Q4 2022 Skillz Inc Earnings Call
Yeah.
Speaker 1: The S.
Speaker 2: Good afternoon. Thank you for attending today's Skills Fourth Quarter 2022 Earnings Call. My name is Francis and I'll be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
Speaker 2: If you'd like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to our host, Taylor Giles.
Speaker 3: Good afternoon and welcome to the skills fourth quarter and fiscal year 2022 earnings conference call with me today are Andrew paradise skills, CEO Casey, so Jason Ross, president and Alvin Lobo.
Speaker 3: Note, our full financial results were published earlier today and are available on our 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 the federal securities law.
Speaker 3: 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.
Speaker 3: 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 conditions. During the call, management will discuss non-gaff centers which we believe can be useful in evaluating the company's operating performance.
Speaker 3: 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 our fourth quarter in fiscal year 2022 earnings release. With that, I'll turn the call over to Andrew for some brief opening remarks.
Speaker 3: before we open it up for questions. Andrew? Good afternoon and thank you for joining.
Speaker 4: Let me turn now to give you an update on the four pillars we laid out last quarter to return skills to growth and in 2024 to profitability.
Speaker 4: Our first pillar is enhancing our platform to improve customer and developer engagement and retention.
Speaker 4: We're focused on the core strengths that helped us grow the platform since skills first began.
Speaker 4: In the fourth quarter, we made solid progress on our product initiatives, including the following features for consumers and developers.
Speaker 4: For consumers, first we added features designed to reduce player friction and increase deposits.
Speaker 4: Second, we released a new SDK to drive additional UA efficiency.
Speaker 4: And third, we released features for paying players that reduce player friction and generate an increase in ARPAPU, or average revenue per paying user.
Speaker 4: For our developers, first we shipped Skills Brick Breaker to teach new developers how to use the Skills SDK and an in-unity API simulator, reducing 90% of the development time spent waiting for builds.
Speaker 4: Second, we also launched Skills UND Sidekick to shorten iteration time for developers.
Speaker 4: Let me now turn to our second pillar which is up leveling our organization.
Speaker 4: Since August , when we finished the organizational restructuring, we've made significant progress in staffing the right people with the right backgrounds into the right roles.
Speaker 4: We're not yet fully staffed, however we have strong conviction that we'll continue to hire talented and motivated individuals across the company.
Speaker 4: We're thankful to all of our skilled employees for last year for their perseverance and enthusiasm to take our company forward in the middle of a challenging restructuring. Having covered all that, I'd like to welcome Alvin Lova, who joined us as CFO just last month. Alvin comes with broad and deep experience in the gaming space with prior roles in public companies including most recently.
Speaker 4: as CFO of Score Media and Gaming through their successful sale to PEM Entertainment. He also held senior finance roles with Void Gaming and Wynn Resorts.
Speaker 4: Alvin will be partnering with Jason Rosweg, who's now serving as Skills President, as well as with myself, to drive the strategic initiatives that we believe are necessary to move the company forward. We're very excited to welcome him.
Speaker 4: Moreover, as I told you last quarter, our CTO, Vasiliy Filippov, has made a big impact in a short time.
Speaker 4: He's now joined by Brendan Venus, our new head of customer success, who joined us in January from Microsoft.
Speaker 4: where Brendan was the head of customer success for PlayFab, which is a white-label gaming infrastructure product at Microsoft.
Speaker 4: Brendan has joined us to work with our developer customer community.
Speaker 4: to provide a direct pipeline of feedback ensuring our R&D efforts are in lockstep with our customers needs. Combined with the rest of the executive team, we're continuing the work we began last summer of returning skills to being a high performance product development culture.
Speaker 4: Next is our third pillar which is improving your go-to-market.
Speaker 4: We're pleased that this quarter we improved our payback period, compounding on top of last quarter's improvement. We expect to scale marketing if we're able to continue to drive down payback periods. Additionally, we're enhancing the efficiency of our engagement marketing through higher frequency, lower cost engagement marketing efforts.
Speaker 4: Our new Tungsten Native SDK is expected to reduce user acquisition costs further. We're improving customer retention through product and content acquisition improvements.
Speaker 4: All this combined, these wins are giving us confidence that we can deliver attractive returns for our developers. Our fourth pillar is straightforward.
Speaker 4: demonstrating a clear path to profitability. I will let Jason talk more about our numbers, but will share that we continue to make progress here and intend to continue to progress through 2023, as we thoughtfully consider each and every investment with the goal of positive adjusted EBITDA by the end of 2024.
Speaker 4: Before I turn the call to Jason, I want to acknowledge that 2022 is an incredibly challenging year as we've failed to meet investor expectations. We recognize that we have to demonstrate our progress through the numbers, which we expect will take four to six quarters to fully turn. The new team is up to the challenge, and we'll continue to update on milestones achieved as we move through the year, while being mindful not to overpromise. In the meantime, we have a strong balance sheet to support thoughtful investment as we work to return our business to growth. Jason? Thank you, Andrew. We are in the early stages of our turnaround plan.
Speaker 4: and while I'm confident we will be able to see the enormous market opportunity before us, I know there is a huge amount of work ahead of us.
Speaker 4: I'm pleased that Alvin will be joining the team to help in this endeavor. While not simple or quick, we are making slow and steady progress. Before I dive into the financials, as disclosed in our filing, we have had a restatement. The primary drivers of the restatement stem from two issues. One issue relates to a treatment of indirect taxes, which is a result of our growth over the past few years into more and more jurisdictions.
Speaker 4: coupled with the evolving tax laws and regulations that together have increased the company's exposure over time to indirect taxes.
Speaker 4: The other issue relates to an error in our end user liability balance.
Speaker 4: which is included in other current liabilities.
Speaker 4: and other current liabilities on the balance sheet.
Speaker 4: This error was a result of a design deficiency and a reconciliation process for the end-user liability balance.
Speaker 4: result of a design deficiency and a reconciliation process for the end user liability balance. We are addressing both of these issues.
Speaker 4: and evaluating our overall reporting process.
Speaker 4: evaluating our overall reporting process to prevent future issues.
Speaker 4: Although the errors that resulted in the restatement were dematerial,
Speaker 4: We note that the resulting adjustments to our revenues for the periods affected by the risk statement ranged from less than 1% to less than 3%.
was $46.9 million, down 57% year over year, and down 21% sequentially. Full year revenue was 269.7 million.
down 29% from 2021.
our payer conversion rate, which is our paying MAU divided by our MAU.
was 18% in the quarter and 18% for the year. Fourth quarter UA marketing was $9.4 million.
a decrease of 89% year over year.
and down 49% sequentially. Fourth quarter UA marketing was $9.4 million.
a decrease of 89% year over year, and down 49% sequentially.
A decrease of 89% year over year, and down 49% sequentially. Full year UA marketing.
was 117.3 million.
down 51% relative to the previous year. G4 Engagement Marketing was $19.7 million.
down 66% year over year, and down 17% quarter over quarter.
and hit 117.4 million for the year, down 38% year over year.
$19.4 million for the year, down 38% year over year.
was 7.4 million in the quarter, 53% year over year.
and $52.3 million for the year.
On a non-GAAP basis, R&D was 12% of quarterly revenue.
On a non-GAAP basis, R&D was 12% of quarterly revenue and 17% of yearly revenue.
Q4 sales and marketing was $34.5 million, down 78% year over year, and $277 million for sales over year after year—actually, that means it's 40 page trading series.
sales and marketing was $34.5 million, down 78% year over year and $277 million for the year.
This includes 2 million of social media.
2 million of financial compensation on a non-GAAP basis.
sales and marketing with 59% of Q4 revenue.
down 72 percentage points year over year, and down 14 percentage points quarter over quarter. Q4 general administrative expense was $22.5 million.
down 34% year over year.
down 34% year over year and $163 million for the year.
This includes 7.2 million in fact-based compensation. On a non-gap basis, Q4GNA was 33% of revenue.
up to 16 percentage points year over year, primarily driven by the organizational restructuring.
On a sequential basis, gene A was up 10 percentage points.
as a percentage of revenue. For the full year, G&A was 25% of revenue. Net loss of $143.5 million increased $43.1 million year over year and increased $60.3 million or 72% sequentially for the fourth quarter. Your Spot, Your
while full year net loss was $438.9 million, which was an increase of $251 million year-over-year.
For 2022, adjusted EBITDA was negative 9.5 million, up 88% year-over-year and up 42% sequentially.
full year adjusted EBITDA with negative 122.4 million.
full year adjusted EBITDA with negative 122.4 million, up 35% from the year prior.
This was primarily driven by decreases in UA and engagement marketing spend as well as the restructuring. Q4 adjusted the EPDOT margin of negative 20% was up 53 percentage points year over year.
On a sequential basis, adjusted Yibbom margin increased by 8 percentage points.
Cisco, your 22 adjust even down margin of negative 45%.
was up four percentage points year over year. As I said last quarter, we have a strong liquidity position and we do not expect to raise additional capital to reach breakeven.
We end of the year with $547 million of cash, cash equivalence and marketable securities and $273 million of debt outstanding as we continue to execute across the initiatives Andrew discussed prior.
Because of the uncertainty in the market and the steps we are taking to rebuild the financial infrastructure in our team, we will be suspending guidance.
Again, we are confident we are taking the right steps to return to growth.
but the short term is difficult to forecast. Thank you for joining today and let me reiterate our belief in the skills platform, customers, and employees.
Thank you. If you'd like to ask a question, please press star followed by one on your telephone keypad. If for any reason you'd like to remove that question, please press star followed by two. Again, to ask a question that's star one.
As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered.
Our first question comes from the line of Jason Tilchin with Canaccord Genuity. Please go ahead, Jason.
Yeah, great. Thanks for taking the question. I have to the 1st, 1 is just on the marketing reduction. It's opening day. So I guess we'll go to a baseball analogy. What sort of ending? Do you feel like you're in in terms of that process that you mentioned the improving payback periods and that you will.
you're gaining confidence that you'll scale that marketing, but how far away are we seeing that sort of horseshoe back into increases in spend? And then the second question is, is just any update that you could give on the cloud-based gaming initiative that was highlighted at the investor day last year? Thank you.
Thanks, Jason, for the question. This is Andrew. I think Jason Rosweg is probably the best person to talk about our financial investment to use our acquisition. Jason Rosweg, would you like to answer?
Absolutely. Thank you for the question, Jason. I think to answer your question on where we are on ERG.
on our overall marketing and user acquisition spend, we feel as though last year we had a very successful effort in gradually reducing our user acquisition spend to a level that we believe will prepare us for profitable growth going forward. We believe that fourth quarter was the market which we believe we've now reached a stabilized point. Now going into the first quarter, we're going to see a lot of growth in the first quarter.
or user acquisition costs while growing LTV. I would say similarly, we expect our engagement marketing has declined as a percentage of revenue over time.
and we achieved a significant reduction in engagement marketing as a percentage of revenue by eliminating lower-term programs. We intend to continue that trajectory throughout the course of this year.
Great. Thank you, Jason Ruswig. And I think the second question was about cloud-based gaming. Happy to give an update there. We are in beta as expected. We are testing a handful of games right now, primarily in running.
web-based games that were actually originally built for mobile. And I think the benefit there is that we can...
take advantage of much lower CPM advertising that was built around web-based games and overall web-based products versus buying mobile advertising. But we really can't give any guidance right now on what that will look like and how it will impact your P&L as it's still early days.
Great, thank you very much. Thank you for your questions, Jason. There are no questions waiting at this time, so I'll now pass the conference back over to Andrew Paradise for any additional remarks.
Thank you all for taking the time to join us today. We look forward to providing an update on our continued progress when we report our first quarter of results. Until then, have a great day. Thank you everyone.
That concludes the Skills Fourth Quarter 2022 earnings call. Thank you for your participation. You may now disconnect your lines.