Ladies and gentlemen, thank you for standing by, and welcome to the East Side Games Group Fourth Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question- and- answer session for analysts only. I would like to hand the conference over to our speaker today, Jason Bailey, Board Chair, CEO, and Founder of East Side Games Group. Thank you. Please go ahead. Thank you, operator, and welcome everyone to the East Side Games Group Q4 2023 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 Shek, and our Chief Product Officer, Mr. Jim Wagner. I'm very excited to share highlights from the fourth quarter, ended December 31, 2023, and I will also be giving an update on our business strategy and key events that have taken place since we last reported in November. Mr. Chan will go into greater detail on our financial results before turning it over to Ms. Shek and Mr. Wagner for some final remarks before we open it up to analyst questions. I'd like to remind you that certain statements made on this call are forward-looking within the meaning of applicable securities law, and this call includes references to non-GAAP measures. Please refer to our fourth quarter press release and 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 material 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 soon be available on our website. 2023 was a difficult year for mobile games and for the tech industry as a whole. It was a year that saw more than 200,000 jobs eliminated, hundreds of companies failing completely, and billions in market cap evaporating. Despite these headwinds, and through the resilience of our incredible leadership team, East Side Games Group has been able to keep revenues relatively flat at CAD 20.6 million, while incrementally increasing Adjusted EBITDA to a record CAD 4.5 million and growing our cash reserves to CAD 5.2 million. No small feat, and something I'm very proud of. Moving forward to 2024, we are seeing the markets recover, opportunities present themselves again, and the industry quickly recovering. Great things lie ahead for this team and the technological foundation that we have built. Q4 was a quarter of continued transition and reaction to the ongoing changes in the global mobile games market. In Q3, we aggressively restructured our business to ensure ongoing profitability, independence, and long-term positive cash flow. Many of the changes made have been fully reflected in Q4. We have talked about this refocus extensively on the past few earnings calls. Q4 clearly shows the fruits of that labor. We have a business that is profitable, stable, and lean. A business with a strong pipeline of new products to layer on top of our existing strong foundation and a long-term focus on profitability. We have a company with no debt, sufficient cash, a sustainable run rate, and a pipeline of exciting new releases with massive potential. We remain more committed than ever to our goal of providing creators tools to successfully deliver mobile gaming experiences that engage players every day. I'll now pass it to Mr. Jason Chan, our Interim Chief Financial Officer, for some comments. Thank you, Jason. As mentioned, we continued our push towards profitability and positive cash flows following our restructure last quarter. We've realized these efficiencies in Q4 and posted the most profitable quarter in our company's history. Q4 had us end at CAD 20.6 million in revenue, essentially flat from Q3, and adjusted EBITDA of CAD 4.5 million, roughly a 22% margin and 75% up from quarter four of 2022. In addition to being our most profitable quarter, it's also our fifth straight quarter of positive adjusted EBITDA over 2.5 million. One of the key drivers in our quest towards profitability is maximizing our return from user acquisition, or UA spend, to sustainably grow our top line revenue. In 2023, we've seen this positively impact our bottom line as our UA cost as a percentage of our top line revenue has decreased from 31% - 23%, highlighting the efficiencies we've realized. For 2024, we will be focused on three main areas to maximize performance and scale against our payback targets for our UA spend. First, increasing the quality and quantity of creative assets through hiring and optimizing creative outsourcing. Second, increasing the diversity of ad networks and audiences to acquire more efficiently priced users. And finally, increasing collaboration with analytics and product to maximize our game launch opportunities. Our average daily users for Q4 was 248,000 with a CAD 0.90 ARPDAU, roughly 4% up from Q3. We're slowly seeing the user base settle into an equilibrium following our realignment of UA spend from last year. This number reflects our success in keeping the user base and studio's revenue stable while significantly increasing our margins. As Jason mentioned, we have experienced strong positive cash flows since our restructure. Our cash on hand at December thirty-first ended at CAD 5.2 million, which is 47% up from last quarter... We will continue to build on these healthy cash inflows while still investing in new strategic opportunities and upcoming titles, to keep in line with our goal of sustainable growth. We've also purchased 951,979 shares under our renewed NCIB through December thirty-first, 2023. This was at the cost of CAD 785,000 from our cash balance. But management and the board strongly believe that the company is currently undervalued, and the best investment we can make is in ourselves. We currently look to acquire as much as we can, as aggressively as we can, with what the exchange restrictions allow. These shares are currently being held in treasury and have not yet been canceled. So overall, despite the industry headwinds, ESGG has come out of the year-end in a much stronger position, both from a cash flow and profitability standpoint, and we will continue to build on that momentum heading into 2024. Thank you for your continued support. And with that, I will now pass it over to our Chief Product Officer, Mr. Wagner. Thank you, Mr. Chan. On the product side for Q4, we continued to follow our North Star of guaranteed incremental revenue, taking the successes from one game in our portfolio and applying them across the others. We introduced the Season Pass feature into Bud Farm: Idle Tycoon and saw the expected 10% lift in monthly in-app purchase revenues that we saw on Trailer Park Boys: Greasy Money. As of today, we have Season Pass in five of our top games across the portfolio, with plans to expand to two more in the next quarter. For our idle games, Q4 was especially strong as we capitalized on the holiday season with a coordinated event schedule across all the games, combined with new event types and new event prizes. RuPaul's Drag Race Superstar and Bud Farm: Cheech and Chong saw their highest 30-day average revenue of the year in December, and The Office: Somehow We Manage and Trailer Park Boys: Greasy Money saw their highest ARPDAU of the year in Q4. Our idle games are not slowing down, and we continue to get better and better at leveraging towards our business goals while entertaining and delighting players. On the match 3 side, Bud Farm: Munchie Match showed a strong quarter, doubling our peak revenue from Q3 to Q4, and it has reached record ARPDAUs and daily conversion rates for the year while we've been aggressively scaling. We took the next big step to kick off three additional match 3 games, staggered for launch across 2024 and 2025, that capitalize on our deep knowledge and relationships with major IPs, and that bring our winning match 3 formula to much bigger and more passionate audiences. Overall, we have a strong pipeline of idle and match 3 games slated for release in 2024, and we continue to grow our existing games revenue incrementally and consistently. Over to Ms. Shek, our Chief Operating Officer, for additional comments. As Mr. Chan mentioned, we've achieved record-breaking profitability in Q4. Our relentless focus on operational efficiency has paid off, and we transformed ESGG into a leaner, more talent-dense and focused company. By investing in our people and creating a culture that fosters innovation and collaboration, we've attracted top talent and strategically filled critical roles with industry veterans who bring invaluable expertise and experience to our team. By doing so, we've not only strengthened our leadership bench, but also positioned ourselves for sustained growth and innovation in the ever-evolving landscape of our industry. We've also made significant strides in investing in our current team, providing them with the resources, training, and support they need to thrive in their roles. Through targeted development programs and opportunities for growth, we've empowered our employees to take on new challenges and expand their skill sets. This has not only boosted morale and engagement, but has also enabled us to promote from within, recognizing and rewarding the hard work and dedication of our team members. Our recent engagement surveys show that the productivity of the company has increased by 60% year-over-year, and our internal employee promoter score, 3X. Great people love to be surrounded by great people and are proud to be members of an efficient and effective team that consistently delivers results. With more effective processes, increased productivity, we have not only improved our bottom line, but also enhanced our ability to deliver high-quality titles at record speed. We kicked off Q1 with a worldwide launch of All Elite Wrestling and three exciting soft launches with both new and existing IP partners. We remain committed to pushing the boundaries of idle gaming with new features and engaging content for our loyal, loyal fan bases, while also furthering our achievements with match 3. We have already soft launched our second Match title and have several more unannounced IP titles in development, slated for immediate launch, launches later in the year, as well as into 2025. With a strong pipeline of new titles, our leadership in the idle gaming space and our success in exploring new genres like Match, we're well positioned for continued growth and success. Back to you, Jason. Thanks, team. In 2022, we made a promise to investors to focus on Adjusted EBITDA over top-line growth. We have very much delivered on that promise, with five consecutive quarters over CAD 2.5 million. We have grown this margin to 22% and plan to continue that focus and maintain that margin. We are seeing a few key positive indicators that we feel could fundamentally change the outcome of the games industry into our business in particular. The largest single expense that we have as a company is our ongoing payments to Google and Apple. This is a 30% fee that we are forced to pay in order to be playable on their devices. ...This duopoly is widely seen as anti-competitive and as an unfair tax on application developers. Google and Apple have always fought hard against making any changes or being at all flexible on this taxation, until now. For the first time in almost 15 years, we have seen Apple reduce their tax as a result of the pressure from the EU and their Digital Markets Act. This pressure being lawsuits and hefty fines. Apple is also being forced to allow competitive app stores onto their platform, often referred to as stores within a store. The most exciting one to us is the Epic Games Store, which will be launching late in 2024. Another new antitrust suit in the U.S. was also just launched against Google and Apple, specifically around their app store fees. These are the first of many dominoes to fall. We have now seen reduced fees, additional distribution opportunities, as well as the ability to process our own payments off platform for the first time, being legislated into opportunities for the mobile game companies. It is early days, but we believe we will see these fees drop dramatically over the next 12-24 months and be realized directly to our bottom line and therefore open opportunities across the entire industry. We would also like to highlight the incredible achievements of our friends at Scopely. They recently launched their IP-driven game, Monopoly Go, in partnership with Hasbro. This game has gone from worldwide launch to $2 billion in revenue in just 10 short months. It is currently on a $1 billion quarter run rate. This impressive achievement is an apt demonstration of what can happen when great game developers align with great IPs within our total addressable market. This sets a new high bar of what we, as a company, are swinging for every time we step to the plate. Thank you for your time today, and we will now open it up to questions from analysts. Thank you, ladies and gentlemen. We will now begin the question- and- answer session. Should you have questions, please press the star followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the calling process, please press the star followed by the number two. 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 the line of Adhir Kadve from Eight Capital. Your line is open. This question, you know, just as we think about your model moving forward, I know last year was largely dependent or largely focused on, you know, getting operating efficiencies with EBITDA trending higher. As we looked at fiscal 2024, how should we be thinking about revenue versus EBITDA? Should we be seeing slightly more focused efforts on the top line, or would should you, or would we be looking at the kind of the same thing, operational efficiencies and more focus on EBITDA line? Yeah, more, more of the same. We're, we're focused on profitability. We're focused on building up our war chest. We're focused on, you know, prime opportunities. You know, we want to continue to grow, of course, and, and plan to do so, and have many things in the pipeline that will help us in that process. But, above all, profitability, sustainable growth and, building up that war chest. But as we launch these new games, if one of them hits metrics that allow us to have opportunities, like I was just speaking about Scopely, we will absolutely go, heavy and deep on those ones. So, you know, we reserve the right to shift those focus as it's the right business plan to do, but, as of today, we're focused on profitability. Okay, awesome. And then just maybe on some of the more structural changes that you're seeing with Google and Apple. I know hard to say, like, in terms of a timeline, but let's say we see something really favorable start to happen. How quickly would you act, and how quickly could we see that kind of hit the PNL as these things are enacted? Well, it's beyond my control. It's when, it's when, Google, Apple, and more specifically, the regulators, force them to do so. So, you know, the small incremental changes right now, like the new, what's just been enacted in Europe as of March first, will be minimally incremental to our bottom line, as you know, those fees didn't go down too much, but they did come down. I think our math said it would be something like CAD 300,000 additional to our bottom line for the year, which isn't massive, but keep in mind, that's only for, you know, a handful of European countries and a small amount, and Google is being, or sorry, Apple is being very crafty about how they're going about it. And the EU has specifically said, "This is horse hockey. You can't do this. This is bad faith," and is levying something like a $75 million fine on them for being crafty. And so we will see these changes come, and hopefully they're forced to be enacted immediately. But it will take time, you know, and as... And this will grow to other markets, and this will grow, you know, Google will have to do the same thing. So like you say, it's hard to know exactly when these things are gonna come together, but the dominoes are falling. The process has officially begun. Okay, understood. Thanks, thanks a lot for that color. Maybe last, then I'll pass the line. Just the MAUs and the DAUs this quarter, both kind of ticked up after a couple of quarters, kind of trending downwards. Obviously, great to see. Is that largely just a function of your increased user acquisition spending sequentially into Q4, or how should we be thinking about that? Jim, you wanna take that one? ... Yep, sure. Just finding my mute button. I believe that's a result of our earlier pivot in 2023, where we reduced UA budgets, and we focused on, you know, stable, profitable, higher retaining campaigns. So we're essentially, yes, we're stacking players, we're finding the little wins and creeping our UA budgets up over time, and that's resulting in players sticking around, retaining, and those DAUs and the MAUs slowly ticking up. And also, as a result of when we lowered our UA budgets, we put more effort into organic initiatives, you know, working more closely on the featuring, the discoverability, all the things that bring in those free players, and that's had an enabling impact on the DAUs as well. Okay, awesome. Sorry, guys, I'll sneak one last one in, and Jason, I know you can't really provide all that much color into the pipeline or the IP in the pipeline, but if we have to kind of compare the IP to some of the past IP that you've launched, would you say what you have in the pipeline is comparable? Is it larger? Is it smaller? Just any additional color on like, you know, the recognizability of the IP that you have in your pipeline right now. So, you know, the three games that are launching, you know, pretty much immediately, are IPs that we've already been working with, so additional titles using existing IP. And then some are... I would say they're similar to our existing IPs. They're not our biggest swings ever, but they're good, solid on-bases, and they're, you know, ones that we choose because we know that they have passionate, loyal fan bases. So, you know, that's always our target. It's not necessarily about, you know, the biggest, widest known IPs, but IPs with really strong cult-like followings. Awesome, guys. Thanks a lot. I'll pass the line. Your next question comes from the line of Scott Buck from HC Wainwright. Your line is open. Hi, guys. Thanks for taking my question. Jason, I'm curious, with the focus on EBITDA and cash generation, how are you thinking about capital allocation here, as you start to kind of build up that dry powder? So a couple of things. We want to be prepared that, so that if, if the opportunity does come to spend heavily and grow a game quickly, that we have the dry powder available to do that. We're also building up that dry powder as, we look at additional IP and partnership opportunities. We're looking at a handful of opportunities, a couple of which we think are incredibly exciting, but won't be cheap and will be heavy investments. So, you know, my short-term goal is to get to CAD 10 million cash on hand, and that opens up some incredible new opportunities for us. So, that's how we're thinking about that. Great. And can you remind us what cash level you need to just kind of run the day-to-day of the business? Just trying to get a sense of what, you know, that kind of excess cash level is? J.C., you want to answer that one? Yeah. So we collect revenue pretty regularly from Apple and Google, so I would feel comfortable running the business with approximately 1-2 million cash on hand. We, we've had pretty reliable ARs in terms of collecting on all the revenues. So that would be a comfortable level of dry powder, I would say. Great. Then we also have access to debt if we wanted to use that. Right. That's right. And Jason, last one. You know, the turbulence you kind of highlighted at the first part of your prepared remarks, did that open up potential acquisition opportunities, or do you guys have enough, you know, going on organically, where that's not really a focus at the moment? The M&A market's a weird place right now, because, especially for us, because there, there's a couple of things. One is, we don't have a massive amount of cash on hand, and so using that cash for M&A would be a relatively small acquisition and not necessarily move the needle as much as using that same cash to make a bigger bet on a game. So, you know, I don't think somebody else can make a bad game better than us, so I think cash on hand-wise, we'd be better to do it ourselves. And then using our, you know, our magical internet money called stock, that we could use, you know, issue stock to buy another company, I think we're so incredibly undervalued right now that, you know, we would be giving too much of a discount. Like, it doesn't make any sense to raise money or to use that money for acquisition at this current level. So, Yep. You know, honestly, M&A doesn't make a whole lot of sense at this level. That being said, there are lots of interesting opportunities out there, and you know, as we continue to have those conversations with various people, should the right opportunity come along and the right structure be available to us, we would definitely take advantage of it. But at these levels, it would be silly. We need... This is the best thing we can invest in. The best company that we could acquire shares of is ourselves. All right, perfect. I appreciate the added color, and, congrats on the results. Thanks. Once again, as a reminder, please press star one, should you wish to ask the question. Your next question comes from the line of Colin George from Haywood Securities. Your line is open. Hey, Jason, thanks for taking the question. Maybe just reorganize my questions here to build on the discussion on cash a little bit more. It looks like there was some sort of rebalancing to working capital throughout the year in 2023. Could we see working capital becoming more of a, a source of cash as we look forward here? It looks like your, your payables are below your receivables. Just trying to get a cadence on maybe some of those moving items. Yeah. No, exactly. As we continue to build our war chest, you know, those receivables are coming in, our payables are becoming less. We did a lot of, you know, restructuring back in August, September, October, to, you know, streamline and kill off software projects and such that we weren't getting good value for. You know, a lot of those are coming together, and so we will absolutely see our cash position continue to grow throughout the year. Okay, great. So yeah, safe to say that working capital should be a source moving forward. And then- Yeah, absolutely. Go ahead. Yeah, I think, like, I think our actual, like, our necessary working capital, like JC was saying, is kind of that CAD 1, CAD 1.5, you know, CAD 2 for a really great buffer. You know, anything over CAD 2 sitting in our bank account should be put to work. Okay. Thanks. And then maybe just on gross margins, take a look at the quarter specifically. They're quite impressive. Is that part of some of the restructuring efforts, or the match game profiles? Are they better gross margins or the Season Pass? I'm sure it's a combination of all those effects, but if you could just provide any color on sort of the main drivers to the impressive gross margin reported for the quarter. Yeah. The main driver is you know, the reduction in costs that we went through in Q3, and focusing on fewer but higher likely to succeed projects. You know, two years ago, you know, kind of 2021, 2020 especially, and even almost of 2022, the target was to make as many bets as possible, to, you know, make lots of games, throw them out on the market and see what works. But as that market continued to shift, and the discoverability and the cost of UA and the cost of development continued to climb, that wasn't the right bet anymore. So we shifted away from kind of having 10-15 games in development to having three or four games in development. And that's where we are now. So, you know, we have a few games that are in that soft launch phase, and then we have three or four games that are, you know, targeted for later in the year and into next year, as well as some games that are, you know, longer timelines. So it's that focus. We're not... You know, the margins are actually relatively the same. It's just we're not spending as much on wild bets as we were. Okay, understood. Of course, there's going to be ebbs and flows on a quarter-to-quarter basis, and then- Yes ...the pipeline changes, but from what I'm hearing and what I'm seeing, it shouldn't be quite... It shouldn't be impossible to sort of attain levels in and around or above 60%, based on the current trajectory. Is that fair to say? Yeah, that's fair to say. But again, if the right opportunity comes along at the right time, absolutely, we're going to spend on that, and that will change the profile. Of course. But, if things continue the way they are today and looking at, you know, how things are performing today versus Q3, then yeah, we expect much the same. Okay. Then maybe just one last one from me. I don't know if you guys will be able to provide additional kind of color, but just anything on the, the next three games that are scheduled for Q2 on the cadences that are early Q2, late Q2, just trying to spread out throughout the quarter. Just trying to get an idea on, how much that may be able to offset some of the seasonality through the summer. Yeah. Lisa or Jim, do you guys want to talk to the specifics? We can't say, you know, exact dates and/or exact titles. Those announcements will be coming, you know, on their own and individually, but, we can talk more broadly about our general targets. Lisa or Jim? Yeah. So we are already in soft launch with those games in various territories. Typically, we go in Australia or we launch in Canada, and we look at soft launch numbers as we continue developing the product. So that's where all three games are at right now. And so they will land some, you know, sporadically throughout the quarter, mid to late Q2. Okay. Thank you. That's helpful. That's all the questions from me, and congrats on the quarter. Looking forward to seeing what rolls out over the next, the next, I guess, few months. Yeah. There are no further questions. We'll talk again soon, as we're only, you know, six weeks away from our next report, when we report for Q1. Thank you. There are no further questions at this time. I would like to turn the call over to Jason Bailey for any closing remarks. Yeah. Thanks, everybody. I think we put together a good quarter that we can be proud of and a good year overall. Like I was saying, you know, it was a tough year for the tech industry as a whole and a tough year for the mobile games industry, but I think, you know, we made the right choices. We, you know, we expressed to the market our focus on sustainable growth and EBITDA and having that war chest and being default alive. And, you know, I think we're in better shape than 90% of other games companies out there, in that we have a diverse set of games that, you know, allow us to keep making money quarter after quarter after quarter. Some of our titles, like Trailer Park Boys: Greasy Money, games that have been out for seven, eight years and continue to perform very well, and we expect the same out of our existing titles. We have a great pipeline of new titles coming out that, you know, you never know till you know. And like I was mentioning with our friends at Scopely, you know, I'm not saying we're gonna launch a game next week that's gonna do $2 billion in revenue in 10 months, because that would be delusional. But it was great to see that that can still happen. It's a great kind of moment of hope. It's one game only, but it you know, it's something that we're shooting for. And with our new move into Match 3 especially, I think the opportunity is there. I think we're seeing the retention metrics, we're getting better at monetizing, we're getting better at understanding the nuances and the audience around those games, and we've already begun to work on, you know, new partnerships with... and new titles, using existing partnerships, new partnerships, where, if done right, could be the game that puts us on that scale. So we're going to do everything we can to focus on a small handful of titles with the highest probability of success, continue to level up our team, continue to build up that war chest, and continue to work on the diversity of titles we have in our portfolio, and build this company. You know, we've been at this for 12, 13 years now, and we'll continue to do so. And you know, this company's going to be around for a long, long time and has tremendous opportunities. So thanks everybody for coming out and listening to, listening to us blather today. As always, you can reach out to me directly, jason@eastsidegames, to ask me any questions directly, and hopefully I'll be able to, you know, find some time to shoot you some answers back or even hop on a call. All right. Thanks, everyone. Thanks for your time, and thanks for coming out. Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for your participation. You may now disconnect.