Good afternoon all. I would like to welcome you all to the Skillz Inc 2023 Third Quarter Results Call. My name is Brika and I will be your moderator for today's call. All lines are on mute for the presentation portion of the call today with an opportunity for questions-and-answers at the end. [Operator Instructions] I would now like to pass the conference over to your host, Jim Leahy from JCIR to begin. So Jim, please go ahead.

Good afternoon and welcome to the Skillz third quarter earnings conference call. On the call today are Andrew Paradise, Skillz Co-Founder and CEO; Casey Chafkin, Co-Founder and CSO, and Jason Roswig, President and CFO. This afternoon, Skillz issued its 2023 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 management's comments today will include forward-looking statements within the meaning 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 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. The reconciliation of these measures to the most directly comparable GAAP measures is available in the company's third quarter 2023 earnings release. With that, I'll turn the call over to Andrew for some opening remarks, followed by Jason for a discussion of our financial performance before we open the call for questions. Andrew?

Thank you, and good afternoon to everyone. Throughout the third quarter, we made continued progress on the four strategic pillars we laid out last year that we expect to return Skillz to generating consistent top line growth, cash flow. These four pillars are: first, enhancing our platform to improve customer and developer engagement and retention; second, upleveling our organization; third, improving our go-to-market efficiency; and forth, demonstrating a clear path to profitability. I want to level set expectations because more progress needs to be achieved ahead in order for us to fully achieve our business turnaround objectives. As an example, our traffic levels continue to lag where we want them to be. Paying monthly active users was 168,000 in Q3 compared to 200,000 in Q2. Ultimately, we still have more work ahead to grow Skillz platform to generate consistent, profitable growth and enhance shareholder value. Our near-term focus has been to improve our user economics before focusing on growing traffic for the sake of growth. We have been focusing on reducing customer acquisition costs and on growing LTV by improving our product experience to drive higher engagement. Once we reach our target of a sustained six month payback period, we'll shift focus to growing traffic. Beyond the project experience itself, we're working on our VIP program to ensure our most valuable players are recognized, rewarded, and retained. We've built a unique platform, and if we prioritize continuing to improve retention, while maintaining healthy user economics, we can generate significant returns for our shareholders. Let me turn to a brief review of our third quarter progress and Q4 to-date before I turn the call to Jason for a review of financials. I'll begin with some of the highlights of our efforts to enhance our platform to improve customer and developer engagement…

Thanks, Andrew. Revenue in the third quarter was $36.4 million, down 38% year-over-year and down 9.3% sequentially. Our paid user conversion rate which is paying MAU divided by MAU was 16% in Q3, slightly down from 18% in Q2 due to prioritizing optimizing our platform over user acquisition in the prior quarter. Third quarter UA marketing was $6.2 million, a decrease of 66% year-over-year and a 21% decrease quarter-over-quarter. As Andrew indicated, we are confident in our ability to continue to improve our payback period with the goal of achieving a best-in-class 6-month target. Q3 Engagement Marketing was $16.9 million, down 28% year-over-year and in line with Q2. Research and development expense was $7.9 million in the quarter, down 1% year-over-year. On a GAAP basis, R&D was 21.6% of quarterly revenue. Sales and marketing expense was $31.9 million, down 38% year-over-year, including $2.5 million of stock-based compensation. On a GAAP basis, sales and marketing was 88% of Q3 revenue, up 1 basis point year-over-year and up 7 basis points quarter-over-quarter. General and administrative expense was $24.4 million, inclusive of $8.5 million in stock-based compensation, up 16.5% year-over-year. On a GAAP basis, G&A was 67% of revenue, up 31.6 basis points year-over-year. Quarter-over-quarter, G&A was up 2 basis points as a percent of revenue. Net loss of $33.5 million decreased by $49.7 million year-over-year. Adjusted EBITDA in the quarter was negative $18.5 million. A 14% year-over-year decrease and a 2% decrease quarter-over-quarter. Adjusted EBITDA margin decreased by 4% from negative 47% in Q2 to negative 51% in Q3. We ended the third quarter with $339.9 million of cash, comprised of $330 million cash and cash equivalents, $7 million of marketable securities, $2.9 million in restricted cash and ended the quarter with approximately $130 million of total outstanding debt. With our improving…

Thank you. [Operator Instructions] We have the first question on the line from Ed Alter of Jefferies. Your line is now open.

Hi, everyone. This is Ed Alter on for Andrew. Just this is for Andrew, just provide an update on the new rev share agreement and how Studios are larger reacting to that? And when we could expect to see some of them putting some of their own marketing dollars behind spending their games and what that impact would be?

Sure. Ed, thank you for the question. So the DevRev share went live in May. To give everyone a good idea of timing of how long it takes to build a mobile game, and bring it to marketing scale. We should expect six to 18 months and probably more realistically 18 months. So six months being kind of the fastest time to market to build a game. We've seen a reinvigorated content creation community building games again on the platform. And I mentioned in my remarks, both Big Run and Tether build and launch games in Q3. which are two of our top customers. But we have a mix of both existing and new customers that make up all the games that went live in Q3. From an expectation standpoint of when those could scale I would say we should look for them to have impact on revenue in more like six to 12 months.

Great. Thanks for that. And then looking at the take rate, it looks like it's been dipping down the last couple of quarters. Just talk through kind of the drivers of that. Is that the rev share coming through on that? Or what's driving that?

That's a great question, Ed. Jason, do you want to take that one?

Thanks, Ed. So I think we've had over the last several quarters, as we've had lower user acquisition, we have less users, but we've been seeing that the users on our platform have become more valuable to us. So over time, we've seen our mature -- more mature user economics improving despite lower -- despite overall lower users on the platform. I'd also say that as you lower your marketing expense, right, shared with the developers that also reduces their payments, right? So you also have that effect showing through in the financials.

Ed, this is Casey Chafkin. Just to make sure I clarify what Jason is saying there. When we spend money on consumer acquisition, that money is treated as an operating expense, meaning it actually increases our revenue. The developer portion of that, though, is a contra revenue and that expense is shared with our developers. So when our marketing expense is higher, the developers are sharing in that expense and that increases our -- the effective take rate when the marketing expense is lower, developers aren't sharing or don't have as much of that expense burden and so their revenue share goes up as a percentage of revenue.

I see. I see. So then what would be kind of a longer-term target to think about as you look towards that profitability margin for fourth Q '24, what would the take rates kind of be in the ballpark for that scenario?

From my perspective, I think what you can expect is if Skillz is running the acquisition budgets, you could expect a take rate roughly in line with where we are right now. But as we see games that are running their own marketing budgets, that take rate would conceivably be lower. And so right now, we don't -- as a -- from a forecasting perspective, we don't break out those two possibilities in terms of growth. But you kind of expect in a status quo environment where Skillz is largely the driving force of marketing on the platform. The take rate would be in line with where it is now.

Great, great. Thanks. That's all I had. Thanks for the time guys.

Thanks, Ed.

Thank you. I would now like to hand it back to Andrew Paradise for closing remarks.

Great. All right. Well, thank you all again for joining us today. We look forward to providing updates on our progress as we return Skillz to sustain profitable growth in 2024. And we'll look forward to meeting with you to discuss our fourth quarter results on our next call. So until then take care.

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