Skillz Q1 2026 Earnings Call Transcript

Skillz (NYSE:SKLZ) reported first-quarter financial results on Tuesday. The transcript from the company's first-quarter earnings call has been provided below. This content is powered by Benzinga APIs. For comprehensive financial data and transcripts, visit https://www.benzinga.com/apis/. Access the full call at https://events.q4inc.com/attendee/800226182 Summary Skillz Inc reported Q1 2026 GAAP revenue of $29 million, a 3% decrease quarter-over-quarter but a 33% increase year-over-year. The company experienced a $13 million adjusted EBITDA loss due to increased litigation expenses, but underlying profitability improved with a normalized EBITDA loss of $7 million. Skillz Inc won a significant legal victory against Papaya Gaming, with a jury awarding $420 million in damages, potentially increasing to over $1.2 billion upon court determination. The company is focusing on three strategic initiatives: strengthening demand and engagement, executing an efficient go-to-market strategy, and improving platform performance. Skillz Inc has acquired Blackout Bingo and Domino's Gold, enhancing its content portfolio and demonstrating a shift towards owning and operating more of its top titles. Full Transcript OPERATOR Good afternoon everyone. I'd like to welcome you to the Skillz Inc. first quarter 2026 results call. this time I would like to turn the conference over to your host Joe Giffone from JCIR to begin. Joe Giffone Good afternoon everyone. Skillz issued its 2026 first quarter earnings release on May 15, which is available on the Company's investor relations website. Let me read the safe harbor language and then we'll get right into the call. All statements and comments made by management during this conference call other than statements of historical fact may be deemed forward looking statements for purposes of the Private Securities Litigation Reform act of 1995. Skillz cautions that these forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those reflected by the forward looking statements made during the call. For additional details on these risks and uncertainties, please see Skillz Annual report on Form 10K for the year ended December 31, 2025 as filed with the SECurities and Exchange Commission and Skillz subsequent public filings with the SEC. Skillz undertakes no obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise. Additionally, we will reference various non Generally Accepted Accounting Principles (GAAP) financial measures and KPIs during this call. Please refer to our earnings release for an explanation of these measures and how we use them and in the case of the non Generally Accepted Accounting Principles (GAAP) financial measures, reconciliations to the nearest Generally Accepted Accounting Principles (GAAP) equivalents. It's now my pleasure to turn the call over to Skillz CEO Andrew Paradise. Andrew, please go ahead. Andrew Paradise (Chief Executive Officer) Thank you Joe and good afternoon everyone. I'll begin today's call with a review of our first quarter results. For the first quarter, GAAP revenue was 29 million, down 3% quarter over quarter and up 33% year over year. Adjusted EBITDA loss was 13 million compared to a loss of 10 million in the fourth quarter. The increase in adjusted EBITDA loss is driven by higher litigation related expenses during the quarter. Importantly, excluding litigation related expenses, adjusted EBITDA in Q1 2026 improved to a loss of 7 million, representing a 15% improvement quarter over quarter on a normalized basis at Razor adjusted EBITDA as 2 million, marking a third consecutive quarter of profitability. We expect this improvement in underlying profitability across our portfolio as we continue to move into the second quarter. Paying Monthly Active Users (PMAU) for the skills platform was 128,000, down 9% quarter and up 3% year over year. This quarterly sequential decline in PMAU was partly driven by our decrease in User Acquisition (UA) spend, resulting in fewer new user cohort additions while top line PMAU has decreased, we're encouraged that retention across our more mature cohorts improved from the previous quarter. This reflects a healthier platform demonstrated by our 7% quarter over quarter increase in average revenue per paying user. Moving to our Fair Play initiative and an update on our Litigation against Papaya Gaming In April, unanimous jury in the U.S. district Court for the Southern District of New York found Papaya liable for false advertising under the Lanham act and deceptive practices under New York law, awarding skills 420 million in actual damages, the largest false advertising award in U.S. history under the Lanham Act. The jury also made advisory findings supporting disgorgement of either 719 million based on Papaya's profits or 652 million based on Papaya's cost savings. These are alternative theories and will not be added together. The court will determine whether to award disgorgement and if so, the final amount it may accept, modify or decline the advisory finance entirely, ensuring there is no duplicative recovery where actual damages and discouragement overlap. Under the Lanham act, the court has the ability to enhance the actual damages award by up to three times the 420 million for any disgorgement the court chooses to award. There is no cap on enhancement. In simple terms, the total potential award ranges from 420 million to over 1.2 billion, depending on the court's determination on disgorgement enhancement. To understand what this verdict means for the category we pioneered, it helps to understand some of the why Skillz founded the skill based competitive gaming category on a single premise. The players compete fairly against real human opponents for real prizes. As the category grew, we saw competitors gaining market share in ways that defied explanation. This turned out to be what we believe to be fraud. We had to use the legal system to fight back on behalf of our players and our shareholders. What we alleged against one of these competitors was confirmed by Papaya Gaming's own internal documents. Bots were being deployed at scale. Bot scores selected by Papaya determined the outcomes and none of it was disclosed to the players. I remind you, we've taken this path before. In 2024, a federal jury found ABA Games liable for patent infringement and awarded 42.9 million in damages. We subsequently pursued a separate false advertising case against ABA Games, and the two cases ultimately sold together for 80 million. We applied those learnings and brought Papaya to trial on false advertising grounds directly. The evidence to trial is clear. Papaya Gaming's bots outnumbered human players across tournaments, advertising approximately 6.7 billion in prize pools. Only about 2 billion was actually paid to real users, leaving roughly 4.7 billion in quote imaginary money, a term used by Papaya Gaming's own defense counsel that was never paid to human players. The jury's verdict confirms that these practices violated the LAND and MAX false advertising standards. We founded this industry and we remain committed to ensuring that fair competition is the standard every participant is held to on collectibility based on publicly available data. APAI operates at substantial scale with leading titles ranking among the most downloaded in the US Generating significant revenue based on independent analyst coverage notes, Papaya's annual net revenue is approximately 950 million to 1.1 billion. We believe this scale supports Papaya's capacity to satisfy a judgment of this size. Looking ahead, we expect that the court will determine the final disgorgement award in June. The parties have been ordered to engage in settlement discussions which we're actively pursuing. We're also evaluating alternatives to secure capital against the judgment and are monitoring closely whether an appeal bond or other secured capital will be required. This verdict confirms that false advertising in a skill based gaming category violates federal law. We believe the Papaya verdict supports the integrity of the category and may improve competitive dynamics over time. Our litigation against Voodoo Games continues to proceed on the same principles of fair play. The Papaya verdict is a significant milestone and our focus remains on operating and growing our business. As we move through 2026, we're organizing our execution around three core initiatives that build on the foundation established during our turnaround. First, strengthen demand and engagement Second, execute a more efficient and disciplined go to market and third, improve our platform performance and infrastructure. Across each of these initiatives, we're leveraging the Skills Competition Platform Raiser's Performance Marketing Engineering and Beamable, our newly acquired developer platform. Together, our businesses are building a connected ecosystem designed to improve performance and drive efficiency. Turning to our first initiative, Strengthening Demand and Engagement on the Skillz platform, we remain focused on quality and long term value. We saw continued strength in our core player base, particularly among longer tenured cohorts. Retention across our three plus month cohorts improved quarter over quarter, driving higher engagement and monetization on a per user basis. This reflects the underlying health of the platform. Solitaire's Skillz continues to scale as a top title on the platform. We also strengthened our owned content portfolio through the acquisitions of Blackout Bingo and Domino's Gold and are expanding the pipeline with new titles launching later this year. At Razor, Engagement is driven by precision targeting and performance marketing at scale. We added several new advertisers across gaming, consumer applications, retail and entertainment. We grew revenue across both new and existing customers and launched our Connected TV business, opening a new channel for advertiser spend. Turning to our second initiative, Efficient and Disciplined Go to Market on the Skillz platform, we remain focused on executing an efficient and disciplined go to market strategy. In Q1 user acquisition spend continued to focus on attracting profitable long term players. Our approach reflects concentrating investment in channels with attractive returns. At Razor, we continue to scale our performance, expanding our advertiser base and deepening relationships with existing clients. During the quarter, we continued to optimize media margins through improved product mix. Our machine learning platform continues to drive stronger targeting efficiency and return on ad spend for advertisers. Additionally, the launch of Connected TV has attracted initial advertiser commitments, broadening Razor's addressable market and opening a new channel for advertising spend. Turning to our third initiative, improving platform performance and infrastructure on the Skillz platform, we continue to invest in systems supporting player engagement. We're also advancing our Pro SDK development with several developers building new games or converting existing games using this technology. During the quarter, Razor continued migration to more advanced neural network models, improved training efficiency and prediction accuracy, expanded integrations with measurement partners and advanced next generation machine learning infrastructure. In Q1, we completed the acquisition of Beamable, a developer platform providing the game services and back end infrastructure that we believe will power skills over time. Beam Mobile joins Razor and the Skillz Competition platform is the third component of a connected ecosystem, bringing developer tooling to our own products and to the customers Razor brings into the network. Beam Mobile also continues to serve the developers and studios that relied on the platform prior to the acquisition. Taken together, our businesses form a compounding flywheel. We believe the campaigns improve the model, every impression strengthens targeting and every outcome improves future performance. In closing, the first quarter reflected disciplined execution across the organization. We strengthened the Skills platform, improved unit economics, continued to scale Razer as a profitable growth engine and began integrating BE Mobile as the developer platform, powering our products and ecosystem over time. By combining competitive skill based gaming with AI driven performance marketing, we're building an ecosystem designed to scale engagement data and monetization with discipline. We believe this integrated approach creates long term optionality in gaming as well as in adjacent areas where content, identity, commerce and performance marketing converge. Our focus remains on executing against that opportunity while maintaining financial discipline and driving long term shareholder value. And with that I'll turn it over to Gaetano for the financial review. Gaetano Thank you Andrew. Our first quarter results highlight the benefits of disciplined execution and structural improvements across both the Skills and Razor businesses producing stronger fundamentals and a trajectory toward profitability. Q1 2026 GAAP revenue was $29 million, down from $30 million in Q4 2025 2025 and up from $22 million in Q1 2025 representing a 3% decline quarter over quarter and 33% growth year over year. Of note. Q4 2025 2025 revenue included an indirect tax accrual release normalizing for the indirect tax accrual release. Q1 2026 revenue would be up 2% quarter over quarter. Q1 2026 research and development expenses of $5 million increased 5% year over year, reflecting ongoing investment in our skills and Razor businesses. Q1 2026 sales and marketing expenses of $17 million decreased 4% year over year in the quarter. End user marketing was $8 million and user acquisition was $3 million. Q1 2026 general and administrative expenses of $19 million increased 2% year over year. Q1 2026 net loss of $11 million improved 36% year over year. Q1 adjusted EBITDA loss was $13 million compared to a loss of $10 million in Q4 2025 2025 and improved from a loss of $17 million in Q1 2025 excluding litigation related expenses. Adjusted EBITDA in Q1 2026 improved to a loss of 7 million, representing a 15% improvement quarter over quarter on a normalized basis. We believe our balance sheet remains healthy and we continue to manage capital prudently as we progress towards sustained profitability. We ended Q1 2026 with $185 million in cash and cash equivalents and $130 million of debt outstanding due by the end of this year. As the debt approaches maturity later this year, we continue to evaluate a range of strategic alternatives to optimize our capital structure. We are driving the business forward with focus and discipline to deliver meaningful long term value for our shareholders and look forward to updating you further on our progress in 2026. Operator we're now ready to open the line for questions. OPERATOR Thank you everyone. If you would like to ask a question, please press start on your telephone keypad. We'll take the first question today from Ed Alter from Jefferies. Ed Alter (Equity Analyst) Hi, good afternoon. I want to ask a question on paying MAU and GMV. I saw that actually GMV was actually up quarter on quarter despite kind of paying users down. So can you just talk about kind of the two drivers of that and you know why the spend per player is actually increasing kind of some of the drivers there. Andrew Paradise (Chief Executive Officer) Thanks. Thanks Ed, thanks for the question. Yeah, I think as you know what we focus on is really high paying users, long term users. And so this is sort of a view of an outcome that we've been driving towards and trying to continue to retain and attract high paying users. So you see, even though our PMAU is slightly down, you can see our GMV continues to grow and our PUPU continues to grow. Gaetano And if I could also jump in. Please do. Oh, sorry. I was going to add that one of the reasons PMAU is slightly down is we actually dialed back user acquisition in Q1, really continuing to raise their focus on profitable acquisition. So continuing to bring in tighter and tighter break even periods and better one year paybacks. We're, you know, I think we're kind of at maximum efficiency now as we enter the quarter and you know, we're thinking about how to thoughtfully expand on marketing. Ed Alter (Equity Analyst) Yeah, great, great. And just to follow up on that because I, you know, noticed that the, you know, the MAUs was also down a decent amount but a lot of the non-paying MAUs were down. Is that kind of like a new normal for kind of your marketing strategy or just how do we go from here? Is I guess kind of the main question. Andrew Paradise (Chief Executive Officer) Yeah, I think it's with where we are on user acquisition and kind of cutting spend and optimizing, you can expect that we're stabilized and going to build forward. So I would expect PMAU and traffic overall flat to up with improving unit economics. That's the way I think about the business. It's, you know, at the end of the day, if we can service a higher value customer, it's a better business. Great, thanks. OPERATOR I can circle back in the queue. Yep. The next question comes from Bharat Nagaraj from Kantor Fitzgerald. Bharat Nagaraj (Equity Analyst) Hi, thank you for taking my questions. Just the first one is around, are you seeing any reduction in user acquisition costs at all since the lawsuit went in your favor? And then the second one, just a follow up on the previous answer that you provided to the previous question. What would you actually attribute the growth in paying MAUs since Q1 2025? Right. Like it's kind of been pretty good since then and up until Q1 2026. Is it because the mobile gaming environment is a lot better now or is it some kind of a change in strategy? And I note that the user acquisition costs have come down as well as you mentioned, hence wanting to understand that a bit better. Thank you. Andrew Paradise (Chief Executive Officer) Yeah, thank you for the question. May hit the first part on user acquisition costs. And lawsuit. I think it'd be really difficult for us to directly link the two and, and create attribution there.. In terms of user acquisition costs, we are at, as of the end of Q1, the best User Acquisition (UA) prices we've seen in I don't know how many years, multiple years. So we are, we're seeing attractive customer acquisition costs and thinking about how we can thoughtfully scale up where we're seeing these attractive prices. In terms of the second question, attributing growth to paying PMAU and how, you know, how PMAU has been growing from Q1 25 through this past quarter, perhaps. Gaetano, do you want to jump in on that? Gaetano Yeah, thanks, Andrew. I think the way to think about it and how what we've been describing for the past several quarters is really the focus around, you know, product-led growth. And so there's been a significant number of investments in our platform around retention and engagement and things that we've launched are really focused around attracting and retaining paying customers. And so I think you're seeing that as a result that you know, that our focus on paying now is paying off.. Bharat Nagaraj (Equity Analyst) Okay. Okay, thank you. Can I ask one more if that's all right or should I just jump back in the queue? No, no, no, go ahead. I know that I think couple of your development partners, I think you've said account for like a significant portion of your revenue and I think if I'm not wrong, correct me there. If I'm wrong, solitaire cube and 21 blitz will kind of drop off the platform in January 2027. So I'm just wondering what, what the future strategy is there. I think you're trying to develop some of your own games, but is there, how do we think about the trajectory of revenue post, I don't know, Q4 this year? Andrew Paradise (Chief Executive Officer) Yeah, thank you for the question on that. So to kind of hard it back, how are we thinking about the migration of one of our developers off platform? We now, as of the end of Q1, we acquired Blackout Bingo and Domino's Gold. So we own an op right now, three of the top five titles on the platform. And this actually happened in Q3 of last year. But when that particular developer left the Bharat Nagaraj (Equity Analyst) platform, there were 34 titles, two of which we have contractual rights through March of 2027. And then the other 32, which we had contractual exclusivity up through December, we migrated the first 32 titles to in Q3. So in quarter and so you can see kind of the result of that in our numbers. We are now looking at in particular, I think you mentioned Solitaire Q but looking at the migration to Future State and we have, you know, quite a number of solitaire titles on platform as well as the honed and operated title solitaire skills. Understood, thank you very much. OPERATOR And we'll take a follow up from Ed Alter from Jeffries. Ed Alter (Equity Analyst) Great, thanks for letting me back in. I just wanted to follow up on the last question. You know, with you guys now making your own solitaire game, buying Blackout and Domino's Gold seems like a decently large strategy shift to now you guys own most of the large games on the platform. Is this how to think about the business going forward or just kind of some of the rationale for doing that? Kind of that shift? Andrew Paradise (Chief Executive Officer) Yeah. First of all, thank you for the question, but you know, I would say yes, owning and operateerating is a shift from the historic only third party and second party relationships with developerateers. You may be aware that we've been second party or investor in content for a number of years. I want to say, you know, over five years pre ipo, we've, we've owned a stake in content on the platform, now owning and operateerating. So if you think about first party, second party, third party, now we're entering into first party relationships with content. So owned and operateerated. And the way we think about this is if there's a category on platform and a piece of content like Solitaire where there's relatively little developeratement in the future, acquiring a developerateer or developerateer's game or building a game in that category, it creates a stability for the platform and a consistent offering that we can have for the platform, which actually is a benefit to every developerateer on the platform who's building new content and exploring new genres. It's very much a strategy that I think we've seen with whether it's Epic at a much larger scale running Fortnite or it's Valve Corporation with Steam their platform, running Dota 2 and Counter Strike. I think this is a common thing in the gaming industry in terms of gaming platforms and something that we think makes a lot of sense to the future of the business. Ed Alter (Equity Analyst) Great. Thanks. OPERATOR And everyone, at this time there are no further questions. This does conclude our conference for today. We would like to thank you all for your participation. You may now disconnect. Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.