Q2 2021 Enthusiast Gaming Holdings Inc Earnings Call
[music].
Okay.
Good day, everyone and welcome to the enthusiast Gaming Holdings, Inc. Fiscal second quarter 2021 financial results conference call.
All participants will be in a listen only mode.
Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions. Please.
Please also note today's event is being recorded.
At this time I'd like to turn the conference call over to Eric Bernacki, Chief Corporate Officer. Please go ahead.
Thank you operator, good afternoon, everyone welcome to enthusiast gaming second quarter, 2.2021earnings call. My name is Eric Bernacki, the Chief Corporate officer of enthusiast gaming I'm joined by our Chief Executive Officer.
Adrian Montgomery, our Chief Financial Officer, Alex Macdonald, and our Chief operating Officer Soundbites armor lineup will begin with commentary on the quarter before opening the floor for questions before we begin I'd like to remind everyone that today's presentation contains forward looking information that involves known and unknown risks and uncertainties and other factors that could cause actual events to differ materially from current expectations.
These statements should not be read as assurances of future performance or results such statements involve known and unknown risks uncertainties and other factors that may cause actual results performance or achievements to be materially different from those implied by such statements a more complete discussion of the risks and uncertainties facing the company appear in the company's management discussion and analysis for the 3 month period, ending June 30th 'twenty 'twenty 1.
Are available under the company's profile on SEDAR and Edgar as well as on the company's website. You are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date of this presentation. The company disclaims any intention or obligation except to the extent required by law to update and revise any forward looking statements as a result of new information future events or for any other reason.
Now I will turn the call over to Adrian Montgomery, Chief Executive Officer.
Andrew.
Thank you Eric.
Good afternoon, and welcome to our second quarter 2021 financial earnings call.
It is my pleasure to once again report on the financial and operational accomplishments our team made last quarter and speak about what we believe will be an exciting second half of the year.
I'm extremely pleased with our results this quarter and the significant growth we have achieved across all of our financial and operating metrics and I would like to thank each and every 1 of the hardworking enthusiast employees for all of their efforts to put us in a position that we are in today.
Despite the headwinds posed by unfavorable exchange rates, but we managed to exceed expectations across the board on revenue gross profit and gross margin.
I'm pleased to report that Q2 revenue grew by more than 427 per cent to $37.1 million from $7 million in Q2 last year and gross profit grew to $8 million from $3.2 million a year ago, while gross margin improve.
<unk> to 21, 6%, which is a nearly 200 basis point increase from just 1 quarter ago.
Revenue growth continues to be driven by our focused buy and build strategy.
Key organic growth drivers, including direct advertising and sponsorship sales grew to $4.4 million in the quarter from approximately 500000 in Q2 last year.
And double from $2.2 million.
Just a quarter ago.
Some of the partners we worked with in this past quarter include major Blue chip brands, such as state farm.
Bell Bethesda, Disney plus Mars, Playstation Glaxo, Smithkline, Microsoft Red Bull HBO, Max Twitch, Hasbro, New G fuel riot exit lag excedrin fireball ebay.
That 365, Sony Pictures, Toyota and General Motors.
The number of paid subscribers at June 30th was 155000 compared to 111000, a year ago, an increase of 40%.
Most notably however.
Is the acceleration of growth we are seeing in paid subscriptions.
This quarter, we added 18000 net new subscribers the highest quarterly growth in 4 quarters. This is a direct result of the investment we made in Q4 of last year to establish a team dedicated to growing subscriptions the upward momentum in net new subscribers. This quarter is per.
Proof that that strategy is working.
We remain confident that subscriptions will continue to show meaningful growth.
In the back half of the year.
As we've mentioned previously we believe subscriptions to be 1 of our most exciting growth opportunities. That's why we announced our plans to build a pan enthusiast social network with a premium subscription opportunity for our target Gen Z and millennial audience Codenamed project D D.
We are making strong progress on this front and I'm pleased to announce today that we expect to release an exclusive alpha version with select gamers toward the end of September.
As we've said before direct sales and subscriptions are 2 of our highest margin revenue streams and you can see how the growth. This quarter has contributed to gross margin improvement.
Nearly 200 basis points or nearly 2 full percentage points, we like the direction. Both of these businesses are moving in and the upward trajectory there on as we move through the second half of 2021, which is our busiest time of the year.
You've heard me talk about our proprietary flywheel in the past.
And I'd like to take a moment to reiterate why we believe this is the right strategy.
Every month millions of video game and E sports fans come to 1 or more of our 100 plus web properties are a thousand plus Youtube channels watch our talented luminosity gaming streamers on Twitch.
And I would point out we are the number 1 most watched organize esports organization in the world. This year on that platform or tune into 1 of our proprietary shows like gamers greatest talent or rising stars.
The first season of gamers greatest talent aired in Q2, and it was sponsored by tick Tock and <unk> cosmetics live streamed on Twitch over 6 episodes.
G. G T had a total audience reach of north of 10 million viewers discussions are now in full swing on another follow up season.
Another unique content experience, we are particularly proud of is our partnership with Grammy Award, winning International music Superstars Coldplay.
So the event in May we collaborated with Us D J Zoo and luminosity Gamer star fresh to launch an exclusive remix of Coldplay cold.
<unk>, new hit single higher power, which was live streamed on luminosity Gaming's Twitch channel the collaboration of music and gaming is proving to be a powerful combination for fans and sponsors and we look forward to more events like this in the future.
This is our fan flywheel, which delivers great content and experiences throughout the gamers fan journey, and we will continue to add meaningfully to the span flywheel both through organic.
And acquisitive means.
At the same time companies across North America are trying to build out and deploy strategies to reach Gen Z and millennials at scale and.
And we have been out there talking about it in recent months you can read and see it in places like Bloomberg Yeah. My T. Sloan Management review USA today, digital Washington Post and others. We are winning in the marketplace, because we offer more touch points to Gen Z and millennials than anyone else out there.
We're selling integrated packages that include media sponsorship unique content talent Activations and E sports It is.
Breadth of offering is proving to be a winning strategy as is evidenced by the doubling of our direct sales business this quarter to $4.4 million from $2.2 million.
In Q1 of this year.
On a currency adjusted basis, our Q2 performance in direct sales, it's similar to the direct sales for all of enthusiasm in 2020.
In Q2, we partnered with the U S AD Council and the Covid collaborative on their COVID-19 vaccine education initiative promoting COVID-19 vaccine awareness and education among young adults. It was the largest and most significant public health Communications campaign in U S history, and we were.
We're very proud to be the AD Council's gaming partner.
Hollywood Studios and filmed entertainment remain.
An exciting growing category for us this quarter, we completed Activations for Universal Pictures to promote the North American release of F..9 the latest in the fast and furious franchise, we worked with Walt Disney Studios to promote black widow, and we partnered with United artists to promote the Guy Ritchie film.
As a man.
Those studios leveraged our innovative platform a video game and E sports fan communities customized content and integration with top gaming Influencers.
For F..9 specifically the activation included custom content activations with luminosity gaming talent and across enthusiast gaming media brands.
5 exclusive Grand theft auto events throughout the launch weekend with luminosity gaming talent competing against fans using fast and furious inspired mods and media placement across arcade cloud and uptime or.
Fans versus luminosity all stars gameplay, even during the finals of gamers greatest talent.
We remain confident that Hollywood and filmed entertainment will continue to be an exciting growing category for us as.
As we move through the rest of 2021.
And the pipeline of opportunities continues to grow.
Subsequent to the quarter, we announced a renewed and expanded luminosity gaming sponsorship deal with G fuel as well as an integrated media and E Sports partnership with the United States Navy that will include the creation of multiple unique gaming activations, incorporating our company's roster of gamers creators and athletes.
To increase awareness of the wide range of professional opportunities. The Navy offers we're also currently in market with innovative campaigns for state farm and door Dash to name just a few.
Another activation I'm, particularly proud of is the innovative work we are doing with Lego.
In partnership with Lego Technic, we have launched the luminosity academy to push the boundaries of creativity and guide the development of young gamers.
As you can see we have worked with top brands on their biggest campaigns. This quarter. We've executed on many new programs and provided innovative ways for brands to reach Illusive Gen Z audience and it's working.
So anticipating that we'll continue to build on this exemplary quarter, we're adding more staff. We now have more people in key centers, including New York, London, and Los Angeles, We've added people in Detroit and we're looking at adding members to our direct sales team.
In Chicago.
Our monetization flywheel, which consists of a diversified revenue stream continues to gain significant traction each and every month.
I've already highlighted the performance of direct brand sales and paid subscriptions, but were also seeing gains within our content licensing and distribution segment, particularly on platforms like snap or we are distributing more content that leverages, our expertise and reach for the type of content gamers want.
In May we launched a new Youtube channel Karl called arcade blocks focused on roadblocks related content.
Channel has already garnered almost 100000 subscribers and nearly 1 million watch hours. We're also pushing deeper into storytelling with original content for gaming audience.
Our new brand upcoming which also launched in Q2 expanded into snap with 2 different properties livestream fails in range quit.
These are properties, we've created from scratch that are already contributing through new subscribers and content.
This quarter, we completed our NASDAQ listing and subsequently raised gross proceeds of just over $60 million is raised significantly improved our balance sheet and has allowed us to accelerate our business plans with a particular focus on mergers and acquisitions.
On the M&A front, we successfully closed the IC veins and tab stats acquisitions in the quarter and they are great and they are integrating well into our fan and monetization Flywheels. We are well funded to continue to execute on additional acquisitions that will expand our audience reach provide a deeper and more authentic.
<unk> fan experience unlock new revenue streams within our flywheel and be accretive to margin, we anticipate being able to execute on additional exciting transactions this quarter.
We're just getting started and believe very much in our buy and build growth strategy centered around our proprietary monetization flywheel.
As you can see we have accomplished a lot in the first half of 2021, and we are confident in our team's ability to continue to grow and to continue to execute in the back half of the year.
I'll now turn the call over to our CFO, Alex Macdonald for further commentary on our financial results.
Thank you Adrian.
We find ourselves here once again.
Fortunate position to be able to comment on an exemplary quarter, our second quarter 2021.
I have a few notes to mention before I begin my commentary.
Note that our results are presented in Canadian dollars I note that our business is affected by seasonal trends in digital advertising with sequential increases each quarter throughout the year driven by increase in AD prices and demand, which peaks in Q4, the seasonality is isolated to our media and content revenue streams as we head into the second half of the year I want to.
Note that the increase between Q4 and Q3 AD prices is much greater than the increase between Q3 and Q2 Red prices. I also note that the acquisition of Omnia media occurred on August 32020, the comparative financial figures relating to Q2.2020, and the statements and the M. D. A do not include the results of Omnia, except we're in.
Did the 2021 balance sheet and income statements include the balances of the company, including the Onvia.
And now back to the second quarter, we're seeing continued progress across the metrics, which drive this business Q2 revenue was $37.1 million up 430% from the reported Q2.2020 revenue of $7 million. This increase was driven by our acquisition strategy, including Omnia as well as strong organic growth in direct sales and across.
All 3 of our revenue streams of media and content E Sports and entertainment and subscriptions.
2 revenue by source was as follows media and contents to $33.5 million subscription $2 million and E Sports and entertainment $1.6 million.
The media and content revenue of $33.5 million and compares to a $4.2 million reported in Q2, 'twenty 'twenty or nearly 8 times Q2 media and contents revenue attributable to Omnia is $26 million, which is up 29% year over year Q2 media and content revenue, excluding Onvia 7.5.
Million, which is up 79% year over year.
The increase from Q1 media and content revenue apart from the impact of the Omnia acquisition is mainly due to a significant increase in direct sales. The majority of which are recognized the media and content and a portion of those are recognized in Omnia total direct sales were $4.4 million in Q2, 2021 has compared to 600000 in Q2.
2020 number to a web RPM, which was 175% higher than Q2 as compared to Q2.2020, which was caused by our continued internal AD block from optimization efforts and a shift in the distribution of views amongst different properties. This result is also driven by the prior year downturn of the digital ad market.
Moving to the COVID-19 pandemic a downturn, we now declare has fully recovered.
Number 3 was the addition of 18 new partner websites added to the web platform in the first half of 2021 and number 4 is the continued expansion of our owned and operated video properties, which also contributed to the increase in sequential quarterly video views video views were $9.7 billion in Q2 compared to $7.3 billion.
In Q1 this year.
Future subscription revenue was $2 million up 18% from $1.7 million in Q2.2020. The increase in subscription revenue is attributable to an increase in paid subscribers. The company had approximately 111000 paid subscribers as at June 30 of 2020. This number has increased to approximately 155000 paid subscribers as that.
June 30th 2021 the company continues to grow the subscriber base on its existing subscription offerings through pricing optimization promotional events and marketing initiatives.
Kris and paid subscribers outpaced the increase in subscription revenue due to movements in foreign exchange rates, which I will discuss shortly due to E sports and entertainment revenue was $1.6 million as compared to $1.1 million in Q2, 'twenty 'twenty. This 45% increase year over year is that as a result of the growth of our virtual events such as.
Hockey game or digital as well as increased sponsorship of luminosity.
So there is a revenue had when I want to point out really into Q2.
The significant majority of our revenue is earned and measured in U S dollars, which was translated into Canadian dollars for presentation in our financial statements. The average USD to CAD exchange rate in Q2, 'twenty 'twenty was $138.5 which dropped to $122.8 in Q2.2021had the exchange rate remain calm.
Constant at $138.5 revenues in Q2, 2021 would have been $4.9 million higher for a total of $42 million even on a pro forma basis to include the acquisition of Omnia on a constant currency measurement revenue would've been up 54% year over year, while the FX movements.
I have a similar effect on cost of sales in certain areas of Opex with limited net economic impact we feel that the strong momentum. The company has shown in Q2 should be considered in light of this revenue headwind in exchange rate between the U S. Dollar in our presentation currency of the Canadian dollar should be monitored and considered when Anna.
Elisa and are forecasting results.
Gross profit was 8 million for Q2 up 150 per cent from the reported Q2.2020 gross profit of $3.2 million driven by both our acquisitions and growth strategies. Our growth strategies include higher yield and higher margin revenue streams, such as direct sales and subscription this coupled with the tuck in acquisitions of tab wire and but that is from Q2.
2 resulted in continued progress in gross margin. The gross margin for Q2 was 21, 6% up from 16.7% pro forma in the same quarter last year as we continue to execute on our growth strategies. This 490 basis point improvement in gross margin and 1 year revealed a comp.
Rounding effect when considering the significant growth in revenue over the same periods.
Operating expenses were $19.6 million in Q2 up substantially from $7.5 million for Q2.2020. This increase is due to the acquisition of Omnia as well as significant noncash expenses, including $1.7 million of amortization, which relates largely to the initial recognition of intangible assets upon acquisitions and 4.
Millions of stock based compensation, which relates to option in our share awards granted in Q2 than in prior periods.
Also wish to note.
We incurred costs related to the FTC registration the NASDAQ listing and the financing conducted in Q2 professional fees were $1.2 million as compared to 600000 in Q2.2020 with the increase attributable to these efforts. We expect these expenses to be reduced in periods of less corporate activity office and general expense was $2.2.
Million compared to 500000 in Q2.2020, a significant portion of this increase is also related to the registration of the company with the SEC and the NASDAQ listing office in general includes items, such as insurance and filing and listing fees. Many of these expenses such as the required insurance will continue for the foreseeable.
Future net loss and comprehensive loss was $12.8 million, resulting in a net and comprehensive loss per share both basic and diluted of 11 cents in Q2.
We continue to invest in our operations, expanding our technology and content capabilities as well as our staffing levels throughout the first half of this year. We are proud to say that our fulltime staff as at June 30, 'twenty 'twenty..1 was 160 people up from 90 people as at December 31, 2020. Most of these hires are focused in 3 areas.
His direct sales content and product development with graduate G. G being a notable area. These are important investments for the future of the company and these are driven people passionate about what they do on a daily basis I've noticed in the first half of this year. They have become acutely aware of the metrics, which drive this business. Therefore they are in.
In my judgment, our most valuable asset.
I reiterate that we are investing in order to drive the capacity of the business. There is a tremendous opportunity ahead to monetize our audience and we are confident in our pursuit of this opportunity.
We are once again more than ever have the opinion that the results of operations and the financial condition of enthusiast gaming has never been stronger and June we conducted a public offering of common shares issued and $8.6 million shares for gross proceeds of approximately USD 50 million or $60 million and Canadian dollars. In Q2, we also completed the acquisitions of both Todd.
And the data is bringing the part for the properties of tap that's a nice day vanes into our portfolio and of course worthy of another mentioned in April the company became an SEC registrants and on April 21, the company commenced trading on the NASDAQ Global select market to all the stakeholders joining us today as a result of that list and I want to once again express.
Our appreciation for your time and support and welcome to the enthusiast family certainly.
It was a busy quarter as I reflect on the quarter and the past year as we approach the anniversary of the acquisition of Omnia I am proud of the consistent progress we've made towards our growth strategies and the unwavering dedication of the company shows towards its stated objectives, we maintain our original proposal that the direct sales.
Model is a compelling investment thesis in and of itself as a comscore top 100 Internet property in the United States with a growing portfolio of notable clients, we are as confident as ever in the direct sales model.
Ever.
We've always been of the belief and have said in the past, but there will come a day when enthusiast gaming as is well known for selling advertisements as Amazon is for selling books. In Q2, we have continued to advance our data capabilities, both internally and through the acquisition of tap water our subscription offerings are being ex significantly.
<unk>, most notably through project G G and in early 'twenty, 2 we will bring to the public a social network made by gamers for the nearly 3 billion gamers in the World. This will also represents a significant step into the mobile space unlocking a completely new market for enthusiast gaming.
For these reasons, we've never been more excited about the short and long term future of the company I'd.
I'd like to welcome the 2 analysts who initiated coverage since at the beginning of Q2.
Got back with H C. Wainwright of course, the 1 and only Jeff fan with Scotia capital to all our analysts. Thank you for the work you do on enthusiast gaming.
And to our shareholders, we don't stop working hard for you.
Thank you for your continued trust in us as custodians of your business of our business and of course, ladies and gentlemen, our business is the business of gaming.
Operator, I kindly turn it back to you.
Ladies and gentlemen at this time well begin the question and answer session.
I ask a question you May press Star and then 1 on your Touchtone phones. If you are using a speaker phone would you ask you. Please pick up the handset before pressing the keys.
To withdraw your question you May press Star 2.
Once again net of Star and then 1 to ask a question, we'll pause momentarily to assemble the roster.
Okay.
Our first question today comes from Robert Young from Canaccord Genuity. Please go ahead with your question.
In the press release, you highlighted that you expected margin improvements I think sequentially through the year is that gross margins operating margins are what type of margin would that be ex you mean gross.
Gross yeah, that's right Rob.
Okay, and then I was hoping you could talk about the direct advertising bookings and you've given us a bit of a flavor around the pipeline and the ex U.
But the bookings around that business.
Maybe if you could talk about how they paced from Q4 to Q1 into Q2.
And as a part of that I was hoping you could talk a little bit about the if there's any way to parse between new and existing customers. It sounds like you've added a lot of logos this quarter, but I wanted to see if these customers are coming back after it's proven and upping there.
Engagement and use of your.
Your direct sales model.
Sure.
So.
I think as it pertains to the pipeline and as we've seen it.
Fall from Q4 to Q1.
And now we're in Q3.
We've been.
Really.
He used with with how the pipeline has developed and I think certainly if you look at the number of Rfps that we're getting that number has grown substantially you were getting.
On an average 13 Rfps a week I think if if we were to remember back to the beginning of Q4, just a little while ago would be 2 or 3 a week and we built out our customer success department that knows how to churn and burn these rfps really quickly which is giving us.
As a leg up.
But seeing the growth in you know from 3 Rfps a week to 13 that has been in the income.
Encouraging sign and seeing our pipeline develop.
<unk> has been an encouraging sign and I can say that we were you know that that $4.4 million that doubling of direct sales in Q2 over Q1 are certainly exceeded our expectations, but as we sit here today and as we look at the pipe and we look at what we're executing and we look at back to school coming.
We expect to see.
Growth beyond that in Q3, and then of course Q4 is its own animal it. It's what we live for in a business like ours, we have American Thanksgiving and Black Friday, and cyber Monday, and the holiday season, and people spending budgets and we are extremely well positioned.
To capitalize on that.
In terms of.
The repeat business that we're seeing.
Again.
We started this journey as a direct sales operations in Q1 of 2020 are candidly. It went down to Madison Avenue went down to Los Angeles and no..1 knew who we were and so it took a lot about a lot of success winning business.
And again the customer base at the time was not fully sold non gaming and esports. They were testing they we're dipping our toes in the water.
And that has changed massively to.
To the point that Youre seeing a big.
Big company with the name brands investing heavily in this space because they realize.
What the guys that enthusiast and others have been saying is true if I, if I need to get in front of Gen Z and and more importantly, if I if I want a shot at them paying attention to me I better have a gaming strategy and I better have an esports strategy.
We're very encouraged and excited by our renewal of our gene fuel deal. That's the most iconic drink brand in the space. We went from a 1 year deal to an 18 month deal the size of that deal has grown substantially.
We've done repeat business with HBO, Max we've done repeat business with Disney plus we've done repeat business with Procter and Gamble and Gillette and Activision and so we're starting to develop a recurring model.
Auto we're at the front end of that but people are really excited.
By our customer offering and by the fact that we are really the only ones in the space, who can deliver media.
Could deliver video media web media talent activation E sports sponsorship and our ability to be a 1 stop shop.
<unk> is a winning formula and its starting to manifest itself in significant repeat business at higher and higher spending levels.
Okay. So is it fair to say that a lot of the direct sales revenue today, it's very experimental and then work where you're seeing them.
You know customers come back Theyre upping.
The the size of deals.
Not as we sit here today as we sit here today and we think about the campaigns, we're doing for state farm for the United States Navy for G fuel per door Dash and these are significant campaigns with a lot of moving parts and we are officially as an industry and officially as a company beyond the experimentation.
Phase.
Up to and including a bit of Q1. This year certainly people were experimenting but where we're beyond that.
As an industry and as a company as we sit here today.
Okay. Thanks, a lot of pipeline.
Thank you. Our next question comes from Jeff Fan from Scotia Bank. Please go ahead with your question.
Thanks, Good afternoon, guys and thanks for the kind words.
I've got a couple of questions maybe a follow up on some of the sales.
Activities here can you talk about the capacity that you have within this current the current staff that you have to you know to.
Grow productivity.
Or are there and maybe also talk about.
How much you Wanna add sales staff.
In the coming months or quarters based on the opportunities you're getting.
On the Rfps.
And I'd also on these rfps how far these advertisers planning ahead or they are they looking to execute these campaigns within months 6 months can you elaborate a little bit on that.
So I'll, let Jeff I'll, let a thumb.
Our COO expand upon on those questions go ahead from them.
Hey, Jeff just.
Just to answer the first part of your question on our sales team and the growth of the team. If you look at you know where we are right now as I as we discussed before our productive sales rep for us takes anywhere from 3 to 6 months to meet to get to their optimal capacity.
So we're still in the early stages with some of our reps, we're continuing to hire them. We've opened up offices in Chicago and Detroit, We've opened up Apis and in London U K. So we're continuing to expand our direct sales team I don't think we're at maturity yet. So you know I would expect significant growth even as.
We go into 2022.
As we see a huge opportunity for us to work with a number of different brands would be assets that we got.
The first part of the question the.
The second part of the question, Jeff If you could maybe clarify and then I'll add color.
Just on some of these rfps and campaigns that advertisers are or considering are they planning for or how far are they planning ahead is really the question that we've talked about this fall or within 6 months.
Sure. The the good news is you know, we're definitely seeing a turnaround in the economy, especially in the U S. A you know we're theatrical for example, these these companies plan you know 6 to 9 months in advance and we're seeing Big Hollywood Studios, starting a plant and.
Plant them put together their marketing plans for movies that are releasing 6 to 9 months out and we're in those rfps. So there is some advanced planning on a in some verticals are but then there are some verticals that are sort of you know held back on spending throughout the most part of this year, but now are spending as fastest way can such as travel.
Tourism Ah is a good example of that industry that just all of a sudden showed up and they're starting to spend so it varies but it is a very good healthy sign to see that there is advanced planning going on in the marketing departments and those rfps, that's starting to come in.
Right. That's good to hear and maybe just a couple of quick ones on project G. G.
You talked about releasing a limited elfa.
In September can you just talk about what you're hoping to learn from that its coming up pretty soon I know you probably don't want to give away all your secrets, but just curious what are you hoping to learn from the release and on the.
On the more of the financial side. This is a part per Alec.
Regarding tech support calls.
How should we think about the spend as you go through product launch and further development on the tech support side.
Sure I'll take the D. Do you want and then I'll pass it to Alex with the Tech support so on the Alpha release, Jeff the thinking really is.
Now to bring in our first thought.
I was going to 2000 testers and the evangelists at the enthusiast that we have within our community and to get as much user feedback that's possible as you know we've you know we've highlighted that you know we built we're building this because we're seeing the need for gamers and the missed opportunity.
And we want to get as much user feedback as possible. So we can incorporate that into our feature set into our roadmap. That's essentially what we're going to try to do would be the first cohort of the testers that will let them and then as we start to advance our roadmap will slowly add different parts different groups.
Audience has to bring and that represents a b wider enthusiast community.
So you won't hear us sort of give you more guidance and information around what we're learning from the initial test in which cohorts are we bringing in but that's that's the that's.
That's the objective behind the first alpha release and in the cohort that we're looking to bring in.
Hey, Jeff It's Alex here Yeah.
I am the areas you want to watch of course are.
<unk> Tec web development and content that that expense line and salaries and wages that those would be the areas that is going to relate to Gee Gee I'd say that a lot of cost for G. G are kind of already incurred in running.
Lot of the increases you can see in tech and content as well as salaries and wages.
Our in support of that this year, that's and related initiatives such as data such as.
Fulfillment and subscription and whatnot.
So I would expect though a continued modest increases in both of those areas, but not quite to the level. We've seen in the first half of this year G. G is reasonably staffed up its working internal product and from here on out I think that most of the hires will be more specialty roles and not necessarily balk hires there.
There will be some tech investments associated with the public launch.
But I wouldn't think that those would necessarily move the needle given the size of our existing tech portfolio already it's a of course, some additional servers and whatnot. So that's that's how I look at the cost per through June.
Great. Thanks, guys.
Our next question comes from Brian singer from Alliance Global Partners. Please go ahead with your question.
Great. Thanks, and 1 follow up on the direct sales force now obviously with the success, you're having it sounds like youre going to investing more people.
And can you talk about how many people you.
Started the year with how many people you ended 2.2 went and where do you hope to get to in the next 6 to 12 months.
When we started the year with about 5 direct sales people.
Now we would have.
Well well over 13, that's why not plus plus customer.
Yes, yeah, so if I could add Adrian so when we started the year out with about 5 direct sales were at a bad.
13 to 15 right now with the.
The producing head counts we were also building remember where as we become sophisticated we're also segmenting our sales team into direct sales inside sales and building out a full fledged customer success function. So net net were about 35.
People organization combined as a sales and inside sales organization at this point.
And it wasn't really about 5 to 15, right now and the actual actual non support people the ones going after the business right.
Correct.
And where where do you hope to get that I mean, youre, having so much success and I assume the more people you add the more you can reach out and touch brands always do you expect that especially as the busy season. You know 4 months ahead of it do you expect that to end the year of 'twenty much faster or is it is it hard to find people right now just maybe take me through the plans on the hiring side.
Yeah.
Yeah. So for US we think that are really good.
Sales executive sales professional within our flywheel can generate a million dollars.
And so again, what I would what I don't want anyone not hearing on this call is there has been a sea change.
In.
Corporate America, and the corporate world understanding of the importance of gaming in a Gen Z strategy.
And so we're past the experimentation phase to Rob's point, chief marketing officers middle aged people, who didn't quite get it before COVID-19 have seen firsthand in their homes just exactly what their kids are doing and that has resulted in companies.
Coca Cola, Anheuser Busch building out esports and gaming departments to evaluate opportunities et cetera, and so we're beneficiaries of that and and we think that great quality sales people. You know the metric. We think about is give them a quarter and a half to 2 quarters to ramp up.
And the good ones shouldn't be doing a million bucks or if not more and so for us we evaluate not on the basis of the size of the head count.
But plugging in people with those expectations.
To satisfy those opportunities, but I can say.
The opportunities are not slowing down and in fact, you know they're growing in and quite an exciting fashion in terms of our people hard to find look Manny.
Managing sales people.
Is an art.
It's it's not a it's an art thankfully somebody and I have a lot of experience in that in that area.
But.
The other advantage that we have and I think Alex might have mentioned this.
Since since January this company in addition to raising money and listing on the NASDAQ and buying 2 other businesses and executing against our strategy of this company is also on boarded 70 people and so the benefit though that we have is.
Where like Willy Wonka is chocolate factory for a lot of young people, who love video games and so we're kind of a cool company to work for where an interesting company to work for them. We have what 10000.11000 followers on our Linkedin account. So we have an ability to.
Get talent and to get talent, who want to work for us. So that's a tremendous advantage that enthusiast has on the HR front.
Right.
The question is youre growing subscriptions nicely the amount of paid subscribers can you just.
From a high level talk about is the majority is still coming from centers or I know you've started Simpson from other subscriptions, maybe provide some detail on where that growth is coming from.
Sure I, if somebody here I can add color on that 1.
So we continue to grow across you know across most of our properties and you know since was since definitely had the early mover advantage on subscriptions and we're seeing really good growth there and we're very pleased with that we are starting to get good traction on some of our other properties such as escape it.
And IC veins, so definitely seeing good momentum there and I think to the earlier point that Adrian.
Adrian made in his opening remarks is that what we're super excited about is the pan enthusiast subscription offering that is going to combine altogether property. So we've got an offered through G. G. We we think that is the big game changer for us in subscriptions, but we're very pleased with the current trajectory of the individual property.
Themselves.
Sorry, and lastly that got that.
Net subscription you hope if I I think I read D. M D N a right it's the.
First quarter is the hope or is the second quarter of 2022, where theres, a hard launch or did I read that incorrectly.
I think the the comment that would be the exact comment was early 'twenty 'twenty 2.
And that as items that we lose.
On the call.
Oh you.
You know, we'll bring in the alpha users that in U S. In September and then based on that we'll bring in more beta testers and then we're hoping to be out in the public in early 2022.
Great. Thanks, so much when answering my questions.
Thank you.
Our next question comes from Mike Crawford from B Riley. Please go ahead with your question.
Oh. Thanks, So your number 1 per formula of a twitch platform what about overall, if you if you look across platforms, including Facebook Twitch or a snapchat to talk whatever do you have any data on that.
So.
Hey, Mike I mean, we.
We don't have.
Zach data readily available, but yeah, we're number 1 on Twitter I, specifically talked about the luminosity.
Look we're a tier tier 1 or there's at the small class of esports organizations.
And.
And I think that which is probably the most relevant for that that niche area of of the gaming industry. I think that's the most relevant stat important org at least.
Somebody.
Sure I mean, if if if I understood. The question correctly. It was about our status across the platforms, especially on twitches at it.
Right beyond Twitch.
Right beyond Twitch, Okay. So if you look at if you look at you know I think we published our Comscore results were top 100, and a property in North America, We command the number 1 gaming audience in a a number of markets. If you look at U S alone. We are number 2 next day Twitch.
Within Twitch luminosity streamers hold the number 1 spot.
So we're well positioned from a gaming audience perspective, but even if you look at outside of you know.
North America, we hold number 1 spot to our properties and a number of different markets, which is 1 of the reasons why we're building you know aggressively in the UK, we hold the number 1 spot for gaming audience, there, but you know our properties are.
Really you know too.
Tier 1 properties that resonate really well with our gaming audience and and we continue to capitalize on that.
Oh, Okay. Just since you mentioned luminosity streamers, so what tends to happen for these influencers.
1 viewership levels once they join luminosity and also.
Related to that is what is the typical revenue share it looks like.
From what was the last part of that what is the share sorry of revenue look like for someone who signed on.
Excuse me.
Yeah, So look I think that.
Go ahead, sorry, Mike Yeah, Yeah, I mean, I can name like 10, others, but are these people that are affiliated with luminescence.
Yeah look we have I mean, 1 of the reasons. We've had the success we've had it luminosity as we have.
A pretty strong track record of building, helping content creators build followings.
And it goes back to Ninja, if you look at our Somerset and her growth. If you look at Torrey perino in her incredible growth Rocky no hands.
Fresh who has completely blown up.
Since he's joined luminosity and Nikki 30.
Thank you have a number of examples where we've grown our alongside and help nurture. These this talent and it's and it's not it's not independent and happening just on Twitch I think it's a direct result also of the <unk>.
<unk> gaming flywheel, putting fresh and giving him an opportunity to D. J to a massive audience and work with Coldplay, giving him an opportunity to.
To do merchandise dropped with little tack, a and then you think about G. G T a and the viewers the 10 million viewers at G. G. T pulled in and you think about all the luminosity talent that we invited to serve as judges including yourself.
There's a halo effect here of the proprietary properties and content, we're creating inviting our luminosity talent to participate we.
We created a whole content piece around dairy a slave slave versus on Twitch and have grown his following so.
I think we have a pretty strong and and track record to be proud of in terms of helping our creators build their audiences.
And again, we can't take a lot of credit for Xqc. He's he's a supernova superstar all to himself, but it's you know no no coincidence that his girlfriend adept wanted to join luminosity and wanted us to help with her career and so you know those are those are the touch.
And look you know the Twitch revenue stream is basically exclusive to the creator.
We don't touch it so we help them grow they make more money and you know, presumably they're happy with with with the involvement with luminosity.
Okay, Great and then just final question just coming back.
Back out to a bigger picture, if there was any update or and where you envision the long term business model.
Margins to be or.
Enthusiasm in terms of like growth EBITDA, when we might get there or what needs to take place before before that happens.
Sure I would say.
So theres no real change in that long term vision.
We have been I I actually love that about us we've been very dedicated to our growth strategy and its come in it's been coming true everything we said a year ago has been coming through but and here. We are today, we're pulling forward certain aspects of the growth strategy that we originally thought it would be farther out such as the social network. So therefore.
Ah the terminal state.
I I don't see any difference I've always kind of compared to traditional traditional.
Traditional media companies and the P&L profile that they enjoyed it and at the peak of that industry, which where margin is well over 50 per cent.
And very healthy operating margins.
I could easily see it getting to 25 or 30% on a on a terminal basis.
And if anything has changed I think that.
You know we are we have a clearer vision of those out our growth strategies, which I think may pulled them forward a couple of years, it's still though it's still of course those profiles are still our long term.
<unk> long term plan as you can see the incremental gains we're getting we're getting 5100.200 basis points a quarter and that.
That's just fine that's what we want them.
You can imagine a long term basis, which a lot of people would define as 5 years that adds up that adds up significantly and changes the profile of this business. So so that's that's what that's how I view the income statement profile.
I also think you know just as as 1.
Contributing data point to that.
We we talk internally and have always talked internally about in a few years' time doing $100 million of direct sales.
And that's you know that might have sounded fanciful when we had 2 employees.
But we want to move 10 per cent of our inventory to being directly sold and I think that the trajectory that we're on the success that we're having the repeat business that we're winning.
And they're not the type of companies that were doing business with you know we we we are confident that we're executing in a manner that.
That supports those kinds of performances.
Excellent. Thank you Adrian.
Thanks, Mike.
Our next question comes from Kevin Mackie. Please go ahead with your question.
Okay.
My question has to do with expenses in the Q4 conference call.
You guys talked about how 50 million and expenses annually was a good run rates will look at and model things.
Past 2 quarters have been substantially higher than that so just curious if that's from a 1 time investments and thats going to relax a little bit or if we're looking at a higher run rate moving forward.
Okay. Thank you so.
I mean, I don't think it too much.
Other than that to be honest, but.
But certainly it certainly is higher but where where that higher with a portion of that is higher is is a lot of it is because we've seen the ROI I think direct sales is is performing as well as we could have expected. They all I I will.
Tied to the fact, we had setting.
Okay in the first quarter, but next year Q2 direct sales is gonna be 12 per cent of our overall revenue.
In the same period that revenue has grown to well over 30 per cent.
C N that rois, we've accelerated the other things that we've accelerated our.
Of course, the social network and the data capabilities, which as you know.
6 months ago, we're farther down.
Our growth path, we've accelerated those being a bit of opportunity to be honest is as well, we saw the opportunity and where season on it. So I wouldn't say that we will go back certainly not to a lower operating level. This is what readjust. This operating levels those were investments that were consciously made.
And I, although I wouldn't expect the next Q.
The same increase we've seen in the first half of this year, where both of them I do want to point out too though.
Opex was up significantly from the market some of the noncash amortization and stock based comp is up.
Nearly 100%.
Not from form.
But not pro forma.
The revenue was up much much more than that of course, but even the gross profit is up significantly more than that so so we're seeing some auto items, we keep we keep doubling down and as long as we keep saying that our ROI, we're going to do that yeah.
Yeah look the up the opportunity has got bigger quicker.
And we are.
Are hell bent on capitalizing on them and also so direct sales Oh good.
Budgets increased we wanted to hire people, we wanted to pull forward our ability to exploit.
Void in the marketplace to deliver on our subscription based social network and at the same time. This is a company and again, it's not dissimilar to a lot of high growth companies, but you.
You know what we're executing building a direct sales building the building of the upcoming <unk> and in our spare time, we raised $120 million in the first 6 months of the year. We are lot listed on NASDAQ We bought 2 companies.
And we put a $250 million base shelf in place. So these are corporate a lot of corporate actions.
That requires spend.
But we're confident that.
We're being really really opportunistic about seizing our moment in the Sun here.
Thank you for sharing your mindset there and my other question has to do with the drama that has unfolded around Activision and corporate culture and work environment and I just wanted to hear your thoughts on what you guys are doing to protect your company from <unk>.
<unk> that kind of stuff, how you're fostering a positive corporate culture that together Terry and so forth.
Yeah no. Thank you. Thank you for the question certainly Vancouver Titans in Seattle surge of which we have ownership stakes in.
<unk> issued statements time ago <unk>.
Supporting everyone, taking a stand against discrimination and harassment in the workplace.
And we believe is a business that everyone deserves the right to feel safe valued and included in the workplace without fears of.
Judgment or prejudice based on gender race or orientation and that was a statement that was important for us to attach our name too and it's a statement that we believe is as a company.
We just hired our new head of people and culture, Kansas Levy, who starts next week and and where we take these values seriously.
We have an incredibly.
Diverse group of people that work for enthusiastic we do our best to make sure that.
Their voices are heard and respected and we're going to make the investments in people and culture to to walk the walk and talk the talk.
Great. Thank you and my last 1 has to do with subscriptions just wanted to hear what your thoughts might be about how you're going to potentially convert existing subscribers someone who might be just on the sims and converting them over to this pan enthusiast offering that I assume will come at a higher price per.
Line.
Sure I can take that 1 just on the first point on the conversion remember.
It is and it isn't going to be a brand migration for the existing subscribers on any of our platforms are really what this will do for anyone who's on whether it's an escapist or district or or some resources. This will just make it a single sign on access that allows them to access multiple different.
Features assets, you know networks apps in the wider enthusiast gaming asset mix. So it's not exactly a brand migration that we will not go down that path, we would want their communities to remain within their communities.
We'll have access to the wider asset makes that enthusiast gaming offers as far as you know pricing of G D and and how we think about it I think it's too soon for us to comment on any of that again, our focus right. Now is heads down let's get the product stabilize let's make sure that we're building the right social network AI into a platform. That's got the first 1500 test.
And let's get that's got the learnings out and then let's prepare for a public launch in early 2022, that's that's our focus and I think as we develop more of a commercial sense on what the pricing structure would look like that would be more than happy to share that at that point.
Okay.
Great. Thank you you guys are at the tip of the sphere and a lot of things that you're doing and I. Appreciate your efforts.
I gave you.
And ladies and gentlemen, with that we'll conclude today's question and answer session and conference call. When you. Thank you for attending today's presentation. You may now disconnect your lines.
Yeah.