FIRY

Morning, everyone. I'd like to welcome you to the Firy Inc. second quarter 2026 results call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. At this time, I would like to turn the conference over to your host, Richard Land from Alliance Advisors to begin.

Good morning, everyone. Firy issued its 2026 second quarter earnings release yesterday after the market close, 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. Firy 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 Firy's annual report on Form 10-K for the year ended December 31st, 2025, as filed with the Securities and Exchange Commission, and Firy's subsequent public filings with the SEC.

Firy 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 their nearest GAAP equivalents. With that, it's now my pleasure to turn the call over to Firy CEO, Andrew Paradise. Andrew, please go ahead.

Thank you, Richard, and good morning, everyone. Q2 was, without question, the most consequential period in the company's recent history. Our Firy rebrand is now fully in the market. The Papaya verdict and judgment are in, and we're executing against our strategies to unlock value for our shareholders. Let me start with a review of our second quarter results. I'll then highlight three significant developments since our last call in May before moving into our operating businesses. For the second quarter, GAAP revenue was $31 million, up 6% quarter-over-quarter, and up 23% year-over-year. Adjusted EBITDA loss, excluding litigation-related expenses, was $2.7 million, a $4.5 million improvement quarter-over-quarter on a normalized basis. Including litigation-related expenses, the adjusted EBITDA loss was $13.6 million, compared to a loss of $12.8 million in the first quarter and $11.4 million in Q2 2025.

We also have an update regarding our balance sheet. As announced on August 4th, we are redeeming $80 million in debt, saving the company approximately $2.8 million in interest expense before those notes' maturity date. This leaves $50 million in debt outstanding. We're evaluating options that would further strengthen our capital structure and liquidity position. As part of our June rebrand to Firy and establishment of a holding company structure, we refined how we present our results. Beginning with the second quarter, corporate operating expenses are reported separately. This gives investors a cleaner view of our businesses. This is a change in presentation only. It has no effect on our consolidated financial results, and we have recast prior periods on the same basis. Looking at our two operating segments, RZR exceeded $10 million in quarterly revenue for the first time, growing 6% quarter-over-quarter and 75% year-over-year.

The second quarter was RZR's fourth consecutive quarter of profitability, with each quarter growing from the prior period. We expect RZR's profitability will continue to build through the back half of the year behind strong revenue momentum and operating leverage. For Skillz, revenue increased modestly quarter-over-quarter. This included a net $1.5 million benefit from two one-time items. Excluding these adjustments, Skillz revenue was down approximately 3% sequentially, consistent with the 8% decline in paying monthly active users. Moving on to recent key developments. First, I'd like to introduce our new CFO, Alex Walsh, who joins us on the call today. Alex officially joined the team on July 13, and he's hit the ground running. He brings an extensive track record of helping consumer-focused businesses accelerate top-line growth while driving profitability.

I'm confident he'll replicate the success and contributions he delivered at his prior companies, Aristocrat Gaming, The LEGO Group, and Procter & Gamble. Several of you have already had the chance to connect with him directly. As we transition from the turnaround into our growth phase, Alex will be front and center as we engage with Wall Street in this next chapter. I also want to thank Gaetano Franceschi, our former CFO, for the steady hand he provided throughout our turnaround and for the support he's shown in bringing Alex up to speed. The second significant update is our rebrand in June to Firy. Firy is the parent company, together with its two reportable operating segments, RZR and Skillz. RZR is our high-growth, AI-powered performance advertising business, helping brands acquire and retain high-value users. Skillz is our real-money, skill-based gaming operation with more than 90 million registered users.

Beamable, which we acquired in the first quarter of this year, is reported within our Skillz business, is our developer backend and live ops infrastructure business. Beamable is building infrastructure technologies for the gaming industry with Skillz as a first customer and making progress on its objectives. The rebrand reflects the structure that's already existed for some time, interconnected businesses supported by shared corporate resources. Each of our businesses shares a customer, the game developer, and serves this customer at different points in their monetization journey. More importantly, our three businesses share something rare, a compounding flywheel that operates in a way few other businesses could replicate. The third update concerns the recent court ruling in our litigation against Papaya Gaming. As you'll recall, in April, a unanimous jury in the U.S. District Court for the Southern District of New York found Papaya liable for false advertising.

A few weeks ago, the presiding judge rejected all of Papaya's post-trial challenges and awarded us approximately $730 million. This is more than 70% above the original jury award and more than double the previous largest false advertising award in U.S. history. The natural question for shareholders is what happens next, and specifically, how we collect. Papaya is a private company, but public trial exhibits give the public access to their 2023 audited financials. Papaya earned $461 million in revenue and $73 million in net income and had $135 million in cash at the end of 2023. In Papaya's more recent filings with the Delaware Court, Papaya's CEO represented to the court that the company has achieved annual revenue of approximately $500 million per year, demonstrating the top line is on par with their 2023 financials. An appeal would go to the Second Circuit.

Federal appellate courts affirm the majority of the civil judgments they review on the merits. We remain confident in the record and the judgment while recognizing that no appellate outcome is guaranteed. We're pursuing every avenue available to us to return value to our shareholders. As Papaya's largest creditor, we intend to assert our rights in both the Israeli and U.S. proceedings. Looking back over the past few years to today at trial, the evidence showed that Papaya advertised billions of dollars in prize pools while using bots, and over 60% of prizes were never paid out. The jury found Papaya liable and the court upheld those findings in full. Our team invented a category. Litigation is not our business. Building great products and services is. We took on these cases to defend our business and the category we created. Papaya has now stated it's no longer running bots.

As our core U.S. market returns to fair competition, we expect to benefit. A reminder on where the rest of our fair play litigation stands and where it goes from here. In our litigation with AviaGames, the 2024 jury verdict translated into an $80 million settlement, of which $15 million remains outstanding, and two equal payments of $7.5 million over the next two years. Our case against Voodoo continues to move forward in the legal process. On a separate note, the trial date in our litigation with Tether Studios has been moved to 2027. Let's turn to our operating strategy. RZR is demonstrating strong performance through product-led growth. Today, the platform processes more than 6 million queries per second across more than 10 billion devices. RZR's growth is coming from two areas, increasing existing clients' share of wallet and winning new logos outright. RZR's customers are performance-based.

If RZR provides an efficient return for its customers, it will capture a higher share of wallet. Additionally, we're offering our customers new high-performing products. We offer five distinct products: Android retargeting and user acquisition, iOS retargeting and user acquisition, and connected television. We've built global operations, product, and sales teams with significant experience in this category. We see an opportunity to deepen existing customer relationships and to continue expanding beyond the core gaming market customer. Gaming remains RZR's largest advertiser category at approximately 70% of Q2 revenue. This is down from roughly 80% in the prior quarter, which we believe is a clear sign that diversifying into consumer apps, retail, and entertainment is working. We expect RZR's revenue growth to nearly double year-over-year. The business has a significant structural advantage worth highlighting. We own and operate our own data servers.

This enables RZR to run both retargeting and user acquisition at real scale. Our iOS products are still newer to the market and CTV just launched, so there's still a lot of untapped potential. As all of our products scale, the incremental cost to serve stays low, which is exactly the kind of operating leverage you want to see. Shifting to Skillz. The business experienced operational headwinds during the quarter. I've stepped in on an interim basis to lead the Skillz business while we actively recruit a dedicated Skillz platform CEO to support our growth efforts. We have line of sight to return the business to sequential growth in Q4. Our priorities for Skillz are aligned with long-term value creation, and we're committed to staying disciplined on costs and improving unit economics and customer lifetime value. Skillz content is now a balance of owned and operated second-party and third-party titles.

Games now operated and owned by Skillz account for 40% of Q2 GMV. Before I hand things over to Alex, I want to point you to the new investor presentation we posted to our IR website as part of the June rebrand. It lays out in more detail how Firy is positioned to benefit from combining AI-driven performance marketing with gaming. That combination underpins our expectation for revenue to more than double from 2025-2028, alongside a steady build in cash generation. We expect to generate modest positive operating cash flow in 2027 and accelerate from there into 2028 and beyond. We see four clear drivers for this business, and by extension, shareholder value. First, RZR continues to scale with expanding margins and increasingly stands out. RZR's already EBITDA-positive and scaling across iOS user acquisition, retargeting, CTV, and a broadening advertiser base.

Second, we're confident that we have the right playbook to drive a return to growth at Skillz. That path runs through our product, our content, and disciplined unit economics. Third, our operating structure gives us the ability to scale the overall business without a proportional increase in fixed costs. Fourth, we expect litigation expenses to decrease. While litigation has been a real expense burden to date, we believe it will deliver a strong return on investment. As it decreases, it will drive EBITDA and cash flow growth. I started the call by saying Q2 was the most consequential period in the company's recent history. What makes it pivotal is what comes next. The Papaya judgment is in hand. The economics of the business are improving. We're entering a new phase for this portfolio.

Firy gives us a structure designed to compound value across the businesses we own today while creating optionality for where we go next. Over time, as we generate capital, we will allocate it to where we believe it can earn the highest returns. I founded this company in 2012 with a 100-year vision. The last few years slowed that work, but they didn't change the thesis. The business is improving, the structure is in place, and I believe this company's most interesting chapters are still ahead. With that, I'll turn the call over to our CFO, Alex Walsh, for a closer look at our second quarter results.

Thank you, Andrew, and good morning, everyone. I am happy to be speaking with you, and I am looking forward to working with you closely going forward. I just completed my first month at Firy, and with each day, my level of confidence increases in our ability to execute on our strategic initiatives that unlock shareholder value. Our second quarter results demonstrate the improvements we are making across the business. Q2 2026 GAAP revenue was $31 million, up from $29.1 million in Q1 of 2026, and up from $25.2 million in Q2 of 2025, representing a 6% increase quarter-over-quarter and a 23% increase year-over-year. Q2 2026 research and development expenses of $6.9 million increased 42% year-over-year, reflecting the ongoing investment in our Skillz and RZR businesses. Q2 2026 general and administrative expenses of $28.2 million increased 69% year-over-year.

Q2 2026 net loss of $24.5 million compared to $17.9 million in Q2 of 2025. Finally, Q2 adjusted EBITDA loss was $13.6 million compared to a loss of $12.8 million in Q1 of 2026, and a loss of $11.4 million in Q2 of 2025. Excluding litigation-related expenses, adjusted EBITDA in Q2 of 2026 improved to a loss of $2.7 million. Q2 litigation costs were elevated due to the Papaya trial, and we expect them to decrease in future periods. Litigation costs are expensed when incurred, with Q2 expenses alone nearing $11 million. Litigation proceeds are not realized in our financial statements until we collect them. We believe in our balance sheet and continue to manage capital prudently. We ended Q2 2026 with approximately $164 million in cash and cash equivalents, and we ended Q2 with $130 million in debt that matures in December of this year.

As Andrew highlighted, we have already announced a notice of redemption for $80 million of our debt, which will leave approximately $50 million outstanding. We are in active dialogue on a range of alternatives to further strengthen our capital structure and liquidity position.

Importantly, we see significant still unrecognized value on our balance sheet that I want to highlight. As disclosed in our most recent Form 10-K, we have federal net operating loss carryforwards of approximately $702 million and state net operating loss carryforwards of approximately $280 million. There remains $15 million to collect from the AviaGames settlement, of which $7.5 million is expected to be collected in the spring of 2027, followed by the final payment of $7.5 million in spring of 2028. We own our building in Las Vegas, and we have a 10% interest in a private company, Exit Games, for which we paid approximately $50 million in 2021. In closing, we continue to move this business forward, fueled by meaningful revenue growth on RZR, strong operating leverage, and disciplined execution. Operator, we are now ready to open the line for questions.

We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ed Alter with Jefferies. Your line is now open. Please go ahead.

Great, thanks for the question. Good morning, everyone. Would love to just dive into the strategic shift and the rebrand and get into why now, what in the market are you seeing that gives you confidence in changing the branding now?

Thanks for the question. The rebrand is really to help investors better understand that Skillz has transitioned into several businesses over the last five years. We acquired Aarki in 2021. It's now been rebranded as RZR. RZR is a very meaningful portion of the total revenue and profitability of the business now, having crossed over $10 million in net revenue in the quarter. The concept of it's more than just a rebrand. It's really to help all of the investors listening, and those who can't be here today, to understand that we've moved from one business line, skill-based gaming platform with Skillz, to actually having multiple business lines with RZR being a significant portion of our revenue currently. We do see in the future that Beamable will also become a meaningful portion of the consolidated revenue of the businesses.

The thematic way that these businesses tie together is they all share the same customer today, which is the game developer, and they all service the game developer in different portions of their monetization journey, whether with RZR, 90 of the top 100 customers being game companies. So helping game companies acquire users into their games. Skillz providing unique skill-based gaming monetization. Or Beamable, which is a live ops platform, which is an industry term for an engagement marketing platform for game companies.

Great, thanks. Maybe if I can dig in on RZR a little more. Of those 90 customers that are gaming, can you just describe who those are a little more? If they are Skillz customers or broader gaming? Separately, what is your view on the overall mobile game ads market, given there has been some pretty choppy prints across the industry in both directions this quarter. I would love to hear where you stand on that.

Sure. That is a great question. First part of the question, the customer base. Those 90 of the top 100 customers being game companies, these are independent from Skillz for the vast majority, if not all. They range from studios such as King, Niantic, which is now a part of Scopely, and on from there. So major game businesses that engage in user acquisition and retargeting marketing.

When we look beyond this quarter and we think about advertising in the games industry, without a doubt, we have seen new devices slow down over the last five years. When you have new device slowdown, I think you can expect the market to seek equilibrium. I think we are going to see that, though, over the next few years forward, where other products are moving into the advertising ecosystem on mobile, whether it is e-commerce, healthcare, AI is a major type of customer.

That equilibrium that is being achieved, it is not like mobile is going away as an advertising form. It is very much here to stay. It is a very important type of advertising when marketers think about the omni-channel world their consumer or business target is living in, and think about different ways to reach that target.

Thanks. If I could squeeze one in on Skillz. Can you talk about the paying MAU and MAU trends in the quarter and the latest update there on the declines?

Sure. Yeah. Paying MAU trends, I think Alex, perhaps that would be a great question for you if you would like to jump in.

Sure. Yeah, so just on the spend itself with sales and marketing, it was $13.6 million, which was down from $17.3 million in Q1. About $1.5 million of that decline is lower end user incentives, which fell to $19 per paying monthly active from $21, and the balance is in paid acquisition. The reason we did not expand is a returns reason, not a cash reason. We were working through an operational issue during the quarter. Acquiring users into a funnel you are actively repairing is how you buy a cohort that does not pay you back. We chose to fix the funnel first. Note also that we did not cut spending across the board. We moved it. R&D rose to $6.9 million from $5.1 million sequentially, and it is up 42% year-over-year.

That is funding the retention and engagement product work that will improve the payback on every dollar of UA that we spend later. As it relates to the second half, our line of sight is to sequential growth in Q4, but that assumes product and content improvements, and we may accelerate acquisition as contribution profit supports it. We are not going to recommit to a spend number on this call, and I think the sequencing matters here. Product first, then content, then spend.

Great. Thank you.

Absolutely.

Your next question comes from the line of Bharath Nagaraj with Cantor Fitzgerald. Your line is now open. Please go ahead.

Thank you. Thanks for taking my questions. Just a few from me, please. With $50 million remaining in terms of debt, what are the active alternatives that you're considering? Full pay down, refinancing, partial financing, and what's the approximate timeline? Then just to follow up on the same one, with $164 million of cash and $50 million now debt remaining, what's the minimum cash balance you need to run the business comfortably, taking into consideration all the investments in the product you plan to do in the coming quarters?

Thank you. That's a great question and something we are thinking very carefully about. Given the nature of the questions, I'll turn it over to Alex to talk more about how we're thinking about capital allocation.

Absolutely. Look, we have $50 million in debt maturing December 15th. We will pay this debt off, and right now we're in active analysis evaluating a range of alternatives that will strengthen our capital structure and our liquidity position. That may be refinancing. There are other options we are also considering at this point in time, and when we have something to share, we will certainly share it.

Yeah.

And then also asked the question about minimum cash to run the business. We would always like to have $30 million in cash as a buffer to weather operating dynamics, et cetera.

If I could also just jump in to add, we do have a considerable number of assets on our balance sheet that while the market doesn't seem to be able to appreciate the value of them, there is real-world value to these assets that we currently have.

Yeah, that's a great point, Andrew.

Yeah.

I talked about those in the open, but just to reiterate what we have, we still have $15 million of the AviaGames settlement coming in. We own our business or own our office here in Vegas. We have nearly $1 billion of net operating losses between federal and state. We also have that 10% stake, and it's a preferred stake in a company called Exit Games.

Yeah. Thank you for that. Yeah, absolutely. Actually, my next question was exactly to do with that. With regards to this Exit Games position, given that you've been carrying it at cost largely, is there any path to monetization or mark to market that you need to do or any thoughts on that or color on that would be helpful?

Another great question. We're evaluating the Exit Games position carefully. I'll hand off to Alex, who's been closer to that workflow.

Yeah, so we see our interest in Exit Games as one of the several underappreciated value propositions on our balance sheet. I mentioned that we have a preferred stake in that business. We will, to Andrew's point, actively assess how this fits in our portfolio and work with the founders of that company to determine what's in the best interest of both parties.

Okay. Understood. Thank you. Actually, just one other question comes to mind on the fact that you mentioned the balance sheet, something that the market hasn't fully given a value towards or attribution to it. Are you thinking about any sort of buybacks or anything like that, given that your debt is clear right now, and then you have a significant amount of cash, or do you think that investing in the business and the opportunities you're seeing within the RZR side of things and maybe even the Skillz side of things, there's more ROI there?

That is another great question. The current cash on the balance sheet, we think we have meaningful ways to invest it, primarily. I am not sure, Alex, if you want to add any more color at this time about the cash on the balance sheet and how we view deployment.

I do not think I have too much more to add to that, Andrew. We have, again, plenty of cash to run the business, to pay off the debt in December 15th. And we have a range of strategic alternatives, again, to strengthen our capital position and our liquidity.

I would perhaps add that we do have a very meaningful value event that we have not talked about as an asset, which is the litigation that we recently won against Papaya Gaming. And that is obviously a major moving part for our business right now in determining capital allocation.

Understood. If I may just ask one more question on the near-term trajectory, if that is all right. Just on Q3 and Q4, how should we think about the growth trajectory for RZR? And then also on the OpEx side of things, I think you mentioned you might do user acquisition ramp if ROI is good or something. But how do we think about the cadence of it in the coming quarters? Thank you. That is all for me.

Yeah. We are pretty bullish on the business, both on RZR and its continued progress, as well as Skillz. I am sure Alex has some thoughts that he can give you a little more specifics on guiding revenue assumptions through the end of the year.

Yeah, absolutely. We mentioned on the Skillz platform, let us just start with that. We mentioned some operational issues in Q2 that were headwinds. Those will be slight headwinds into Q3, but we have a line of sight to sequential growth in Q4 on the Skillz platform. Let us shift gears to RZR. We mentioned that RZR exceeded $10 million of quarterly revenue for the first time in Q2. That was strong 75% year-over-year growth. It also delivered its fourth consecutive quarter of profitability, and each quarter has since grown sequentially. Just last year, relative to 2024, RZR grew from $11 million-$27 million of net revenue, so nearly tripling, enabled by the launch of iOS UA and 168% net retention. As we look into 2026 and beyond, iOS, it is still early.

CTV is not yet scaled, and the infrastructure is built, so the revenue growth comes with minimal cost increases, or said differently, strong operating leverage in this business. We have very bullish expectations for RZR and for the full year in 2026, we expect the revenue to nearly double year-over-year.

If I could also add, we are really excited about the launch range.

Please hold while we have a technical situation. One moment, please. Ladies and gentlemen, we are currently experiencing technical difficulties. Please stand by as we resolve the issue. Thank you.

Apologies if I cut out there. I...

Hi there, Andrew. We can hear you. We are happy to continue. Thank you for your patience, everyone.

I believe we cut out when I was speaking about being really excited about RZR's growth in CTV and what we've seen so far in early results. One of the things that's particularly exciting is the partnership that we have with LG for being an exclusive gaming advertiser. When you think about the omni-channel capability for RZR between CTV and device, we see a really bright future for CTV in 2027.

Thanks for taking all my questions. Thank you.

Welcome.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Good afternoon, everyone. I'd 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, Joseph Jaffoni from JCIR to begin.

Good afternoon, everyone. Skillz issued its 2026 Q1 earnings release on May 15th, 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 10-K for the year ended December 31st, 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-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's now my pleasure to turn the call over to Skillz CEO, Andrew Paradise. Andrew, please go ahead.

Thank you, Joe. Good afternoon, everyone. I'll begin today's call with a review of our Q1 results. For the Q1, 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 Q4. The increase in Adjusted EBITDA loss was 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 portfolio as we continue to move into the Q2.

Paying MAU for the Skillz platform was 128,000, down 9% quarter-over-quarter and up 3% year-over-year. This quarterly sequential decline in PMAU was partly driven by our decrease in 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, 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 $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 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: that 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 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 AviaGames liable for patent infringement and awarded $42.9 million in damages. We subsequently pursued a separate false advertising case against Avia, 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’s 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-$1.1 billion. We believe that 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 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. Third, improve our platform performance and infrastructure. Across each of these initiatives, we're 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 Dominoes Gold and are expanding the pipeline with new titles launching later this year. At RZR, 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 spends 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, 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 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, RZR 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 backend infrastructure that we believe will power Skillz over time. Beamable joins RZR, and the Skillz competition platform is the third component of our connected ecosystem, bringing developer tooling to our own products and to the customers 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 the campaigns improve the model, every impression strengthens targeting, and every outcome improves future performance. In closing, the Q1 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 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. With that, I'll turn it over to Gaetano for his financial review.

Thank you, Andrew. Our Q1 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, 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 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.

Thank you. Everyone, if you would like to ask a question, please press star one on your telephone keypad. We'll take the first question today from Ed Alter from Jefferies.

Hi, good afternoon. I wanted 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. Can you just talk about kind of the two drivers of that and, you know, why the spend per player is actually increasing and kind of some of the drivers there?

Thanks, thanks, Ed. Thanks for the question. I think as you know, what we focus on is really high-paying users, long-term users. 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. You see, even though our PMAU is slightly down, you can see our GMV continues to grow and our ARPU continues to grow.

If I could also jump in.

Please do.

Oh, sorry. I was going to add that one of the reasons, PMAU is slightly down we actually dialed back user acquisition in Q1, really, you know, continuing to raise our focus on profitable acquisition. 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 tight now as we ended the quarter and, you know, we're thinking about how to thoughtfully expand on marketing.

Yeah, great. Great. Just to follow up on that, because I, you know, noticed that the, you know, the MAUs was also down a decent amount. A lot of the, you know, non-paying MAUs were down. Is this 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?

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. I would expect PMAU and traffic overall flat to up with improving unit economics. That's the way I'd 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. Think I can circle back in the queue.

Yep.

The next question is from.

Thank you for the question.

The next question comes from Bharath Nagaraj from Cantor Fitzgerald.

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? The second one, just to 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? I note that the user acquisition costs have come down as well, as you mentioned, so hence wanting to understand that a bit better. Thank you.

Thank you for the question. Let me hit the first part on user acquisition costs and lawsuit. You know, I think it'd be really difficult for us to directly link the two and create attribution there. In terms of user acquisition costs, we are at, you know, as of the end of Q1, the best UA prices we've seen in I don't know how many years. Multiple years. We are, you know, we're seeing attractive customer acquisition costs and thinking about how we can thoughtfully scale up where we're seeing the, you know, these attractive prices.

In terms of the second question, attributing growth to paying PMAU, and how, you know, how PMAU's been growing from Q1 2025 through this past quarter, perhaps, Gaetan, do you want to jump in on that or?

Yeah. Thanks, Andrew. I think the way to think about it and how what we've been describing for the past several quarters are really the focus around, you know, product-led growth. 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. I think you're seeing that as a result that, you know, that our focus on paying MAU is paying off.

Okay. Okay. Thank you. Can I ask one more if that's all right, or should I just jump back in the queue?

No. Go ahead.

I know that I think couple of your developing 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. I'm just wondering what the future strategy is there. I think you're trying to develop some of your own games, how do we think about the trajectory of revenue post, I don't know, Q4 this year?

Thank you for the question on that. To kind of parrot back, how are we thinking about, you know, the migration of one of our developers off platform. We now, as of the end of Q1, we acquired Blackout Bingo and Dominoes Gold. We own and operate now three of the top five titles in the platform. You know, this actually happened in Q3 of last year, when that particular developer left the platform, you know, they, there were 34 titles, two of which we have contractual rights through March of 2027. The other 32, which we had contractual exclusivity up through December. We migrated the first 32 titles in Q3.

In quarter, you can see kind of the result of that in our numbers. We are now looking at, in particular, I think you mentioned Solitaire Cube, 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 owned and operated title, Solitaire Skillz.

Understood. Thank you very much.

We'll take a follow-up from Ed Alter from Jefferies.

Great. Thanks for letting me back in. I just wanted to, yeah, follow up on the last question. You know, with you guys now making your own Solitaire game, buying Blackout Bingo and Dominoes 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?

Yeah. First of all, thank you for the question. You know, I would say it Yes, owning and operating is a shift from the historic, only third-party and second-party relationships with developers. You may be aware that we've been, you know, second party or investor in content for a number of years. I want to say, you know, over five years pre-IPO, we've owned a stake in content on the platform. Now owning and operating, so if you think about first party, second party, third party, now we're entering into first party relationships with content, so owned and operated.

The way we think about this is if there's a category on the system and a piece of content like Solitaire where there's relatively little development in the future, acquiring a developer or a developer's game or building a game in that category, you know, 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 developer on the platform who's building new content and exploring new genres. It's very much a strategy that, you know, I think we've seen with whether it's, you know, Epic at a much larger scale running Fortnite or it's Valve with, you know, 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, you know, we think makes a lot of sense for the future of the business.

Great. Thanks.

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.