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spk01: Good afternoon, and welcome to the Enthusiast Gaming Holdings Incorporated Fiscal Third Quarter 2021 Financial Results Conference Call. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. 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 Eric Bernofsky, Chief Corporate Officer. Please go ahead.
spk10: Thank you, Operator. Good afternoon, everyone. Thank you for joining Enthusiast Gaming's third quarter 2021 financial results call. My name is Eric Bernofsky, the Chief Corporate Officer of Enthusiast Gaming. With me today is our Chief Executive Officer, Adrian Montgomery. our Chief Financial Officer, Alex McDonald, and our Chief Operating Officer, Samba Sarmalingam. We'll begin with commentary on the quarter from Adrian and Alex before opening the floor to your 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 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 appear in the company's management discussion and analysis. The three-month period ended September 30, 2021, which are available under the company's profiles on CDAR and EDGAR, as well as on the company's website, EnthusiastGaming.com. You are cautioned not to place under reliance on these forward-looking statements, which speak only as of the date of this presentation. The company disclaims any intention or obligation except to the extent required by law to update and revise any forward-looking statements as a result of new information at future events or for any other reason. Now I will turn the call over to Adrian Montgomery, CEO of Enthusiast Gaming. Adrian?
spk07: Thank you, Eric. Good afternoon and welcome to our third quarter 2021 financial results conference call. It is my pleasure to once again report on the financial and operational accomplishments in the quarter and year to date, and to reiterate why we believe our plan to dominate the video game and esports fan experience is on the right track. I'd also, off the top, like to thank all the hardworking enthusiasts who show up and give it their all every day. The outstanding results of this quarter are all because of you, and we appreciate you very, very much. At the beginning of the year, we told shareholders, one, that revenue and gross profit would trend up throughout the year in terms of both dollars and percentages. Two, that direct sales would increase in each subsequent quarter of the year. Three, and that paid subscriptions would increase in each subsequent quarter. I'm extremely pleased to update shareholders today and to tell you that we are delivering on these commitments. Revenue in the quarter grew 165% to $43.3 million from $16.3 million a year ago. Pro forma the acquisition of Omnia Media, revenue grew 37% from $31.7 million in Q3 last year. Gross profit grew to $10.1 million, marking the first time in the company's history that quarterly gross profit passed $10 million, up from $4.1 million just one year ago. Gross margin improved to 23.4% in Q3, up nearly 700 basis points from the same quarter last year and up 180 basis points from Q2 this year and 360 points from Q1. Our buy and build strategy continues to underpin our revenue growth and margin expansion. Again, we communicated to shareholders in the middle of 2020 that we would dedicate the necessary resources and focus towards shifting our revenue model from a media aggregator to an integrated media, content, and entertainment model, and in doing so, meaningfully improve the margin profile as well. In the last four quarters, I'm very pleased to report that we have made incredible strides in this area. Direct sales revenue grew to $6.8 million in Q3, up from just $1 million in Q3 last year, and up 55% from just one quarter ago. Direct sales this quarter accounted for 16% of total revenue, compared with just 3% in Q3 last year. And with the premium rates this type of revenue commands, it has contributed a meaningful portion of the nearly 700 basis point margin improvement in the same period. This is part of the secret sauce of our buy and build strategy. we have consistently proven that we can increase the monetization of the assets we acquire through our unique flywheel. By combining more touchpoints to our Gen Z and millennial consumers, we are increasingly recognized as a partner of choice and a one-stop shop for large brands and advertisers. Some of the partners we worked with in the quarter include America's Navy, with whom we collaborated on an integrated media and esports activation. Icy Hot, where we work with them and the Shaquille O'Neal Foundation on an activation that saw top esports players team up to compete against Shaq in NBA 2K. We also began new relationships with DoorDash, Puma, Elevation Pictures, Bacardi, and Paramount Pictures, to name a few. As you can see, we are working with a diverse group of brands across government, food and beverage, apparel, entertainment, and gaming. One activation I am extremely proud of and everyone at Enthusiast is proud of is the work we are doing with Lego. And I would be remiss if I didn't recognize the incredible creativity and execution of our content, talent, and sales teams for bringing this project to life. In July, the Luminosity Academy was launched to push the boundaries of creativity, and guide the development of young gamers across North America. After several weeks of auditions and filming in Los Angeles, Episode 1 of the Luminosity Academy LEGO Technic First Class was released this past weekend, with 30 competitors competing for a spot in the Luminosity Academy. As of this morning, there are almost 500,000 views on YouTube in just a few days, with four more episodes in the season to come. So why did Lego choose us? Well, again, it goes back to being able to offer brands more touch points and more integrated packages than the competition, all while offering the highest level of brand safety, which is a paramount concern to Lego. The success of the Lego campaign follows several other integrated media content, talent, and esports deals. including the first season of Gamer's Greatest Talent, which aired in Q2 of this year and was sponsored by TikTok and Elf Cosmetics, as well as our work with Universal Pictures and Walt Disney Studios to promote theatrical releases. I would also note that not only are our integrated offerings winning in the marketplace with brands, others have taken notice, as evidenced by the recent news that Gamer's Greatest Talent has been nominated for a 2021 Digiday Award for best gaming or esports campaigns. While we are monitoring global trends, including supply chain challenges, the direct sales pipeline remains strong into the first part of Q4 and Q1, and we continue to expect sequential growth this quarter. Turning to paid subscribers, another area of high growth for the company. The number of paid subscribers at the end of the quarter was 207,000, compared to 112,000 at the end of Q3 last year, an increase of 84%. This quarter, we added 52,000 subscribers, aided in part by the acquisitions of GameNaut and Addicting Games. As I have said on previous conference calls, the strong growth we are seeing is a direct result of the investment we made in Q4 last year to establish a team dedicated to growing our subscription business. From a revenue perspective, the growth areas of direct sales and subscriptions totaled $9.3 million in Q3, or about 21% of total revenue, compared to just $2.6 million, or 8%, in Q3 last year. This nearly threefold improvement in the mix of higher margin revenue is something we are particularly proud of. We believe there is still more margin growth to come in these two areas. Late in the quarter, we announced the alpha release of Project GG, a cross-platform, pan-enthusiast gaming social network uniting gaming and esports fans on desktop and mobile. Project GG will enhance the company's ability to deliver a more complete fan experience with a targeted, engaged, and personalized product for gamers and customers alike. It represents a significant step towards the company's evolution to becoming a technology-powered media, esports and entertainment company. Project GG Alpha will serve as a test version of the Gaming Social Network while offering feedback to Enthusiast Gaming's design and user experience teams. That feedback and testing will assist our teams as they prepare for Project GG to transition to a beta version in 2022. As you can see, we have executed on many fronts in the quarter. We successfully closed the GameNaut and Addicting Games acquisitions in the quarter, and they are integrating well into our fan and monetization flywheels. Some have asked why these deals make sense for Enthusiast Gaming, and in particular, how Addicting Games fits in with our overall strategy. Well, it's all about the flywheel, which is about owning more content that can be integrated across Enthusiast and Luminosity properties. content, and talent. Let me give you an example. Shortly after the acquisition closed, we began integrating Addicting Games. Last week, we tested an internal cross-promotional campaign bringing together Addicting Games content and Luminosity creators. We created dedicated Luminosity art called Skins or Virtual Goods inside the popular casual desktop and mobile game Little Big Snake. For the past week, different Luminosity streamers have been playing LittleBigSnake Live during their streams on Twitch and promoting the game to their fans. Collectively, LittleBigSnake was promoted to millions of new potential users while also creating content at the same time. And while today, the virtual goods being purchased within LittleBigSnake have no inherent value outside of the game, we now have a platform to begin developing NFTs for some of our own intellectual property as our research demonstrates there is a marketplace for these items. While this was just a first test, we are excited about the potential cross-promotional opportunities in our sites, not to mention some of the sponsorship opportunities we are already working on with Addicting Games Properties. We are extremely well-funded to continue to execute on additional accretive acquisitions that will expand our audience reach and provide a deeper, more enriched fan experience. We're just getting started and believe very much in our buy and build growth strategy constructed around our proprietary flywheel. We have accomplished a lot through the first nine months of 2021, and we are confident in our team's ability to execute in Q4 as we continue to execute on this strategy and we will continue to deliver results. I will now turn the call over to our CFO, Alex McDonald, for further commentary on our financial results. Alex.
spk12: Thank you, Adrian. Once again, we have a great quarter to present here this evening, and what quarter it was, our third quarter, 2021. A few quick notes before I begin my commentary. I note that our results are presented in Canadian dollars. I note that our business is affected by seasonal trends in digital advertising, with sequential increases each quarter throughout the year, driven by increasing ad prices and demand, which peaks in Q4. This seasonality is isolated to our media and content revenue streams. I also note that the acquisition of Omnia Media occurred on August 30, 2020. The comparative financial figures relating to Q3 2020 in the statements in MDA include approximately one month of Omnia results. The 2021 balance sheet and income statement includes balances of the company, including Omnia. Now let's talk about the business. We continue to deliver growth. Q3 revenue was a record high, $43.3 million, up 165% from the reported Q3 2020 revenue of $16.3 million. This increase was driven by our acquisition strategy, including Omnia, as well as strong organic growth in direct sales, and across all three of our revenue streams of media and content, esports and entertainment, and subscriptions. Q3 revenue by source was as follows. Media and content, 38.7 million. Subscription, 2.5 million. And esports and entertainment, 2.1 million. The media and content revenue of 38.7 million compares to a 13.6 million reported in Q3 2020, an increase of 185%. Q3 media and content revenue attributable to Omnia is $30.2 million, which is up 25% year-over-year. Q3 media and content revenue excluding Omnia is $8.5 million, which is up 77% year-over-year. The increase in Q3 media and content revenue, apart from the impact of the Omnia acquisition, is mainly due to, one, a significant increase in direct sales, the majority of which are recognized in media and content. Total direct sales were 6.8 million in Q3 2021 as compared to 1 million in Q3 2020. And two, a web RPM, which was 103% higher in Q3 as compared to Q3 2020. Q3 subscription revenue was 2.5 million, up 55% from 1.6 million in Q3 2020. The increase in subscription revenue is attributable to an increase in paid subscribers. The company had approximately 207,000 paid subscribers as of September 30, 2021, which is up substantially from approximately 112,000 paid subscribers as of September 30, 2020. The increase in paid subscribers is 85% year-over-year, of which 51% is organic and 34% is from acquisitions. The company continues to grow the subscriber base on its existing subscription offerings and continues to offer additional subscription offerings on new platforms. Q3 esports and entertainment revenue was 2.1 million, as compared to 1.1 million in Q3 2020. This 100% increase year-over-year is as a result of the growth of our virtual events, such as Pocket Gamer Digital, as well as increased sponsorship of Luminosity, driven by direct sales. We are very proud of the growth in the company's top line. However, the growth on a currency-adjusted basis is even greater. A significant majority of our revenue is earned and measured in US dollars, which is translated into Canadian dollars for presentation in our financial statements. The average USD to CAD exchange rate in Q3 2020 was $133, which dropped to $126 in Q3 2021. Had the exchange rate remained constant at $133, revenues in Q3 2021 would have been $2.3 million higher for a total of $45.5 million. Even on a pro forma basis, to include the acquisition of Omnia, On a constant currency measurement, revenue would have been up 44% year-over-year. These FX movements have a similar effect on our cost of sales in certain areas of OpEx with limited net economic impact. We are proud of the significant growth in revenue, both with and without considering currency movements. The exchange rate between the U.S. dollar and our presentation currency of the Canadian dollar should be monitored and considered when analyzing or forecasting results. Growth profit was an all-time record high of 10.1 million in Q3, up 149% from the reported Q3 2020 growth profit of 4.1 million. Our growth strategies include higher yield and higher margin revenue streams, such as direct sales and subscription. Direct sales and subscription revenue reached all-time highs of 6.8 million and 2.5 million, respectively, which helped drive the record growth profit. Direct sales and subscription now account for approximately 21% of total revenue, up from approximately 8% in Q3 2020. The gross margin for Q3 was 23.4%, up from 16.8% in the same quarter last year, pro forma omnia. As we execute on our growth strategies, this 660 basis points improvement in gross margin in one year continues to reveal the compounding effect of our business model when considering the significant growth in revenue over the same periods. Operating expenses were $21.4 million in Q3, up from $8.2 million for Q3 2020. Close to half of this increase is isolated to non-cash expenses of share-based compensation and amortization, which were $5 million and $2.4 million in Q3, respectively. A portion of this increase also relates to the registration of the company with the SEC and the NASDAQ listing. Office in general includes items such as insurance, filing, and listing or sustaining fees. Many of these expenses began in Q2 of this year, such as the required insurance, and will continue for the foreseeable future. In the first part of this year, we made investments in our business to support anticipated growth. These investments were focused on headcount, reflected in salaries and wages expense, on content production, programmatic yield, and data capabilities, reflected in technology and content expense, and we allocated additional resources to esports and entertainment. These expansions slowed in Q3, and while we expect the associated line items to continue to increase over time, we do not anticipate the same level of expansion in operating expenses in the near future as was invested in the first part of this year. We have professionalized the business, and it has, as of today, existing capacity for significant growth. Net incomprehensive loss was $12.3 million, resulting in a net incomprehensive loss per share, both basic and diluted, of $0.10 in Q3. Net cash used in operating activities was $3.8 million for Q3, significantly improved from Q2. And we ended the quarter with a healthy cash balance of $33.5 million. I want to be clear that the company does not have any current intent to access the equity markets for operational cash. We remain of the strong opinion that the results of operations and the financial condition of Enthusiast Gaming has never been stronger. We have the cash. the operational capacity, the right strategy, and the right leadership to continue our growth. And the potential for growth for the company is only increasing. In Q3, we acquired Addicting Games, unlocking new markets of both casual and mobile gaming for the company. This brings with it expanded subscription capabilities, e-commerce opportunities, and mobile inventory for our direct sales team. It is a welcome addition to our portfolio. I want to mention that the company is aware that other digital publishers are expressing concern regarding Q3 and now Q4 CPMs due to the macro effects of supply chain interruptions and labor shortages. In theory, supply-constrained clients reduce their short-term ad spend due to an inability to service incremental customer demand. However, with that said, clearly we did not see any impact in our Q3 numbers, and our CPMs remain strong to date in Q4. With Black Friday, Cyber Monday, and holiday shopping still ahead of us, we are watching closely. We will continue to monitor the pricing on our bidding networks and optimize if or as necessary, but we have no concerns at this time. I'd like to officially welcome Drew McReynolds of RBC Capital Markets, who initiated coverage in October. Thank you to Drew and his team. We are very pleased to have you here. To all our analysts, thank you for the work you do on Enthusiast Gaming, and to our shareholders, Thank you for your continued support and trust in us. We will continue to work hard for you. I will close by saying that we often describe Enthusiast Gaming as owning the fan experience. This would be imagined as being part of every aspect of a gamer's journey from the moment they put down the controller. However, with the acquisition of Addicting Games, Enthusiast Gaming now owns its very own game titles and its very own game studio. When we connect our existing and future casual game titles with our roster of talent, creators, and influencers, we can make magic happen, and that's good for our business. And of course, ladies and gentlemen, our business is the business of gaming. Operator, I kindly turn it back to you.
spk01: We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster.
spk09: Our first question comes from Mike Crawford with B. Riley.
spk01: Please go ahead. Thank you very much.
spk03: Adrian, as enthusiasts shift towards this more integrated media content entertainment space, I have a business. How does that affect your long-term financial model?
spk07: I think it's consistent, Mike, with our long-term financial model and the result of moving away from a low-margin aggregator of eyeballs selling programmatic ads at commoditized rates and Shifting the business the way we have, continuing to shift it the way we have will only result in, you know, upon successful execution, the kind of growth in margins and profit that we've long talked about. So we think it's consistent with our growth model and, you know, the numbers, terminal state numbers that Alex has referenced in the past too.
spk03: Okay, excellent. And then a couple of questions on Project GG. Well, one, what have you learned in the alpha test? And then, two, what is the subscription pricing plan for GG?
spk09: Hey, Mike. This is Alex. Look, we've learned a couple good things in the early days of the alpha.
spk12: The reception is very good. A lot of the initial learnings were on, I mean, it's important, but the UI and the UX from the user perspective. which is a very important part of an alpha test. In fact, arguably could be one of the most important parts. So that's where the alpha is focusing right now, user interface, user experience. As far as pricing, the way I look at it, we haven't set it yet. We've become much more intelligent on optimizing our subscription models for pricing. With a growing number of existing subscription offerings, we've become good at... managing that. I think we are going to continue to monitor the reception and the offering and the value we can bring to the users. And of course, we'll price accordingly. I like where our existing subscription offerings are going. They're moving north every few months on kind of an average basis. But anyway, we're not quite priced, or at least we haven't announced prices yet for the subscription, but it is coming.
spk03: Okay, thank you. One last question, if you don't mind. So Thanks for talking about that little big snake and a little bit of your NFT strategy, but do you have a broader NFT or strategy to share with us?
spk07: Nothing specific in the sense of... A definitive strategy, as you described, what we know is NFTs are very, very real. We know because our creators are fully invested in them. We see this incredible intersection between NFTs and the metaverse, And we sit with this incredibly loyal, incredibly large audience of people who are going to be the main denizens of that metaverse, who are going to be the purchasers of those NFTs. And we find ourselves in an advantageous position because in addition to that audience that's tailor-made for both the metaverse and NFTs, we also are a content factory. And at the end of the day, that is what you need to be successful with non-fungible tokens. We have a ton of creators who can amplify. We have a ton of content. We have a large audience. And so we see the metaverse. We see NFTs as two very, very real, very, very positive trends that this company is uniquely positioned to take advantage of. And so that in very short order has become Another one of our key priorities to develop and explain as they unfold.
spk03: Excellent. Thank you very much.
spk01: Thanks, Mike. The next question is from Robert Young with Canaccord. Please go ahead. Hi.
spk05: Good evening. Last quarter you were giving us some trends around the RFP volume that you were seeing on the direct sales side. Sorry if I missed it, but can you maybe update? us on those trends that are still starting to grow. If you could talk a little bit about the repeat activity with existing customers, that would be helpful too.
spk09: Great. It's Samba here. I can take that question.
spk02: Your first question on RFP volume, very consistent with the momentum that we saw in the previous quarters. Q4 is very alive and well for us. Great momentum out there. Average number of RFPs are actually higher than what we've seen in the last quarter, so very pleased about that. To your second question on repeat clients, look, as we mature our sales team and our relationship with the advertisers, we're having ongoing dialogues with some of these brands where it's not repeat campaign for a quarter, but it's starting to become repeat businesses where, you know, it's more than a quarter long, and we're very pleased with that. Some of the big brands that, you know, Adrian covered in his remarks are brands that are huge Fortune 500 companies, and, you know, they're becoming repeat clients of Enthusiast Gaming for our inventory.
spk07: Okay, so then... No, sorry, just, Rob, I think that... You know, if you look at the growth in the business in terms of the number of film titles we've promoted, G Fuel as an important repeat customer, Gillette expanding through other Procter & Gamble names, HBO, TikTok, these are all big, big names, and they're all officially repeat customers. So we're feeling excited that our – Value proposition has been validated by some of these household names who have said you're delivering for us and you're delivering ROI for us. And that's a key part of our momentum right now.
spk05: All right. So like a repeat customer would be bigger and like Samba said, longer duration. So these are longer duration contracts or is it or what you're trying to say is they give you more visibility on their spend over time?
spk02: Yeah, I can take that one. So it's a combination of it's all the above and more because, you know, when you're in Q4, one of the other things that happens is, you know, some of the advertisers start planning for 2022. So the advantage for us is we're not only are we having Q4 conversations, but we're having 2022 conversations. And, you know, in addition to the RFP volume, the average RFP dollar value size is also increasing. Again, that's another healthy sign for us and we're super excited about that, especially from these big brands that Adrian just mentioned.
spk05: Okay. And then in the past, you've talked in the past about the ad inventory that you have that's applicable to the direct sales model. I think it was a very small percentage of your ad volume. Maybe if you could update us on that and give us some revenue percentages. But how much would that revenue percentage represent in your ad volume?
spk12: Sure, so effectively that metrics, hey Rob, it's Alex again, that metrics always been based off our very first formula here and that was 10% of the inventory at 10 times the price. So if you look at the programmatic, the immediate content, of course a good chunk of that 6.8 is in there, but those numbers should be equal. The programmatic and the direct should one day become equal. In fact, the direct should one day exceed. So we're still at quite a low percent. We're still certainly sub three. But that direct sales number as it grows, that's slowly climbing up. It's a good chunk of the way there actually though. But what we're also finding is also in that direct sales, as we move media, we're doing combined packages. So as we move media, we also move sponsorship for Luminosity as part of that package. We also move sponsorship for the entertainments assets such as rising stars gamers greatest talent the navy was a perfect example so anyway so so it's it's not a direct correlation now we see direct sales as a bigger bigger than just percent of inventory but to answer the original question it's still sub three but it is growing rob i would also add to that sorry rob i would also add to that and again if this is another thing that we're proud of when we executed the omnia transaction one of our main theses
spk07: as you will recall, is that that video pre-roll inventory, because it skewed Gamer, US, Gen Z, it was among the more undervalued video inventory on the Internet. And certainly, when we took in Omnia, we took in a whole, whole bunch more inventory. But when we talk about the Navy and we talk about DoorDash and we talk about Samsung and we talk about Disney and HBO, a big component of these campaigns in almost all cases is access to that YouTube pre-roll and access to that video inventory. And the clients love it. And it's just a nice validation that our investment thesis – has been proven correct. They can't get enough of that YouTube inventory and it's a key part of all our integrated offerings.
spk05: Okay, thanks a lot. And one last question just on the subscription ads. I was trying to untangle the contribution from Addicting and Game Not because I assume that this quarter in front of Project GG would be a lower quarter for sub-ads. It seems like you had 52,000. So is there a way to understand that? Is there some Project GG in there? Is it just the organic business? And how much comes in from addicting and game now? And then I'll pass the line.
spk12: No problem. This is Alex again. I knew you would ask that, Rob. So we've provided the number. It's in the MDA. It's about $35,000 from acquisitions. The percentages of the 85... I think I mentioned this part. Of the 85% year-over-year growth, 51% is organic and 34% is from... acquisition. And the exact number is provided for in the MDA. It is... Well, I'm not going to scroll for it now and keep the time, but it's there, and that's the percent breakdown. 51% organic, 34% growth from acquisitions.
spk07: Okay, and there's nothing in there for the project?
spk12: No, zero.
spk07: No, but again... That's a healthy number and a healthy growth number, 207,000 subscribers. Certainly, it speaks to a pretty disciplined acquisition strategy. One of the criteria we evaluate quite methodically is we want to see subscription potential in the assets that we buy. Either they have no subscription, but they're ripe for subscription, or they have a bunch of subscribers that we can bring in to the enthusiast gaming model. We get that recurring revenue. We get that lifetime value, but we can also migrate them to GG and other places as we go forward. So Addicting Games and GameNaut have had strong base-level subscription businesses. We've brought them in, and it's only upside from here. Thanks a lot, guys.
spk09: Thanks, Rob. The next question is from Jeff Fan with Scotiabank. Please go ahead. Thanks. Good afternoon, everybody.
spk04: Last quarter, I think, on the financial side, there were some references to turning EBITDA positive and that being around the corner. Just wondering if you can give us a bit of an update on that. Is that still the case? On the sales and advertising pipeline, I think I missed the answer to the previous question. Did you give any kind of quantifiable metrics? Because last quarter, I think, Adrian, you gave us the number of RPs per week that you were seeing, and I guess the point there was that we were seeing a lot of momentum compared to what you saw early in the year. Has that momentum continued, or has that volume just kind of stayed consistent over the last few months? And then I guess the final question is just on supply chain. Why do you think you're not seeing the impact? Is it because of the mix of advertisers that you have? Just wondering why you're not seeing that. Thanks.
spk07: Thanks, Jeff. I think to go through those questions in order, the net loss adjusted net loss in this quarter is the smallest it's ever been. And I think given our revenue profile, it points to EBITDA positivity being around the corner. As we've said, and certainly the pace at which we're growing gross profit to go from $8 million to $10 million in a quarter is an encouraging sign for that as well. Again, we have an ability to be EBITDA positive tomorrow. We could not invest in GG. We could not invest in some of the people. We could not have made some key hires to grow our direct sales team in the United Kingdom, et cetera, et cetera. And we could manage a very nice EBITDA positive business. But the growth is in front of us. We see it every day. And we want to position ourselves to take advantage of it. I believe the adjusted net loss, Alex, was sub 4, 3.9, 3.8?
spk12: Yeah, depending on how you calculate it, excluding amortization and stock basically. Net cash used in operations. Net cash used in operations was a 3.8. It was 3.8. And 33 million bucks in the bank. So it's a pretty good number.
spk07: So we feel like we're trending in the right direction, but we also have these other opportunities that we're uniquely situated to. And as the metaverse becomes more and more of a topic of conversation as nfts uh become more and more real and there's lots of macro points again we sit at the intersection of a lot of these trends and so um you know we'll we'll capitalize on on positioners ourselves for growth but um that would be the answer to that question in terms of the momentum we see uh in q4 We see strong momentum in Q4. In terms of the number of RFPs, yes, Samba did answer that a little earlier, but he's more than happy to answer it again. Samba?
spk02: Yeah. Hi, Jeff. It's Samba. I can quickly recap the answers from earlier. You know, for Q4, on average, we're seeing about 15 RFPs in a week. Again, that number fluctuates, but on average, it's a very good RFP volume number. In addition to that, also, The average RFP amount that we're seeing is higher than what we saw in Q3. Again, another great positive news for us. So we're definitely capitalizing on both of those. I think the rest of the questions, you know, in terms of overall Q4. I mean, you know, on the supply chain, I would say. Based on the momentum we're seeing, it's almost a non-issue for us. I mean, great momentum that we're seeing from all sorts of different advertisers. Some of the brands we mentioned, repeat clients like HBO, Lego, G Fuel, Mattel, it's the endless list of names that we work with.
spk09: No disruption to us, and we're not bothered by it at all. Thanks.
spk04: And if I may just follow up, maybe a question for Adrian. Faze Clan recently announced that they're in the middle of a SPAC. I'm wondering if you, at a high level, just kind of compare, contrast how you see your business compared to something like that.
spk07: Well, I think it's exciting for our industry that Faze is coming to join us in the capital markets. I think there's a lot of excitement around that brand. I think, obviously, they're commanding a valuation which is commensurate with the growth that we all see in the industry and good for them. I think it's nothing but positive. Big fan of theirs and what they've built. Luminosity is an exciting esports organization. We play against FaZe. Our Call of Duty team plays against their Call of Duty team. We compete in that vertical. But again, we're the only ones who are building across the fan experience. So over and above Luminosity versus FaZe, there are owned and operated websites. There are our YouTube platform. There is our Pocket Gamer event. that are held around the world and virtually. There are all the businesses that we're building which go far and beyond building an esports organization or lifestyle brand. And so we've purposefully taken on a bigger mandate because connecting those fans through that flywheel is exciting for us and gives us a unique differentiator with our customers, as well as gives us a diversity of asset mix, which is important. Again, and I think Faze is fantastic, I don't know if Faze and Lego work together, but building a kids' esports academy with Lego and Luminosity definitely works. We have... we have one of the most popular female fan sites in the world being the Sims resource. And we can work with Elf Cosmetics. And so we appeal to a broad swath of demographics through our purposeful building of our asset mix. And again, addicting games is such an incredible opportunity for us to enter the casual gaming market I don't know about anyone in the U.S., but if you type the word games into your browser up here, Addicting Games is the first name that pops up. So that just gives you an example of the strength of the Addicting Games brand, shows you guys that know what they're doing. So again, diversity of asset mix makes us different. One-stop shop makes us different. Different demographics. But all that being said, The excitement that FASE is creating in the public markets south of the border can only be good for our industry, and I wish them the very, very best.
spk04: Great.
spk09: Thanks, guys, and great quarter. Thank you. Thank you.
spk01: The next question is from Brian Kintzlinger with Alliance Global Partners. Please go ahead.
spk06: Great. Thanks so much. Nice quarter. Two questions. The first, sorry I joined late if you said this, but in terms of GGE, did you give an update on when the plan hard launches or is that unknown right now?
spk09: Hey Brian, it's Alex. No, we did not. We didn't get, well, we didn't give an update.
spk12: It's consistent. It's 2022. We're in alpha right now. No change. Alpha has only been out for a couple of weeks. And what we did say was that what we're learning in alpha is focused primarily on UX and UI and, That's the initial feedback we're getting, which is very valuable part of the offer testing. Other than that, we still have an eye to early 2022. That's what we've said and no change. You said early 2022.
spk06: Is that what you just said?
spk09: Yes.
spk06: Okay. Second, I'm not sure you would track this on the programmatic side or if you'd be able to, but is there a vertical breakdown of who your advertisers are on the direct sales side? Maybe maybe 10% entertainment, I'm not sure necessarily, but if you could provide any of the top verticals, that would be wonderful.
spk07: We're pretty well diversified, and there's obviously the biggest macroeconomic bucket of endemic versus non-endemic, but in E3 in particular, You know, we did work with government, food and beverage, apparel, entertainment, and, of course, gaming. So pretty well diversified, and quite honestly, there's a lot of new brands coming into the space. I think one of our biggest customers right now is State Farm Insurance. You wouldn't have thought that State Farm Insurance would be a big gaming and esports customer perhaps a year ago, but here they are today. Any more specifics on that, Samba?
spk02: The only thing I would add is certainly we also have a ton of room to grow across all these verticals and break into new verticals. The way that we're focused on is not necessarily on dominating one vertical, but rather expanding our coverage and footprint across the different geographies. Huge success there. We haven't really verticalized our sales team and sales approach yet, but it is across the board at this point and we're seeing huge success across all verticals.
spk06: Yeah. And I'm done with my questions, but my point might be that you just aren't seeing a lot of advertising to begin with with companies that are facing shortages. I mean, State Farm doesn't have a shortage, for example, right? So that was what I was trying to figure out. But thank you.
spk12: I agree, Brian. This is Alex. I want to just add quickly. I agree because we also look at it like we're not anywhere close to capacity yet, right? So it could be that We are seeing it, but it's hidden under the growth. So maybe we don't know. But you're right. A lot of our verticals don't have exposure. Our demo has less exposure, and we're not even close to capacity. So who knows? Maybe the growth rate would have been an extra 5% higher without it, but we can't tell.
spk02: If you remember our commentary a couple of quarters ago where we didn't see certain – like we didn't see hospitality, we didn't see certain verticals in the market, but now, you know, I wouldn't say there is a vertical that we, you know, we're not seeing as not participating, at least through our lens where we play.
spk01: Great. Okay, thank you. The next question is from Derek Solderberg with Colliers. Please go ahead.
spk11: Hey, guys. I joined the call wait as well, so my apologies if this has been covered. So you guys have a nice contribution from working with the Biden campaign back in 2020. Did you benefit at all from recent political campaigns, whether it be in Canada, the US, you know, anywhere else? You know, do you expect contribution to direct sales from political campaigns in the upcoming 2022 elections in the United States?
spk09: It'd be great if you could just talk about, you know, that opportunity for you guys.
spk07: Yeah, no, thanks for the question. Certainly, as we've discussed, we did a significant amount of work for one presidential campaign in 2020. I think it was extremely well received. We've had conversations at the state level, at the national level with respect to 2022, which is exciting, but nothing firm to announce. Obviously, given when that election cycle happens, we did not do anything in the Canadian election. However, we did a number because of the work we did in the presidential campaign. We did a number of really cool work campaigns with the Ad Council around vaccine awareness. and other things. And so there was a direct link between the presidential campaign in the fall and the stuff we did with the Ad Council, which we were really proud of. We're in the mix for 2022, which is cool. And we'll report on that when we get closer.
spk11: Got it. Got it. And then I did want to ask about direct sales. You guys are seeing some nice growth there. You're talking about repeat customers. Your customers are seeing the ROI of those investments. You know, at the same time, it's still a very small portion of the marketing budget of your customers. So I guess I'm wondering what's sort of holding them back from doing like a $50 million deal with you guys and would you have the inventory of or capacity to handle a direct sales deal of that magnitude?
spk07: The short answer is anyone around here who said no to a $50 million deal wouldn't last long at Enthusiast Gaming, including myself. I think that what I can tell you is that in a very short amount of time, $5,000 and $10,000 test campaigns have turned into $100,000 campaigns, have turned into $500,000 in seven-figure campaigns. And as advertisers have gotten more and more comfortable with really understanding this space, they've upped their budget significantly and presumably have taken money away from traditional media, to put it to this world, as well as the fact that when we get in front of them, the fact that we are a one-stop shop, the fact that we can put their logo on a Luminosity jersey and create programming like the LEGO Academy that gets half a million views in a couple days on YouTube, and we can get the biggest gamers of the world invested in promoting their product on stream When we can wrap ourselves around our customer in a way that no one else can, that is seeing an increase in the amount of money that they are willing to spend. I think that, you know, as companies like Pepsi and KFC develop in-house esports departments, as this industry matures at such a fast rate, the $50 million deal, is definitely out there. And the fact that we can service any demographic, male, female, competitive esports, content creation, live event, virtual event. We can integrate casual games into a value proposition. We can integrate content activation like gamers' greatest talent. We can do all those things we can be a one-stop shop and we can take that money from those customers. So that's why we're pretty excited about where we're going with this.
spk09: Got it. Thanks, guys.
spk01: Thank you. Excuse me. The next question is from Drew McReynolds with RBC Capital Markets. Please go ahead.
spk08: Yeah, thanks very much. Just one follow-up for me, and it's related to kind of previous comments. I mean, it seems like So no matter where you are out there, there's a gaming strategy that's being launched by a lot of players out there. So I think people are recognizing, I think, the segment you're in more and more as the days go on. So I just want to talk on the M&A side, just what you're seeing in terms of valuations out there. And then I think it was you, Adrian, that talked about your M&A criteria, obviously looking for, in some ways, situations of subscription component. Can you just elaborate on just generally what your M&A criteria is at the moment?
spk09: Thank you. Thanks, Drew.
spk07: And I believe this is your, could be his first ever call question, Alex. So this is the inaugural question from RBC. We appreciate it. We, as we've said from the outset, We're connecting gamers through our communities, content, creators, and experiences. We're a community-based company, and we want as many fan communities as we can. And so the first criteria for us is buying, from an M&A perspective, fan communities. We want them to be in game titles or game genres, that we're not currently dominant in. That would be a second criteria. We want to feel good that there's a certain evergreen nature to the type of content that they produce. That would be another criteria. Subscription, direct sales are other two criteria that we look at very, very carefully, as well as video inventory. If we see a fan community that's performing well, that has a very, very small percentage of its ads as video ads, we get really, really excited. Those would be other criteria that we look for. Alex, would you care to expand?
spk12: Yeah, sure. Some of the quantitative, we look for a significant amount of tier one traffic, which is typically U.S. and Canada and Western Europe. That monetizes at the highest rate. So we look for trends in that. Obviously, we look for what we see as under-monetized ad units and inventory. The viewership trends that Adrian mentioned are very important on a quantitative basis. Is their viewership growing is, of course, important. But I really focus on is the genre that they're in and the game title. As Adrian said, is there an evergreen? Is that growing? Their kind of micro environment that they exist in, is their macro growing? Is that growing? Engagement, we look at engagement. The higher the engagement stats, repeat visits, time on site, time on platform, those point to better subscription possibilities. The user experience, data, we love data. With data comes things like percent registered users, so we look at that. I mean, those are some of the top.
spk07: Yeah, Alex, you're giving our proprietary playbook away here. It's Drew McGrath.
spk05: As you can see, we have quite a list.
spk07: Yeah.
spk08: Well, listen, I don't want you to give all that away, so we'll stop there. But nice to see the momentum and the resilience of the business. I think that's in contrast to a lot of other companies out there. Thanks very much. Thank you, Drew.
spk01: This concludes our question and answer session, and the conference is also now concluded. Thank you for attending today's presentation. You may now disconnect.
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