East Side Games Group Inc. ($EAGR)

Good afternoon, ladies and gentlemen, and welcome to the East Side Games Group Q1 2026 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, May 14, 2026. And I would now like to turn the conference over to Mr. Jason Bailey. Thank you. Please go ahead.

Thank you. Welcome, everybody, to the East Side Games Group Q1 2026 Earnings Call. I'm Jason Bailey, Board Chair and CEO of East Side Games Group. Today, we will share highlights from the first quarter ended March 31, 2026. And 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, and please refer to our fourth quarter press release -- our first 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 in Canadian dollars on an IFRS basis, unless otherwise noted. Additional materials can be found in the Investors section of our website at www.eastsidegamesgroup.com under the Financial Information section. Q1 2026 was focused on improving adjusted EBITDA and maintaining disciplined cash management across the business. During the quarter, we significantly reduced user acquisition spend as part of a broader strategy to prioritize efficiency and preserve cash. We are now targeting a 30-day return on ad spend, which allows us to focus on acquiring the most profitable player cohorts while improving overall capital efficiency. At the same time, we will remain very focused on cash generation and debt repayment with the goal of eliminating our bank debt by the end of 2026. Overall, we believe these changes position the company well for a stronger and more disciplined remainder of 2026. I will now pass it over to Mr. Chan for some financial highlights.

Thank you, Jason. Today, we reported our results for the company's first quarter ended March 31, 2026. As a reminder, all these amounts are in Canadian dollars. Our financial results for the quarter reflect the decisive strategic shift we announced in Q4, which was prioritizing cash flow generation and profitability over top line growth. Revenue for Q1 was $12.45 million, a decrease of 32% year-over-year, which is a direct result of the disciplined cuts to our user acquisition spend. More importantly, we achieved adjusted EBITDA of $1.74 million, down 11.3% year-over-year, but driving a strong adjusted EBITDA margin of 14%, which is 32% improvement year-over-year and on pace with our guidance. The margin expansion shows that our pivot is taking effect in successfully creating a structurally leaner and more profitable business. The user metrics illustrate the outcome of focusing on quality over volume as well. We are taking a more disciplined 30-day approach on ad spend, while our daily active user count has decreased to 145,581 and average revenue per user was $0.95. We maintained a strong high-quality user base, particularly our DAU/MAU stickiness rate, which increased to 28.1%, which is up 14.7% year-over-year, demonstrating the improved engagement and retention of the core audience as we cut inefficiencies in spending. From a capital structure perspective, as anticipated, we saw a temporary increase in debt in Q1 2026, to fund necessary onetime expenditures, including severance and litigation costs. However, we remain intensely focused on strengthening our balance sheet, and our definitive goal is to pay down our bank debt by the end of 2026. We have made strong progress in managing this process and are actively executing financial arrangements to support this goal, including a private placement of up to $3.6 million this month. Overall, Q1 was a disciplined quarter of execution, confirming that our strategic reset is yielding positive margin and profitability improvements. We are confident this foundation will ensure long-term stable and profitable growth for East Side Games Group. I will now pass it on to Mr. Wagner, our Chief Product Officer.

Thank you, Mr. Chan. As we focus on maximizing profitability and cash generation, I'll be highlighting our success in some key initiatives, growing our direct-to-consumer revenue, leveraging our long-tail revenue from our live service portfolio and the launch of our newest title, Trailer Park Boys Match. Direct-to-consumer, or D2C, revenue continues to climb quarter-over-quarter through our work in rolling out D2C options into more titles and A/B testing, UX improvements and player incentives. I'm happy to report in Q1, we increased our revenue coming from D2C from 3% to 11% quarter-over-quarter. As a reminder, currently, any revenue coming from D2C is not subject to the 30% platform fee, but rather a much lower 5% to 10% fee from our payment providers. The result is a significant increase in net profit. By rolling out successful A/B test results across the entire portfolio, we expect this number to further increase in Q2. In addition, we continue to work towards compliance with the recently announced program from Google, which will result in a reduction in its platform service fees from the historical 30% rate to a more flexible tiered structure ranging from 10% to 25%, depending on transaction type and billing model. All games are currently working on this and are on track to be compliant well in advance of the changes, which will take effect beginning June 30, 2026. The company expects the revised fee structure to contribute approximately $0.5 million in incremental annual profit. Our live service titles continue to generate stable revenue and profit for the company, and we're excited to announce that in March, we launched Trailer Park Boys Match worldwide. Early numbers are encouraging with paid cohorts hitting above 40% D1 retention and ARPDAU averaging roughly $0.60. The game builds on the long-term success of Trailer Park Boys: Greasy Money, which has attracted more than 10 million players and remains profitable nearly a decade after launch. We believe Trailer Park Boys Match can benefit from that same loyal fan base, strong retention and long-tail monetization potential. Overall, we believe these changes and new product launches position the company well for a stronger and more disciplined remainder of 2026. With that, I'll pass it to Ms. Lisa Shek.

Thank you, Mr. Wagner. A major milestone in Q1 was transitioning RuPaul's Drag Race Superstar to our internal live ops team. Originally launched in November of 2021, the title continues to perform and cater to a very loyal audience base. And this move allows us to optimize operations and focus on the player experience. Operating the game directly, we're able to better leverage our shared expertise in idle game mechanics, streamline execution and apply consistent best practices across all our games. This transition is already contributing to improved efficiency, faster iteration cycles and a stronger overall player experience while reinforcing our broader strategy of selectively owning more of the value chain where we see clear operational advantage. We also continue to invest in our next wave of growth, working with our trusted IP partners on 2 unannounced titles funded through operating cash flow. Both are tracking towards launches in late 2026 and early 2027, reinforcing our focus on disciplined partner-driven development and a strong long-term content pipeline. Back to you, Jason.

[Technical Difficulty] Please continue to standby. Your conference will begin momentarily.

Thank you, everyone, and thanks to everyone for joining the call today. We will now take any questions from analysts or shareholders who wish to ask them.

[Operator Instructions] No question at this time. I will now hand the call back to Mr. Jason Bailey for any closing remarks.

Thanks for joining us, everyone. We appreciate it. You can always reach out to us directly. I'm [email protected], feel free to reach out. Thank you for joining us today, and happy to answer any questions anybody might have in the future. Thank you.

This concludes today's call. Thank you for participating. You may all disconnect.