East Side Games Group Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Eastside Games Group second quarter 2024 results conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session for analysts only. I would now like to hand over the conference over To your speaker today, Jason Bailey, board chair, CEO, and founder of Eastside Games Group. Thank you. Please go ahead.

Thank you, operator, and welcome, everybody, to the Eastside Games Group Q2 2024 results call. On the call with me today is Mr. Jason Chan, our interim chief financial officer. We are also joined by our chief operating officer, Ms. Lisa Sheck, and our chief product officer, Mr. Jim Wagner. I am happy to share highlights from the second quarter ended June 30th, 2024. Mr. Chan will go into details on our financial results commentary for the period before turning it over to Mr. Wagner and Mrs. Check for some final remarks before we open it up to analyst questions. First, I'd like to remind you that certain statements made on this call are forward-looking within the meaning of applicable securities laws. This call includes references to non-GAAP measures. Please refer to our second quarter press release in MD&A for cautionary statements relating to the forward-looking information and reconciliations of non-GAAP measures to GAAP results. References to all figures are in Canadian dollars on an IFRS basis unless otherwise noted. Additional materials can be found in the investor section of our website at www.eastsidegamesgroup.com. under the Financial Information section, and an audio replay of this call will also be available on our website. I'll now pass it to Mr. Jason Chan, our Interim Chief Financial Officer, for comments.

Thank you, Jason. This quarter, we made strides in incrementally growing our new match titles while maintaining the profitability and stability of our existing live ops games. Q2 saw us end at a revenue of $20.5 million, flat from Q1 with an adjusted EBITDA of $2.5 million. which is at over 12% margin and represents our seventh consecutive quarter with an adjusted EBITDA of $2.5 million and over. Year-to-date, this puts us at $6.6 million adjusted EBITDA, which is a 16% margin and a 25% increase year-over-year. We've also increased our user acquisition spend by $900,000 from $4.8 million in Q1 to $5.7 million in Q2, with almost all of it going towards our Match 3 titles, including Cheech and Chong Cush Kingdom, which launched in May, and Budmatch. We will continue to sustainably increase the top line in all of our titles whenever opportunities arise. Our average daily active users for Q1 was 229,000, with a stickiness rate of 26%, which is consistent with last quarter. If we segment our users between idle and match games, idle users saw an increase of ARPDAL from $1.11 in Q1 to $1.16 in Q2, a 4.5% increase, while our match users have increased from $0.49 in Q1 to $0.56 in Q2, a 14% increase. On the idle side of the business, we continue to optimize our monetization and long-tail revenue. Notably, we achieved the highest single-day ARPDAU since the end of the pandemic lockdowns in 2022 for both Bud Farm Idle Tycoon and Trailer Park Boys Greasy Money. had a consistent uplift of about 20% to the ARPDAU for Cheech and Chong's bud farm across the quarter, and even set another lifetime record single-day ARPDAU for the office somehow we manage. In the match genre over the past year, we've also made strides and improvements in growing our ARPDAU from a previous average of $0.20 per day to more than $0.50. In addition, with the launch of our biweekly season passes, we have seen ARPDAUs in excess of $0.60 as well. The results show that we are successfully applying our past learnings to monetizing and developing best practices in the match genre. In Q2, as part of our renewed NCIB, we've also spent $137,000 purchasing 172,000 shares. To date, we hold 1.4 million shares cumulatively at a cost of $1.1 million from our cash. Despite spending $1 million more this quarter on user acquisition and $138,000 on our NCIB, Our cash on hand at June 30th ended at $7.6 million, a 4.8% increase from last quarter and 171% up year on year. We will continue our focus of not only growing sustainably, but also being a profitable cash-generating company as we march towards our goal of having $10 million accumulated in the war chest by end of the year. Thank you for your continued support. And with that, I will now pass it off to our Chief Product Officer, Mr. Wagner.

Thank you, Mr. Shan. Q2 really showed the strength of our portfolio approach to game development. By leveraging 12 games active across two genres, we consistently deliver profitability, even through changes in seasonality and industry ups and downs. We saw significant growth within the portfolio. Milk Farm Tycoon was a diamond in the rough for us this quarter. The game launched in 2022, but continued support and updates since launch have revitalized the game. leading to a 300% growth in top-line revenue for Q2, while maintaining our 90-day payback target. We're confident that we will continue to profitably grow that title into Q3 and beyond. Doctor Who lost in time, also a very strong quarter, up 200% on top-line revenue, as we synergized with the launch of the latest season and the debut of the series on Disney+, opening up the beloved IP to a wider audience. On the match side of the business, Bud Farm Munchie Match continued its growth as our flagship match game, growing average top-line revenue almost 50% over the quarter, proving again that match games are a future forward revenue stream that will only become more and more significant to the studio going forward. And on that note, we're happy to share that Cheech and Chong Kush Kingdom successfully launched in Q2 as our second match game to enter the market. Game metrics are very positive with the same or better ARPDO conversion and retention than Bud Farm Munchie Match, showing that we can deliver repeatable success in the genre and strengthening our trajectory towards becoming a major industry player in the puzzle genre. Over to Lisa Sheck, our Chief Operating Officer, to talk more about Q3 and beyond.

In Q2, we explored innovative strategies to engage our community and market our diverse portfolio, and we're already seeing significant success. A prime example is our historic brand crossover between Star Trek and Doctor Who, which led to the highest revenue day for the company since the end of the pandemic lockdown and set a new record for the Doctor Who mobile game. The event sparked excitement across social media, demonstrating strong community engagement and interest. Capitalizing on this achievement, we're actively planning more brand crossover events within our diverse range of titles. This quarter, We soft-launched Power Rangers Mighty Force and focused on refining the game, and today we're thrilled to announce its successful worldwide launch. Developed in partnership with Hasbro, Power Rangers Mighty Force is already delivering impressive metrics in its first week, positioning it to become the 10th title in our robust portfolio to consistently generate $1 million per quarter. In the last two years, we've undertaken extensive experimentation and testing with our match games, fine-tuning mechanics and balancing to optimize arc dows and deepen player engagement. This rigorous approach is positioning us to capitalize on larger IP launches in the future. Looking ahead, we have two match games in development, one set to soft launch before the end of the year and another planned for early 2025. We're strategically building on these insights to ensure even greater success with our upcoming titles. I'm particularly proud to announce our second collaboration with World of Wonder, centered on an upcoming mobile game inspired by the popular show RuPaul's Drag Race. Our first RuPaul's Drag Race title, launched in October of 2021, has become our top-grossing game in the studio with over 4 million lifetime installs and 200,000 daily active users at its peak. We're confident that this new game will resonate even more deeply with the audience. leveraging the success and insights gained from the first launch. The time we spent successfully refining and perfecting our core match experience positions us to deliver a standout hit game. This project represents a transformative growth opportunity that has the potential to fundamentally change the financial trajectory of our company. We are eager to bring this game to our passionate player base, confident that it will redefine our success and elevate our standing in this industry. Back to you, Jason.

Phenomenal work, team. Another strong quarter on the books and continued stability for the first half of the year. We grow stronger every quarter as we increase our cash balance, diversify our portfolio, invest heavily in our future, and most importantly, build a strong base of knowledge and experience, which will allow us to dominate new genres with exceptional IP game launches. I couldn't be more excited about the successes we have had to date and and the bigger ones to come through the rest of 2024 into 2025 and well beyond. Thank you so much for your time today, and we'll now open it up to questions from the analysts.

Thank you.

Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star 1 in your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star 2. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Neil Gilmer of Haywood Securities. Your line is already open.

Thanks very much and good afternoon. It's part of... Jason's prepared comments. He went through a few of the ARPDAUs by title. I didn't necessarily get them all, but I guess the gist of my question is that obviously showed some solid improvements across a few different titles there. What would you sort of attribute to that success that you've had in improving those, and what sort of other levers do you feel that you have to sort of continue that momentum going forward?

Jim, you want to talk about that one, especially with season passes and that stuff?

Sure. So going back to that idea of the portfolio of games, so the biggest driver for our growth in revenue across all of our games is when we learn something on one game, we can bring it to the other game. A lot of what you see in those increases is we pioneer a new balance that does really, really strongly in one game, and then we bring it to the other games. So part of that is around event balances. And we have, you know, 10 games to experiment in, so we're always finding winners that we can port to the other games. And then we've also seen a lot of success with season passes. So season passes have become both our highest conversion point, where new users that haven't spent before purchase that as the first thing they purchase, and also something that is consistently purchased by long-scale players. So that's been a lift to all the games we've implemented on, and we've been experimenting with the cadence and have been able to increase ARPDAU by playing around with how often we make season passes available to players. So I'd say those two things are the things that we're constantly improving on, and that's what I would attribute ARPDAU increase to.

Okay. Thank you for that. Perhaps it was me, but for the first time I sort of heard you sort of suggest your target of at least $10 million in cash by the end of the year. So I guess that's, you know, and also I know in your MD&A you talked about that extra $900,000 going into user acquisition. You expect to be reflected payback in the top line by Q4, I believe it said. So, I guess, you know, through the balance of 2024 here, I guess we're going to sort of see some, you know, puts and takes in that user acquisition spend that will help sort of drive a little bit of the revenue line, but we can sort of, you know, get a gist of, you know, sort of where that balance is going to be by getting into cash balance by the 10 million by the end of the year. Is that sort of a correct way of how you're looking at your user acquisition spend?

We're always looking for opportunities to spend more. So, You know, the fact that we were able to spend, you know, almost a million bucks more last queue is just indicative of the quality of the new titles we've been launching and the quality of the, you know, results we've been able to get, especially on the match games. So we just launched Power Rangers last week. That's also a fantastic start. And so, you know, we will continue to spend heavily on that. And frankly, it's performing better than we expected it would. which will allow us to spend more than we expected, which is a great thing. But, you know, we're always shooting at kind of that 180-day payback window. So, you know, that money will come back in that timeframe. You know, that's on a gross basis. And then, you know, profitability starts after that. So we want to have $10 million in the till by the end of the year, you know, mostly as a war chest when we launch the RuPaul's Drag Race Match 3 game that Lisa was talking about. We are very, very confident that that is going to be a massive title. We know that because the previous title came out so strong. It's a really fantastic audience, very underserved. And, you know, we know Modern Hustle as well. you know, the idle game has done very, very well for us. It's our top performing game, but we actually think match is a much better fit for that audience and we'll have much better retention. So we want to be ready to go hard when we're, it's time to launch that game. But between now and the end of the year, we will, you know, we'll spend as much as we can to bring it back in the future. But yeah, we want to keep that cash balance up. So, you know, as we've been doing for the last year, it's trying to stay as stable as possible and grow at the same time as producing more cash and positive EBITDA.

Thank you for that. Then just one follow-up there. Do you have or is it too early to communicate the timeframe for the launch of that game? Is it sort of Q1 of 25 or first half 25?

We don't have a launch date, so it's not like I know and I can't say. Okay. It's ready when it's ready. So the plan is to soft launch this year. And if it's, you know, coming out steaming and everything's running perfect, we'd launch it, you know, three, four months after that. But, you know, if we need to spend six or nine or even 12 months in soft launch to get the game perfect, then that's what we'll do.

Understood. Thanks for your time. I'll pass the line. Thank you. Your next question comes from Adir Cadby of 8 Capital.

Your line is already open.

Great. Thanks, guys, for taking my questions. So you're spending more on UA, and I can totally appreciate that, largely due to the match genre that you're seeing. Is there anything in the broader environment that's kind of giving you more confidence, just necessarily related to what you guys are doing, but just kind of, you know, I think last call, Jason, you had mentioned that the broader app economy and the game spending economy is also getting better. You're seeing better payback appearance. Is there an element of that in there as well, or is it just part mainly to what you guys are seeing in the match titles and the other titles that you have?

Slowly, slowly. You know, so, again, there was an announcement from Apple a couple days ago with the Digital Markets Act from the EU saying, where they're being forced to open up their ecosystem quite a lot. Of course, they're resistant to that, and they're like a mopey teenage boy doing it reluctantly and saying, I did clean my room when all I did was pile things in the corner. So it's coming together. Now they have to be much, much, much more open about linking out, and we can clearly put link outs in our game saying, hey, go here and buy this for half the price. You know, there's still a lot of really crappy things in there that are, well, frankly, better than what's out there now, but not as good as they need to be. So, you know, the Apple stuff is heading in the right direction. You know, we also have news around the Google Monopoly stuff and, you know, Google's under pressure to, you know, break up and stop being as greedy as they are. So those are all positive things. And then, you know, the new Epic store is set to launch next year sometime. We're excited about that. And at the same time, you know, App Lab and Unity, et cetera, are continuing to find new and better ways to direct traffic. And it looks like the crackdown on fingerprinting that was threatening to come isn't coming anymore. So there's lots of small but positive indicators out there. that I think that momentum will continue over the next quarters. And, you know, whether that's a year away or two years away before that system and that those platforms really open up and, you know, become free markets again, it's hard to say exactly how long that's going to take, but it will happen.

They're being forced to.

Excellent. I wanted to make sure I heard something properly. So the Power Rangers launched from... We lost you there.

Hey, can you hear me now?

Yeah, but sorry, we lost you there. So you want to start again?

Yeah, absolutely. So my question was revolved around the Power Rangers title. It's been very successful over the years.

that you intend on generating $1 million a quarter off of the title in Q3?

That's what the numbers are looking like right now, yeah, which makes it our 10th title in our portfolio that's currently generating $1 million a quarter. You know, we're still going to continue growing it and see where it goes, and, you know, it's only been out for a week, but early indicators are fantastic.

Okay, got it. And then just it seems like you guys are really – excited about the next RuPaul title to come out. Do you find that when you leverage IPs from similar, leverage similar IPs from the monstrous hit that RuPaul the first was, do you find that there's a lot of easy cross between the two titles? You know, you kind of just leverage a bit about cannibalization of the older game. Talk to us about the dynamics around that.

Sure, you're breaking up a little bit there, but I think I thought that's just what you're asking. Yeah, we don't see any cannibalization. We're worried about that with Cheech and Chong and Budmatch, for instance, or even the two idle games for Cheech and Chong and Budfarm, and now the two match games for Cheech and Chong and Budmatch. You know, I'm always surprised seeing how many players actually play them both. And so with RuPaul, you know, the analogy is, you know, four million people installed that game, and now there's, you know, whatever, 30,000, 40,000 daily active users on that game. But if you were – if that same four million people were to install a match game or a merge game or some other puzzle game or whatever it might be, some of those same people that are playing the auto game would keep playing the match game, but a different set of people would become, you know, fall in love with the merge game or the other puzzle game or whatever it might be. So it's a big audience and different game mechanics are going to resonate with different aspects of that audience. And so, yeah, we don't see cannibalization. If there was 25 RuPaul games out there, Yeah, there'd probably be a little cannibalization amongst them all if people would be able to choose their favorite and not have to play the only one that there is if they're a massive RuPaul fan. But the total number of people playing those games would be, you know, much, much larger. And I think they would all have an opportunity to be successful.

Thanks a lot, guys. I'll pass on. Ladies and gentlemen, as a reminder, if you have a question, please press star 1.

Before we end the question and answer session, I would like to ask Mr. Scott Buck of H.C. Wainwright directly, if you have a question, please press star 1.

Yeah, it's There are no further questions at this time.

I would hand over the call to Mr. John Bailey for closing comments. Please proceed.

Thank you. This is Jason Bailey. Thanks, everyone, for joining us, you know, middle of the summer. I hope you're out enjoying your time in the sun. But, you know, we're very proud of what we were able to do in Q2, you know, very excited about what's happening in Q3 with continued stability as well as, you know, growth of new titles and the ongoing work that's going into, you know, the exceptional titles that we're going to launch, you know, through the end of the year and into next year. You know, great times are ahead for us, and thank you to everybody for the support thus far.

Appreciate it.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.