Skillz Inc.

Welcome to Skills First Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. Hosting today's call, we have Andrew Paradise, Chief Executive Officer, Casey Chavkin, Chief Revenue Officer, and Scott Henry, Chief Financial Officer of the company. We hope you had a chance to read our press release and stockholder letter that we published earlier today, both of which are available on our investor relations website. We'll have brief introductory remarks and then dive into your questions. Some of management's comments today will be forward-looking statements within the meaning of the federal securities law. Forward-looking statements, which are usually identified by the use of such words as will, 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 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 we believe 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 measure is available in our first quarter 2021 earnings release. And with that, I'll turn the call over to Andrew.

Thank you, Stefan. Good afternoon, everyone. And thank you all for joining us today to discuss our first quarter 2021 results. We're incredibly proud of the strong results that we delivered throughout this quarter, and we're pleased to share some highlights. But before digging into the details, I wanted to take a moment to thank the team that makes this all possible, especially our skillsians working to drive the future of interactive entertainment and our developer partners who are committed to bringing their unique craft to the world. In Q1, we delivered strong performance across the business, achieving our 21st consecutive quarter of revenue growth. We generated 92% revenue growth year over year, driven in large part by 81% growth in paying monthly active users. Paying MAU describes our subscriber base and is perhaps the most important metric to our business. Paying MAU is driven by growth in new paying users, which is a function of both the number of new installs or downloads, as well as the install to deposit rate. While new installs overall remain consistent with the prior year period, the quality of traffic and our ability to convert installs to payers increase substantially. While monetizing non-paying users is an important future opportunity, Skills currently generates nearly all of its revenue from paying players. So this nuance is crucial to understanding our growth strategy. We optimize our marketing spend to acquire paying users, not installs. This is very different from other mobile gaming companies that monetize via advertising and just want to acquire the largest number of eyeballs possible. Of course, we pay for each impression regardless of whether or not they convert to being a payer. So if we could optimize our marketing spend to the point where we only acquired paying users, we would do that. Throughout this quarter, we drove growth broadly across games and platforms, really hitting on all cylinders. As we define the future of interactive entertainment, we continue to make game-changing investments across our business to capture the hundreds of billions of dollars in global market opportunity ahead. In terms of genre expansion, we're particularly excited about continuing to expand our platform from our first successful categories of games to all game categories. And we're now seeing early validation of our multi-year investment in synchronous player technology. This next feature set will expand our content library to include games ranging from first-person shooters to real-time strategy. We've opened up our synchronous technology to a small number of developer partners to test what we've built. We're collecting feedback from this initial group to refine the developer experience to build product performance prior to launching this technology to our entire community later this year. We're encouraged by the early results. This is an area where we expect to increase investment in order to support the new types of games content that our community will want to engage with. Ultimately, we envision being able to support real-time multiplayer content genres such as Battle Royale. We believe synchronous game modes are an important part of the future of the industry and a potential step function of growth for our business. Another opportunity ahead of us we're going to deepen and expand our partnership with brands. We see a future where every brand has a companion game that can be used as another way to connect with current fans and acquire new ones. We offer a trusted and mutually beneficial environment where our user experience is enriching these brands, and these brands are able to more fully engage their audiences through our interactive content. In fact, just last week, we officially launched and started accepting submissions for the NFL and Skills Developer Challenge. There are multiple ways where we can partner with brands that align with their goals and power engagement with their audience. We believe that not only this results in a better user experience for our end users, but it also drives brand-sponsored prizes, traffic, or both to our platform. In terms of Android, we've been building out our Android footprint since 2018. But there's a huge opportunity in the Android market, and it's not monolithic. In Q1, we expanded our Android footprint, growing revenue from Android users twice as fast as iOS. On the international front, we remain on track to launch in India by the end of this year with our patented and proprietary technology, which offers players a fair and trusted experience, serving as a core competitive advantage that we bring to the opportunity. In preparation for our India launch, we're investing in localizing the product, including payments. This is critical to penetrating the most affluent gamers in India. We're taking a systematic approach to the process so that it can be replicated as we expand to other international markets in 2022 and beyond. Lastly, we have a unique strategic asset with our deep first party player data. As we discussed during our Q4 results, User acquisition costs are still comparatively high versus prior years. Despite these near-term headwinds, we expect to maintain a long-term strategic advantage in user acquisition thanks to a broad appeal of our content across demographics and our deep first-party player data. This unique data set becomes even more valuable based on the announced changes to iOS 14.5 that have gone into effect, which will result in the loss of data for ad networks. We believe there will be a strategic opportunity for Skills to leverage our unique data set in the coming quarters. Looking forward, our continued momentum that these many growth opportunities gives us the confidence to announce that we're raising 2021 annual revenue guidance to $375 million. That will represent a 63% year-over-year growth. We're excited about the many growth opportunities ahead of us. We have a strong balance sheet with 613 million of cash. We have no debt as of the end of Q1. Hopefully, you've had a chance to read our stockholder letter, which contains more details on our Q1 performance. But for now, thank you for being a part of our journey.

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