Q3 2024 Enthusiast Gaming Holdings Inc Earnings Call
Good day and welcome to the enthusiast Gaming Holdings, Inc. Third quarter 2024 financial results Conference call.
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Speaker Change: I'd now like to turn the conference over to J P. Elliott Chief strategy Officer, and General Counsel. Please go ahead.
Speaker Change: Thank you operator, good afternoon, everyone and welcome to the enthusiast gaming third quarter 2024 results conference call on.
Speaker Change: I'm, Jamie Elliott Chief Strategy Officer, and General Counsel with me today is interim Chief Executive Officer, Adrian Montgomery, and our Chief Financial Officer Felicia telephone.
Well 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 events to differ materially from current expectations. These.
Speaker Change: These statements should not be read as assurances of future performance or results such statements involve known and unknown risks uncertainties and other factors that may cause actual results performance or achievements to be materially different from those implied by such statements a more complete discussion of the risks and uncertainties facing the company appears in the company's management discussion and analysis for the three months.
Speaker Change: Period, ending September 32024, which is available under the company's profile on SEDAR plus as well as on the company's website at <unk> gaming dotcom.
Speaker Change: You are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date of this presentation. The company disclaims any intention or obligation except to the extent required by law to update and revise any forward looking statement as a result of new information future events or for any other reason.
Speaker Change: Now I'd like to turn the call over to Adrian Montgomery Adrian the call is yours.
Speaker Change: Yeah.
Adrian Montgomery: P J b and thank you everyone for joining us on today's third quarter earnings call I am thrilled to share that Q3 marks a transformational milestone for enthusiast gaming for.
Adrian Montgomery: For the first time, we achieved profitability on an adjusted EBITDA basis, which has changed.
Adrian Montgomery: For enthusiast gaming. This result is more than a financial achievement. It is a powerful testament to the stability resilience and growth potential of our business.
Adrian Montgomery: The shift to profitability is particularly significant as it reflects the success of our comprehensive strategic refocusing, which we have been undertaking since Q1 of this year.
Adrian Montgomery: This quarter, we delivered $3 6 million in adjusted EBITDA improvement year over year, a trend we are determined to continue.
Adrian Montgomery: By carefully optimizing our operations streamlining costs and focusing on high margin areas, we've positioned enthusiast gaming for a future of sustainable growth on an efficient footing driving forward as a higher margin and most importantly consistently and increasingly profitable business.
Adrian Montgomery: Our cost reduction efforts have been instrumental in this transformation.
Adrian Montgomery: I'm pleased to announce that we have now achieved over $20 million in annual cost savings doubling our original goal of 10 million.
Adrian Montgomery: What makes this achievement even more impactful is that we realize these savings without sacrificing the growth of our communities for the quality of our content in fact page views across our core web properties increased quarter over quarter in Q3, reaching one 9 billion up from $1 8 billion.
Adrian Montgomery: And in Q2.
Adrian Montgomery: Underscoring our ability to expand our reach while maintaining disciplined cost control with this stable found it.
Adrian Montgomery: We have laid the groundwork for a sustainable growth engine that enables us to scale efficiently with predictable expenses.
Our direct sales team.
Our major focus this year has undergone significant change we took essential steps to rebuild and refocus. This team in 2024 with a sharpened emphasis on cultivating long term relationships and high value partnerships given the longer sales cycles that typically accompany direct sales.
Adrian Montgomery: Changes in this area naturally take time to fully reflect in our financial results.
Adrian Montgomery: However, we are already seeing very promising indicators of growth.
Adrian Montgomery: Amazon our largest direct sales client year to date increased it spend with us by 107% this quarter compared to Q2 and our early booked sales for 2025 are as strong as they've ever been at this point in the year.
Our media mix has realigned with our core strengths our custom sponsorship heavy focus.
Adrian Montgomery: In Q3 custom sponsorships accounted for 56%.
Adrian Montgomery: Our direct sales up from 28% in Q2.
Adrian Montgomery: This shift towards high value campaigns is delivering results across multiple offerings.
Adrian Montgomery: Including custom campaigns and sponsored streams for the Kamala Harris campaign, a project that even Elon musk felt compelled to reference on his personal social channels.
Adrian Montgomery: This momentum has placed us in an enviable position as we head into the final stretch of the year.
Adrian Montgomery: We anticipate that seasonal trends will favorably impact our profitability, particularly in our programmatic advertising and direct sales checks.
Adrian Montgomery: Seasonality drives higher CPM and increased advertising demand as we enter the holiday period, creating a natural tailwind that will amplify our profit potential across our entire product line.
Adrian Montgomery: From direct sales to programmatic channels. This seasonal boost builds on an already profitable base positioning us for a robust close to the year.
Adrian Montgomery: Our programmatic AD revenue structure continues to benefit from ongoing optimism.
Adrian Montgomery: As well as our partnership with play wire, which is equipped us with a robust monetization engine that allows us to target high value audiences on our core properties, while maintaining stable costs.
Adrian Montgomery: This translates into more profitable revenue.
This quarter's total revenue was $16 8 million, which is down from $45 5 million in Q3, 2023, primarily due to divestments and our strategic refocus on high quality assets.
Adrian Montgomery: However, our revenue is now significantly more profitable our gross margin in Q3.
Adrian Montgomery: 3% up from 36, 7% last year underscoring the profitability of our core web properties and the stability of our cost structure, including our cost of goods sold.
Adrian Montgomery: Every dollar of revenue now has a higher impact on our bottom line, thanks to those efficiency and margin improvements.
Adrian Montgomery: And in addition to these financial advancements are core products continue to drive engagement and growth across multiple channels.
Adrian Montgomery: The Sims resource has seen tremendous progress of late particularly with its premium subscriptions.
Adrian Montgomery: This month will mark the sixth straight month of paid subscriber growth for Tsi are following a previous four months of decline.
Adrian Montgomery: Conversion rates on the Sims are now as high as they've ever been and the shift towards premium annual packages driven by the launch of free trials and adjustments to our pricing models.
Has created a steady upward trajectory in revenue and customer lifetime value, while simultaneously reducing churn.
Adrian Montgomery: As our most financially successful property GSR provides a model for how we can expand our high value offerings and we are actively exploring additional ways to.
Technology and expand its reach.
Including the potential for expansion into other game titles.
Adrian Montgomery: IC veins continues to deliver impressive results solidifying its position as the go to destination for fans of Blizzard game titles.
Yes.
Adrian Montgomery: The recent war within expansion for World of Warcraft drove significant traffic to the site in Q3 and with the Diablo four expansion vessel of hatred released in October IC veins is on track for a record year.
Adrian Montgomery: We're committed to maintaining this momentum and ensuring IC vein.
Site for fans of Blizzard content as it's consistent growth rate reflects the depth of engagement within our communities.
Adrian Montgomery: You died G. G is another standout experiencing steady growth as a trusted resource for league of legends players.
Adrian Montgomery: We were able to quickly expand <unk> offering to include new features for the league of legends swarm mode, capturing even.
Adrian Montgomery: More lead players within our ecosystem, while advancing upcoming title expansions for two X K O. The upcoming riot fighting game and deadlocked valves highly anticipated.
Adrian Montgomery: Mobile title.
Adrian Montgomery: This growth has been amplified by the recent league of Legends World Championship, which concluded in early November.
Adrian Montgomery: We're riding a wave of heightened interest in <unk> is in a prime position to continue capturing the attention.
Adrian Montgomery: Hence community.
Adrian Montgomery: As well as the broader gaming community, which is services through its expansion.
With Ugg's reach expanding and its feature set becoming more robust we're confident it will continue as a valuable resource that draws both dedicated players.
Adrian Montgomery: In addition to our ongoing product success.
Adrian Montgomery: Our events business, including pocket Gamer connects.
Adrian Montgomery: Has shown impressive growth.
Adrian Montgomery: E G six mobile games awards, the Oscars of mobile gaming were held in Germany.
So our record attendance.
Adrian Montgomery: And although our P. G C. Helsinki event took place in early Q4 of this year pre.
Adrian Montgomery: Pre sales and engagement were strong in Q3 with the event expected to positively positively impact Q4 results.
We're also planning for.
Adrian Montgomery: 2025, including expansion in Asia, and a new European event in Barcelona, among others.
Adrian Montgomery: Market Gamer Dot Com has continued to see robust traffic.
Adrian Montgomery: Averaging over 2 million users per month, and $9 6 million page views.
Q3, a sign of a sustained engagement we're building across our properties.
Adrian Montgomery: Fantasy football Scout also had a strong quarter with the launch of the fantasy Premier League 'twenty 'twenty four 'twenty five season and its new App.
Adrian Montgomery: Premium subscription revenue increased for the fifth consecutive year.
Adrian Montgomery: Full partnerships with the English football League UEFA and.
Adrian Montgomery: In the Premier League as well as team partnerships with Aston Villa Chelsea and Manchester City.
Adrian Montgomery: This consistency in growth and engagement reflects the strength of our brands and their appeal to our loyal fan base.
Adrian Montgomery: Our strategic partnerships with the NFL and NHL are also key pillars of enthusiasts content and engagement strategy in Q3.
Adrian Montgomery: <unk> six episodes of NFL Tuesday night, Gaming's third season, which features an all new format that has successfully drawn even more interest.
Adrian Montgomery: This.
Adrian Montgomery: As of 93 million impressions in Q3.
Adrian Montgomery: At 467% increase year over year compared to Q3 of last year.
Adrian Montgomery: This incredible growth reflects the strong connection NFL Tuesday night gaming has forged with both sports and gaming audiences showcasing our ability to bridge. These two dynamic worlds in a way that captivates fans.
Adrian Montgomery: Building on this success, we're excited for the launch of NHL Tuck in play in Q1 2025.
Adrian Montgomery: This initiative with the NHL will allow us to tap into the energy and loyalty of hockey fans, creating new high engagement content content and revenue opportunities that deepen our position at the intersection of gaming and professional sports.
Adrian Montgomery: Looking ahead, we see a clear path to sustained and increasing profitability as we move into Q4 and beyond we are fully prepared to leverage both our stable foundation and targeted growth initiatives.
Adrian Montgomery: With seasonal trends driving higher AD rates and increased engagement, we are posed poised to close the year on a strong note for example, or revenue per thousand our RPM is up 139% compared to Q3 2023.
Adrian Montgomery: And with our high value partnerships, performing well, including our NFL Tuesday night gaming property and our soon to launch NHL partnership we are in an ideal position to capitalize on favorable industry tailwind.
Speaker Change: Let's talk about the feet.
Speaker Change: Enthusiastic gaming the future is a return to sustainable high quality growth.
Speaker Change: Built on.
Speaker Change: On a solid and efficient foundation.
Speaker Change: With streamlined operations and a robust monetization engine in place we are now able to drive more dollars from our core audience, while focus on growing that audience even further.
Speaker Change: Every page view is now worth more and every page view flows directly to the bottom line.
Speaker Change: This optimized structure means that as our reach expands our profitability grows right alongside it.
Speaker Change: Allowing us to turn each interaction into meaningful value or.
Speaker Change: We're no longer just capturing attention we're transforming it into tangible returns that fuel our long term success.
Speaker Change: It is also essential to remember that we operate within an expanding market.
According to a recent report by TWC gaming remains.
Speaker Change: Growing large sectors in the entertainment and media universe, and we are better positioned than ever to capitalize on that growth.
Speaker Change: As the gaming.
Speaker Change: <unk> widens, so does the potential for enthusiast gaming to capture and engage new users drawing them into our ecosystem of platform.
Speaker Change: Okay.
Speaker Change: In addition, according to Dentsu digital remains the fastest growing area of advertising and it is expected to capture 62%.
All advertising spend in 2026.
Speaker Change: The growth of these two sectors have a compounding effect for enthusiasm gaming.
We also see significant opportunities to drive growth across several strategic areas.
Speaker Change: First there is continued room to expand our existing platforms into additional game titles with IC beans in Utah G. G. Both poised to capture even larger audience.
Speaker Change: Audiences as evidenced by the success of Ice's expansion into Diablo four.
Speaker Change: Additionally, the Sims resource provides a technological blueprint, we can use to create new.
Scalable platforms across other game titles.
Speaker Change: We also see ample opportunity for growth in search engine optimization and in the social media space, where targeted efforts can extend our brand reach and attract more engaged users finally, as our profitability continues to rise each quarter, our capacity to reinvest now.
Speaker Change: Fans.
Speaker Change: <unk> us to explore new markets enhance our current offerings and drive long term value for our shareholders.
Speaker Change: Yes.
Speaker Change: In summary.
Speaker Change: <unk> future is one of efficiency high margins and a commitment to profitable growth. Our path forward is measured strategic and built on creating sustained and scalable valid.
Speaker Change: We are not only focused on once again, gaining significant ground, but on making every game count toward our bottom line.
Speaker Change: In Q.
Speaker Change: All for your support as we move forward into this exciting next phase I will now turn the call over to our CFO Felicia.
More details on the financial results.
Felicia Telephone: Thank you Adrian our deliberate and strategic shift to focus on our most engaged owned communities in the high value revenue stream. They January has once again delivered a record for enthusiast gaming adjusted EBITDA profitability. This just has given the company in <unk>.
Felicia Telephone: Operating expense structure that supports sustainable growth, where each incremental topline dollar earned contributes at a 70% gross margin.
Felicia Telephone: At the start of the year, we set ambitious goals and a path toward a sustainable and profitable future I'm proud to report that we have delivered on these commitments, creating a foundation for long term success, let's discuss what we set out to achieve and how we surpassed physicals.
Felicia Telephone: First we committed to reducing operating expenses by $10 million within the calendar year.
Felicia Telephone: Not only met this target we exceeded it reducing total operating expenses year to date by 35 million through September 30th with cash based operating expenses now down well over $20 million on an annualized basis.
Felicia Telephone: Second we aim to strengthen our balance sheet.
Felicia Telephone: Using our accounts payable and accrued positions by $32 4 million since December 31, 2023, and narrowing our networking capital deficit. Excluding the current portion of long term debt to one 9 million as of September 32024.
Felicia Telephone: Compared to $14 1 million at year end 2023.
Felicia Telephone: Third we set out to increase our overall gross margins here T least succeeded extending gross margins by over 3000 basis points from 36, 7% in Q3 2023.
Felicia Telephone: 73% in Q3 2024.
Felicia Telephone: And finally, we focused on enhancing our programmatic web business and increasing the value of our owned and operated properties. We delivered here as well achieving 139% increase in RPM this quarter compared to Q3 2023, nearly offsetting the traffic declines from de prioritized represented sites.
Felicia Telephone: Together these achievements mark a significant milestone in the company's journey, our first ever quarter of adjusted EBITDA profitability. This accomplishment is a powerful testament to our team's hard work and our commitment to building an increasingly profitable feature.
We're also seeing.
Felicia Telephone: Non financial metrics, highlighting the overall health and sustainability of enthusiast gaming as well as the positive trajectory of our highly engaged communities. We increased our page view traffic in Q3 2024 relative to the previous quarter, all while significantly enhancing monetization.
Felicia Telephone: When excluding the video platform, we increased unique visitors in Q3 2024 relative to Q2 2024 by 16%. This was largely driven by content related key game releases, which highlights the relevance of our brands in communities and delivering timely engaging content.
Felicia Telephone: On the same research subscriber count has now grown for five consecutive months seem to be six following four months of stagnation.
Felicia Telephone: NFL Tuesday night gaming continued its impressive performance with six episodes aired in Q3, 2024, generating 467% year over year growth in impressions.
Felicia Telephone: Promotional efforts and luminosity as live events continue to be a success with luminosity really recently hosted its second Invitational Super Smash brothers Ultimate event of the year.
Felicia Telephone: This event drew over 600000 hours watched with viewer ship, peaking at around 60000 concurrent viewers during the Grand finals.
Felicia Telephone: Together these achievements mark a significant inflection point in our financial one we've reached without compromising the strength and engagement of our communities with these milestones completed we look forward to focusing our energies on 2025 and resuming growth.
Felicia Telephone: In respect of our more detailed financial results I would first note that our results are presented in Canadian dollars. The significant majority of our revenues and expenses are measured in U S dollars and are translated into Canadian dollars for presentation in our financial statements.
Felicia Telephone: The exchange rate between the U S dollar in her presentation currency at the Canadian dollars.
Felicia Telephone: And considered when analyzing our forecasting results. Additionally, it's important to note that the historical financial results don't fully reflect the changes in revenue mix as well as cost reductions enacted and so historical financials will likely not bear a strong resemblance to feature results.
Turning to the financial crisis.
Felicia Telephone: Sure.
We ended the quarter with $6 9 million in cash as of September 32024, We also reduced our short term debt from $21 9 million as of December 31, 2023 to $19 7 million as of September 32024, we've reduced our accounts payable any.
Felicia Telephone: $10 7 million for the period, ending September 32024, as compared to $47 1 million for the period ending December 31 2023.
Felicia Telephone: Results of this is a healthy and manageable networking capital deficit that excluding the current portion of long term debt of one 9 million as of September 30th 2024, compared to $14 1 million at year end 2023 <unk>.
Felicia Telephone: <unk> P&L for the three months ended Q3, 2024 revenue totaled $16 8 million or 63% decrease compared to $45 6 million in Q3 2020.
Felicia Telephone: Media and content revenue decreased from $39 8 million to $11 9, million% to 70% reduction or $27 9 million. The primary driver behind this decline was our strategic decision to de prioritize lower margin revenue are not video platform, which accounted for approximately 21 three.
Felicia Telephone: $28 million decrease in media and content revenue.
Felicia Telephone: Additionally, overall direct sales the majority of which is included in media and content revenue contributed to the year over year decline decreasing from $9 8 million in Q3 2023 to $4 8 million in Q3 2024.
Felicia Telephone: Around 50% largely due to having half the number of ramps sellers versus the year ago period. However, despite these decreases we signed increase includes salaries per branch teller.
Felicia Telephone: 15% in Q3 2024 relative to Q3 2023, and we are excited with our early indicators for the 2025 ear with direct sales dollars closed for the 2025 year showing over 100% increase relative to this point in time last year for the 2024 year.
Felicia Telephone: The remainder of the decrease in media and content revenue was attributable to a decrease in programmatic web revenue, primarily driven by fewer page views.
Felicia Telephone: Then from a more selective approach to represented bankers.
Felicia Telephone: Aimed at improving overall profitability. This focus led to an improvement in gross profit for programmatic web revenue and contributions in Q3 2024 that were on par with Q3 2023.
E Sports and entertainment.
Felicia Telephone: And at $1 9 million from Q3, 2023% of Q3 2024, and finally subscription revenue decreased by 900000 or 32% from $3 7 million in Q3, 2023 to $2 8 million in Q3, 2024, and part to the change in mix as well as level of subscriber count.
Felicia Telephone: Over here on this since resource and in part due to the sale of certain noncore nonprofit it'll assets under addicting games sold in April 2024.
Felicia Telephone: Gross profit was $11 8 million in Q3, 2024 down 30% compared to the $16 7 million of gross profit reported in Q3 2023 gross margin increased from 36, 7% to 73%. This significant margin improvement highlights the enhanced contribution and.
Felicia Telephone: Our owned and operated properties direct sales and subscription revenue overall revenue profile. Additionally, the increase in gross margin reflects the impact of our strategic decision to de prioritize certain represented physio channels.
Felicia Telephone: Total operating expenses in Q3, 2024 were $12 7 million down approximately 50% from the year ago quarter. This figure includes noncash items of depreciation and amortization of six.
Felicia Telephone: And share based compensation of 80000.
Felicia Telephone: In Q3, 2024 Beach <unk> and adjusted EBITDA profit of 74000, a significant improvement from the three 5 million dollar loss reported in Q3 of last year. This quarter's adjusted EBITDA excludes approximately 20000 in sorry.
Felicia Telephone: Hence costs and 201000 and public company costs, primarily relating to D&O insurance costs, which are nonrecurring following our delisting from NASDAQ and S. E. T. D. Registration. In addition in the year to date period ending September 30th 2024, we have improved adjusted EBITDA by seven.
Felicia Telephone: 9 million.
Felicia Telephone: Net loss and comprehensive loss of $7 3 million in Q3 2020 for a substantial reduction from this $57 2 million reported in Q3 of last year.
Felicia Telephone: Closing, we are proud to have achieved a significant milestone with adjusted EBITDA profitability and a strengthened balance sheet, reaching this pointless no small feat and is a direct result of the relentless hard work of our team here at enthusiast enthusiasts, we're dedicated to creating lasting value for our shareholders.
Felicia Telephone: With these foundational achievements in place we are energized and ready to focus on what we do best cultivating an environment that continues to engage and inspire and grow our thriving communities. Thank you operator, I kindly turn it back to you.
Speaker Change: Thank 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 youre using a speakerphone. Please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and he would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: And our first question comes from Kevin Krishna <unk> with Scotiabank. Please go ahead.
Kevin Krishna: Hey, Good afternoon, you you made a comment a couple of times, you're seeing we've seen an increase in the sales dollars closed for 25, 100% virtual at the same time last year.
Speaker Change: Can you talk about.
Speaker Change: What's driving that between say new clients or existing clients repeating and an upsizing you know number of deals are the deals getting a.
Speaker Change: Larger just any any color you can provide on what's driving that big growth.
Speaker Change: Okay.
Sure Kevin.
Speaker Change: One of the things that.
Speaker Change: And that has impacted positively as.
Yes.
Speaker Change: I think if you'll remember from last quarter we.
Speaker Change: Had indicated that we were adding sellers we were.
Speaker Change: We're really trying to be thoughtful in our recruitment process about bringing sellers with.
Speaker Change: Hi.
Deep relationships and existing client books and.
They're starting to make an impact and make an impact.
Speaker Change: Rather early in the lifecycle of what we're normally used to in terms of ramping up sellers, we're seeing larger rfps larger deal sizes.
Speaker Change: And we're starting to see more.
Speaker Change: More.
Speaker Change: Repeat business coming more quickly.
Speaker Change: From.
So the.
Speaker Change: The confluence of all of those things.
Speaker Change: Is is resulting in these encouraging trends.
Speaker Change: I would also note that in Q3, we saw an increase in.
Speaker Change: The revenue mix towards sponsorships and the sponsorships are largely words E. L D b.
Speaker Change: The increase as well in 2025 relative to 2024.
Speaker Change: Oh, Okay got it helpful. On on the direct side you had I think earlier this year there were some deals that were.
Speaker Change: You know projected to close in Q2, and they were pushed that to fall in the H two did any of that land in this quarter or is there more to come in Q4.
We have seen delays in the timing just as a result of the number of ramps salaries and so we do anticipate those coming through in Q4, and we are seeing positive trajectory with the seasonal lift in Q4 relative to Q3.
Speaker Change: Got it maybe the last one from me just on the revenue the programmatic side of the business all your own content now I think it's good to see the stability from Q2 to Q3, it looks like on the math there.
Speaker Change: Can you talk about you know, we obviously understand there is seasonality into Q4 can.
Can you talk about what we can expect to see on the programmatic line and any any thoughts you can give us there on for modeling. The the you know the uplift that Youll see <unk> got a couple of drivers you see P. M P.
Speaker Change: Page views.
Speaker Change: Any thoughts I appreciate it thanks.
Speaker Change: So as we look out to Q4, we integrated play wire and mid Q2, and we did see a significant increase in our overall monetization as it related to Q3.
Speaker Change: And we also saw more of our revenue than ever before coming from our owned and operated sites relative Terry represented sites. So as we look out to Q4, we are seeing indicators of CPM lift we are seeing our page view traffic.
<unk> has a positive impact as it relates to their releases and such that we are anticipating.
Speaker Change: You know.
Speaker Change: 10-Q, four relative to Q3 on the programmatic business with the majority coming from our owned and operated sites.
Speaker Change: Got it.
Speaker Change: Okay. That's it for me I'll pass the line. Thank you very much.
Speaker Change: The next question comes from Robert Young with Canaccord Genuity. Please go ahead.
Robert Young: Good day evening given what.
Speaker Change: It looks like success, adding mature and experienced salespeople, what's the plan for adding future head count or are you going to let this season.
Speaker Change: If I Miss something in the prepared remarks.
Speaker Change: I apologize, but is there a plan to grow that.
Speaker Change: Two to grow the sales head count you added sales head count.
Yes, what are your pausing here or are you going to continue to add.
Speaker Change: We are we are first.
Speaker Change: Ensuring that we have more ramped salaries in Q4 relative to Q3 and as we continue to see a positive trajectory on close dollars per seller, we will continue to add.
Speaker Change: Okay did.
Speaker Change: Did you did you already see like those trends in Q3, so far either direct sales has gone up quarter over quarter, presumably part of that is driven by.
Speaker Change: Seasonality, but some of it would be driven by the additional salespeople why not continue it.
Speaker Change: Yeah look I think that.
Speaker Change: You know we saw in Q3, and we're seeing in Q4 somewhere and newest hires make are made.
Speaker Change: It makes significant impacts and so.
Speaker Change: We're feeling.
Speaker Change: We are going to.
Robert Young: Model to increase because it's it's producing for US I think right now Rob.
Speaker Change: You know Q4 is a tough time to recruit into AD sellers, just because they are tied to their year end commissions and are reluctant to leave but.
Speaker Change: Sure.
Speaker Change: SaaS with with ramping up the kinds of sellers in New York, and Los Angeles in Chicago and so.
Speaker Change: It more than pays for itself. So we're going to continue to be on the lookout for good talent. It's just.
Speaker Change: Not happening at this at this part of the year.
Speaker Change: Okay, that's fair.
Speaker Change: The gross margin expansion over the last few quarters is very impressive.
Speaker Change: How should we expect gross margins to trend from here.
Speaker Change: Is it going to grow lock step with the mix of direct sales and and subscription or how should we think about that going forward.
Speaker Change: We do anticipate some additional margin expansion in Q4 relative to Q3, and then I think as it relates to our Q4 gross margin that will probably be a better indicator of steady state what's amazing now with our focus on subscription direct sales and web.
Speaker Change: They are all high margin businesses all in themselves and so we're not partial to what is going to show a.
Speaker Change: Material list quarter over quarter, all three lines are very strong contributors to our gross margin.
Speaker Change: Okay last question, probably an easy one I Adrian I see you've still got interim in front of the CEO.
Speaker Change: Title, so what's going on there I'll pass the line.
Speaker Change: Okay.
Speaker Change: We've just been really really focused.
Speaker Change: On.
Speaker Change: Executing this.
Speaker Change: This turnaround to profitability.
Speaker Change: So.
Speaker Change: Company, Neither the company nor I are are looking to make a change right now.
Speaker Change: And we will have.
Speaker Change: More to say on it but we're well on the path and our focus is on tactical execution right now.
Speaker Change: Okay. Thanks, great to see the profitability adjusted EBITDA today.
Speaker Change: That's right.
Speaker Change: Yeah.
Speaker Change: And the next question comes from Matthew Mas with B Riley. Please go ahead.
Speaker Change: Hi, This is Matthew on for Mike Crawford, Thanks for taking my questions.
Speaker Change: So first I was wondering how much of an impact was the peak political AD spending have on the quarter.
Speaker Change: Any impact at all.
Speaker Change: It will have an impact in Q4 as Adrian mentioned it is exciting for us to take part in the Kamala Harris campaign.
Speaker Change: Has that custom execution in Q4, so we are anticipating that to be one of the factors that's list.
Speaker Change: In addition to the seasonal left we would anticipate going into into the holidays.
Alright, great and.
Speaker Change: I know you've been focusing on cutting video programmatic sales and if I remember correctly last quarter, you mentioned that Q3 would be a basis point going forward.
Speaker Change: So are you sticking with that or do you see room to cut further.
Speaker Change: I see this as a base level and so I still stand by that comment in Q2.
Speaker Change: Got it okay.
Speaker Change: One more for me.
Speaker Change: I heard earlier that you know there was a sharp increase in RPM year over year I was wondering what the key drivers for that or how.
Speaker Change: We should expect that growth going forward.
Speaker Change: Sure. So we are we looked across all of our owned and operated properties and.
Speaker Change: To be diligent as it related to the types of ads that we were running on each of the sites and so that plus the density itself and the page views created this this.
Speaker Change: Outsized.
Speaker Change: Packed on our overall rpms quarter over quarter. So we do anticipate and year after year. So we do anticipate that trend continuing into Q4.
Speaker Change: With all three of those factors being looked at density traffic as well as C. P M.
Speaker Change: And then ideally from there we have a better knowledge of.
Speaker Change: To further expand as it relates to the game title expansion and the rest.
Speaker Change: Alright sounds great. Thanks for taking my questions.
Speaker Change: Again, if you have a question. Please press Star then one.
Our next question comes from drew Reynolds with RBC. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Yes, thanks very much.
Speaker Change: I guess the three for me.
Speaker Change: The increase in cost savings from $10 million to $20 million. Just if you can maybe just unpack.
Speaker Change: Where that increase just generally comes from.
Speaker Change: Second.
Adrian Montgomery: Adrian just to the overall health of the AD market it seems like.
Adrian Montgomery: Things are finally kind of trending in the right direction. After a couple years of kind of mixed.
Speaker Change: No tailwind and headwinds just depending on where you were in the AD market just loved your latest thoughts on the health of the market and then lastly, as we get into the tier one just what are the things to keep in mind as we model the NHL puck and play into the next thank you.
Speaker Change: So on your first question as it related to cost savings. We had we had set out to do a couple of them.
Speaker Change: Different things, we had a headcount reduction at the start of Q1.
Speaker Change: Approximately 30% and we have been able to maintain that throughout the year.
Speaker Change: All while scaling profitability and seeing indicators of growth in topline revenue.
It's very stable.
Speaker Change: You know compensation structure overall, the second thing we had set out to do was in sourced our production and so rather than outsourcing.
Speaker Change: Our flagship NFL Tuesday night gaming, we brought that in house and so that had also significantly reduced our costs. This year relative to last year and that was a big a big driver and then across the board we looked at all our non compensation expenses, whether it be.
Speaker Change: Real estate.
Speaker Change: And certain service providers.
Speaker Change: Certain consultants and things.
Speaker Change: And we were able to materially consolidate this year faster than we had anticipated.
Speaker Change: On your second question.
Speaker Change: Which is about the advertising trends I will pass staging.
Speaker Change: Yeah look I think.
Speaker Change: It has been.
Speaker Change: A little bit challenging this year.
Speaker Change: And but we're starting to see.
Speaker Change: Through deal size RFP size.
Speaker Change: There is significant opportunity on the.
Speaker Change: Custom content and custom sponsorship side.
Speaker Change: Like we said in the prepared remarks, we're overjoyed that occur.
Speaker Change: The company such as Amazon has become one of our largest partners our largest partner this year.
And that was really custom content.
Speaker Change: Asian more than scaled media.
Work that we did with one of the presidential campaigns.
Speaker Change: Was custom content and activation and Influencer, driven so we see opportunity as.
Speaker Change: Our clients get.
Yeah.
Speaker Change: More sophisticated about understanding the ROI that custom content sponsorship.
And Influencers can play in their marketing campaigns.
Speaker Change: Q4.
Speaker Change: We're seeing encouraging signs again, though for a business like ours.
Speaker Change: We did meaningful work.
Speaker Change: For a presidential candidate that's a very good thing we also saw.
Speaker Change: Companies tell us that you know what they want to.
Speaker Change: They treat election cycles.
Speaker Change: As something that they don't not all because let me make it more <unk>.
Speaker Change: Not all companies want.
Speaker Change: To be advertising.
Speaker Change: Right next to all the political stuff and so they've paused or delayed and so theres puts and takes but we're seeing.
Speaker Change: Encouraging signs on the sponsorship and content side.
Speaker Change: That we're working with like Amazon like Netflix.
Speaker Change: Like White claw.
Speaker Change: <unk>.
Speaker Change: Or are getting a lot out of what we're delivering and we're starting to see that in return Rfps and increased deal size. So net positive certainly it has.
Switching from a macro perspective this year, but.
Speaker Change: We're encouraged.
Speaker Change: Okay.
Speaker Change: As it relates to your final question as to what to expect for Q1.
Speaker Change: We are anticipating them.
Speaker Change: Programmatic lab in Germany.
Speaker Change: Drop in Q1 versus the seasonal highs in Q4. However, we do have the continuation of NFL in Q1, 2025, and we will be launching the NHL as well in Q1 2025, so both of those should.
Speaker Change: Sure.
Speaker Change: Partially.
Speaker Change: And traditional seasonal declines we would see going into Q1. In addition in Q1, we have our largest event with pocket Gamer in London, and so that will be.
Speaker Change: A bit of an increase in Q1 relative to Q4.
Speaker Change: Overall.
Speaker Change: Because we made such significant changes in Q1 2024, do you still anticipate that being a harder comp and then in Q2.
Speaker Change: 2024, when we get into 2025 that should be.
All of the things that we put into play a better comp as to what we anticipate for Gulf format.
Speaker Change: Okay.
Speaker Change: Very helpful. Thank you both.
Speaker Change: No further questions. This concludes our question and answer session and thus the conference is now concluded. Thank you for attending today's presentation have a great rest of your day you may now disconnect.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].