G5 Entertainment AB (publ) (G5EN) Earnings Call Transcript & Summary

And welcome back, ladies and gentlemen, to our first session today. This is a snapshot looking at the impact of COVID-19 and, in particular, the emerging risks and future outlooks for small and micro cap IROs. I'll tell you a little bit more about what we're going to be speaking about in just a second. But first, let me introduce you to our first panelist of the day. First of all, I'm trying to work actually where you are in conjunction with where I can point out of my screen to you. But Jason Paltrowitz, you're the first one on my screen, Director and Executive Vice President from OTC Markets; then we have Vlad Suglobov, the Co-Founder and CEO of G5 Entertainment; and AJ Krick, Chief Financial Officer from Smith-Midland. Gents, it's such a pleasure to have you all today.

I'm going to ask you to tell us a little bit more about your experience of the immediate impact of COVID-19 on small cap IR, in particular. So -- and maybe a bit of a chance for you to introduce yourselves and your company. So Vlad, let's go to you first. Can you tell us a bit more about G5 Entertainment. I know you're a mobile game developer, largely Swedish, but you have staff all over the place that must be quite the undertaking during COVID.

Yes. We are listed in Sweden. We have people in many offices in 5 countries around the world. And it used to be a distributed workforce already. So we had a lot of technology solutions in place to coordinate the teams. Some of our project teams have been distributed all over our offices in different countries. So -- that's why we already have processes for remote collaboration. So when it happened, we moved everyone to work from home. And I guess, that's the advantage we have as a technology company. And we were -- we managed to do it in a matter of a week, I believe, with no disruption to the business. So that worked pretty well. And we actually saw efficiency go up, I guess, just in the moment and the seriousness of the situation. So people got really serious about delivering on their performance goals and everything and that was actually a positive boost to us as well as on the demand side. Obviously, games industry and including ourselves kind of benefited from the lockdowns because there was a wave of interest towards interactive entertainment. When it comes to IR, I think the last meetings that we did in person was at the beginning of March in Stockholm, and then it all went virtual. I think it became more efficient, just without the travel being able to do more meetings and investors are being more willing to do remote meetings and it just became the norm. And to be honest, as a programmer and a little bit of nerd, that kind of works easier for me. So I don't have to travel as much as I used to. And I like to travel, but these like really short flights somewhere just to meet a few people, they're kind of stressful. So that went away. And that's -- I think that's a good thing. So this -- in my view, this was a push towards more efficient investor relations, and that's a good thing that happened certainly from our perspective, at least. But I think it also opens opportunities for investors to probably meet more companies. So hopefully, that works for the investor community as well.

Yes, I think so. It's an interesting mix of driving efficiency and also mandating efficiency as well. So we'll come back on it, to a couple of those points. Vlad, thank you for that. AJ, similarly to you, New York listed Smith-Midland. And obviously, a lot of activity is tied to essential business work. So it was, again, a bit of a different experience for lockdown for your company, I imagine.

Right. Definitely. So we had -- we manufacture license and lease precast concrete products. So we were deemed essential under manufacturing and construction. So for us, it was kind of business as usual on the manufacturing floor. We still had a lot of office people that were able to work from home, but our main goal was to keep all of our associates and our community safe. So on the IR side of that, investors, they really wanted to know that we were operational, that revenues weren't going to be impacted, which they were slightly. But that we're still going to be there moving forward. They want to know how we're dealing with the situation. They want no backlog, bidding landscape. So they're still looking down the road just like we are. So it's really how you're going to navigate this whole situation moving forward. So the thing we did, we pulled back some expectation. And we don't know how we're going to be impacted in the near term, but we're still focusing on that long-term plan for the company and how we're going to be successful and provide shareholder value.

Thanks, AJ. I think that we're going to discover later on, that's going to be the key, is in fostering that openness. Well, we'll find a bit more about how we can do that. Jason, from OTC Markets, you're obviously seeing a great deal of small and micro-cap companies who are trading in your markets and the sort of things they're up to. What are your observations about the impact of COVID-19 here to what Vlad and AJ tally up with the companies you're speaking to?

Yes. So obviously, we're delighted, both AJ and Vlad's companies are on our OTC QX market, as are we. So I speak to this as kind of 1/3 of the OTC market's IR team as well as the Head of our Corporate Services business, where we have over 1,000 companies from around the world kind of in that small and micro-cap space. I got off a plane -- similar to Vlad, my last meeting, I came back from Denmark, March 8 and was home March 9. And so for us as a company, it really was kind of get into gear and figure out how we continue to run the company, how we support our people and how we continue to tell our story. And all of that had to be done very quickly. As we look at the companies we service, I think AJ and Vlad, interesting experiences, and I think kind of talk to most companies. But there was 1 month to 1.5 months where there are a lot of companies where their entire business is shut down. We're fortunate we're a subscription model and so our revenues continue to grow. And obviously, Vlad talked about the increase in gaming and AJ stayed open. But for a lot of companies, there was the uncertainty of whether or not they could function at all. That was tough both from maintaining a workforce and just keeping the lights on, but also from an IR perspective. And we saw, at least in the first couple of months, companies just kind of battening down the hatches and not doing anything and just kind of in full on survival mode. I think as you look through kind of March, April into May, a lot of the companies that we deal with, they weren't dealing with outside. They didn't care about investors or telling their story. They cared about whether they could keep the lights on. We're fortunate, I think, we've come through that. And I think what we've started to see kind of in that May, June, July is companies that were able to survive, and most of them did, kind of realizing that we're in a new normal. They were able to get their technology up and running. They were able to get their people working from home and really started that process again of engaging investors, the investment community and starting to think about whether it's financing needs or just telling their story, seeing that new normal, seeing -- we operate the virtual investor conference series. And all of a sudden, we saw huge spikes in demand for companies that wanted to present to investors on that platform. We saw huge spikes in demand from investment banks and advisers that wanted to utilize that platform to bring investors to companies. And I think we're starting to see that become the new normal. I keep saying the new normal. We all want to get back on a plane. I saw the other day that Qantas is starting to just fly people around Australia with no destination just because people want to get on a plane. But I think people are resigned to the fact that you can meet more companies more efficiently, talk to investors, more investors, kind of in this virtual world. And so we continue to support our issuers in those endeavors.

It's interesting you bring that flight up, Jason, the Qantas flight. I believe it's sold out in 10 minutes of the ticket being on sale. I guess that's how desperate people are to get back to cramped legroom and packets of peanuts. But it's clear we're missing that. We at IR Magazine feel that, the lack of face-to-face is an issue. And I guess one of the key parts to being able to ride the current situation as an IR is having built up a bank of goodwill, of openness, of trust with investors. So I wonder, when we're looking forward, as you've all mentioned, this is still a situation, it's unfolding. There's no clear end in sight yet. How do you deal with the fact that this is still an emerging situation and one where ongoing communications are going to be paramount, important? AJ, I wonder if you could kick us off here, because we were talking in our prep call about that need to build trust. How is that something that you've undertaken?

Yes. So building trust is extremely important to us in this uncertain time. So what we've done, we've tried to add a little more granularity to our story. And we're clearly defining how the company is negatively impacted. So we're not hiding anything from investors. We're saying exactly what's going on, and we're defining what the risks are moving forward. And those are short-term risks that we see. So really, we're doing that while still putting out the long-term strategic goals and the long-term strategy for the company. So along with that, what we did is we didn't set any revenue or any expectations in the near term, but we focus on those long-term macro trends. And that's really that defining thing that's going to drive the shareholder value and what we can do to offer that granularity that they're looking for.

And Vlad similarly, the same to you, these points about openness and building that trust.

Yes. We try to be as open as possible also. So we -- because the uncertainty was high, we chose to basically say what we see as we saw that. So we started -- when it happened, we started communicating about moving the workforce to work from home. We started communicating that we see this increase in the demand and in the industry overall and for us as well. And we were also very cautious with any attempts to quantify the effect like a long-term and medium-term effect on our business. Although it seemed positive in the beginning that there were concerns about how long it's going to last or are people going to be able to monetize, or are they willing to monetize, are we seeing a wave of new users that are interested in just playing for free or will they eventually make payments and games. So we try to -- we didn't know answers to these questions, so we just try to explain what we are seeing and all the different ways it can evolve. And we also made sure to continue telling our story. There's a lot of interesting happening -- what's happening with the company when it happened, and that continued to happen. There were some fundamental changes and improvements in the business that we were going through. Marketing was getting more efficient. We were starting to deploy a large number of new games to the market after a while when we didn't have any new releases. So we tried to also paint this situation as a background and then explain what is the effect on the fundamental situation of the company, and we continued to tell the story. And we kind of led with the fundamental story. And then we just explained that this is how the situation with the lockdowns affects the fundamental story. So I think that worked quite well because our share appreciated about 5x from the minimum. That immediately happened after the distress all over the world to the kind of temporary, we hope, maximum that we have reached afterwards. So I think we did a good job. And I think we -- I think it pays to be quite open. And if you see uncertainty, just communicate that this is the uncertainty that you are seeing and try to maybe explain scenarios that can work and that can unfold. Yes, I think that's -- at least for us, it worked quite well.

Great. Glad to hear. Jason, just wanted to touch with you on that point as well. And to raise a second related point, one, I want to just make sure we get in, which is the problem of financing at the moment because there are a couple of extra issues around that, I imagine.

Yes. So it's interesting. It's not that long ago, it seems forever ago. The Levi Strauss and then the WeWork IPOs, right, and the talk around both of those. And from an Investor Relations perspective, all the talk was about getting back to basics, right? When you saw WeWork kind of implode on itself, there was this talk of get back to basics revenue from an Investor Relations perspective, telling a story. And then we jumped into COVID. And as we've been speaking to our clients and our issuers, it is that back to basics of Investor Relations is you got to be able to tell the good with the bad. All too often, especially in the small-cap and micro-cap space where sometimes the founder is the CEO and you have management teams that maybe aren't as familiar in the capital markets, there's this tendency to want to tell the good story, but try to shy away from the bad story. And I think, obviously, we all know that investors don't mind a bad story or a bad situation. It's really what are you going to do to get out of it or what's your plan to exit that bad situation. And we've spent a lot of time with our clients reminding them of that. We're all in this situation, and I think investors understand that not everything is rosy for everybody during this time. But if you have a plan, if you have a strong management team and you have trust and transparency in your disclosure and how you talk to your investors, they'll reward you for that, whether it's through maintaining their investment or seeing an opportunity to invest long term. With financing, I think what we saw at the beginning, certainly in March, April, May for a lot of companies is how do they going to finance themselves to maintain their business going forward. There was this rush of we're going to need short-term capital even just to keep the lights on. Certainly, the PPP program in the U.S. was very helpful in getting companies the money they need. But unfortunately, what you also see in the world of small and micro caps is a lot of bad actors that take advantage of management teams that are desperate. And so certainly, we saw a lot of bad financings. We saw a lot of things that you see that we spend a lot of time educating and talking to companies about and monitoring, things like promotion, insider promotion following a financing and how that works. And so for us, we take the education approach. We've got large companies and small companies on our market. We've seen it all. And when you get into a situation like COVID, we feel it's our responsibility just to help management teams through some of the things they're dealing with or are forced to deal with when you get to a situation like this. So advising on how to do financings, the type of people to get involved with, how you message those things, what promotion looks like versus traditional investor relations, those two can be very different and how the market reads those and trying to help companies work through. I think we've been relatively successful in that. And certainly, for us, it's brought us a lot closer to our client base, which has been really nice and helpful.

Very great to hear, Jason. Listen, I just want to remind everybody in our audience that you can submit any questions from our analysts on the Slido application, I believe. There will be a link put in the Hopin to chat any second. We will make sure we leave some time to address those. I have a couple more questions for the 3 of you, though. Jason, I just wanted to touch back in with you because looking further ahead as well, when we were preparing, you mentioned that there are a few kind of regulatory developments on the horizon worth being aware of, and I'm sure our audience appreciate just to kind of tick through some of those.

Yes. So COVID has not stopped the U.S. regulatory agencies from continuing to move forward and try to make actually some meaningful change certainly for the world of small caps or just generally speaking. Things to be aware of, and I won't go to too in-depth. 13F, the mechanism through which investment managers disclose their holdings, there is a proposal in place that will actually reduce the disclosure. We don't feel it's necessarily the right thing to do. We'll be commenting on that. But certainly, as it touches smaller cap companies, it will limit the amount of disclosure of holdings from investors, insiders and institutions. There's work to open up ESOP employee plans for small-cap companies or companies that are trading on our markets. There's move to expand margin eligibility for smaller cap securities. And then there is a very large -- the final rule was just set last week, something called 211, which is really helpful in helping small-cap companies come to market and expand the transparency and disclosure requirements to have those companies be publicly traded. So those are some of the regulatory issues that are working their way through, all of which will be helpful in one way or another depending on how they turn for small-cap companies, and we're certainly spending a lot of time commenting on those, working with the regulators to expand and grow those. And I certainly am here, if any of the people watching or listening or interested in learning more as to how that may affect their company or things they might want to comment on or don't understand positive or negative, we stand here, our team, to help companies understand those and navigate those.

Yes, absolutely, I'd urge anyone in the audience to definitely lean on OTC market's experts as you can and as you will. AJ, I just want to come to you on that point of filing is, again, something we spoke about a lot. That was a big part of the way you mentioned to me that you've built credibility there. Can you delve into a little bit how you built that up over time?

Right. So obviously, one of the big things as the micro-cap company or even as small as we are a nano-cap company, is making sure your filings are timely. I mean, that's obviously central number one. And number two, especially during this time, is taking that MD&A section and really providing that detail that investors can dig into and really get those good pieces of knowledge that's going to help them understand your business even better and understand during COVID of how it's impacting the company. And along with that MD&A section, you want to make sure you're not setting any unrealistic expectations because the facts are, we don't know what's going to happen tomorrow. It kind of seems like we're past it now, but you just -- you still -- there's so much uncertainty going into this, I would say, winter season here. So we're really taking a lot of precautions there. And I think the other thing in the filing in the detail is explaining how revenues and margins are impacted by COVID-19. So it's really kind of breaking out that section. And for us, there was short-term margin impacts. So what we decided is being a central business. We kept everybody working. Even though revenues slowed down a little bit, we made the decision internally to make sure everyone is working, everyone has a paycheck, is able to keep their family safe and do our part to help the economy moving forward during this uncertain time.

It's interesting to -- I think one of the takeaways we, IR Magazine, have found from speaking to companies at the moment is that it always becomes -- what's the word? It's almost part of ESG communications, right, they're drilling down into your social impacts and your impacts from your stakeholders to a large degree. And it's funny that it takes a big event like this maybe to promote that, but it sounds like that's something that comes naturally to what you're doing, AJ. Vlad, I just wanted to put the same to you, maybe not specifically about filings, but in general, that slow work to build credibility and consistency.

Yes. I think one challenge that we had or a big difference to many other companies in this situation is that we are kind of in a reverse phase when it comes to the lockdown effect because it's considered a positive for the games industry. And then when the lockdowns are relaxed, it's actually a negative for us while it's positive for many other businesses. So I think we saw that dynamic in the market. And so we try to explain that still keep saying -- keep telling our fundamental or about the business developing and new games being launched and explain that the lockdown situation kind of accelerated the inevitable transformation of the business into a better business with a larger scale and that the relaxation of lockdowns does not reverse that. The users that came to us, they came to us so they will stay. It kind of regulates maybe the number of new users in a unit of time that joined us. But those who came to us, they stay for long term statistically. So we struggled with that a little bit, and we had to spend, I think, extra wording in our reports on explaining exactly how it works. And so with regard to the upcoming winter season, seasonally, for us, it's usually quite strong because people are naturally spending more time at home and with their families. And this is when we see that our audience likes to enjoy their games. So this year, we'll try to probably explain that it can be extra good. I guess for us, as everyone wants to be more safe and in case there are some additional restrictions on people moving around. So I mean, we are happy to provide some relief to people in this situation. And this is kind of what we worked for, right? We try to bring joy and some distraction from maybe negative things happening in the world by providing these little games to enjoy to our players. And we're happy to be there when it's in demand, whether or not they're making payments. And our games are free to play. So you really don't have to pay. And 90% of our audience never ever pay anything. So that's just very, I would say, satisfying for us as a business to be able to help people a little bit in these situations. One other thing is that when we were -- I think when we were telling our story, when it just began, when it started and there was a lot of distress and uncertainty in the markets, it took some time to build the trust and to explain that our business is not going to be affected negatively. And if anything, looks like it's going to be affected positively in the short term. We saw that it's not reflecting in the share price. So we started doing buybacks, and we were in this unique position that business did improve at the same time as the share price kind of deteriorated. So we decided that it's a good time to do buybacks. So we returned quite a bit of capital to the shareholders by doing buybacks through this period. And in retrospect, that was a great decision, but it also showed to the market that we were serious about our words that this is actually fundamentally a very good situation for the business.

Yes. Like you say, following through on promise -- not promises, but reassurances and trust you already made there. Jason, I just wanted to come to you before we go to some audience questions here. You said that at a time like this, you've coined this phrase, I do not want to claim any credit for it. You said a "back to the future" from an IR perspective was the kind of flavor of the month. Can you tell us a little bit more about that?

Yes. I think it goes back to what I've said, right? It's back to the future of just the basic blocking and tackling of investor relations, right? You're the conduit from the boardroom to the living room, an Investor Relations professional is, right, telling the company story to the investor. And when you go through cycles as we've been through, the unicorns that are listing and all the hype around the investment community, when you get to a situation like COVID, it's back to the basics. AJ and Vlad are speaking it. You have to be able to tell your story at the core. What is your business? How do you operate? What are your plans for growth? How do you intend to achieve that? What are the things that would put that at risk? What are the things that might propel that? And really going out and speaking about the core fundamentals of your business and why it is a good investment proposition? And I think when you go through these boom cycles of markets and some of the things that we've seen certainly in the last 10 years, sometimes investors can lose sight of that. Companies can lose sight of that, and it comes -- becomes more about talking up a little more of the hype than the fundamentals. And so I think for all of our companies and whether it's the virtual investor conference presentations we see or the one-on-one meetings that even we have with our investors, it really comes back to where do you make your money from, where are you going to make your money from next year, what does your expense line look like, how are you going to manage those expenses. Those things are all boring to talk about. But I think they're really what investors want to see from companies now, not necessarily some pie in the sky hope for what could be. And I think that's nice to see. I think, from an investor perspective, being able -- for companies to be able to offer that type of detail, for me anyway, it's nice to see it kind of getting back to those basics.

Yes, certainly. And as we -- I think we've -- all 3 of you have said it's the bread and butter work, which really pays off.