Good afternoon, all. I would like to welcome you all to Skillz Incorporated 2024 Second Quarter Results Call. My name is Carla, and I'll be moderating your call today's. [Operator Instructions]. I'd now like to pass the conference over to your host, Jim Leahy from JCIR to begin. So Jim, please go ahead.

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 the preliminary unaudited second quarter results, 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 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 determined it will not file its quarterly report on Form 10-Q by the prescribed deadline that we'll file an extension on Form 12b-25 with the Securities and Exchange Commission. In addition, the Company was not able to file Form 10-K for the fiscal year ended December 31, 2023 during a requisite extension period. The company was also not able to file it’s form 10-Q for the fiscal quarter ended March 31, 20204 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. 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. The company also intends to take all necessary steps to achieve compliance with applicable NYSE listing standards as soon as practical. Because our results are preliminary and…

Thank you. 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 initiatives, 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 scale and fair competition. Just as we demand fairness and integrity in traditional and 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. We believe there are more companies such as AviaGames that use bots and deceive players into believing they're competing against real human opponents, when in fact they face predetermined gameplay or robots. This manipulation alters match 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 our stakeholders' interests and consumers' trust, we're committed to uncovering and aggressively combating fraudulent practices. 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 players, which will ultimately benefit Skillz and our shareholders. As I mentioned in our Q1 call, we executed a settlement agreement with AviaGames for $80 million. AviaGames 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 AviaGames. However, we remain concerned that AviaGames has not altered their behavior regarding the use of bots. As I address you today, AviaGames titles remain on the app…

Thank you, Andrew, and good afternoon, everyone. Second quarter revenue was $25 million down 37% year-over-year and flat sequentially. Our paid user conversion rate, which is paying now divided by MAU 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, research and development expense was $4 million, 0 down 47% year-over-year and excluding the impact of stock based compensation 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 was 75% of Q2 revenue. Q2 UA marketing was $4.2 million while Q2 engagement marketing was $10.6 million. General and administrative expense was $17 million down 34% year-over-year and excluding the impact of stop date compensation was 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 AviaGames litigation. Adjusted EBITDA loss in the second quarter was $12.6 million dollars a 33% improvement year-over-year. Adjusted EBITDA margin was negative 50% in Q2 2024 and compared to negative 47% in Q2 2023. 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. We ended the Q1 with $326 million of 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 AviaGames 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. At this time, we'll turn the call over to the operator for the Q&A session.

Thank you. [Operator Instructions]. Our first question comes from Ed Alter from Jefferies. Your line is now open.

Hey guys, thanks for the question. Great to hear you have the confidence to return in 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?

Sure, Ed. Thank you for the question. This is Andrew Paradise. We've been pushing to get to a six-month payback 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. So not just deploying more capital, but, of course controlling CAC and ensuring that we're continuing to see some lower levels of LTV.

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

I don't think we can, we can share the networks right now, but I we are targeting, maintaining between, call it, a 6-month and 8-month payback. Obviously, as we increase marketing budget on a given channel where we're running a 6-month payback, we're going to see a temporary fluctuation upwards in customer acquisition cost. So we're looking at kind of same ROAS, same overall CAC, same payback periods, and running in a pretty tight range, targeting 6 months and allowing some fluctuation upwards as we scale budget, but being pretty controlled. So, certainly nothing like even a 12-month payback would be acceptable right now.

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 what has the macro mobile industry looking for where you guys sit?

Sure. That's a great question. Maybe, Gaetano, do you wanna talk a bit more about the broader market?

Yes. 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.

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 is definitely influencing that kind of overall shadow on our part of mobile gaming. It 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, but I do think that we are making a lot of progress on the bot fight and on bringing justice for the players forward and working with a growing amount of regulatory to try 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.

Great. Thanks for the color.

[Operator Instructions]. As we currently have no further questions, the call concludes here.