Q3 2021 Skillz Inc Earnings Call

Yeah.

Good afternoon. Thank you for attending today's skilled third quarter 2021 earnings conference call. My name is nice 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 one on your telephone keypad I would now like to pass the conference over to your host.

Stephane Gerhard with skills. Thank you you May proceed Mr. Gerhard.

Thank you and I are.

Good day and welcome to the skilled third quarter 2021 earnings conference call.

I'll proceed shortly by reading our forward looking statements and non-GAAP measures.

Immediately followed by brief introductory remarks, and then a question and answer session.

Yeah.

Hosting the question and answer session today, we have Andrew Paradise, Chief Executive Officer Casey.

Casey Joskin, 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 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 use of words, such as will expect should or.

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.

A reconciliation of these measures to the most directly comparable GAAP measure is available in our third quarter 2021 earnings release.

With that I'll turn I'll turn the call over to Andrew for some brief opening remarks.

Thank you Stan.

Good afternoon, everyone and thank you all for joining us today to discuss our third quarter 2021 results.

So you haven't had a chance to review our Q3 stockholder letter, which just published our Investor site. This afternoon I wanted to share a few key highlights from the quarter before we get started with your questions. We're definitely very proud that we share.

The news with you that we generated 70% revenue growth year over year.

But in large part by 47% year over year growth in paying monthly active users.

The company was able to increase user acquisition marketing investment to acquire new users, while maintaining high efficiency of several initiatives. During this quarter drove cost per install or CPI lower from prior quarter.

This quarter. We also officially launched big Buck Hunter marks the first mobile version of the iconic arcade shooting game that we all know and love.

It was celebrated at the 14th annual Big Buck Hunter World Championships in Chicago, and the convergence of the online and offline world for the first time.

Throughout our investment with exit games, we were able to integrate advanced synchronous technology onto the skills platform through exit games photon engine its market, leading multi players synchronous game engine has accelerated our ability to support popular first person shooter in racing games by several years.

We also announced a deal with our game developer Eder Max to bring the most popular <unk> franchise in the world trivia crack for the skills platform.

And finally, we grew our executive team with the addition of box all buzzword.

Who joins us as chief product officer from Amazon, where he led the teams responsible for game development services, including transforming how large scale multiplayer games are developed operated scaled and distributors using the cloud.

Skills vessel will be responsible for leading our product development teams.

Before taking everyone's questions I just wanted to take a moment to thank everyone on our team that makes it all possible the skills E&ps, who work tirelessly everyday to create the future of competition to build out the competition layer of the Internet and of course for our developer partners, who through their games and their creativity, they bring us imagination and fun.

With that let me open up for questions.

Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two again to ask a question press Star one.

As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question. We will pause here briefly ask questions are registered.

The first question is from Michael Graham with Canaccord. Please proceed.

Hey, Thanks, a lot and thanks, so much for all the information in the shareholder letter I wanted to dig into.

Argue a little bit you mentioned that you were you know your guidance for the year doesn't really.

Kind of.

Incorporate any benefit I guess on the on the marketing side from Archie yet, but you know you do have plans to kind of shift your spend there and get that integrated so I wonder if you could just give us some commentary around the expected pace of that integration and then you did have a comment at the end of the letter talking about the possibility of seeing some leverage on UA spend.

Next year and so just wanted to kind of maybe get now that you've had a chance to kind of get more deeper into art can you get a little bit of a sense of your updated thinking on UA versus engagement.

And then just how youre thinking about that whole equation going forward.

Yeah, Hi, Michael It's Ian Lee here Hope, you're doing well. So yes, we're very pleased with all of the integration of Aki and as we've noted that and you laid out the CPI improvement we saw in the quarter. It doesn't yet include the you know any benefits yet from the synergies from Archie we're continuing to integrate Aki.

And I've noted again that that process is going to take several more quarters from here, but again, we're very excited about that as we head into next year.

In the other two points. He noted there on the UA spend this is more of a Q3 thing and I'll talk about going forward. So we did see some improvements there in the CPI.

Oh, and allowing us to be more receptive user acquisition investment in Q3.

Those reasons, where again some of the media buying tools, which we're able to scale given your AD networks, which enabled us to increase our bidding precision there were still some traffic initiatives that we were able to use such as search engine and extra optimization, which allowed us to grow our organic traffic. So going forward into Q4 next year, we look forward to continue to be.

But also disciplined.

On the engagement and marketing side, so well.

Just a little recap before we talk about next year.

We introduced a number of different testing and experiments on engagement marketing initiatives to drive end user engagement and monetization in Q2 continue that in Q3 and expect to continue doing that into Q4.

Typically to your question about 2022, we noted and then later, particularly around engagement marketing that we've done a lot of these tests and experiments over the last several quarters. So we'll be looking to leverage the learnings from all of those.

As we go into next year and really focus on the investment on programs, which we believe over time, we'll be able to most effectively increase the engagement of users and also the monetization. So again as we noted in that it's still too early to predict specific changes around engagement marketing, but it is possible that.

Some of those changes may lead to a reduction in certain engagement marketing initiatives relative to revenue in 2022.

Okay.

Alright Thats helpful. Thanks, a lot Ian.

Yeah.

Thank you Mr. Graham the.

The next question is from Clarke lengthened with BT I G. Please proceed.

Thanks, a lot good evening I'll make this easy and I'll follow up on Mike's question maybe on.

The SSP side with Archie now that you guys have had that under the umbrella for a little while I'm curious, how you're thinking about the AD opportunity at that something particularly.

Particularly as we've seen the Miu base, increasing this quarter.

How do you think about that sort of an integration how difficult is it is that something that we could think about maybe starting to contribute next year.

Andrew Yes.

Yes, let me take that.

So.

Generally.

I think we've been we've been messaging that the Archie integration will take.

Somewhere between four and eight quarters and I think that's still should be the expectation.

The integration is on track, we're really excited about the synergies between the two businesses in terms of user acquisition data science as well as developer relations.

Yeah.

If I could maybe just with a quick follow up sort of on the guidance you guys talked about $200 million or so in.

UA investment for the year is that still the right target as we think about you guys tapering span.

Hey, good luck at EMEA again, we haven't given a specific.

Target for the over run rate for.

The full year of 2021 again, we will look in Q4 to be aggressive, but also disciplined but we haven't given a specific target for the full UA budget for 2021.

Got it thanks guys.

Thank you Mr. Lampern again, ladies and gentlemen to ask a question press Star one again to ask a question press Star one.

The next question is from Brad Erickson with RBC capital markets. Please proceed.

Thanks, guys, it's Dan Palmer on for Brad Erickson was hoping you might be able to provide the user incentive contra revenue and the user incentive spend in sales and marketing for this quarter as well as the third quarter of 'twenty and then I have two questions on Big Buck Hunter after.

Sure Hi, it's Scott.

Lee here.

The reduction in revenue amount for Q3 was just under $19 million for Q3.

If you're looking at the engagement marketing and that was in sales and marketing that.

That number was around.

Around $50 million in Q3 of this year, if you're looking back at Q3 of last year was about just under $27 million.

Got it thanks, and then on Big Buck Hunter have you guys seen any cannibalization of engagement with the launch of our other properties on the platform and has there been any shift in our developer concentration mix with the launch thanks.

I'll pass it to Casey to take that one.

Hi, Sam Thank you for the question.

I think as you probably seen performance on Big bulk Hunter was strong out of the gate. The game quickly became a top game in the sports category.

And we're particularly excited about both the game in the category for skills.

One of the highlights of our business is that the the demographics between genres tend to be substantially different and so we view the launch of new games and new experiences is accretive to the business rather than cannibalistic as you might see in other in other gaming mixes.

Yeah.

Hi.

From a revenue from a revenue concentration perspective.

I think we've shared this but we always expect to see we always expect to see a degree of concentration in our business as consumers move towards the best <unk>.

<unk> experiences and so we always we always expect to see concentration in our in our top titles.

We have seen a small decrease in the concentration among the top two developers on the system, though is more more experiences have come online.

Thanks.

Thank you.

Thank you Mr. Erickson you have a follow up question from Clarke Lampern with BT I G. Please proceed.

Thanks for letting me back in I, just wanted to follow up on the genre of commentary in the release you guys talked about racers Fps and fighting.

My guess is that this is sort of just the start in terms of genre coverage and expansion, but was there a reason that you guys decided to sort of.

Pursue those.

As the first ones with Airbnb sort of pent up demand that you guys were seeing amongst the developer community.

I'll pass it to Andrew Yeah look we've only really scratched the surface of the market opportunity ahead of skills. The most popular content on the platform today It falls into the card and board categories in gaming, but candidly even in casual asynchronous game categories. There are many other possible hits to build.

On the on the platform so think about trivia about word games about arcade games.

Many types of classic arcade games that haven't yet even not even pioneered onto the platform.

We made a lot of progress this last quarter, we announced a agreement with with trivia crack and distributed category I think the reason, we keep highlighting that particular deal as trivia crack is the number one trivia game in the World has about 40 million MAU.

And and pretty wide geographic availability as well.

It's a truly international game.

The partnership also a big bucket are marksman. It is the first [laughter] first first person shooter game.

Game on the platform.

But the primary game mode. Today is asynchronous shooting, it's not a synchronous first person shooter like what you might see in the game like a call of duty or counter strike I think where we're really excited about in the in the kind of in the mid term ahead of the rollout of <unk> is leveraging our partnership with exit games too.

To accelerate the expansion of the platform.

Beyond casual asynchronous into mid core and core genres, and we think fighting in racing or two zones that are possible today.

The level of fidelity that users expect on the skills platform when they're planning for real prices.

Understood. Thanks for the color.

Thank you.

Thank you Mr lamp and the next question is from Brian Fitzgerald with Wells Fargo. Please.

Please proceed.

Thanks, guys.

Problems queuing up there by the way I don't know if that was an issue, but I ended up dialing back in the queue work.

So glad to be in.

Brian from a from a tools perspective, App loving board.

Machine Zone, and Zynga Bar chart boost and you bought Archie.

How do you think about the need to own other critical parts of the value chain tool sets game engines.

DSP is a distribution channels or are there other pieces you would like to have inside your toolkit.

I'll pass it to Andrew.

So I think we're being very thoughtful in terms of our inorganic growth as well as our acquisition of across the value chain are.

Buying a DSP was a a very logical thing for skills, particularly our relationship with so many DSP ease in terms of our user acquisition budget.

As we're thinking ahead and looking at the next inorganic opportunities there are definitely multiple pieces of the value chain that we're evaluating but we aren't sharing anything publicly at this time.

Got it I appreciate it Andrew.

Thanks, Brian.

Yeah.

Thank you Mr Fitzgerald.

Again, ladies and gentlemen to ask a question press Star one again to ask a question press star.

The next question is from Macallister, Henry with Continental.

Proceed.

Hi, there.

On September 28, the company put out a press release regarding a multiyear performance stock unit grant to Mr. Paradise.

The press release mentioned that the grant which related to the company achieving certain milestones.

About the stock price.

And the press release noted that vesting was based entirely on Mr. Paradise at achievement of performance objectives, rather than his continued service.

And then a few lines later it said under the terms Mr. Paradise must remain in service.

That's either CEO or executive chairman and Chief product officer at skills.

And the form four really.

Didnt shed any light on this could you clarify.

Is this based on Mr. Paradise, There's continued service or will he receive these shares.

<unk> stock achieved this milestone even if he's not associated with the company in the future.

Hi, It's Scott again, so that's all included in the public documentation, but now he would be included as the ongoing service with the company to qualify that but again, that's all in the public documentation.

If we move to the next question if there is any please.

There are no additional questions at this time.

I will now pass you back to Andrew for closing remarks.

Well. Thank you all for again for taking the time to join US today, we're very excited to continue to build the company forward and we look forward to providing an update on our continued progress when we report our fourth quarter and full year results in early 2022 until then came on.

Great. Thanks, everybody.

That concludes the skills third quarter 2021 earnings conference call enjoy the rest of your day.

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