Enthusiast Gaming Holdings Inc.

Good day and welcome to the Enthusiast Gaming Holdings Inc. First Quarter 2025 Financial Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the 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 a touchtone 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 JB Elliott, Chief Strategy Officer and General Counsel. Please go ahead.

Thank you, Operator. Good afternoon, everyone, and welcome to the Enthusiast Gaming First Quarter 2025 Results Conference Call. I'm JB Elliott, Chief Strategy Officer and General Counsel. With me today is Interim Chief Executive Officer Adrian Montgomery and our Chief Financial Officer Alex McDonald. 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 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 appears in the company's management discussion and analysis for the three months ended March 31, 2025, which are available under the company's profile on CDAR+, as well as on the company's website at EnthusiastGaming.com. We 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. Now I'd like to turn the call over to Adrian Montgomery. Adrian, the call is yours.

Thanks, JB. And thank you to everyone joining us today for Enthusiast Gaming's first quarter earnings call. We began the year with a renewed and streamlined structure. We're operating leaner and more effectively monetizing our owned and operated properties than ever before. We've laid the groundwork for direct sales to rebound, and we continue to invest across our portfolio with focus and discipline. Our strategy is simple. Focus on what we own, operate it efficiently, and extract more value from every user and every engagement. Our goal for 2025 and beyond is to spend more time with more gamers. This mantra informs everything we do, from product development to content strategy to how we engage advertisers. We serve gamers anytime and anywhere through communities, content, creators, and experiences. These four pillars form the foundation of our ecosystem. And with a leaner and more effective monetization model in place, deepening engagement across our properties is our clearest path to long-term value. This goal is underpinned by a much more efficient business model. We've made meaningful progress across all revenue streams, higher yield in our programmatic business, growing subscriber bases, an expanding events footprint, and a re-energized direct sales team now regaining momentum. While revenue was lower year over year, the quality of our earnings has materially improved. Our core operations are more profitable, and our refined cost structure has fundamentally reshaped our financial profile. In Q1, cash-based operating expenses were down over $3 million year over year, a direct result of disciplined cost control and our focused operating model. Let us now turn to our key assets, where we continue to focus our investments and growth initiatives. Icy Veins continued its exceptional performance in Q1, emerging as one of our strongest contributors across both traffic and profitability, despite the lack of any significant macro-level events or releases in the quarter. Overall, yield on Icy Veins has improved by more than 100% year over year, driven by a combination of strategic ad tech optimizations, an expanded coverage of new high-demand titles such as Monster Hunter Wilds and Path of Exile 2, additions which were carefully selected to align with existing user interests while capturing new segments of the gaming community. We also broadened the site's editorial footprint to cover general gaming news and tools, an initiative that has helped increase session length and repeat visits. With its trusted brand, high SEO authority, and rapidly growing reach, Icy Veins is well positioned to remain a cornerstone of our content strategy in 2025 and beyond. The Sims resource delivered another strong quarter. TSR grew both subscription revenue and paid subscriber counts quarter over quarter, while also improving the quality of its subscriber base. The past year has focused on an intentional shift towards premium annual subscriptions, which carry better retention and significantly higher lifetime value, the results of which have created a stable and growing base of high-value subscribers serving as the cornerstone of the company's subscription offering. Looking ahead, we're preparing to launch a major product update that we believe will redefine the user experience, a feature that we are calling Dress to Impress. This new feature allows users to try on custom Sims content, clothing, hair, and more, in browser with real-time 3D rendering, giving players the ability to engage directly with our library of over 5 million pieces of content, all while increasing time on site and driving conversion. We expect to launch this in Q2 or Q3 of this year. With respect to UGG, Q1 marked the beginning of a new phase of growth as we accelerate its evolution from a leading League of Legends platform to a broader category-defining destination for gamers across the gaming ecosystem. We launched support for Marvel Rivals, NetEase's new competitive team shooter that surpassed 600,000 peak concurrent players during Q1. With UGG now providing Marvel Rivals players with essential gameplay analytics, bringing the same level of performance optimization and meta-analysis that has made our platform a staple in League of Legends. We also expanded into Rainbow Six Siege, launching global leaderboards, detailed player profiles, and match history analytics for one of Ubisoft's most iconic tactical shooters prior to the game and the shift to a -to-play model this summer. We plan to launch support for several additional high-interest titles in the months ahead and remain focused on expanding both our audience and our high-engagement desktop app experience where user retention and monetization are particularly strong. We continue to see strong momentum across both the consumer and event side of the Pocket Gamer brand. PocketGamer.com more than doubled its audience year over year in Q1 and has significantly improved session times and engagement. The site has become a trusted authority in mobile gaming news, tier lists, and guides, and is rapidly scaling as a leading destination for mobile-first players. On the event side, Pocket Gamer Connects hosted two major events in Q1. PGC London in January, which was our largest and most successful event to date by every relevant metric, and PGC San Francisco in March, the 50th event in PGC history, which ran alongside GDC and delivered strong -over-year growth in attendance, sponsorship, and revenue. We also announced a major international expansion of the Pocket Gamer Connect series, with new events scheduled in Barcelona in June, Shanghai in July, and Bangkok later this year. With over 55,000 industry professionals having attended PGC events globally to date, we believe this franchise has only begun to realize its full potential. In addition to our core O&O properties, our direct sales team continues to recover and strengthen. While Q1 revenue was impacted by a lower count of fully ramped sellers, total closed dollars grew to $2.4 million, up from $2.1 million in Q4, and our 12-week trailing book dollars began to climb again in February, marking a key trend reversal.

We're

onboarding new sellers, increasing RFP activity, and converting deals from both new and returning clients. Notable campaigns in Q1 included new campaigns with Ford and a multi-phase launch for SNK's Fatal Fury, City of the Wolves, in partnership with Petrol Advertising, as well as repeat business from major brands including Amazon, State Farm, Paramount, Lego, Nintendo, Samsung, and Disney. Additionally, our Rising Stars campaign continues to deliver high-impact results. The 2025 edition generated over 500 million livestream banner impressions, engaged over 5,800 community members in its first week, and produced thousands of organic creator posts, all while serving as a compelling sponsorship vehicle, securing deals from the likes of Elgato, CashApp, Corsair, and many others. It's a perfect example of our ability to execute complex, creator-led campaigns efficiently and at scale, and a formula we intend to repeat through our Luminosity-branded events and programs, as well as through our partnerships like NHL Puck & Play, related to launch this fall. As we move through 2025, our priorities are clear. 1. Grow our audience through SEO, referral partnerships, new product features, and user flow optimization. 2. Increase monetization yield through product innovation, ad tech optimizations, and promoting our most profitable offerings like our desktop applications. 3. Continuing to build on the momentum of our rebuilt direct sales team to deliver bespoke campaigns to the world's largest brands.

4.

Expand our PocketGamer Connects event series into new geographies and markets. 5. Maintain our cost disciplines while unlocking further efficiencies. 6. Scale our subscription and e-commerce offerings, particularly across TSR and our other owned properties. We have the model, the properties, and the right team in place. And while external pressures remain, the foundation we've built is strong and it's getting stronger. Thank you to our shareholders, our partners, and our team of dedicated enthusiasts for your continued support. I will now hand the call over to Alex for a deeper dive into

the financials. Thank you, Adrian. I'm happy to be back on this call to report on

our first quarter. It's been an eventful start to the year and I want to thank the team for their effort and support through it. The meaningful progress we made in 2024 has continued into 2025 and is beginning to take hold, setting us up for what will be a strong year ahead. We're operating leaner and more efficiently than ever. Our focus remains squarely on what we own and what we operate and the structure we've built is starting to show its strengths. The improvements made last year to streamline the business, concentrate on high margin areas, and exit lower value operations have carried forward and are reflected in our operational momentum.

Today,

we have a healthy monetization foundation. Higher yield and margin from our programmatic business, growing subscribers, and expanding events revenue are all driving improved contribution from every part of our business. As these revenue streams grow, incremental dollars are coming in at over 70% gross margin. When combined with our low cost base, the structure positions us to unlock meaningful adjusted EBITDA gains through 2025. In respect to 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 US dollars and are translated into Canadian dollars for presentation in our financial statements. The exchange rate between the US dollar and our presentation currency of the Canadian dollar should be monitored and considered when analyzing or forecasting results. Additionally, it's important to note that the historical financial results, specifically the comparative period of Q1 2024, does not fully reflect the changes in revenue mix as well as the cost reductions enacted throughout last year and therefore may not bear a strong resemblance to current or future results. And 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 advertising revenue streams. Q1 is the slowest seasonal period. Now let's speak about the numbers. Total revenue in Q1 was $12.2 million, down from $23.3 million in Q1 2024. The breakdown of Q1 revenue is as follows. Media and content revenue was $5.6 million, down from $15.9 million in Q1 2024, primarily due to the deprioritization of the low margin Omnia video network. E-sports and entertainment revenue was $3.6 million in Q1, up from $3.4 million in Q1 2024, primarily driven by increased event revenue. Subscription revenue was $3 million, down from $4 million in Q1 2024, primarily due to the sale of certain legacy casual gaming assets under the Addicting Games portfolio. Paid subscribers were $251,000 as at March 31, 2025, down from $259,000 as at March 31, 2024, due to the sale of the legacy assets, but up from $238,000 as at December 31, 2024. The majority of subscription revenue is sourced from the Sims Resource web property. Paid subscribers in the Sims Resource had periods of decline during 2024, but were fully recovered and up year over year to record highs as of March 31. Our gross margin improved significantly to 74%, up from 60% in Q1 2024. This is largely due to the mixed shift in revenue, as revenues from owned and operated properties now make up the majority of media and content revenue. And events and entertainment and subscription account for an increased percentage of overall revenue, with those two categories combined for approximately 54% of revenue in Q1. Orderly cash-based operating expenses decreased by well over $3 million year over year in Q1, primarily driven by decreases of $2.2 million in salaries and wages and $1.2 million in consulting. This new cost structure in Q1 more accurately represents the go-forward operating expenses of the company, with additional cost savings expected in 2025. Adjustability of the loss was $2.6 million, compared to a loss of $1.8 million in Q1 2024. From a balance sheet perspective, we ended the quarter with $1.9 million in cash, working capital, excluding current portion of long-term debt, current portion of deferred payment liability, and contract liabilities, or deferred revenue, was a deficit of approximately $4.5 million. Current portion of long-term debt includes $20.5 million under the credit facility, amounts which are not due until July 2028, but are presented as a current liability as of March 31, 2025, due to the company not being in compliance with certain covenants under the facility. Current portion of long-term debt also includes $17.1 million under the term and operating credit facilities, down from $18.5 million as at December 31, 2024, due to principal payments made during the quarter. These amounts are currently set to mature in June 2025. The company is working closely with its lenders to amend the terms of each of the facilities, including an intent to extend the maturity dates under the commitment letter and revise covenants to better reflect the company's current structure and 2025 outlook. Accounts payable in accrued liabilities decreased in Q1 from $15 million to $14 million. Looking ahead for the rest of the year, we expect to maintain gross margins at or around Q1 levels for the remainder of the year. Additional cost efficiencies are expected to come from technology support, web development, content costs, and salaries and wages, with those savings materializing in Q2 and for the remainder of the year. We continue to build our direct sales capabilities. As of March 31, we had five unranced sellers and we expect them to become fully productive through Q2 and Q3. Both dollars were up in Q1 versus Q4, a positive early signal, and were encouraged by the opportunity ahead. We also continue to push forward on our owned and operated properties. Our monetization engine is running efficiently, with stronger programmatic yield, higher subscription activations, and lower churn. We're actively positioning for growth, expanding game title coverage across platforms like UGG and ICVains, enhancing SEO, and developing new referral partnerships. These investments are designed to grow our audience, and importantly, each new user acquired today can be monetized more effectively than ever. PSR continues to hit record subscriber levels, and we're excited about upcoming product improvements that we believe will help expand its reach beyond just Sims players and deeper into adjacent creator and simulation communities. We continue to be cautious about macro conditions, particularly around CPMs. While digital advertising broadly is expected to strengthen in 2025, there remains some uncertainty, especially regarding potential tariff-related impacts in North America, which is our largest market. CPMs remain an important factor in our revenue mix. Any increase in CPMs from the current levels would be an incremental tailwind, one that would be especially impactful heading into the second half of the year. We still expect a strong seasonal lift in the second half, and particularly in Q4. Our focus remains on cash flow, disciplined resource allocation, and improving profitability at every level of the P&L. As we pursue revenue growth again this year, we're doing so in ways that protect our margins and support long-term value creation. In closing, Q1, historically our seasonally softest quarter, landed generally where we expected it to. We remain optimistic about 2025. The structural improvements made last year are in place, our monetization is stronger, and we're now well positioned to focus on audience expansion and sales growth. There's more work to do, but the building blocks are solid. With a stable high-margin foundation in place, our attention turns to growth. Our strategy is clear, scale across more game titles, roll out impactful new products, expand our reach, and engage our users more deeply. Our mission is to spend more time with more gamers, and each new user adds value across our monetization channels, from programmatic to subscriptions, to our revitalized direct sales business, which is showing strong momentum and is well positioned to rebound from recent lows. With the structure in place, we have a clear path forward towards scaling revenue, expanding profitability, and delivering long-term value for our business. And of course, ladies and gentlemen, our business is the business of gaming. Thank you, operator. I kindly turn it back to you.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Robert Young with Canaccord Genuity. Please go ahead.

Good evening. I guess that's first place to start would just be around the covenants and current status of the debt. I guess there's the June maturity and there's the, just give us a summary of the near-term movements and things that you need to accomplish to keep the

debt in good standing. No problem, Rob. This is Alex.

Yeah, I mean, in summary, there are, you know, in fact, there are two facilities. One of them matures in June, 2025, the other not for many years, but both are presented as current due to being offside with certain covenants. What needs to be accomplished is we need to continue to work closely with our lenders. We are working on amendments to those facilities. We want to do a number of things. One, we want to extend the maturity date of the amounts provided under the commitment letter. That is the facility that is coming to June 2025. We want to also amend the covenants to reflect the new kind of structure of the business and our current outlooks to bring those covenants back onside. And we do expect that all of this will be done certainly in advance of the maturity date at the end of June. We have been working very closely. We are very grateful for the partnership with each of our lenders. We are working very closely with them and we think we will have those amendments announced soon.

Okay. Now, in the worst case, I mean, you have a lot of really valuable assets probably not reflected in the current valuation. And maybe you could just give us a sense of some of the things you could do in the worst case. Are there assets which you could sell or put in some way to reduce the debt if you needed to go down that path?

Hey, Adrian. I think yes. The short answer is yes. And there are a lot of assets that are very attractive in the portfolio. And we believe that you can transact on them in the worst case scenario. And we get inbound expressions of interest all the time, which points to the competitive advantages that a lot of these assets have. And I would point out that there's probably a number of assets that we have in our portfolio that are not even household names to people that follow the company. And so, we think we're from an asset mix in a worst case scenario, to answer your question directly, that we're in a very advantageous position to deal with that.

Okay. Okay. Thanks for that. The changes you made to the SIMs, I know you mentioned some of this in the prepared remarks, I mean, one of the areas I thought is an opportunity for growth is in the subscription. I know the vast majority of that is TSR. So, the changes you're making to this new product that you're rolling out, maybe just talk about the outlook and the opportunity around subscription, particularly with TSR and other areas. Sure. I'd be

happy to. This is Alex again. Yeah, our focus has been on premium subscription packages and the way what we label premium, we view it more from a, it's a bit of a time commitment, our annual packages. And we've been trying to shift the audience into annual. We do that through pricing and packaging, we've been doing that through launch and pre-trials, which convert into annual packages, things of that nature. And we have had a lot of success. Annual subscribers now account for more than 50% of all the subscribers. The benefits of this are they have a much longer life and also a much higher LTV. So, it creates a huge store of value that can be predicted. These are the years and that can be predicted and creates a very stable long-term base. Now, so that's the one side. It also significantly reduces churn and of course you can probably see in the subscriber count, you know, a nice gain in Q1. I think it was 13,000 increase in Q1 alone, which is nice to see. What's the new product? This is 3D rendering of custom content objects in a browser, which is very technologically advanced. It sets us aside. Nobody else is doing this in the industry. So, it has two advantages for us. One, TSR is the biggest in the industry, but there is another that market for it to conquer. This advancements will really further set it apart and allow it to capture more of that market share. Secondly, the tool can allow the property and that approach, that business model to expand outside of just the Sims. That application can be applied to other games, to other communities. You know, we have teams of 3D artists there. And it's a pathway for TSR to become more than just TSR. For example, it can gamify itself, become its own dress to impress genre, which I would point out is one of the top two, sometimes top played genres on Roblox. And now we're able to do something very similar in a web browser. So, I think those are the key points. We're excited for that product and that's going to bolster subscription further.

Okay, look forward to trying that out. Maybe just to clarify one of your comments, Alex. I think you said that you expect to maintain gross margins that are around QN levels. I think also you might have said that you expect it to expand previously. So, I'm just curious about modeling gross margins for the remainder of the year. I mean, should we expect this level kind of flattish for the remainder of the year or should we expect expansion? Stabilized.

Yeah, stabilized from Q1 levels. Maybe, yeah, in the mid 70s, right at this level is what we expect. We expect that gross margins are stabilized at this level and likely will for the

remainder of the year. Okay, thank you. I'll pass the line.

The next question comes from Matthew Moss with the Riley Securities. Please go ahead.

Hi, this is Matthew from Mike Crawford. Thanks for taking my questions. I guess to start off, you said the macro remains uncertain, but have you generally seen less uncertainty as QQ has progressed? And do you think that'll lead to another sequential decline in the previously

five unranced sellers offset some of that? Hey, Matt. This is Alex.

So, what we've seen, yeah, we do remain cautious. There is volatility and volatility is not good for the market. Of course, digital ads are one of the most liquid traded units in the entire world, right? So, these are good things. But what we have seen this year, it actually is Q2 has held up reasonably well. We saw more volatility in Q1, certainly in January. I think a number of other companies, lots of large companies expressed similar on their Q1 results. So, we were certainly impacted by that in Q1. Some impacted Q2, but I'm not seeing the volatility. So, that's why I said, for example, in my remarks that we are still expecting your typical seasonal lifts into Q3 and particularly into Q4, the high season for the industry, of course. As far as the sellers, yes, we have five unranced. Now, it's in addition to our ramped, of course, but that is a good, healthy pipeline. For us, the way we measure internally, of course, there's a delay, right? When we add to the sales team, it takes time for those leads to generate, for the RFPs to come in, the RFPs to convert, and of course, for the campaigns to serve and revenue to be booked. We expect them to ramp into Q2 and Q3 and start contributing. I can tell you, Q1 was interesting. Obviously, a low point for direct sales and it is seasonally the slowest. Booked dollars were actually higher than Q4. That's a very promising indicator for me, our closed dollars. Now, we have these unranced sellers coming online into Q2 and into Q3. Another thing that we've been able to maintain recently is the average number of closed dollars per seller. There's a KPI that we monitor and that's been consistent. We do expect this pipeline of new sellers to impact direct sales positively, of course, into Q2, Q3, and of course, into Q4.

Very helpful. Thank you. I guess similar to that, given less volatility recently and normalization from January, do you think one Q represents an overall cross going forward, setting aside typical

seasonality, just a trough in general? Yes. Yeah, certainly. All right.

That covers the revenue side, but on the expensive side, advertising and promo costs, as well as some of the office and general expenses, were a bit higher than we expected for the quarter. Could we expect these to follow a similar cadence to last year, where they declined sequentially throughout the year, or how would you contextualize and project that?

Yes, they would follow a similar cadence generally. Well, OPEC will generally be consistent. This Q1 level is generally what we expect to see as a breakdown in the structure for the remainder of the year. However, we do expect further synergies. I will point out that the NFL show was retired in Q1. You'll notice when you do your analysis, of course, you'll see there's a big drop in, for example, prepaid. There were a lot of non-cash items that with the retirement of the show needed to be written off, of course, stages, that sort of thing. As they retired, they were taken off the books. That impacted some of those lines. But generally, some details are in the MDNA, but generally, we expect these generally to be flat on OPEC with certain further efficiencies, particularly in tech support and content and in salaries and wages, to begin materializing in Q2 and for the rest of the year.

Got it. Thank you. You kind of touched on this earlier. This is my last question. On the direct sell side, is the total closed dollars figure basically a bookings number? And what's the timeline you expect to recognize that as revenue?

Yes. Closed dollars in a period is a bookings. It's the bookings for that period, which, of course, doesn't necessarily line up with revenue recognition. With that said, those are generally throughout the rest of the year. We're selling some Q1, but we're also booking Q2 campaigns, Q3, and of course, Q4. We've seen a lot of strong interest. We're back to school. We had a lot of bookings for Q3. But generally, I'd say the timeline is inside the year. There are few instances where bookings, particularly necessarily in the year, span over the year end. It's between the last three quarters of the year is

when those would expect to be fully recognized. All right. Thank you. I'll hop back in the queue. This concludes

our question and answer session and also concludes the conference call today. Thank you for attending today's presentation. You may now disconnect your lines.