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spk06: Good day, everyone, and welcome to Overactive Media's second quarter 2022 conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow management's remarks. This conference call has been recorded, and a replay of today's call will be available on the Investor Relations section of Overactive Media's website and will remain posted there for the next 30 days. I will now hand the call over to Mr. Babak Pedram, Investor Relations for Overactive Media, for introductions and a reading of the safe harbor statement. Please go ahead, sir.
spk03: Thank you, and good morning, everyone. Welcome to Overactive Media's second quarter 2022 earnings conference call. A copy of the company's earnings press release is available on the Investor Relations section of our website, overactivemedia.com. With us on today's call are Chris Overholtz, Overactive Media's President and Chief Executive Officer, and Rakesh Shah, Chief Financial Officer. Today, we'll review the highlights and financial results for the second quarter of 2022, as well as recent developments. Please note that unless otherwise specified, all amounts mentioned on today's call are in Canadian dollars. Before we begin, I will read our cautionary note regarding forward-looking information. Certain information to be discussed during this call contains forward-looking statements within the meaning of applicable security laws, including, among others, statements concerning the company's 2022 objectives, the company's strategy to achieve those objectives, as well as statements which respect management's beliefs, plans, estimates, and intentions, and similar statements concerning anticipated future events, results, circumstances, performance, or expectations that are not historical facts. Such overlooking statements reflect management's current needs and are based on information currently available to management and is subject to several significant risks and uncertainties that could cause actual results to differ materially from those anticipated. Also, our commentary today will include adjusted financial measures, which are non-GAAP measures. These should be considered as a supplement to and not as a substitute for GAAP financial measures. Reconciliations between the two can be found in our management discussion and analysis which is available on CDAR.com and our website. At this time, it is my pleasure to introduce Chris Overholt, President and CEO of Overactive Media. Chris, please go ahead.
spk05: Thanks, Patrick. Good morning, everyone. I understand it's a busy day for conference calls, so thanks for taking the time to join us today as we share our second quarter 2022 earnings report. As I speak to you this morning, I can say with confidence that we are executing our plan for the fiscal year 2022 with precision. and as we predicted. Our sponsorship business remains strong. Our leads and teams are progressing nicely within the season, and we continue to enjoy the momentum we witnessed as we wrapped up 2021. The value opportunity around the strong and scalable business that we are building is showcased through both our results and by the year-over-year growth of the industry and the third-party validation of the tremendous growth in our franchise assets. Most recently, it's worth touching on some notable transactions that do just that. Esports organization Misfits Gaming Group announced the sale of its League of Legends European Championship or LEC franchise slot to Team Heretics at a reported value of $55 million Canadian. The deal marks the second sale of an LEC slot following CBDS's acquisition of an LEC franchise slot from Chaco for a reported $39 million in 2021. Overactive Media acquired an LEC franchise in 2019 that operates under the Matt Lyons brand for $12 million Canadian. Additionally, Faith Clan, an esports and content creation collective, began trading on the NASDAQ via SPAC, or Special Purpose Acquisition Company, in the quarter of evaluation, now north of a billion dollars U.S. By our calculations, Faith Clan looks to be approximately two to two and a half times larger than Overactive on a revenue basis, and went public at evaluation roughly 20 times greater than our current market cap on the TSX Venture Exchange. We think this is a comparable and bearish monitor. As the catch will share in more detail in a moment, our business continues to see positive momentum coming out of Q2. Our expenses and net loss were higher in the current quarter, driven in part by our investment in hosting the first ever Call of Duty Major in Toronto in June. While our year-over-year business operations revenue growth of 52% further supports the momentum we are seeing, positioning the company well for the back half of the year. This growth was driven primarily by our strategic marketing sponsorship business. In particular, significant partnership renewals with Bell and TD Bank Group signal sustained confidence and belief in all that we're working towards. Bell is Canada's largest communications company and a key strategic investor in Overactive. A partner of ours since 2019, they signed on for an additional three years. Meanwhile, TD is the official bank of Overactive and our two Canadian professional esports teams, Toronto Ultra and Toronto Defiant. And they extended their multi-year, multi-million dollar sponsorship for an additional five years. Both of these long-term commitments to our business provided us with the opportunities for premium experience to esports fans across Canada. With regard to our team's business, we remain focused on talent identification and coach development. As an organization, our goal is to build and deliver consistently top-performing teams that compete at the highest level. A few highlights worth noting include, of course, our Mad Lion League of Legends team and our New Gallery team. Our Mad Lions League of Legends team is in first place in the European League. The team is currently competing in the LEC Summer Split, the second half of the 2022 League of Legends European Championship. The championship will determine the seating for the summer playoffs, where six of the league's 10 teams will compete for the European Championship and subsequently for the qualification of the World Championships. On the Valorant side, subsequent to quarter-end UC1, we announced our entry into the Valorant esports ecosystem, designing the top European roster of players. The team proceeded to have an incredible regular season, finishing with a 17-1 record. They made it to the grand final at the VRL 2022 France Revolution, where they ultimately placed second. When we connected last quarter, we were heading into hosting Canada's first-ever Call of Duty League, tournament in Canada. The Toronto All-Term Major 3 tournament, powered by Dell, took place from June 2nd to 5th at the Mattamy Athletic Center. Formerly known as Maple Leaf Gardens, this historic building pioneered a new generation of sports with a major esports tournament featuring the best of Paul's BB players in the world competing for a $500,000 USD prize purse. With 8,000 fans in attendance, Major 3 set a new standard, furthering the city's position as a global leader and in the industry. Driven by the fans and the home field advantage, Toronto also finished third with a dramatic run through the elimination bracket. Building on the success of Major 3, we're currently preparing for our second major esports event of the year, the Toronto Compliance Summer Showdown powered by Bell, also taking place at the Matinee Athletic Centre. The Overwatch League event will be the first of its kind in Canada, running from September 8th to 11th. We're excited to bring the Overwatch community together, provide them with a personal and authentic entertainment experience that will once again set us apart. And so our momentum continues. We remain keenly focused on our vision for building a sports media and entertainment company for today's generation of fans. Thanks once again for joining us today, and at this time, I'll pass the call on to Rakesh to provide more detailed review of our financial results.
spk04: Thank you, Chris, and good morning, everyone. Today, I'll review our second quarter 2022 financial results. Please note the financial information we discussed today is prepared in accordance with International Financial Reporting Standards, IFRS, and is in leading dollars unless otherwise indicated. For the second quarter of 2022, we reported a total revenue of $2.3 million and 11% year-over-year increase driven primarily by higher sponsorship revenue. That's offset by a decline in non-recurring team-related prize money awarded in the same quarter last year. Revenue follows a seasonality pattern. The elite-related revenue share earned on completion of the season in the second half of the fiscal year. In addition to the second quarter of 2022, we reported adjusted EBITDA loss of $3.9 million, a 190% increase compared to the loss of $1.9 million during the comparative prior year period. The increase is attributable to increases in operating costs driven primarily by increases in SG&A as a result of higher sponsor revenues, live event costs, and bonuses. In the case of live event expenses, they were not incurred in 2021 due to COVID-19. As for bonuses, OAM accrues for the cost on a quarterly basis in 2022 versus 2021 where the full amount was accrued in Q4. For the six months ending June 30, 2022, we reported total revenue of $4.4 million, 30% year-over-year increase driven primarily by higher sponsorship revenue. Once again, strong gains in sponsorship revenue were offset by decline in the non-occurring private money revenue awarded to the teams in the prior period. In addition, for the six months ended June 30th, 2022, we reported an adjusted EBITDA loss of $5.9 million. 39% increase compared to the prior year loss of $4.4 million. The operating cost increase is again attributable to the same SG&A live event and bonus cost that I described for the quarter. Our Q2 results highlight our ability to generate long-term revenue. Evidence by business operation revenue increased by 52% and driven by higher sponsorship revenue. Additionally, our cash position will give us added flexibility to targeted strategic acquisition opportunities in line with our long-term goals that increase our industry presence and capability, as well as enhance our already considerable growth trajectory. We continue to be excited for the balance of the year, as well as the future, and look forward to sharing our progress with you next quarter. That concludes our prepared remarks. I would like to open the call for questions. Operator, please go ahead.
spk06: Yes, sir. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchstone phone. If you're using a speakerphone, please pick up the answer before pressing the keys. If any type of question has been addressed and you'd like to retire your question, please press star, then 2. I did add a star, then 1 to ask a question. At this time, we'll just pause momentarily to assemble our roster. And the first question we have will come from David McFadren of Cormark Securities. Please go ahead.
spk02: Yeah. Hi, guys. A couple of questions. So just looking at the team operations revenue and, you know, I know it was down because you didn't have any, say, prize winnings or less prize winnings in the quarter, but I would have thought that the franchise payments would have been maybe bigger? Is it just because they're so heavily weighted in Q3 and Q4? That would be the first question. And secondly, just on the decrease in the present value of franchise obligations, I was just wondering what franchise that related to. Thanks.
spk04: On the first question, yes. The lead revenue share is reported in the back half of the year. On the second question, We can't reveal for confidentiality purposes which leaks deferred payment, but there were deferrals in the quarter, and that's reflected in the financials.
spk02: Okay, but that decrease in the present value franchise obligations, that wasn't – I mean, that's related to the three core franchises, right? One of those three? Yes. Yeah, okay. All right, thank you.
spk06: The next question we have will come from Tawaki Dojima, a PD.
spk00: Thanks for taking the question, guys. I've got two, and starting off with a more big picture question. I just wanted to kind of get a sense of if there are any big differences between sponsors in North America and Europe. I know LEC seems like they're doing well, and whether conversations with sponsorship partners, whether, you know, the team being in the top of the brackets or in lower brackets, if that plays any part in any of your conversations.
spk05: Good morning to all. It's Chris. Actually, our sponsorship business from a revenue perspective and a corresponding partner account is pretty much split down the middle. So other than the currency, really there isn't a significant change. We've equally done, you know, really significant deals on both sides of the water. And so, no, we're actually having equal success, I would say, on both sides. We have two bank deals. We only have the Bell deal. We don't have a Telco deal in Europe. But, no, I would say our business is quite balanced there. I would say to you... From an LEC perspective, given the way that team's progressing, and Adam made the comment yesterday in our board meeting that if we are successful qualifying once again for the World Championships, which at this moment we would say we would hope and expect to do, then we would be the first team in the modern, or the only team, in fact, in the modern era of the League of Legends Championship in Europe. to have done that. So, you know, that performance momentum certainly helps in sport. Winning matters. And so we would hope that that would fuel for the development on that side of the water. But again, we've had, I would say, a balanced level of success on both sides.
spk00: All right. Thanks. Sounds great. And my second question is, I know at the end of your comments, Rakesh, you talked about cash being used for targeted acquisition opportunities. First, Are there broad targets that you're looking at, and is it more about waiting for private market valuations to come down, or are target opportunities still being looked at? And as a follow-up on that, with the share price coming down to where it's at now, have there been any conversations about a potential around buybacks, or are M&A and buybacks kind of on hold until a decision on the arena is made?
spk05: Yeah, we've not had any discussions about buybacks at all, so that's an easy answer. With respect to M&A, look, I mean, in a market on a global basis that is, you know, weakened, I suppose, could be fairly said, we are always looking for great opportunities and opportunities to grow and scale our business. You know, I'm not obviously at liberty to tell you if we're working on anything in particular, So I can't comment on that. But listen, markets like this create opportunities for value acquisition. So we've certainly got our antenna up.
spk00: Perfect. Thanks for the answer.
spk06: Thanks, Todd. Again, as a reminder, if you'd like to participate in today's Q&A, please press star, then 1 on a touchstone phone. Again, at a star, then 1 to ask a question. Next, we have Mike Stevens of Eteron Wealth Partners.
spk01: Hi. Good morning, guys. Thanks for taking my questions. I was wanting to start with the team operations. I know that prize winnings are pretty variable year to year, and it's not necessarily a large component of your business, like the actual revenues itself. But I'm just trying to get a better sense for year to year what a good year is could kind of generate with those prize winnings and maybe, you know, mediocre year, just the range or, and I know that that will probably grow with those, that pool will grow with the growth of the sport, but any color there?
spk05: You know, prize winnings are not something that, you know, again, our entire business model is built on scalable, high margin revenue opportunities and attached to these assets and leads. And so prize money is not something we actually, think about it in that way. It's obviously in a good year, it's helpful to the top line, but it's also low margin because in our relatively low margin next to the rest of our business, because of course we share some of that prize funding with the players. So, you know, there's no, I don't think there would be a bellwether for what's a good year or a soft year. It's just the case that, you know, as compared to last year this time, we have not progressed in the same way as we did for the reasons that people are mentioning in the information.
spk01: Okay, thanks for that. And as it pertains to your tournament, obviously it was a pretty big success and the energy was pretty electric. I'm just wondering... In terms of any learnings for your upcoming Overwatch tournament in September, are there any areas of focus that either qualitatively or to boost your ROI on these kind of live events?
spk05: Yeah, I think that's an interesting question. I think if Matt or Allison were on the call, I think they would tell you that they have a long list of learnings to go with setting up a project like that. It's a big effort, and it takes a lot of people a lot of time to create the list that we executed there. I would also say just one more time, I think they did a fabulous job. The execution of that event, its impact, and as you say, Mike, the electric attachment to the crowd and the event broadly was everything we hoped for. Short of our team winning the championship, I don't think we could have asked for a better weekend. Yeah, I would say we'll still be learning probably three years from now as this industry grows and as the market around esports broadly grows around these leagues. We're already applying some of those learnings to our plan for the September event, of course. I would also say that the first learning and understanding that anybody should take from this is that the Call of Duty audience and that fan base is different than The Overwatch audience is different than the League of Legends or the Valorant audience. Each is subtly to its own, and we certainly are trying to take that into consideration in terms of research that we have of our fan base, what they value in a live event experience, how they value coming together. The other things are, I suppose, the... You know, to focus on pricing, I used to run the Maple Leafs and Raptors season ticket and ticket pricing for years. And, of course, you take learnings from that each and every year. You test, of course, as you go along with different offerings and pricing models. So we'll continue to do that as well as our impact on the audience and fan base here at Grossman.
spk01: Okay, thanks for that insight. And then a last one on your – recent partnership with Zilliqa. I was just wondering six months in, I know things are early, but you know, any insights from that partnership, any activations or experiences in the metaverse yet or any plans?
spk05: Yeah, you're quite right to suggest that it's early and you know, Tyler and our marketing team has been having lots of discussions with Zilliqa as they build out their platform. We do expect to be moving in the direction of testing some products, I would say, in the latter part of this year or early in the next year. And certainly, as we imagine, you know, together with Zilliqa, what a metaverse opportunity it might look like for an organization like ours. We get pretty excited, but it's too early to share any more than that.
spk01: Okay. Thank you very much. Appreciate your insights.
spk06: Thanks, Mike. Well, I saw no further questions in the queue. At this time, I'd like to turn the call back over to Mr. Charles Overholt, President and CEO, for closing remarks. Sir?
spk05: Thank you very much. I'd like to thank everyone again for joining us, for your continued interest, of course, in overactive media and the ongoing discussion, frankly, that we have with all of you in between these calls. We really appreciate your interest and continued support. If you're based in Toronto, I encourage you to take time to check out our Summer Showdown. We'd love to have you, especially if you missed the opportunity around Major 3 in June. We're set to host Overwatch again in September. And, again, it would be great to have everybody together. We love when we are able to create moments to bring our fans together as a community. We'll look forward to having follow-up conversations with many of you, I'm sure. And, again, thanks very much for joining us. Have a great day.
spk06: And we thank you, sir, also to the rest of the management team for your time. Ladies and gentlemen, this concludes today's conference call. Thank you again all for participating. Have a wonderful and blessed evening.
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