Skillz Inc. Q2 FY2024 earnings call

Fair Play Initiatives - Addressed ongoing efforts to combat bot fraud, including settlements with AviaGames, lawsuits against Papaya and Voodoo Games, and advocacy for regulatory oversight. ### Business Performance in Q2 - Paying monthly average users increased to 122,000 in Q2, up from 121,000 in Q1. Adjusted EBITDA loss improved year-over-year. ### Platform Enhancement - Progress on Live Brackets feature, VIP initiatives with improved live ops and pre-VIP conversion program. ### Upleveling the Organization - Optimized product engineering, data, and analytics resources; moved to Las Vegas headquarters to drive collaboration. ### Go to Market - UA spend consistent with recent quarters, focusing on scaling spend to facilitate growth. ### Path to Profitability - Modest progress in Q2, now expects to achieve positive adjusted EBITDA run rate in 2025.

Second quarter revenue was $25 million, down 37% year-over-year and flat sequentially. Paid user conversion rate was 15% in Q2, up from 14% in Q1. Research and development expense was $4 million, down 47% year-over-year. Sales and marketing expense was $21 million, down 36% year-over-year. General and administrative expense was $17 million, down 34% year-over-year. Adjusted EBITDA loss in the second quarter was $12.6 million, a 33% improvement year-over-year.

- Expect to achieve positive adjusted EBITDA run rate in 2025. ### - Targeting a 6-month to 8-month payback on marketing spend. ### - Focus on maintaining payback periods while scaling marketing budget, with controlled fluctuations in CAC.

- Delays in filing financial reports, including Form 10-K and 10-Q. ### - Non-compliance with NYSE listing standards. ### - Risks associated with forward-looking statements. ### - Impact of bot fraud on business and industry perception.

Q: Hey guys, thanks for the question. Great to hear you have the confidence to return in spending more on growth marketing. Can you just walk through what drove that decision and how you're going to measure the effectiveness of that spend?

A: Sure, Ed. Thank you for the question. This is Andrew Paradise. We've been pushing to get to a six-month payback on deployed capital. We're running right about that right now. So our top focus is expanding on the channels that, where we're running that level of payback, and maintaining that payback. So not just deploying more capital, but, of course controlling CAC and ensuring that we're continuing to see some lower levels of LTV.

Q: And how about going forward, is it still that same payback? Or is there more kind of ROAS targets you have in mind as well? Or just can you talk to the networks you might be using?

A: I don't think we can, we can share the networks right now, but I we are targeting, maintaining between, call it, a 6-month and 8-month payback. Obviously, as we increase marketing budget on a given channel where we're running a 6-month payback, we're going to see a temporary fluctuation upwards in customer acquisition cost. So we're looking at kind of same ROAS, same overall CAC, same payback periods, and running in a pretty tight range, targeting 6 months and allowing some fluctuation upwards as we scale budget, but being pretty controlled. So, certainly nothing like even a 12-month payback would be acceptable right now.

Q: Okay, awesome. And if I can ask a follow-up, the mobile gaming industry is having a better year this year compared to the last couple. Are you guys seeing that on your own platform and what has the macro mobile industry looking for where you guys sit?

A: Sure. That's a great question. Maybe, Gaetano, do you wanna talk a bit more about the broader market? Gaetano Franceschi: Yes. I think we are seeing some level of stabilization in our business as you can see in our results. I think we're focused on what Andrew just said, which is focusing on scaling our digital marketing and focusing on building new features on the platform that we think will engage and retain new customers, but for now, we feel like we're in a good cycle as it relates to where we were even a quarter or a year ago. Andrew Paradise: I'd even add to that Gaetano. I do think that the amount of bot fraud in our particular sector and the impact of that on running, let's say, confusingly similar marketing messages as companies that are committing fraud is definitely influencing that kind of overall shadow on our part of mobile gaming. It is definitely, probably, overcasting any overall benefit that the broader mobile gaming industry is seeing in terms of a bounce back year-over-year. So it's a little hard to say we're seeing a big macro effect, but I do think that we are making a lot of progress on the bot fight and on bringing justice for the players forward and working with a growing amount of regulatory to try to ensure that bots are not part of this industry and that process, we think we will see a lot of progress on it in the next couple of quarters, which will really change the landscape for our company.