GDEV Inc.

Good day, everyone, and warm greetings from Cyprus. We are delighted to have you join us today as we present GDEV's third quarter 2024 earnings results. On today's call, our presenters will be Andrey Padeev, Founder and CEO, Alexander Karavaev, Chief Financial Officer, and me, Roman Safiulin, Chief Corporate Development Officer. Before we get started, I would like to remind you that today's discussion may contain forward-looking statements, which may not develop as we currently expect. We have posted a supplementary presentation at gdev.inc which contains information and precautionary warnings on forward-looking statements as well as our non-IFRS financial matters. For a more complete discussion of the risks and assertities, please see our filings with the SEC. Now let me hand it over to Andrey.

Yes, I'm Andrey. Thank you, Roman. I greet everyone and especially our dear and respected analysts. Thank you for your work. Looking back on the third quarter, we see revenue growth compared to the prior quarter and exceeding analysts' expectation for both revenue and adjusted EBITDA. As you all know, we take a long-term perspective on our key products, focusing on unlocking their potential and fostering sustainable growth over quick wins. The gaming landscape continues to evolve rapidly. shaped by dynamic player preferences, shifting gameplay trends, and intensifying competition across the entertainment industry. And rather than concentrating on short-term enhancements with limited impact, our studios are moving toward implementing thoughtful long-term product changes aimed at fostering sustained growth and deeper player engagement. These updates span various aspects of our games, including car gameplay mechanics, meta progression, live operations, monetization models, marketing strategies, and art direction. By aligning gameplay more closely with audience preferences and enhancing emotional engagement, we aim to steadily improve key metrics such as player retention, lifetime value, and cohort monetization. While also increasing the efficiency of our marketing efforts. To help our studios achieve these ambitious goals, I'm excited to share that we've bolstered our leadership team with the appointment of Olga Laskutova as our new Chief Operating Officer. With her extensive managerial expertise in various consumer industries and valuable contributions as DDEV's board member, Olga is uniquely positioned to guide our studios toward achieving their strategic goals and fostering sustainable growth. Olga's appointment will help us in our drive to achieve success in our product strategy to become a top tier title in their genre. In summary, we truly believe that our strategy and ongoing efforts will unlock the full potential of our key titles driving long-term success and creating value for all stakeholders. Thank you. Alexander.

Thank you, Andrey. Hello, everyone. Now let me say a few words about our financial performance in the third quarter of 2024. Despite now being in a transformation phase, our results remain within our expectations and even surpassed analyst's consensus, as Andrey just mentioned. In Q3 2024, revenue amounted to $111 million, reflecting a 5% growth quarter-over-quarter, but a 9% decline year-over-year. This was, nevertheless, in line with our expectations, and was primarily due to the decline in bookings. Bookings declined by 8% year-over-year to $93 million, because our teams focused on long-term product improvement, as just said by Andrey. As a part of this initiative, we reduce the number of in-game events and monetization in general, as we want to ensure in the first place that the product changes positively impact player experience and retention. This initiative applies not only to our core title of Hero Wars, but also to Pixel Gun and Island Hoppers. Specifically in Pixel Gun and Island Hoppers, we are undertaking several experiments and searching for pivot opportunities that would enable us to grow these or similar titles in the future. In the meantime, we don't want to spend too much for scaling and live ops because we prefer to adhere to our disciplined approach regarding the investments. We are also still continuing to feel the underinvestment in marketing back in 2022, which was 33% lower as compared to 2023, which we consider to be a normalized year. This underinvestment affected the dynamic of our bookings over the past few quarters, including Q3 2024. Now, moving on to our expenses. we generally continue to execute on our disciplined approach around costs and expenses. Platform commissions decreased by 13% year-over-year, or $4 million, driven by low revenues from in-game purchases and a higher share of revenues from the PC platform, which is associated with lower commissions. Game operation costs remained stable at $13 million, while general and administrative expenses were tightly controlled and declined slightly to $7 million compared to $8 million in Q3 2023. I would also like to highlight that our marketing investments increased by $9 million year-over-year, reaching $52 million. It is in line with our strategic plan. This reflects our efforts to scale marketing activities across multiple channels and experiments around new channels and new instruments in order to find future growth opportunities. As a result of all these factors, the net profit in Q3 2024 amounted to $15 million compared to $24 million in the same period last year. This decrease was primarily due to lower revenue and higher marketing spend. Adjusted EBITDA for the quarter was $16 million, down $13 million year-over-year. However, cash flows generated from operating activities increased to $12 million compared to $8 million in Q3 2023. It demonstrates our effective cash management during this period of transformation. Geographically, over the past few quarters, we focused on Europe. As a result, the bookings in Europe grew year over year, increasing the region's share of total bookings from 26% to 30%. Specifically, Germany, France, the United Kingdom, and Poland delivered a solid performance on the back of our various marketing initiatives. Just to summarize, This quarter underscores our commitment to sustainable growth. We continue to explore different growth initiatives, both across product and marketing, and at the same time achieving our financial goals. And we remain confident in our strategic focus on product evolution and marketing investments. Thank you, and now I'll hand it over to Roman for the update on capital markets. Roman?

Thank you, Alexander. Yes, I would just like to make a quick update on our progress of improving the stock profile. So as we have previously stated, improving the corporate profile of our stock and providing more liquidity is a high priority for shareholders, board and management team, as it can open for us more opportunities in organic growth. On August 21st, we executed a 1 for 10 reserve stock split better aligning our stock with investors' preferences and enhancing the market's appeal and optics. This was followed by the announcement of the eighth at-the-market offering on September 12th. The at-the-market offering enables us to place from time to time up to 1.8 million of our ordinary shares acquired through our sales tender offer in the beginning of 2024, which we currently hold as treasury shares into the market at the prevailing market price as long as the ATM program is effective. This move is intended to increase the public float bolstering trading liquidity without diluting existing shareholders. Together these measures are aimed to have a lasting positive impact on our stock performance and we already see first signs of liquidity improvements with the average daily trading volume growing more than 15 times after the reverse stock split was announced compared to the same period before. With that, we conclude our third quarter 2024 earnings call for GDEF Inc. And we will now address any questions you may have during the conference call. Thank you.

Thank you, dear participants. As a reminder, if you wish to ask a question, please press star 1 1 on your telephone keypad and wait for a name to be announced. To withdraw a question, please press star 1 1 again. Please stand by. We'll compile the Q&A roster. This will take a few moments. Once again, if you wish to ask a question, please press star, one, one. And now we're going to take our first question. And it comes from the line of Pat McCann from Noble Capital Markets. Your line is open. Please ask a question.

Hey, thanks for taking my question. I was curious about PixelGun on Steam. How much success that's had so far? What might be the impact on user growth? If you could just give an update there.

Thank you, Pat. This is Roman. I will take this question. So, yes, definitely the launch of the PixelGun on Steam was a huge success. But as it is typical for the Steam platform, after the launch and the initial spike, the interest went down. That is fine. we have already stabilized on some levels of the average plain users. So we on average have around two and a half to 3000 concurrent users. And that number is growing months over months right now. So we believe that the launch of this great franchise on Steam was the right decision. And we see interest on this platform to this product. And right now, we also are looking on the product improvements which can better address the platform and the audience of Steam.

Great. And then I was also curious with regard to the ATM that you mentioned in the press release. you know, could you kind of give an update on how you see capital allocation and the sorts of, you know, how you would intend to spend money as far as growth is concerned or any updates as far as capital allocation?

Yeah, thanks a lot. This is Alexander. Look, we generally launched ATM not because we need the capital. We obviously have a quite substantial cash cushion on the balance sheet. Its primary goal is basically to bolster the liquidity. So in general, we continue to look for different opportunities out there in the market. But I mean, in terms of M&A especially, but it's obviously something that you cannot plan. It's unfortunately, we cannot build a pipeline. So we just will hold the cash for any type of future developments that we may have. We don't for now have anything special on the table.

Great, thank you. And then finally, you, of course, have multiple game development studios and the prospect for launching new games outside of your core games. I was curious if there is anything exciting in the pipeline that might be coming soon or if you had any updates on what you expect as far as potentially new franchises.

yeah i will take this one so uh you're right we have like r d teams in all of our studios so some develop games in the area of their core genre some are making experiments and yes we have like always lots of games in the development always prototyping and looking for the new concepts And right now, we have some games showing good metrics, and we are working on them. And some are even in scale and mold, so hopefully we'll be able to share some details later.

Excellent. Thank you very much, and congrats on the quarter. Thank you.

Thank you. Now we're going to take our next questions. And the question comes from the line of Edward James from Cantor Fitzgerald. Your line is open. Please ask your question.

Thank you for taking my question. I've got three questions, so if we just take them one by one. Firstly, just on the user acquisition markets, can you give us an update as to how things have developed there in terms of user acquisition efficiency? And if you have seen the market improve significantly in terms of your ability to deploy user acquisition capital at high ROI and related to that, how we should expect UA spend to trend into Q4?

Okay, thanks a lot. I take this one. So actually, the market didn't change a lot since Q2. So we're still investing with a fairly decent IRR and ROS, return on advertising spend, but it's not really kind of improving a lot. So we're kind of still at the same level. And again, we're doing a lot of internal initiatives just to test new types of creatives, new types of channels, just to see where we can scale in the future, but this is kind of still in the experimental mode. As for the Q4, so usually what we were having season-wise, I mean, from the standpoint of seasonality, Q4, just around the year end and the beginning of the next year would be usually the period of time when we spend quite a lot of marketing. This year, we're also planning certain initiatives, but not probably as massive, because as we said, we first want to really make certain products changes. so that we really, first of all, address the player's experience. So, I mean, in general, I would expect more or less same level of marketing in Q4 and in Q3 with a decent level of IRR. Yeah, that's more or less kind of the trend for now.

That's interesting. And just a related question, but then thinking about profitability, clearly the EBITDA number has exceeded most people's expectations for Q3 and the previous quarter. And judging by your comments on user acquisition, should we expect bookings growth to remain, or bookings to remain more or less where they are, but profitability to remain at relatively solid levels for the near term? I understand you don't provide guidance, but I'm just trying to put those two pieces of the puzzle together?

Yeah, look, I mean, again, we don't really expect any substantial changes to the bookings, I mean, at least for the Q4, given that Q3 was really kind of very, very good one. Even if you don't kind of push a lot for the marketing in Q4, we still, we believe, going to be very well within the consensus. So that's why. And as we said, we're not really going after the financial results for now. We first of all really need to improve the product in a way that enables the future growth. But generally, yes, you can expect we're going to be more or less within the consensus in respect of revenues and probably a little bit higher in terms of the bookings. But that's something that's difficult to say for now, because at the end of the year, if you really see the opportunity, we might spend a little bit more on the marketing. So that's something that we will decide right on the spot when we see how the market behaves at the end of the year.

Understood. And my final question, there's been a diverging performance between Hero Wars Alliance, which has been very, very solid, and in fact, over the last four courses, has seen an upward trend in bookings, generally speaking, and Hero Wars Dominion Era, which is reduced in size slightly. So the question is, why is there a slightly different trend on the two games is that down to different experiments and optimization processes going on between the two and is it a slightly different strategy and i'll just be interested in your thoughts there thanks uh thanks that's that's a very good question look at i i would say to certain extent the different strategy the web version it's i mean it's

a very nice instrument for us to be diversified. And as we discussed many times, it's a fairly different game, though they share the same umbrella brand. It's like an instrument for us to tap to a kind of different market that provides for a kind of different gameplay and different user economics. But this type of market really has a limited scalability. It's really difficult to scale that game to something that, I mean, it's difficult to say that it's probably like will grow two times. It can grow to a certain extent, but we are more targeting kind of efficiency, so to say, in this game. The mobile game, it's something that, I mean, the mobile market in general was not really growing much of the path to use, but we still believe that the core market for this game and the majority of the focus both in respect of the marketing investment but also in respect of the product is primarily with mobile game and this is where we are doing the majority of the experiments and where we really expect the majority of the new product updates to come both at the end of this year and of the next year. And this, the mobile version, we believe it's the game that can be scaled like quite substantially from now on. To a certain extent, yes, the market is different. The strategy is different to a certain extent. But again, we don't really expect any substantial changes in the portfolio. We still would expect a certain growth going forward of the web version, while mobile is something where we spend the majority of our efforts for now.

Thank you. Thanks for taking my questions.

Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star 11 on your telephone keypad and wait for your name to be announced. Just give us a moment. And now we're going to take our next question. And the question comes from Martin Yan from Opco. Your line is open. Please ask your question.

Hi. Thank you for taking my question. I have a few. First, can you share with us your latest thinking on the synergy between your games? How do you see the potential for cross-promotion and maybe down the line cross-progression between the games in your portfolio?

Okay, I will get this, Andrey. Hi, Martin. I am Andrey, as you know. Yes. So I'm here 17 years and firstly here like in gaming industry and first some years I thought that that like cross gaming and cross promotion could be something very very interesting and very useful. We tested on some of our games of our early games and we found that that it's completely stupid to move your players your very different players from your first game to second game and what you need to think and I know this like just now not 15 years ago what you need to think that you need to work with cohorts you need to understand completely your audience and sometimes it's It's hard to find audience of game two in game one. Firstly, what you need to think is about cohort analysis. You need to get specific exact users from games and it doesn't matter whether it's your game or other game. mathematical i think like mathematical uh economic uh can't can't work uh it will be not uh not profitable uh inside your uh inside your games and you need you need to you need to calculate figures oh uh so About cross promotion, I think it's not so working. You need to think about specific users. And I think I told you a second question about which kind of synergies we can find between our teams. What we found that sometimes like in our mobile gaming, sometimes like super bright ideas or super creatives and like interesting thoughts inside teams that can create CTR, like CTR is the metrics of efficiency of advertisement. sometimes in one team you can find some methods that can be applied in second team and you can improve the work of the second team just by applying very, very simple things. But what you need to understand is that this thing will help the second team. And here, because now we have more than four different teams in different stages of consolidation, we see that different teams are good in different things. And we can get this super knowledge from team one to put this super knowledge in team two and to enforce them, like to decrease the cost of production, for example, or to increase the speed of prototyping or to increase the efficiency of advertisement. Unfortunately, it's not so fast as I want. I wanted like next moment or next second, we need time to develop things. But I see a lot of progress when you can touch like different separate teams that can be good in different things. And here I see like a lot of synergies and most of them are concentrated in how you use artificial intelligence. But it's not for this question. Thank you, Martin.

Thank you, Andrei. My next question is about geographic expansion. Can you talk about your latest thoughts on where the geographic expansion will be focused on, and how important is it to your near-term and mid-term bookings growth?

So I can take it if I may. Thanks, Mark, and that's a very good question. Look, well, we obviously would like to be presented globally, so we're thinking now a lot about expanding to different geographies. We have already quite substantial footprint in developed countries, so it's like the public information, you know, our core markets are Europe, United States, like some other developed countries like Australia, Canada. So we now have a fairly substantial footprint in Asia, in Japan, Taiwan, South Korea. So we're thinking about really expanding substantially to other geographies like Latin America, Asia, India, and so on. It certainly takes time. So, I mean, all those markets, first of all, they have their own specifics. They have their own incumbent players. They have, I mean, in order to be able to, like, be... present and be successful in those market, you certainly need to gain certain expertise, both on a product side, but also on a marketing side. I mean, we're generally present all across all those geographies, but I mean, and again, as I said, they're different in the stage of development, so we certainly need to go one by one. We need to develop certain strategies around how we attack all those markets, and like The vast majority of the product updates that we are doing now, they are to a certain extent addressing those new markets. Generally, if you talk about the markets in Asia or in Africa, it's in general usually younger population there and younger players. What we are trying to achieve while we're updating the games, it's to make the gameplay more modern in a way. adapted to the younger audience. So that's one of the steps towards really attacking those markets. So second phase would be specific marketing instruments. We're looking actually one by one into all those countries, including the Middle East, for example. And again, we have certain thoughts in this respect. We have discussed certain partnerships. And yeah, we're certainly going to be attacking those markets, but it's not something that you will see like next quarter. It requires certain effort, both on the marketing side, but also, as I said, on the product side. And that's, yeah, again, if we'll be successful there, it's certainly going to be quite substantial boost, both in terms of the revenues and profitability. But it's more kind of longer term view. It's not something, as I said, that will happen next quarter. So longer term, it's one of the cornerstone of our strategy.

Thank you, Alexander. My final question is more of a model question. Can you share your diluted share count in the third quarter?

It's actually, it's not really changed since we published Q2 report. So you can see that that is available on the SEC So it's been like a very tiny portion of the options issued, but generally the share count is exactly the same. And same valid also for the share count of the shares that we held in Treasury. So you can count pretty much on those numbers.

Got it. Thank you. That's it for me.

Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star 11 on your telephone keypad. And now we're going to take our last question for today. And it comes from Michael Kupinski from Noble. Your line is open. Please ask your question.

Thank you, and thanks for taking my question. As you kind of think about these new territories and new geographies, I was wondering, and you mentioned that these geographies might have a little bit different demographic. I was wondering if you feel that your current content plays to that demographic and that wondering if you feel like maybe that you might need to look at maybe some M&A to kind of position yourself, you know, to enter some of those markets with maybe different content or just your general thoughts about the M&A environment as well.

Yeah. Hi, Michael. Thanks a lot. That's, that's a very good one. Look, it's a, M&A is something that we are obviously kind of constantly looking, but as I said, it's something that you cannot really plan for. So it's fairly much opportunistic, and especially buying certain studios in those new evolving geographies would be a good thing. We're just now thinking around how we structure that. But also on the product side, look, it's, I mean, two of our core franchises are fairly fairly old in a way. So it's not kind of a bad thing. It's a good thing because it has already kind of proven IP and like sticky audience. But also it certainly needs to be adapted for the kind of, to be more modern. And that's one of the core efforts around that. So we, again, we believe it certainly needs to be a lot of initiatives in our product pipelines that are bringing our product more closely to the younger generation. Yeah, it's one of our priorities. M&A is also something that can be really helpful in those geographies. We're looking at it. But again, as I said, it's something that just, I mean, it's very opportunistic. So we really need to carefully analyze all the opportunities.

Thank you. That's all I have. And congratulations on your quarter.

Thank you. Dear speakers, in order for the questions for today, I would now like to hand the conference over to the management team for any closing remarks.

Thank you everyone for joining the call. See you next quarter. Bye-bye.