Q2 2022 Enthusiast Gaming Holdings Inc Earnings Call
Thank you for standing by this is the conference operator welcome to the enthusiast Gaming Holdings, Inc. Second quarter 2022 financial results Conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
The presentation, there will be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you may signal, an operator by pressing star zero.
I would now like to turn the conference over to Eric Bernacki Chief Corporate Officer. Please go ahead.
Thank you Ashley good afternoon, everyone and thank you for joining enthusiast gaming second quarter 2022 financial operating results call. My name is Eric Bernacki, Chief Corporate officer of enthusiast gaming with me today is our Chief Executive Officer, Adrian Montgomery, and our Chief Financial Officer, Alex Macdonald will begin with some prepared remarks from Adrian and Alex before opening it up.
Florida questions.
Before we begin I'd like to remind everyone. 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.
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 months period ended June 30th 2022, which are available under the company's profile on SEDAR and Edgar as well as the company's website. It's easiest gaming Dot Com you are cautioned not to place undue reliance on these forward looking.
These 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 or revise any forward looking statements as a result of new information future events or for any other reason now.
It'd be to turn the call over to Adrian Montgomery, Chief Executive Officer of enthusiast gaming Adrian.
Thank you Eric good.
Good afternoon, and welcome to our second quarter 2022 financial results Conference call I'm.
I'm pleased to share with you the details of yet another strong quarter, particularly in light of the macroeconomic backdrop. We are in I will provide some context around our key performance metrics, including revenue growth and in particular direct sales growth subscription growth.
Gross profit growth, which reached the highest in the company's history this quarter.
And lastly, I'll talk about how we see the second half of the year shaping up which we will expect to be a continuation of the same performance trends. We have delivered in previous quarters led by strong revenue and margin growth.
But first I wanted to address a topic that has been on a lot of shareholders' minds. Shortly after reporting an extremely strong Q1 this year.
What is typically the seasonally slowest period in our business a shareholder groups spoke out and sought change.
While this was an unfortunate and costly distraction, which took up the bulk of the second quarter, we respect the voices and opinions of all shareholders and we listen.
Today, we are aligned and we have already moved forward with a number of changes that we believe are the right ones for our business.
Our annual General meeting last month saw the election of four new highly qualified directors.
Angela Ruggiero, David Gold Hill, Janney Lee and Scott O'neill is diversity of experiences will help guide our business forward and open up new growth opportunities that will drive lasting shareholder value.
As you know the new board is conducting a CEO search and pending completion of that I will be moving to chair of the board and continue to focus on strategy and growth.
Last week, we announced that Bill Kara CEO of Addicting games, which we acquired late last year is being appointed as president of enthusiast gaming and will bring an enhanced gamer focus vision to the day to day operations of the business.
As a lifelong gamer and entrepreneur Bill who is based in Los Angeles has been in the gaming industry for over 20 years with a passion and love for blending gaming education technology and the emerging web three space I look forward to continue to work closely with bill and his new role.
During the first half of 2022, we delivered our strongest half year results to date.
Led by accelerated revenue growth and substantial gross margin expansion.
Q2, 2022 was impressive with revenue up 38% year over year to $51 1 million a.
The year over year increase in revenue was driven by increased direct sales, including both new and repeat customers higher subscription revenue the acquisitions and growth of both addicting games in Utah G G properties and higher rpms across both web and video.
Gross profit grew to an all time record high of $15 $3 million up.
91% from $8 million at this time last year.
Q2 gross profit was not just a record high for any Q2, but for any quarter in enthusiasts history, and we still have the seasonally strong second half to come.
Gross margin expanded to 30% in the quarter, an increase of 840 basis points versus gross margin of 21, 6% in Q2 of 2021.
The increase in gross margin continues to be driven by the strong performance of Addicting games and you Die G G as well as growth in the higher direct sales and subscription revenue streams.
On direct sales I am pleased to report yet another strong quarter.
Direct sales grew a 111% to $9 3 million in Q2 compared to $4 4 million in Q2 last year.
Renewals and additional business with existing customers accounted for 71% of direct sales revenue.
Adam It's easiest we have the largest scaled media offering in gaming and in Q2. Some of our partners included Adidas, The United States Navy State Farm HBO, Max Lego Universal Pictures, Procter and Gamble fan dual Toyota Logitech et cetera.
The food and drug administration.
In RBC.
We are a one stop solution for these companies gaming and esports strategies.
A few activations I would like to highlight are the following which continued to speak to the bespoke solutions that we create for brands looking to connect with the most coveted audience Gen Z and millennials.
First top gun in May over Memorial Day weekend, Paramount Pictures released top gun Maverick in the weeks, leading up to the movie release, we partnered with one of the largest streamers in North America Ludwig to create a four week competition to find the next big Streamer called Ludwig Flying Aces Kantar.
<unk> took part in weekly created challenges in the winter was able to secure a covenant spot and Ludwig stream for an entire hour, giving that individuals a once in a lifetime opportunity.
Second Adidas Ahs World map.
Adidas wanted a cool way to enter the Merdivorous and drive awareness of Oz World a unique platform for self expression, enabling users to create their own avatars to be used around the web.
As part of this campaign, we dropped a custom fortnite map with three mini games inspired by Ahs World that delivered 200000, plus organic plays within the first few days of being alive three.
Three the RBC gaming grant.
One of the things we pride ourselves on that enthusiast is helping the next generation of gamers by arming them with the tools they need to pursue a career in gaming.
In partnership with RBC, we invited qualified gamers ages 18 to 29 to.
To apply for $75000 in grants as well as mentor shipped to help gamers advance toward careers in marketing and other related professions.
Smearing off Saturdays in partnership with Smirnoff, We launched 12 week series of live streams, where each Saturday or Influencers will stream interact with their chat and toast their communities every time something cool happens.
And subsequent to the quarter. We are excited about some meaningful new work, we are doing with Amazon around their back to school marketing.
There are many others to mention but the point is to demonstrate the many ways. We are working with brands to integrate our communities content creators and experiences.
Turning to subscriptions subscription revenue grew 75% year over year to $3 5 million in Q2.
The increase in subscription revenue was driven by an increase in paid subscribers and pricing optimization.
Paid subscribers were 258000 as of June 32022 at 66% increase versus paid subscribers of 155000 as at June 32021.
To reiterate two of the main reasons, we continue to grow margins at a substantially higher rate than revenue is the growing contribution coming from higher margin areas of the business like direct sales and subscriptions.
You've heard us speak a lot about the importance of our addicting games and <unk> acquisitions last year and how their content has become a meaningful part of our flywheel.
It's also our way of using some of the assets as we explore commercial opportunities around N F T's and web three.
One of the most talked about topics and gaming right now is in game advertising.
As you know we developed E V that I owe a first person shooter game, which is our way of tackling this important and valuable industry theme.
Similar to Microsoft's Mega hit Halo the data for EV launched in January 2021, and already has over 1 million monthly active users.
This game's key differentiator is the ability for users to acquire <unk>.
Actual tradable in Ftes, just by playing the game the more they play the more they are in.
Not only is it one of the only games incorporating rewards through Nf Ts, but brands have the ability to get involved in a variety of different ways something as simple as an endgame billboard or more in depth like adding a custom element to a game featuring their product. This is what our launch partner HUD a tapped into two.
Great success.
We're excited to see what Ive eat I O can do but the early days have been promising as we engage with fans in a meaningful new way.
Turning to U G. G. We are pleased with its performance with the acquisition and believe there are a lot of product synergies still to come.
Just recently.
<unk> G. G passed 1 million downloads for its desktop application that was launched last fall.
This is in addition to the millions of daily views visiting the <unk> website for stats and insights on how to become a better legal legends player.
The product teams have been working hard over the summer to build out our new content pipeline for the remainder of 2022.
Turning to luminosity gaming, our esports organization continues to grow.
One of our franchise teams the Seattle surge that competes in the call of duty League had a major milestone winning their first ever championship at call of duty leagues major three the surge were flawless at the event not dropping a single series the hallway and concluded their perfect tournament with a win over Atlanta phase.
We're extremely proud of our team and want to congratulate the players and staff on this exciting milestone.
On the events and entertainment side, we have resumed live events within our pocket Gamer series in Q2, we returned to Seattle and subsequent to the quarter.
Our pocket Gamer team.
As did its first ever event in Toronto, Canada, expanding its reach once again of sponsors and attendees.
Later this month, we look forward to hosting events at Gamescom in Germany, and next month in Helsinki, Finland.
In conclusion, we delivered another extremely strong quarter delivering on our key priorities in the face of a weakening economic backdrop.
As for the outlook of the balance of the year I would say the following.
One we will continue to focus on strong revenue and margin growth two we have the available capital to execute our current business plan three we remain on an aggressive path to positive EBITDA.
And now I will turn over the call to my CFO , Alex for further commentary on our financial results Alex.
Thank you Adrian.
Indeed, a big first half to the year and that first half got stronger in this quarter or second quarter of 2022 before I begin my commentary on that here are my usual notes I note that our results are presented in Canadian dollars I note that the significant majority of our revenues and expenses are measured in U S dollars and they're translated into can.
Indian for presentation in our financial statements the exchange rate between the U S. Dollar in our presentation currency of the Canadian dollar should be monitored and considered when analyzing our forecasting results and I know that our business is affected by seasonal trends in digital advertising with sequential increases each quarter throughout the year, driven by increasing that prices and demand.
<unk>, which peaks in Q4 this seasonality is isolated to our media and content revenue streams and now lets talk business Q2 revenue was $51 1 million up 38% from Q2, 2021 revenue of $37 1 million Q2 revenue by source was as follows media and content to $45 four.
Subscription $3 5 million in the sports and entertainment $2 2 million for Q2 media and content revenue of $45 4 million compares to a $33 5 million reported in Q2 2021, an increase of 36%. The increase was driven by the following number one was continued higher.
Demand for our inventory this increased our rpms on both our web and video platforms. Our web RPM was up 34% and our video RPM was up 25% year over year in Q2 number two was once again more direct sales direct sales were $9 3 million in Q2 versus $4 4 million in Q2 last.
Year.
With the majority of direct sales being recognized in media and content and number three was continued a strong performance in our two larger acquisitions from 'twenty to 'twenty, one being addicting games and new Dot Eugene These.
These increases in media and content revenue were offset by a decrease in video views, which were <unk> 6 billion as compared to $7 9 billion. In Q2 last year. This was caused by the departure of certain large partner channels from the video network, which the company elected for in order to reduce associated operating expenses over the coming year.
It was decided due to these channels producing almost no gross profit despite them producing revenue seasonal trends in video views and the reduction of COVID-19 restrictions also contributed to this decrease Q2 subscription revenue was an all time record high of $3 5 million up 73% from $2 million in Q.
Two last year. This increase was driven by an increase in paid subscribers, which were 258000 as at June 30, 2022 as compared to 155000 as at June 30th 2021.
E Sports and entertainment revenue was $2 2 million up 41% from $1 5 million in Q2 last year.
The increase was mostly driven by the return of live events. The Companys Entertainment Division is now hosted a number of live events in key markets. This year, including in Q2 of this year and anticipate being able to do so going forward. The increase in the sports and entertainment revenue is also due to an increase in E sports sponsorship, which are sourced by our.
Direct sales team gross profit reached an all time high of $15 3 million in Q2 up 91% from 8 million in Q2 last year. The drivers of the strong gross profit are unsurprisingly been direct sales of $9 3 million subscription revenue of $3 5 million and the continued strong.
So addicting games in Utah G G.
All of these are high gross margin areas of the business. Therefore, it is also on surprising that once again the growth in gross profit on a percentage basis, while exceeds the growth in revenue as reflected in the gross margin gross margin was 30% in Q2 up 840 basis points from 21, 6% in Q2 last year.
Operating expenses were $29 1 million up from $19 6 million in Q2 of last year operating expenses include amortization and depreciation and stock based compensation, which totaled $7 6 million in Q2 of this year further the company incurred significant legal and advisory cost towards its al.
Annual General meeting held in July of this year those costs have been presented as a separate line item on the financial statements and totaled $2 2 million in Q2 as the AGM was held in July additional AGM costs were incurred in Q3 of a significant but lower amount.
Muse AGM expenses are non recurring in nature.
In addition included in professional fees and consulting fees. There are additional expenses relating to Q2 corporate activities, including indirect AGM costs and the settlement of the deferred and earn out payments in Q2. Those costs included in Q2 are approximately $1 million.
Other than these items there was no significant change in operating expenses in Q2 as compared to Q1 net loss and comprehensive loss was $13 8 million up slightly from $12 8 million in Q2 last year, resulting in a net loss and comprehensive loss per share both basic and diluted of <unk> 12 in Q2 up.
Slightly from 11 in Q2 last year.
Provided by operating activities was $2 3 million in Q2, and we ended the quarter with $14 9 million of cash which is up from $14 1 million as of the end of Q1, while the financial performance and the operational cash flows continue to improve our cash balance was primarily supported by positive changes in work.
Capital in Q2, which the company expects will even out in subsequent quarters.
The company also significantly improved the balance sheet this quarter settling certain deferred and earn out payments with a face value exceeding 40 million U S. D through the issuance of approximately $16 2 million common shares as of June 32022, the company's deferred payment liabilities or $3 3 million.
Which is down from 48 million as at December 31, 2021.
For all these reasons, we remain of the strong opinion that the results of operations and the financial condition of enthusiast gaming has never been stronger.
Now I'd like to take a moment to recognize a financial milestone.
Following eight consecutive quarters of sequential increase in gross margin the business reached a 30% gross margin in Q2.
This milestone as more than just a number to us. It is a gross margin which allows for self sustainability in the business the path to a 30% gross margin also provides a glimpse into the future P&L of the company for example year over year in Q2, we added $14 million of revenue and in the same periods, we added set.
One 3 million of gross profit since mid last year, we knew that a 30% gross margin was inevitable. It was near term and it was simply a matter of one today, while we remain opportunistic we have the same belief about profitability.
The main drivers of this success ultimately lie in bringing value to the end user and we are positioning ourselves to continue to do that.
We bring value by entertaining them in their preferred mediums as our content team is doing through their expansions on snapchat and Tic Toc, we bring value by enhancing our product offerings, such as the growth of the UGG desktop App and the introduction of Nf teams and play to earn on E V that I O and we bring value by increasing.
The viewing the business through a product lens and it is through this lens that we begin the next leg of our journey to a 40% gross margin and positive operating margins I remain grateful to the analysts for their continued work on the company I also wish to thank my team for their work on the quarter led by our VP Finance, Nathan Teal and of course, my appreciation goes out to all.
Of the almost 300 strong members of the enthusiast gaming family. They are a spectacular group of individuals they remain in my judgment as CFO , our most valuable asset.
To our shareholders other stakeholders, including our lending partners and thank you for your continued trust in us as custodians of enthusiast gaming I also extend a warm welcome to the recent additions to our board being Angela Janney, David and Scott and finally, congratulations to Bill Kara on his appointment as President and my congratulations to all the other individuals.
<unk> recently promoted in the leadership team I have full confidence that these individuals will bring new strength in glory to our business and of course, ladies and gentlemen, our business is the business of gaming.
Thank you operator, I kindly turn it back to you.
Thank you.
We will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then two.
We will pause for a moment as college trying to kill.
The first question is from drew Mcreynolds from RBC. Please go ahead.
Yes, thanks, very much and good afternoon.
Maybe starting at the high level, just given the board and management transition that's underway maybe for you Adrian I'm just.
Can you comment on that at this point what would be.
The strategy evolving from from what it was before.
Are you able to give any timeline associated with a new CEO coming on board.
And then third part of this just in terms of the distraction, which you allude to are in Q2, certainly don't see a lot are emerging in terms of the results, but maybe speak to that a little bit and to what extent are.
That disruption could impact Q3.
Okay.
Sure.
Yes.
Well from a very high level.
<unk> is creating an integrated media and entertainment company.
And building, a leading integrated media and entertainment company for gamers and esports fans remains very much intact and clearly from the results we're seeing them outside.
Outsized growth and a lot of optimism around the path that we're on certainly.
As we've made some acquisitions that have been very very good for the company we've inherited.
A number of product based communities I'm thinking you Dot G. G addicting games less media more product and a bunch of talented developers.
And gaming Tech technicians.
And so if there is any new focus within the parameters of building that media and Entertainment company I think theres a lot of exciting things youre going to see as we evolve the business on the product side and our ability to create.
New products that resonate with our fans and our audience and so that.
That has me really excited I also think that.
The future of enthusiast gaming and it's reflected in some of the management changes. We made recently elevating bill carat of president the future of this business and in the future leadership of this business to fully exploit the potential that we've created for ourselves really does come from the United States and beyond we see.
Started as a Canadian company, but we want to see more and more of our leaders and our operational leaders come from the United States.
This is a really attractive opportunity for the next CEO of the company. The board is committed to finding the right person.
And I'm not going to give a timeline on that because we don't want to rush it.
If that fantastic person shows up in the short term great. If it takes a little bit of time to get it right.
I think we're happy with that as well and so but you know the search committee has been struck and and we're starting that process as we said.
We would.
Yes look we have to take our our shareholders' concerns seriously we got through the other side of this we have an aligned shareholder base. That's all good.
But you know.
The people that write enthusiast gaming and work here every day.
Have the same common characteristic with the employees of any other business in that they're human beings and that kind of turmoil and that kind of spotlight can be a distraction, it's really a testament to.
To the business model.
But more specifically the fantastic people, who work here each and every day that against that backdrop.
And that noise, you were able to deliver such a stellar quarter and I think that the resolve.
Of the model and the resolve of the people are.
Are going to carry the day next quarter and the quarters to come.
Great. Thanks.
Thanks for that additional context I appreciate it just maybe one last one and then maybe I'll get back in the queue.
Just with respect to <unk>.
Your outlook for the back half, obviously bucking the trend I think to a lot of other companies out there.
In this particular space.
Not unlike what happened in Q1, and frankly prior quarters can you talk to any emerging macro headwinds or a revenue headwind for that matter.
That you see at the moment or is it genuinely just the the bottom up momentum of all the different growth deltas that youre, putting in place really overshadowing.
That broader.
Kind of macro picture. Thank you.
Thanks drew.
Certainly we're not we're not immune from from what the rest of the world is going through and candidly there have been.
Conversations and observations from some.
Of our client base that I've talked about some headwinds that they see in their business that may impact their spending budgets I don't think that's out.
Out of the ordinary of what other companies are experiencing right now, but they are contained at the conversation level right now and and what I would point out and you sort of referenced this in the preamble to your question there real unique thing about enthusiast gaming and when I talk about.
Top gun and I talk about the United States Navy State Farm H&R block the work, we do with Adidas and Amazon et cetera, et cetera, We don't just sell media, we're not like an IGN, we're not like a pure play Youtube <unk> CN, we really package up content creators.
Experiences communities Webb.
Youtube inventory custom content Activations that we really provide that one stop solution for them. So we're somewhat inoculated in the business model that we offer from just being a pure play seller of media and I think that is our secret sauce.
And so we have been able to buck the trend to date, where not immune.
From what's going on in the World.
But while we're on top of this horse will keep trying to bucket.
Very good thank you very much.
The next question is from Mike Crawford from B Riley Securities. Please go ahead.
Thank you can you hear me.
Yes, Hi, Mike.
Oh.
My ear piece just went bad.
Just digging a little bit more into advertising.
Can you just provide some more color on your stride to monetize available inventory, including.
Direct sales targets, maybe as a percent of available inventory ourselves in and then what you're seeing regarding the AD prices and Cpm's overall and and how much of total inventory you can monetize.
[laughter].
Hey, Mike how are you doing it's Alex I can provide a couple oh a factory there so.
You know.
For our part of inventory. We maintained you know we have a vision to get to 10% of our inventory.
Moving through direct sales, that's kind of a medium term goal we are at about 2.5.
Percent.
10% would in my judgment there'll be below industry normal for large mega publishers like us like members of the Comscore Top 100 list, but we are sitting at about two 5% utilization.
We'd like to see that get to 10.
Beyond that over the horizon that there's room to grow significantly beyond that but 10% for US is our stated goal we're at two five.
So far on direct as far as utilizing the inventory in other ways. I mean, obviously, we do plenty of programmatic sales, we continue to push for increased demand in competition on our bidding networks and and try to improve our yield but our focus really is moving that inventory out of programmatic and into direct.
Okay, and then just regarding trends on <unk>.
<unk> prices in CPM is overall.
Including programmatic.
Yeah, So I mean, I see them as steady.
I Echo what Adrian said, we we arent necessarily immune to market movements.
The online the digital industry for digital AD units is one of the most commoditized liquid markets in the entire world is subject to market fluctuations, but right now in my it's my opinion, it's holding it's holding in there.
<unk> equity and again, what Adrian said I remember when some companies cautioned on their Q3 results last year. They were very worried about it we haven't seen it yet.
We held strong and right now it is it is to be expected I think July performed are to be expected on the pricing.
Pricing basis.
Okay. Thanks, and then I just have one more on prioritization, so I E. The dot <unk> sounds like a great and repeatable playbook is there another title that's coming up there and then just related I know you've been working on this project G. G for over a year and what is the status of <unk>.
That project. Thank you.
Sure. So right now I'm as bullish as we are on web three we have something very special and again, we're quite unique theres a lot of companies in the space.
Esports organizations that that can embrace web three mm, but we actually are embracing web three with intellectual property that we own and that we control and right now E V. God I O is experiencing such significant growth.
That we're going to use that as our template for a little while longer certainly we have other game titles like little big Snake and Moping Shockwave et.
Et cetera et cetera.
But stay tuned for our next iteration of something special with D V that I O in.
In the days and weeks to come.
So we're going to we're going to ride that nag till it drops.
And then.
As for G. G. As we said last quarter look G. G is something that we feel strongly about internally within the organization. It's our code word for innovation.
Against the reality is the world right now were taking a cautious approach to it we're not going to back the truck up and put the significant investment into it so.
We're going to get it right like I said before I mean, Gmail has been in beta was in beta for 10 years. So.
If we have to be prudent and do it right we're going to do it right at the same time like I said in my answer.
Drew.
Particularly in the back half of last year with Addicting games E. G. G. Tab, we have some really cool product based communities and we have some really talented.
Our people at you, we've got Shingo and Alan and their team that are attached adds bill Kara.
And the team at Addicting games, and we're excited I'm to innovate on the products.
That or within that are in there in their minds and on their development timetables to exploit so we're very much innovating, we're very much going down the product road, we're going to incorporate elements of G. G into a lot of the stuff that we're doing and we're going to take our time on on the original <unk> plan to get it right.
Okay. Thank you and thanks, Adrian Thanks Ross.
Thanks, Mike.
The next question is from Gianluca Tucci from Haywood Securities. Please go ahead.
Yeah.
Tim Luca Your line is open you can go ahead.
Hi, Good afternoon, guys, sorry, I was on mute I'm on the call here on Neal Gilmer his behalf.
A couple of questions here first on gross margins, how how are they trending thus far in Q3 and and how is the outlook for the back half of the year I think you had mentioned that the.
Target is 40% longer term, but how should.
Should we be thinking about the second half.
Hey, good to have you on the call. This is Alex.
Look it's there's no change I mean I spoke about in my my commentary eight consecutive quarters of sequential increases that's kind of what we're here to do we don't mind. If we're building them 40 basis points at a time or 140 basis points in time.
We're taking a step up every quarter.
That's how we see it.
Don't expect huge leaps at any given point.
We typically you know typically are in the 50 to 100 basis points range.
So that's that's how we see it continuing so that that applies to the back out to you that plus next year as far as 40, you know I just think back to two years ago when we.
Made our March from 16 to 30, our original journey and we said that's a medium term target we accomplished it in eight quarters.
That's the next leg of our journey. So it's not it's not a short term before anybody means but that's where we have our sights set next that's your next journey when it comes to gross margin.
Okay Fantastic. Thanks, and then just on EBITDA and my last question here you guys you clearly on a path to profitability. There do you have a timeline.
At the back of you had that you're willing to share on the call here.
In terms of achieving it.
Our adjusted EBITDA profitability.
Yes, we've discussed it in as happening in the very near term and that's why Alex referenced in his remarks, the importance given our opex of of cresting over that 30% margin.
Threshold.
And so we feel like our original prognostications about about the near term likelihood of EBITDA positivity coming in Q4.
Absent a material.
Macro issue with money in AD spending or absence, some form of transformational opportunity that may land on our doorstep.
We feel that our prognostications are.
Our our in line and again, that's the importance of that sequential margin expansion getting north of 30% continuing to drive it higher stabilizing opex are we feel that we're in the zone.
To deliver on our promise.
Okay, Thanks, guys and congrats on the good quarter.
Thank you Gian Luca.
This concludes the question and answer session I would like to turn the conference back over to Adrian Montgomery for any closing remarks.
Thank you and I would just like to.
Thank everyone on the call again for your interest in the enthusiast story.
And really with my final remarks, certainly Q2 was one that we're gonna remember for quite some time for a variety of different reasons, but again as I said earlier I just want to salute the hardworking over 250 person staff of enthusiast.
For staying the course for getting up every day, despite what was going on in the outside world and just working hard delivering innovating taking risks.
Executing.
I am saying.
It really you know a company is only as strong as its people.
And we had a unique moment in time, where the resolve of our employees was tested as few employees get tested and you all delivered in spades for the benefit of the company for the benefit of the shareholders.
And on behalf of everyone on the management team just want to thank all of the enthusiasts out there.
For showing what.
What character.
It is all about and its meant the world to us and it's given us so much optimism.
With the people that we have that we get to work with each and every day what the future holds.
For this great company. So thanks enthusiasts.
And that concludes our conference call.
Okay.
This concludes today's call you may disconnect. Your lines at this time, thank you for participating and have a pleasant day.
Okay.
Yeah.
Yes.
Yeah.
Okay.