Firy Inc. 2026 Q2 Earnings Call

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 31, 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 4, 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.