judge's rulings in our case against Papaya, they will have to answer to US laws to protect the US consumers they've defrauded. We stand ready to continue to pursue additional actions to safeguard fairness within this industry that we pioneered while keeping the interests of our shareholders in mind. In addition to our lawsuits, consumers have filed class action lawsuits against both Avia Games and Papaya Gaming. We're continuing to do everything we can to bring this matter to the attention of the legal and regulatory authorities. Both the Today show and Bloomberg covered these class action lawsuits in August. But we're far from having reached an end to bots in our industry. Bloomberg did a great job in bringing attention to the devastating monetary impact the use of bots has on ordinary Americans. The incredible amount of money being defrauded from individuals is staggering, and we need to continue to do our part to bring this fraud to light, including on these public calls. We hope that the regulatory authorities are listening and take quick and necessary actions to stop the billions of dollars of fraud being perpetrated against American consumers. As a US-based company, it's our belief we should do this for the safety of all players in this industry, which will ultimately set a level of playing field and benefit Skillz and our shareholders. We're ready, willing, and capable of competing against any other skill-based gaming provider that wants to compete fairly and without the deceptive use of bots. I strongly believe that since we're the leading company that does not engage in consumer bot fraud, the elimination of this practice should dramatically change the LTV to CAC to our benefit. Turning now to the business performance in Q3, we continue to have a strong balance sheet and financial position in the quarter. We continue to work on our four pillars for returning Skillz to consistent top-line growth and positive adjusted EBITDA. Paying users for the quarter continued to stabilize with paying MAU of 121,000 in Q3 2024 compared to 122,000 in Q2 2024, even as the summer months are typically our slowest period of the year. Our execution in Q3 continues to build our cautious optimism that we're on the right track to get to our goal of generating positive adjusted EBITDA. We're consistently applying our expense management initiatives with Q3 2024 OPEX excluding costs of sales and one-time benefits in line with Q2 2024 and our adjusted EBITDA loss improved again on a year-over-year basis. Turning now to an update on the first of our four key pillars enhancing our platform to improve customer and developer engagement and retention. The third quarter reflected some ongoing progress we've discussed on recent calls, the focus we've placed on our new product pipeline, and have several products in development. Our second pillar: upleveling the organization. In Q3 we continued to scale our Las Vegas and Bangalore-based teams to optimize our product development, marketing, and data and analytics resources. We also continue to reduce our reliance on expensive US-based third-party contractors and a remote workforce, with the work absorbed by our Las Vegas and Bangalore-based teams. Moving on to our third pillar, our go-to-market UA spend in Q3 was consistent with Q2 and Q1 levels and remains at our lowest level since 2018 while being fairly stable at approaching a six-month system-wide payback. We need to now scale to facilitate growth as we continue to focus on optimizing UA spend. As part of these efforts, we plan to increase our spend through Archie, which provides us with better pricing, pricing transparency, and keeps the margin with the Skillz family. Finally, I'll talk a little bit about our fourth pillar demonstrating a clear path to profitability. We're making the steady strides needed to achieve our goal of generating positive adjusted EBITDA and by continuing to execute on our turnaround strategies, we remain optimistic we'll reach this inflection point in 2025. Our adjusted EBITDA loss continues to improve year-over-year with a loss of $13.9 million in Q3 2024 compared to $18.5 million in Q3 2023. Excluding legal expenses related to lawsuits against bot companies, our adjusted EBITDA would have improved to a loss of $12.3 million. Cash flow from operating activities was negative $11 million in Q3 2024, in line with adjusted EBITDA for the quarter. We ended Q3 with cash, cash equivalents, and restricted cash of $311 million or $182 million net of outstanding debt. We continue to gradually improve our monthly operating cash burn, which combined with our strong balance sheet provides us with the runway to return our business to sustainable and profitable growth we need for our shareholders. I'll conclude my comments by reiterating our view that our current valuation gives no weight to the value of the operating platform and the progress we've made towards achieving our goals. We're confident that we're executing the right strategies to position the company to return to profitable growth. As we execute on our turnaround initiatives, we continue to believe our unique platform can generate significant returns for our shareholders. With that, I'll turn it over to Gaetano.

Thank you, Andrew and good afternoon, everyone. I'll start by noting that in our 2023 10-K and our 2024 first and second quarter 10-Qs, each of which were filed in late August, there were several non-material changes in our financial presentations to highlight. The two updates compared to our prior financial presentation are that we are now breaking out our financials by segment and geography. Turning to the third quarter financial results, revenue was $25 million, flat sequentially and down 33% year-over-year. Our paid user conversion rate, which is paying MAU divided by MAU, was 14% in Q3 down from 15% in Q2 with PMOW flat while MAO improved quarter over quarter. As Andrew indicated, we are confident that we can maintain our current system-wide payback period as we turn to investing in growth. Turning to OpEx, research and development expense was $5 million, down 40% year-over-year and excluding the impact of stock-based compensation was 13% of Q3 revenue. Sales and marketing expense was $18 million, down 40% year-over-year and excluding the impact of stock-based compensation was 51% of Q3 revenue. Q3 UA marketing was $4 million while Q3 engagement marketing was $10 million. General and administrative expense was $18 million, down 26% year-over-year and excluding the impact of stock-based compensation was 25% of Q3 revenue. Net loss of $21 million compares to a net loss of $34 million in Q3 2023. Adjusted EBITDA loss in the quarter was $13.9 million, a 25% improvement year-over-year. Adjusted EBITDA margin was negative 57% in Q3 2024 compared to negative 51% in Q3 2023. We ended the third quarter with $311 million of cash comprised of $301 million in cash and cash equivalents and $10 million in restricted cash. At the end of Q3, we had $130 million of total principal due on 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.

Thank you. Our first question goes to Ed Alter of Jeffreys. Ed, please go ahead.

Hi, thanks for the question. Just wanted to maybe dig in on the paying MAO that's now been, you know, nicely stable for three quarters in a row. Can you speak to the churn within that and is that a core group of a core cohort or is there kind of a little more churn within that? Just would love to hear like the core players you guys have on the platform?

I'm sorry, go ahead, catch on. Thanks.

No, no, go ahead, Andrew. Sorry, we're not in the same room. Apologies. Sorry.

We do that first. So the audio is a little clearer. We've really slowed down acquisition. So when you look at the amount of marketing spend, we've been pretty flat and stable now for multiple quarters. So most of the work of what we're doing is on both retention of paying users and then around reactivation of paying users. So really just owned marketing channels as well as on system channels. And I got time. Do you have anything you want to add about cohorts?

No, I think that's correct. Basically, what Andrew said is the way I would answer.

Yeah, great. And then, you know, as you talked about at the end there, you know, deploying capital, can you kind of walk through kind of the, you know, the top three capital deployment priorities for you guys?

Yeah, I can take that. And Andrew, if you want to add. I think there's a couple of areas that we definitely want to focus on. First is we want to continue to invest and improve our platform, so in people and product development. I'd say the second area that we want to continue to invest in is creating tools and better processes for our developers. And I'd say the third area of investment will be in scaling up our UA and our marketing efforts. So product development, new content, and then, you know, UA, and of course, people.

Great, thanks. And then as you scale that UA, you know, what are the success factors that you guys are going to measure yourself against obviously, you know, the six-month payback, it's great to hear that you're approaching that. But as you layer on scale, what are the targets you guys are looking to hit on that spend?

Yeah, no, that's a good question. So we've been running some of the budget this year at six months and actually hitting that level of payback I think is pretty hard given many in the industry are targeting 12 to 18 months. But I think the strategy here has been to really cut back our marketing until we can be sure that we're seeing attractive return profiles. Especially with all the issues we had at the end of '21 and in 2022 in turning around the business. We said that one of the first things we want to do obviously is if there's a lot of breakage in the product, retention is down in the product itself. It does not make sense to have advertising anywhere near the scale. So we cut it way, way down to what I'd say is kind of a life support level of user acquisition so that we can continue to optimize and fix retention as we improve D30, D180 retention and then our early indicators of cohorts falling in line with those retention curves. We'll look to scale back our user acquisition. But I think it's probably the right way to think about it is cautious scale in categories that we're already in. It's well known that Blackout Bingo and Solitaire Cube are at the top titles on the platform. We have a number of other titles that are smaller that potentially benefit from investment in marketing as well as new content. The new content is actually now functional again, and we are seeing more and more content launches. So the next piece of that of course is identifying which of these games could potentially scale into being a hit. And then it's approaching developers who are on the platform about doing publishing deals with the company so that we can actually capture that larger portion of revenue share and put a user acquisition budget against the game where the developer may not have the funds to do so.

Yeah, great, thanks. And then I guess on that last point, have you seen any notable call outs to make on that new game and new publisher pipeline?

We have, but I don't think we're yet kind of diving into that. So we definitely are seeing signs of green shoots, but nothing to point out specifically for this moment.

Thank you. We have no further questions. This now concludes today's call. Thank you for joining. You may now disconnect your lines.