Skillz Inc.

Good afternoon all. I would like to welcome you all to the Skills Inc 2024 third quarter results call. My name is Nadia and I'll be moderating your call today. If you would like to ask a question, please press star followed by one on your telephone keypad. 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 skills 2024 third quarter earnings conference call on the call today Andrew paradise skills co founder and CEO and gay tunnel Francesca CFO. This afternoon skills issued its 2024 third quarter results release, which is available on the company's investor relations website. Before I turn the call over to Andrew please note that some of the management's comments today will include forward looking statements within the meeting 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 our 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 third 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 our financial performance before we open the call for questions. Andrew.

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 real 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 ABA 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 the use of bots. As evidenced by the judge's rulings in our case against Papaya, they will have to answer the U.S. laws to protect the U.S. consumers that 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 cover 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 to the safety of all players in this industry, which will ultimately set a level playing field and benefit skills 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 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 skills to consistent top line growth and positive adjusted EBITDA. Paying users for the quarter continue to stabilize with paying now 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 24 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 in recent calls the focus we've placed on our new product pipeline and have several products in development. Our second pillar, up-leveling the organization. In Q3, we continue 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 U.S.-based third-party contractors and our 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 spending Q3 was consistent with Q2 and Q1 levels. and remains at our lowest level since 2018, while being fairly stable at approaching 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 ARCI, which provides us with better pricing, pricing transparency, and keeps the margin with the skills 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 continued 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 bought 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 a runway to return our business to the 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.