Engine Gaming and Media, Inc. (NASDAQ:GAME) Q4 2022 Earnings Call Transcript

Engine Gaming and Media, Inc. (NASDAQ:GAME) Q4 2022 Earnings Call Transcript November 29, 2022

Company Representatives: Lou Schwartz – Chief Executive Officer Tom Rogers – Executive Chairman of Engine Gaming and Media

Operator: Greetings! And welcome to the Engine Gaming and Media, Fiscal Fourth Quarter and Full Year 2022 Conference Call. Please note that this conference call is being recorded. . Before we begin, I would like to caution listeners that comments made by management during this call may include forward-looking statements within the meaning of applicable securities 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 Engine’s fiscal financial statements and MD&A for its fiscal fourth quarter and full year 2022, ended August 31, 2022 available on SEDAR and EDGAR.

Important qualifications regarding forward-looking statements are also contained in Engine’s earnings release distributed early this afternoon, and also available on SEDAR and in EDGAR. Furthermore, the content of this conference call contains time-sensitive information accurate only as of today, November 29, 2022. Engine undertakes no obligation to revise or otherwise update any statements to reflect events or circumstances after the date of this call. And 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. Thank you gentlemen, please go ahead.

Lou Schwartz: Thank you, operator, and thanks to everyone for joining us on our fiscal fourth quarter and full year 2022 earnings call. We had very substantial revenue growth when looked at on an annual and sequential basis for the quarter. To begin, total revenue for the full year ended August 31, 2022 increased 25.6% to a record $41.9 million from $33.3 million in the same year ago period. Total revenue for the fourth quarter increased 24.4% to $11.5 million from $9.2 million in the fiscal third quarter of 2022. The increases were a function of substantial growth in advertising revenue and an increase in SaaS revenue, the two key revenue streams of our business. For the full year of fiscal 2022, advertising revenue increased 28.6% to $32.7 million from $25.4 million in the prior year.

Advertising revenue for the fourth quarter of fiscal 2022 was $9 million, increasing 29.2% from the fiscal third quarter of $7 million. Frankly Media supports this growth by continuously optimizing its 50 plus demand partner network to deliver higher yielding advertising revenue for its customers. Frankly increased both CPMs and RPMs during the 2022 fiscal period as compared to previous fiscal year by 33%, despite increasingly challenging market conditions and algorithmic changes to search methodologies. For the full year SaaS revenue increased 15.9% to $9.2 million from $8 million in the prior year. The increase was primarily due to the full year impact of revenue recognized from the Sideqik acquisition and increased SaaS revenue from the Stream Hatchet business.

SaaS revenue for the fourth quarter was $2.4 million, 9.4% higher sequentially when compared to $2.2 million in the third fiscal quarter of 2022. As a result, we exit Q4 with an annualized SaaS run rate of approximately $10 million. For the full year ended August 31, 2022, net loss improved significantly to $14.5 million compared to a net loss of $40.7 million in the full fiscal year 2021, an improvement of $26.2 million. Adjusted EBITDA including discontinued operations improved 23.3% sequentially to a loss of $4.3 million when compared to a loss of $5.6 million in the fiscal third quarter of 2022. Exclusive of discontinued operations, adjusted EBITDA was a loss of $4 million for the fourth quarter. When removing accounting estimate charges relating to certain financial assets and liabilities of approximately $400,000, which is the best way to assess our cost reduction efforts relating to operating performance, the revised improvement to adjusted EBITDA is 11.9% when compared to fiscal third quarter 2022 adjusted EBITDA.

Evident in our sequential analysis of our adjusted EBITDA, is our pathway to profitability and sustainable growth. In line with this trend, our first fiscal quarter of 2023 is seeing further reduced operating expenses, leading to ongoing improvement in adjusted EBITDA. Additionally, we are continuing to streamline spending across the company with our stated goal of cash flow breakeven on a run rate basis in fiscal 2023, resulting in part from narrowing our focus on our core set of assets. We believe our collection of assets, which Tom will speak to in a moment, provides the company with a continued growth trajectory as evidenced in our recent client wins and contract extensions. Our platforms immersed in the gaming, social influencer and creator content spheres, continuing to benefit from the growing adoption of marketers and product enhancements that enhance their value proposition.

These businesses become progressively important to game publishers, agencies, advertisers and sponsors, reaching the increasingly hard to reach younger demographics. I’ll now pass the call to our Executive Chairman, Tom Rogers.

Tom Rogers: Thanks, Lou. Let me focus in for a minute on our very strategically important gaming and social influencer units. Our results continue to define the company as one that, through our data and analytics platforms, we have the ability to guide companies in marketing to gaming audiences, as well as addressing a broader array of brand sponsors, performance marketers and media seller’s needs. We provide highly valuable tech platform, so that marketers can navigate the gaming and social influencer communities with extremely reliable data and analytics that can result in the most productive marketing programs. As targeting challenges have continued to grow in the advertising market, utilizing social influencers as a targeting approach works to our strength in providing both the workflow tools and more direct communications enablement.

As marketing programs look to increasingly use social influencers at great scale, and affiliate marketers look to expand their programs in this realm, these trends play very favorably to product enhancements we have developed. We’ve begun to see in the gaming world an increasing number of clients beginning to utilize the services of both Stream Hatchet and Sideqik. The combined growth of Stream Hatchet and Sideqik fourth quarter-over-quarter is approximately 27%, demonstrating the particular value of both services to sponsors that want to access gaming audiences. To this point, as outlined in Stream Hatchet third quarter video game streaming report, the data our platforms are able to capture and collect is extremely actionable for marketers, researchers and analysts as these platforms develop actionable insights at a best tap into the Gen Z and millennial, highly prized 18 to 35 demographic.

This is an industry with consistent growth over the last four years and the insights our asset capture become more valuable as the market continues to expand. The marketing reach of eSports continues to be an area that advertisers and sponsors want to have greater exposure to and this creates significant opportunity for our growing, the number of brand clients we serve. Our precise and reliable audience analytics are particularly vital in navigating where gaming and medium meet in social influencer communities, and our necessary analytics, enabling the marketer to determine how best to leverage the ever-expanding creator community. The traction of our platforms is evident in Stream Hatchet signed contract extensions with Microsoft, Activision, Ubisoft, while expanding its list of clients with the addition of monumental sports PUBG, FIFA, Logitech, NVIDIA and Octagon.

Employing the platform tools and features from Sideqik to offeringsmake it an invaluable partner to the many companies navigating the complex social influencer sphere. Sideqik added FoodPanda, Blizzard, Fanatics and BenQ to its growing list of blue-chip companies, leveraging their suite of influencer marketing and social commerce technology. Renewals and extensions included Nike, Universal Music Group, Virgin Voyages and Riot Games. Turning to the company more broadly, we are executing very well on our plan of focusing on our key strengths in a tough environment, evidenced in our strong sequential quarter-over-quarter results. The cost reductions have certainly demonstrated as we have indicated in prior calls that we could substantially reduce EBITDA losses, a trend that will continue into the first quarter, as Lou mentioned.

As we have previously stated, we feel this is an environment that is ripe for discussions with various parties that are also assessing how to create greater scale. We continue to rapidly narrow the focus of our strategic process and are confident that our efforts will result in a significant opportunity for the company to deliver on our stated goals in initiating this process of increasing scale, catalyzing further growth and finding cost and revenue synergies. We look forward to providing an update as this process progresses. I think we’ll now take a few questions. Thank you.

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Q&A Session

Operator: Thank you. . Our first question comes from the line of Michael Kupinski with Noble Capital Markets. Please proceed with your questions.

Michael Kupinski : Thank you and good afternoon. I have a couple of 64,000 foot view questions and then some other more specific. There’s been some recent press out there that provides some conflicting data about interest in gaming post the pandemic. You know there originally was some data that suggested that, that there was an increased interest in following the pandemic, but some recent press indicated that maybe there has been waning interest. And I was just wondering if you can talk about your eSports play, which has grown, and how do you explain the difference and view of what’s out there in the media and what the data might support? I’m just wondering if we could have some color there.

Tom Rogers: It’s a great question. And this really goes to the heart of what Stream Hatchet, our gaming analytics unit tracked. And it’s evident from their recently released report that eSports viewership has really never been higher globally. It reached 40% year-over-year viewership growth in the last year. It’s actually an accelerated growth rate in terms of global viewership. And actually eSports viewership is above the third quarter 2020 depths of pandemic time. So for eSports to be above what was considered a highly unusual aberrant point in terms of people locked in and playing live streaming €“ viewing live streaming games, I think speaks very highly to just how much growth there has been there. What we are finding is that the audiences are there, sponsors are clearly hungry to reach those younger demographics that have become exceptionally difficult to reach in more traditional media.

The issue is not if eSports is attracting those audiences. The issue that sometimes creates some skepticism about the eSports space is about whether brands can really successfully connect to those audiences and to successfully connect to those audiences, they need the tools that give them a better understanding of what those audiences are, help brands find the most authentic ways to activate among those audiences, and what we are finding is our specific tools, our business intelligence suites, our real-time dashboards, our creator discovery tools, our assessment of earned media value, our competitive dashboards and just the historical trend data that we’re able to bring. Really provide the kind of tools that help advertisers, sponsors navigate this space and will help mature the space for media purposes, so that the vast audience and the amount that brands want to connect that to those audiences can be fully realized.

So, I hope that connects your trend question to what we’re looking to do to exploit that.

Michael Kupinski : Definitely. And TikTok has begun to show broader audiences beyond the youth demographic in the content creation. I was just wondering, your thoughts on, your focus on gaming which obviously has a younger demographic. Well, do you still think that you’ll participate in the broader appeal of social influence marketing given your younger demographic focus?

Tom Rogers: Yes, that’s an important point to clarify, because we analyze over 20 social media and live streaming platforms globally, and we measure the content consumption regardless of whether that’s gaming content or other content that is found on those various platforms. We obviously have a distinct and very well-known role when it comes to gaming and the focus on platforms like Twitch or YouTube Gaming, where we provide specific gaming insights. But we think the increased demand by older demographics or TikTok, which has obviously created some huge competitive challenges for traditional media, is actually a great trend for us, because we have years of experience, discovering and connecting and measuring social influencers, content creators on that platform. And so the overall rise of TikTok, its greater usage, and the fact that it has a broadening demographic that includes older demographics than it used to have as a very positive macro trend for us.