Skillz Inc.

Good afternoon. Thank you for attending today's Skills First Quarter 2022 earnings call. My name is Hannah and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to our host, Stefan Gerhard, VP of Finance. Please go ahead.

Good day, and welcome to the Skills First Quarter 2022 Earnings Conference Call. I'll proceed shortly by reading our forward-looking statements and non-GAAP measures, immediately followed by a brief introductory remark, and then a question-and-answer session. Hosting the question-and-answer session today, we have Andrew Paradise, Chief Executive Officer, Casey Chafkin, Chief Revenue Officer, and Ian Lee, Chief Financial Officer of the company. We hope you've had a chance to read our press release and stockholder letter, which we published earlier today, and both of which are also available on our investor relations website. We have also posted to our website a short video of our CEO discussing our business highlights this quarter. Some of management's comments today will include forward-looking statements within the meaning of the federal securities laws. Forward-looking statements, which are usually identified by the 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 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. Reconciliation of these measures to the most directly comparable GAAP measure is available in our first quarter 2022 earnings release. With that, I'll turn the call over to Andrew for some brief opening remarks.

Thank you, Stephan. Good afternoon, everyone, and thank you for joining us today to discuss our first quarter 2022 results. Our Q1 stockholder letter was just published through our investor site this afternoon. I highly encourage everyone to take a look at it when they have time. Before we begin taking questions, I'd like to share a few thoughts. This quarter, we commenced our transition to profitable growth, and that really required a significant change for 2021 plans. Change isn't easy. I think we all wish it would be a lot faster. As the largest shareholder of skills, I'm certainly not satisfied with the current financial results. However, we made significant progress this quarter towards our goals for the 2022 year. And as a reminder, our plan is to exit 2022 with a year-over-year revenue after engagement marketing growth rate above 30%, while moving our adjusted EBITDA margin to be better than negative 30%. We still have a lot more work ahead of us, but we're targeting to reach break-even as a business by the end of 2024. So to that end, let me give you a quick recap of our Q1 financial results. Revenue is up 12% over the prior year period to $93 million. Paying monthly active users was up 22% over the prior year period to 569,000 users. Revenue after engagement marketing was up 8% over the prior year period to $51 million. And adjusted EBITDA improved by $17 million over last quarter, which was Q4 2021. As we discussed last quarter, we remain focused on improving marketing efficiency this year. And we made some progress in Q1. We improved UA marketing efficiency, which enabled us to significantly reduce spend while maintaining revenue after engagement marketing. And we eliminated low return engagement marketing programs, which resulted in a meaningful reduction in engagement marketing as a percentage of overall revenue. Overall Q1 results were generally in line with our expectations as we've been moving from our 2021 strategy to our 2022 strategy. And additionally in Q1, we were able to unveil some of the product innovations that we've been investing in for quite some time, which is an important step towards building a more balanced growth profile. We launched a private beta of our cloud gaming product. This is a technology that will unlock a larger player audience for us and a better onboarding experience. It gives us access for the first time as well to computer users through web-based games. There are about 1 billion deployed computers out there that we'll be able to access with our cloud-based gaming product. We also rolled out chat system-wide, which will drive deeper user engagement. Beyond on the consumer side, on the developer side, we continue to invest in our developers and their content to diversify the range of games on our platform. We saw for GDC record level interest from the game developers at the Game Developers Conference, or GDC, which I think was very exciting, especially considering that attendance in GDC was down significantly from the prior conference prior to COVID. We also, this quarter, signed a multi-year partnership with UFC, the world's premier mixed martial arts organization, to create a branded mobile game. And we selected finalists for the NFL and Skills Game Developer Challenge, where these NFL-inspired game creations are now moving into the soft launch phase on our platform. While we definitely can't control the stock price, we can control and be committed to building revenue and increasing profitable growth. And we'll continue to do this through higher marketing efficiency, more social features, improving our core product experience, improving it, greater personalization on the platform, building more features for our developers to be able to monetize their art, and increasing the investment in our developer community through education and insights. We've shared all of this in more detail in our Q1 stockholder letter, which is published to our website, and I hope you'll get a chance to read. the future of interactive entertainment is incredibly bright it's a massive and fast growing opportunity that we're still in the early innings of and as such we'll continue with our 2022 plans to pursue profitable growth while investing in building technologies that excite our consumers and delight our developers when we first set on the path to build this business 10 years ago we started building this creative and innovative platform that builds a better experience for players and better monetization for developers. So for those of you who want to be on the journey with us, my sincere gratitude for the belief and support, even when things haven't been easy. So with that said, let's open up for questions.