Q2 2023 Enthusiast Gaming Holdings Inc Earnings Call

Speaker 1: Good afternoon and welcome to the Enthusiast Gaming Fiscal 2nd Quarter 2023 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Speaker 1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad.

Speaker 1: To withdraw your question, please press star then 2.

Speaker 1: Please note, this event is being recorded. I would now like to turn the conference over to Matt Schessler, Investor Relations. Please go ahead.

Speaker 2: Thank you, operator. Good afternoon, everyone, and welcome to the Enthusiast Gaming second quarter 2023 results conference call. I'm Matt Chesler of SNK IR.

Speaker 2: With me today is our Chief Executive Officer, Nick Bryan, and our Chief Financial Officer, Alex McDonald. We'll begin with some prepared remarks and then open the floor to questions.

Speaker 2: 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.

Speaker 2: These statements should not be read as assurances of future performance or results.

Speaker 2: Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results for formats or achievements to be materially different from those implied by such statements.

Speaker 2: A more complete discussion of the risks and uncertainties based in the company appears in the company's management discussion and analysis for the three month period ending June 30th, 2023.

Speaker 2: which are available under the company's profile on Cedar and Edgar, as well as on the company's website at enthusiastgaming.com.

Speaker 2: You're cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this presentation.

Speaker 2: The company disclains any intention or obligation except to the extent required by law to update and revise any forward-racing statement as a result of new information, future events, or for any other reason.

Speaker 2: Now, I'd like to turn the call over to Nick Bryan, CEO of Enthusiast Gaming. Take it away Nick.

Speaker 2: call over to Nick Ryan, CEO of enthusiast gamers. Take it away Nick. Thanks Matt.

Speaker 3: and welcome to everyone participating on our own its call.

Speaker 3: I joined the FUSES Gaming as it's cheap and FUSES Office a five months ago and my conviction continues to be that the gaming media sector is a huge growth opportunity for it.

Speaker 3: But the number one gaming property in the US is measured by ComScore.

Speaker 3: Throughout the course of my remarks, I'll share concrete examples of our occurring and new business momentum.

Speaker 3: The strength is my conviction on a daily basis.

Speaker 3: I'm excited to share with you the strong progress we have achieved over the past quarter.

Speaker 3: as a management team is focused diligently on executing the strategic initiatives developed as part of our 2023 transformation velocity plan.

Speaker 3: I will discuss these in detail, but I first want to share some important energy contacts here.

Speaker 3: The video game in industry demonstrates continued momentum.

Speaker 3: It turns out exciting new game launches such as the ABL4 and Baldur's Gate 3 and continued user growth across the mobile gaming sector.

Speaker 3: Gaming is an entertainment industry that significantly expanded year-on-year, projected to be worth $366 billion by the end of the year.

Speaker 3: massive tech and entertainment companies see the value and opportunity of entering the gaming space so they expand their footprint in gaming to organic growth and acquisitions.

Speaker 3: The U.S. media industry continues to rapidly evolve, from the dominance of the wall-garden digital players such as Meta and Google, to high-growth innovative digital media sectors such as CTV, retail media, and commerce media.

Speaker 3: Yet the disruption of legacy media players continues.

Speaker 3: As Amazon posted a 22 to send gain this quarter

Speaker 3: Discovery posted a 13% decline.

Speaker 3: These newer media players continue to attract advertising dollars.

Speaker 3: as they provide marketees with scaled audiences, first party data and brand-safe environments.

Speaker 3: Uber is on its way to building a billion dollar ad business within the next year.

Speaker 3: My visit to the annual Canalion Apatising Festival in June reinforced the strong interest from industry leaders in the gaming media sector, given the scale and breadth of the game in audiences, and the remarkably high-user engagement metrics they offer.

Speaker 3: Major brands and leading agencies know that gaming audiences are the future customers they must reach.

Speaker 3: During the week at CAN, I met with many of the largest global marketers, including PNG, Unilever, Intel, PepsiCo, Microsoft, Pfizer, Diasio, and Lenovo, and the message was consistent. The game had become an established media sector, attracting large advertising budgets, we must offer these mega brand several things. First, we must offer scale audiences, not niche gamers.

Speaker 3: Second, we must ensure brand-safe environments to protect their brand equity while respecting the gaming audience's attention. Third, critical that we provide independent measurement

Speaker 3: We must ensure brand safe environments. Protect that brand equity while respecting the gaming audience's attention. Third, critical that we provide independent measurement to prove ROI.

Speaker 3: When we and our peers deliver against these criteria, gaming media will move swiftly from being a nightbath to becoming a must-buy.

Speaker 3: Enthusiast Gaming is uniquely resourced to provide leading brands and agency partners with strategic planning,

Speaker 3: and a neatly resource to provide leading brands and agency partners with strategic planning, content creation.

Speaker 3: First party audience targeting and marketing campaign measurement to meet industry standards while providing necessary innovation and ROI.

Speaker 3: While media channels and marketing approaches continue to evolve, the mission for CMOs remains the same.

Speaker 3: to build brands and fuel growth.

Speaker 3: The industry has historically been highly fragmented.

Speaker 3: Enthusiast Gaming was no different.

Speaker 3: with several businesses operating completely independently with insufficient communication or coordination.

Speaker 3: Our strategy of breaking down silos and creating comprehensive brand solutions and scale, operating on a single-text bag for sure brand safety and providing real-time feedback is exactly what these mega brands are looking for.

Speaker 3: A reorganization efforts in the FUSAF Gaming reflect these opportunities.

Speaker 3: organization efforts in enthusiasm, gaming, reflect these opportunities to double down on brand solutions.

Speaker 3: obviously called direct sales?

Speaker 3: to create high quality environments that excite and delight the enthusiasts who come to our gaming sites, play, learn, create and connect.

Speaker 3: And to work with leading creators to develop exciting content tent bowls and live experiences that delight their communities and attract leading brands.

Speaker 3: Even in these early days, this reorganization is driving improvement.

Speaker 3: Our aggregate monthly average users across our network of gaming sites has increased in nearly 56 million. The largest scaled audience in aggregate of any US gaming property bigger than the like the Twitch, Roblox and Activision Blizzard.

Speaker 3: Our continued focus is to strengthen our operating model and refine our go-to-market positioning.

Speaker 3: We are building a solid foundation of robust smart technology and first-party data to ensure that yield optimization is embedded into everything we do. Our enterprise technology platform is now centrally managed across the entire organization by Shingo Lu and Alan Liang recently promoted the chief product officer and chief technology officer respectively.

Speaker 3: This extremely talented team of gaming leaders has now extended their highly successful UGG product to become a platform that offers similar player statistics and gaming information for World of Warcraft and Valorant.

Speaker 3: At the same time UGG has just released its first standalone desktop app. And downloads have exceeded expectations on our target to reach 500,000 by the year end with no paid marketing support.

Speaker 3: This product to platform initiative is now been implemented across the Sims resource, IceFanes and select casual games and community sites within a dicting games.

Speaker 3: We all know that delivering ad tech excellence is a prerequisite for building a profitable media business in today's programmatic media buying world.

Speaker 3: Our content division has delivered such creative projects on behalf of major brands such as NFL, Xbox, State Farm, and Mondalee's among others. To highlight our commitment to creative excellence, we've now rebranded our content division as final boss studios, led by our gaming and obsessed executive creator, Rourke Boss. He and his talented team are busy developing the content temp pole roadmap to build on our continuing success of the NFL Tuesday night game.

Speaker 3: We're now in active negotiations with two other major US sport leagues to create unique content platforms involving their top players competing against the most influential creators.

Speaker 3: This achievement coupled with the increased contribution of brand solutions as a percent of our consolidated revenue, further demonstrates the progress we are making. We are rapidly moving beyond Selinad, only Selinad, and it's said Selinad integrated solutions. This is a special important considering the continued industry headwinds in the programmatic ad business. It's signed several of the biggest streamers in the world as team captain for season two. The identity of which will be announced shortly with the launch of a new season.

Speaker 3: Season 2 of NFL Tuesday Night Gaming will now be streamed on Twitch, the biggest live streaming platform for gamers.

Speaker 3: by more than 12 times over YouTube and Facebook combined in total hour streams, and more than three times bigger in hours watched.

As we analyze our sales pipeline, we're excited to see 78% recurring revenue for 2023, as well as an impressive asset mixed diversification, with over 80% of our brand solutions, utilizing more than two of our assets, and over 50% utilizing more than three.

Media placements usually accompany our large sponsorship deals and creative properties, such as the Fortnite map we just produced for Shell, in conjunction with Team Unite and WPP's Essence Agency. To drive enthusiast gaming transformation from being a loosely affiliated portfolio of sites to operating as a centrally managed company with a diversified network of gaming assets, I continue to upgrade our management team and recruit proven industry experts to help accelerate our growth momentum and operational excellence. We recently hired a sales analyst.

a product and pricing specialist, a data analytics expert, and a product marketing genius to ensure that our sellers are knowledgeable about every single product we're developing across our network.

of our precious media inventory. At the same time, as we shared on our last earnings call, we determined to drive more growth from our highly profitable subscriptions revenue. From a lot of this, subscribe a quote, and strengthen our gaming communities overall, we have hired a leading consultant from Microsoft to drive this important initiative. Our newly created strategic partnership division, led by EVP Matt Goodman, continues to develop exciting and unique properties such as NFL Truth and I gaming, one increasing our dialogue and ideation.

leading players across sports, music, fashion and retail. Many of the world's biggest brands are seeking meaningful engagement in the gaming sector. Beyond running pre-world video ads are simply sponsoring a creator. Long-term partnerships involve thoughtful strategic planning and player performance indicators through a value of R&Y.

for both brand building and lead generation. We could not be more excited with a momentum in this critical area of our business.

We've improved our pipeline visibility and revenue forecasting and able enough to invest more wisely and more precisely guide the company towards profitability for the first time in its history.

The pipeline for quarter three and especially for quarter four is robust.

with 55 potential new logos in the second half pipe representing 45% of the overall pipeline.

A client continues to be well-diversified across industry verticals.

CPG being at the top of 20%.

And the payment continues to be a strong for us, signifying that enthusiasm gaming remains a key destination despite this industry verticals at wins.

With this signed a last deal with Dubb, representing our first win with Unilever, as we continue to secure new brand assignments from Coke, Mondalees, Google and AT&C.

I see massive answer opportunity in other key industry verticals that are quite regards such as travel, food and beverage and retail.

Under the expert leadership of Amanda Rubin, EVP brand solutions, we have reorganized our overall sales effort by industry vertical and agency holding company as well as independent agency sector.

I will now hand over to Alex McDonald of CFO to discuss the details of our quarter two earnings. Thank you, Alex.

Thank you, Nick, and thank you to all our shareholders, analysts, lending partners, and other stakeholders for joining us today.

To discuss the progress we made in this second quarter of 2023. During the second quarter, we advanced the initiatives Nick has been speaking about since becoming our chief enthusiast officer.

As the digital ad market begins to normalize, the second quarter results are beginning to reflect the work we are putting in place to ensure a swift transition to profitability. I'll speak on the numbers shortly, but first here are my usual notes. I know that our results are presented in Canadian dollars. The significant majority of our revenues and expenses are measured in US dollars and are translated into Canadian dollars for presentation in our financial statements.

The exchange rate between the US dollar and our presentation currency of the Canadian dollar should be monitored and considered when analyzing or forecasting results. I know that our business is affected by seasonal trends in digital advertising with sequential increases each quarter throughout the year driven by increasing ad prices and demand, which peaks in Q4.

The seasonality is isolated to our media and content revenue streams.

Now, let's get back to the financial results. Q2 revenue was 42.6 million, which is down 17% year over year, but roughly flat versus Q1. Q2 revenue by source was as follows. Media and content, 36.9 million, subscription, 4 million, and e-sports and entertainment, 1.7 million.

Our web RPMs were down 28% while our video RPMs were down 13% in Q2 year over year. These year over year RPM declines, including Q2 compared to Q1, and we expect them to continue to narrow with further improvements being noticeable, subsequent to June 30. Q2 median content revenue was also impacted by lower video views year over year, with 5.7 billion video views being measured in Q2 2023 as compared to 7.1 billion video views in Q2 2022. The lower video views related to specific low margin channels.

which we elected not to renew as we focused on more profitable revenues and pruned our portfolio, as Nick discussed. Q2 media and content revenue was also impacted by the rescheduling of all NFL TNG episodes originally scheduled for Q2 to later in the NFL TNG season 2.

This was done to better service our customers' objectives. This had an impact on brand solutions revenue for Q2. However, these episodes will now air in season with the related revenue being recognized in those periods.

Q2 subscription revenue remained at an all time high of $4 million, up 14% from approximately $3.5 million in Q2 last year. This increase was largely driven by an increase in paid subscribers, which were $272,000 as of June 30, 2023, as compared to $258,000 as of June 30, 2022.

Q2 esports and entertainment revenue with 1.7 million, down 23% from 2.2 million XU2 of last year. The decrease in esports and entertainment revenue is mainly attributable to decreased esports sponsorship activities, which was offset by an increase in event revenue. Gross profit was 15 million XU2, which was similar to the 15.3 million of gross profit according to Q2 2020-2, however, gross margin increased, increased 520 basis points to 35.2% from 30%. This gross margin increased reflects the greater contribution

as well as the elimination of certain unprofitable products and channels, as well as the year-over-year decline in market-driven CPNs. In other words, our strategy to reduce our reliance on network programmatic revenue and focus on profitable revenue is driving improvements in our margin profile. Total operating expenses were 24.6 million down.

Operating expenses in Q2 include non-cash items of amortization and depreciation of $2.9 million and share-based compensation of $1.8 million. Notably, operating expenses also include approximately $1 million of expenses relating to restructuring costs.

which are included in salaries and wages and will be non-recurring. The decrease in cash-based off-ex year over year was primarily due to decreases in esports player teaming game expenses of 900,000 and decreases in office and general expenses, which decreased by 800,000.

In addition, Q2 last year included $2.2 million related to the annual general meeting legal and advisory costs, with such costs being nominal this year. We expect somewhat higher operating expenses in the third and fourth quarters as the NFL TNG season 2 kicks off in mid Q3.

subsequent to the quarter end. We are in advanced discussions with our lender to document an amendment to our credit facilities to provide additional liquidity through our operating line. Given the improving trends we are seeing in our business and industry, along with the benefit of the amendment to our operating line, we are confident we have sufficient liquidity to execute our near term objectives. We continue to believe we will exit 2023 and enter 2024 as a profitable business. And now I wish to speak about the primary drivers for the rest of the year. The best way to do that is to use this second quarter as a baseline.

Q2 this year was relatively flat compared to Q1 with some modest margin compression, but there are some significant differences that need to be considered when analyzing this. And these same items will be the primary drivers of revenue, gross margin, and gross profit lift for the rest of the year.

Number one is of course seasonality, which is expected to significantly impact both CPMs and brand solutions. While CPMs remained challenged in Q2 and are still down year over year, we do expect the significant lift in the second half similar to what we have all heard.

from the earnings commentary of other large digital publishers over the last few weeks. As that spending increases in the second half, we also expect a positive impact on brand solutions.

Second is NFL TNG. NFL TNG had no episodes in Q2 as it is currently in the off season. NFL TNG has a material impact on Brans solutions revenue and will return in September .

These events are a creative to gross margins. These items combined with our product initiatives, including U.G.D. extensions into Valorant and World of Work F, ICVains quickly becoming the primary destination for fans of the newly launched Blockbuster title, the ABLO4, and TSR undergoing a complete subscription upgrade drive, driving increased management confidence about the second half. And while our product offerings continue to entertain our communities of gaming fans, our brand solutions continue to help brands reach our coveted audiences.

and the stats about our repeat business speak for themselves. In the second quarter, repeat business accounted for 62% of total direct sold bills and 66% of total brand solutions revenue.

This means that a customer of enthusiasts gaming is likely to come back and when they do, they are likely to send more. Therefore, it should be no surprise that we continue to set records with the single largest direct-sold deal and company history being sold subsequent to the second quarter. For all these reasons.

We believe we have a clear sightline to a successful and profitable second half, particularly in Q4. I wish to thank my team for their work on the quarter and I also wish to congratulate Nick on his first full quarter as our Chief Enthusiast Officer. We've been very hard at work and are glad to bring this quarter to market.

and are looking forward to getting back to our business. And of course, ladies and gentlemen, our business is the business of game.

Thank you, operator, I kindly turn it back to you. We will now begin the question and answer session.

To ask a question, you may press star then one on your telephone keypad.

If you are using a speaker phone, please pick up your handset before pressing the keys.

To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster.

Our first question is from Mike Crawford with B. Rally Securities. Please go ahead.

Thank you. The first question regarding brand solutions field glycine. I know it's not simple answer because it's not just like programmatic CPMs, but how would you characterize?

The types of prices you're able to negotiate with your customers that are advertising for your integrated solutions.

Well, Hi Mike, it's Nick here. Thank you, thank you for that question. I think there's no one standard fits all. We've recognized that it really does depend on the mix of the solution that's being designed.

What is the level of content build? What is the scale and popularity of the created that they want some or more brands, and more discerning and determined to choose and be going involved in that process? I'll leave it for us. What is the set cost going to be?

What level of media support is around it? What kind of impression levels do they want? What I would say is that, like anything, we're recognizing that two things that we've made a significant shift on. One, we hired a top executive and all things priced in a packaging from about to sports.

Now every single one of the brand solutions in terms of the way they are packaged and priced.

is going to a central...

you know, function to ensure that we've secondly got that consistency.

The second thing that's important is we've changed all compensation terms for, you know, we're changing, it's going on right now with our fellows to ensure that gross margin is a key factor within their commission plans as well as gross profit margin as opposed to just gross revenue. So we're looking at

The mix of media is certainly higher when we're selling video with display. It's obviously the video that we're generating on YouTube and we're packaging that up directly. So I'm very pleased with the level of price increase we're generating across the board and we're especially seeing that on the current client.

But there isn't my one standard set price, but there is increasingly a standard process and a standard format by which we have individual criteria and the components of each brand solution being priced accordingly.

Thank you, Nick. And then maybe an extension of some of the unique proprietary content you're creating with Tuesday night gaming with the NSL is what when might we hear one way or the other regarding these discussions with two other major US sports.

and Kingdoms and helped you a lot. Birdie his own What happens...

Unlikely to announce both in quarter three, we are very confident to announce one in quarter three and as soon as we have a deal signed, we are packaging and productizing and taking that to market.

And we have already been doing that conceptually enough to give us the confidence that this is an important partnership deal that Matt Goodman is looking to close down. I think it's unlikely that the second one will be in market in quarter in 2023.

It's media on that includes esports and other proprietary content that are creating is going public, potentially with a business combination, with a SPAC, with a $1 billion evaluation. I'm wondering, not only the parallels between maybe that business and your business, but if you had any sense of what revenue that energy has since, but from what we could tell, those revenue details were kind of missing.

with one now, we've already done one. We're striking deals with second of the biggest Mexican teams. And we're also having other conversations across Latin America. So I think we're certainly keen to talk with Barcelona and the Barca package that we've also seen, to discuss with them how they realize that opportunity. Because it's important for us, and the big opportunity with obviously Spanish content being so strongly followed and engaged by the US Hispanic Latino population, there's an opportunity there for us.

million Asian American. We know that there are remarkable opportunities for brands seeking to better engage with particular audiences and particular communities. And we strongly believe that sports and our partnership with sports leagues, and even within e-sports is an important opportunity. So we are going to be investigating that Mike. Mike Roberts All right, thank you very much. I was very pleased to hear Alex say you expect to be profitable by your end. Thank you. Alex quotes The drone show

the scale and size of the logo is coming back, recurring clients as well as new logos and the size of a deal. It's very reassuring. So, the answer is, as we had NFL in quarter two, we would have been in the market place and would be merchandising and selling those deals, but we didn't. Okay, got it. Thanks for that. So there was some revenue I guess pushed out from content that you had produced from Q2 into Q3, Q4. So that'll come into Q3. Does the profit pull-fi look better though in Q3 because you've already sort of incurred some of the expenses for the production on that content?

the profit profile somewhat when we do air those episodes. But there will still be a regular, I wouldn't say two materials. I would still expect an NFL team to do a live show, mostly production costs, mostly talent costs.

Okay, got it. Thanks for that. I think you made a – it looks like by your assumptions, you've exited some relationships on the video side of some customers that were maybe less profitable. Do you have an estimate for how much that is on an annual basis in terms of revenue? I can take that again. I mean, it's baked in now. It's baked in now. So you can see –

The MD&A we do disclose the movements in RPMs, and how much revenue comes from video, and how much comes from web platforms. So all the details are in there. Media and content was down substantially year over year, just over 8 million.

decrease there, but a big chunk of that is CPM and then further that decrease in the video views, which I guess would be about 15% on the video views side. So those would be the pieces that I tied together. The bigger driver is still the CPM.

I was just trying to get a sense for, I think there was some commentary that you exited some relationships with some content creators, and if there was a view on how much revenue those creators may have accounted for in the base.

I can just take it offline with you.

Oh, no problem. Sure, all that information is in the MDNA. It'd be... You've got it. Yeah. Of the video, it'd be the... But the primary driver's still to CPM. So think of it like 5, you know, 1, 3 to 5% would be an approximate number of the total revenue. But more for more specific details, all the RPMs, the video views, and the movement...

on the specific one in the video, all the stats are provided there.

specifically in the video, all the stats are provided there. All right, thanks. I'll jump back in the queue. Thanks, guys.

Hi, good evening. In the release, I think in the prepared comments you talked about profitability, timeline. What type of profitability is that EBITDA you're talking about there? Was it by end of year? Maybe just refresh that for me, please.

Robert, thank you for that question. As I've said,

You know all along I said it in the last quarter zone and certainly we emphasize it now We will be a profitable company as we go into 2024 it is our determination as a leadership team. We're focusing on the big five drivers But sure that we enter 2024

All the last, and the last quarter is only a certainly reemphasizing it now. We will be a profitable company as we go into 2024. It is our determination as a leadership team with focusing on the big five drivers, we're sure that we enter 2024 as a profitable business.

So I can't give you the specifics as to exactly what month we're going to be turning comfortable, but we're very confident we're going to be doing that by the end of the year. Okay, that's great. Then the second question, I think just…

commentary around having sufficient cash and availability on the credit line to get to that profitability. You also said that you were in negotiations around that credit line. I was just curious, are you able to get to profitability on the current credit line or are you suggesting, or would you be required to expand that credit line?

He's done a very good job working with our existing lender to demonstrate to reassure their confidence in our business model. Alex, one of you will respond to all of it on that please.

Well thank you Nick and I'd be happy to. Hey Rob. So yes, I mean what I've always said, there's a couple of things we're doing. One, we're being extremely efficient. Like all businesses in our sector and even the broad tech industry, we're being as efficient as possible on our expenses.

Number two though more importantly, and I've said this number of times we are also being very efficient and be more strict with our working capital and I've always said there is actually a lot of value tied up in there. This quarter we have about 33 million of accounts receivable, trade receivables and other receivables on the balance sheet. At the same time

when we look then to our facilities, we have an operating line against that of 5 million. So I believe we are under leveraged on a debt equity basis. I believe we're under leveraged on a debt to asset basis as well. And this one's a no brainer.

And some of our success in the short term, we have to pay for. And more campaigns to run and we want to make sure we are prepared for that. So with that said, subsequent to the quarter end, we are as mentioned in advanced discussions with our lender to document an amendment to our credit facilities to make sure that we have the sufficient and ample liquidity to execute our near-term strategies. And of course, through the end of the year and by the end of the year, we are very confident we will be profitable. So we are locking that down. We are moving into the short term liquidity risks because we have a clear sight line to the end of the year and we want to make sure that there are no hiccups along the way.

So I think we could without it, but remember our operating line is also by far our cheapest cost of capital. So it's a preferred method for myself and as Nick said, we're very grateful to our longstanding lending partners who no doubt are listening and we appreciate their confidence in us and value them as partners.

enough powder for the important Q4 period. Now that you're served maybe a little bit of Q3 here, I just curious if you could, is that same dynamic at play? Are your customers waiting up for Q4, or is it a more of a linear dynamic this year? No, pass the line. Alex, why don't you say that? is Nick that we are increasing our visibility so we can see a pipeline. Nick gave some stats from that talk.

media assets and other solutions for our brands is one of the reasons we rescheduled those episodes for the NFL TNG. So we are seeing a return to that normalcy which we all recall in the prior years at least until 2022. That's how it works. It was always booming in Q4. So hopeful and optimistic for that, but yes, I don't think it's linear. I think it's a lift for Q3 and a bigger lift for Q4.

media assets and other solutions for our brands is one of the reasons we rescheduled those episodes for the NFL TNG. So we're seeing a return to that normalcy which we all recall in the prior years until at least until 2022 that's how it works right all like it's always booming in Q4 so hopeful and optimistic for that but yes I don't think it's linear I think it's a lift for Q3 and a bigger lift for Q4. Alright thanks gentlemen a fast line.

The next question is from Drew McReynolds with RBC. Please go ahead. Yes, thanks very much. Two for you, Alex, I think, and then one for you, Nick. Just on the first two, on the operating line, Alex, in terms of getting that larger, without giving a number, obviously, can you quantify, is it doubling the size or maybe something more?

And on the sustained profitability, good to hear is again into the seasonally softer, key one of next year presumably just based on your commentary, you expect to remain profitable so if you could confirm that. And then next, just bigger picture on the organizational changes you alluded to quite a few of them.

Where are you on kind of your own roadmap of optimizing your organization? Are you middle-ing, late-ing early-ing, any contacts there would be great. Thank you.

Okay, Alex, you go first. Sure. Thank you. Okay, Alex, you go first.

Hey Drew, how you doing? So, okay, so I'll start with the operating line. Look, it's a...

It's a sufficient, I'll put it this way, we're not talking about a major change to our capitalization. We're not really changing the capitalization of the business, with the modest increase to who...

You know, so we're sure we've accessed a tap or working capital.

for the remainder of the year, and it is a permanent increase for the term of the facility. So I would expect a double or less. It is modest, but not really changing the capitalization, but it's sufficient for us. As our loss, narrow significantly and turns positive back to the year.

Yeah, it's plenty for us to work with. And with that said, I think the second question was on the timing of profitability and then the patterns for next year, is that correct? So yeah, this is only self-conquered one in the next year. We'll obviously you'll have a good moment in coming at a Q4. Yeah, so what we're seeing there.

Yes, we have great momentum coming out of Q4. When we start looking into the next year, of course we would expect seasonality to kick back in like it traditionally does or customarily does in the industry in January . So that would have an impact on CPMs, also on brand solutions. But we have some interesting dynamics here that I think are...

shining through more and this quarter particularly versus last quarter because now we've introduced a couple things. We're in a post-COVID world and our events...

We actually have 40% year over year some of these events. London, we've got Helsinki coming up. It's a much smaller part of the revenue profile but it's profitable, it's a creative margin and we love them and they're doing great. So the reason I point that out is because now we've introduced London, we've gotten into the Q1 and the NFL TNG season.

yes for CPM and yes for brand solutions, but we will still have NFL and we will have London. And the events are booming and NFL, TNG is in high demand. So I do expect absolutely it to be less than before, but I think our...

seasonal distribution is starting to flatten out in the first half of the year a bit. And that's why we're seeing comparable Q1s and Q2s. Because Q2 may be flat this year, but it's missing a big event and it's missing NFL. So apples to apples, it's actually not, you know, it's a reasonable increase which we would be used to seeing.

So I think that those two events, those two items in Q1 are starting to flatten that seasonality in the first half. So yes, I would expect it to be down, but to be kind of more flattish Q1 and Q2 and then a lift up for the second half.

If I could pick up your third question, thank you for asking it, because when he talked about our roadmap transformation, I love questions like that, because I always want to remind everyone that the numbers were consequence of the business and the businesses and the consequences of the numbers. And the business has been looked at by the leadership team.

which is not just the exec, there's 32 people in our senior leadership team who took on the lens that I provided to look at the business through a lens of product, through a lens of content, through a lens of brand, growth, culture, and operations. And each of those six pillars make up our transformation velocity. And they, the team,,

work in a cross-functional way to ensure that we actually break down silos, increase communication, increase trust and knowing between the different leaders over different operations. Because as you know, we have 330 employees and we have over 75 different sort of entities that operate between different games, and sites, and teams, and you name it. Now everyone's looking at this.

through the enterprise lens. And when we think about products, the big three there, obviously technology, platform, and data. You cannot build a skyscraper on weak foundations. And the foundation for this business is just like a SaaS company. We are a platform company. We are platform. We are on top of the platform of products.

on top of the products or services. So the technology integrity, the platform rigor across the first party data capture and leverage is part of that. The content charter, we talked about the content factory. We are in the ideas business. So we have now rebranded our factory Final Boss Studio. They are doing great work. They have stopped doing the work that they thought they should be doing that we couldn't see merit in.

either from a fame point of view or a fortune point of view. We're developing the tent pole calendar. Long time in advance we have a tent pole calendar planned out to mid 2024. So the sales teams can get out there and be selling it and not be twiddling their thumbs wondering what's happening. And then the NFL. The NFL is proven to be a major landmark marquee.

for the biggest brands in the world to be leaning in because it is the biggest and most culturally relevant sport in the US today. And following white behind it are the other

Ork Leagues who are also looking to engage with their next generation of fandom who are found playing, communicating and connecting in the gaming communities.

And then we talk about our brand, not just our awareness, but obviously our industry leverage. And I talked about it before, how we're going to market. From an industry point of view. How can Uber now be a billion dollar at this, this is the end of the year, putting things, doing pop ups and Uber Eats, and then what are they gonna do? You have TV screens, next we have an Uber experience.

I look at the growth of CTV. I look at the growth of retail media. Streaming audio is an 8 billion dollar category. We are predicting that the TV industry, the linear TV is an 18 billion dollar category. Well linear TV this year is going to be 61 billion dollars. 25 billion dollars is already in CTV. Why is it in CTV? Because linear TV is playing and CTV is game.

What is it have over traditional TV targeting measurement interactivity and e-commerce? We have all those same things Who's out there talking to the marketplace talking to all the big brands? Why is it if I'm looking at traditional TV? You've got $57 billion. I'm estimated in over 11 billion dollars will peel off linear TV in the US in the next three years.

representing the scale, the interactivity and the measurement of that.

And then so when we talk about growth, we talked about it. Our ad technology is to be brilliant. We're not going to have an SSP partner. We're not going to not be integrated by the right taste of partners. We're not going to have a confusion about who's our ad serving partner. We're cleaning it all up and speaking. And then we're driving our brand solutions and then we're really focusing on subscription.

and making sure that where we can, we're going to build those alternative sources to our growth. And from a cultural point of view, that's really important because teams win, not individuals. And every team needs a leader, but it's not about the leader, it's about the team. And now we have a team that's connecting, that's communicating, that's establishing some real pride.

in the fact that we are at the vanguard of not just fixing a business or building a brand, but building an industry category. But to do that we also need the operations. Great operational rigor. Operations like a proper ERP network, working with NetSuite, I mean fully integrated.

all the leverage on AI, whether we do now chat CPD for engineering, we've now got AI policies on all the data and privacy security, we're using an advanced AI for all data insights and analytics, and then where can we drive automation? So the business focus, where are we? We meet as a team, they meet weekly, they meet me bi-weekly by group, and then we meet as a full as-

culture of meritocracy and accountability. So people have to do what they say they're going to do and they're doing it. So I could not be more proud of this.

young highly entrepreneurial organization who's getting up to speed very swiftly with what it's like to be an enterprise business with a mentality that we're already a billion dollar market cap.

So I hope that answers your question too. It does Nick. Thank you very much.

The next question is from Gianluco Ducci with Haywood Securities. Please go ahead.

Hi guys, good afternoon. Most of my questions have been answered but just on subscriptions, it's nice to see the continued and methodical growth in that business line. Could you speak to the efforts there in growing the subscriber base going forward if there's anything...

Thank you for your question. I mean at this stage we have started a single analysis and engineering point of view. There were 18 steps for signing up to be a subscriber. It's now down to three. We are changing the credit card, acceptance policies on that, more flexibility about that. And then there's a greater level of analysis.

So as I said, we have signed up our consultant who has got tremendous experience with Expedia and Microsoft, and he has spent his whole life in the whole customer acquisition subscription building phase. And we've got a readout from him in two weeks actually to the exec team.

and we are most excited because he is not just focusing on the SIMS resource and the engineering work is already underway in terms of the site redesign and site reorganize as I said all things sign on to make that smooth and seamless UX. But I think importantly we are going to be looking where are the sites.

and the community areas or the games where we can start to integrate, what value add could we offer?

to be able to charge a subscription. And certainly we are going to institute a policy where there isn't just going to be all things free easy download without any attempts at people's identity. And still today in the US the email is the number one to tell the people identity that exists.

So on our next call I will give you a substantive response to that specific question by actually telling you the things we have done, and how they are driving an uptick to subscription revenue.

But I can't really say much meaning to them.

Thanks, Nick. I appreciate the color. And then just in terms of your pipeline for the back half of the year, like, put it in, I guess, context, how, like, can you quantify the degree to which it is bigger than the first half of the year? I'm just trying to get a sense of the magnitude.

difference the second half will look from the first half of the year? Well, that's a great question and certainly will be bigger. How much bigger? I think Alex.

to make sure that we give the right kind of guidance, I think you should handle that response please.

sure that we give the right kind of guidance, I think you should handle that response please. Oh no problem, my pleasure.

We don't want to set the KPI around it specifically because I'll give you an example. For example, we've just sold a larger sale ever. So some of these deals are getting bigger and bigger. Of course, Haywood and you John , look at what – there was a time when we celebrated 50,000 deals, 100,000 deals. Then we sell it half a million and a million. We're well above that now. So single deals can now move the leavers which is why I'm cautious to set any KPI against it. What we like to see is a full pipe. We like to see new logos. We like to see repeat business coming in at higher rates like it did this quarter. 62% of deals with repeat clients generate 66% of the …

the grand solutions revenue. So I will just say expect you know a modest or moderate uptick in Q3 like we spoke about and then that'll be helped partly fueled by NFL and then a larger leap in...

Thank you for like I like I spoke about earlier. I will say it would be Material certainly

I'd like to jump on that though Jean-Luc, I think there's another part of this that I get excited about is I'm seeing new logos in the pipeline like Dove having one. That's our first Unilever brand. When I think about P&G, P&G has 60 household brands.

It spends $4.4 billion on global advertising. It has $11 billion brands. They have Chama, they have Crest, they have Gilead, they have Pampers, they have Pipes. They have decreased their digital spend by $200 million over the last year and they're increasing it in TV and radio and retail media.

And now I'm going to go to the top of P&G and I already have done to really understand the global head of innovation and global head of marketing give us a test. You're testing with us so now give us another brand or of that individual brand we want a bigger share. Which we've got to get in and same way we're getting in with PepsiCo and we're getting in with Unilever and we're getting in with Google and we're getting in with Coca-Cola.

These are huge multi-brand players and they are all relatively uninformed yet excited, unsupported.

in understanding how to navigate their way through the gaming media beyond just running the 3-roll video on Twitch. So they see that as just handled as a programmatic buy, as part of the media buy. I'm talking here about how they can create truly competitive and differentiating platforms.

These are what I'm excited about when I look at the pipe, which is why I need to be out there with our head of our brand solutions, making sure that those most senior marketeers understand what they're testing, and we have no ambiguity in what the measurement for success is.

That's what I see as the biggest opportunity when I look at our pipe for the second half. And by the way, we've now instituted a big deals call. There is no deal over $250,000 that does not come by me. I'm talking about the idea, the proposal, the pitch, the negotiation.

I'm all over this now. Those biggest and anything to do with the big, the biggest appetizers in the world. I'm all over that as well.

Amazing context. Thank you guys and talk to you soon.

Thank you guys and talk to you soon.

This concludes our question and answer session. I would like to turn the conference back over to Nick Bryan for any closing remarks. Well, thank you everyone for dialing in. I appreciate the level of support our analysts provide us with the accuracy. I also want to extend a vote of thanks for the vote of confidence from.

our lender to increase our lending facility, should we need to be able to use it against our increasingly attractive size of our book or blue chip brands that are signing up to work with us. And I want to reiterate to everyone that this, and I understand, has been historical turbulence.

on this young company, but I have never worked in an industry sector in my 35 years that I've felt so much wind in our sails.

There is not just a brand to be built or a business to be fixed. There is an industry category. I can't do it alone, but boy oh boy there is a level of receptivity and excitement.

And that is because this is not just a business. This is part of popular culture. It is a defining global phenomena and it is not slowing down. So we have a lot of work to do. We have a very aligned leadership team.

We are bringing together a very strong culture and as I've explained to this company, we are no longer multiple companies.

operating in the gaming media and entertainment space. We are one company with multiple brands. And as we start to execute against that vision, we will start to see the results as sure as night follows day. Thank you so much for everyone participating in the call.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.