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spk04: Good day, everyone. Welcome to Overactive Media's third quarter 2022 results conference call. At this time, participants are in a listen-only mode. A question-and-answer session will follow management's remarks. The conference call is being 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-Pratap sorry, Pidram, Investor Relations for Overactive Media, for instructions and the reading of the Safe Harbor Statement. Please go ahead, sir.
spk00: Thank you, Michelle, and good morning, everyone. Welcome to Overactive Media's third quarter 2022 earnings conference call. A copy of the company's earnings press release is available on the Investor Relations section of our website at overactivemedia.com. With us on today's call are Chris Overholt, Overactive Media's president and chief executive officer, and Rickett Shaw, Chief Financial Officer. Today, we'll review the highlights and financial results for the third 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 notes 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 with respect to 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 forward-looking statements reflect management's current beliefs and are based on information currently available to management. and are 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 MD&A, 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.
spk02: Thanks, Bhavik, and good morning, everyone. I appreciate you taking the time to join us today. We share our third quarter 2022 earnings report. As I speak to you this morning, I can say with confidence that we're executing our plan for the fiscal year 2022 despite the challenging macroeconomic conditions. As of September 30th, 22, the company has 17.7 million or 22 cents per share in cash and believes it has sufficient funds to operate as it targets achieving a sustainable and profitable business. As a result, it does not require additional access to capital in the near term. We feel fortunate to continue to have strong balance sheet with sufficient working capital to fund our operations, allowing our senior leadership team to focus on achieving key milestones and building long-term value for our shareholders. Our sponsorship business remains strong, our leagues are underway, and our franchise teams progress nicely this season. The value opportunity around the business that we are building is showcased through both our results and by the year-over-year growth of our industry and the third-party validation of the tremendous growth in our franchise assets. I'd like to start by touching on some notable success of the publishers we're partnered with. In October, Activision Blizzard launched new game titles in both Overwatch and Call of Duty. Following the launch of Overwatch 2 on October 4th, Activision Blizzard confirmed the new game reached 25 million players in the first 10 days, and a daily player base that nearly tripled the previous daily player peak from the original Overwatch. On October 28th, the company launched the highly anticipated new Call of Duty game, Modern Warfare 2. It had the highest earning opening weekend in Call of Duty history, generating USD $800 million in sell-through within the first three days. The latest figures have it surpassing USD $1 billion in sales in less than two weeks. The Riot Games League of Legends 2022 World Championship Grand Final on November 15th absolutely smashed their previous peak viewership record. According to esports charts, more than 5.1 million fans turned in across multiple streaming platforms and channels. Twitch drew the most traffic with 2.8 million viewers on Riot Games' official accounts. It's worth noting that these metrics do not include Chinese viewers. The opening ceremony included American rapper and president of League of Legends Lil Nas X and Mr. Beast, one of the most popular YouTubers in the world. This was also the first time Riot Games allowed community streamers to cover the finals. The previous record for the event was 4 million viewers during the last year's finals. These results reinforced the fan base and potential reach around these games and the league that we're invested in. 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 levels. Our teams have wrapped up their 2022 seasons with each of Overactive's professional teams qualifying for the World Championships in their respective leagues. We're using the off-season to strategize roster builds and team development and preparation for next year. The Call of Duty League season kicks off earlier this year, and Toronto Ultra will feature a refreshed roster, We're looking forward to being a competitive season across all of our teams. It's also worth highlighting that the continued growth in enterprise value we're seeing in our franchise assets. As I spoke to last quarter, sales of League of Legends European Championship or LEC franchises illustrate a positive trend. Esports organization Misfits Gaming Group sold its League of Legends European Championship franchise slot to Team Heretics at a reported value of $55 million Canadian. 18BDS acquired an LEC franchise slot from Shaka for a reported Canadian $44 million in 2021. OverActive acquired an LEC franchise in 2019 that operates under Mad Lion's brand for $12 million Canadian. As Rakesh will share in more detail in a moment, our business continues to see positive momentum coming out of Q3. Our record revenue growth of 23% helps position the company well for the remainder of the year. This growth was driven primarily by our strategic marketing sponsorship business and the live events that we hosted this summer. In particular, the long-term recurring revenues by our previously announced partnership and partnership renewals with Zilliqa, Bell, and TD Bank Group, and the Overwatch League event we hosted in September. When we connected last quarter, we were heading into hosting our second major esports event of the year, Canada's first-ever Overwatch League tournament. The Toronto Defined Summer Showdown Toronto Our tournament, powered by Bell, took place from September 8th to 11th at Mattamy Athletic Center. Our Toronto Defiant proved the power of homestand energy, earning their best finish in the team's history in front of hometown crowds. The team secured third place playing through to the final day of the four-day event. A highly anticipated event allowed us to connect and engage with the Overwatch community across both the Summer Showdown and Major 3 tournaments held this year. Approximately 12,000 fans attended Tuesday. to the experience of best on best of some of the greatest professional esports players around the globe. The success of this year's events confirmed the demand for new existing fans for in-person events, and this community shows no signs of slowing down. We've confirmed that once again. Toronto Ultra will welcome professional Call of Duty to Toronto for a world-class experience at Major 5 from May 25th to 28th in 2023. The tournament will continue to raise the bar in the esports industry, giving the next generation of fans an unparalleled live experience with few surprises along the way. 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. Thank you once again for joining us today. At this time, I'll pass the call on to Rakesh, who will provide a more detailed review of our financial results.
spk03: Thank you, Chris, and good morning, everyone. Today I'll review our third quarter 2022 financial results. Please note the financial information we discussed today is prepared in accordance with IFRS, International Financial Reporting Standards, and is in Canadian dollars unless otherwise indicated. For the third quarter of 2022, we reported total revenues of $5.8 million, 6% year-over-year increase driven organically by a 23% increase in business operations revenues. that a result of higher sponsorships. In addition, for the third quarter of 2022, we reported adjusted EBITDA loss of approximately 0.4 million compared to a loss last year this time of 0.3 million. The quarter includes hosting our Overwatch League Summer Showdown live event versus last year where we did not host events due to COVID-19. For the nine months ending September 30, 2022, we reported total revenue of $10.2 million, a 15% year-over-year increase driven primarily, again, by higher sponsorship revenue. In addition, for the nine months ended September 30, 2022, we reported adjusted EBITDA loss of $6.4 million. versus approximately $4.6 million during the comparative prior year period. The operating costs are attributable again to hosting live events. Our year-to-date results highlight our ability to generate long-term recurring revenues, resulting in business operations revenue increasing by 37%. driven by, again, higher sponsorship revenues. And additionally, our cash position allows us to fund operations and continue to provide flexibility to pursue targeted strategic acquisitions and opportunities in line with our long-term goals that increase our industry presence and capabilities, as well as enhance our growth trajectory. That concludes our prepared remarks, and now I'd like to open the call for questions. Operator, please go ahead.
spk04: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be polled in the order they are received. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. The first question comes from Dave McFadgen of Cormark Securities. Please go ahead.
spk06: Oh, hi. Yeah, thank you. So the question really just revolves around what you talked about in terms of a difficult macroeconomic environment. It looks like, you know, we're probably going into a recession here. So I was just wondering how easy is it for your sponsors to say – pull back on spending if the macro environment gets tough. I'm just wondering how much they're locked in.
spk01: Hi, David. Good morning.
spk02: Obviously, I'm not able to comment on the subtlety or confidentiality of our contracts with each of our partners. I can tell you that Tyler's group has been working consistently from the beginning to develop long-term strategic partnerships rather than to have transactional relationship with brands. Now, in some cases, we do testing with brands as a matter of getting them started in the space and that was actually true of some of our biggest partners in the early years. They were then later converted to multi-year deals. But on balance, most of our business is locked in for two or three years or longer. And so, again, we can speak with confidence around the growth and development of our sponsorship number.
spk06: Okay, that's great. So just like if someone enters into a two-, three-year deal, they've committed these amounts that they're going to spend for the next two, three years irrespective of the economic environment. Is that the way you understand it?
spk02: Again, we have a contract with those partners. With that hypothetical partner over that period of time, we have an obligation to provide value in exchange for
spk06: fees paid so yes each party has an obligation to itself in that contract moment okay okay um and then just on the um franchise fees as we uh you know obviously the team winnings is very difficult to predict um but just on the franchise fees i was wondering if you could comment on on the outlook for those if if we're going into a more difficult economic environment. Does that change at all or is that pretty locked in as well?
spk02: Yeah, I mean, our obligations are to Activision Blizzard contractual, to League of Legends and Riot Games contractual. But I think what I know you and we have talked about, David, in the past is the great flexibility that has come to our business as a result of these great relationships with the biggest publishers in the world. Again, we take confidence in our relationship with Rye Games and with Activision Blizzard for exactly that reason, as we've said from the beginning of the company. Adam can certainly speak to the conversation around the leagues and so on, but again, we've seen consistent, great flexibility in these difficult times and enjoy a continued great partnership with both of those publishers.
spk01: Adam, I don't know if you want to comment further on that in particular.
spk05: Sorry, Adam's not on the line.
spk01: Oh, I'm sorry.
spk02: David, I'm in Vancouver today, so I'm not able to see that Adam's not on the line. Apologies.
spk06: Oh, okay. Yeah, no worries. Okay, that's it for me. Thank you. Thanks, David.
spk04: Thank you. The next question comes from Tawaki Dojima from TD Securities. Please go ahead.
spk07: Hey, thanks for taking the question, guys. Just following up on The first question on sponsorships. If you look at business operations revenue growth, it slowed to 23% year over year. And last quarter was 52, Q1 was 40. And I had thought that given new partnerships, you had Zilliqa, you had Novus, and then the Bell renewal, the TD renewal in 22. And on top of that, with a tailwind from live events revenue, I thought that there would be a little bit more growth in that revenue line item. So kind of going back to that, topic maybe if there's no way for these sponsorships to back out are there were there a material number of short-term kind of the trial type sponsorship partnerships in 21 that maybe didn't get renewed or is there another reason kind of for that slowdown yeah good and good intuitive question um i'll provide a little detail and rick if i miss anything you can highlight it for me
spk02: The Bell deal and the Bell renewal that we announced actually was for 2023 forward. So the deal was solidified and contracted, but we were heading, we always set our deals up to walk you so that we've got a long tail and a good advanced window to renew them. Then we work to get the contract secured for the future. Then we announced them because we're obliged to, of course, but the red, the future revenue from the Bell deal starts in 2023. There's a little bit of money that'll be attached to call of duty, given it's early start this year, but on balance, Most of that deal and that revenue doesn't show up until then. We did have a couple of trial deals, and it actually shows up in this quarter's numbers. We did a deal Q4 last year. Again, I wouldn't be obliged to talk about – sorry, can those in the room at Overactive Media keep us on mute because it's echoing? Thanks. Again, we did a Q4. deal or Q3 deal last year with Crave Frozen Foods that was a test deal. It was a significant test deal around Call of Duty playoffs. Again, the particulars of which show up in the numbers. Again, it is fluid year over year, quarter over quarter in that way. David, we're always looking to test. We just did another test recently with a new brand that had just joined us. We're always looking for those opportunities around moments and beats across the calendar. But on balance, again, maybe the disappointment that you're expressing in our growth numbers around those big deals is in part because that bell deal won't show up until next year.
spk07: That's good to hear. And kind of following up on the renewals, I know you can't comment on particulars, but directionally speaking, is it fair to assume that these are a step up relative to the prior contract that they've had?
spk01: It certainly is.
spk07: Perfect. And switching to team revenues, it was relatively flat, despite, I think, non-recurring prize money of, what, a million, a little, 1.3 million, I think, in 2, 3, or 21. And so is it fair to say that basically the entire shortfall was covered by increases in league revenue share? And were there any timing impacts on that, or was it just that there was a higher revenue from league share?
spk02: Yeah, Rick, do you want to cover that?
spk03: Yeah, Tawaki. So there is seasonality to the way we recognize that league revenue, and we do it on season end. And in this case and in this year, the Call of Duty league did end in August, and we had line of sight to what that league revenue was, so we did recognize it in the third quarter. So there's a timing impact because of that quarter over quarter.
spk07: So does that mean, relatively speaking, relative to Q421, some of that gets pulled forward on a regular basis?
spk05: Yeah, that's right. And that's it for me. Thank you.
spk04: Thank you. Next question comes from David McFadgen of Cormark Securities. Please go ahead.
spk06: Oh, hi. Yeah, I just thought I'd squeeze in a follow-up. I was wondering, can you guys give us an update on the Valorant team that you guys are starting?
spk01: Yeah, sure. Riot's been through its process.
spk02: Valorant, as you may know, David, it sounds like you've been following. Valorant is setting up again, as a reminder, in a couple of different tiers. One is in a, I'll call it a hybrid franchise model that Riot had proposed. We looked pretty hard at that. At this time, couldn't really make sense of it in a collection of ways. Riot had their own process for selection as well. So at this moment, we're not expecting to be involved in the Valorant ecosystem as we see it today. We are continuing to look at the game. Certainly, as we've noted before, it is a fast-growing game. And we'll watch the Valorant Championship Series kind of take shape this year. But, you know, we're not quite there yet. And we're going to keep our eyes on it. But on balance, we're not ready to enter the Valorant space.
spk05: Okay. All right. Okay, thank you.
spk04: Thank you. I show no further questions in the queue. At this time, I'd like to turn the call over to Mr. Chris Overholt, President and CEO, for closing remarks.
spk05: Overhold, please go ahead.
spk01: Thanks, Michelle. Sorry, just getting to the end of my script here.
spk02: I'm working off my computer today. But thanks, everybody. Again, we continue to be really positive with the business we're building, the core fundamentals we have in place around this. We've seen quite a bit of industry progress I think in the last six months, I think it's fair to say the industry is, again, meeting the challenging headwinds of the economy. And I think Overactive Media is positioned quite well for the reasons we've highlighted over the years. We've got a core business here that is substantial and scalable, partnered with the biggest publishers in the world. And again, our confidence remains. So I'll leave it at that. But thanks, everybody, for joining this morning.
spk01: And of course, happy to speak offline.
spk04: Ladies and gentlemen, this concludes today's conference call. We thank you for participating and ask that you please disconnect your lines.
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