Skillz - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 delivered sequential and year-over-year revenue growth with preliminary revenue of $27.4M (+11% YoY; +9% QoQ) and PMAU of 155K (+28% YoY; +6% QoQ), supported by the Skillz platform and accelerating Aarki ad-tech momentum.
• Adjusted EBITDA loss improved year over year to $(11.8)M vs $(13.9)M in Q3 2024, while net loss narrowed to $(17.4)M from $(21.1)M YoY; management emphasized ongoing OpEx discipline and a healthy cash balance of $213M.
• Against Wall Street consensus, revenue missed ($27.4M vs $29.1M) and EPS was slightly below expectations (−$1.14 vs −$1.10) on limited coverage (2 estimates), reflecting continued investment and evolving monetization dynamics; results are preliminary and subject to revision. Values retrieved from S&P Global*.
• Catalysts near term: progress in Fair Play litigation (Papaya summary judgment denial advancing to trial), launch of Solitaire Skills and developer accelerator funnel, and NYSE cure timeline (extension through Dec 17, 2025) for delayed filings, which collectively shape risk/reward into year-end.

What Went Well and What Went Wrong

What Went Well

• PMAU growth and monetization: PMAU rose to 155K (+28% YoY; +6% QoQ); ARPU improved to $14.9, indicating stronger engagement despite seasonal headwinds.
• Aarki momentum: AI-driven ad-tech launches (including privacy-forward iOS offerings) are “already driving measurable scale and efficiency”; management sees addressable market expansion and better advertiser ROAS.
• Year-over-year profitability improvement: Adjusted EBITDA loss improved to $(11.8)M from $(13.9)M YoY, supported by cost discipline and optimization in sales & marketing.

Management quotes:

• “We delivered 11% year-over-year and 9% sequential quarterly revenue growth… and 28% year-over-year growth in paying monthly active users” — CEO Andrew Paradise.
• “With $213 million in cash, we’re well positioned to invest in strategic initiatives and deliver long-term shareholder value” — CFO Gaetano Franceschi.
• “Aarki launched on iOS, enabling privacy-forward performance marketing… driving measurable scale and efficiency” — CEO Andrew Paradise.

What Went Wrong

• Consensus miss: Revenue of $27.4M fell short of the $29.1M consensus; EPS slightly missed at −$1.14 vs −$1.10 (limited estimate breadth), signaling ongoing normalization and investment needs. Values retrieved from S&P Global*.
• Filing delays and compliance risk: The company remains delinquent on FY24 10-K and Q1/Q2 2025 10-Qs; NYSE granted an additional cure period through Dec 17, 2025 to regain compliance.
• KPI pressure vs prior year baselines: ARPPU declined YoY ($58.9 vs $67.6), and GMV per paying user was lower ($300 vs $436), indicating a mix shift toward broader conversion at lower per-user spend.

Transcript

Operator (participant)

Hello everybody and welcome to the Skillz Q3 2025 earnings conference call. My name is Elliot and I'll be coordinating your call today. If you'd like to register a question during today's event, please press star one on your telephone keypad. I'll let that hand over to Joe Jaffoni. Please go ahead.

Joe Jaffoni (Head of Investor Relations)

This morning, Skillz issued its 2025 third 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 third quarter ended September 30, 2025. Accordingly, we are announcing preliminary results for the third 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 annual report on Form 10-K for the year ended December 31, 2024, and its quarterly reports on Form 10-Q for the three months ended March 31, 2025, and the three months ended June 30, 2025. We were unable to file our annual report on Form 10-K for the year ended December 31, 2024, and we had previously announced we received a notice from the New York Stock Exchange 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 well as the quarterly reports on Form 10-Qs for the three months ended March 31, 2025, and the three and six months ended June 30, 2025, as soon as practicable.

The company expects to file the Form 10-K and Form 10-Qs by December 17, 2025, which is within the extension period provided to us by the New York Stock Exchange, following our request for an additional extension period beyond the initial six-month period granted by the notice. Additionally, the company intends to take the necessary steps to achieve compliance with the applicable New York Stock Exchange listing standards as soon as possible. Before I turn the call over to Founder and Chief Executive Officer of Skillz, 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 Securities and Exchange Commission 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 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 generally accepted accounting principles. The reconciliation of these measures to the most directly comparable GAAP measures is available in the company's third 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 the Chief Financial Officer of Skillz, Gaetano Franceschi, before we open the call for questions. Andrew.

Andrew Paradise (CEO)

Thank you, Joe, and good morning, everyone. I'll begin today's call with a review of the key Q3 quarterly results, which reflect the meaningful progress underway across Skillz and Aarki. Q3 GAAP revenue of $27 million grew 9% quarter over quarter, 11% year over year, supported by continued Aarki momentum and stability of the competition platform. Adjusted EBITDA loss of $12 million decreased 3% quarter over quarter and grew 15% year over year. Paying MAU of 155,000 grew 6% quarter over quarter and 28% year over year, driven by higher player conversion rates and deeper monetization. We delivered quarterly sequential growth in what's typically a softer seasonal period, marked by higher digital traffic costs and competition for consumer attention during the fall sports season. Taking a look at our four business pillars, beginning with the first pillar, enhancing the platform for player and developer engagement.

In the quarter, we launched an owned and operated title, Solitaire Skills, which is showing early promise. The game serves as a testing ground for new features that will be rolled out platform-wide. Importantly, Solitaire Skills was developed in conjunction with third-party developers and represents the first title to come to market through our $75 million developer accelerator program. This program continues to attract strong developer interest with additional titles in development that are expected to be showcased at the Game Developer Conference in March 2026. Some of these upcoming games will incorporate new technology that we believe will further energize our developer community. Switching to Aarki, the momentum from our ad tech business continued this quarter with accelerating revenue growth supported by new AI-driven product launches across the iOS and Android operating systems. Building on its data models introduced last quarter, Aarki launched on iOS, enabling privacy-forward performance marketing.

These new offerings are already driving measurable scale and efficiency, and we will continue to invest in Aarki's machine and deep learning capabilities to expand its addressable market and improve returns on spend for advertisers. Regarding our second pillar, upleveling our organization. Our gains in operational efficiency across both the competition platform and Aarki businesses continue to improve, allowing us to more effectively leverage our people and resources. We continue to strengthen our global team, particularly with the expansion of our new India office, where we're hosting today's call. As it relates to our third pillar, go-to-market strategy and monetization, our focus remains on acquiring and retaining quality paying players while driving efficient monetization. Paying MAU improved again this quarter, reflecting stronger conversion amongst our existing player base, while total MAU declined modestly. This reflects our emphasis on engagement, quality over volume.We continue to optimize customer acquisition costs and improve marketing efficiency, supported by product-level enhancements that strengthen monetization and retention. Together, these initiatives reinforce our go-to-market discipline, positioning the business for profitable scaling once we expand traffic more broadly. For our fourth pillar, path to profitability, Aarki's business continues to expand its advertiser base and improve yield, with net revenue up more than 100% year over year and improving margins. With improvements in the competition platform, together with the ad tech business momentum, we continue to make progress on our path to profitability. Turning to an update in our Fair Play initiative. As discussed in previous calls, protecting players and preserving fair competition is core to our values. We continue to pursue litigation against Papaya and Voodoo Games for their alleged use of bots, a practice we believe undermines consumer trust and harms the entire industry.

We remain firm in our position as both the Papaya and Voodoo matters move through the litigation process. On October 28, 2025, Judge Cote in the Southern District of New York denied Papaya's motion for summary judgment as to Skillz' claims against Papaya. The court also denied Papaya's motion to exclude Skillz' survey and damages experts. I encourage you to read Judge Cote's now public decision in detail. While other motions are still pending before the court, the court's confirmation that Skillz' claims against Papaya will proceed to a trial is a major step forward in our Fair Play initiative. Separately, I'd also like to address our dispute with Tether. As we disclosed in our 8-K filing, two of Tether's games, Solitaire Q and 21 Blitz, will remain on our platform for a period of up to 18 months following termination.During the post-termination period, Skillz has the option, but not the obligation, to host paid competitions for these games on the company's platform. In our view, the alleged bot fraud from our competitors not only affects our players, but also how our developer partners are able to monetize and generate revenue in our ecosystem. We appreciate the developers who have stood by us and weathered the issues caused by companies that, in our view, engage in bot fraud. With that being said, we remain committed to protecting the industry that we pioneered, and we anticipate our efforts to clean up the industry to be ultimately reflected in our financial performance. In closing, a key takeaway from today is that we're encouraged by the progress across both of our businesses.

By combining our strengths in gaming and AI-driven ad tech, we're building a powerful foundation that can extend beyond gaming into adjacent verticals such as e-commerce, interactive entertainment, and retail media, where performance marketing and content converge. The combination of a scaled competitive gaming platform and an AI-powered advertising technology solution uniquely positions Skillz and Aarki to capture long-term growth opportunities and, in doing so, enhance value for our shareholders. With that, I'll hand it over to our Chief Financial Officer, Gaetano Franceschi, for the financial review.

Gaetano Franceschi (CFO)

Thank you, Andrew. Our third quarter results demonstrate the benefits of disciplined execution and structural improvements across both Skillz and Aarki, producing stronger fundamentals and a clear trajectory toward profitability. Q3 GAAP revenue was $27 million, up from $25 million in Q2 2025 and $24 million in Q3 2024, representing 9% growth quarter over quarter and 11% year over year. Q3 paying MAU was 155,000, up from 146,000 in Q2 2025 and 121,000 in Q3 2024, representing 6% growth quarter over quarter and 28% year-over-year. On costs, R&D expenses of $5 million increased 15% year-over-year, reflecting ongoing investment in our competition platform and Aarki. Sales and marketing expenses of $17 million decreased 10% year over year, reflecting ongoing optimization of our user acquisition and engagement spend. G&A expenses of $17 million decreased 4% year over year, reflecting continued focus on expenses.

Q3 net loss of $17 million improved 17% year over year. Q3 Adjusted EBITDA loss was $12 million, down from a loss of $11 million in Q2 2025 and up from a loss of $14 million in Q3 2024, representing a 3% decrease quarter over quarter and 15% increase year over year. Our balance sheet remains healthy, and we continue to manage capital prudently as we progress toward sustained profitability. We ended Q3 with $213 million in cash, including $1 million of restricted cash and $129.7 million of total debt principal outstanding. With continued execution and operational focus, we expect Skillz to deliver meaningful long-term value for our shareholders as we execute with focus and discipline. Operator, we're now ready to open the line for questions.

Operator (participant)

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. As a reminder, that's star one to ask a question. Ladies and gentlemen, this concludes our Q&A and today's conference call. We'd like to thank you for your participation. You may now disconnect your lines.