Good afternoon and welcome you all to the Skillz Inc. 2024 Third Quarter Earnings Results Call. My name is Nadia and I'll be moderating your call today. [Operator Instructions]. 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 Skillz 2024 Third Quarter Earnings Conference Call. On the call today are Andrew Paradise, Skillz Co-founder and CEO, and Gaetano Franceschi, CFO. This afternoon, Skillz issued its 2024 third quarter results release its earnings release reporting the preliminary unaudited second quarter results, which is available on the company's Investor Relations website. The company is in the process of completing its unaudited interim financial statements and other disclosures for the fiscal quarter ended June 30, 2024. Accordingly, we are announcing preliminary results for the second quarter, which are based on currently available information and are subject to revision as management completes its internal review. Our independent registered public accounting firm has not finalized its review of these preliminary financial results. In the event, the Company determined it will not file its quarterly report on Form 10-Q by the prescribed deadline that we'll file an extension on Form 12b-25 with the Securities and Exchange Commission. In addition, the Company was not able to file Form 10-K for the fiscal year ended December 31, 2023 during a requisite extension period. The company was also not able to file it’s form 10-Q for the fiscal quarter ended March 31, 20204 by the required deadline. As a result, we previously announced we received the notice from the NYSE that the Company was not in compliance with NYSE listing standards. The Company is working diligently to complete the necessary work to file the 2023 Form 10-K and first quarter of 2024 form 10-Q as soon as practicable and currently expects to file the Form 10-K within the six-month period granted by the NYSE notice. The company also intends to take all necessary steps to achieve compliance with applicable NYSE listing standards as soon as practical. Because our results are preliminary…

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 Avia 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 pre-determined 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 their use of bonds. As evidenced by the judge's rulings in our case against Papaya, they will have to answer the US laws…

Thank you, Andrew and good afternoon, everyone. I'll start by noting that in our 2023 10-K and our 2024 first and second quarter 10-Qs, each of which were filed in late August, there were several non-material changes in our financial presentations to highlight. The two updates compared to our prior financial presentation are that we are now breaking out our financials by segment and geography. Turning to the third quarter financial results, revenue was $25 million flat sequentially and down 33% year-over-year. Our paid user conversion rate which is paying MAO divided by MAU was 14% in Q3 down from 15% in Q2 with PMOW flat while MAO improved quarter over quarter. As Andrew indicated, we are confident that we can maintain our current system wide payback period as we turn to investing in growth. Turning to OpEx, research and development expense was $5 million, down 40% year-over-year and excluding the impact of Stock based compensation was 13% of Q3 revenue. Sales and marketing expense was $18 million, down 40% year-over-year and excluding the impact of stock based compensation was 51% of Q3 revenue. Q3 UA marketing was 4 million while Q3 engagement marketing was $10 million. General and administrative expense was $18 million, down 26% year-over-year and excluding the impact of stock based compensation was 25% of Q3 revenue. Net loss of $21 million compares to a net loss of $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. We ended the third quarter with $311 million of cash comprised of $301 million in cash and cash equivalents and $10 million in restricted cash. At the end of Q3, we had $130 million of total principal due on outstanding debt. With our improving cash burn, we have the flexibility to deploy capital to enhance shareholder value. At this time, we'll turn the call back to the operator for the Q& A session.

Thank you. [Operator Instructions]. Our first question goes to Ed Alter of Jeffreys. Ed, please go ahead.

Hi, thanks for the question. Just wanted to maybe dig in on the paying Mao that's now been, you know, nicely stable for three quarters in a row. Can you. 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? Just would love to hear like the corp. Hear more on the core players you guys have on the platform?

I'm sorry, go ahead, catch on. Thanks.

No, no, go ahead, Andrew. Sorry, we're not in the same room. Apologies. Sorry.

We do that first. So the audio is a little clearer. We've really slowed down acquisition. So when you look at the amount of marketing spend, we've been pretty flat and stable now for multiple quarters. So most of the work of what we're doing is on both retention of paying users and then around reactivation of paying users. So really just owned marketing channels as well as on system channels. And I got time. Do you have anything you want to add about cohorts?

No, I think that's correct. Basically what Andrew said is the way I would answer.

Yeah, great. And then, you know, as you talked about at the end there, you know, deploying capital, can you kind of walk through kind of the, you know, the top three capital deployment priorities for you guys?

Yeah, I can take that. And Andrew, if you want to add. I think there's a. There's a couple of areas that we definitely want to focus on. First is we want to continue to invest and improve our platform. So in people and product and development. I'd say the second area that we want to continue to invest in is creating tools and better processes for our developers. And I'd say the third area of investment will be in scaling up our UA and our marketing efforts. So product development, new content, and then, you know, UA, and of course, people.

Great, thanks. And then 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, what are the targets you guys are looking to hit on that spend?

Yeah, no, that's a good question. So we've been running some of the budget this year at six months and actually hitting that level of payback I think is pretty hard given many in the industry are targeting 12 to 18 months. But I think the strategy here has been to really cut back our marketing until we can be sure that we're seeing attractive return profiles. Especially with all the issues we had call it end of '21 and in 2022 in turning around the business, we said that one of the first things we want to do obviously is if there's a lot of breakage in the product, retention is down in the product itself. Does not make sense to have advertising anywhere near the scale. So we cut it way, way, way down to what I'd say is kind of a life support level of user acquisition so that we can continue to optimize and fix retention as we improve D30, D180 retention and then our early indicators of cohorts falling in line with those retention curves. We'll look to scale back out user acquisition. But I think it's probably the right way to think about it is cautious scale in categories that we're already in. It's well known that Blackout Bingo and Solitary Cube are at the top titles on the platform. We have a number of other titles that are smaller that potentially benefit from investment in marketing as well as new content. The new content is actually now functional again and we are seeing more and more content launches. So the next piece of that of course is identifying which of these games could potentially scale into being a hit. And then it's approaching developers who are on the platform about doing publishing deals with the company so that we can actually capture that larger portion of Rev Share and put a user acquisition budget against the game where the developer may not have the funds to do so.

Yeah, great, thanks. And then I guess on that last point, have you seen any notable call outs to make on that new game and new publisher pipeline?

We have, but I don't think we're yet kind of diving into that. So we definitely are seeing signs of green shoots, but nothing to point out specifically for this moment.

Thank you. We have no further questions. This now concludes today's call. Thank you for joining. You may now disconnect your lines.