Richard Land; IR; JCIR
Andrew Paradise; Chairman of the Board, Chief Executive Officer; Skillz Inc
Gaetano Franceschi; Chief Financial Officer; Skillz Inc
Ed Alter; Analyst; JEFFERIES LLC
Operator
Good afternoon. All. I would like to welcome you all to the Skillz Inc 2024 3rd Quarter result school,
My name is Nadia and I’ll be moderating your call today.
If you would like to ask a question, please press star, fill it 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.
Richard Land
Good afternoon and welcome to the Skillz 2024 3rd quarter earnings conference call. On the call today are Andrew Paradise Skillz, co-founder and CEO and Gaetano Franceschi CFO. This afternoon Skillz issued it’s 2024 3rd 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 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, we’ll 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.
Andrew Paradise
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 the 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 box 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 game play with predetermined outcomes.
This manipulation alters match results to their advantage, defrauding American players with 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 Papa’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 US laws to protect the US consumers that defrauded.
We stand ready to continue to pursue additional actions to safeguard fairness within this industry that we pioneered while keeping the interest 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 for the safety of all players in this industry which will ultimately set a level playing field and benefit Skillz 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 Skillz to consistent top line growth and possibly just that 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 EBITA.
We’re consistently applying our expense management initiatives with Q324 OpEx excluding cost 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 discussed on 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 and expensive US based third party contractors and a 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 expanding in Q3 was consistent with Q2 and Q1 levels and remains at our lowest level since 2018 while being fairly stable. At approaching six months system wide payback, we need to now scale to facilitate growth. As we continue to focus on optimizing UA expand.
As part of these efforts, we plan to increase our spend through RKI which provides us with better pricing, pricing transparency and keeps the margin with the Skillz 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 EBIDA and by continuing to execute on our turnaround strategies, we remain optimistic. We’ll reach this inflection point in 2025.
Our Adjusted EBIDA loss continue 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 lawsuits against bought companies are adjusted even that 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 the just the dot of 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 combines our strong balance sheet provides us with the 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.