Q2 2024 Skillz Inc Earnings Call

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Carla: Good afternoon, all. I would like to welcome you all to the Skillz AIM 2024 second quarter results call. My name is Carla and I will be moderating your call today.

Carla: 2024 Sankar Corridor results call. My name is Carla, and I will be moderating your call today. During the presentation, you can register to ask questions by pressing star followed by one on our telephone keypad. And if you change your mind, please press star followed by two. I would now like to pass the conference call over to your host, Liam Hale from JCIRR. So Jim, please go ahead.

Liam Hale: During the presentation, you can register to ask questions by pressing star followed by 1 on your telephone keypad. And if you change your mind, please press star followed by 2. I would now like to pass the conference call over to your host, Liam Hale from JCIRR, to begin. So, Jim, please go ahead.

Unknown Executive: Good afternoon, and welcome to the Skillz 2024 Second Quarter Earnings Conference Call. On the call today are Andrew Paradise, Skillz co-founder and CEO, Casey Chafkin, co-founder and CSO, and Gaetano Franceschi, CFO. This afternoon, Skillz issued its earnings release reporting preliminary unaudited second quarter results, which is available on the company's investor relations website.

Liam Hale: Good afternoon and welcome to the Skillz 2024 Second Quarter Earnings Conference Call. On the call today are Andrew Paradise,

Andrew Paradise: co-founder and CEO .

Speaker Change: Casey Chafkin, co-founder and CSO, and Gaetano Franceschi, CFO . This afternoon, Skillz issued its earnings release reporting preliminary, unaudited second quarter results, which is available on the company's Investor Relations website.

Unknown Executive: 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 determines it will not file its quarterly report on Form 10-Q by the prescribed deadline, it will file an extension on Form 12-B-25 with the Securities and Exchange Commission. In addition, the company was not able to file its Form 10-K for the fiscal year ended December 31, 2023, during the requisite extension period.

Speaker Change: The company is in the process of completing its unaudited interim financial statements and other disclosures for the fiscal quarter ended June 30, 2024.

Speaker Change: 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.

Speaker Change: Our independent registered public accounting firm has not finalized its review of these preliminary financial results.

Speaker Change: In the event the company determines it will not file its quarterly report on Form 10-Q by the prescribed deadline, it will file an extension on Form 12-B-25 with the Securities and Exchange Commission.

Speaker Change: In addition, the company was not able to file its Form 10-K for the fiscal year ended December 31, 2023, during the requisite extension period.

Unknown Executive: The company was also not able to file its Form 10-Q for the fiscal quarter ended March 31, 2024 by the required deadline. As a result, we previously announced we received a 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.

Speaker Change: The company was also not able to file its Form 10-Q for the fiscal quarter ended March 31, 2024 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.

Speaker Change: 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.

Unknown Executive: The company also intends to take all necessary steps to achieve compliance with applicable NYSE listing standards as soon as possible. Because the results are preliminary and subject to completion of our internal review procedures and review, and review and audit by our independent registered public accounting firm, actual results and other financial information may differ from those in these preliminary results due to final adjustments and other developments that may arise between now and the time the results are finalized.

Speaker Change: The company also intends to take all necessary steps to achieve compliance with applicable NYSE listing standards as soon as practical.

Speaker Change: Because the results are preliminary and subject to completion of our internal review procedures and review, and review and audit by our independent registered public accounting firm,

Speaker Change: Actual results and other financial information may differ from these preliminary results due to final adjustments and other developments that may arise between now and the time the results are finalized.

Unknown Executive: Before I turn the call over to Andrew, please note that some of the administration's comments today will include forward-looking statements within the meaning of federal security 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 can cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them.

Speaker Change: 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 security slots.

Speaker Change: 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 can cause actual results to differ materially from what we expect.

Unknown Executive: 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-GET measures that it believes can be useful in evaluating the company's operating performance. However, these measures should not be considered in isolation or as a substitute for the company's financial results prepared in accordance with GAAP.

Speaker Change: 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.

Speaker Change: During the call, management will discuss non-GET measures which it believes can be useful in evaluating the company's operating performance.

Speaker Change: These measures should not be considered in isolation or as a substitute for the company's financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in the company's second quarter 2024 earnings release.

Unknown Executive: A reconciliation of these measures to the most directly comparable GAAP measures is available in the company's second quarter 2024 earnings. With that, I'll turn the call over to Andrew for some opening remarks, followed by Gaetano for a discussion of the company's financial performance before we open the call for questions.

Speaker Change: With that, I'll turn the call over to Andrew for some opening remarks, followed by Gaetano for a discussion of the company's financial performance before we open the call for questions. Andrew?

Andrew Paradise: Before turning to an update on the progress made against our four pillars, I want to share the ongoing strides we're making on our Fair Play initiative and key litigation matters. For skill-based gaming to thrive, all gaming companies in this space must provide consumers with certainty that they're being matched with real players of similar skills and fair competition. Just as we demand fairness and integrity in traditional competitive sports, we should uphold the same standards in esports. This is especially true when real money is on the line. This is precisely what the Skillz proprietary platform delivers.

Andrew Paradise: Thank you.

Andrew Paradise: 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.

Gaetano: For skill-based gaming to thrive, all gaming companies in this space must provide consumers with certainty that they're being matched with real players of similar skills in fair competition.

Gaetano: Just as we demand fairness and integrity in traditionally competitive sports, we should uphold the same standards in esports.

Gaetano: This is especially true when real money is on the line.

Andrew Paradise: We believe there are more companies than just A.B. games that use bots to deceive players into believing they're competing against real human opponents when, in fact, they face predetermined gameplay or robots. This manipulation alters mass results to those companies' advantage, defrauding American players of billions of hard-earned dollars and eroding trust in the skill-based gaming industry. To preserve the industry's tremendous value and protect their stakeholders' interests and consumers' trust, we're committed to uncovering and aggressively combating fraudulent practices.

Speaker Change: This is precisely what the Skillz proprietary platform delivers. We believe there are more companies than just A.B. games that use bots to deceive players into believing they're competing against real human opponents, when in fact they face predetermined gameplay robots.

Speaker Change: This manipulation alters math results to those companies' advantage, defrauding American players of billions of hard-earned dollars and eroding trust in the skill-based gaming industry.

Speaker Change: to preserve the industry's tremendous value and protect their stakeholders' interests and consumers' trust.

Speaker Change: We're committed to uncovering and aggressively combating fraudulent practices.

Andrew Paradise: We stand ready to continue to pursue every necessary action to foster significant progress and safeguard fairness within the industry we pioneered as a U.S.-based company. It's our belief we should do this for the safety of all planners, which will ultimately benefit Skillz and our shareholders. As I mentioned, you're a Q1 call.

Speaker Change: We stand ready to continue to pursue every necessary action to foster significant progress and safeguard fairness within the industry we pioneered.

Speaker Change: As a U.S.-based company, it's our belief we should do this for the safety of all players, which will ultimately benefit Skillz and our shareholders.

Andrew Paradise: We executed a settlement agreement with AB Games for $80 million, and AB Games paid $50 million in cash at the end of April. Next March, we'll receive the first of four annual payments of $7.5 million from Avia Games. However, we remain concerned that ABA Games has not altered its behavior regarding the use of bots. As I address you today, ABA Games titles remain on the app stores, topping charts while continuing to lure new, unsuspecting consumers daily through aggressive advertising.

Speaker Change: As I mentioned in our Q1 call, we executed a settlement agreement with ABA Games for $80 million.

Speaker Change: ABA Games paid $50 million in cash at the end of April .

Speaker Change: Next March, we'll receive the first of four annual payments of $7.5 million from Avia Games.

Speaker Change: However, we remain concerned that ABA Games has not altered their behavior regarding the use of bots.

Speaker Change: As I address you today, ABA Games titles remain on the app stores, topping charts while continuing to lure new, unsuspecting consumers daily through aggressive advertising.

Andrew Paradise: We're encouraged this issue is attracting significant press coverage, including from Bloomberg, which recently highlighted these deceptive practices and supported our efforts to raise awareness. Bloomberg conducted its own investigation, speaking to players who filed class action lawsuits against Baby and Papaya. According to Bloomberg, quote, the suit suggests there are millions of potential class members. One plaintiff who asked to remain anonymous said in an interview with Bloomberg that she spent over $240,000 on solitaire clash. A figure confirmed by bank records reviewed by Bloomberg. She withdrew money from her retirement plan to play, stopping only when she learned about the allegations of bot.

Speaker Change: We're encouraged this issue is attracting significant press coverage, including from Bloomberg, which recently highlighted these deceptive practices and support our efforts to raise awareness.

Speaker Change: Bloomberg conducted its own investigation speaking to players who filed class-action lawsuits against Baby and Papaya.

Speaker Change: According to Bloomberg, quote, the suit suggests there are millions of potential class members. One plaintiff who asked to remain anonymous said in an interview with Bloomberg that she spent over $240,000 on Solitaire Clash, a figure confirmed by bank records reviewed by Bloomberg.

Speaker Change: She withdrew money from her retirement plan to play, stopping only when she learned about the allegations of bots.

Andrew Paradise: Hearing the stories from a consumer standpoint reveals the severe harm it's causing the American consumer every day. Bloomberg also spoke to Joe Maloney, a spokesman for the American Gaming Association, who said this about games that use bots. These themes are examples of emerging threats online intentionally designed to circumvent or exploit ambiguity in state gambling laws and the regulatory framework. Such schemes place consumers at significant risk and prevent local governments from realizing a revenue opportunity for their residents.

Speaker Change: Hearing the stories from a consumer standpoint reveals the severe harm it's causing the American consumer every day.

Joe Maloney: Bloomberg also spoke to Joe Maloney, a spokesman for the American Gaming Association, who said this about games that use bots.

Joe Maloney: Quote, these themes are examples of emerging threats online intentionally designed to circumvent or exploit ambiguity in state gambling laws and regulatory frameworks.

Joe Maloney: Such schemes place consumers at significant risk and prevent local governments from realizing a revenue opportunity for their residents.

Andrew Paradise: We believe AP Games is not the only company that uses bots in cash games. In our Q1 call, we discussed the lawsuit we filed in March against Papaya Gaming, alleging their fraudulent use of bots. This litigation is advancing as scheduled. I want to highlight the class action lawsuits that have already been filed against both ABA Games and Papaya Gaming.

Speaker Change: We believe AVA Games is not the only company that uses bots in cash games.

Speaker Change: In our Q1 call, we discussed the lawsuit we filed in March against Papaya Gaming, alleging their fraudulent use of bots.

Speaker Change: This legislation is advancing as scheduled.

Speaker Change: I want to highlight the class action lawsuits that have already been filed against both ABA Games and the Pirate Game.

Andrew Paradise: Last month, we filed a similar lawsuit against Voodoo Games, who he also alleges are using bots in their skill-based mobile games. Voodoo is a significant player in the mobile gaming industry, and their portfolio of games achieved widespread popularity with millions of downloads. The filings for this lawsuit are publicly available in the Southern District of New York.

Speaker Change: But we're not stopping there.

Speaker Change: Last month we filed a similar lawsuit against Voodoo Games.

Speaker Change: who he also alleges using bots in their still-based mobile games.

Speaker Change: Voodoo is a significant player in the mobile gaming industry, and their portfolio of games achieved widespread popularity in millions of downloads.

Speaker Change: The filings for this lawsuit are publicly available in the Southern District of New York.

Andrew Paradise: As mentioned on our Q1 call, we'll continue to go after any company whose skill-based gaming uses bots or other methods to directly deceive players out of their hard-earned money. We're ready, willing, and capable of competing against any other skill-based gaming provider that wants to compete on a fair and level playing field, without the deceptive use of boxes. To create a fairer future for all, we're advocating for enhanced policies and legislation to strengthen regulatory oversight.

Speaker Change: As mentioned in our Q1 call, we will continue to go after any company whose skill-based gaming uses bots or other methods to directly deceive players out of their hard-earned money.

Speaker Change: We're ready, willing, and capable of competing against any other skill-based gaming provider that wants to compete on a fair and level playing field.

Speaker Change: without the deceptive use of bots.

Speaker Change: To create a fairer future for all, we're advocating for enhanced policies and legislation to strengthen regulatory oversight.

Andrew Paradise: We're hopeful that government authorities will take note of our progress in identifying fraudulent bot use in this industry and take the quick and needed steps to protect consumers. 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.

Speaker Change: We're hopeful that government authorities will take note of our progress in identifying fraudulent bot use in this industry and take the quick and needed actions to protect consumers.

Speaker Change: I strongly believe since we're the leading company that does not engage in consumer bot fraud, the elimination of this practice should dramatically change LTD to CAC to our benefit.

Andrew Paradise: Turning now to business performance in Q2, we entered the second quarter with a strong balance sheet and financial position, and the quarter made some progress on our four key pillars for returning Skillz to consistent top-line growth and positive adjusted EBITDA. While Q1 saw a decline in our audience, we achieved moderate progress on this front in Q2. This is evident in the increase in paying monthly average users to 122,000 in Q2, up from 121,000 in Q1, representing the first quarterly sequential increase for paying users in 10 quarters. The paying monthly average users grew every month from a trough in April of $113,000 to $131,000 in June.

Speaker Change: Turning now to the business performance in Q2.

Speaker Change: We entered the second quarter of this strong balance sheet and financial position and the quarter made some progress on our four key pillars for returning Skillz to consistent top line growth and positive adjusted EBITDA.

Speaker Change: While Q1 saw a decline in our audience, we achieved moderate progress on this front in Q2.

Speaker Change: This is evident in the increase in paying monthly average users to 122,000 in Q2, up from 121,000 in Q1.

Speaker Change: representing the first quarterly sequential increase for paying users in 10 quarters.

Speaker Change: Our paying monthly average users grew every month from a trough of April of 113,000 to 131,000 in June .

Andrew Paradise: At the same time, we continue to make positive strides with expense management, with Q2'24 OPEX, excluding cost of sales and the ABA Games settlement, declining $6 million from Q1'24 and adjusting without loss, again improving year over year. Our focus remains on optimizing and attacking the growing LTD. In Q2, we continue to trend toward a six-month system-wide payback period, achieved through our focus on spending in the best channel. Given the consistency of our payback period in the last few quarters, we continue to focus on scaling in areas where we see good returns. Turning now to an update on the first of our four key pillars.

Speaker Change: At the same time, we continue to make positive strides with expense management.

Speaker Change: With Q2-24 OPEX excluding cost of sales and the ABA Games settlement, declining $6 million from Q1-24 and adjusting BDAL loss, again improving year over year.

Speaker Change: Our focus remains on optimizing CAC and growing LTV. In Q2, we continue to trend toward a six-month system-wide payback period, achieved through our focus on spending in the best channels.

Speaker Change: With the consistency of our payback period in the last few quarters, we continue to focus on scaling in areas where we see good returns.

Andrew Paradise: Enhancing our platform to improve customer and developer engagement. We've discussed recent calls for the execution of a detailed new product pipeline, and in Q2, we made some limited progress on this front. This included the development of our live brackets feature, followed by a strong response at GDC, the largest industry-wide conference in North America for this feature, but where we received positive feedback from players. We're now working to further refine this feature before its official release later this year.

Speaker Change: Turning now to an update on the first of our four key pillars. Enhancing our platform to improve customer and developer engagement retention.

Speaker Change: We've discussed recent calls for execution of a detailed new product pipeline, and in Q2, we had some limited progress on this front.

Speaker Change: This included further development of our Live Brackets feature, followed with a strong response at GDC, the largest industry-wide conference in North America, for this feature where we received positive feedback from players.

Speaker Change: We're now working to further refine this feature before its official release later this year.

Andrew Paradise: Live Rackets will be a great format to help drive interest in new players to the platform, and it will also improve retention through a mechanic where players will be able to come back and play in later scheduled tournaments.

Speaker Change: Live Rackets will be a great format to help drive interest of new players to the platform and it will also improve retention engagement through a mechanic where players will be able to come back and play in later scheduled tournaments.

Andrew Paradise: For our VIP initiatives, we can see the benefits of the enhancements we made to our LiveOps capability, which allows us to look at trends in real time and initiate offers to drive engagement. We've also created a pre-VIP e-conversion program to convert new paying users to VIP status fast. And we're ramping up our team of VIP account managers to help achieve our goal of growing our VIP population. For the second part, Upleveling the Organization,

Speaker Change: For our VIP initiatives, we continue to see the benefits of the enhancements we made to our LiveOps capabilities.

Speaker Change: which allows us to look at trends in real time and initiate offers to drive engagement.

Speaker Change: We've also created a pre-VIP e-conversion program to convert new paying users to VIP status faster.

Speaker Change: And we're ramping our team of VIP account managers to help achieve our goal of growing our VIP population.

Andrew Paradise: In Q2, we continue to optimize our product, engineering, data, and analytics resources. The move into our new Las Vegas headquarters earlier this year continues to drive more collaboration and accountability. There's buy-in across our organization for our vision and our need to execute. We're continuing to reduce our reliance on expensive third-party contractors in the remote workforce with this work being absorbed by our Las Vegas and Bangalore-based teams.

Speaker Change: For our second part, up-leveling the organization.

Speaker Change: In Q2, we continue to optimize our product, engineering, data, and analytics resources.

Speaker Change: The move into our new Las Vegas headquarters earlier this year continues to drive more collaboration and accountability. There's buy-in across our organization for our vision and our need to execute.

Speaker Change: We're continuing to reduce our reliance on expensive third-party contractors in the remote workforce, with this work being absorbed by our Las Vegas and Bangalore-based teams.

Andrew Paradise: Moving on to our third pillar, our go-to-market strategy. U.S. spending in Q2 was consistent with the levels of the last several quarters and remains at its lowest level since 2018 as we continue to trend near six months system-wide payback, and Qtheor's focus will increasingly turn towards scaling spend to facilitate growth as we continue to optimize user acquisition spend. Finally, I'll talk a little bit about our fourth pillar, demonstrating a clear path to popularity.

Speaker Change: Moving on to our third pillar, our go-to market.

Speaker Change: The U.S. spending in Q2 is consistent with the levels of the last several quarters and remains at its lowest level since 2018 as we continue to trend near six-month system-wide paybacks.

Speaker Change: And Q3, our focus will increasingly turn towards scaling spend to facilitate growth as we continue to optimize user acquisition spend.

Speaker Change: And finally, I'll talk a little bit about our fourth pillar, demonstrating a clear path to profitability.

Andrew Paradise: Well, we made modest progress in some areas in the quarter, given the challenges we had in Q1 with onboarding new players and the lack of more meaningful progress on launching new product features in Q2. We now expect that it will be difficult to achieve our goal of generating a positive adjusted EBITDA run rate by late this year. However, we still remain optimistic that if we continue to execute our turnaround strategies, and we can achieve this goal in 2025. Pretty sure to say one in 2025 as of yet; we do feel that while we are not there yet, we are making progress towards the goal.

Speaker Change: Well, we made modest progress in some areas in the quarter, given the challenges we had in Q1 with onboarding new players.

Speaker Change: and The Lack of More Meaningful Progress on Launching New Product Features in Q2.

Speaker Change: We now expect that it will be difficult to achieve our goal of generating a positive adjusted EBITDA run rate by late this year.

Speaker Change: However, we still remain optimistic that we continue to execute our turnaround strategies and we can achieve this goal in 2025. It is premature to say when in 2025 as of yet, but we do feel that while we are not there yet, we are making progress towards the goal.

Andrew Paradise: Our destiny with our loss continues to improve year over year with a loss of $12.6 million in Q2 2024 compared to $18.9 million in Q2 2023. Excluding legal expenses related to lawsuits against bot companies are adjusted to a loss of $9.8 million, address Steve Adell's loss also improved 29% in Q1 2024 on essentially the same revenue. Cash flow from operating activities was $28 million in Q2 2024. Excluding the impact of AP gain settlement, the time taken for accounts, and certain other accruals, our cash flow was negative $9 million in line with adjusted EBITDA for the quarter.

Justice Steve: All right, Justice Steve, we've got a lot to improve here over the last 12.6 million in Q2 2024 compared to 18.9 million in Q2 2023.

Speaker Change: Excluding legal expenses related to lawsuits against bot companies, our adjusted EBITDA would have improved to a loss of $9.8 million.

Speaker Change: Adversity Vidal Loss also improved 29% of Q1 2024 on essentially the same revenue base.

Justice Steve: Cash flow from operating activities was $28 million in Q2 2024, excluding the impact of AP gain settlement, the time taken for accounts, and certain other accruals, our cash flow was negative $9 million, in line with adjusted EBITDA for the quarter.

Andrew Paradise: We ended Q2 with cash and cash equivalents of $326 million, which includes the cash received in April from ABA Games. We continue to gradually improve our monthly operating cash burn, which, combined with our strong balance sheet, provides us with the runway to return our business to sustainable and profitable growth. I'll conclude my comments by reiterating that despite our Q1 and Q2 setbacks, our view that our current valuation gives no weight to the value of our operating platform and the progress we've made towards achieving our goals. We remain under no illusions that we have significant work ahead of us.

Justice Steve: We ended Q2 with cash and cash equivalents of $326 million, which includes the cash received in April from IDA Games.

Justice Steve: We continue to gradually improve our monthly operating cash burn, which, combined with our strong balance sheet, provides us with a runway to return our business to sustainable and profitable growth.

Justice Steve: I'll conclude my comments by reiterating that despite our Q1 and Q2 setbacks, our view that our current valuation gives no weight to the value of our operating platform and the progress we made towards achieving our goals.

Andrew Paradise: We're confident that we're executing on 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. Thank you, Andrew, and good afternoon, everyone.

Justice Steve: We remain under no illusions that we have significant work ahead of us. We're confident that we're executing on 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.

Justice Steve: With that, I'll turn it over to Gaetano.

Gaetano Franceschi: Second quarter revenue was $25 million, down 37% year over year in a flat sequence. Our paid user conversion rate, which is paying now divided by now, was 15% in Q2, up from 14% in Q1. As Andrew indicated, we are confident that we can maintain our current system-wide payback period as we return to investing in growth. Turning to OpEx.

Gaetano: Thank you, Andrew, and good afternoon, everyone.

Gaetano: Second quarter revenue was $25 million, down 37% year-over-year and flat sequentially.

Gaetano: Our paid user conversion rate, which is paying now, divided by now, was 15% in Q2, up from 14% in Q1.

Gaetano: As Andrew indicated, we are confident that we can maintain our current system-wide payback period as we return to investing in growth.

Gaetano Franceschi: Research and Development Expense was $4 million, down 47% year-over-year, and excluding the impact of stock-based compensation, it was 16% of Q2 revenue. Sales and marketing expense was $21 million, down 36% year-over-year, and excluding the impact of stock-based compensation, it was 75% of QT revenue. Q2 UA Marketing was $4.2 million, while Q2 Engagement Marketing was $10.6 million.

Andrew Paradise: Turning to OPEX, research and development expense was $4 million, down 47% year-over-year, and excluding the impact of stock-based compensation was 16% of Q2 revenue.

Gaetano: Sales and marketing expense was $21 million, down 36% year-over-year, and excluding the impact of stock-based compensation was 75% of Q2 revenue.

Gaetano: Q2 UA Marketing was $4.2 million, while Q2 Engagement Marketing was $10.6 million.

Gaetano Franceschi: General and administrative expense was $17 million, down 34% year-over-year, and excluding the impact of stop-bait compensation, 46% of Q2 revenue. The quarterly positive net income of $26 million compares to a net loss of $17 million in Q2 2023. Net income in Q2 2024 includes the gain on the settlement of the Avia Games litigation. Adjusted EBITDA loss in the second quarter was $12.6 million, a 33% improvement year-over-year. Adjusted EBITDA margin was negative 50% in Q2 2024 and compared to negative 47% in Q2 2023.

Gaetano: General and administrative expense was $17 million, down 34% year-over-year, and excluding the impact of stop-bait compensation was 46% of Q2 revenue.

Gaetano: The quarterly positive net income of $26 million compares to a net loss of $17 million in Q2 2023. Net income in Q2 2024 includes the gain on the settlement of the AviaGains litigation.

Gaetano: Adjusted EBITDA loss in the second quarter was $12.6 million, a 33% improvement year-over-year. Adjusted EBITDA margin was negative 50% in Q2 2024 and compared to negative 47% in Q2 2023.

Gaetano Franceschi: We continue to expect our cost structure will benefit this year from lower costs for items, including legal and insurance fees, as well as continued prudent management of our cost base. Additionally, interest expense will decline year over year given the reduction in outstanding debt.

Gaetano: We continue to expect our cost structure will benefit this year from lower costs for items, including legal and insurance fees, as well as continued prudent management of our cost base. Additionally, interest expense will decline year over year, given the reduction in outstanding debt.

Gaetano Franceschi: We ended the first quarter with $326 million in cash, comprised of $316 million in cash and cash equivalents and $10 million in restricted cash. As Andrew noted, our cash balance at June 30th includes the cash received from AVA gains at the end of April. At the end of Q2, we had $127.9 million of total outstanding debt. With our improving cash burn, we have the flexibility to deploy capital to enhance shareholder value. This time we'll turn the call over to the operator for the Q&A session.

Gaetano: We ended the first quarter with $326 million of cash, comprised of $316 million in cash and cash equivalents.

Gaetano: and 10 million in restricted cash. As Andrew noted, our cash balance at June 30th includes the cash received from AVA gains at the end of April .

Speaker Change: At the end of Q2, we had $127.9 million of total outstanding debt. With our improving cash burn, we have the flexibility to deploy capital to enhance shareholder value.

Speaker Change: At this time, we'll turn the call over to the operator for the Q&A session.

Operator: Thank you. We will begin the question and answer session now. If you would like to ask a question, please press the star for the right one on your telephone keypad. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. We will make a quick pause here for the questions to be registered. And our first question comes from Ed Alter of Jeffrey.

Speaker Change: Thank you. We will begin now the question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. We will make a quick pause here for the questions to be registered.

Gaetano: And our first question comes from Ed Alter from Jefferies.

Ed Alter: Hey guys, thanks for the question. Great to hear you have the confidence to return and spend more on growth marketing. Can you just walk through what drove that decision and how you're going to measure the effectiveness of that spend? Sure, Ed. Thank you for the question.

Speaker Change: Your line is now open.

Ed Alter: Hey guys, thanks for the question. Great to hear you have the confidence to return and spending more on growth marketing. Can you just walk through what drove that decision and how you're going to measure the effectiveness of that spend?

Andrew Paradise: Sure, Ed. Thank you for the question. This is Andrew Paradise.

Andrew Paradise: We've been pushing to get to six months payback on deployed capital. We're running right about that right now. So our top focus is expanding on the channels where we're running that level of payback and maintaining that payback. So not just deploying more capital, but, of course, controlling CAC and ensuring that we're continuing to see some more levels of LTD.

Speaker Change: We've been pushing to get to six-month payback.

Speaker Change: on deployed capital. We're running right about that right now. So our top focus is expanding on the channels that where we're running that level of payback and maintaining that payback.

Speaker Change: Not just deploying more capital, but of course, controlling CAC and ensuring that we're continuing to see similar levels of LTD.

Andrew Paradise: And how about, you know, going forward, is it still that same payback? Or is there more kind of ROAS targets you have in mind as well? Or just, you know, can you talk to the networks you might be using?

Speaker Change: And how about, you know, going forward, you know, is it still that same payback or is there more kind of ROAS targets you have in mind as well? Or just, you know, can you talk to the networks you might be using?

Andrew Paradise: I don't think we can show the networks right now, but we are targeting maintaining between call it a six and eight month payback. Obviously, as we increase our marketing budget on a given channel where we're running a six month payback, we're going to see a temporary fluctuation upwards in customer acquisition costs. So we're looking at the same ROAS, same overall CAC, same payback periods and running in a pretty tight range, targeting six months and allowing, you know, some fluctuation upwards as we scale the budget, but being pretty controlled. So, you know, certainly nothing like even a 12 month payback would be acceptable right now.

Speaker Change: I don't think we can show the networks right now, but we are targeting maintaining between call it a six and eight month payback.

Speaker Change: Obviously, as we increase marketing budget on a given channel where we're running a six-month payback, we're going to see a temporary fluctuation upwards.

Speaker Change: and Customer Acquisition Costs.

Speaker Change: So we're looking at kind of same row as...

Speaker Change: Same overall CAC, same payback periods, and running in a pretty tight range, targeting six months and allowing, you know, allowing some fluctuation upwards as we scale budget, but being pretty controlled. So, you know, certainly nothing like even a 12-month payback would be acceptable right now.

Ed Alter: Okay, awesome. And if I can ask a follow-up question, mobile. The mobile gaming industry is having a better year this year compared to the last couple. Are you guys seeing that on your own platform? And you know, what's the macro? The mobile industry looking for where you guys sit. Sure, that's a great question.

Speaker Change: Okay, awesome. And if I can ask a follow-up, the mobile gaming industry is having a better year this year compared to the last couple. Are you guys seeing that on your own platform, and how's the macro?

Speaker Change: mobile industry looking for where you guys sit.

Gaetano Franceschi: Sure, that's a great question. Maybe Gaetano, do you want to talk a bit more about the broader market? Yeah, I think we are seeing some level of stabilization in our business, as you can see in our results. I think we're focused on what Andrew just said, which is focusing on scaling our digital marketing and focusing on building new features on the platform that we think will engage and retain new customers. But for now, we feel like we're in a good cycle as it relates to where we were even a quarter or a year ago. Great, thanks for the color.

Speaker Change: Sure, that's a great question. Maybe, Gaetano, do you want to talk a bit more about the broader market?

Gaetano: Yeah, I think we are seeing some level of stabilization in our business, as you can see in our account.

Speaker Change: and our results.

Speaker Change: I think we're focused on what Andrew just said, which is focusing on scaling our digital marketing and focusing on building new features on the platform that we think will

Gaetano: engage and retain new customers. But for now, you know, we feel like we're in, we're in a good cycle as it relates to, you know, where we were even a quarter or a year ago.

Gaetano: You know, I'd even add to that, Gaetano, I do think that the amount of bot fraud in our particular sector and the impact of that on running, let's say, confusingly similar marketing messages as companies that are committing fraud.

Gaetano: is

Speaker Change: It's definitely influencing, you know, that kind of overall shadow on our part of mobile gaming.

Speaker Change: is definitely probably overcasting any overall benefit that the broader mobile gaming industry is seeing in terms of a bounce back year over year. So it's a little hard to say we're seeing a big macro effect.

Speaker Change: But I do think that we are making a lot of progress on the bot fight and on bringing justice

Speaker Change: for the players forward and working with a growing amount of regulatory

Speaker Change: to try to to ensure that bots are not part of this industry. And that process, we think we will see a lot of progress on it in the next couple of quarters, which will really change the landscape for our company.

Speaker Change: Great, thanks for the color.

Speaker Change: As a reminder, to ask a question, please press star followed by 1 on your telephone keypad.

Operator: As we currently have no further questions, the call concludes here. Thank you for joining us. You may now disconnect your line.

Speaker Change: As we currently have no further questions, the call concludes here. Thank you for joining. You may now disconnect your lines.