Q4 2021 Enthusiast Gaming Holdings Inc Earnings Call
Yeah.
Thank you for standing by this is the conference operator.
Thank you for standing by. This is the conference operator. Welcome to the Enthusiast Gaming Holdings, Inc. fiscal fourth quarter and full year 2021 financial results conference call.
Welcome to the enthusiast Gaming Holdings, Inc, fiscal fourth quarter and full year 2021 financial results conference call.
As a reminder, all participants are in a listen only mode and the conference is being recorded.
As a reminder, all participants are in a listen-only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
After the presentation, there will be an opportunity to ask questions.
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I would now like to turn the conference over to Eric Bernacki, Chief Corporate Officer.
I would now like to turn the conference over to Eric Bernofsky, Chief Corporate Officer.
Please go ahead.
Thank you <unk> good.
Good afternoon, everyone and thank you for joining and so you're just gaming <unk> fourth quarter and year end 2021 financial results call. My name is Eric Bernacki, Chief Corporate officer of enthusiast gaming with me today is our Chief Executive Officer, Adrian Montgomery, Our Chief Financial Officer, Alex Macdonald, and our Chief operating officer will begin with some prepared remarks.
Eric Bernvski: Thank you, Charisse. Good afternoon, everyone, and thank you for joining Enthusiast Gaming's fourth quarter and year-end 2021 financial results call. My name is Eric Bernofsky, Chief Corporate Officer of Enthusiast Gaming. With me today is our Chief Executive Officer, Adrian Montgomery, our Chief Financial Officer, Alex McDonald, and our Chief Operating Officer, Thamba Tharmalingam. We'll begin with some prepared remarks from Adrian and Alex before opening the floor to questions.
From Adrian and Alex before opening the floor to 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.
Adrian Montgomery: 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.
Certainties 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 three and 12 month periods ending December 31, 2021, which are available under the company's profile on SEDAR and Edgar as well as on the company.
Adrian Montgomery: A more complete discussion of the risks and uncertainties facing the company appear in the company's management discussion analysis for the three and twelve month periods ending to December 31st, 2021, which are available under the company's profiles on Cedar and Ed Gar, as well as on the company's website, EnthusiasGaming.com. Your caution not to place under reliance on these forward-looking statements which speak only as of the date of this presentation.
These website and Ccs gaming Dot Com you are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date of this presentation.
<unk> disclaims any intention or obligation except to the extent required by law to update or revise any forward looking statements as a result of new information future events or for any other reason now it's my pleasure to turn the call over to Adrian Montgomery CEO of enthusiast gaming Adrian.
Speaker Change: 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, if I pledge to turn the call over to Adrian Montgomery, CEO of Enthusiast Gaming.
Thank you Eric.
Good afternoon, and welcome to our fourth quarter and year end 2021 financial results Conference call.
Adrian Montgomery: Thank you, Eric. Good afternoon and welcome to our 4th quarter and year end 2021 financial results conference call.
I'm very pleased to share with you today the details of another record quarter in fiscal year <unk>.
Adrian Montgomery: I'm very pleased to share with you today the details of another record quarter in fiscal year. I will also share some key operational highlights and miles
Also share some key operational highlights and milestones lastly, I'll, let you in on how 2022 is going before turning it over to Alex to share more details on our financial metrics.
Adrian Montgomery: Lastly, I'll let you in on how 2022 is going before turning it over to Alex to share more details on the financial.
2021 was a pivotal year for enthusiast gaming.
Adrian Montgomery: 2021 was a pivotal year for Enthusiast Games.
We maintained a clear focus on building the largest media and entertainment platform for video games and esports fans to connect and engage worldwide.
Alex McDonald: We maintained a clear focus on building the largest media and entertainment platform for video game and eSports fans to connect and engage worldwide.
And I'm proud to say that our team continues to deliver.
Alex McDonald: and I'm proud to say that our team continues to deliver. Let me share.
Let me share some of the highlights first we have been telling shareholders that the steps. We took in 2020 would consistently deliver quarter over quarter revenue and margin growth.
Alex McDonald: First, we have been telling shareholders that the steps we took in 2020 would consistently deliver quarter-over-quarter revenue and margin growth through 2021.
2021.
I'm pleased to update shareholders today and to tell you that we are delivering on this commitment.
Alex McDonald: I'm pleased to update shareholders today and to tell you that we are delivering on this commitment.
Revenue in 2021 grew 130% to a record $167 4 million.
Alex McDonald: Revenue in 2021 grew 130% to a record 167.4 million.
From $72 8 million in 2020.
Alex McDonald: from $72.8 million in 2020. In Q4, revenue grew 34% to a record $56.9 million from $42.5 million in Q4 of 2020.
In Q4 revenue grew 34% to a record $56 9 million from $42 5 million in Q4 of 2020.
Gross profit grew to a record $37 8 million in 2021 up from $18 6 million in 2020 and in Q4 gross profit reached $13 7 million up nearly 40% sequentially.
Alex McDonald: Gross profit grew to a record, 37.8 million in 2021, up from 18.6 million in 2020.
Alex McDonald: and in Q4, gross profit reached $13.7 million, up nearly 40% sequentially.
Gross margin improved in each quarter of 2021, reaching 24, 1% in Q4 up more than 500 basis points from the same quarter in 2020.
Alex McDonald: Gross margin improved in each quarter of 2021, reaching 24.1% in Q4, up more than 500 basis points from the same quarter in 2020.
We told shareholders that the investments we made in 2020 by investing and focusing on shifting the business model to an integrated entertainment company and part by staffing and Resourcing of direct sales and customer success team.
Would bear fruit in 2021.
I'm pleased to again report that direct sales continued to make significant progress and give kudos to our incredible teams that are driving the change in conversation every day amongst fortune 100 marketers.
Fortune 100, 501000, marketers, helping them redefine their go to market strategies on how to reach Gen Z and millennials.
Alex McDonald: Fortune 100, 500, 1,000 marketers, helping them redefine their go-to-market strategies on how to reach Gen Zs and millennials.
Direct sales revenue grew to a record $22 2 million in 2021.
Alex McDonald: Direct sales revenue grew to a record $22.2 million in 2021, up more than fourfold from just $5 million in 2020.
More than fourfold from just $5 million in 2020 in Q4.
Direct sales grew to a record $8 8 million and accounted for 16% of total revenue compared with only 8% in Q4 of last year.
Alex McDonald: In Q4, direct sales grew to a record 8.8 million and accounted for 16% of total revenue, compared with only 8% in Q4 of last year.
I want to reiterate again that one by building the largest media and entertainment platform for video game in esports fans to connect and engage.
Alex McDonald: I want to reiterate again that one by building the largest media and entertainment platform for video game and eSports fans to connect and engage.
Two by connecting with hundreds of millions of gamers each month.
Three by being ranked by Comscore is the top 100 Internet property in the U S and one of only two gaming companies to make the list.
Alex McDonald: Two, by connecting with hundreds of millions of gamers each month.
Alex McDonald: Three, by being ranked by CommScore as a top 100 internet property in the US, and one of only two gaming companies to make the list.
We offer more touch points to our Gen Z and millennial audiences for marketers to reach than any other gaming Entertainment company.
Alex McDonald: We offer more touchpoints to our Gen Z and Millennial audiences, for marketers to reach, and any other gaming entertainment company.
And it might be so bold as to say any company in any category targeting <unk>.
Alex McDonald: And I might be so bold as to state any company in any category targeting Gen.
But it now goes so much beyond offering more touch points.
Alex McDonald: But it now goes so much beyond offering more touch.
Our proprietary content continues to grow and evolve as you may recall, we have developed our own IP and custom content capabilities that when combined with unmatched reach really does create a sustainable competitive advantage.
Alex McDonald: Our proprietary content continues to grow and evolve.
Alex McDonald: As you may recall, we have developed our own IP and custom content capabilities that, when combined with unmatched reach, really does create a sustainable competitive advantage.
Some of those franchises include gamers greatest talent rising stars alumina Asti Academy luminosity lives E. G. L. Ax pocket Gamer connects launch pad.
Alex McDonald: Some of those franchises include Gamer's Greatest Talent, Rising Stars, Luminosity Academy, Luminosity Live, EGLX, Pocket Gamer Connects, Launchpad.
And all of these properties. In addition to our media reach are all being sold directly via sponsorship or custom content integrations.
Alex McDonald: And all of these properties, in addition to our media reach, are all being sold directly via sponsorship or custom content integration.
In 2021, we worked with many new partners and I have spoken about several of them on past calls.
Alex McDonald: In 2021, we worked with many new partners, and I have spoken about several of them on pass calls. We also noted in early 2021
We also noted in early 2021.
That our direct sales team.
What is going to commit itself to successfully unlock a new category for us in Hollywood studio films.
Alex McDonald: going to commit itself to successfully unlock a new category for us in Hollywood studio film.
This category proved to be one of our best in 2021, as we partnered with 17 film releases in the year compared to zero in the prior year.
Some of the partners. We work with include Amazon Originals, Disney elevation Pictures, Paramount Pictures, United artists and Universal.
This is one particular category, we are very bullish on for 2022.
Another point I want to focus on this quarter is the increasing success, we're seeing on renewals as a percentage of overall direct sales.
These are the partners that came back to us throughout the year on additional media and content Activations, we often get asked about repeat business about whether our partners are just testing the waters with us or if we are providing real sustainable value to them.
So I thought I would highlight the mix of renewals versus new business as we can.
<unk> 2021.
I'm, particularly proud to say that in Q4, 42% of direct sales revenue was from renewals from partners. We had previously worked with.
Further we are seeing deal size on average amongst renewals to be larger than new customers. That's a very telling metric and bodes very well for our direct sales business line as again. It is another proof point that our flywheel of services, we offer brands is winning market share.
Some of these renewal partners include a b Inbev Activision Bestbuy Bethesda is knee elevation FX networks G fuel HBO, Max Lego, Microsoft Nintendo Procter and Gamble Square Enix State farm insurance ticked.
Talk Tracfone Truth initiative, Universal Pictures and worthy Parker.
And I think it goes without saying, but it bears repeating that if youre going to win multiple rounds of business with something like Disney plus or HBO Max It's for one reason and one reason only it's because of the solutions that we offer are converting subscribers for them.
Turning to paid subscribers, we ended the year with 220000 subs up 80% from a year ago.
Similar to direct sales we are seeing many of the seeds, we planted in 2020 bear fruit in 2021 and despite the marked success. This year. We believe we are still in the early innings of both direct sales and subscriptions.
From a combined revenue perspective, the growth areas of direct sales and subs totaled $12 million in Q4 or about 21% of total revenue.
To just $5 million or 12% in Q4 of 2020.
This shift in revenue mix has helped lift margins and we plan to continue to invest in these high growth high margin areas of our business.
On the content licensing and distribution side, we took significant steps in 2021 in the areas of premium content and 2022 has started off very well.
We have also been encouraged with the success to date, we have seen on new distribution platforms like snap and Tic Toc that are now starting to generate real recurring revenue.
While it is still a bit early to share numbers, we have and will continue to make the investments needed that I believe in the next two plus years will catapult enthusiast gaming into a leadership position in gaming and Internet culture from a premium content perspective.
I look forward to sharing more with you in the coming quarters.
Turning to luminosity gaming our esports organization had a successful 2021 luminosity is now head and shoulders above any other professional esports organization. When it comes to time watched we continue to build our roster of competitive players in content creators and remain excited about continuing to grow our <unk>.
Market share in esports.
And I would also point out that when we talk about our proprietary IP the rising stars the gamers greatest talent.
The luminosity Academy that we created in partnership with Lego luminosity gaming esports athletes and content creators.
Fixture and all of those content Activations.
In 2021, we successfully closed five acquisitions, including Addicting games in <unk> later in the year and they are integrating extremely well into our flywheel.
In November we acquired the U Dot GG one of the largest legal legend spanned communities in the world.
The team in Austin has not skipped a beat since the deal closed and we believe there are many exciting things to come in 2022.
One example is the launch of our new App last November which as of this week has been downloaded over half a million times, and which also demonstrates the strength of offering and experience experiences that unite Gigi delivers for the league of legends community.
Last quarter I spoke about exploring NFC opportunities and gave some examples of flywheel integrations with addicting games, the casual mobile games developer we acquired in September of last year.
Subsequent.
To the to the year end, we announced a unique partnership between enthusiast gaming and Heidi mining one of North America's most innovative digital asset and miners.
This is a textbook flywheel deal.
Hut eight becomes a sponsor of luminosity gaming their logo is proudly displayed on our jerseys and fans should look for the HUD eight luminosity merch drop coming soon.
It also uses our media inventory and Influencer roster, which will be used to cross promote addicting games as EV dot Io and honey.
But it goes even further while the Hyundai deal covers the flywheel, it's meaning component is a game called <unk> Dot Io a first person shooter available for anyone with a web browser youll see our creators and esports athletes playing the game with their fans online to cross promote EV and Heidi.
Put eight skins hut, eight bosses and HUD eight tournaments are coming to EV through this partnership play.
Players will pickup huddy weapons and play on HUD eight levels.
We recently announced that we are releasing custom ftes via a partnership with the fractal marketplace, which is led by one of the founders of Twitch inside EV that I owe to engage with fans in a new way.
This will enhance gameplay and drive further in game purchases.
We're plugging into web three <unk> opportunities with the right partners at the right time, because of our unique and deliberately assemble flywheel of assets.
We're the only ones capable of this type of activation.
Last year the seat.
Oh of epic games set the met averse would be about car companies, putting you in the car.
Rather than advertising a picture of a car on a billboard.
This is how we've designed the partnership with HUD eight in fractal.
Utilizing assets across our flywheel to produce content and experiences that lead to deeper engagement and new purchasing opportunities for fans.
In conclusion, we delivered on our promise in 2021 of growing revenue more than 30%, while also meaningfully improving margins and continuing to invest in new growth opportunities.
2022 is off to a great start and I see a similar pattern unfolding with sequential revenue and margin growth throughout the year.
I am confident we have the right team and strategy in place to continue executing and to continue to drive long term shareholder value as you see we've had a busy year, but we're just getting started.
I'll now turn the call over to our CFO , Alex Macdonald for further commentary on our financial results Alex.
Thank you Adrian.
It says.
Certainly feels fantastic to finish such a big year with such a strong quarter. Our fourth quarter 2021, My commentary will focus on Q4 with some additional observations on the year as a whole. However, prior to that commentary here are my usual moats I note that our results are presented.
In Canadian dollars I know 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, and the seasonality is isolated to our media and content revenue streams and I note that the significant majority of our revenues are.
Measured in U S dollars and are translated into Canadian dollars for presentation in our financial statements. The exchange rate between the U S dollar and our presentation currency of the Canadian dollar should be monitored and considered when analyzing our forecasting results and now lets talk about the business growth continues to core.
Our revenue was another record high of $56 9 million up 34% from Q4 2020 revenue of $42 5 million. This increase was driven by strong growth in our media and content revenue streams, which were bolstered by a direct sales. The increase was also supported by our continually growing subscription.
This Q4 revenue by source was as follows media and content to $53 3 million subscription $3 million and the sports and entertainment point 6 million media and content revenue of $53 3 million compares to a $39 6 million reported in Q4 2020, an increase of 35%.
<unk>.
The increase in media and content revenue for Q4 was mainly driven by the following number one is no surprise a significant increase in direct sales. The majority of which are recognized in media and content total direct sales were $8 8 million in Q4 as compared to $3 3 million in Q4 2020.
<unk> is a web RPM, which was a 41% higher than Q4 as compared to Q4 2020, and certainly congratulations to our yield team on that result, and number three a video RPM, which was 24% higher than Q4 as compared to Q4 2020 Q4.
Subscription revenue was $3 million up 83% from $1 7 million in Q4 2020. The increase in subscription revenue is attributable to an increase in paid subscribers. The company had approximately 220000 paid subscribers as at December 31, 2021, which is up substantially from approximately 102.
2000 paid subscribers as of December 31, 2020, the increase in paid subscribers is approximately 80% year over year of which approximately half came from each of organic growth and acquisitions. The company continues to grow the subscriber base on its existing subscription offerings and continues to offer additional <unk>.
Ascription offerings on new platforms Q4, your sports and entertainment revenue was <unk> 6 million as compared to $1 2 million in Q4 2020. The decrease primarily relates to the termination of our management services agreement relating to the management of the Vancouver Titans, which was terminated in Q2 2021. The company also did not host E. G. L D.
Digital in Q4 2021 as it did in prior years fluctuations in entertainment revenue are also caused by the scheduling and timing of live and digital events and the Companys Entertainment Division gross profit was an all time record high of $13 7 million for Q4 up 69% from Q4 2020.
Gross profit of $8 1 million as I still often repeat our growth strategies include higher yield and higher margin revenue streams, such as direct sales and subscription direct sales and subscription revenue reached all time highs of $8 8 million and $3 million, respectively, which helped drive this record.
Gross profit direct sales and subscription are now consistently over 20% of total revenue, which helped bring the gross margin of 24, 1% in Q4 up 500 basis points from Q4, 2020, which was $19. One this reveals a compounding effect in our business model when we consider the cigna.
Difficult growth in revenue over the same periods.
Operating expenses were $25 7 million in Q4 up from $12 5 million for Q4 2020 half of this increase is from noncash expenses share based compensation and amortization, which were $4 2 million and $3 9 million in Q4, respectively.
A portion of the increase also relates to the registration of the company with the SEC and the NASDAQ listing office in general items are include items, such as insurance filing and listing our sustaining fees. Many of these expenses began in Q2 of 2021, such as the required insurance and will continue for the foreseeable future for our <unk>.
Analysts, who may seek to forecast a certain line items of operating expense you may notice that esports player team and game expenses or reduced in Q4 of this year. We view. This reduction is nonrecurring and this expense line is expected to return to Q3 levels, which was a $1 6 million net loss and comprehensive loss was $12 nine.
And in Q4, resulting in a net and comprehensive loss per share both basic and diluted of 10 cents.
Net cash used in operating activities was $3 4 million for Q4, which has improved year over year from $4 3 million for Q4, 2020, and we ended the year with a cash balance of $22 7 million.
We are more than ever of the opinion that the results of operations and the financial condition of enthusiast gaming has never been stronger we maintain a growth oriented outlook. We are in a position where revenue continues to grow significantly Q4 revenue grew 34% year over year and we.
Expect similar trends to continue however, the growth in revenue was far outpaced by the growth in gross profit Q4 gross profit grew 69% year over year and we expect gross profit to continue to outpace revenue growth, resulting in continued improvements to gross margin when we look at opex as important to <unk>.
Note that we are already a business of scale, we have an audience of over 300 million monthly viewers. Those viewers consumed 40 billion pieces of content on our platforms in 2021, and this makes us according to Comscore one of the top 100 Internet properties in the United States now and.
<unk> gaming already sustains and maintains the costs of this scale. However, enthusiast gaming is only now starting to realize the benefits of this scale. We will continue to invest in the growth of this business, but we are at a pivotal time, we have proven the businesses ability to scale and audience, we have proven it.
The ability to scale, our revenue and we are proving and real time its ability to scale gross margin.
As the higher yield and higher margin revenue streams continue to form a larger portion of overall revenue. The scale will continue to move down the income statement ultimately to operating margin and these revenue streams are not slowing down Adrian spoke earlier about the power of our direct sales offerings and here are some stats.
For direct sales grew by 167% year over year repeat clients accounted for 37% of all direct deals and media and content in Q4, However, repeat clients accounted for 41% of all direct sales revenue in Q4 statistically this suggests that a new.
Clients is likely to become a recurring clients and a recurring client is likely to spend more than a new client.
Therefore revenue scale well continue to flow gross margin will continue to outperform and operating margins, which are already improving will follow.
I wish to thank all the analysts for their continued work on the company I also wish to thank our new credit partners, who are likely listening. Thank you for your work and your confidence in us and we look forward to continuing to build our relationship and of course, my personal gratitude and congratulations is extended to my team all of them for a fantastic year in <unk>.
Gratulation on wrapping up at year end 2021 to our shareholders and other stakeholders. Thank you for your continued trust in us as custodians of enthusiast gaming and.
And through this gaming is a hell of a business. It's a special business at your business and it's our business and of course, ladies and gentlemen, our business is the business of gaming.
Operator, I kindly turn it back to you.
Thank you.
Now begin the question answer session to.
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Our first question comes from Robert Young with Canaccord Genuity.
Please go ahead.
Hi, Good evening, just wanted to first question would be a clarification on something you said, you said sequential revenue and margin growth through the year.
I assume.
But you expect typical Q1 seasonality.
And since we are.
Pretty significantly through that quarter Wonder if you could give us a sense of.
How modeling.
The top line.
Should be given Q1 is typically down.
From Q4.
Hey, Rob This is Alex Joe I'll clarify quickly seasonality, certainly FX revenue and media and content less demand and lower CPM as lower rpms for digital inventory in Q1.
And that can extend to direct sales as well advertisers advertisers to spend less to advertise in Q1 than Q4 of course, however, when it comes to margin.
That doesn't necessarily have a big impact because it's all kind of all moves down together.
Sales will decrease which are high margin, but the programmatic networks will also decrease which are lower margin. There was a slight impact by the fact that direct sales is growing significantly at the same time.
But seasonality had certainly an impact to revenue in Q1.
Yes.
Impact to overall margin.
Okay, and so given the growth in direct we should think of maybe less of a quarter over quarter decline this year than say last year.
Yes, I mean last year is not necessarily representative because we only started this big quarters ago with direct sales.
So on a percent basis I believe.
That's a fair assumption, yes, because I think last quarter was 323 $3 million to $1 million. So.
That was partly because of the small scale at the time.
So I would expect on a percent basis less of a decline.
Okay, and then in the release and the commentary you talked about maintaining that growth oriented position and outlook and just wondering if you could maybe give us an update on how you view.
The focus on revenue growth over getting towards positive EBITDA, given the talk about gross margin expansion.
Expansion as well is there a do you have a target for when you may be positive EBITDA or is that something that.
With suffer given the growth opportunities.
Yes, Rob it's Adrian I think.
From our perspective certainly.
We are growing revenue at a substantial pace.
But we're also growing margin at least last quarter twice as fast as revenue and as Alex said really if you look at the evolution. The very quick evolution of our business step one was to scale, an audience and scale AD impressions and.
And we now have 300 million people a month.
Digesting 40 billion views declined 10, a year. So that's been achieved the second step was to scale revenue and now as Alex quite accurately said, we're scaling margin in real time going from just over 16% when we bought Omnia in August of 2020 to 24, 1%.
To end the year and so the margin growth in the business as the flywheel continues to move.
It's something that we're really excited about.
And so when you are growing margin as fast as you are.
Effectively we added $40 million of revenue.
On a pro forma basis in 2021.
But lifted the margin dominator up by.
Eight eight full percentage points, which means that now that we built this scale that incremental revenue is coming in at north of 50% margin. So.
We believe that obviously, where we're going to take full advantage of the growth opportunities that sit in front of us, but growing as fast as we are bringing in that incremental revenue and at north of 50% as we continued to execute against that we've never been on a firmer track a firmer short term track to profitability.
<unk>.
Okay.
So maybe.
To hold you to something.
Would you say that you're more positive on positive gain towards positive EBITDA, let's say last quarter or would you say that you're more focused on the growth I'm just trying to get a sense of the change.
Your priorities as management.
Hello.
The CEO , who has a degree in American history is just pushed the CFO of out of the way the grab the mic we're getting I think we can do both Rob.
But Alex.
Sure.
Q4.
Well, Rob we.
Look nothing's going to stop our growth, we arent, it's not our style.
We're still going to pursue that.
We're proud of that.
We're not here for small wins, we're here for a big one so.
So I don't think the two are necessarily in always in conflict with each other but we are not going to prioritize anything overgrowth. However, as Adrian pointed I look at the way we were moving we've created our own inventory, we created our audience, we generated significant revenue off of it we're improving gross margin off of it.
And now.
Well I will say the operating margin to lease on a question on adjusted basis.
As a as improved this quarter.
And we obviously have a site down.
On the sideline down the P&L, we're not stopping at gross margin.
We're going to keep going but nothing is going to stop us from growing that thing is going to get priority over that.
Okay, great. Thanks for all that color and maybe just last question.
Back to when you acquired Omnia, you gave a little bit of detail around where you thought gross margins could eventually go to.
The 24% that you reported today is the highest yet and I was just curious as you look at the business model.
And we're the direct sales subscription.
Going to grow like where do you think that gross margins can go to over the longer term, if youre thinking of like a target.
Gross.
Over the next couple of years, and then I'll pass the line.
Well, we purposefully refer to ourselves.
As an integrated entertainment company and we believe that as we continue to see the margin expansion.
As we scale the business, we think of the.
The possibilities as we execute in terms of traditional entertainment.
Company margins, both from a growth perspective, and an EBITDA perspective, so on a terminal state basis. It is what Alex.
All states, there's no reason the digital.
Media and digital integrated Entertainment company couldn't enjoy gross margins pushing north of 50, and a terminal basis. These would be similar P&L profiles to traditional media companies, except of course with the benefit of being digital they have lower costs.
And that flows out like operating margins certainly in a terminal basis hypothetical it would be north of 20, no problem again for the same reasons.
Relating to the profiles of traditional media companies are Rob. It's also funny you talked about.
I remember of course, when new launched coverage than we had.
The margin has always been something we've spoken about on Omnia was acquired and I think back then.
We started discussing the present plans of how this is coming to get to 30, we were at 16 at the time and those appeals that will how is that possible. How do you double well a few short quarters. Later here. We are we're at 24, we are.
A significant amount of the way through that journey I also draw Walmart connection if you if you took the.
The difference in the net cash used in operating activities, which was $3 4 million.
And divide that by the total revenue that is 6% of revenue.
Rich plus 24 of course, it would be 30%. So I was actually thinking of you when I when I saw those numbers and we had those original conversations.
Okay, well, thanks, a lot for all the answers and I'll pass the line.
The next question comes from Mike Crawford with B Riley Securities.
Please go ahead.
Thank you before asking something a little bit more strategic I was wondering if I could just nail you down to that.
Think that there's a greater than 50% probability of a positive EBITDA in the fourth quarter of this year and also for the full year of next year.
So hey, Mike how are you doing it's Alex.
Alright, I think God, there's a solid probability we don't have guidance and of course, we have our priorities.
Of growth and.
Of course statements are forward looking but.
Couple of things I'll point out we are approaching those margins were.
With that that that certainly even mathematically it makes sense, we're getting quite close.
And secondly, we have a couple of trends with us the trends and the high margin high yield high margin revenue streams.
The the trends and the acquisitions flowing through for next year and of course seasonality in any given year, but particularly if we look inside 2022 seasonality, which will boost the back half of the year. So I think we're getting quite close.
Not not for the year.
But we're not there starting the year, but by Q4.
Q3, and Q4 and thereafter.
And we're quite bullish about.
Oh, Okay. Thanks, Alex so.
Just regarding your business I know you're monetizing some of the content.
After Twitch what are the next most important.
Distribution channels for some of your stream content from athletes and more importantly, the creators.
I'll, let somebody.
Answer that one.
Yes. Thanks.
Yeah. So yeah, I would say that Twitch, if you look at where most of our content is.
A huge presence in Youtube.
Massive presence in Youtube and our content and as Adrian alluded to in his comments earlier, we have had some great success and picked up in snap of late.
We're extremely pleased with the growth prospects of that.
So I would say outside of Twitch those would be the video content.
Distribution channels.
Okay. Thank you and then.
Just given the five acquisitions.
Last year and the way that you structure deals there is.
A large <unk>.
Portion I think it's 48 million short and long term on the balance sheet of a deferred payments related to these acquisitions I think.
Those many of those are.
So I kind of stretch based or performance based goes so I think you would.
Prefer.
Rather than not it's actually paid that out because that would mean your acquisition.
Our working as well as or better than plan or should I be looking at that differently.
No that's accurate.
Accurate.
Okay.
Thanks, Adrian then with this.
Innovative hot a partnership that you now have.
The other.
Vertical.
Groups or categories that are just right for a sponsorship like that with luminosity endo enthusiasts.
I'll, let some.
Who also is the architect of the HUD <unk> partnership comment on the other verticals.
But before we do that I want to reiterate that.
There is a lot of people who put the word met averse into our press release Theres a lot of people who talk about web three point, though because they think it's a cool buzzword.
We're not professing to be experts, but we've gone from mentioning in ftes to doing a multiyear partnership with one of the most innovative digital asset miners to getting them integrated into a first person shooter game that we own to doing a partnership with Justin Con is the founder of <unk>.
<unk> is the founder co founder of Twitch and owns an NFC marketplace called fractal to being in a position where we're about.
A few short days away from from our first ever NSP Mint.
So this.
As as these concepts like the meta versus in web three point out come to life recognize that we're not limited to these binary one dimensional sponsorship deals that other sports esports organizations are we're actually creating content, creating IP.
And creating an end to end solution is as we take steps into the meta versus web three point O.
So I'm very proud of the team at Addicting games.
The talent division for bringing this all to life Cos as Alex said.
Or I might have said in my prepared remarks, we're also gonna have luminosity <unk>.
Content creators, playing EV that I O.
Going on Twitch getting their fans to play this is a fully integrated opportunity that we're exploiting.
Having said that as we look to more strategic partnerships and difficult different verticals I'll, let Tom answer that sure. Thanks Adrian.
So just to add to what <unk> said, if you look at what we've done in web Covid auto with NFC and what we brought with our acid addicting games, there where it looks looking at some of our partnerships with a number of different verticals. We're in active conversations with a number of different verticals on what that would look like so it's not a straightforward sponsor.
Sure Bill, but more strategic and innovative in the nature in which how we have done this how they feel or how we've entered into the NFC space.
We're looking at sports categories, we're looking at music categories, we're looking at.
Sure.
A few CPG categories.
More to come but we're in active discussions in a number of verticals.
Okay. Thank you and then last question for me is.
What progress do you have on your effort to develop more of an interactive fan community with user generated content through projects such as your DG project.
So we are.
We are making a lot of progress.
On G G.
Certainly.
The tab SaaS platform that we acquired.
In and around.
The Gigi planning has been with their 10 million registered users has been.
A fantastic launching ground for us we're learning a lot.
In the Alpha phase.
And we also see an opportunity that we're not going to take a misstep bonds. So I'm highly encouraged sometimes.
Even the geniuses that Google had Gmail and beta for what was it 10 years roughly 10, roughly 10 years, so we're not going to rush something.
Until we know we got it right, but we're learning a lot.
And we're really pleased with the progress and we're going to add more game titles more features.
We're developing that in real time.
And I think that Gigi is also.
It's a code word and within our organization for innovation, So Thunder, maybe you'd want to expand on that sure at some of your so just to add on that as Adrian said.
<unk> project is our sort of internal code word for a number of innovative initiatives that we're pursuing in.
Very pleased with the progress so far.
We've got a couple of features that we've rolled out to our user base in terms of our alpha and our results have been very encouraging for us.
As Adrian said.
We're not going to put something out there to our gamer community, where we havent fully tested and then it hasnt been fully adopted by our community having said that we have.
We're planning on launching a few features you'll see it in a number of different properties such as <unk> <unk>, you'll see us unlock a couple of features such as tap stats Youll see us unlock a couple of features.
But very pleased with the progress so far and where we are.
How we're doing on that product roadmap.
Alright, Thank you very much.
Thank you Mike.
The next question comes from drew Mcreynolds with RBC.
Please go ahead.
Yeah. Thanks, Thanks, very much and good afternoon a couple.
A couple of mine have already been addressed so a couple more here.
On the M&A environment I.
I think in the last kind.
Four five months it feels like just capital markets, obviously in a different place.
And in Tech valuations, certainly come down quite a bit I'm, just wondering if that M&A environment in terms of your pipeline has evolved any differently as a result, whether theres more or less opportunity out there.
And then second just in terms of the revenue outlook.
First of all thanks for the gross margin and kind of EBITDA commentary certainly helps us kind of triangulate a little better on the forecast, but on the revenue side I don't know who wants to take a crack at this but.
Just I know theres plenty of opportunities all over the place just if you could for 2022 2023, just remind us kind of where you see kind of the deepest pockets of growth, obviously direct sales penetration being one of them, but just curious as to how long these things stack up in terms of where the bigger deltas are thank you.
Yeah.
Thank you drew.
The good news I think a lot of themes.
To address those couple of questions are interrelated certainly from an M&A perspective.
We want to continue to do M&A, we want to do it in a way that enhances the value.
And certainly it is important to us.
As we bring these fan communities into the whole the fall that they are invested the whole thesis about bringing it you got GE GE into the EG flywheel, we have lots of conversations with <unk> as an example.
We're bringing them into pitches direct sales deals. So it's important for us to have our acquisition targets become invested in the EG story from an equity perspective, because the whole thesis.
Pieces that we have is that one plus one equals three.
And so.
The more challenging the environment from a macro perspective.
The more challenging it is for us to.
To deliver on that model.
And I would point out that we see so much opportunity from an M&A front.
We also believe that we have almost a secret and proprietary list of targets.
That have not really become known to the outside world. So we're going to balance all those priorities the opportunities continue to exist, but executing them.
An accretive fashion is something that we're very disciplined about now the good news for us.
Is that if we can't do M&A for a couple of days, we have a business thats growing at 35% and margins growing at 70%.
We can continue to deliver on the aggressive growth assumptions that folks like you have ascribed to us purely from an organic basis.
And so as we look at the opportunity I mean.
Again couple of things that roll up under thought about subscriptions direct sales I'm very pleased that we're sitting at 220000 subscribers.
But I'm also reminding people in there reminding me that the denominator, we have to work from a $300 million.
So think about the ocean of growth that we can continue to pick away at on subscriptions and then if I might ask you maybe to offer some more commentary on direct sales certainly the growth we're seeing is exciting.
<unk>.
Also the repeat business okay.
42% of our almost $9 million in direct sales in 2021 coming from recurring customers and I can tell you with two days to go in the quarter that number will be substantially higher in Q1.
And when you think about who are our biggest customers state farm insurance.
Each of our block believe it or not is one of our more significant customers in Q1.
And the reality of the situation is all these middle age marketing executives found out during the pandemic just exactly what their kids and nieces nephews were doing all day, Dave the light bulb has gone on and it said.
He cannot engage without with Gen Z and millennials without our gaming strategy enter enthusiast gaming that is effectively a one stop shop you want esports, we got it you want the best websites in the World We got it.
Youtube inventory that is offering 92%, 94% completion rates.
Which makes us alongside connected TV tops in the industry. We got it you want games, we got it.
You want events, we got it so we can start to customized you want proprietary content you know one of the things that I'm proud of we just did a campaign for door dash and within the walls of enthusiasts, we created a $4 five minute animated.
Program, we introduced the new character Spa.
Specifically for door Dash and ran it on our owned Youtube channels and the thing had incredible success nobody can do what we're doing for our customer base and so.
I now ask Usama.
With all the all the Thunder away, but perhaps you can like direct sales is a huge growth area for us anything else that I think maybe I'll wrap it up with everything that Adrian said, if you could just if you're in the room you can see the excitement that he has a the explains the growth. That's ahead of us on direct sales and subscriptions lastly on direct sales.
That I would add is you know.
Started out.
With our sales focus in New York, we expanded a delay we are now in Chicago, where now in Texas. We've just started our sales office in U K. So.
From even from a geography perspective.
We're growing and I'm very optimistic with the with the progress so far.
And outside of that I would say we're opening you know there is new verticals that are coming up.
US that we haven't had access to before right. So as much as we want to see the repeat business in fact, selfishly I would want to open new category. So I would want to have new customers. So that we can have one.
That formula turned upside down.
But we're very pleased and the repeat business just shows the confidence that marketers on about there when they allocate their budgets to us and we're going to continue to deliver on that but at the same time, we're also going to unlock new verticals for us.
Okay, that's great color and certainly can feel the enthusiasm and excitement on this end of the phone so congrats.
Thank you thanks drew.
The next question comes from Derek Soderberg with <unk> Securities.
Please go ahead.
Hey, guys. Thanks for taking my questions Adrian wanted to start with you Facebook recently blamed awesome privacy changes at Apple.
That are sort of weighing on advertising revenues just curious if enthusiasts has been impacted at all by these changes and how we should think about these types of moves broadly.
Yes, thanks, Derek we have not been impacted by by those changes I think as it pertains to privacy and other things I would just offer up two points one.
We own first party communities.
We have direct relationships with our fans and with our audience members.
And there is no greater.
Forcefield protect you against privacy issues, particularly in a future where third party data is going to become harder and harder to access than owning the communities and the relationships on a first party basis. So we feel that we're well positioned moving forward on that front and then the second thing I would reiterate.
Right and certainly you are getting a fair amount of Av.
Enthusiasm from us pardon the pun on the direct sales is that unlike Facebook. Unlike IGN. Unlike game spot, where we're starting to really resonate in the market places. We just don't sell straight up media that is a component of what we sell but we are gen Z whispers.
We sell customized bespoke solutions that involve a number of different assets that we package together case in point the door dash animated content on an owned and operated channel case.
Case in point, creating customized HUD a branding within a first person shooter game that's available on a browser.
E Sports Jersey sponsorship. These are things that that have nothing to do with the vagaries of straight up media. The beauty for US is we unlike any other esports organization, we can deliver media scaled media and we can actually and I'll say the point again, because it bears repeating like when we bought omni.
We had a belief that this was.
Some of the most valuable video inventory on the Internet that was being undervalued and today as we sit with video inventory that consistently gets 90 plus percent.
View ability and completion rates like I can't overstate, the fact that that puts us at the top of the heap.
In terms of in terms of digital media. So when you put all of those assets together.
And somebody builds really create these customized solutions for their clients.
It's way more than just the immediate sale.
Got it and then as my follow up Alex I'm wondering if you could share where gross margins are for direct sales today, and maybe where that can be long term.
And then can you share to what degree the direct sales contribute to gross margin expansion either sequentially or year over year.
Oh, sorry, I'll tell you whether they're at.
And then I think that in.
In fact, we will answer the second part of the question to you there.
They they they still are coming in around a 50% margin. There is a bit of an array of course, we have a higher touch.
Things like live Activations, even digital live Activations with studios and in.
Presenters and anchors and all sorts of things.
Those are right now the lower and then the digital media and some of the other sponsorship areas are higher than they are still averaging about 50.
Where they can go that question look as we scale them there will be economies of scale to the margin as well of course, our live entertainment or digital entertainment properties, which Adrian listed.
A good list of them.
Those can support additional sponsorships, which will raise the overall margin of the spot ships against them. So I think that number can increase but right now it's we're more working on scale.
And just building, it's but it is coming in around 50%.
Great Congrats on the progress thanks, guys.
Thank you thank you Sir.
The next question comes from Jeff fan with Scotiabank.
Please go ahead.
Thanks. Good afternoon. Most of my questions were answered just a couple of.
Follow ups or clarifications.
One is on the Opex.
I know Alex you've explained.
Number of reasons why.
That number has ramped up through this past year.
But it sounds like what you're saying is you are at scale, so am I to interpret that.
The 17 18 million, where you are today is the right jump off point for 'twenty two.
And then the other question is probably for Adrian.
42% of direct sales coming from renewals, that's great to see.
And the fact that these are coming up higher budget and higher Cam bigger campaign.
I'm curious when you go up on these campaigns competing for these deals who you're going up the gains are you going up against the other.
The other folks that bring gaming properties or are you going up against.
Non gaming who.
Who pretends or claims that they have.
Our reach into Gen Z I'm, just curious as to who you're going up the gains on some of these campaigns where you're winning.
Hey, Jeff I'll start this is Alex and this is probably my shortest answer ever, but but yes that should kick off point.
For the next year I think that's a good basis point and.
I think you have it right, but the bigger answer I'm going to turn to summer.
To provide the second part of the answer.
Hey, Jeff its number here.
C J.
To connect with you.
Just to add some color on who are we competing against when we go to market with our asset mix out there.
A number of competitors right first and foremost on a straight up media it'll be you know on one end, we could be competing or we'll be taking money away from Google and Facebook. So the world, where traditionally marketers spend money directly with Google and Facebook and we would be taking that money away from them.
Because our ability to deliver a targeted.
<unk> with much better completion rates or Ctr, if you will is not.
Not something that.
Some of the larger advertisers could offer on the other side.
We would be competing with other.
Brands out there such as it could be you know just to name some of our esports Ryan there. It could be you know we'd be taking business away from like face or 100 days. So what have you right.
And the part of the reason why we're very successful is as we said we're able to not just provide sponsorship direct media sponsorship, but we do a lot of custom integrated work that results in a far more much higher.
Engagement metric for the marketers out there and which is why youre seeing the repeat business you know what just to give an example, if there was a.
TBD insurance company out there that spent.
Test budget of six figures with us last year.
And if they are very happy with the results that they got versus what they would have spent on the open market.
They would come but they are likely to come back with a seven figure deal because they're just you know that is not a result that they can get out there with other advertisers or other.
And media is out there.
Got it thank you.
Yeah.
This concludes the question and answer session.
I'd like to turn the conference back over to Adrian Montgomery for any closing remarks.
Thank you.
And.
I just want to.
Reiterate.
That <unk>.
Certainly how proud I am and.
And how excited we are Adam it's easiest.
We're performing and we're executing at a high level we.
We see a lot of momentum.
In 2022.
And we're going to continue to work hard to continue to perform at a really high level.
We're going to continue to innovate we're going to continue to.
Break down barriers, we're going to continue to drive this business forward and drive this industry forward.
And we're going to continue to play a leadership role.
In this industry.
Now the final point I want to make is that we are in the business of building.
Fan communities.
But it goes without saying that beyond the numbers the.
The most important community.
In our World is the one we have right here at enthusiast gaming.
So.
I am so proud of the men and the women who work at enthusiast gaming all over the world each and every day I'm proud of the leaders and managers.
That continued to drive results and deliver exceptional performance.
And I just wanted to say thank you for all that you do.
It certainly doesn't translate.
Into the visibility of what we do but the secret sauce of NPC is gaming.
Is the excitement and.
And the obsession with this business and with the world of video games and esports.
My team does 12 hour days, and then goes and watches Twitch to find the next luminosity superstar at the end of a long day or they play EV Dot Io.
We talk and plot and scheme on weekends and late at night and I just wanted to say thank you.
The employees of this great company, our secret sauce and.
We should all be very proud of what we're delivering on a daily basis and certainly alongside the employees.
Are the fans in the audience.
Who keep coming back and engaging with us and making us better so I want to say thanks to those two groups of people.
We're excited about the future we're just getting started.
And we'll be back with you soon.
To talk about Q1.
Okay.
This concludes today's conference call you may disconnect your lines. Thank.
Thank you for participating and have a pleasant day.
Uh huh.
Yeah.
Okay.
Okay.
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Yeah.
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Okay.
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