Skillz Inc. Q3 FY2024 earnings call

• Fair Play Initiative: Active in sounding the alarm about gaming companies using bots, filed lawsuits against Papaya Games and Voodoo Games, and highlighted class action lawsuits against Avia Games and Papaya Gaming.
• Business Performance in Q3: Strong balance sheet and financial position; paying MAU stabilized at $121,000 in Q3 2024 compared to $122,000 in Q2 2024; OPEX excluding costs of sales and one-time benefits in line with Q2 2024; adjusted EBITDA loss improved year-over-year.
• Four Pillars:
  • Enhancing Platform: Ongoing progress on new product pipeline with several products in development.
  • Upleveling Organization: Scaled Las Vegas and Bangalore based teams, reduced reliance on expensive US based third party contractors and remote workforce.
  • Go to Market: UA spend consistent with prior quarters, at lowest level since 2018; plan to increase spend through Archie for better pricing and transparency.
  • Demonstrating Path to Profitability: Making steady strides towards generating positive adjusted EBITDA, optimistic to reach inflection point in 2025.

Revenue for the third quarter was $25 million, flat sequentially and down 33% year-over-year. Paid user conversion rate was 14% in Q3 2024, down from 15% in Q2. Research and development expense was $5 million, down 40% year-over-year, excluding stock-based compensation it was 13% of Q3 revenue. Sales and marketing expense was $18 million, down 40% year-over-year, excluding stock-based compensation it was 51% of Q3 revenue. General and administrative expense was $18 million, down 26% year-over-year, excluding stock-based compensation it was 25% of Q3 revenue. Net loss was $21 million in Q3 2024 compared to $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. Cash at the end of the third quarter was $311 million, comprised of $301 million in cash and cash equivalents and $10 million in restricted cash.

• Optimistic about reaching positive adjusted EBITDA in 2025.
• Plan to deploy capital to enhance shareholder value, focusing on areas like improving the platform, creating tools and better processes for developers, and scaling up UA spend.

• Preliminary results are subject to final adjustments and review by independent auditors. - Company was not in compliance with NYSE listing standards and is working to file required filings and achieve compliance. - Forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from expectations.

Q: Just wanted to maybe dig in on the paying Mao that's now been 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?

A: We've really slowed down acquisition. Most work is on retention of paying users and reactivation of paying users, focusing on owned marketing channels and system channels.

Q: As you talked about at the end there, you know, deploying capital, can you kind of walk through kind of the top three capital deployment priorities for you guys?

A: First, continue to invest and improve our platform. Second, create tools and better processes for our developers. Third, scale up our UA and marketing efforts.

Q: 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?

A: We've been running budget at six months and hitting that level. Strategy is to cut back marketing until seeing attractive return profiles, focusing on optimizing retention, and scaling back out user acquisition when early indicators of cohorts fall in line with retention curves. Also, identifying new games and approaching developers for publishing deals.

Q: Have you seen any notable call outs to make on that new game and new publisher pipeline?

A: We have seen signs of green shoots but nothing to point out specifically at this moment.