Skillz - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 revenue of $27.4M grew 8% YoY and 22–30% QoQ (ex/including one-time effects), while net loss improved to $(8.9)M and Adjusted EBITDA loss improved to $(10.4)M; PMAU rose 18% QoQ and 20% YoY to 146K, the highest since Q3’23.
• Results beat S&P Global consensus: Revenue $27.37M vs $22.80M*, EPS $(0.58) vs $(1.34), and SPGI EBITDA −$6.39M vs −$13.85M, reflecting better monetization and opex discipline; company-reported Adjusted EBITDA loss was $(10.39)M.
• Liquidity remains substantial with $228.7M cash and $10.0M restricted cash at quarter-end; operating cash outflow improved excluding settlements/insurance/debt service, supporting continued investment (Developer Accelerator, platform upgrades).
• Filing delays and NYSE non-compliance notice remain an overhang; Q2 results are preliminary and subject to revision, and management continues working to regain filing compliance, a key near-term stock catalyst alongside user growth momentum.

Estimates marked with * are Values retrieved from S&P Global.

What Went Well and What Went Wrong

• What Went Well

  • User monetization and engagement: PMAU rose to 146K (+18% QoQ, +20% YoY); ARPU improved to $12.3 vs $10.4 YoY, supported by revamped loyalty, trophy, live events, and faster ACH deposits/withdrawals.
  • Top-line beat and profitability progress: Revenue $27.37M vs $22.80M* consensus; Adjusted EBITDA loss improved to $(10.39)M vs $(12.57)M YoY; CFO highlighted opex discipline and improved cash burn ex one-timers.
  • Ad-tech (Key/Arky) execution: Rolled out privacy-centric SKAN models on iOS and GPU-accelerated deep learning on Android (1B+ examples/day) to sharpen ROAS and integrate better with the platform, aiding sequential growth.

• What Went Wrong

  • GMV and ARPPU pressure YoY: GMV fell to $136.6M from $161.7M YoY; ARPPU declined to $62.8 from $69.4 YoY, indicating spend-per-payer headwinds even as payer counts grew.
  • Ongoing losses and cash burn: GAAP net loss was $(8.9)M and operating cash outflow remained significant; Q2 operating cash outflow was $21M before management’s adjustments for settlements/insurance/debt service.
  • Reporting delays/NYSE notice: Financials remain preliminary; late 10-K/10-Q filings triggered NYSE non-compliance notice—resolution remains a near-term risk factor.

Transcript

Speaker 1

Good afternoon. I'd like to welcome you all to the Skillz Inc. Second Quarter 2025 Results Call. My name is Elliot, and I'll be moderating your call today. If you would like to register a question during today's event, please press star one on your telephone keypad. I'll turn the conference call over to your host, Jojo Furnie from JCIR, to begin. Please go ahead.

Speaker 0

This afternoon, Skillz issued its 2025 Second Quarter Earnings Release, 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 second quarter ending June 30, 2025. Accordingly, we are announcing preliminary results for the second quarter, which are based on currently available information and are subject to revision. Actual results may differ from these preliminary financial results and other financial information, as final adjustments and developments may arise between now and the time the results are finalized. 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 12b-25 with the Securities and Exchange Commission, which may include further disclosure.

The company is also completing the financial statements and other disclosures for the year ending December 31, 2024. We were unable to file our annual report on Form 10-K for the year ending December 31, 2024, and we previously announced we received a notice from the NYSE that the company was not in compliance with its listing standards. The company is working diligently to complete the necessary work to file the Form 10-K as soon as practicable and currently expects to file the Form 10-K within the six-month period granted by the NYSE notice. Additionally, the company intends to take the necessary steps to achieve compliance with the applicable NYSE listing standards as soon as practicable. Before I turn the call over to Skillz Founder and CEO, Andrew Paradise, please note that management's comments today may include forward-looking statements within the meaning 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 more detailed discussion of the risks that could impact future operating results and financial conditions. During the call, management will discuss non-GAAP financial 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. The reconciliation of these measures to the most directly comparable GAAP measures is available in the company's Second Quarter 2025 Earnings Release.

With that, I'll turn the call over to Andrew for some opening remarks, followed by a review of the financial performance from Skillz CFO, Gaetano Franceschi, before we open the call for questions. Andrew?

Speaker 2

Thank you, Jojo, and good afternoon. I want to begin today's call by providing some key quarterly financial updates before turning to our Fair Play Initiative and litigation updates. Q2 GAAP revenue was $27 million, up from $21 million in Q1 2025 and $25 million in Q2 2024. Excluding one-time adjustments, revenue grew 22% quarter over quarter and 4% year over year. Q2 paying monthly active users (PMAU) was 146,000, up from 124,000 in Q1 2025 and 122,000 in Q2 2024, which is 18% growth quarter over quarter and 20% growth year over year. Q2 adjusted EBITDA loss of $10 million, better than a loss of $16 million in Q1 2025, and a loss of $13 million in Q2 2024, which is an improvement of 36% quarter over quarter and 17% year over year.

Taken together, these results reflect continued progress toward returning Skillz to consistent top-line growth and positive adjusted EBITDA. Moving now on to the first of our four pillars. During the quarter, we made significant progress in enhancing our platform to improve player and developer engagement retention. When we discuss this pillar, we consider both short and long-term innovation across our platform. That means improving our player experience and enhancing developer features while prioritizing projects that will support new content, which in the gaming industry can have a long timeline from development to market readiness. In the quarter, our product teams delivered several platform launches contributing to our quarterly sequential revenue growth. We enhanced our loyalty program in Q2, marking one of the most significant platform changes in several years. We recalibrated rewards to incentivize players to become high-value users without negatively impacting retention.

The revamped program introduced tiered milestones, personalized incentives, and one of the largest monthly prize pools in mobile gaming. This initiative, paired with improvements to our trophy system and live event experience, are being well received by our players. Additionally, we introduced ACH deposit and instant withdrawal, positioning Skillz as a leader in withdrawal times while providing players with funding optionality. Our previous average withdrawal timeline was a known pain point for some players. We listened to player feedback and implemented a solution that makes this one of the fastest and safest platforms to transact within our category. We also launched the first version of our Skillz Arcade, a single-app experience that allows players to seamlessly switch between more than a dozen games.

Our goal is to build one of the largest single apps for prize-based competition, with additional features to be layered in as we continue to improve the arcade experience. We previously discussed our long-term focus on new content pipeline generation, including a three-year commitment of $75 million to support the Developer Accelerator program. This program aims to help defray costs for developers and encourage them to build their games for our platform as they work to create the next successful hit. Since announcing this in February, we've identified several opportunities to invest in a variety of genres. While there's still a lot of work to be done, we're encouraged to see some of the early deliverables from our product roadmap benefiting the player and developer experience. With respect to up-leveling our organization, we continue to strengthen our global team.

This includes key hires across our product, marketing, analytics, and operations teams that contributed to this quarter's results. For our third pillar, our go-to-market focused on user acquisition and monetization. This has been an area where we saw significant improvement with meaningful quarter over quarter growth in paying MAU. To highlight again, paying MAU for Q2 grew 18% versus Q1, with 146,000 PMAU representing our highest level in seven quarters. The improvement in PMAU is primarily driven by new platform launches and effective marketing to new and lapsed users. User acquisition spend in Q2 was lower than in recent quarters, while we increased the volume of new paying users. We will continue to optimize customer acquisition costs while strategically scaling traffic. We believe our improved marketing efficiency and execution on our product roadmap will continue to benefit our monetization efforts.

On our progress to demonstrate a clear path to profitability, with the information just provided, we believe we're making the steady strides needed to achieve our goal of generating positive adjusted EBITDA. While we've talked in detail about the sequential growth of the platform business, I'd also like to highlight that ARKI's revenue growth is also accelerating. This AI-powered ad tech business is continuing to innovate in the mobile marketing space, and we're pleased with the team's execution across their strategic initiatives. In the quarter, ARKI delivered two key innovations. On iOS, it rolled out Scan4Native, privacy-centric models that drive both acquisition and retention without IDFA, identifier for advertiser, reliance. On Android, ARKI moved its top-of-funnel deep learning to GPU-accelerated training on over 1 billion examples per day, enabling real-time bid optimization at scale.

These advances expand ARKI's addressable market, sharpen ROAS for its customers, and strengthen the integration with Skillz's competition platform. With both businesses growing revenue, we're pleased with the progress in Q2. Turning to an update on our Fair Play Initiative. As we discussed on previous calls, protecting players and preserving fair competition is core to our values. We continue to pursue litigation against Papaya Gaming and Voodoo Games for their alleged use of bots, a practice we believe undermines consumer trust and harms the entire industry. These two cases are ongoing in the Southern District of New York, and Papaya Gaming and Voodoo Games will have to answer to U.S. laws and U.S. consumers they have, in our opinion, defrauded.

With respect to our Papaya Gaming litigation, the court recently issued a public order that Papaya Gaming must unseal, and I'll quote from the order: "One, its admission of its historical use of bots, and two, references to its executives' assertions of their rights against self-incrimination under the Fifth Amendment." We believe the elimination of bot fraud is critical to protecting players and restoring trust in this industry that we pioneered. As a leading U.S.-based platform for fair, skill-based competition, we're confident that a level playing field, one that does not include the use of bots, will benefit players and shareholders. I'll conclude my comments by reiterating our view that our current valuation gives no weight to the combined value of our operating platform and the progress we've made towards achieving our goals.

As we continue to execute on our business strategy, we expect our unique platform to generate returns for our shareholders. With that, I'll turn it over to Gaetano. Thank you, Andrew, and good afternoon, everyone. Turning to the second quarter financial results, revenue was $27 million, up 30% sequentially, and up 8% year over year. Excluding one-time adjustments, revenue grew 22% sequentially and 4% year over year. Paying MAU of 146,000 was up 18% sequentially and up 20% year over year. Our paid user conversion rate, which is paying MAU divided by MAU, was 19% in Q1, up from 15% a year ago. Turning to costs and expenses, research and development expenses were $5 million, up 13% year over year. Excluding stock-based compensation, R&D expenses were 17% of Q2 revenue. Sales and marketing expenses were $18 million, down 16% year over year.

Excluding stock-based compensation, sales and marketing expenses were 62% of Q2 revenue. Q2 UA marketing was $3 million, while Q2 engagement marketing was $9 million. General and administrative expenses were $8 million. Excluding stock-based compensation and funds received as part of an insurance settlement in Q2, G&A expenses were 49% of Q2 revenue. Q2 net loss of $9 million compares to a net income of $26 million in the same quarter last year. Excluding an insurance recovery in Q2 and $46 million in obvious settlements in the prior year, Q2 net loss improved by $3 million year over year. Adjusted EBITDA loss in the second quarter was $10 million, up 36% sequentially and up 17% year over year. Net cash used in operating activities for Q2 was $21 million. Excluding litigation settlements, insurance recovery, and a semi-annual debt payment, Q2 net cash used in operating activities was $8 million.

We ended the second quarter with $239 million of cash, comprised of $229 million in cash and cash equivalents and $10 million in restricted cash. At the end of Q2, we had $129.7 million of total principal due on our 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.

Speaker 1

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. We will pause briefly to allow questions to register. We have no questions at this time. Ladies and gentlemen, this concludes our Q&A and today's conference call. We would like to thank you for your participation. You may now disconnect.