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Greetings and welcome to the Engine Gaming and Media second quarter conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. Before we begin, I would like to caution listeners that comments made by management during this call may include forelicking statements within the meaning of applicable security laws. These statements involve material risks and uncertainties, and actual results could differ from those projected in any forward-looking statement due to numerous factors. For a description of these risks and uncertainties, please see Engin's financial statements and MD&A for its second quarter for fiscal year 2022 and in February 28, 2022. available on CDAR and EDGAR. Important qualifications regarding forward linking statements are also contained in Engin's earnings release, distributed early this afternoon, and also available on CDAR and EDGAR. Furthermore, the content of this conference call contains time-sensitive information, accurate only as of today, April 14, 2022. And Engin undertakes no obligation to revise or otherwise update any statements to reflect events or circumstances after the day of this call. I would now like to turn the conference over to Mr. Lou Schwartz, Chief Executive Officer, and Tom Rogers, Executive Chairman of Engine Gaming and Media. Please go ahead.

Thank you, Operator, and thanks to everyone for joining us on our fiscal second quarter earnings call. To begin, total revenue for the second quarter of fiscal 2022 increased 20.3% to $9.3 million from $7.7 million in the same period a year ago. and down 24% from fiscal 2022 first quarter. $3 million of the quarter-over-quarter revenue decline is directly tied to the seasonality in our advertising business. As we've guided in the past, we typically see the highest yield and peak revenue during the last few months of the calendar year and the lowest during the first few months of the calendar year when brands complete their annual planning and reset their budgets. It's also important to note that our second quarter results exclude any revenue contribution from Eden Games, our gaming development company that was recently sold and is currently reflected in our financial statements as a discontinued operation in both current and historical periods for accurate representation. The two key revenue segments of our business are SaaS, also known as software as a service, and advertising. Fast revenue for this second quarter of fiscal 2022 was $1.8 million, up from $1.4 million in the first quarter of fiscal 2021, an increase of 25.4% year-over-year. Secondly, advertising revenue grew to $7.1 million in this quarter. This is an 18.6% increase from the same year-ago period. Total expenses in the fiscal second quarter of 2022 decreased by 39.3% to $16.9 million, compared to $27.8 million in the same year-ago quarter. The decrease in expenses was primarily due to non-cash charges. For the second quarter, adjusted EBITDA loss was $6.4 million, a $2 million increase in adjusted EBITDA loss year over year. Although it may not be significantly reflected in our latest quarterly financials, the company has been taking aggressive action to reduce costs and most substantially to our B2C gaming businesses. These expense reduction initiatives will be more apparent in the second half of the calendar year as the full impact of these cost reductions are realized. Additionally, we will continue to rationalize all spending across the company with an eye toward achieving cash flow breakeven on a run rate basis in fiscal 2023. while continuing to narrow our focus on a core set of assets with predictable streams of revenue and significant growth characteristics. We are certainly mindful of the current headwinds in the US and Canadian capital markets and fully appreciate the importance of preserving and allocating cash in a manner that maximizes shareholder value and returns. Between our cash on hand at the end of the last quarter and the proceeds from the recently completed Eden transaction, we now have sufficient cash to meet our operating needs for the foreseeable future as we drive shareholder value and become a much larger profitable company. To that end, we believe that our current collection of assets provides the company with a bright future. It's no secret that the influencer and creator economy is evolving with the speed of social media. If you pay close attention, you'll quickly see how many of the same business models that succeeded in the transition from analog to digital are now shifting again to meet more targeted, hard-to-reach audiences in the live streaming and social sphere where influencers, along with their loyal followers, have the ability to drive brand awareness, e-commerce transaction revenue, as well as other types of services and offerings. Engine sits at the epicenter of this groundswell. through a combination of our data, discovery, influencer, and audience watch tools from Stream Hatchet, where gaming publishers, agencies, and brands need up-to-date, accurate, reliable audience and advertising data through live streaming platforms, including Twitch, YouTube, Meta, and many other live streaming platforms throughout the world. At the same time, selecting and measuring influencers is key to building an impactful marketing strategy that drives real ROI. The link between top-performing creator content and commerce is stronger than ever. Leveraging the platform tools and features from Sidekick across those channels with real-time data differentiates social marketing campaigns to ensure business success. And that's how we've become an invaluable partner to the many companies navigating this complex pipeline. In fact, even our news and media programmatic advertising partners are now using influencers to help drive traffic and awareness for new OTT content offerings, which helps to fuel additional advertising inventory. As these platforms evolve, we will continue to see substantial room for further growth and differentiation through platform integration. We're excited for the opportunities to stand before us. encouraged by the results of this quarter, and confident in our growth plan. To speak further on our overall strategy going forward, I would like to pass it off to our Executive Chairman, Tom Rogers. Tom?

Thanks, Lou. The question I want to address is, how do we think about Engine Now and the businesses that we will most focus on, and how do they relate to each other going forward? There is no doubt that there are substantial growth opportunities in the areas of video game and esports engagement, social influencer marketing, and programmatic advertising. The question for Engine is, how do we uniquely add value to those areas of substantial growth in ways that are differentiated and can further ignite our financial performance? Our focus on, frankly, Sidekick and Stream Hatchet He emphasizes our B2C gaming endeavors at this time, increasingly defining the company as one that is data-driven, guiding gaming industry companies, brand sponsors, and performance marketers, as well as media sellers, when it comes to their data analytic, digital advertising, and marketing needs. We are finding a unique role for our stream hatchet services when it comes to not only measuring game play on live streaming platforms, but how sponsors can effectively drive their marketing programs through the increasingly important influencer community inside and outside the gaming world. Sidekiq has a substantial market opportunity given the increasing focus of creator marketing campaigns across enterprise and SMB clients. Being able to provide a depth of unique expertise along with enhanced insights related to the gaming creator community through its relationship with Stream Hatchet, allows Sidekick to provide a high degree of differentiation. In support of this opportunity, we are further investing in Sidekick's end-to-end discovery, commerce, and measurement capabilities. When it comes to programmatic advertising, we have developed a successful approach for handling advanced programmatic advertising needs of legacy media companies. We are also finding that our role in selling programmatic inventory can be enhanced by being able to offer digital marketing and promotion capabilities to, frankly, advertising clients, such as through social media and gaming live streaming platforms, as a combined expertise that is unique in the market. The market continues to demand improvement in key areas of measurement, analytics, commerce, and global reach across a variety of platforms. Our business units continue to enhance their offerings to meet these needs, both individually and in the aggregate. As the platforms evolve, we see substantial room for further growth and differentiation through further integration of the platforms. And I think now we'll take a few questions. Thank you.

And at this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And one moment please while we poll for questions. Our first question comes from the line of Jason Tilton with Canon Corriginuity. Please proceed with your question.

Thanks for taking the question, and congrats on the solid results. One thing that really stood out in the press release for the Eden transaction, and again, in your prepared remarks, Lou and Tom, you both highlighted the aggressive cost-cutting actions to reduce cash burn and emphasize that action, particularly on the B2C side of the business. Maybe just hoping you can please drill down a little bit on that just a bit more and discuss some of the key areas where you're planning to eliminate spending going forward.

Yeah, hey, Jason, and thanks for the remarks. So relative to the B2C sort of businesses, as we sort of indicated in the press release, you know, we saw significant opportunity in the B2C sort of category. However, you know, B2C is a very cash-intensive, you know, business and require significant investment in order to acquire customers who are direct-to-consumer platforms. And at this time, we need to be more selective in the way we allocate cash. In order to focus our cash resources on driving us toward break-even and beyond in the relative short period, we've determined that cash resources to accomplish that are too great, and we would be better directed at our SaaS and advertising businesses which have already established a strong presence in their respective fields. We also believe these B2B businesses have the potential to deliver more highly predictable returns. So that's basically the rationale for curtailing spending on B2C.

Thanks, that's really helpful. And then just, you mentioned sort of the media side of the business. So maybe just focusing on that for a minute and Stream Hatchet and Sidekick, one of the, you know, obviously there's a lot of value in those two assets working together. And I'm just curious if you have any updates on any relationships that you have with brands that have been strengthened by the ability to not only connect them with influencers, but then sort of monitor and analyze those campaigns using Stream Hatchet analytics and also how you plan to use that, those two together to go to market going forward.

Yeah, so we've highlighted a few customers in the past that take advantage of the Sidekiq Influencer Marketing Pipeline. Just a few names from our previous disclosure, Nike, Lululemon, HyperX, are each sort of using the Influencer Pipeline to not only discover and identify influencers that are compatible with their brand objectives, but they're also sort of managing sort of the pipeline to be able to reconcile downstream economic impact on the activities that they're running across the Sidekiq platform. So for example, a brand like Lululemon can use the Sidekiq platform to identify influencers. They could also pay reconcile and balance any commission payments against the activity being leveraged through those influencer sort of platforms. The way these two sort of platforms sort of fit together is really interesting. In fact, Sidekiq was one of the first licensees of the Stream Hatchet API in order to gather many of the data points that Stream Hatchet gathers in the live streaming space to offer brands that want to reach gaming influencers and the younger demographics that are surfaced through the Stream Hatchet data pipeline and that are connecting with these live streaming platforms, particularly males that are 18 to 35-year-olds. So when you combine the 18 to 35-year-old demographics and the influencers in these live gaming platforms, With the Discovery platform and the ability to manage and monetize influencer campaigns across Sidekiq, there's an interesting opportunity to reach live streaming influencers and the audiences that they typically reach through the content that they distribute on those platforms. That's how the two fit together. The reason that we think the B2B businesses are so exciting and are able to drive growth on a less cash-intensive basis is because gaming viewership is growing at 20%. The investment in influencer marketing platforms continues to grow at 30% or more on a CAGR basis. Programmatic digital display ads are continuing to grow at 30% a year. We see a significant opportunity for differentiation given the combination of assets under one roof. Through our stream hatchet and sidekick platforms, we sit at the epicenter of that groundswell around social marketing through a combination of data, discovery, commerce, and our reporting tools. And when you stitch all those together, we offer influencers, brands, merchants, and performance marketers a unique way to reach highly targeted and sought-after audiences where they can maximize business returns. In gaming, for example, we have a unique 360-degree view of the influencers, their audiences, and now with our latest AI logo detection capabilities, the ability to measure earned media value for brands and their logos that appear within gaming experiences.

Thanks a lot. That's really helpful. And then just maybe one follow-up. You were talking about commerce specifically within Influence. And I'm just curious if you've seen any notable uptick in, you know, with more social platforms trying to integrate commerce functionality directly within their user experiences as opposed to just flashing an ad that's going to direct someone to a brand's website to make a purchase. I'm just curious if you're seeing any notable uptick in demand for solutions that are helping brands engage with those social commerce tools.

So we announced, I believe it was last quarter, an enhancement to our platform that included a direct integration into Spotify. Spotify currently serves over 1.7 million merchants. Each of those sort of merchants recognize the importance of using influencer marketers to drive conversion and lift for product sales. So we see a tremendous opportunity in tapping sort of that channel. And we'll continue to integrate with other shopping aggregation sites that present similar opportunities. But that's a big one that we're focused on and providing sort of a simple sort of integration into Shopify enables us to serve those merchants in a more holistic way.

Great. Thanks a lot for taking the questions.

Thank you. Our next question comes from the line of Michael Kopinski with Noble Capital Markets. Please proceed with your question.

Thank you. Congratulations on your quarter. And, you know, I know you're making some tough decisions, but I think the right ones. So congrats on that. Just a couple of questions on Eden Games. I, you know, always thought that this was kind of a non-strategic asset, kind of complicated the story in a way. I was just wondering why did you decide to sell that asset? Why now?

I'll take that, Michael. Thank you. There are a number of reasons that we decided to sell Eden. First, we would have needed to make a big investment in Eden to grow it as a direct-to-consumer play. Much of Eden's revenues came from a work-for-hire model and to really expand beyond that would have required a substantial investment in a much more D to C oriented approach. And not having the internal D to C marketing resources for that kind of business to create those would have been a further investment. And when you think about where gaming studios need to go increasingly in terms of the much talked about potential metaverse play, that would have involved yet another level of investment. So what we set out to do was to find a strategic partner who had the kind of resources that could shoulder a lot of that increased expense. But what we found through our discussions with various parties is that the interest was in acquisition, not in that kind of strategic partnering. And to your point, as we looked at the other businesses and how they fit, we didn't really see meaningful synergies with the Eden business to be able to make it as logical a component of engine going forward. And very importantly, as we've pointed out a number of times, the sale of Eden gave us net proceeds of over $15 million and provides us with enough non-dilutive capital to meet our operating needs for the foreseeable future, which is obviously a very important element for the company going forward. And we thought a very important statement to be able to make to the market and to our investors. and the timing of doing it gave us the ability to accomplish the deal while eliminating any need for bridge financing that would have been extremely dilutive to shareholders. So for all those reasons, we felt the sale of Eden made a lot of sense at this time. And worth noting that Animoca that acquired Eden we think will be a great home for David Nadal, the CEO of Eaton and his whole team, which performed terrifically and deserve to have a great home that Anamoka will give them.

Thanks for that, caller. I also was just wondering, you know, obviously it's been a tough market, especially in this space. I was just wondering if you could just address maybe the lag in stock price. Give us your thoughts about that.

I can share some thoughts there. I think there are thoughts that many have had in terms of disappointment with the way our stock price has performed, but having said that, I think we find ourselves in a similar position to many cash flow negative companies that are driving growth in new technology. For a while, the market was clearly rewarding. Revenue growth was less focused on cash flow losses needed to drive that growth market sentiment has clearly changed and the market has come to appreciate cash flow positive companies with far greater emphasis while heavily discounting the value of cash flow negative companies and therefore from our point of view driving the cash flow break even has become an absolute top priority and therefore the moves we've made I think two things worth saying in that regard. Our most substantial revenue growth year-over-year came from units that we are investing into and expect to see higher growth from in the future, meaning the last quarter when we announced year-over-year revenue growth of over 90%. That overwhelmingly came from the units that we are now focused on. And taking the other side of the coin on expense reduction, we continue to reduce expenses to... strengthen the company and we think that will further drive the stock price and as part of that we expect further restructuring charges in the quarters ahead as we continue to align our operating plans with our our growth priorities and you put all that together and we think we have a looked at market sentiment, looked at the assets of the company, looked at what we need to do to align with changing market sentiment. And with that, we think we have put the company in a much stronger position going forward.

Most definitely. And it's great that you have the financial flexibility, especially with the sales even game, to see that grow. That's all I have. Thank you. Thank you.

And we have reached the end of the question and answer session. I'll now turn the call back over to Tom Rogers for closing remarks.

Well, we wanted to keep it relatively short and sweet, so appreciate the support, and we will continue to update you as we continue to make moves going forward. Thanks very much for joining us.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.