Q3 2023 Enthusiast Gaming Holdings Inc Earnings Call
Good day and welcome to the enthusiast gaming third 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 Star then zero.
Today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on Ed touched on phone to withdraw your question. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Matt Chesler Investor Relations. Please go ahead.
Thank you operator, good afternoon, everyone and welcome to the enthusiast gaming third quarter 2023 results conference call I'm, Matt Chesler.
And with me today is our Chief Executive Officer, Nick Ryan and our Chief Financial Officer, Alex Mcdonalds.
We'll begin with some prepared remarks, and then open the floor to questions.
Before we begin I'd like to remind everyone that today's presentation contains forward looking information that involves known and unknown risks and uncertainties and other factors that could cause actual results to differ materially from current expectations.
These statements should not be read as assurances of future performance or results.
A more complete discussion of the risks and uncertainties appears in the company's management's discussion and analysis for the three months period, ending September 30th 2023, which are available under the company's profile on theater as well as on our website at do gift gaming dotcom.
You are cautioned not to place undue reliance on these forward looking statements, which speak only as 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 statement 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 The E gaming they can wait.
Thank you, Matt and welcome to everyone joining our call today.
We are making solid progress against our business strategy to build the most scaled gaming communities in North America, creating a platform.
Okay.
The core building blocks all off site.
Panels events and esports.
Ah created communities are producing the most compelling content and guy.
Well that communities as we witness a growing influence in today's Craig that led economy.
We continue to invest in our vision to become the leading gaming and media and Entertainment company in North America.
Extremely thoughtful and deliberate focusing on our largest opportunities.
Today over 60 56 million users visit five games in channels each month.
<unk> done create and connect.
Certainly traditional media is declining audiences across linear TV and movie helps us maintain our position as America's number one game in media platform as measured by Comscore.
Our single minded focus is to achieve profitability in quarter four by prioritizing high margin brand solutions revenue in favor of low margin programmatic media revenues.
The decision we took in quarter two to focus primarily on North America is bearing fruit.
We continue to drive cost efficiencies and consolidation across every area of the business.
Did I clear operating model.
On a unified technology platform and supported by the most professional functions is what did you seen it settle friction and increasing our speed to market for each of our products and services.
Collectively these initiatives will enable us to exit the year is a profitable business.
We are fortunate to operate in the largest and fastest growing entertainment sector globally.
The continuing growth of diverse gaming audiences worldwide demonstrate their passion to planned connect with like minded communities and immersive gaming experiences.
Industry imagined.
They are at today Greenpoint.
Gamers worldwide and an industry expected to reach $665 billion in value by 2030 were the Cayuga a 13, 4%.
This exponential growth will demand innovation.
The next generation of tools products and platforms.
Slide game hunger, our stimulation and creativity.
It is clear that the impact of the video games will not be limited to the video game industry in it.
Asian skilled talent.
Large audience supported by deep pocketed developers floor across entertainment sector as well.
What he's seen the convergence.
The real engine without power and gains in revolutionizing film and television production.
Came I tease that becoming movies and Y Z all in all the studios are transforming lives musical performances.
The industry's growth across all age ranges. Despite the traditional game of stereotypes young men, playing console games and that Perm placements.
Microsoft closed our largest ever acquisition.
Division plays it.
Clicking that vision to bring great games to players that would be where on any endpoint.
Already with game pass they are redefining how games are distributed played and discovered.
I'm not alone in believing that the high price also reflected the highest price. They pay it also reflects the value of Activations gaming IP given the plant spent hundreds of hours over many years with the gains that they loved creating remarkable brand equity with some of the most famous games in the world.
We are witnessing the continuing transport a gaming piece of Hollywood, leading creates has been hot like top gaming companies to ensure that their content strategies, not only creative and compelling.
Fintech and faithful to the original game design it.
The power of a game, you'll IP in such a crowded digital media world the Port Netflix decision.
Screaming Videogames service.
The next big growth spurt.
Gaming is increasingly exciting brands and their agencies. There was growing realization that gaming media is no longer a nice to do but a need to do that.
Lucy Gen Z audiences abandoned traditional media to focus attention on social media gaming content and interactive experiences.
Brands are now competing for attention in the creative economy, where content is created and consumed fundamentally different ways and even five years ago.
It's exciting to pioneer the next generation gaming media and entertainment company for players.
This brand.
Operationally, we have consolidated as one company on a unified technology platform to ensure that our products and services Austrian airlines to create more efficient solutions to market tests and other places.
A rapidly improving programmatic stack and shows that our AD network is optimized to reduce unfold impressions and increased yields.
We recently initiated a cloud service is going to be to ensure that our web hosting costs are optimized for critical AI functionality is fully integrated across the business.
Across our fight we continued to demonstrate our ability to capture momentum and audience attention around tent pole game releases.
Oh, Gee Gee, the leading data and insights plant site from the league of legends with over 9 million users.
It's a product a platform strategy as it extends to the world of Warcraft side take the fourth I'm pleased that API.
You don't see gene losses League of legends desktop and alpha in quarter, three but half game performance and provide a personalized experience.
We've got another 250000 downloads without a dollar in marketing spend.
In the month of September we recorded 630000 user sessions with an average session duration of an hour and 18 minutes.
819000 hours of bodies attention.
The time on site metric is indicative of the stickiness and the added value of desktop apps because they are able to provide real time live data driven insight and advice advice do I use it base.
This success informed our decision to pursue additional desktop at property at the next launch will be valid in November.
I T vein has launched a brand new content management system.
Support Diablo fall and in the month of July I keep I instead of record unique users in a month.
$5 9 million 26 million sessions are one 7 million hours of time spent on site from our user base.
It is off to a positive use case, but further expand of CMS to enable us to repeat this success over and over I see banks in U G. G. The dominant multi type of gaming community and insights platform.
Addicting games continues to rationalize its portfolio of casual games and strengthen the competitiveness of its key titles chalk White has added a new collection of daily gains, resulting in a 57% increase in page views in quarter three up 18.
18 million from quarter two.
Tight waste that has seen a children, 50% increase in subscriptions from quarter to quarter three.
Simply increasing the number of accepted payment methods.
H I O underwent technical we think doing so would you slow time, but 90% leading to a 13% growth in users.
More new users compared to quarter two 2023.
With this impressive improvement in growth, we're not focusing on in game economy, and you use the attention with Titan bonuses.
It seems we source is a vital contributor within our portfolio, providing a unique resource to enable the same sport community to celebrate its creativity and culture across generations.
Our strategic initiatives kicked off in quarter two.
Focus on converting we traffic into paid subscribers subscribed, there's one increase in LTV and off who love and sure.
We have several projects to ensure smooth payment processing globally, while aligning pricing geographically to optimize the conversion. This includes our soon to be launched changed on the site, which will require all uses to provide us with an email address in order to form a free download of our content.
It's your fault team is using landing pages email marketing paid media and social media to drive conversion engagement and education with the goal to increase retention and conversion rates.
Social media and community engagement are providing users and visitors and a strong sense of the value.
Tier offerings as well as driving new traffic into T. S O.
The momentum continued into quarter, four and beyond with a new email marketing platform with new data attributes to help us drive engagement and conversion rates and your landing page platform will enable rapid testing and optimization of new billing of pricing configurations and option to determine the most effective scenarios to increase.
Conversion rates globally and drive overall revenue growth.
Pocket Gamer remains the preeminent mobile games conference organizer globally.
During quarter three we ran two.
Hockey game of connects competencies wanted to answer and one in Helsinki, and two fringe events, the med device mix up on the top.
50 games makers dinner at Gamescom in Germany pocket.
Hockey game celebrated its eighth edition of P and G. P. G. Connect so thinking next year pocket kind of connect celebrates its 10th anniversary.
And that time with hosted over 44 hockey game to connect competencies in 14 countries with over 40000 delegates attending.
All event activity generated a profit in quarter, three Helsinki, registering a 52% gross profit.
While pocket kind of Toronto light delicate numbers increased by 28% year on year.
Following a successful June event in Dubai.
Currently in negotiations for a three year partnership with the Dubai economic for them to have to run the Dubai Games Expo summit powered by P. G connect from 'twenty to 'twenty four 'twenty 'twenty six.
So in active discussion with the local agencies in Singapore about potential activity in the APAC S. T. A region in 'twenty 'twenty four to 'twenty to 'twenty five.
Gaming communities continues to demonstrate an insatiable desire to confuse gaming related content, whether on the major streaming channels, such as Twitch and cake.
A leading social media networks, such as Youtube ticked up.
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Final post studios, which launched in quarter, two now greater than five key verticals, the maximized content resources and cross functional support and postproduction tent pole creations.
NFL Tuesday night gaming and the Oh no activation.
Animation for families and luminosity content.
Our content calendar with new content series and channels expanding the cross section of gaming esports, our popular culture.
Our channel expansion strategy begins with big Slam comedy.
Sold out the Bourbon boom in L. A within 24 hours. This innovative approach to leading game is playing against leading comedians generated partnership interest from some of the biggest names in the comedy business.
Luminosity esports.
E Sports and talent organization continues to thrive and expand throughout the esports winter the CS many larger competitors struggling with unsustainable business models.
Throughout 2023 we have to shoot a prudent cost structure.
He will lead to a sustainable and profitable E sports business in 2024.
This is a key part of building a creator community to fuel our growing talent needs, while directly supporting our various sites and channels.
We launched the luminosity smashed channel breaking 2 million views in the first 60 days since launch as well as a pokemon unite documentary we support 10000 views in a week.
There was no shortage of creators who want to become part of the enthusiast network, whether it's through luminosity omnimedia.
I understand the value that enthusiast gaming can bring to them throughout that create a journey.
Leading to increased revenue and brand activation opportunities.
New brand partners tapping into all in talent in tunnel.
On Nintendo BANDAI, Netflix Nickelodeon Coca Cola and many more.
Brand solutions continues to improve its performance since its establishment in quarter, two but from a revenue and a gross margin point of view.
We strengthened the team with some key external hires.
Georgia, Nevada joined US in Boston Sports League revenue operations Madison Lock hard choices epic fleet product marketing Jerry Lou just go into some Sony describe our thought leadership, but while coordinating all our research and insights.
Account management has now been fully integrated into the brand solutions or enabling a deep specialization of sales support.
Our approach more reactive selling to proactive solutions creation and delivery quaking engaging campaigns that can span multiple business units.
We have an exciting pipeline of new brand partnerships in quarter, three with both new and returning Florida.
Clearly Coca Cola tight Palm W. P S stool, AT&T Toyota Netflix shell adopt for men.
Bomb adopt new sponsors cause the NFL chose then like gaming.
State farm being a six figure deal the largest deal in our history.
AT&T shell Netflix and E. P S Tor <unk> partnered with us to.
Great custom maps and leading games.
It's growing appetite by gamers to explore user generated content and many of the biggest games such as roadblocks Minecraft fortnite.
Only set to continue.
Our industry, leading partnership with the NFL continues to bear fruit as we iterate and optimize NFL Tuesday night gaming weekend and week out to improve program innovation strength of user engagement year to date.
Generated 14 million total impressions.
Ooh, NFL, Tianjin platforms, representing a 72% growth and overall impressions compared to see somewhat.
To date, the NFL Tuesday like game has increased the number of advertisers from 11 in season one.
Teen in season two.
This includes some of north Americas, most recognized brands Campbell's chunky Carnival cruise lines take bomb Lego USAA, but wonderful company travel, Texas, because it'll seizes stop Netflix the U S Navy Warner brothers discern at ESPN.
Active credit success with the NFL has reinforced our ability to work with major IP holders, leading to active conversations with other leading U S sports leagues.
Our commitment to operational excellence is the opportunity to harness the power of automation and AI to improve our product and business performance across the entire organization.
We're actively using the test any chat G. P. T is most widely applicable AI chat bot that campaign creative concept brainstorming to Coty Kuwait.
Active campaign, the south email marketing celebrity subscriptions remark thing.
Bounce to build landing pages for a b testing testing subscriptions.
Bonnie is a tool to drive channel costs for Youtube.
Choose the channel at the analytics of all Youtube videos, Sam Walsh, the Sto optimization fracking a search ranking.
We currently utilize the number of automation applications, such as power would be I.
The visualization of revenue Dashboards Monday Dot Com is program management tool boost up order management media plan development, right top management and AD server management.
Adjusted yield automated centralized reporting for our programmatic performance of all Ssds we.
We have made significant operational progress in establishing a stable platform for profitable growth.
Much of this progress is not yet been reflected in our income statement as we have eliminated low margin revenue that represented a drag on profitability, our focus on strategic or higher margin opportunities.
These initiatives are resulting in significant gross margin expansion of attachment unsold impressions and highest P. P M.
Serves as the foundation for future financial improvement.
We expect you will see this progress manifested in the fourth quarter and we look into 2024 with a fully integrated efficient platform for sustained profitable growth.
No great business was ever built on these capabilities alone, we believe passionately that a more disciplined and accountable culture is necessary to build long term success for all stakeholders.
We also recognize that great cultures require sustained effort and commitment to ensure that the most talented people are fully motivated to deliver the best performance each and every day literally not is easier said than done.
Our people and culture function continues to make great strides in many important areas of talent management, specifically in D. I T E I be progressed and women in gaming are women in leadership roles.
We've tripled the number of female senior leaders since inception eight.
April 2023, we signed the California equal pay pledge, we've established a raise your game.
E G employee resource group focused on elevating women in gaming are supporting women enthusiasts.
Area growth and leadership opportunities, which launched in April.
He has 26 members.
We are partnering with the historically black colleges and universities and these dates Betsy HBC used are providing us with mentoring career opportunities and the development pipeline of great talent.
Last but not least we are committed to creating the highest standards of commercial acumen across the organization to ensure that we're optimizing the yield but every single dollar of revenue we are.
Today I'm pleased to announce that we have hot police, yeah telephone tuna, as our new Chief Financial Officer.
Police that joins us Buzzfeed, whereas she has worked for the past eight years.
We see a joint Buzzfeed and 2015 after servicing serving as a senior find out by the technology.
Parent company of my space, various financial leadership roles at 19 Entertainment and yeah.
But he has deep digital media expertise across Buzzfeed, many media brands content channels Commerce site and live events makes him ideally suited to help us fully optimize our portfolio of assets today.
Same time extensive public market some fundraising experience strengthens our commercial progress as we focus on reducing cash burn and driving profitability.
Alex Mcdonald's has performed a pivotal role in both the creation and growth of enthusiast game, we're extremely proud and grateful for the massive contribution Alex's made day one.
Diversify our business.
Our community and build a strong team that lays the foundation for future profitable growth.
Alex will transition to the role of a consultant with me and the board a number of key strategic project, while collaborating with police here to ensure the smoothest handover of our finance and accounting functions.
This ends my prepared remarks, and I'd like to now hand over to Alex Macdonald to talk through the details of our financials over to you Alex.
Well, thank you Nick and thank you to all of our shareholders analysts lending partners and other stakeholders for joining us today to discuss.
The progress made in this third quarter 2023.
During the third quarter, we continued to advance the initiatives Nick has been speaking about since becoming our chief enthusiastic officer.
We are continuing to focus on profitable revenue streams and margin expansion as well as creating comprehensive grand solutions and leveraging our diverse assets as a platform.
The results of these initiatives include margin expansion and narrowing losses as we move towards profitability.
Number shortly but first here are.
My usual notes I note that our results are presented in Canadian dollars. So the significant majority of our revenues and expenses are measured in U S dollars translated into Canadian dollars for presentation in our financial statements. The exchange rate between the U S. Dollar in our presentation currency of the Canadian dollar should be monitored and considered when analyzing.
Testing results and I know that our business is affected by seasonal trends in digital advertising with sequential increases each quarter throughout the year driven by an 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 result.
Q3 revenue was $45 6 million, which is down 10% year over year, but up approximately 7% compared to Q2 Q3 revenue by source was as follows media and content $79 8 million subscriptions $3 7 million in E Sports and entertainment $2 million.
Three media and content revenue was $39 8 million compares to a $44 5 million reported in Q3 2022.
A decrease of 11%. The decrease was primarily driven by a decrease in RPM caused by lower CPM and the programmatic markets a web rpms were down 14%, while our video rpms were down 22% in Q3 year over year with similar trends observed in the broader programmatic market.
Year over year RPM declines narrowed in Q3 compared to Q2, and we expect them to continue to narrow with further improvements being noticeable subsequent to September 30.
The decrease in Q3 media content revenue was offset by higher video views year over year with $6 4 billion video views being measured in Q3 2023 as compared to $6 1 billion video views in Q3 2022.
The Patriot has also increased year over year with $3 7 billion patrons occurring in Q3 compared to $3 6 billion in the same quarter last year, notably total views once again crested over the 10 billion milestone for Q3.
Excuse me subscription revenue was $3 7 million down slightly by 2% year over year paid subscribers were 265000 as of September 30 of 2023 as compared to 260000.
10 to 30 in 2022, the yield on a per subscriber basis increased slightly year over year to E Sports and entertainment revenue was $2 million down slightly from $2 3 million in Q3 of last year. The decrease in the sports and entertainment revenue is mainly attributable to the decrease in the sports sponsorship activity and slightly lower.
Revenue gross profit was $16 7 million in Q3 up 1% compared to the $16 6 million of gross profit reported in Q3 2022 gross margin increased 400 basis points to 36, 7% from 32, 7%. This gross margin increase reflects the great greater control.
Brand solutions of subscription revenue to our overall revenue profile as well as the elimination of certain unprofitable products and channels.
What was the year over year decline in market driven to CMS.
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 Opex was 25 million down 6% from the third quarter last year operating expenses. In Q3. This year include noncash items of amortization and depreciation of $2 6 million.
Share based compensation of $1 4 million a decrease in cash based opex year over year was primarily due to decreases in professional fees advertising and promotion office in general and salaries and wages relating primarily to certain restructuring efforts also the prior year third quarter.
Included approximately $1 1 million of fees related to the annual General meeting this year. The meeting was held during the second quarter.
Actually in the third quarter reflects cost associated with the kickoff of the season two of NFL P&G.
Loss was $59 1 million in Q3, including a noncash impairment charge of $51 7 million.
Loss per share both basic and diluted.
38 cents in Q3 2023 due to a combination of higher interest rates inflation contracting equity valuations and continued industry pressures the company determined that indicators of impairment or present in Q3. Therefore, the company performed impairment testing across its seven two to use the results of this testing.
Were impairment charges totaling $51 7 million. This is a noncash adjustment and the details and assumptions surrounding this expense are disclosed in note nine to the financial statements.
Turning to the balance sheet, we ended the quarter with $2 8 million in cash and in addition had an available operating line of $4 5 million for total available cash of $7 3 million as of September 32023, subsequent to the quarter end, we announced that we had extended and amended our credit facilities providing additional.
Liquidity of up to approximately $7 million.
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.
Ratable business.
As we drive through Q4, we do have certain expectations surrounding key drivers for the rest of the year, we expect relative consistency across total views with a recent short term trend towards increased video views to be maintained.
An increase in CPM across both web and video and we know positive pricing movements observed subsequent to September 30, However, we remain cautious that seasonal trends in the programmatic markets, while returning will not yet be as strong as would normally be expected similar to all other large digital publishers.
We are watching closely as we approach Black Friday, and the holiday season period, which typically sees significant CPM increases.
We expect to set records for total direct sales in Q4 and this number is key to profitability next sale.
This is expected to be an all time quarterly high for the company.
And we do not expect a significant movement in subscription revenue in Q4.
All the above will be continued gross margin expansion expected to result in an all time high gross profit. It is in the gross margin that short term profitability well initially we found an expanded throughout the next year profitable growth.
For all these reasons, we believe the company has a clear sight line to a successful and profitable Q4. It is an exciting time for the company, particularly as our year of transformation comes to an end and the company sets its sights back toward what.
I take particular pride in what has been built here and my role in that over the past five years I want to thank Nick for assigned words earlier and for the opportunities. He has provided to me too.
To date, our CFO, including being parts of an exceptional executive team, which is leading change across the organization.
With wish to thank our board of directors, particularly our chairman and Adrian Montgomery for their partnership over the years I look forward to continuing to work directly with making the board on a number of strategic projects, but perhaps my greatest pride is the finance teams that have been built that enthusiast gaming they know exactly who they are a best in class.
Led by the VP Finance Nathan kill himself a team member of the company's senior leadership. The company is in good hands with them and speaking of being in good hands I welcome Alicia.
<unk> CFO of the company Felicia's deep digital media expertise will be a tremendous asset to help lead the next phase of the company's evolution.
Between Felicia the rest of the executive team and of course, Nick our CEO I have full confidence that the best arrangements will continue to be made for our business.
Of course, ladies and gentlemen.
Business is the business of game there.
Thank you operator, I kindly turn it back to you.
Thank you we will now begin the question and answer session.
If you'd like to ask a question you May Press Star then one on your Touchtone phone using a speakerphone. Please pick up your handset before pressing but.
It's happening across who has the market some of them would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
Our first question comes from Jeff Birnbaum with B Riley. Please go ahead.
Hi, Thanks for taking my questions. So just to start off on the last earnings call. I think Nick you mentioned that you were hopeful to have a deal signed in Q3 for another content partnerships similar to NFL Tuesday night gaming them with a different major U S. Fortunately and I know you talked about continued progress on that front in the prepared remarks, but just curious.
If there was any sort of delay there or what the cause of delay is and just I mean, just more broadly how you're how you're thinking about those conversations yeah, well, hi, Griffin and thank you for the question.
Yeah. It has been delayed and I think that's the only directly down to the fact that some of the biggest advertisers that we experienced in season one for the NFL.
The NFL.
The entertainment sector.
And you know with the Hollywood strike and also combined with the auto workers strike, we saw some of those categories come down so the revenue expectations from this particular league.
And the minimum guarantees in the negotiation around that have extended.
We're confident we're going to get it finalized.
And new this week one of those meetings.
Did I get that.
Moving and that is moving in the right direction, but they go to finalize some extreme we remain extremely bullish and very excited about it but yes. It does it take longer than I would've thought.
Yeah, but I understand the reasons why.
Sure. Okay, Yeah, no. It makes sense. Thanks for the color there and then I just sticking with Tuesday night gaming the engagement, 72% increase in impressions year over year as strong it's nice to see.
I'm just curious because I believe you you transition this season from Youtube Twitch. So is any of this increase in impressions, maybe a result of easier discover ability on twitch or or do you think it's really just more a function of sustainable growth due to just growing popularity and.
Very good question I think it's a combination of both I mean as people you know obviously word of mouth spread.
It started to build its own audience and I just think that was.
There was a lift up with with Twitch being such a strong streaming channel discipline lives essentially alive.
Experience and then we also had a growth in AR.
Highlights are short highlights that we were developing with Youtube. So I think there's a combination of those two things in those certain.
What we're gonna be looking to build on as we go into season three.
Got it okay, Great and then just last quick one for me and I'll jump back in the queue, but Alex I I think I missed some of your programmatic talking I was just curious.
I think we've been hearing among other companies, we've talked to you sort of about pockets of stabilization and programmatic C. P M.
For display and video, particularly so just just curious that's going into the fourth quarter. So curious to get more color on sort of what youre seeing currently in the programmatic market.
Thank you, yes, I I think stabilization is certainly.
A good word.
To use the stabilization in the market and we have seen subsequent to September 30, the positive movement. The interesting point in time, we find ourselves that as you would typically expect.
And then even in the next week significant movements that would continue through December we are still cautious about that as I said I don't think it will be a similar pattern to say 2018 19 2020.
However, I'm quite hopeful that some form of normalcy to the seasonal seasonal pattern is starting to return.
And then stabilized like the return to normalcy would be a tremendous thing for us I also note that.
The year over year.
Declines in sequences are normalizing right. So we've absorbed a lot of that.
We are declines narrowed.
In Q3 and that number will continue to narrow.
Before so cautiously optimistic on.
On the programmatic markets.
Okay, great. Thanks, Alex and thanks for taking all my questions.
Glad to see the progress on gross margin so congrats guys.
Thank you.
Our next question comes from Kevin Krishna.
Please go ahead.
Hey, there are good evening I'm kind of a follow up on the last question. So RPM losses year over year trends, maybe narrowing the other lever you have there to revenue its views over the 10 billion Mark again. This quarter can you talk about you know how you can increase your either by opening up more inventory and Cree.
More deals for content can you just broadly talk about the other thoughts there is the other lever.
Yeah, Alex do you want to take a month.
Oh for sure Hey, Kevin.
So I'll start with one thing.
It is it is nice to see.
Yeah. We have we have noted that this year, particularly in the back half of last year. We were trimming we were not going to spend excess extra opex in order to take on.
Low profitable or non profitable channels, you know think of them as you almost useless abuse for P&L. However, even after doing that.
The organic growth still comes back and the trend is back up.
A huge this quarter, but I actually like to see that metric it's a measure.
Inventory for financial purposes.
But it's also a measure of audiences and measure of engagement. So it is nice to see the.
The strength.
Starting to there.
With that said.
A number of areas we are bullish on video we.
Part of it is a proliferation of video monetization of Youtube shorts, So we have to.
Huge amounts of that type of content that is in its infancy.
Of being monetized, so theres opportunity. There. However, I would say I would point more at what Nick was talking about in his remarks, but all the optimization effort and attention that's being put into the programmatic stack. It applies more to our web impressions. So it's not necessarily that we need to Jenny.
Great more impressions, we for lack of better term I always say, we have inventory coming out of our ears, we have plenty.
But reducing the unsold amount further optimizing making sure our inventory is up.
Selling into the highest rate possible at the highest price possible.
The networks are optimized with the proper number of S. S. P. As in partners in there, but I think more Nick Nick as you saw highlighted that in his comments and he's a big believer in that all those words here and say like he says programmatic important it's how we make money when we sleep. So it's important to us.
That's a key initiative of the company and I think that is how we unlock additional revenue not necessarily by driving more views, which we will do but like monetizing them better and more optimized and selling a higher percentage of our inventory.
Awesome, Yeah gotcha. Thank thanks for all that color Alex.
You know maybe moving down the P&L the gross margin if you highlight a record gross margin percentage in the quarter.
Does that I couldn't recall I know you're gonna do gross record gross profit in the next quarter does the gross margin go up as well last last Q3 to Q4. It was up 100 basis points I'm. Just wondering what you get there you talked about some other things that youre doing in the ER and the models and web hosts optimization.
He also mentioned that gross margin profile of course, sorry, gross margin and in brand solutions was up quarter over quarter. I think he said that can you talk maybe about what the gross margin profile looks like with some brand solutions. So yeah. I guess number one do you expect to see quarter over quarter improvement in gross margin and then number two are you know we're at.
Does the upside come from is that our strength in brand solutions.
Yeah.
Sure.
So.
So overall I'll start with the cortisol, yes, we expect to set records in gross profit.
And that will be driven by the gross margin. So I would expect our records in gross margin as well so that that growth is back which I love to see for me, it's always going to keep your eye.
So so the profile of the P&L on those top two lines.
As is back to growth certainly.
I would expect that for Q4, a lot of it is driven by brand solutions.
The profile of the brand solutions itself the margins have been going up there the reason that's happening.
There's really a lot of it is the custom content, particularly NFL T N G.
Have very low variable costs their costs are quite in some ways fixed so the gross revenue we bring it is higher margin on those deals as opposed to when we saw certain types of inventory.
Our other assets, which may have a variable cogs. So as you know the NFL is.
Selling more and as we.
Capitalize on some of those tentpole content initiatives, we reap the gains in gross profit from the investments we made.
Opex to that over over the years and it doesn't necessarily increase you know a lot of these sponsorships show already exists you can layer in.
Once the ships for very little additional costs. So the investments made that's going to be a key driver going forward.
Two to the gross margin and the gross profit.
Got it.
Last one for me clarification do you expect to be EBITDA profitable for Q4 or exiting I E could it be the month of December I'm, just trying to understand some of the commentary you talked about the exiting of being profitable.
Yeah.
I think when when we say exiting the quarter.
<unk> it.
For the quarter represents.
And that's what we're aiming for do we see that the the the real energy event is full in the month of December.
Yes, but we've yet to get into that so again the focus is on making sure that we are.
Possible in quarter, four and we're able to take that kind of energy into 2024. So we're not going to we're not going to give a specific forecast on the on the month of December yet.
No got it just wanted to make sure are profitable for the quarter versus maybe a month, but exit rate. Okay. That's it for me I'll pass the line. Thanks guys.
Thanks, Kevin.
Yes.
Yeah.
Our next question comes from Gianluca Tucci with Securities. Please go ahead.
Hi, guys good afternoon.
Just a question, reaching two brand solutions revenue.
What's the target there in terms of percentage of overall sales given that it is a major.
Margin driver and could you give us an update as to the head count in brand solutions compared to about a year ago.
Well in terms of the telco Hi, Joan first of all thank you for the question. Yeah, you can see the if we look at it on a global basis.
The line of business and advertising.
We've been aiming for.
Total.
30% of the AD line of business.
And.
As I said with a number of the key hires we've made to strengthen the infrastructure around brand solutions. It's been not on direct sellers of number of actual sellers is held steady.
What it is it's the expertise around.
Pricing and packaging that George has provided.
And Madison on the product side to ensure that our conversion rate increases over the highway funds, we are responding to as well.
The fact that we are able to generate a yield on what we're selling so I would imagine that as you know this is a relatively new part of our business to evolve it from the direct sales as was.
We're going to continue to drive that up, especially when we have big tent pole opportunities that we were talking about that we're looking to grow beyond just the N F. L. T N G, which is old itself is a is a way of opportunity for us.
In my mind upset.
Targets of being 50% of our AD revenues coming from brand solutions.
Over time.
But I think you could direct sales in the past.
But.
Head count.
We've repurposed head count has increased across the organization.
Purpose talent and with with basically.
Roles and responsibilities and from consolidation in other areas.
To really provide the support resources to ensure that we're doing around solutions as well as we can.
Yeah.
That's great color. Thanks, Nick.
And in Q3, I don't know if you guys are.
A red light perhaps side.
Just missed this but in Q3, how much of brand solutions came from existing customers.
70%.
Excellent great.
And I'm just.
I'm sorry, Nick Please go ahead.
We are very excited about that when I look at our book of business and we look at the balance. So I was just talking about this with the board.
You know, it's really encouraging to see and again this tracking that we've now put in place. So we've seen where every dollar of revenue is actually coming from and what's in the pipeline and the volume of attorney client. So current clients versus new logo is it.
Really healthy sign because we're dealing with some of the biggest brands in the world. Some of the biggest global market peers and as we talk about whether you M with general Mills and with Coca Cola women with Unilever once we get in with one brand as you know there's multiple product divisions has multiple brands.
And to see them back and spending more.
It's really exciting.
Yeah, that's a great percentage.
And excellent color. Thanks again.
Just lastly from me, perhaps a housekeeping item for Alex in terms of Opex, how should we be thinking about that in terms of a percentage of revenue going forward. After all the companies are I guess repurposing if you will.
Well I mean, it's.
It's it's fairly normalized now this quarter of course, we have NFL.
T.
P&G is in there. So so that's normalizing and you will see that again in Q4.
And then you know somewhat in Q1.
So yes of course.
State of the.
Ill get back into the revenue, but look what do we want to do I mean at least subject to adjustment for non cash items as a percent of gross profit.
Wanted to just under 100% right. So.
So that's that's how I would think of that on a percent basis.
At least in comparison to the gross profit, but it is normalizing now so we had.
A bit of front loaded stuff for PNG of course again right shoulder season to kicking off changes their production investments again, so I wouldn't anticipate.
Any significant increases.
Got it from any angle in the next few quarters.
Okay. Thanks for the color guys talk soon.
Thanks, John.
Our next question comes from Scott Buck with H C. Wainwright. Please go ahead.
Hey, good afternoon, guys I appreciate the time, just a follow up question from something earlier.
The percentage of your inventory or are you actually monetizing today, and where could that potentially go to overtime.
When you say well first of all high school, but can you just clarify when you say inventory you're talking about total impression of it.
Totally ask questions generating yeah.
Yes exactly.
Well.
I think the in this quarter.
2%.
It's being converted.
Yeah.
Okay and makes sense so yeah.
When we were talking with Kevin.
It's not this is not about us generating more impressions.
I've been very clear and focused in our AD tech stack that we're optimizing the yield.
And where would you have seen.
Let's say the bad impression.
Those are just.
That being put into the auctions.
And then not being bid on for whatever reason.
That focus of our engineering team and our yield optimization teams is to ensure that we get that percentage higher.
Question so.
Yeah, No. That's helpful. And then I was curious if you could give us just.
Some color around the decision to delist from from NASDAQ, and maybe where and what some of those cost savings could be.
Yeah well.
The delisting decision was.
Was one that the board took off the.
Careful consideration as you know we received.
Notice from NASDAQ.
Of the requirement to.
Yeah, I'll share price up to a certain level to maintain that listing.
Costs involved.
The time involved.
It was a decision it was a thoughtful decision by the board.
But.
Who remain on the PSX and.
And to voluntarily delist.
Opposed to affect the share consolidation.
Overall corporate costs as a consequence will reduce on a year on year basis.
And I think we we had a range on that Alex do we give up a lot.
Range.
Yeah.
Lifting cost could be saying.
Yeah, there are estimated to be incurred at about U S 2 million annual and I would expect that to start normalizing on a quarterly basis.
Next year.
Particularly into Q2. So are we are still a registered with the SEC so that hasn't changed.
And I would expect so I would expect that to start normalizing in Q2 of next year, but yes. The number we provided was U S 2 million of annual costs.
Perfect I appreciate that guys. That's it for me. Thank you.
Thank God.
Our next question comes from Robert Young with Canaccord Genuity. Please go ahead.
Hi, good evening.
Just wanted to get it a little more color on the profitability here in Q4, and then into Q1.
If I read the comment earlier, Nick it's that the.
The pace of business in November and December is really the determinant on whether Q4 will prove to be EBITDA positive or not did I hear that correct and then if it's driven by topline should we assume that seasonality in Q1 will push EBITDA back negative in Q1.
Yes.
Uh huh.
All those assumptions.
We know that.
Ultimately Q1 revenue.
Is obviously considerably lower we know that quarter four is usually as Alex said in his prepared remarks.
What happens with <unk>.
The whole Thanksgiving Black Friday period was really important.
As well as seen what level of commitment comes bank.
For the movie industry, the Hollywood trying what happens I mean, there was a lot of content wasn't produced.
So I think we're.
I mean, my view of the fourth quarter I just was.
Studying.
Trade desk, I mean, I think as the D. S. P day, all the snow in the coal mine for the economic woes I mean, they work with.
Every single one of AD Age's top 200 appetizers.
And you know they they had a great Q3.
At the same time, they were very cautious and we see somebody's media at the Big media companies also reset quarter, three and explain that cautiousness.
Well, what's happening in quarter, four so we need to be thoughtful about that and that's why.
We've got a very tight grip on expenses and we're focusing light laser as I said in my remarks on those areas of our business, but we're going to see.
Tangible increase each single week every single month and make sure we get maximum impact for that so I'm not here able yet to give you that precision as to how you know how quarter four was going to end up because here, we are and it's all need the 13th of November. We've got these these are very critical six weeks.
What's going to happen in quarter, one obviously quarter, one will come back in quarter four.
Staff Cpm's will add spend does.
But we go into next year.
As a much stronger business with a lot of the organization and the transformation challenges. It would take from our board. This year that will be bearing fruit in 2024 and that starts in January.
Okay. Thanks, a lot for that color that's very helpful.
I the comments previous on the repeat.
Revenue from repeat customers like I said 69 or 70%.
Very strong and I was curious you know the NFL contract I'm not too sure what the contribution would have been in the quarter.
Or if that if that would have been a significant.
Driver behind that growth in repeat or and then I think you said state farm was the large deal I am pretty sure. That's a repeat customer if I remember from past calls and so if you were to if you were to normalize for those two big deals would it still be up.
Repeat business still be up year over year, just I assume it's still a big driver.
Curious about the moat, yeah, yeah, yes, absolutely absolutely I mean, obviously quarter three we had because it's the start of the season. I mean this is the start of season. Two so you know, we always said and we said that in quarter. Two that we were very much anticipate Tina I'm always fighting.
Quarter, three with the beginning of.
The football season.
You know to see.
Brian has come back and then significantly up the spend like state farm has done with the others as well.
Testament to the fact that you know this is an exciting. This is an exciting time in the industry. I mean, this is where gaming culture meet sports culture makes sense at the time of culture meet you know Geek culture. It is pop culture.
Gonna be that way for many years to come. So this is a really exciting time when the NFL because some significant announcements to make in quarter four about the continued.
And as you know that's what the NFL are putting into the gaming property in that game platform, which are extremely proud of having created the Tuesday night gaming.
So we remain extremely bullish with the number of the big brands that are choosing to go to get integrated into these fusion between gaming culture and the biggest sports franchise.
One of the biggest sports franchises in the World certainly the biggest in the U S.
Yeah.
And last question for me is just on the.
The subscriber.
Our business in the.
<unk> comments, I think you'd said that the subscriber count was up and there is some big growth in some of the parts of the business and subscriber.
But the revenue was down and it just I'm trying to understand what the driver might be there is that a temporary thing I think you mentioned kpis or some sort of a change in the way you're measuring things. Maybe you can just talk about that especially given you said it would be flattish.
The current quarter, and then I'll pass the line yeah, Yeah, well, we did I mean to be clear the biggest driver of our subscription business is assumes resource and we have we've got you know a whole team.
<unk> leadership, you know, we'd focusing on every element of this and there's been a number of painful elements, whether it be on backend code with it bill payment providers.
On pricing I mean, there's a huge focus going in and this change has been happening to make sure. Maybe we go back ever so slightly to go forward I mean, he we haven't since we saw you know 75% about traffic globally is known U S. I mean, all subscriptions when we think about our subscribers to users.
You know it around.
Around the rest of the world, we havent been mixed we havent been testing different pricing structures.
We haven't really focused on managing what's really going on when it comes to payment and how well we can do that I mean every country in the world and the.
Well, you know big business in Brazil.
Right I mean, its payment we've got to be working with the best time, we got to have great backend code things that go to work well. So I'll focus here is on net new subscribers personalization and customization, we have to make sure that email is fully integrated in everything we do with a whole new email marketing campaign program.
We have to make sure that's fully privacy compliant and so what is the ROE hit with the CSO is to convert and keep our traffic and to grow the top of the funnel.
Wrapping drive it so I mean, we have 210000 subscribers, but we've got two and a half million registered and active the registered and active we've got over 10 million users who are active but they're not registered the tools, they're anonymous so our opportunity in this business is.
Inefficient, but we are making a number of strategic changes in both the white when managing a product which is the office as well as the magazine on merchandising, which is around all the asset management that we need to do that.
What about in my prepared remarks so.
You know work heavy lifting work has been done them on all of these elements to ensure that we have.
A stronger more profitable growth business in our subscription area in 2024.
Got it thanks for all that our past one.
Thanks Robyn.
Our next question comes from drew Mcreynolds with RBC. Please go ahead.
Yes, thanks, very much Nicky just.
Answered one of mine. So just two left here first on the revenue optimization, where your pruning for the most profitable revenue streams are are you are you largely done that now from your perspective.
Then secondly on <unk>.
Liquidity.
And cash maybe for you Alex you talked a little bit about kind of the work working capital swings as we've moved through 2020.
23 here, what do you see for Q4 and anything you care to comment on as we head into next year. Thank you.
Alright, well. Thank you drew and thank you for the question I will answer the first one our revenue streams and I'll say the work is never done we're always going to be looking to optimize but there is no one area of our business, but one of our lines of business.
But we don't we are not now tracking with granularity every single dollar of revenue every single dollar of cost. So if it is not delivering the kind of margin we expect.
Obviously, you're doing the analysis to find out why not now and how we're going to be driving that so there's heavy work in progress.
I said in my notes within Addicting games, that's a very large portfolio of play and without breaking that down which hadn't been really done in the path to the way we're doing it now you couldn't always identify.
Those individual areas of gain so sites that were pulling their weight and now we are the you know we are the fix it or we resolved what we're going to do with it but there's no area of the business.
Tullow 18 and under performance and.
And as we focus with that kind of granularity and that's across all sites of gains on panels.
Esports and even our events business every single one of our core pillars has clear attention. It's about what top line revenue should be and most importantly, what is conversion level. What is it what is the conversion from gross revenue to gross margin, but then EBITA.
And that is that as you know.
Aggressively underway and it goes on every single day. So is the job done no it's ever going to be done perhaps some of the problem children being identified.
And the.
The necessary action taken.
But the existing team or buy a new team, yes, it's not an area of the business does not mean unpack and rebuilt.
Of course anything alright, so that's.
That's what I can say on the on the revenue streams.
Alex do you want to take the second question second one to judy's questions.
Hum.
Yeah, no problem so on liquidity.
I mean as you know to look at more rats of course ended that quarter, there's about $2 8 million of cash $4 5 million available on our line of credit of $7 3 million available cash we remain laser focused on our cash flow big time.
I've quoted.
I think in prior calls.
Talking about how much value there is in the working capital and we continue to unlock that value. That's notable and the cash used in operations number which is actually quite a low number and then of course subsequent to the quarter end.
You know, we announced amendments to.
So our credit facilities theres, another up to $7 million a liquidity.
That that those things between.
Work in the cash flow and the working capital the available cash at the end of the quarter and of course, the subsequent liquidity injection.
Those things help us get through our near term objectives T near term objective.
Q4.
Obviously profitability.
So this that that gives us a long runway I also pointed out the amendment comes in multiple ways like our principal payments on our debt turned off for six months additional line of credit room for us, which is our lowest cost of capital possible. So I love that you use it as the lowest cost of capital when you.
Don't use it you don't pay.
That's great and then of course further extensions being made available.
And then were and then that's a different ballgame right when we cross that business model.
It gets that validation to it.
You know where rents next year.
And it's a whole new ballgame I think of course as you know we're in Tonight. So long term capital structure of this company.
Does need to be.
Improved and address because.
We want to go back to growth that's what makes it next year as this was transformation velocity next year with growth velocity, but with this structure in place and reaching profitability in Europe.
Flirting with breakeven already.
It really opens up a lot of.
New ways for us to.
To turn our sights back towards growth, but in the meantime, we're covered for the near term through all of the things that I mentioned.
Yep understood.
Hey, Paul.
Thanks drew.
This concludes our question and answer session I would like to turn the conference back over to Brian for any closing remarks.
Uh huh.
To close my closing remarks to everyone on the call is is what we said we would do.
You know what I have on my first call with you. This is a year of transformation and transformation velocity. The exact came on the board of S. L. T. The senior leadership team know that gross margin.
Leased to the profitability and if we manage our cost as part is we are optimizing everything we're doing by being smarter about the revenue and there are certain elements in the in the media and advertising industry that we know that the gross margins really.
Paul We know that we also so while we are focusing on really strengthening.
AD business and yet on the gross margins not just through direct sales and brand solutions by making sure.
Tech stack is fantastic and we've really optimized every element of our AD service TSP, our SSP partnerships.
Our partnership with Google, What we're doing with Omnia and then also focusing on the great sticky revenue subscription and then subscriptions leading to commerce and then event business as well we start to diversify our revenue streams and we start to really focus on.
Our next year is a year of growth velocity I made it very clear to the executive team, we are not going to take those operational and internally focused organization than reorganization elements into 'twenty 'twenty four they have to be done and finished and completed in 2023, and we are well on track.
That in fact, we are ahead of target. So this is a business that is.
Still on that stable really solid unified platform on top of that platform. We have great products on top of the products, we have services to make sure we excel.
And solutions content solutions publisher solutions, the opportunity remains really strong.
We're excited that we become that business that really is tech enabled safety driven on ideas, let and we take that into the market with a very point to point of view the visa the audience. So are the most engaged audiences in the history of the planet.
They are not lazy squarely in 'twenty Instagram feed.
Certainly not watching linear TV.
So they all came in they are connecting with gaming content that connecting with our communities and their friends and brands have the opportunity to truly integrate native creative and highly impactful ways and brands and advertisers and the agencies need to pay for that privilege and unless we price it accordingly that would buy us.
As they can and that's how I spent 30 years in my career on the buy side. So I know what that is in that way and that poacher turned gamekeeper and these are our products and our communities our sites and this is all pushed this inventory and we need to make sure all currencies are really stable. So we get maximum yield.
For the efforts we're putting in.
And you will see that bear fruit significantly in 2024. So thank you for your time your attention and your enthusiasm.
Two just gaming.
The conference has now concluded. Thank you for attending today's presentation you may all now disconnect.