Enthusiast Gaming Holdings Inc. Q1 2023 Earnings Call
[music].
Good afternoon, and welcome to the enthusiast scamming fiscal first quarter 2023 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 stockade full advisor are after today's presentation there'll be an opportunity to ask.
To ask a question you must press Star then one on your telephone keypad to withdraw your question. Please press Star then two please.
Please not this event is being recorded.
I'd now like to turn the conference over to Mr. Matt Chesler Investor Relations. Please go ahead.
Thank you Dorothy and good afternoon, everyone and welcome to the enthusiast gaming first quarter 2023 conference results call.
My name is Matt South, Florida, that's N K I R and we've recently been retained by enthusiast gaming to serve as Investor Relations Counsel.
With me today is our Chief Executive Officer, Nick Brian and our Chief Financial Officer, Alex Macdonald.
Well begin with some prepared remarks from Nick and Alex and then open the floor to questions.
But 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.
And the company's management discussion and analysis for the three month period, ending March 31, 2023, which are available under the company's profile on SEDAR and Edgar as well as on the company's website enthusiast 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.
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.
And now I'd like to turn the call over to Nick Brian CEO of enthusiast gaming taken away Nick.
Thanks, Matt Thank you very much.
I just wanted to ask I mean is the chief Executive officer, although I like to say that cheap enthusiast officer on March 1st.
Very shortly there after I conducted my first earnings call and now just several weeks later I have a great deal to share with you.
Simon to join it to yes gaming at this critical point in evolution is the only go out in the two and a half months since I joined the company.
We have a remarkable business with many outstanding asset.
And of course every aspect of the game in media and entertainment ecosystem.
We have a highly engaged and scaled audience, but nearly 50 million monthly average users. According to comscore the largest audience of gamers ahead of Twitch and the white box as well as the talented management team with deep expertise in it.
Truly massive opportunity to lead and one of the most exciting yet underdeveloped sectors of marketing today.
Even as Brian not because it just continues to deal with the economic uncertainty that increasingly shifting more of their campaign dollars.
But the marketing environment.
Are there opportunities to reach the elusive Gen Z and millennial audiences.
Hi, creative impact.
Oh why.
With all of these strengths in catalysts is now about driving the rapid transformation of enthusiasm gaming.
Collection of entrepreneurial asset.
And the Boy Scout platform company that is tech enabled data driven content led.
We are implementing our strategic growth plan.
All of these pieces together.
Physician enthusiast gaming that's the law.
Leading independent game in media and Entertainment company.
Our goal is to create a more profitable revenue flywheel.
Leverage is already highly engaged communities.
Across our diversified gaming assets from.
From casual games to esports, the gaming community sites to create the channel.
Management, the web 3.0 games.
Built on blockchain technology.
With that in mind I'd like to focus my prepared comments on five key areas.
But.
Platform consolidation a greater leverage.
Second.
Excellent for yield optimization.
Third AI and automation for operational efficiency.
<unk>.
Around solutions and strategic partnerships to accelerate the growth.
Okay.
Diversified revenue streams for higher margin performance.
Uh huh.
A reminder, that this company was created to rapid M&A.
Tech and engineering needs vary tremendously according to the particular area of gaming activity.
We are now building a unified technology platform.
Sure.
Sure and efficient as possible across all aspects of product development.
The management and systems integration.
It's all of the initiative is only call it total operating unit.
So for our key external partners, who are critical to ensure we are meeting the very high expectations about demanding getting communities.
This platform innovation becomes even more important as we embrace the future opportunities of wet suite as well as bringing maximum value at all or why for all brands and agency partners.
I'd like to discuss our commitment to AD Tech excellence.
It showed a lot of digital media flywheel is selling a valuable inventory programmatically.
As possible yield.
But ensure that we become the biggest independent game publishing that what of owned and operated and external publisher sites, we need to be working with the best AD Tech partners possible.
This begins with our partnership with <unk>.
It is the leading data management platform, who will be helping us to activate our first party data across all of our audience cohorts in the midstream today with.
We are selling today grew up at 25.
<unk> platforms now.
Now finalizing all marquee SSP partner with whom we can create so unique gaming audience segment.
Why don't I make deals versus the open exchange.
We've also consolidated all at par, but it's too early at quite this.
And Google's scan <unk> 60.
Streamlining all display video AD delivery with minimal delay.
Maximum creative impact.
There is no doubt in my mind with all commitment the programmatic excellent we will soon be selling Omnichannel campaign.
By unique gaming and battery powered by first party data come from Cogs.
Right.
All of these developments will enable us to significantly improve the revenue growth and profit margins for the advertising in a line of business in the near future wanted shoe and we help advertisers maximize the hour why every campaign dollar they spend with us.
Next I'd like to talk about talk about AI and a focus on automation.
I really like what the CEO of Coca Cola Sin publicly about AI after the recent earnings call.
I quote.
It has been said about AI and it's certainly going to abate the Maxim.
Found friends from transformative technology is often overestimate the impact in the short term.
Underestimated in the long term.
He's going to have a profound impact.
Found internally for the way our business operates but also how we engage with consumers.
You've been at it.
I think AI is going to make a huge impact in marketing.
Well, we're very excited about our position as the largest independent player in the gaming and entertainment industry not owned by a tech giant.
Oh God you.
This allows us to focus on the power of AI for the benefit of our enthusiasm communities as well as the market kids, who are partnering with us great winning brand activations and engaging ad campaigns.
We will be testing that would be relevant AI tool at our disposal to improve ourselves.
Our wind metrics and user acquisition as well as the emerging creates a talent identification challenge.
The full area to discuss is the repositioning of the biomass sales the brand solutions as well as the creation of a strategic partnerships division.
We remain the leading Cogs engine brand solutions to reflect the true value of our.
Customized content media and sponsorship integration teams imagine and deliver.
Our full years of tremendous service to enthuse, Yes gaming, we promote and Amanda movement to E V P brand solutions.
He will be responsible for both brand solutions and programmatic media sales.
We are also more closely like customer success with brand solutions with the goal of ensuring the seamless integration of creating pricing and packaging all brand solutions.
So efficient way as possible.
In addition, we established a strategic partnership Division.
Celebrate the pace with which we explore alliance opportunities with key strategic partners involved in the gaming industry and popular culture today.
The partnership with the NFL Thursday night game was a great case study for the types of events promotions and partnerships we can deliver.
We expect to establish meaningful partnerships with leading game publishers.
The Asian Entertainment company, the music industry leaders and to lead this important function. We have promoted Matt Goodman. The E V. P. Strategic partnerships. In addition, whose responsibility for customer success.
Our content Division remains a driving force with two jets game. So we must continue to attract the best creators weiss's producers and directors, we have developed in house production capabilities.
And with the NFL Houston like gaining please see some content in the pipeline and the luminosity at this to attract new talent throughout 2023, we are well positioned for growth.
Our content team is working closely with the brand solutions team to create multiple content tentpoles throughout the year.
Except for collaboration such as Nintendo Juniors already under our belt.
Duffy Kidd well has been promoted to the role of E V P content creators.
And his strong contribution to build critical strength in this important who created area of our business.
Our Q1 achievements include 311 million owned and operated views and custom content activation for major brands like Xbox Sour patch Kids Carnival cruises and many popular films Adil.
Additionally, our school, we talent agency has expanded its network, adding a vast array of content creators athletes and gang, most who are offering.
This is increased visibility and diversified content, while enabling new revenue streams.
Finally, I'd like to discuss our strategic focus on developing alternative revenue streams to better diversify our business model and lessen our reliance on the highly competitive advertising revenue.
We currently enjoy our highest profit margin in subscription revenues and we see further opportunities to Charleston subscriptions to access all high value content and creative community sites with testing different subscription model across a number of our properties today and expect these to create Westwood will use it.
Engagement model.
The existing AD supported content experiences.
As evidenced by the strong demand for travel and entertainment. We believe live event engagement experiences of a similar high margin revenue growth as we experienced today with pocket game.
Global peak to be event business.
We're investigating different life consumer event for the gaming enthusiasts. The play compete and connect across North America, especially the highly popular annual E. Three gaming Expo in L. A has been cancel for 2023.
Luminosity esports division isn't all the strategic points those multiple upcoming to light gained even into what the New York Miami and Mexico.
Community Commerce is an area of strategic focus for many digital publishers and content creators. So we too are testing different product and service offering that we believe will extend our monetization opportunities in it.
Well AD supported and paid subscription business model.
In place today.
Part of this transformation, we will continue to invest in our people our culture.
Passionate belief talent teamwork, well the key building blocks of success.
My first step was to create a revised management structure. So we can invest in the best people.
We recently welcomed about 40 a chief.
Chief people officer.
That was proven experience Zillow Vizio Disney and most recently the movie where we worked closely together for the past 10 months.
We will ensure that every aspect of the people management function, including compensation of benefits training and development career management, Coachability and diversity and inclusion will all be managed to the highest professional standards.
Our biggest investment is in our people and it is also our greatest strength.
To better manage their complex operations of our business.
Stablish abroad, a strategic leadership team there.
Our talented management execute flawlessly against our most important strategic initiatives.
I'll discuss with you today.
But brands gaming is a massive opportunity that can no longer be ignored. It is arguably the best media sector for brands to connect with their consumers walk engaging the younger audience. They are desperate to recruit getting you mean has the scale of mass media.
But the personal engagement of social media as more people play compete and socialized gaming environments will become the most well hi, Mark these spaces, where the advertising is only the tip of the iceberg.
As Commerce E sports sponsorship create partnerships real life and virtual merchandising.
<unk> platform branded experiences.
Ooh represent innovative brand activation possibilities.
Enthusiasm gaming is uniquely able to operate across every level of the gaming ecosystem, enabling bran, so not just tap into popular culture, but to become part of it I.
I believe we are capable of making it through yesterday I mean, the most dynamic.
It's a profitable independent game in media and Entertainment company on the planet.
I'd now like to hand over to Alex <unk>.
Scott the financial performance for quarter one.
Thank you Nick and thank you to all our shareholders analysts lending partners and other stakeholders for joining us today to discuss a great start to the year, our first quarter 2023.
During the quarter, we observed several interesting trends, we saw our traffic rise sequentially to surpassed 10 billion views of content. Once again in Q1. We also saw the continuation of a depressed digital AD market, resulting in lower CPM on our programmatic channels. However, despite the challenges posed by the <unk>.
Digital AD market, our high margin revenue streams remained resilient in fact, we achieved several milestones as our subscription revenue reached an all time high and our brand solutions, formerly known as direct sales nearly doubled year over year.
Positive impacts of those trends coupled with our controlled Opex resulted in a fantastic start to 2023 and indicate profitability inside the year and look forward to discussing all of these items with you momentarily, but first here are my usual house I note that our results are presented in Canadian dollars the significant majority.
80 of our revenues and expenses 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 I note that our business.
It's 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 now lets get back to the financial results Q1 revenue was $42 9 million.
In dollars, which is down 9% from Q1 2022 revenue of $47 2 million Q1 revenue by source was as follows media and contents $35 5 million subscription 4 million any sports and entertainment $3 4 million for Q1 media and contents revenue up 35.
5 million compares to $41 9 million reported in Q1 2022, a decrease of 15%. The decrease was driven by a decrease in RPM caused by lower CPM is in the programmatic markets. A decrease in video views also contributed to the decrease in media and contents revenue video views were $5 8 billion.
Down from $7 1 billion in Q1 last year. These items were offset by strong brand solutions revenue ran solutions were $10 million in Q1 versus $5 2 million in Q1 of last year, a 92% increase with the majority of these sales being recognized in media and content. She wants subscription revenue was.
An all time high of $4 million up 18% from approximately $3 3 million in Q1 last year. This increase was largely driven by an increase in paid subscribers, which were 275000 as at March 31, 2023, as compared to 233000 as at March 31, 2022 for you.
Yield on a per subscriber basis was consistent year over year.
Q1 E Sports and entertainment revenue was $3 4 million up 72% from $2 million in Q1 of last year. The increase in E Sports and entertainment revenue is mainly attributable to the success of the pocket game of connect London event held in January which hosted 2600 attendees last year P. J C London hosted.
Nearly 2000 attendees.
Those profit increased to $16 8 million in Q1 up 24% from $13 5 million in Q1 2022. This resulted in an all time high gross margin of 39, 1%, which is up 1050 basis points from 28, 6% in <unk>.
Q1 2022.
Total operating expenses were $25 2 million up slightly from $24 8 million in Q1 of last year, but down substantially from $30 3 million in Q4 operating expenses. In Q1 include noncash items of amortization and depreciation of $3 3 million in share based compensation of $1 1 million as.
Well as a foreign exchange loss of point 1 million. The decrease in Opex in Q4 was largely in technology support web development and content, which decreased to $5 3 million from $8 6 million. In Q4. This decrease was driven by lower production costs for NFL, TNG, which are seven episodes in.
Q1 is apparently as compared to 12 episodes in Q4, and the normalization of cost savings initiatives undertaken in Q3, and Q4, and our technology and content expenses.
As NFL TNG has entered the off season. This decrease in technology support web development and content expense should be expected to persist through Q2 with both NFL TNG revenues and expenses picking back up again in mid Q3 with the kickoff of season two.
Net loss improved 21% to $8 7 million in Q1 down from $11 million in Q1, 2022, resulting in a net loss per share both basic and diluted of <unk> <unk> in Q1 down from eight in Q1 2022.
Turning to the balance sheet. The company ended the quarter with $3 5 million in cash and in addition had an available operating line of $5 million for total available cash of $8 5 million as of March 31 2023.
The change in cash during the quarter was largely due to $2 6 million of cash used in operations and $1 1 million of repayments on the company's term facility also during the quarter. Our lender agreed to extend the maturity date of our term and operating facilities for an additional 12 months from December 31, 2023 to December 30 <unk>.
2020 for the term facility has been reclassified from current liabilities to long term liabilities on the March 31st balance sheet.
Certainly it was a great start to the year. Despite the seasonally slow nature of Q1, we delivered on our expectations coming in strong on gross profit and steady inexpensive.
The continued margin expansion reflects the strength and effectiveness of our strategy and we remain agile as we position for long term success.
In the meantime, we remain on track to deliver profitability. This year with a strong pipeline for the second half. This includes but isn't limited to number one NFL TNG season, two which is already in the market with a pipeline in place and kicks off in Q3.
With two platform expansions, including U G G expansions into balance and world of Warcraft number three strong results from our beta be live events, which are flourishing in a post COVID-19 world with our next flagship events being held Thinky in September and number four promising earn.
Early results from the introduction of a paid user acquisition strategy and our subscription business.
<unk> will allow us to build on these already strong Q1 results point to a promising year to come as Nick outlined earlier, we are looking to grow the business in a more profitable way.
Chasing low margin top line revenue.
We will continue to leverage our strengths across the gaming ecosystem, while also embracing innovative technologies and capturing new opportunities to drive sustainable and profitable growth.
I offer my gratitude to the analysts for their continued work on the company I also want to thank my team for their work on the quarter led by the VP Finance Nathan appeal and to all our stakeholders. Thank you for your continued trust in us.
Sodium serious gaming we are excited about the road ahead and are grateful for the dedication and hard work of our exceptional teams. It is their passion and commitment that fuels, 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.
I ask a question you May proceed Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the case to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Your first question comes from Griffin bus from B Riley FBR.
Please go ahead.
Hi, Thanks for the question.
So first one maybe for Alex just regarding the programmatic C. P. M did you see any further deterioration in the C. P. M. This quarter or have they stabilized at those depressed levels that you mentioned in the prepared remarks.
Thanks, Chris and I'm actually.
Actually a little bit of the opposite on our pricing I don't want I want too much detail Q1 was certainly a depressed market for programmatic Cps, but I like the patterns I've seen I've seen a bit more of a return to normalcy in the seasonal patterns. That's a big part of what was missing last year the seasonal patterns fell apart and we saw some recovery in February and March.
From what I've seen in the market that.
There is some recovery there certainly bottoms I think we also maybe.
Slightly outperforming the markets and our and our recent pricing that I did I'm observing so so I believe it's at a bottom I believe a recovery may be starting and what is also very important to me in summary is I like the patterns I've seen the seasonality inside the quarter the seasonality inside the month, even though seasonality aside.
Weak they are predictable to me you're going to have to even if they're at.
Depressed levels, which is which is fine because I want to see the markets return to a normal pattern, which because that's what was missing last year.
Got it appreciate that thanks, Alex and then sticking with.
The programmatic theme, maybe one for Nick.
I appreciate the five key areas that you elaborated on that's nice to see to the extent you can could you give any more color on how you're thinking about the programmatic opportunity for enthusiasts in terms of maximizing the value of the first part of it part of data that you have I'm just curious how you're looking at the longer term opportunities there in terms of <unk>.
<unk> C P M and yield optimization on your inventory, which could potentially I would think support programmatic margin expansion in the future and then I mean again to the extent you can how much of sort of a CPM lift do you think that you can realize from these from these initiatives.
Well.
First of all thanks Griffin I really appreciate your question.
Programmatic.
Excellent.
The way is significant and where we are putting we have been pulling apart every aspect of pipes date to impart and everything.
To really leverage that and I'm convinced that with the team that we are going to see a you know a very solid increase in not only the amount of inventory that we're selling prices with selling before and again you hinted at the one of the most important areas, which is how we are integrating.
First party data to ensure that.
Our inventory is as small as possible because the better the data.
Infusion the hard C. P M. The higher the value the high we can prove it because we know that by the big programmatic buys.
Opined on what his cohorts and they want to be.
Using inventory that is.
And also the other part of it is not just the fact that.
With cookies going away the need to be obviously selling our inventory is to ensure that we can that will leverage the data and Hoffman for margin improvement so I'm not prepared.
Say exactly.
Where the CPM, they're going to end up because we've got a broad mix between display and video, but I'm going to say that we are very very confident and we know the model is that better data will you better offerings, which will lead to higher CPM.
We are working through every element of the tech as I've said, you know consolidate you know SSP partners.
We did a big.
A review of who was going to be all DNP popped up.
We've chosen who we believe the right one and now we're doing a lot of internal work across all of our owned and operated sites as well to ensure that our format whether they be video display for edr.
Excellent as they can be we have identified certain issues of course some of all.
Our partners that we've needed to make significant changes for the conversations we're having with Google the introduction of a quite good at serving them.
This is all intended to ensure that our tools and our tech.
Optimization of the best that they can be.
And we will see a continued as Alex said, we've already seen a continuation of the increase in CPM, we're going to see that and that has to be fantastic because we do have.
A very large audience, we do have many opportunities to monetize those audiences with the impressions.
On the AD units we have.
So this this is going to be an area that we've made quite considerable restructuring in other parts of the business. So we can be investing in this and I think we see.
Our vision is to make sure we've got a real step weight to the stars all advertising strategy thoughts first and foremost without inventory AD network is the biggest independent game publishing network moves from an inventory AD network to an audience that network, but we obviously have a publisher network and then we can identify our gaming audiences across screens.
Not just on our platforms. So we effectively become the enthusiast gaming audience network.
Next level is it takes a marketplace, where we have highly sophisticated high value gaming audience data that we can then basically detroit within that marketplace and then eventually that leads to another level, which is a self service platform. So our vision is to increase not only the commute.
T size, but the monetization opportunities that we need to come.
A place a platform an integrated platform that brands can come to us seeking those omnichannel campaigns that are fueled by our unique game in inventory and powered by a unique data.
Is that gonna generate hot Cps, yes, it certainly will.
Excellent I appreciate all that detail, Nick I'll leave it there and hop back in the queue. Thanks for the time.
Thanks Griffin.
Thank you. Your next question comes from Robert Young from Canaccord Genuity.
Please go ahead hi.
Hi, Good evening, maybe I'll just key on something you said at the very end of the prepared remarks.
The promising early results from paid subscription I wasn't sure.
What you meant there have you already started to.
Rollout, some new strategy or some new efforts there.
Hi, Thank you for your for your question, Yes, we have we're looking at.
Different subscription models.
Either for user acquisition.
Have a subscription to access sites and content and more so to do it on a monetary basis. So we have a number of tests tests moving at the moment.
We've had where we have focused resources on increasing our subscription revenue whether it's on existing sites couldn't resource.
New areas, we're not prepared to discuss today, but we are prepared to discuss when we have to find that the results of those.
Tests that we're running.
We are very confident that with our level of commitment and resources to this area, we're going to see significant increase in revenue in this revenue stream. So those are underway at the moment.
Okay.
The second question would be around.
Gross margins, which you already highlighted very strong stronger than I.
I was expecting certainly.
I think you've targeted 40% gross margin in the long run and you're nearly there so.
<unk> of it I guess is driven by the weaker cpm's, but.
Does that suggest that maybe there's an opportunity for even higher than 40% gross margin. Maybe you could just talk about that and where the business can go now that you're so close to 40%.
My I think the Aha ambition that can ensure that.
We continue to drill high Bob topline revenue, but.
As it should be contributing to increasing gross margin.
<unk>.
We're taking decisions.
You can see already that we've had a cortisol.
Video advertising part of the.
Business without M. C N that we made certain pools, where we felt that.
The high revenue came at the expense of a focus on gross margin improvement. So we are at 40% nearly 40% of this time and.
Through our continued focus on diversifying our revenue streams, we are confident that becomes the minimum but we're gonna be delivering them and in terms of setting targets for how it goes for the future a need to have.
The other quarter.
Our strategy, we felt very good again, it's been early days for me here.
We ought to put that in place to demonstrate what that would look like based on all the activations that we have underway at the moment.
And see how those really demonstrate that we can go forward from 40 to you know.
Where does that go to 45 46 does it go to 50 I need another quarter before I'm prepared to put any commitment on that.
Two to any of you.
Okay, That's fair and maybe just one maybe an additional question around that the I mean, we've been used to seeing the gross margins go up quarter over quarter over quarter with the increased.
Direct sale.
The growing subscription and so what does big jump like should we continue should we expect to see gross margins continuing to step up quarter over quarter through this year or should we expect it to.
Let's take a step backwards.
Well I'm not unlike Alex too because he's been doing some more sophisticated modeling faithful.
I see.
Obviously towards the back half of the year and we've been looking at a pipeline a very exciting pipeline of a significantly high caliber rfps, but Alex why don't you respond to that please.
No absolutely happy to thank you.
Rob so.
So I mean, what to expect in the short term you'll recall in my remarks, there are there's a new element of seasonality that will impact the margin. That's the NFL season, it's simply a timing thing, but you have.
Season, one ending in Q1 season to picking up midway through Q3, so that's just it.
Hum introduces a bit of a short term seasonality. There's also the dynamic of the volatility in the AD market recovery occurs of course that.
We would love it but that may be a dilutive, but long run away from that short term volatility. This is a new reality, we are north of a 35% margin business, we're well north of that.
And and as Nick has pointed out we are we're after.
High margin high yield high margin revenue streams right we have.
Many many.
Two years of history behind us doing that.
Next pushing it forward these are initiatives.
And this is a new reality, so I think the short answer is.
Possibly some short term volatility there just driven by the NFL schedule and the volatility in the digital ad market.
But but long term.
You don't want to go over the next few quarters. Yes. This is a new reality and yes, we want to continue to post higher from here.
Thanks, a lot I'll pass line. Thank you.
Thank you once again, if you'd like to ask a question. Please press star one and Westfield name to be announced your next question comes from Jeremy Reynolds from RBC.
Go ahead.
Yes, thanks very much good afternoon.
It just.
Elaborating on one of the comments in your opening remarks, where you said there was a shift in allocation.
AD dollars, where I guess it doesn't environment.
Advertisers, obviously are more limited budgets to place these dollars and they are shifting to Gen Z and millennial I mean directly not surprising to me, but how would you characterize the strength of that maybe relative to what you were seeing before and maybe previous cycles and then I'll just talk a couple of months.
Yeah, Thanks, Hi, Hello drew and thanks for the question.
I don't think is temporary I think that we are seeing the continued focus on brands and agencies recognizing that they are really desperate to continue to weak audience is so badly served by traditional television whether it be linear or cable.
And I know, it's come as a welcome relief for many.
All of the advertisers increasingly paid a streaming TV.
And CTV auctions that the big extreme is that there's the increased choice and solutions are the types of description because there's a continued challenge that many of the audiences that they're trying to reach all be served very well by the channels that are that I think.
To me when Yahoo. When some of the salespeople at Yahoo, walking around 15 years ago, showing the power of the vault Shah of <unk>.
Audience attention, so high and yet Mark Douglass was so low and that was in China challenge of the wet at that stage and now we see the 80 cents on every dollar spent in the U S is spent in digital advertising, which is dominated by.
Principally to now increasingly suite with Amazon.
Steve.
And I think the promise it's interesting if you look at the AD Tech results <unk> results. So that we seem to be coming out let by the trade desk magnify the Ohio.
Solid performance van the walk up and I think that speaks to the fact that there was still a weird attractiveness for the greater well the Quaker whet opportunities at quite the opportunity to engage with audiences, where you can find them in areas that is exciting.
The most of them not necessarily dominated by the world woke up.
What we are so excited about what I'm. So excited about having been on the buying side the agency side.
For over 30 years is on realizing our.
Audiences are communities of gamers are the most engaged audiences in the history of the planet. There is no. One that has not just scale, but also the level of attention and the level of tension economy, where not only is it very hard to reach these these younger.
Very attractive audiences, but how do you engage with them and this is where I'm. Most excited that we have all the different pieces and enthusiast gaming because we're not just about saying, okay. We chairman just hit him with the with the panel at or video pre roll we are able to integrate your brand.
It is much more native authentic creative way.
The house, you truly engage and connect and the other thing we're doing is going to make which are a lot of work on our measurement metrics to make sure that with not just <unk>.
Selling our inventory on traditional media metrics. So we can frequency, but we're recognizing a revaluing our audience. Susan has a community of highly engaged audiences at these brands wanting to engage and there's a high value for what they are and how we can help those brands Wheatstone. So I think this is.
I don't think I know this is continuing because they'll spend a lot of time in my first two and a half months here now talking to the leading brands and a leading Cmos and all the leaders of the Big agency groups and they are rocketing traditional social media, 70%, we did an analysis of all homeschool.
In that month.
It was 68% of that entire community of 49 million monthly average users do not use Facebook, that's social integration ease through the gaming platforms. They use so not only are these communities to scale. They have communities that intimacy and engagement in the social dynamic. So this is a.
This is a completely unique audience profile, so all of that and by the way that's without even gen alpha coming up behind them. So I'm. Most excited that this is the enthusiast gaming is a company that not only is it effectively jody segregation business, but in the context of all.
Gain and fight and experiences and events, where this is really fueling the passing of war gaming enthusiasts. One and then we're going to take that and monetize that in a different way and it will not just be based in the traditional push by interactive AD model, they've got lifted off T D slapped into social.
Media and then people are thinking that that's the best way to engage the gaming communities.
No.
Brands are really waking up to that I'm seeing this because I'm seeing a pipeline of the rfps.
Similarly involved now in the big Rfps that are knocking on our door and some of those brands have a high level of enthusiasm from have a genuine interest.
<unk> are very focused on reaching an audience some see it as an opportunity for relatively inexpensive R&D and innovation in terms of what we had met the bus. So we've got a whole range of these different brands to the new name and there's another factor that you said grew at the beginning which is they can't be reached elsewhere, well that can be weak with quite difficult.
In the traditional media channels. So this is I consider this as I said in my prepared remarks at the beginning of this call I think this is the most underdeveloped area of <unk>.
Marketing today.
Got that.
That's really really excellent context, thank you for for all of that.
Just one follow up maybe for you Alex says, we just kind of level set expectations here from a modeling perspective, when you look at media and content and the pressure year over year do you have any sense of how that just kind of plays out through Q2.
And then maybe over the remainder of the year just given some of the moving parts to the extent that visibility.
Sure so.
Well look at the pressure certainly persists I think that that's a market wide.
Even facebook themselves they're.
In their earnings call, two or three weeks ago reported there.
17% down year over year on C. P. Adams it persists, however, as I noted earlier.
I'm seeing a bit more of a normalcy to the pattern. So while it may be at depressed levels and a return to normalcy that pattern will mean sequential increases each quarter throughout the year like I like I repeated at the beginning of my remarks every quarter that that typical seasonal impact so I'm hopeful for that however, we are.
Actually optimistic on that but we are where you know where patients were cautiously optimistic there where we are in patient is on these higher margin higher yield revenue streams of course, we're not waiting for subscription without waiting to optimize.
You know to reach programmatic peak performance and were not waiting to have Rad solutions, we're still pushing in those areas. So I'm cautiously optimistic for.
But more for the back half of the year.
It will take some time.
Hum.
For it to recover further but early patterns indicate up you know.
Possible good back half of the year on the programmatic side.
Understood. Thank you very much.
I just wanted to say one one point and I think it builds on what we said to worry about young at the end of the conversation about the high gross margins and where do they go we're not going back we're not going back and if we have to make calls on our gross revenue on certain continued.
Challenges, we face whether it be.
And to do it.
Reduction obviously if.
A stronger language motivation or whether we're dealing with we negotiation with some of the creators of the Adsense model on a.
C N.
We're gonna be very choice school very deliberate on every dollar of revenue we are taking and it builds the song and it provides what is necessary for us to continue to drive a car.
Can you consistent a rolling Thunder of revenue growth and increased gross margin, we will take it but we are not going to chase low margin low value revenues for the sake of it has to continue to demonstrate.
But we're driving towards profitability, we want to be in that situation, where we have really excellent top line revenue growth, but we are on a mission.
Clear to the entire leadership team and it was my makes it to me when I was off the joined the company by the board of Directors. This is about turning what has been a highly entrepreneurial theories of individualize that operates in now into an integrated platform to create sustainable profitable performance.
So I just want to reiterate that on this call today.
Yep Crystal clear thank you both.
Yeah.
Thank you once again, if you have a question. Please press Star then one.
Thank you. Your next question comes from Kevin from Scotia Bank.
Please go ahead.
Hey, there are good evening, just one for me it might have been brought up just on the Opex profile for Q2, maybe Q3 is.
Is the sort of 20 million ex amortization of SBC that we saw in Q1 sort of a good run rate to use there I mean, there might've been some NFL within that numbers just wanted to know your out your thoughts on how to think about the opex profile of the next couple of quarters. Thanks.
Thanks, Kevin I think that's a that's a we appreciate the question Alex I'd like you to grab that one please.
Of course, thank you, Nick and Kevin Yeah.
Yeah.
There were Dora decreased NFL episodes in Q1 versus Q4 and that is further decrease there is some off season content. Further decrease so some savings perhaps that is as far as the profile goes that normally that's mostly out of advertising promotion and then of course technology support specifically the car.
Content bucket.
Bucket of that however, it's.
It's not as notable as a reduction to four to Q1, so so we're or evening out.
The 20 million ex those noncash items as is a good good proxy for our run rate.
Okay. Thanks for that maybe I'll just sneak in one more we talked a lot about C. P. M. R. P. M dynamics can you talk about maybe anything to note on views I did about 10 billion in the quarter. I think you grew your total views in 'twenty two versus 21.
You know what.
Are you seeing there can you talk about some of the dynamics.
With maybe Youtube shorts, and some of the I think Nicky talked about maybe getting out of some some relationships with some creators that maybe cause a bit of a pressure Q over Q on the video views. Just can you help US you know maybe for modeling purposes, the video and web views. Thanks.
Yeah.
Thanks, Kevin as we said you know the introduction of Youtube Shaw.
The back end of quarter four as they as they talk to.
<unk> ticked up a bit.
Realize that that they they themselves are going to suffer from that because the level of monetization was so much lower on those views the longer form content.
And Oh created new channels suffered as a consequence of that.
We are we've got some exciting new create our agreements are in the works at the moment I'm going to see that we're going to see our views increasing Alex is the one that models.
Overall view, so we're thinking about how we have not just the amount of views, but it's worth saying that we are thinking a lot about our utilization.
Not just on our views on Oh, no no wait you'd size, but also of course, our publisher partners and we see a very.
Very significant opportunities for how we can improve the format.
So therefore joint high point seen so it isn't just about the views of uses one metric of it but what we want to do on the next quarter on the next call. It stopped to choose other metrics, you'll just see P. M. P M abuse.
And we'll talk to you about that next time.
Alex do you want to give a point of view about how you model that.
You use going forward.
Yeah sure for the time being so we are going to introduce some new metrics are as Nick said, but for the time being look at the total views.
Is.
As you can see very consistent over the last four quarters.
Now cresting once again above 10 billion there is a slight shifts you can see.
Disclosures are there that the pro rata between the web Patriots versus the video video views a slight shift towards web.
But video views so sitting right now just below that $6 billion Mark webpage views just above the 4 billion Mark.
And we aren't expecting.
We're expecting continued consistency.
Particularly on the total number right in and around that 10 10 billion the.
The shift to video obviously monetize at a higher rate, but in the case of the M. C. N is of course of course much lower margin.
This is important inventory when it comes to brands solutions. However, as you're well aware, we are very underutilized from an inventory perspective.
From from brand solutions as we have.
Inventory coming out of our ears itself, we havent been selling it that long we have a long way to go and as we continue to build continue to build brand solution. So I'm not concerned about inventory availability.
Yes, so consistency for the next few quarters on the abuse line.
Great I appreciate the commentary and good quarter. Thanks hotline.
Thank you Kevin.
Thank you. Your next question comes from Gianluca Tucci from Haywood Securities. Please go ahead.
Hi, Good afternoon, guys. Most of my questions have been asked here.
But how should we think about live events going forward.
And what kind of focus will the business have borne this business.
Business line I'm, just curious as to how the live events business fits into your growth plans and overall strategy.
Sure going forward.
Well. Thank you. Thank you Gian Luca.
Really appreciate your question as I said that was very much a part of.
One of the key the key the last of the strategic focuses we've had which is on our revenue diversification. That's showing that we can really go for that live events. It's definitely we've seen.
Tremendous success, but having the leading b to B gaming industry event.
Event fleta, they they have more.
Events.
Right now, though that all is Seattle before you know it though in Helsinki than they are in the middle East and they and we see the remarkable profitability and the level of engagement levels as Alex shared with you earlier, how many more people who've been attending the events so far versus last year.
We're excited I've got I'm here in New York I've got a meeting with two different events.
Events are organizing companies who.
What within the path to really discuss how and where we book be able to create.
And put on some live events. So that again is something I need to do the full cost benefit analysis and discuss it with the board, but we're certainly very excited about that and also luminosity because luminal seasons, just one game and team we have 12 different teams operating in different areas of the gaming landscape.
And they have been invited to participate and are working with many different partners about having more like game. The better. So we are excited about it it's not just about a post COVID-19 world, we see the opportunity for this to create that.
You know between the digital and the online realities of our communities to be able to meet and connect in real life. There was one significant E. G. L X had a live event in Toronto that was significant over a three day period before COVID-19 hit the whole sort of initiative down so in a way where we do team.
What we what we what we were doing before but really going to look at it in a more consistent way because if we can do it on the b to B side, we can do on the consumer side. There's no reason why and I. Just gave the example of E. Three being canceled because I remember 15 years ago, when I was running Nintendo globally at one of my agencies.
The first three days.
The industry B to B meetings in the next few days, we'll open to the gaming community and it was just remarkable and there's no reason why with all of.
Communities and sites and the creators we have within our organization, we could put on.
Marquee lie.
You know our gaming gaming experience and community events.
So we are very excited about it I don't anticipate we're going to be seen the economics of that rolling forward and certainly hopefully because these things take obviously alongside the plant on the organized.
Where you're going to see some benefit of that in quarter four but this is really line pipe all of these situations that I've been talking about in terms of our overall strategy to continue to explore new ways to grow.
He's really part of it but this is one under our very noses, because we've got a company you know family does it very very well he's got very good perspective, very good contacts to help us think about how we can do that you know in the consumer general space. So you. So we will we will share the news.
As we have something more significant to talk about them, but it's more than an idea it's part of our strategic plan.
Okay. That's perfect. Thanks, a lot for that color and and perhaps a question for Alex follow up question.
Like you know historically speaking what has been a typical home.
Gross margin of a live event.
Yeah.
Sure.
Ah the typical gross margins were about <unk>.
Pre COVID-19 there about 50, when we turn them in 50% growth when we turned them into a digital or hybrid digital life events that raised the margin somewhat because obviously digital came with less cost now.
Now we are moving.
Success in the live we're moving back so so think think stinker in the 50 to 60.
Range on.
Those events so.
Quite quite profitable good girl business and pushing at the moment.
Okay. Thanks, guys congrats on the quarter.
Aggregate.
Thank you as there are no further questions. This concludes our question and answer session and conference at this time. Thank you for attending today's presentation you might now disconnect.
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