East Side Games Group Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Eastside Games Group, formerly Leaf Mobile Inc. Fourth Quarter 2021 Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a 30-minute question-and-answer session for analysts only. I would now like to hand the conference over to your speaker today, Darcy Taylor, CEO of Eastside Games Group. Thank you. Please go ahead.

Thanks and welcome everyone to the Eastside Games Group fourth quarter 2021 results call. On the call with me today is Jim McCallum, our Chief Financial Officer. On today's call, I will begin by sharing highlights on a performance from the fourth quarter and full year ended December 31st, 2021. In addition to giving you an update on our strategy and key events that have taken place since we last reported on November 15th, 2021. Jim will go into greater detail on our financial results commentary for the period before turning it back to myself for some final remarks, and then we will open up the call to endless questions. Now, before we get started, please note on December 6th, Leaf Mobile Inc. began operating under the trade name Eastside Games Group, and announced its intention to change its name and will seek shareholder approval at the upcoming general meeting. The company also announced the effect of December 8th. Its shares will start trading under the ticker EAGR on the Toronto Stock Exchange, and in effect of December 10th, its shares started trading on the OTC Market Group's OTCQB marketplace in the United States under the new symbol EAGR. Additionally, certain statements made on this call are forward looking within the meaning of applicable securities law. This call includes references to non-GAAP measures. Please refer to our fourth quarter press release and MD&A for cautionary statements relating to forward looking information and reconciliations of non-GAAP measures to GAAP results. References to all figures are on an IFRS as reported basis otherwise noted. Additional materials can be found in the investor section of our website at eastsidegamesgroup.com under the financial information area. And an audio replay of this call will also be available on our website in the coming days in the same section. If you have any questions, please email investorrelations at ir at eastsidegamesgroup.com. Let me begin our call by highlighting that Eastside Games Group are extremely proud to inform our shareholders that the execution of our growth strategy has us delivering our best ever annual top-line performance and the largest player audience in the company's history across our 12-game portfolio. We have multiple growth catalysts in place to drive continued top line expansion in 22 and beyond. In Q4, Eastside Games Group delivered our highest ever Q4 revenue, also resulting in record top line for full year 2021 on both an as reported and perform a basis and record player audience metrics. Strong organic growth towards the end of the year reversed our previously quarterly decline by increased traction in our marketing efforts, delivering improved performance across our core portfolio, and the introduction of RuPaul's Drag Race Superstar at the end of October fueled year-over-year growth momentum and strong fundamental game title metrics. The marketing landscape continued to improve in the fourth quarter, We've adapted well to Apple's IDFA changes and have been successful in our marketing campaigns with increased discipline investing towards the end of the year linked to new launches and positive return on advertising spend across our game portfolio with sustained returns. This increased investment in marketing also coincided with the launch of RuPaul's Drag Race Superstar. This resulted in an achievement of our highest ever adjunct quarterly revenue of $28.6 million for the fourth quarter, a $9.4 million year-over-year revenue gain, and an increase of 49% versus the prior year quarter of $19.2 million, as well as a 58% increase versus the previous quarter three. Full year revenue delivery also achieved record levels at $93.2 million, a 37% annual revenue growth relative to the full year as reported revenue of $68.1 million. On a pro forma basis, we also had recorded record revenue of $28.6 million and $95.5 million for the three months and year ended December 31st, 2021. Increases of 25% and 19% respectively compared to 23 million and 80.5 million in the comparable prior year periods. Key growth drivers were a combination of player retention from quarter two 2020 shelter in place install increases across our entire game portfolio. The full year revenue recognition of previous game launches in Q2 with Cheech and Chong's Bud Farm and in Q3 2020 with Archer Danger Phone. And the first two months launch results of RuPaul's Drag Race Superstar launched on October 25th, 2021. We'd also like to highlight adjusting for lower US dollar in 2021 compared to 2020. In constant dollar revenue, we would have been $103 million in revenue on a performa basis and $29.2 million this quarter on an annual basis. The 7% reduction in average exchange rate resulted in a 5% reduction to revenue. We continued to focus on maintaining profitability as we invested our growth capital into an expanding new game pipeline and scaling GameKit platform tech stack for future growth. This saw an adjusted EBITDA of $1.1 million for the quarter representing a 4% margin compared to $5.9 million for the prior year quarter. Adjusted EBITDA for the full year ended December 31st was $7.4 million compared to $12 million for the prior year. As of Q4, we've introduced non-GAAP operating metrics into our reporting that we believe best outline the collective metrics of our total gain portfolio, audience growth, retention, and monetization trends to help support investors and our shareholders of our underlying business health. The key metrics are daily active users as a measure of audience engagement, monthly active users, as a measure of total game audience size, Dow over Mal percentage as a stickiness rate to evaluate how often users interact with our products, and average revenue per daily active users to evaluate monetization across our player base for both in-app purchases and advertising. Full definition outlines can be found in our MD&A. Highlighting our game metrics on our total game portfolio of 12 titles, we finished the fourth quarter with a record average daily active user of 348,000, up 21% year over year, and an average monthly active user of 1.5 million, up 53% year over year. This growth was driven by increased UA investment or user acquisition investment results across our titles, including RuPaul's Drag Race Superstar that launched on October 25th. On a full year basis, we have captured the largest audience ever. We finished the year with record average daily active users of 279,000, up 8% year over year, and stable average monthly active users of 1.0 million year over year. This return on growth was also driven by user acquisition investment and the addition of RuPaul's Drag Race Superstar. We saw consistent Dow over Mao percentage rate above 20% across the total portfolio on a fourth quarter and full year basis. The fourth quarter decline in 2021 compared to 2020 was a result of the rapidly growing new installs of RuPaul's Drag Race Superstar that launched at the end of October. And we expect this to stabilize in Q1 2022. Fourth quarter average revenue per daily active users was just shy of a dollar at 90 cents and was consistent with prior year quarter. On a full year basis, our average revenue per daily active user was up 7% to 96 cents compared to the prior year. The lower Q4 2021 average revenue per daily active user as compared to the full year was due to the monetization ramping early in the game launch lifecycle of RuPaul's Drag Race, which launched during the Q4 2021. Leaving behind 2021, we continue to strengthen our business for the long term. We have grown our games portfolio organically increased our game kit partners and game pipeline, and have delivered solid performance and profitability. Moving into the business highlights within and subsequent to the quarter end, within our new games publishing and game kit business area, we have added our fastest growing franchise to date with the addition of RuPaul's Drag Race Superstar. In its first weeks of launch, it already surpassed 1 million downloads, And our ramping new game pipeline has never been stronger. NBC's The Office, Somehow We Manage, launched the end of January and is already off to a strong start. Additionally, we have now two other Super Marquee IP games with major studios. Doctor Who, our first game with BBC Studios, and Star Trek Lower Decks with CBS Viacom. Both of these franchises enter soft launch in mid-2022. Also, we have expanded and extended our IP partnership with the Trailer Park Boys to include more games in expanded genres. Additionally, we were very opportunistic in the acquisition of global IP game asset Funko Pop Blitz from Network to genre diversify our game portfolio as well as our tech. With our game kit platform, we are actively building a next generation game tech software and scaling partnerships such as Mighty Kingdom based in Australia and No Power Up of Vietnam for four additional free-to-play mobile games on this platform, which expands our total addressable market and further strengthens our competitive position in the mobile games sector. Entering 2022, we also see strong organic growth through an exciting pipeline of new games leveraging our game tech platform. We have more partners than ever before working on new games. Currently, we have 11 game kit partners, and we will publish nine new game titles in 2022, almost doubling our portfolio, including our three Super Marquee games, The Office Somehow We Manage, Doctor Who, our first game with BBC, and Star Trek's Lower Deck with CBS Viacom. As well as almost doubling our portfolio, we have multiple new game kit R&D going on that will address new genres that are already in various stages of development and beta test deployment. Our ambition is to develop our games to the point where they are ready for soft launch But as our performance requirements for a worldwide launch are high, not all game projects get a final go-ahead. Eastside Games Group Studios have a solid track record of launching games worldwide that can be successful for years, and we intend to keep that high-quality bar going forward. Our commitment to Eastside Games Group's three-pillar strategy of combining accretive acquisitions, organic game groups, and distributed growth through our proprietary game kit platform licensing and revenue share has delivered strong growth momentum across key growth drivers. We expect to build on our Q4 results through Q1 as we capture a full quarter of RuPaul's Drag Race superstar revenue and realize revenue from our newly launched title, The Office Somehow We Manage. Now I will turn over the call to Jim to further discuss our fourth quarter results.

Thank you, Darcy. This quarter is the third full quarter of consolidated operations of Eastside Games Group, including its two studios, Eastside Games and Leaderly. Our MD&A provides detailed breakdowns of revenue, net income, and adjusted EBITDA, as reported under IFRS and pro forma financial information for the current and historical periods. As Darcy highlighted, we delivered revenue performance in Q4 of $28.6 million with approximately 70% of our revenue generated in the United States. These results also set us up for record revenue of $93.2 million for the year, an increase of 37% versus last year on an as-reported basis, and a 19% increase on a pro forma basis. As of December 31st, we had 12 live mobile games published under the Eastside Games and Leader League banners. This includes RuPaul's Drag Race Superstar and Be Real Monster Buds, which both launched during the fourth quarter. In terms of financial highlights for Q4, our cost of sales include platform fees from Apple and Google, which are 30% of in-app purchases and intellectual property royalties. The increase over the prior year is due to the higher revenues and the acquisition of Eastside Games. User acquisition costs increased over the prior year, especially in the fourth quarter as we invested in the launch of RuPaul's Drag Race Superstar and the improved marketing landscape as we adapted to changes made by Apple to their identifier for advertisers. Development costs for the year increased over the prior year as we added developers and development costs to increase our total gain portfolio. General and administration expenses increased over the prior year due to stock-based compensation charges and public company costs. On an IFRS basis, for the three-month period, the company recorded a net loss of $0.8 million largely as a result of the amortization of intangibles and accretion expense. This compares to net income of 4.5 million in the prior year quarter. For the year, the company reported a net loss of 1.9 million versus net income of 15.1 million in 2020, largely due to non-cash charges recorded in 2021. On an adjusted EBITDA basis, For the year ended December 31, 2021, we recorded $7.4 million, a 34% decrease as compared to $11.2 million in 2020. The decrease is primarily driven by the increased investment in marketing spend linked to new game launches and public company operating costs not included in the prior year. Key profitability and efficiency metrics to highlight are gross profit percentage, which was 65% in the fourth quarter, consistent with the prior quarter, and adjusted EBITDA margin, which was 1.1 million during Q4 2021, representing a 4% adjusted EBITDA margin, consistent with Q3 adjusted EBITDA. From a balance sheet perspective at December 31, 2021, LEAF had $9 million in cash with no debt and access to $13 million in credit facilities. The $10 million cash payout to former Eastside Games shareholders will be made prior to March 31, 2022, using existing cash and credit facilities. During the year, we generated $1 million in cash from operations. Despite substantial investments in new intellectual property and game launches, and 4.2 million in cash taxes paid. During 2022, we will continue to invest in game technology, intellectual property, and new game launches. We finished 2021 with a strong fourth quarter, which sets us up well for continued growth in 2022. And now I will turn it back over to Darcy for some closing remarks before Q&A.