OverActive Media Corp.

Good morning, everyone, and welcome to Overactive Media's second quarter conference call. At this time, participants are in a listen-only mode. A question-and-answer session will follow management's remarks. This 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. It 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 reading the Safe Harbor Statement. Please go ahead, sir.

Thank you, Joelle, and good morning, everyone. Welcome to Overactive Media's second quarter 2024 earnings conference call. A copy of the company's earnings press release is available on the IR section of our website at overactivemedia.com. With us on today's call are Adam Adamu, Chief Executive Officer, and Rakesh Shah, Chief Financial Officer. Today, we'll review the highlight and financial results for the second quarter 2024 and recent developments. 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 2024 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 supplements, not a substitute for GAAP financial measures. Reconciliations between the two can be found in our management discussion and analysis, which is available on cdarplus.ca and our website. At this time, it is my pleasure to introduce Adam Adamu, Chief Executive Officer of Overactive Media. Adam, please go ahead.

Good morning, everyone. Thank you for joining today's call. We are seeing the benefits of our considered and focused approach to esports in the current quarter. In the second quarter, we saw a 71% increase in revenue relative to the same quarter in 2023, and only a 31% increase in associated operating expenses. Combined with other income, this resulted in a 52% improvement in adjusted earnings. Our progress this year is driven by several key factors. We've leveraged our access to top digital storefronts in games like Call of Duty, Valorant, Counter-Strike 2, and League of Legends. These platforms not only provide high quality recurring revenue, but also strengthen our operational leverage. Our expanding fan base has established us as one of the leading esports organizations in terms of viewership and engagement. This prominence attracts both regional and global brand sponsorships and, coupled with our digital storefront access, positions us to sell digital merchandise associated with our brand to a large and growing audience of fans. Additionally, our recent acquisitions are enhancing our margins and adding value for our shareholders. These strategic moves have proven beneficial in boosting our financial performance. Our strong partnerships with the leading esports publishers and tournament organizers also give us a direct influence on the industry's evolution. This quarter is the first to fully reflect our comprehensive approach to esports, and I'm proud of what we've accomplished. Let me highlight some of our key accomplishments. The new long-term agreement with the Call of Duty League, which became effective in April, marked a significant turning point in our business. This agreement eliminated over $35 million in outstanding entry fees and allowed us to realize a $2.7 million cash termination gain. Relative to the same quarter in 2023, our working capital has increased by 57%. Aside from various deferred tax liabilities, which are payable only against future profitability, and given our strong net working capital position, we are virtually debt-free. I'm very proud of this accomplishment. During this time, we have acquired five businesses and acquired teams in the most important and sought-after leagues. These tremendously valuable assets are central to our business, and few others have the mix of teams, franchises, brands, engagement, and reach that we have assembled. Our agreement with the Call of Duty League has also opened new revenue opportunities, particularly through digital in-game merchandise and licensed third-party tournaments. On the digital merchandise front, I'm proud to announce that Toronto Ultra leads all Call of Duty League teams in the sale of digital merchandise by units and revenue in 2024. This revenue stream replaces what was previously a minimum guarantee to teams from the Call of Duty League and provides a strong upside to teams like Toronto Ultra that have a committed global fan base, strong marketing ability, and a commitment to hosting annual majors in front of live audiences. Our percentage share of this revenue stream is set to grow in 2025 and again in 2026. Having successfully finalized agreements with Overwatch 2 in 2023 and Call of Duty in 2024, we are now focused on our discussions with Riot Games to finalize a new model for the League of Legends esports ecosystem. We expect these discussions to be completed by the end of the year and we will have more to share soon. The acquisitions of the Koi assets and Movistar Riders in the first quarter played a pivotal role in building our market presence, particularly in Spain and across Europe and in Mexico and Latin America. These acquisitions have expanded our operational capabilities and contributed meaningfully to our financial results in this current quarter. The positive impact of these acquisitions on our revenue and adjusted earnings underscores the impact of our strategic growth initiatives. We believe that these acquisitions will continue to positively impact our return with an even stronger second half of the year. Additionally, our position in the esports ecosystem was significantly strengthened via our entry into the Valorant Champions Tour, EMEA, and the launch of Movistar Koi into that ecosystem. Our entry is driving both fan engagement and financial return. This franchise, less than a year into our ownership, is in the top 40% of all teams globally for digital merchandise sales on the Valorant storefront. We expect this to be a positive long-term driver to our business. Our Counter-Strike 2 team, also under the Movistar Koi brand, qualified for the first ever Counter-Strike 2 major in 2024. This provided us with access to digital merchandise sales via the Steam online marketplace, and we saw strong sales in the first six months of this year as a result. Our other teams are performing exceptionally well. Toronto Ultra played third in the Call of Duty League in 2024 after winning Call of Duty Major 1 earlier in the year and placing second in the Call of Duty Toronto Major this summer. Toronto Defiant, our Overwatch 2 team, is virtually undefeated in North America this year and finished second at the Esports World Cup last month. Our League of Legends team, Mad Lions Koi, has locked in a top three finish on the season and is set to compete in Munich for the LEC Championship and a place in the World Championship later this year. Congratulations to all of our teams, players, and staff for another outstanding year on the competitive service. Beyond the numbers, Q2 2024 was a period of strategic advancement that laid the foundation for sustainable growth. We are thrilled to welcome Neil Duffy as our Chief Commercial Officer for the Americans. Neil's extensive experience in driving commercial success will be instrumental as we expand our footprint across the Americas. We also saw significant expansion in our strategic partnerships, securing new collaborations with global brands like Monster Energy, Cupra, Mao, and Owo. These partnerships are a testament to the strength of our brand and our ability to attract leading companies to see the value in connecting with our passionate and highly-envied fan base. OverActive Media stands as a leader in the gaming industry, and I am honored to guide this exceptional organization. We remain committed to delivering value to our shareholders, partners, and fans while shaping the future of the industry through innovation and leadership. I will now turn the call over to Rakesh Shah, our CFO, to provide more detailed insights into our financial performance.

Thank you, Adam, and good morning, everyone. Today, I'll briefly review our second quarter financial results for 2024. Please note the financial information we discussed today is prepared in accordance with international financial reporting standards and is in Canadian dollars, unless otherwise indicated. For the three-month period ended June 30th, 2024, we reported total revenues of $6.6 million, a significant increase of 71% compared to the same period last year. And this revenue increase was driven by several factors, including the full quarter contribution from the acquisitions of Movistar Writers and Koi, which closed earlier this year, and strong performance from our movie star Koi team, which is in our Valorant Champions Tour EMEA team, which continues to drive significant fan engagement and viewership. For the first six months of 2024, total revenue was $10.3 million, and that represents an 88% increase year-to-date compared to the first half of 2023. This growth reflects, again, the positive impact of our strategic acquisitions and the strengthening of our core business operations. Operating costs for the second quarter were $8.6 million and an increase of approximately 31% compared to the same period in 2023. This increase in costs is primarily due to the one-time integration expenses for the acquisitions and ongoing operational costs for the newly acquired teams. And nonetheless, we continue to manage overall costs to ensure that we are driving efficiencies and supporting revenue growth. Adjusted EBITDA for the second quarter showed significant improvement with a reduced loss of $1.2 million compared to a loss of $2.5 million in Q2 2023. This represents a 52% improvement year-over-year driven by strong revenue growth and strategic cost management. Our cash position as of June 30th, 2024 stood at $9.2 million. That ensures that we have the financial flexibility to continue executing our strategy with fiscal discipline. Additionally, as Adam mentioned earlier, we further strengthened our financial position with a $9.8 million gain from the termination of the Call of Duty League franchise obligation. This gain combined with the elimination of $35.2 million in the cash franchise fees, along with a $2.7 million cash infusion from the new long-term agreement with the Call of Duty League, provide substantial financial support for our ongoing initiatives.

That concludes our prepared remarks. I'll bring it back to the operator.

At this time, I will now turn the call to Adam Adamu, Interim CEO over active media for closing remarks.

Thank you all for your continued support. I look forward to our journey ahead. Have a great day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.