Firy Inc. (SKLZ) Q1 2026 Earnings Call Transcript

Good afternoon, everyone. I would like to welcome you to the Skillz, Inc. Q1 2026 Results Call. At this time, I would like to turn the conference over to your host, Joe Jaffoni from JCIR to begin.

Good afternoon, everyone. Skillz issued its first quarter 2026 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 will 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's annual report on Form 10-K for the year ended December 31, 2025 as filed with the Securities and Exchange Commission and Skillz's 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-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-GAAP financial measures, reconciliations to the nearest GAAP equivalents. It is now my pleasure to turn the call over to Skillz's CEO, Andrew C. Paradise.

Andrew, please go ahead.

Thank you, Joe, and good afternoon, everyone. I will 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 RZR, adjusted EBITDA was $2 million, marking a third consecutive quarter of profitability. We expect this improvement in underlying profitability across our businesses as we continue to move into the second quarter. Paying MAU for the Skillz platform was 128 thousand, down 9% quarter over quarter and up 3% year over year.

This quarterly sequential decline in PMAU was partly driven by our decrease in user acquisition spend, resulting in fewer new user cohort additions. While top-line PMAU has decreased, we are 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, a 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 Skillz $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 findings entirely, ensuring there is no duplicative recovery where actual damages and disgorgement overlap. Under the Lanham Act, the court has the ability to enhance the actual damages award by up to three times the amount of actual damages. For any disgorgement the court chooses to award, there is no cap on enhancing. In simple terms, the total potential award ranges from $420 million to over $1.2 billion depending on the court's determination on disgorgement and 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: 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's own internal documents. Bots were being deployed at scale. Bot scores selected by Papaya had determined the outcomes. And none of it was disclosed to the players. I remind you, we have taken this path before. In 2024, a federal jury found AviaGames liable for patent infringement and awarded $42.9 million in damages. We subsequently pursued a separate false advertising case against AviaGames, and the two cases ultimately settled together for $80 million. We applied those learnings and brought Papaya to trial on false advertising grounds directly. The evidence at trial is clear. Papaya's bots outnumber 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 "imaginary money," a term used by Papaya's own defense counsel, that was never paid to human players. The jury's verdict confirms that these practices violate the Lanham Act 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 collectability, based on publicly available data, Papaya operates at substantial scale with leading titles ranking among the most downloaded in the U.S., 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 pursuing.

We are also evaluating alternatives to secure capital against the judgment.

And we are monitoring closely whether an appeal bond or other secured capital would be required. This verdict confirms that false advertising in the 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 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 are 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. Third, improve our platform performance and infrastructure. Across each of these initiatives, we are leveraging the Skillz competition platform, RZR's performance marketing engine, 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 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 RZR, engagements are 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 RZR, we continue to scale our performance by 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 RZR's addressable market and opening a new channel for advertising spend.

Turning to our third initiative: improving performance and infrastructure. On the Skillz platform, we continue to invest in systems supporting player engagement. We are also advancing our Pro SDK development with several developers building new games or converting existing games using this technology. During the quarter, RZR continued migration to more advanced neural network models, improving training efficiency and prediction accuracy, expanding integrations with measurement partners, and advancing next-generation machine learning infrastructure. In Q1, we completed the acquisition of Beamable, a developer platform providing game services and back-end infrastructure that we believe will power Skillz over time. Beamable will join with RZR and the Skillz competition platform as the third component of a connected ecosystem, bringing developer tooling to our own products and to the customers that RZR brings into the network.

Beamable 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 that 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 Skillz platform, improved unit economics, continued to scale RZR as a profitable growth engine, and began integrating Beamable as the developer platform powering our product ecosystem over time. By combining competitive skill-based gaming with AI-driven performance marketing, we are 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 will turn it over to Gaetano for the financial review.

Thank you, Andrew. Our first quarter results highlight the benefits of disciplined execution and structural improvements across both the Skillz and RZR businesses, producing stronger fundamentals and a trajectory toward profitability. Q1 2026 GAAP revenue was $29 million, down from $30 million in Q4 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 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 Skillz and RZR businesses. Q1 2026 sales and marketing expenses of $17 million decreased 4% year over year. In the quarter, 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 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 we look forward to updating you further on our progress in 2026.

Operator, we are now ready to open the line for questions.

Thank you. Everyone, if you would like to ask a question, please press 1 on your telephone keypad. We will take the first question today from Edward Alter from Jefferies. Hi.

Good afternoon. I want to ask a question on paying MAU and GMV. I saw that actually GMV was up quarter on quarter despite paying users being down. Can you talk about the two drivers of that and why spend per player is actually increasing and some of the drivers there?

Thanks, Edward. Thanks for the question. I think as you know, what we focus on is really high-paying, long-term users. This is the outcome we have been driving toward, trying to continue to retain and attract high-paying users. So you see even though our PMAU is slightly down, our GMV continues to grow and our ARPU continues to grow.

If I could also jump in: one of the reasons PMAU is slightly down is we actually dialed back user acquisition in Q1, continuing to focus on profitable acquisition. We're focusing on tighter breakeven periods and better one-year paybacks. As we ended the quarter, we are thinking about how to thoughtfully expand marketing where we see attractive returns.

Yeah. Great. Great.

And just to follow up on that, because I noticed that the MAUs were also down a decent amount but a lot of the nonpaying MAUs were down. Is that kind of the new normal for your marketing strategy, or how should we think about the trajectory from here?

I think it is where we are on user acquisition and optimizing spend. You can expect us to be stabilized and then to build forward. I would expect PMAU and traffic overall to be flat to up with improving unit economics. At the end of the day, servicing a higher-value customer is a better business.

Great. Thanks. I can circle back in the queue.

The next question comes from Bharat Nagaraj from Cantor Fitzgerald.

Hi. Thank you for taking my questions. First, are you seeing any reduction in user acquisition costs at all since the lawsuit went in your favor? Second, what would you attribute the growth in paying MAUs since Q1 2025? Is the mobile gaming environment better now, or is it some change in strategy? I note that user acquisition costs have come down, so I'm trying to understand that better. Thank you.

Thanks. On the first part about UA costs since the lawsuit, it's difficult to directly link the two and create attribution. In terms of user acquisition costs, as of Q1 we're seeing the best UA prices in multiple years, so we are seeing attractive customer acquisition costs and thinking about how we can thoughtfully scale up where we are seeing these attractive prices. On the second part, I'll let Gaetano add color on attribution to PMAU growth from Q1 2025 through this past quarter.

Thanks, Andrew. The way to think about it, and how we've been describing it for the past several quarters, is a focus on product-led growth. We have made significant investments and launched initiatives focused on attracting and retaining paying customers. You are seeing that our focus on paying users is paying off.

Okay. Thank you. Can I ask one more, or should I jump back in the queue?

No, no, go ahead.

I know that a couple of your developer partners account for a significant portion of revenue. Solitaire Cube and 21 Blitz will drop off the platform in January 2027. What is the future strategy there? I know you are developing some of your own games, but how do we think about the trajectory of revenue beyond Q4 this year?

To bring it back, how are we thinking about the migration of one developer off platform? As of Q1, we acquired Blackout Bingo and Domino's Gold, so we now own and operate three of the top five titles on the platform. When that particular developer left the platform, they had 34 titles: two of which we have contractual rights through March 2027, and the other 32 where we had contractual exclusivity up through December. We migrated the first 32 titles in Q3, and you can see the result of that in our numbers. We are now looking at the migration to the future state. We have quite a number of solitaire titles on the platform as well as the owned-and-operated title Solitaire Skillz.

Understood. Thank you very much.

We will take a follow-up from Edward Alter from Jefferies.

Great. Thanks for letting me back in. With you now making your own solitaire game and buying Blackout Bingo and Domino's Gold, it seems like a fairly large strategy shift to now own most of the large games on the platform. Is this how to think about the business going forward, and what's the rationale for that shift?

Thank you for the question. Yes, owning and operating is a shift from the historic third-party and second-party relationships with developers. We have been a second-party investor in content for a number of years—over five years pre-IPO we've owned stakes in content on the platform. Now, owning and operating—first-party relationships with content—gives us stability in categories like Solitaire where there is relatively little new development. Acquiring a developer or a developer's game or building a game in that category creates stability for the platform and a consistent offering. That's actually a benefit to every developer on the platform who is building new content and exploring new genres. This is a common strategy among gaming platforms—whether it's Epic running Fortnite or Valve with Steam running Dota 2 and Counter-Strike. We think it makes a lot of sense for the future of the business.

Great. Thanks.

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.