Ten Square Games SA

WSE:TEN

Earnings Call Transcript 2022-Q1

[Maciej Zuzalek, executive]

Good afternoon. Welcome to Q1 '22 results presentation. Here, today with you.

[Magdalena Jurewicz, executive]

Magdalena Jurewicz, Chief Financial Officer.

[Anna Idzikowska, executive]

Anna Idzikowska, Chief Growth Officer. Welcome, everyone.

[Maciej Zuzalek, executive]

Maciej Zuzalek, CEO.

[Wojciech Gattner, executive]

Wojciech Gattner, Chief Product Strategy.

[Maciej Zuzalek, executive]

Okay. So we'll start with -- as usually with Q1 '22 highlights. The key things that occurred during the Q1. The number one is obviously our performance has declined quarter-over-quarter. A lot of impact on that had current market circumstances. There's been quite a few changes that we observed in Q1, end of lockdowns. We saw a war in Ukraine, and decision that we've taken on that in terms of closing Russian -- Russian markets. And we've also seen a lower U.S. spend and a possibility to invest money in marketing.

When we look at our core engines, Fishing Clash and Hunting Clash, the performance is below our expectations despite the fact that actually Hunting Clash had the best quarter ever. Both products have road maps prepared. We're working on new features. We're trying to bring them to growth in 2022.

The next area of our development investment in the future to building new titles. We have four titles, which we're looking to launch in 2022. And they are all being progressed to deliver players in this products over the next several months, especially in 2022.

And the fourth thing where we are very focused in this quarter -- last quarter was our acquired portfolio. We've made two investments, RORTOS and Gamesture, and both are showing us very good and healthy signs of performance. We think this is still early stages, but is proving the concept of TSG being able to acquire businesses, invest in their products, support the teams and generate additional value. We'll talk more about that.

[Anna Idzikowska, executive]

So as typically, I will offer a deep dive into the performance of our two core games, Fishing Clash then Fishing Clash China and Hunting Clash. So let's start with Fishing Clash performance during the first quarter of 2022. So the results, bookings-wise, were 20% lower than our Q4 2021 performance. It's related to a couple of reasons, some of them were mentioned by Maciej already. The first factor is discontinuation of Russian and Belarusian market in our games due to the war in Ukraine. And as we know, as we were already stating, Belarusian and Russian markets contributed to around 6.5% of our revenue of our bookings in 2021. So this is the first reflection of the decrease of the bookings.

And the second thing is the end of lockdowns. We see that the whole actually gaming segment is declining. Obviously, we believe in this segment in long term, but we see that there is a visible slowdown, especially in the main markets like the United States, which obviously contribute to the biggest part of our bookings.

We also see greater marketing dynamics, which are also very strictly connected to our marketing activities. There is also a consumer segment and inflation that is visible. So we also think it has a big impact on our business.

Regarding lower user acquisition spend and the turbulence on the marketing dynamics. As we were stating, there were a lot of changes connected to the policy change related to iOS, but it also had an impact on Android. We've seen the increase of marketing costs. So obviously, it's reflected in our marketing spend, but also in the bookings.

Another thing related to the user acquisition spend, which is plus 18% in Q1 2022 versus Q4 2021 because of the December that was showing a big decline in our marketing spend. We also have been spending a solid portion of our marketing spend to Russian and Belarusian markets. That's what we are not doing now since we have discontinued our performance and availability there.

We also see that the average [ MAU ] has gone down a bit while our average bookings per user are on a very solid level. So this is something that we are satisfied with.

Fishing Clash China. A few words on this title. So as we were saying, we were getting credit to introduce Fishing Clash China to new Android platforms, which are responsible for around 80% of players in Chinese market. Chinese market has been changing significantly during the last months, actually, the last year. A very low number of new games being introduced in the market, but also restrictions coming from the Chinese government, the regulator. So we've been seeing that, and we were evaluating the title because of that.

What we have done recently and something we want to announce is that we entered to a platform. It was in the end of April. So we are still calculating. We are still waiting and evaluating the data. But this is the entry to the market of more than 500 monthly average users. Another step, which will still be concluded in Q2 2022 is the entry to another free stores, which will also reflect around 500 monthly average users. After that, we believe that we can fully evaluate the performance of Fishing Clash in China because we will deliver the full rollout.

We were saying before that for us, iOS is just a part of the market. So now, entering Android platforms, we will be ready to tell you more about the performance. Probably the next conference, we will be able to share more info. In general, we have done -- we have managed more than 4 million downloads in China until the end of April. And Fishing Clash is still a very strong contributor when it comes to sports category, both when it comes to downloads and when it comes to bookings.

Hunting Clash. Hunting Clash has, as Maciej said, the best quarter in its history. The revenue was plus -- the bookings were plus 6% versus the fourth quarter of 2021. But as also Maciej said, we see a slowdown. We were really able to deliver a lot of content during the first 3 months of 2021. And what we are focusing on right now is to be able to, in midterm and long term, being able to deliver content -- diversified content in the game for more than 3 months. We see this slowing down with bookings, also with marketing spend in April and this is what we are focusing on right now to be able to deliver more content and to be able to more efficiently promote the title longer term.

Obviously, the downtrend for April is also connected to the same factors I was mentioning for Fishing Clash. So two blends on the market, lower sentiment of players and of lockdowns, war in Ukraine, lack of user acquisition spend in Russia, Belarus and also lack of bookings coming from these geos. And basically, our current focus now is to test the product to make it as close when it comes to performance and content as Fishing Clash is.

[Maciej Zuzalek, executive]

Okay. And a few words and update -- status update on RORTOS. As you may remember, we bought the business in July last year. So we are working with it 10, 11 months now. And the whole hypothesis was built on a few pillars. One was bringing Airline Commander under TSG roof, taking over a product, not a very common thing to do in the business, but we wanted to connect it very much to our monetization systems and have it under control that's been agreed with the team because we thought there's more value to be generated in this product.

The second part was running current existing portfolio, which was done by RORTOS out of Verona and that portfolio, part of the portfolio did really well. And the third pillar was launching a new game, Wings of Heroes, which has happened recently.

So moving back to Airline Commander, that's been a process that's taken us about 10 months. If you remember, we really started with the idea of taking over the product. We had to delegate one person, a team leader, to start building the team. It's taken up until Q1 2022 to build a team of around 15 people.

And in between, in the background, we were integrating the game with all our systems, and technologies were different. It was quite complex process, but we're coming out of it with a deep knowledge on how to manage products, which were not built in our ecosystem. And that's a very, very important pillar for the future development of TSG, we believe.

And in Q2, we are working hard on new features. We've tested with Airline Commander marketing at the beginning of the year. We invested in it. And a very clear conclusion from that is we think we can lift up the number of users in the game but it needs deeper monetization. It needs more feature. And that's something we're working on. Those features will be coming through still this quarter and the following quarters.

And looking at Airline Commander, the very big kind of hypothesis for us was, can we take this product towards our flagships, Fishing Clash and Hunting Clash? And that's something we're trying to do. How far we can get, we'll see. But I think the most exciting part is coming over the next few months to learn that.

The second pillar, which is actually the way we look at it from an investment perspective, I can say our Wings of Heroes was a little bit of an upside from TSG perspective. A new product in earlier stages of development with unproven hypothesis. Market is changing. But we've seen the launch of the product recently, and it has excellent retentions, early retentions over 30%.

That's something that is the top of the range of what we're seeing at TSG. And it's very, very encouraging early performance. And that game will get a lot of focus from our team in Verona, but also with the help of TSG team. And that's RORTOS.

So I think it's in line with our expectations as we set them at the beginning of that transaction. So 12 months in, I think that's good news for us. But we have obviously much bigger aspiration for it and the cooperation is going very well with our colleagues in Italy. And we just need to spend more time working on these products. And hopefully, that's going to bring us to great results.

The second investment, a different type of investment, a company that we've known for a long time. Gamesture, study located in Krakow with around 70 people strong. That's been long-time discussion about the possibility to do something together. We ended up buying a minority share in the company.

And if you look at the performance on the right side, throughout November, we've taken a decision to start due diligence and getting and looking at this transaction in a serious way. Everyone was ready for it. And we hope that Gamesture will actually start getting tractions with some of the products.

As you can see, the company has grown, in 5 months, 2.5x. And now thanks to the performance of the core game, but also the Questland, but also a new launch Slash & Roll, a completely new type of the game for the studio that's having a very, very good KPIs. Also, the early retentions are very high. And that game is a game that can be replicated in the different thematics.

There is a second game from that family being launched over the last few days, and the early KPIs also very strong. Very strong retention as we're seeing first monetization signs. The game is called The Gang. And it's a completely different thematics. So that's something that Gamesture will continue to explore, these two games and maybe possibilities to roll them into other thematics. And the last thing, also, there is another game that is being produced by Gamesture and it will come to market test pretty soon. We think there might be something interesting as well.

So if you look at Gamesture, I think different transactions right around the corner, very good feat. We're helping our colleagues from Gamesture to deepen their know-how, but also learning from each other. That's a good experience. And I think overall, 12 months since we made the first investment, I think we can see the early signs of the MA strategy being a very, very exciting part of the business for TSG that, hopefully, we can leverage and it will take us to further diversification of our portfolio.

[Wojciech Gattner, executive]

Okay. To summarize our current production pipeline. We wanted to say that Wings of Heroes was just recently sub-launch, as Maciej said. We are super happy with the initial KPIs, with the vitals, with the retention engagement and monetization metrics. Just for the note, the game is still super early -- in a super early phase of development in terms of how many systems are there, how many features are there. So that's why we are very optimistic about those numbers. They look very good.

Regarding Football Elite, we are in the testing phase right now. We started the game in Mexico and we added the United States, to the countries that the game is targeted. We are working on the improvement of the KPIs, and we are preparing the game for the next iteration. We can see that the amount of work that we did over the last months already paid off. The KPIs are better, but we still have to grind a lot, and we still have to improve the product.

Undead Clash, our new clash, is planned to be soft launched by the end of this year. We are working on features. We are working -- we have a very robust road map. So everything is going according to the plan. And we are adding those features as -- we'll be adding those features in the upcoming months. And we'll be also seeing the dynamics of the improvements. So we are planning to be ready by the end of this year.

Fishing Master, we finished the prototype. We are expecting the soft launch to be on the verge of the end of this year and the beginning of the next year. It's another fishing title to our portfolio. It has a very nice fishing thematic with a lot of adventure behind it. The team is -- the Warsaw team is right now focusing on delivering that title.

Magical District, as we noticed a few weeks ago, we decided to freeze the development at this very moment to put that on hold. We strongly believe in Fishing Master. So that's why we wanted to put more focus on that. On the other side, the game KPIs needs still to be much more improved than we initially expected.

On the other side, we also have other bets that are coming from Football Elite and from the Gamesture portfolio that are having a lot of similarities between the core components of the Magical District. That's why we, right now, we have a few bets on that specific topic, which are covered by already more, let's say, mature and developed titles with much better and more promising initial KPIs. That's why we want to focus on those titles.

And as Maciej said, they -- our investment in Gamesture, and Gamesture will be soft launching and launching their few titles and upcoming months with a very nice Slash & Roll and The Gang [KPIs], and also Legacy Hero. That should be coming a little bit later this year.

This is the slide showing how TSG develop in terms of the team sizes. And obviously, as we look at our performance, we'll react to that and the plans we had to further develop the company. We'll slow down the recruitment and we are being mindful of how we develop the business, looking at the cost base of the company.

[Magdalena Jurewicz, executive]

Okay. Financial results. As a summary, first bookings. As Wojciech said, we have a decrease in 15% quarter-over-quarter. In terms of bookings -- by geography, we are still strong on our Western markets, especially in North America and Europe, and the split of the revenue by gains of the bookings. Of course, the biggest Fishing Clash, but Hunting Clash and the RORTOS games are also increasing in the share of our revenues.

And operating expenses, I would like to exclude one-offs, of course, our stock option program and other M&A costs. And then when we analyze the cost, we see that, of course, there is an increase over quarter-to-quarter. It is mainly to bigger teams, bigger infrastructure and the cost of our subsidiaries. Last year, at the same time, we didn't have RORTOS, [Berlin studio] and [Bokaro studio], so big as it is now.

And in terms of selling costs, of course, provision and marketing. As Anna said, marketing was lower due to some reasons, and it also has an impact on our numbers.

And EBITDA, yes, the quarter is not so good as we would like to be. EBITDA achieved PLN 41 million and net profit, PLN 25.6 million as many of course of the same reason as we mentioned. So war, marketing spendings and consumer sentiment.

Cash flow and balance sheet. This quarter was pretty stable. So we operate -- we generate stable cash flow from operations. And in terms of balance sheet, we added a few million dollars balance sheet. Some, mostly in cash and other current assets.

And one more thing -- maybe two, one also, let's say, in our operation, of course, both Gamesture acquisition, mainly -- not mainly, but fully financed by our cash. And the second one was our buyback. Both of these activities were financed by cash. That's why our cash position is slightly lower than it could be without these one-offs.

Okay. And profitability and cash flow. Of course, profitability decreased quarter-over-quarter, but we are still happy with the cash position, and we generate high cash flow KPIs. Yes.

[Maciej Zuzalek, executive]

Okay. So just to sum up this block where our current focus is. We definitely are working very, very hard on the portfolio performance, and we're trying to put the lever serving that's in our control. We're trying to work in that and trying to work with the products, bringing new solutions to the games, but also working on the user acquisition side, working and developing our systems.

The second area, very important for us, we started development of a few new games. Sometimes ago, very important we bring those games to the market. You can see some of them coming early on. We would like to do is to bring all of them still in 2022 to have the players play them. And so we can look at KPIs and think how to develop them in the future. And the last bit, we see the value of M&A. We'll focus on integration, supporting acquired portfolio, looking to grow the titles that those companies have.

On that note, thank you and moving to questions.

[Unknown Executive]

Okay. Thank you. We'll start with the questions. So first question would be -- okay. Does the management or any of the shareholders plan to change the price range for the buyback program?

[Maciej Zuzalek, executive]

I mean buyback is one of the strategies that is possible to apply in the current circumstances. Our fundamental belief when we think about TSG is about making the company good progress in terms of development of the games, and that's the core to what we do.

We've launched a buyback program. We're reviewing that position. There's a lot of aspects in the tactical and strategic aspects to be taken into account, and we obviously thinking about buyback and how it's positioned and what prices. So that's an option on the table still.

[Unknown Executive]

Okay. Thank you. We have a couple of questions regarding the management incentive plan. So the question is concerned, the parameters -- the EBITDA parameter for the management incentive plan and the reason for it. There's a question whether this builds transparency towards the company and the management.

And there's also a question whether the company could consider linking the management incentive plan with the market cap instead of something like EBITDA.

[Maciej Zuzalek, executive]

Okay. So we're going into things that were discussed with Supervisory Board and decided by the Supervisory Board. If you look at the company and current performance, you can't isolate it from market circumstances. And we had an excellent period of time with COVID, which we took a great advantage of.

We're in a particular life cycle of the business. And all the aspects of remuneration schemes, motivation have been discussed different groups that also relates to the company people employed in the business.

And the very important aspect of it is, please don't forget, we operate in a highly competitive global environment, especially post-pandemic, everything that happens -- that happened before, so 2, 3 years ago when people work in studios physically, that was the core to the gaming industry that is changing very, very much.

A lot of people working remotely. We're employing about 150 people in a remote mode. So we are competing on a global scale, and that's something to bear in mind when you think of our companies and any other gaming business in the world.

[Unknown Executive]

Thank you. Next question would be regarding general and administrative costs, whether if you can comment on the increase in the G&A going from PLN 24 million -- being PLN 24 million in first quarter of 2022 compared to PLN 11.8 million in the first quarter of 2021.

[Magdalena Jurewicz, executive]

Could you please show me the slide from backup with this cost. It would be easier to answer the question. From -- backup, backup, backup. Later, later, later. That was it. Okay. As I -- I mean, we have some one-offs which also are reflecting the total administrative costs. But let me exclude the cost of the stock option program and other one-offs, which are M&A and [Croatia 3]. Then we see, I would say, the normal level of the cost.

And as I also said, of course, they are increasing, but the increase is not such a big as it was in this question. And the main reason of the increase is, of course, our fixed, I would say, salary based. We have bigger teams, and we need to pay them despite of the fact of the revenue. So they are not like that, that we -- if we earn less that we pay less. So that's the answer of the question.

[Unknown Executive]

Thank you. Next question regarding IR. When can we expect the next IR manager to join?

[Maciej Zuzalek, executive]

We are at the final stage of recruitment process. So as soon as the person will be available.

[Unknown Executive]

Okay. Thank you. A couple of product questions. So first one would be, what are the results of Fishing Clash in China since the beginning of the year? Why is it still insignificant? Why is it marginal still?

[Anna Idzikowska, executive]

Okay. So I will take this one as always. So basically, I cannot share the direct numbers for Fishing Clash China. It's under nondisclosure agreement with our partner, with NetEase. The formula of the cooperation of Ten Square games in Chinese market is completely different than what we do in any other market. We have a publisher.

There are some cuts that are different channel fees that differ a lot to those that are offered by, let's say, global providers like AppStore and Google Play. We have a very fragmented Android market in China. So obviously, here, the numbers are also different. They are much higher.

So long story short, I will not share the numbers yet regarding Fishing Clash in China. But when we compare these results in general to our biggest markets, they are very solid and very good. But we need to remember that China is just one market. I know it's huge. It's the biggest gaming market now. But there were also what I was already mentioning, a lot of restrictions, a lot of limitations to this market, especially for Western foreign developers bringing games to the market. This market is also very protective. So that means that we cannot launch the game ourselves. We need to have a publisher. That means that we also need to share our bookings, our revenue with our partners.

And there is not only one. There is a publisher, but there are also the platforms. Our partner is responsible for the marketing spend. So that's why what lands, let's say, in Ten Square games pocket in the end of the day is obviously only a part of what we are generating in Chinese market.

Another part of the answer to this question is why it's still -- now. Yes, this is the part of the reason. The second part -- the second reason is that we just started entering Android platforms. And you know that building the cohorts, bringing the revenue comes with time.

We also need to focus on Asian markets more. We need to understand players, but we've been available on iOS only. Now we are starting the right to Android. So I think the next time we see each other here, we will be probably able to evaluate, as I said, the performance of Fishing Clash China after the full rollout.

So I would say cuts, platforms, the formula of the corporation. And the second thing is lack of Fishing Clash on Android market in China, which contribute around 80% of traffic and around 70%, 65% of the revenue coming from gaming. Thank you. That will be all about that.

[Unknown Executive]

Following Fishing Clash China, we have a question regarding Fishing Clash global. Would you see that Fishing Clash is in a trend of decline? The new content does not seem to be contributing towards additional revenue.

[Wojciech Gattner, executive]

Yes. So basically, yes, if you look at the top line numbers, of course, we could see like there was a decline trend in the recent months. However, as we said in the previous conferences, we felt like we are bottoming out, especially in December, where we had one of the best months in 2021. 2022 showed us a new reality with cutting of the Russian and Ukrainian players and a lot of external disturbance, I would say, that definitely impacted some of the KPIs.

We are delivering the new content all the time. We are delivering new features that -- this year, and there are a few very, very strong features, very strong bets that we believe will reverse that trend. If we look at the performance of new cohorts or look at other vitals, we don't see anything that is, let's say, very disturbing, yes, like all the numbers are good, and the retention rates are actually increasing.

We could see a little bit higher churn after the war started, which is like kind of an external circumstance. And we are, of course, monitoring it heavily and every day.

But we are investing in that game a lot. We still believe we can improve that title by more. We still believe that this is an evergreen title that will be able or will be back in the growth in the upcoming quarters.

[Anna Idzikowska, executive]

I would like to add something from a marketing perspective. So we've seen a decline in our marketing spend over the last few months basically. It's connected to the turmoil on the market. We see a lot of changes. It's like a multi layered cake. I know I like this expression, but it really fits. There are so many changes.

And we try to adapt. We try to be as effective as possible. But obviously, the profitability of our activities with increased user acquisition cost is decreasing. That's why our role here is to make sure that what we do is profitable. So that's why we've seen lower volumes being delivered to the title -- to the titles basically because it's a market situation that is pushing us a lot here.

But we do believe in the segment. We said that we've seen the decline in the segment in general. There are many players who are decreasing their marketing spend. They are testing new platforms. They are testing new channels. They are trying to approach the marketing topic from a different angle. That's what we are trying to do. But it's not a short-term game we play here.

Same as Fishing Clash is not a title that has -- that was created a few months ago. It's a solid title that has months of, let's say, experienced content creation, history and also a long story of marketing expenses. And we will be increasing them. We will be focusing on them. That's our main focus, actually, to be able to increase the volumes, but in a profitable manner.

So we do believe in the title, and we believe it's a long-term play. We've seen the decrease of the volumes we've been delivering to the title. So obviously, it has a delayed effect on our bookings, on our revenues. So also we need to take it into account. But I know you are asking about the future here. So we believe that we will be continuing focusing on both product marketing and the cooperation between the two, and we will do our best to increase these numbers in the future.

[Unknown Executive]

Next question. We'll bundle a couple of questions together. But the first one would be more financial. With the variable management incentive scheme, in April, the Board of Directors approved an ESOP with an EBITDA target of PLN 172 million to PLN 251 million. How does the management see delivering this result in 2022, the top end of this result? And also, does the management see -- does the management plan to implement an ESOP for other employees?

[Maciej Zuzalek, executive]

Yes. I think the last part of the question I answered previously in terms of the range. We normally do not tend to comment on the future. And even as you can see with the current performance or the historic performance in March 2020, there can be a volatility in the gaming business. We experienced that twice on a significant scale. I think the range that you see is the kind of Board view on potential outcomes that will be good in this current circumstances. But the way we operate and the way we think about the company and how we manage the business, and I think we've said it on every quarter is we manage it for a long-term success and midterm effects as well.

We are going through a new wave of development of new products. We're trying to improve our products. We're bringing more people with different know-how into the company. That's the investment at the back of 2020 success that we decided to make to see if we can take the company in a very sustainable position over long term.

We have a big market disruption at the moment coming off the lockdowns. There was a war complement, which added to the performance of current portfolio. It's frustrating for you. It's also frustrating for us.

We're trying to do our best on this side of the table on this side of the screen to deliver the best performance. And the outcome of it is -- it's -- as we've seen in Q1 can be quite volatile. But the only things -- the things we can control, which is working with the games, looking at our users, looking at user acquisition, all of the things we're doing the best we can at the moment.

[Unknown Executive]

Thank you. Now a couple of product questions. First one regarding Magical District and its development costs. Should we expect any write-offs now that development is postponed?

And the second question regarding the cost of Zombie Clash development costs are already above PLN 10 million. Should we expect that each new game would cost more than PLN 10 million to develop?

[Maciej Zuzalek, executive]

I think on Magical District, we decided to put it on hold to have the team focus on developing Fishing Master, which adds to our fishing-themed games. And we think it's important. Now we add another game in the portfolio. And I'd also mention just to explain what happened in side. That game was partially outsourced, and we decided to produce it completely in-house with our own team. So that means that team is busy -- seriously busy with Fishing Master at the moment. It's going to be busy for the next 9 months.

And then we'll take a decision on Magical District. The way the game was developed, it gives an opportunity to -- at the back of the engine that was created to build different types of games. So it's kind of -- it gives us a chance to reassess this and think whether we want to follow with Magical District, or maybe make a pivot, or maybe we'll decide to discontinue.

That depends also what happens with delivery on Fishing Master and how strong the product is going to be. So I think that's on hold. And we didn't want to decide now, but we have -- there have been an engine built.

On Zombie Clash, yes, it's an expensive game to produce. The cost of game production increased already. I think that's a worldwide trend. You can -- if you follow other companies, not necessarily every game will be PLN 10 million plus. The three depends on the type of the game. But the one thing which we observe in the market is general demand for high quality of games. So that means producing better games, better looking games, and that just takes time, money and effort to produce them.

And Zombie Clash is one of these games, which we believe looking at all the competitive landscape should look just look very good, and it takes time and money to produce this type of a game, but it's built at the back of our Clash meta, and we believe it will have a good potential to pay off, and we'll make good money on it like we did on Fishing Clash.

[Unknown Executive]

Thank you. Next question. It's already the 24th of May. Can you comment already on Fishing Clash and Hunting Clash performance? And is there any pickup month-on-month? Or is it flat month-on-month?

[Wojciech Gattner, executive]

So basically, as you probably can see on the data that -- in the third-party data that like [ Appen Sensor Tower ], and that's something that we already published. April was on par with March, if I remember correctly. May is a little bit below to what was in April, but we can see some stability coming in.

[Unknown Executive]

Okay. Thank you. As game monetization does not develop as you expect and gamers spend less, do you plan any cost-cutting initiatives to support the profitability?

[Maciej Zuzalek, executive]

We are looking at our cost base and we're looking at our business as we go, and we are reacting to what's happening in the market. And I've commented on that before. We decided to slow down significantly the recruitment program, watching carefully on the core initiatives in the business. So trying not to lose the best opportunities we believe we have in the current state. And we're observing and working with the performance of our games.

[Unknown Executive]

Okay. And a question -- a follow-up question probably to this. With regards to headcount, what are your expectations at the end of 2022? Previously, there was guidance for 600 people.

[Maciej Zuzalek, executive]

Yes. I think if I haven't said it loud enough, I think we will not look with the current circumstances to build the team to 600 people. We have reviewed the areas. We know where we need to invest which parts of the business, but we'll -- for now, that plan is on hold.

[Unknown Executive]

Okay. What's your strategy on user acquisition for the coming weeks and months? Should we expect marketing costs to remain lower?

[Anna Idzikowska, executive]

It's very difficult to discuss future. I always try to back up my opinions with data, obviously, but there is also some experience coming here. And we had that formula of smart growing. That means we go both ways when we see there is space to spend more, we do that. But also when we see we should slow down, we do that as well.

So another thing is the cooperation with the product. We see the product is delivering new content. We see there is an increase in some KPIs. There are so many of them that we follow, then again, we can increase our marketing spend then.

What will be our strategy on user acquisition? To adapt to the circumstances as always. So to be profitable, to deliver volumes that can bring profits in future in longer term since we see that the time of recouping our campaigns is slightly longer than it was, obviously, some time ago, which is connected to the increase of user acquisition cost.

But definitely, what we will be doing further because we have already started. It's not that we will invent something completely new, and we will change the market, but we will continue our smart approach. We will be testing new marketing channels. Actually, we have started doing that. I'm not talking about influencer marketing only, which, by the way, we see good results coming from different games.

We need to remember that our games in our portfolio, they are different. They differ from each other. So obviously, the results coming from different channels will be better or worse adjusted to them. So this is definitely something we will be doing, and we will hopefully be able to shift more budget into these areas. We will be testing TV again. We did it successfully in the past. So definitely, we will now do that for a couple of our titles.

We have already started testing marketing channels that we worked successfully with last time during this COVID period when we were increasing our marketing spend, and we were trying to spend everywhere we could. So we are testing them again. So obviously, the results will be slightly delayed. When you test something, not necessarily the first results are in line with our expectations. So this is something we are doing as well. We came back to almost all channels we've known from the past.

I need to also say here that the changes to the market were affecting the marketing channels as well. So there was a shift. Some of the partners we cooperated with are stronger, some are weaker. Some are better adapted to the new situation, speaking of iOS, in future Android as well. So this is something we are doing here. Some of them they got ready finally to be able to work with them more, let's say, directly.

We are also onboarding new channels. We need to remember that some platforms, they are declining when it comes to daily active users. Some others are growing. So we are also trying to follow the trend to work with several networks which are more, let's say, popular among players and users in general now. So this is definitely the strategy to go wider, but we don't forget about the cooperation with the platforms.

User acquisition is always referred by people to paid user acquisition, but this is not true. There is also a big scope of organic traffic we are fighting for. So many games of the day in AppStore. So many featuring collections we are in. So we need to make sure that our games, they have good vitals. They could -- they don't have box. They are fixed the players. They can play them easily because then we become part of the collection.

So this is what we are doing heavily investing a lot in this context, and I think we are pretty much covered here. So this is how I would like to answer this question. But we will be trying hard to be able to always, let's say, on top. So we don't forget about some channels and some possibilities.

[Unknown Executive]

Thank you. Next question. How much will Fishing Master differ from Fishing Clash on the gameplay level?

[Wojciech Gattner, executive]

Okay. So on the gameplay level, there are like two completely different games, I would say targeting very different, let's say, audience, at least for the core, for gameplay. Of course, the game will still have a lot of core mechanics and -- that are present in Fishing Clash, however, as I said, gameplay and the feeling of the game will be much different to Fishing Clash.

[Unknown Executive]

Thank you. Following question, does the call option to buy out the Gamesture majority stake include the financial performance-related payment?

[Maciej Zuzalek, executive]

Yes.

[Unknown Executive]

Thank you. Football Elite, what are the company's first conclusions after a month of technical launch?

[Wojciech Gattner, executive]

So our first conclusions are that we improved the product a lot in the last year. Second thing is that there is still a lot of work in front of us, waiting for us and that we'll have to focus a lot on improving that product. We also see some synergies with, for example, Slash and Roll where they're like not similar mechanics, but there are some similar dynamics in those games. And that's very good to have a nice benchmark to compare each other and to even faster build the know-how.

And we are learning the audience. We are learning the -- we are looking at the data. We are working on the AB test. We are working on the development of that title. Yes, we are also running some marketing campaigns, and it's business as usual after the technical launch of the title where we try to improve the product as much as possible and see the dynamics of the change.

[Anna Idzikowska, executive]

From a marketing perspective, we have a few titles we are launching. Now we are testing now. So it's good because we can compare the metrics, but it also means that we are more demanding now seeing some metrics here and there. So this is definitely something we are doing and it is connected to Football Elite as well. So we want to improve, and this is what we are doing now.

[Unknown Executive]

Thank you. Two questions. I will bundle them later as well. For Fishing Clash China, which we've already discussed, but the question is, can we expect first revenues from the channel -- from Android channel already in second quarter of 2022?

[Anna Idzikowska, executive]

Yes.

[Unknown Executive]

And the second one would be, what's your expectation for quarterly revenue once the game is available on all platforms?

[Anna Idzikowska, executive]

I would like to take a look at the first results coming from these platforms, and then I will be ready to discuss more. Sorry for that.

[Unknown Executive]

Wings of Heroes. Has the company already started acquiring players for this title?

[Anna Idzikowska, executive]

Yes. And we are happy with the first results. We are comparing to the other items we have in the portfolio. But this is the very early beginning, but the first -- are very satisfying one. And we are exploring this new niche, I would say. We also have Airline Commander we are running our marketing activities for. So this is very interesting to compare and to see how it works, especially all of these titles, they are being tested in the same geos. So yes.

[Unknown Executive]

There's another question for Magical District, which probably is linked to -- similar to what was already asked, but I'll read it anyway. Can we expect that any of the newly built teams by the company may take over Magical District?

[Maciej Zuzalek, executive]

I don't know what it meant -- was is meant by newly built teams. I guess the wider TSG teams, if we would pick up the Magical District. No, that's not the idea. The product that belongs to the team that created it. So we don't have such plans.

[Unknown Executive]

Thank you. We already asked a question as well about Fishing Clash and Hunting Clash and their performance in May, but there's also a question for RORTOS performance in May, if you have any comments regarding RORTOS?

[Wojciech Gattner, executive]

So yes, we are very happy, yes. Basically, I think the best news is the launch of Wings of Heroes and basically very good initial KPIs from product standpoint and from a marketing standpoint.

[Anna Idzikowska, executive]

[Berlin Commander], we continue our marketing activities. When we continue marketing activities, then it means we have a reason behind that.

[Maciej Zuzalek, executive]

But maybe also fair to comment in terms of how we look at RORTOS. So as I said, when I covered RORTOS development, we finished the team set up all the connection with all the systems. We've learned how the game should be operated, and we started producing and the features that should improve the performance of the game.

And the sequence of events is we need to bring these features, test them first in the market, make sure they're working and there are the things that the players would expect and engage with.

And then on the back of that, we will build higher revenue base and also be able to invest more in marketing. So that's going to be a process -- process that will develop over the next months. But we are working on these features that are being produced.

[Unknown Executive]

Thank you. Next question. Do you assume the implementation of the play-to-earn model in games in your pipeline?

[Wojciech Gattner, executive]

So basically, you are monitoring what the players in the market, let's say, requires. On one side, of course, it's something that we consider, and that's something that we have on our agenda. We want to push it if it's not necessary and it's not beneficial for the players.

I can assure you that our game -- the games that we do, the game types that we do, the game model that we have present in those titles, it's very, let's say, it can easily welcome that kind of, let's say, the feature or that kind of the model. So the games are, let's say, ready to accommodate play to earn.

And of course, the other question is, what do we mean by play to earn? There was a lot of buzzwords blockchain and NFTs, and this is one of the solutions that others there, but there are many more that we can consider implementing.

[Unknown Executive]

Thank you. There's a question about Warsaw Studio. How many employees are employed in the Warsaw Studio?

[Maciej Zuzalek, executive]

It's about 30 people.

[Unknown Executive]

Thank you. Question regarding Gamesture. You booked PLN 0.5 million loss on Gamesture. Is it a full quarter result or just March?

[Magdalena Jurewicz, executive]

Only March. Since the day of the acquisition.

[Unknown Executive]

Okay. A question regarding Hunting Clash. Hunting Clash has slowed down. And previously, you were saying that you have big hopes connected with this title. Would you say that Hunting Clash is not progressing as you would expect?

[Wojciech Gattner, executive]

So basically, the data that we saw in last month, yes, it wasn't as we expected. As we said before, there is a lot of external circumstances that definitely impacted the performance of the title. So to answer, I think the future is bright for Hunting Clash. I still believe this product is not fully as comparable to Fishing Clash because of the number of the features that we want to implement to basically match those titles side by side.

The second thing is that there was a little bit less volume of the players in the last few months. But it's nothing that is worrying us in the long term because we know how the cohorts behave over the long term. We know how the cohorts will build up and the numbers will follow.

[Unknown Executive]

Okay. Next question is regarding forward-looking statements, I think. But the question is, how would you -- how will you explain the results in second quarter of 2022? And what results do you expect in the second quarter of 2022?

[Maciej Zuzalek, executive]

Yes. I think we're not commenting on quarterly results. I think from what you were describing now, you can feel the sentiment and that you have a lot of insights into current trading, and we're doing thanks to improve the performance. The only thing we can promise is that we are working on the best we can. That's all the things that are in our control.

[Unknown Executive]

Okay. Thank you. Now regarding FC China, you don't give exact data. So what are the expected results? I think we had this question.

[Anna Idzikowska, executive]

Yes. But also in our reports, we are showing Fishing Clash data. So it was strong for the first quarter of 2021. It's just a part like exclusion from Fishing Clash data. So for this part, it was PLN 1.3 million, if I'm correct. For the second quarter, we will have to wait until the quarter is ended, especially. As I said, like last days of April, we entered new platforms. So we just started the Android journey there.

But what I was saying before is that I cannot go into very deep discussions on the general performance of the game in China because we are seeing just a part of it in our revenue. So this is what I was referring to while I was answering the question before.

[Unknown Executive]

Okay. Thank you. Is there a risk that if KPIs are not met, KPIs for the incentive plans, would the KPIs be changed?

[Maciej Zuzalek, executive]

There's no such discussion. There's no such plans.

[Unknown Executive]

Thank you. The company has PLN 150 million on its bank accounts. How does the company plan to invest or utilize this amount given the current inflation situation?

[Magdalena Jurewicz, executive]

Okay. In 2 days, we're going to have General Shareholders' Meeting. And if the shareholders approve the resolution about dividend payment, we are about to pay PLN 70 million as a dividend in June. So yes, our cash level is significantly lower after this event, and we need some cash to branded business day to day. And of course, we look at the percentage of the inflation and we win.

[Unknown Executive]

Thank you. Would -- could TSG become a target for an acquisition in the near future? Does the management receive such offers?

[Maciej Zuzalek, executive]

I can't comment on this. I mean there's nothing to comment in these questions that I could do other than as you will remember from a previous process, we have a certain strategic position as a business. We dominate the two initiatives we operate in. We're trying to get out of it. And that, in essence, is attractive position in any markets. So yes, we are an attractive company, but there's nothing to comment on acquisitions with a potential takeover of TSG. We're very focused on the business performance. That's the most important thing.

[Unknown Executive]

Thank you. The current share price is approximately PLN 140 per share. What's the management's view on a fair share price for the company's shares?

[Maciej Zuzalek, executive]

Obviously, I can't comment on this.

[Unknown Executive]

Thank you. In management's opinion, when should we expect the company to return to a growth path?

[Maciej Zuzalek, executive]

That's a very good question about the future. I think if you read it, there was a question about we -- our expectation is that -- there's another question which talks about our expectation to stabilize Fishing Clash and then build from that point. And yes, that was so far it even 6, 8 weeks ago, there's been a sudden disruption in the market. So we fundamentally believe that these products have a potential to grow. We're working on it. We're building new features, but losing 6.5% players in Fishing Clash doesn't help.

There's a network effect. People are spending more time -- less time playing games at the moment. So we have headwinds at the moment, which are market impacts we talked about it. So as soon as this normalizes because we don't see any reasons to believe that the mid- to long-term perspective of the free-to-play mobile market is going to change, that this is a permanent change where people will disengage from playing.

We don't believe in that. We think there will be more people playing mobile games in the future with younger generations coming upstream. So the long-term trend is good, and we have a role to play in this market.

[Anna Idzikowska, executive]

Yes. And I think we also have the other titles in our portfolio. We are focusing a lot right now. We've been showing some early KPIs. We've been commenting quietly on our new production. So I think this is also something to take a look at because the question is about the whole group, right? And this is the whole group. So we are focusing on that a lot as well.

[Unknown Executive]

Thank you. We're running out of time, but I'll read 1 or 2 more questions. What's -- does Ten Square games, do you have an -- as a company, do you have another studio that you view as -- and as an example, someone that you could follow another?

[Maciej Zuzalek, executive]

Another gaming company. Yes, we're looking at our peers and larger companies, and we're following quite a few. There are several companies. And I think all these companies have some excellent competencies and I don't want to name them, but we're looking at several different companies.

And there isn't a perfect match, but this company is with highly value for how they work with the product. This company is that we extremely respect in the way of how they thought about their own diversification, diversification has started much earlier, the platforms they field and how they continue to build that.

And this a lot of aspects, but the one thing -- the common conclusion for us is a business is, nobody has a Holy Grail yet. The industries in early stages. People are looking for own way, and one of these companies which are trying to find the right way for long-term sustainability. And that's what we're working. But we're inspired by quite a few companies. There's great gaming businesses out there.

[Unknown Executive]

Thank you. How does the situation look in the Warsaw and Berlin studio? What are the plans for these locations?

[Maciej Zuzalek, executive]

I think we've commented in Warsaw. So Warsaw is carrying on with Fishing Master. Magical District is hold, just in case someone didn't take that.

In terms of Berlin, with the current setup, we are not planning to develop any new games in the nearby future in Berlin. Having said that, Berlin is an important location. It's a becoming market. We have team working there with all our -- across our business. So we're having the footprint in Berlin, but not immediate plan to launch a game or produce a game.

[Unknown Executive]

Okay. Thank you. I believe that we ran out of time. So we can as well. Thank you, ladies and gentlemen, for all the questions and your participation in the event. We invite you to send any questions that you still have to our e-mail address at [e-mail], and we'll respond to those as soon as possible. Thank you.

[Maciej Zuzalek, executive]

Thank you very much. Thank you very much.