Enthusiast Gaming Holdings Inc. (EGLX) Earnings Call Transcript & Summary

Hello, and welcome to the Enthusiast Gaming Fiscal Fourth Quarter and Full Year 2022 Financial Results Conference Call. [Operator Instructions] 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.

Thank you, operator. Good afternoon, everyone, and thank you for joining Enthusiast Gaming's Fourth Quarter and Year-end 2022 Financial and Operating Results Call. My name is Eric Bernofsky, the Chief Corporate Officer of Enthusiast Gaming. With me today is our new Chief Executive Officer, Nick Brien; our Chief Financial Officer, Alex Macdonald; President, Bill Kara; and SVP of Legal, JB. Elliott. We'll begin with some prepared remarks from Nick and Alex before opening the floor to questions. Before we begin, I'd like to remind everyone 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 for the 3-month period and year ending December 31, 2022, which are available under the company's profile on SEDAR and EDGAR as well as on the company's website, enthusiastgaming.com. You're 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 statements as a result of new information, future events or for any other reason. Now with great pleasure, I'd like to turn the call over to Nick Brien, CEO of Enthusiast Gaming. Go ahead, Nick.

Thank you, Eric. Good afternoon. It's a pleasure to be with you all today. Thank you for joining us on our Fourth Quarter and 2022 Year-end Financial and Operating Results Conference Call. I'm looking forward to continuing to get to know you, our shareholders and analyst community, and share my insights on why I believe Enthusiast Gaming is uniquely positioned to become a leading player in the gaming media and entertainment industry for many years to come. I'm very excited to be your Chief Enthusiast Officer. Enthusiast has built an incredible foundation for growth. A broad portfolio of gaming assets that reflects the diverse entertainment needs and habits of younger people. I'm confident that when the unique power of our communities, creators, content and commerce are fully integrated, meaningful long-term value will be created for all stakeholders. Our 2022 financial and operating results continue to demonstrate that Enthusiast Gaming is on a path to achieving sustained profitability. The company performed well in each of its main KPIs, including, revenue, gross profit, gross margin, direct sales and subscriptions, despite challenging macroeconomic conditions that impacted programmatic advertising revenue in the second half of the year. Notwithstanding this challenge, we continue to diversify the business away from commoditized low-margin revenue, both higher-margin, solutions-based mix, which is evident in the rapid gross margin acceleration, up 870 basis points in 2022. This margin growth is being fueled by strong demand for bespoke content and brand solutions, subscription and product-based offerings as well as strong performance within our Pocket Gamer Connects' live events division. Finally, our investment in 2022 and, in particular, in quarter 4, to launch a content initiative with the National Football League called Tuesday Night Gaming gained significant momentum exiting the year as evidenced by the growing fan engagement and new brand participation in the series. In a few short weeks I've been here, I've being meeting with internal leader and Enthusiasts and doing a deep dive on the business. I'm looking forward to continuing that work, intensely, in the next coming weeks. We continue to see massive disruption across the media and entertainment landscape, and with disruption comes huge opportunities. Gaming is the largest and fastest-growing entertainment vertical in the world with more than 3 billion people playing games, creating and consuming content and sharing fan experiences. I believe the entertainment industry is on the cusp of great change. From how media is consumed to how media is bought, change is the one constant, I believe that Enthusiast can swiftly evolve its business model to capture an increasing market share. Subsequent to the year-end, we rose to become the #1 gaming property in the United States, the unique visitor traffic for the month of January as measured by Comscore, which is a leading independent media measurement firm, and is certainly one of the most widely used measurement sources by advertisers and agencies for making ad buying decisions. We have grown by 350% over the past 3 years on the path to becoming the #1 destination in gaming. This ranks Enthusiast Gaming as a top 3 fastest-growing property on the Comscore top 100 properties list. Becoming #1 in the games category is a major achievement, and it's both testament to our platform's ability to reach the largest and most dedicated audience as gamers as well as a clear signal to the world's leading brand that we are the #1 company to work with in gaming, in the biggest media market in the world. The opportunity for ad buyers is very clear and Enthusiast Gaming has been building a leadership position in being able to deliver scaled media and content solutions that are fun for fans and safe for brands. Comscore has validated what many of the world's largest brands have already come to know. We are the company that they're turning to, to execute on an important need, to engage younger, hard-to-reach audiences through authentic content and engaging community experiences. Let me be clear about one thing. I believe Enthusiast Gaming is on the cusp of something really special. The portfolio of assets is really impressive and a lot of foundational work has been done. And I believe my role is to focus on unlocking and leveraging these various assets and leading ad tech to optimize inventory with third-party data to enhance our offerings and prepare for a cookie-less future and gain a wider reach of advertisers and marketers, as they continue to look for more effective and efficient ways to connect and engage with valuable younger audiences. Now turning to our 2022 results. In 2022, we delivered solid performance across all of our key performance indicators. Revenue grew 21% to CAD 203 million. The year-over-year increase in revenue was driven by increased direct sales, including both new logo and repeat customers, higher subscription revenue, the acquisitions and growth of Addicting Games and U.GG properties. While revenue was impacted by macroeconomic pressure on the advertising rates, particularly in quarter 3 and quarter 4, our continued focus on higher margin revenue diversification pushed 2022 gross profit to $63.5 million, up 68% from 2021. Quarter 4 gross profit reached an all-time high of $18.1 million, up from $13.7 million in quarter 4 of 2021. Gross margin expanded 870 basis points to 31.3% in 2022 and reached 33.5% in quarter 4, both records for their respective periods. The increase in gross margin continues to be driven mainly by the strong performance of higher direct sales and subscription growth. On direct sales, I'm pleased to report a strong end to the year. Direct sales grew 69% to more than $37 million in 2022 compared to $22 million in 2021 and up from only $5 million, 2 years ago in 2020. And quarter 4 direct sales grew to $12.8 million, up from $8.8 million in quarter 4, 2021. Renewals and additional business with existing customers accounted for 50% of direct sales. This number is down from quarter 3 to account for the strong book of new business generated of the back of our new NFL Tuesday Night Gaming program, which was launched in September. I do want to spend some time, more time on the NFL Tuesday Night Gaming. This deal was already -- has already been transformational for Enthusiast Gaming. For those that may not be so familiar, NFL Tuesday Night Gaming is the first of its kind gaming collaboration between Enthusiast Gaming and the NFL that brings together NFL players and legends and top gaming content creators. The program debuted in September 2022 and streamed weekly on YouTube and Twitter throughout the 2022-2023 NFL season. We have unlocked value for amazing brands by placing them at the intersection of gaming and sports culture, while reaching a new audience demographic at the same time. In season 1, we worked with incredible media sponsors such as Hulu + Live TV, Xbox, Turbo Tank, Verizon, Paramount Plus, Disney+, Campbell Soup, Hasbro and the Sour Patch Kids. It is important to note that many of these media sponsors are new to Enthusiast Gaming, which is a great testament to our teams for creating this show and being able to sell through in an extremely short period of time. We are already in the planning stages for season 2, which, given more lead time and following the success of a successful season 1, we are excited about this part of our business as a driver of meaningful higher direct sales numbers in 2023, including quarter 1, and deleveraging measurable ROI on our initial investment in 2022 to launch the program. We previously mentioned, because of our work with the NFL, which have already received inbound requests from 2 other major professional sports leagues about launching a similar program for them. I'm pleased to report that these discussions are progressing, and we will provide further updates as necessary. But again, these opportunities speak to the incredible programming our team is able to produce and execute on, that I reiterate is relevant and fun for fan audiences, while delivering tremendous value for our brand partners. Turning to subscriptions. Revenue was 54% in 2022. It grew 54% in 2022 to $14.5 million. At year-end, the company had 262,000 paying subscribers compared to 220,000 at the end of 2021. I believe this is a strong area of high-margin growth for the business, and one that I believe there is considerable runway ahead. In closing, I want to reiterate my enthusiasm for what is ahead. I believe that despite the macroeconomic uncertainty that continues, we have the diversified business model, to not only survive, but to thrive. I'll now turn over the call to Alex for further commentary on our financial results. Alex?

Thank you, Nick, our Chief Enthusiast Officer, and thank you, everyone else, our shareholders, lending partners, analysts and other stakeholders for joining us today on this call regarding our Fourth Quarter and Year-end December 31, 2022. The company showed strength this quarter in many areas, setting records across a number of KPIs, both financial and nonfinancial. At the same time, it was a period impacted by both the macroeconomic environment and pressures in our sector, specifically much lower CPMs in the programmatic advertising markets. I will speak about these dynamics, as they relate to the financial results, momentarily. But first, here are my usual notes. I note that our results are presented in Canadian dollars. I note that the significant majority of our revenues and expenses are measured in U.S. dollars and are translated into Canadian dollars for presentation in our financial statements. 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. And I note that our business is typically 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. I note that the typical seasonal pattern was disrupted in 2022 with Q4 programmatic CPMs showing almost no significant increase compared to earlier quarters in the year, which I will discuss shortly. But now let's speak about the financial results. Q4 revenue was $54 million, down 5% from Q4 2021 revenue of $57 million. Q4 revenue, by source, was as follows: media and content, $49 million; subscription, $3.8 million; and esports and entertainment $1.1 million. The Q4 media and content revenue of $49 million compares to $53.2 million reported in Q4 2021, a decrease of 8%. The decrease was almost entirely driven by a decrease in RPM caused by lower CPMs in the programmatic markets. Web RPMs were down 38% year-over-year and video RPMs were down 12% year-over-year in Q4. These market price decreases in programmatic were offset by more direct sales. Direct sales were $12.8 million in Q4 versus $8.8 million in Q4 of last year, a 45% increase with the majority of direct sales being recognized in media and content. Q4 subscription revenue was $3.8 million, up 23% from approximately $3.1 million in Q4 last year. This increase was largely driven by an increase in paid subscribers, which were 264,000 as at December 31, 2022 as compared to 218,000 as at December 31, 2021. This was also paired with a higher yield on a per subscriber basis. Q4 esports and entertainment revenue was $1.1 million, up 91% from $0.6 million in Q4 of last year. This increase was driven by more sponsorship revenue in Luminosity Gaming and by increased revenue from our Pocket Gamer series, which held both a Pocket Gamer Connect Jordan event and an inaugural PGC leader summit in Riyadh in Q4. Certainly, in Q4, the company's business model continued to be tested against macro headwinds, particularly in the digital advertising market, as seen in the CPM movements. This had an impact on overall revenue. However, at the same time, the company set records across both direct sales and subscription and the higher margins of these revenue streams make the company inherently better positioned to absorb pricing fluctuations, and this is enabling the business to grow despite the macro headwinds. This is most evident in gross profit. Gross profit was an all-time high of $18.1 million in Q4, up 32% from $13.7 million in Q4 2021. This propelled the gross margin to an all-time high of 33.5%, which is up 950 basis points from 24% in Q4 2021. Total operating expenses were $30.3 million, up from $25.7 million in Q4 of last year. Operating expenses in Q4 include non-cash items of amortization and depreciation of $3.5 million and share-based compensation of $2.4 million as well as a foreign exchange loss of $0.7 million. Also included in Q4 operating loss is a net impact from investments in NFL TNG of $3.7 million. After adjusting for these items, it is notable that the remaining operating loss fell below $2 million or approximately 4% of revenue. In Q3 and Q4 2022, the company undertook a number of cost-cutting measures, including the divestiture of certain legacy editorial assets, the elimination of approximately 10% of headcount in addition to the divestiture and reductions of other operating expenses, primarily related to technology and content expenses. In aggregate, when excluding the NFL TNG investments, the company's recurring quarterly cash-based OpEx was approximately $2 million lower in Q4 as compared to Q2 2022. When including all these items and other items affecting net loss, net loss was $12 million for Q4, down from $13.3 million in Q4 2021, resulting in a net loss per share, both basic and diluted, of $0.08 in Q4, down from $0.10 in Q4 2021. Turning to the balance sheet. The company ended the year with $7.4 million in cash, and in addition, had an available operating line of $5 million for total available cash of $12.4 million as at December 31, 2022. We made operational investments in NFL TNG in Q3 and Q4 of both cash and working capital, but have now built the associated receivables and have contracts in hand from a number of Fortune 500 companies including Microsoft, Mondelez and Verizon, which will provide cash flows from NFL TNG going forward. Also, subsequent to the year-end, the company's lender agreed to extend the maturity date of the company's term and operating facilities for an additional 12 months from December 31, 2023 to December 31, 2024. The term facility is classified as a current liability on the December balance sheet, but will be subsequently moved back to long term. And now I want to talk about what to expect in 2023. We continue to expect profitability for the 2023 year. Here are the notable items, which will impact how the financial results will unfold. First, on CPMs. Throughout Q3 and Q4, we saw a deterioration in CPMs in the programmatic markets. As mentioned earlier, this had an impact on revenue growth in the second half of 2022. Had our RPMs stayed flat year-over-year in Q4 2022 as compared to Q4 2021, I am confident that we would have already been profitable in Q4. However, our job is to seek profit at all times, not just in good times. To that end, we are anticipating and planning for RPMs, which we expect to be lower year-over-year until at least Q3 2023. Second, on direct sales. We expect similar patterns to prior years with a material year-over-year growth in direct sales, including sequential increases following Q1 for each quarter throughout 2023. Incremental direct sales revenue will lead to gross margins continuing to expand in 2023. Third, on NFL TNG. We expect NFL TNG to be a contributor to profitability in 2023. We made a sizable investment in NFL TNG in 2022, and the program is proving its ability to quickly start generating ROI. Subsequent to the year-end, NFL TNG has run a number of profitable episodes. NFL TNG also serves as a flagship product for direct sales, generating new leads and new business, which can be expanded into other products and media, supporting the overall direct sales number. Fourth, on subscription. We expect continued growth in paid subscribers throughout 2023. Historically, we have acquired subscribers only through organic channels. Subsequent to the year-end, we introduced a paid user acquisition pipeline, which will support subscription revenue growth in 2023. Subscription revenue has an outsized impact on profitability, as it accounts for less than 10% of revenue, but greater than 10% -- excuse me, greater than 20% of gross profit. And fifth, our events business is thriving in a post-COVID era with all recent large in-person events, both in 2022 and in 2023 setting attendance records. The above represents a continued strategic diversification into higher yield and higher margin revenue streams, which will allow us to reach profitability despite the CPM downturn. Any earlier-than-expected recovery in CPMs will be a bonus. I remain grateful to the analysts for their continued work on the company. I also want to congratulate my team on completing another year-end led by our VP Finance, Nathan Teal, and of course, also state how proud I am of being here on this call following our new Chief Enthusiast Officer, Nick Brien, who will undoubtedly lead the company to new heights. To our shareholders and other stakeholders, including our lending partners, thank you for your continued trust in us as custodians of Enthusiast Gaming. I will leave you with one more stat, I find relevant, in light of the lifting of stay-at-home orders and public health restrictions in 2022, our total views of contents in 2022 were 41 billion, up from 40 billion in 2021. It appears our audience isn't putting down the controllers anytime soon, and that's good for our business. And of course, ladies and gentlemen, our business is the business of gaming. Thank you. And operator, I kindly turn it back to you.

[Operator Instructions] Today's first question comes from Kevin Krishnaratne with Scotiabank.

Nick, welcome to the EGLX team. Look, I've got a question -- a few questions just on the direct sales number. I thought it was a good number in the quarter. You said that there was a benefit from NFL. Can you comment on what the contribution was there and how we might see that continue into Q1? I think you said it's going to continue in the Q1. I'm just wondering how do we think about direct sales into Q1? I know you said from Q1 onwards, we should see sequential increases. Do we see a decline in Q1, but maybe less so than what historically would be the case given the NFL contract?

Yes. Kevin, I think that's a question, I'm going to direct to Alex to respond to, please.

Thank you, Nick. Kevin, so as far as contributions, historically, I'll talk about those first and then talk about Q1. The NFL is contributing now. I mentioned a net investments number in my comments, but I can tell you, NFL brought in approximately $2 million of sales. Now those sales, though, involve greater than just NFL. They're primarily NFL contracts, but they can involve media and talent and other areas of our offering. As far as it relates -- so some immediate halo effect there, I guess, is what we're noticing pretty quick out of the gate, just Q4 started one month after the show was launched. However, into Q1, there's obviously a normal seasonal trend, Q1 would never normally be expected to be greater than the Q4. We are -- we're not predicting that necessarily. We're very pleased. We did referenced some subsequent events and subsequent success of the NFL. It is still early, but it is proving its ability to be a significant driver for direct sales, not only directly as a product offering, but bringing in new logos, unlocking -- generating new leads and unlocking new business, which can then expand into our other product offerings. So a big year for direct sales. We're very excited. NFL is going to be a flagship product offering as part of those efforts.

Okay. That's really helpful. Maybe just to continue on with direct sales. If you take a look at the book of business that you have right now, you did the Q4 number, you take that, I was wondering if you could maybe comment on how many direct sales, sales reps you have right now? And how you're thinking about maybe targets for them in terms of the direct sales for the year? If you've got like quotas to meet, how you're just thinking about any targets around that would be helpful.

Sure. I can carry on with that. So we got about 25 sellers on the ground. They retarget really by market. That's how we look at our sales team. I don't want to lead you to a preemptive number. But look, there's no question that at maturity, these sellers in our business should be generating multimillions, but we are still building those teams. Some of those teams are only introduced just recently. So we just expanded into the U.K. and EMEA. Our first teams were the East and the West, there, of course, driving the significant sales. But the answer is 25 sellers on the ground as of now. The average individual target would be well north of $1 million.

Are you adding more guys in 2023 or girls?

Well, let me -- Kevin, let me just take that. I think the entire approach to direct sales has been demonstrating some real momentum and especially when we've got these really excellent major tentpole events like the NFL Tuesday Night Gaming. I've been having numerous conversations with some of the biggest brand advertisers. And certainly, they're excited when we're talking about a direct sale, we're talking really about an integrated solution. We are not just talking about audience and reach-based advertising, we're talking about custom creativity, and we're talking about compelling content that brands can really engage with. And I think that we have got the opportunity that we're talking with some significant multi-brand advertisers, major marketers like P&G, where we're seeing really extensive opportunities to look across their portfolio for those audiences, for those brands wanting to engage with the younger, the next generation, the next generation of their consumers. So I think my full effort is going to be, not that we're not going to continue to be razor-sharp on all aspects of our programmatic advertising and ensuring that we can really be smart about how we leverage all things programmatic, but to ensure that the direct sales momentum continues with the highest caliber and the highest altitude. And I'm here to personally give a lot of effort and support to the very qualified team we have. And I think -- let's not also underestimate the importance of the content and the creative studio that we have because their creativity and their ideas form the foundations, the solutions that we're taking out into the market for really compelling and engaging brand engagement approaches for these major advertisers. So it is going to be -- it continues to be an area of very high performance and focus and resourcing for the organization.

Got it. Super helpful. Maybe just one smaller question. In your MD&A, it's been in there for a few quarters now, maybe all of 2022, where you talked about some of the views that you've been seeing declining due to the COVID dissipating, has been offset by TikTok. You've introduced TikTok as a channel. You've got Snapchat as well. I'm just wondering if you could comment on how big the TikTok channel is as it relates to your total views, if you can provide any color there, that would be helpful.

Again, Alex, can you take that question, please?

Absolutely. So yes, there's -- so as I mentioned in my remarks, total views are up year-over-year 2022 over 2021. We have seen a bit of a shift of a trend towards web. However, specifically relating to video, we have grown our Snapchat business, we had a lot of success on TikTok as well. It's still a small -- it's in the low hundreds of millions as part of that overall 6 billion number. So it's not a huge chunk, because the vast majority of the inventory is still on longer form videos, primarily YouTube based, but TikTok is contributing a couple of hundred million a quarter right now.

Okay. Just on that last point there. In the MD&A, there is some disclosure on some changes on YouTube that sort of impacted views quarter-over-quarter. Can you just talk about that as a -- how do we think about that going forward?

Yes. I mean, well, there's 2 -- we're monitoring that. The total views remain very strong. Two things to watch for on YouTube, is the content reuse policy that they've launched. And then, of course, the evolution and the growth of their shorts, YouTube Shorts. Our content is primarily longer form. So not -- I won't say yet material impact, some noticeable movement we're watching. But overall, as you can see, 3 quarters in a row, the video view is very steady and, of course, on a year-over-year basis, total views up. So those are what those refer to. 2 changes, content reuse policy in YouTube and YouTube Shorts growing in popularity. But YouTube shorts are also on the -- they're being monetized. They're launching that as well. So as much as that may slightly impact the long form, it's also an additional monetization opportunity.

The next question comes from Robert Young with Canaccord Genuity.

Welcome, Nick Brien. My first question is for you. I think you said in the prepared comments that primary part of your role is to optimize inventory. And I think it's an important part of the business. I think in the past, the company said that roughly 2.5%, maybe 3% of the inventory is going through higher margin parts of the business, and they've targeted 10%. And I'm just curious if you'd revisit that? Do you think 10% is a reasonable target for where the business can go as far as optimizing that inventory?

Yes. Robert, nice to meet you and talk with you. I'm not prepared. It's just too early for me to provide targets of where that is. What I do know is that when we're thinking about all aspects of our programmatic revenues that we are really recognizing that the opportunity to leverage a data-driven revenue roadmap to really think about all aspects of the way that -- we're finding a way to increase our margin expansion on the programmatic revenue is going to be something we're going to be really focusing on with all our specs and continue to focus on with leveraging our data. And that's whether it's going to be in terms of, whether we PG or PMP, we've got to find a way that we continue to get and extract the greatest value out of the programmatic side of the business. But it's too early for me to give targets on that, I'm afraid.

Okay. My second question would be around the cadence of profitability through 2023. I know there's seasonality in Q1, although the NFL business becomes profitable. And I guess, I'm just trying to understand how we should think about modeling. First of all, the profitability, that EBITDA profitability, operating margin, this operating profitability. And then, I mean, how do you think about the cadence of that through the year?

Well, I'd like Alex to respond to that.

Of course, it's my pleasure. So yes, seasonality in Q1, I mean, the short answer is we're targeting for each quarter in the back half of the year. That's what we're planning towards, which is not a typical for a digital media company, of course, to make the make the money in the back half of the year, but that's what we're planning for. An improvement in Q2 over Q1 and if there is any earlier than expected, I know some analysts are calling for earlier. I've mentioned we expect decreased CPMs year-over-year until at least, and excluding Q3, some analysts are calling for an earlier recovery. If that occurs, it's a benefit to us. We are not planning for it. So right now, we're targeting both quarters in the back half of the year, being Q3 and Q4 and on an operating -- on an adjusted EBITDA basis.

Okay. And then you said that you expect RPMs to be a headwind until Q3. And so do you have any -- what are the primary levers in OpEx if the market doesn't come back the way that you plan?

Well, we pulled -- we do expect some continued headwinds. It slightly has bottomed, but that's how long we take -- expect the recovery period to be. As far as levers, I mean, we continue to run as efficiently as possible. And we never stopped. We -- in Q3 and in Q4, we cut out over $2 million of recurring quarterly OpEx through both the divestiture of the legacy assets as well as through headcount reductions and through cuts in our technology and content expense. So we haven't stopped doing that. In fact, some of that will continue to normalize into Q1. So with or without where CPMs go, we're still running as efficiently as we can, just given the environment. So that carries on into 2023.

The next question is from Gianluca Tucci with Haywood Securities.

Congrats on joining the team, Nick. I'm just curious, at a high level, it's been almost now 30 days since the announcement of you joining Enthusiast. In your first couple of weeks in the team, how are you thinking about the strategy at the company, longer term, and how it's positioned in the industry for that outsized growth that you talk about?

Yes, that's a very good question. I mean a lot of the thinking around the strategic opportunity idea when I was considering the opportunity when it came to me, and I recognize that the gaming media sector, the gaming entertainment sector is -- presents itself with huge diversity across, as we know, 3 billion gamers across the planet and continuing to grow. And I saw that the opportunity with an organization that had its primary focus on satisfying the opportunity for the communities of gamers and fans, that its breadth of proposition was not just the one thing, whether it be -- it's advertised in its own sites, its partner network, its MCN, the esports teams that they have, that the opportunity to really pull together and create bespoke marketing solutions that so many brands are looking forward to on an ongoing basis to evolve beyond a conventional push-based advertising model. That's part of it. And I think the other part was to see the opportunity where we have so much subscription data and so much opportunity to leverage our first-party data to enhance, not only the creativity of our brand solutions, but how we continue to grow our audiences on our partnerships in the face of cookies going away. So I really love the fact that this was an organization that extremely thoughtfully acquired some very strong assets and different capabilities. And really looking forward to continue to both direct where we apply those by looking at verticals, whether we're looking at CPG or finance or transportation, and starting to really approach some of the biggest brand advertisers about why and how they can work with us for the benefit and the practicality to deliver true ROI and creative impact. So I'm most excited about that. I think there's a number of areas around all things data, and the leverage of technology and technology partnerships that could even enable us to be more attractive to that huge growing amount of independent gaming fans and community sites that exist across North America. So I'm very excited to be working in, but it's hard for me to say, again, I look at the strategy of a company when I'm coming in through the lens of my 2 eyes, what do we do better and what do we do differently? And obviously, what we do differently, is the innovation opportunity around the kind of conversations we can have with brands, who are really looking to differentiate in highly commoditized and competitive categories with very creative and engaging partnership solutions. So that's what we're very excited about. It's not about a sale. It's about building relationships where we become embedded for those brands as a very consistent and proven part of their brand building strategy. So I -- as I sit here -- 20 days in, it continues to reassure me that this organization has made some very, very smart acquisitions and how the whole is going to be even stronger than the sum of the parts when I'm able to pull these together and build on the kind of success we've talked about with the NFL program, with some of the biggest advertisers in the world -- and continuing to return. So Gian, I hope that gives you a sort of general perspective without providing, again, specifics on things that will change or things we're going to invest in because, again, I haven't finalized those and I haven't even discussed those with the Board.

That's excellent color, Nick. I appreciate that. And then Q4 showed continued strength in your margin profile on gross margins. It sounds like you continue to expect margin growth to outpace revenue growth in 2023. Is that fair to assume?

Yes.

Okay. Great. And Alex, I think you mentioned this in your comments, but how much -- how much onetime expenses did Enthusiast book in Q4, nonrecurring in nature?

Well, the -- what I mentioned was the -- on the nonrecurring, we had -- the total between Q3 and Q4 OpEx played out was $2.2 million. About half of that is the divestiture. So I guess it became nonrecurring. And then the net investment for the NFL was $3.7 million. But that is -- the NFL program is recurring. But -- of course, that's a net investment. That program is going to continue. I would not expect those level of OpEx going forward as recurring. But those are the numbers I highlighted. The $2.2 million from the cost-cutting measures and the divestiture and then the $3.7 million net investment in Q4 for NFL TNG.

Okay. That's perfect. And then how are you thinking about the balance sheet in the context of your growth plans? Is it well positioned?

It's well positioned for 2 reasons. One, of course, we have -- like all companies in our sector, we've been spending the last few quarters, really focus on the efficiencies of our operations. So we're much, much leaner. Also the NFL TNG program, that needed to build a book of receivables and a pipeline of deals. And we didn't have that when we started in September. Now we have that. So there's a working capital investment that needs to occur. So we're lucky that way. We have some receivables flowing after year-end in relation to NFL and equally or more important, we got a pipeline of contracts. So that relieves -- that sets us up nicely from a working capital perspective. And as I mentioned, subsequent to the year-end, the NFL TNG has run profitable episodes. And then, of course, I believe I mentioned it, and of course, the operating facility, which is also, by the way, now been extended subsequent to the year-end. So working capital is in a very healthy position. Another little fun fact, if you look at the trade receivables over the payables, it's in a very healthy position. So there's extra working capital on top of cash available to put to use as well. So there's a couple of angles there makes us feel pretty comfortable.

Congrats again, Nick, on hopping the Board of the Enthusiast train.

[Operator Instructions] Your next question comes from Mike Crawford with B. Riley.

Just first, given that we're at 86 days through a 90-day quarter. Is there any scope you can put on your revenue range that you've already achieved or expect to achieve in this quarter?

Well, I would expect -- hey, MB by the way -- MC. I would expect seasonal impact, of course. So revenues will be lower. The -- what we've seen, we don't have guidance on specific ranges. However, this is what we're seeing. We are having strength in direct sales, so there will be a seasonal impact, but direct sales will come in strong. Subscription revenue is not impacted by seasonality. It will maintain or slightly grow itself, that would be expected. CPMs were certainly impacted. What we've seen, and I think this is broadly observed in the industry, January and February continued to be periods of lower CPMs across the board, across the entire market. What gives me some hope without changing my expectations for what I said about Q3. March has had a very reasonable seasonal pattern compared to a more normal year. That indicates to me that we may have a return to some normalcy this year on the pricing of programmatic, which is very strong. However, other than that, direct sales will be strong, but expect a seasonal impact. On the programmatic side, of course, expect a seasonal impact from Q4 to Q1, as subscription will continue to grow. So that's what I would say in regards to Q1.

Okay. And then just looking at some of your properties. So you had this crypto partnership with ev.io. I thought we might see something with Little Big Snake or another title. Is that something we should be expecting any time soon?

Alex, go ahead.

Yes, sure. So Bill, do you want to take that one?

Sure, guys. Yes, with ev.io continues to expand in the Web3 space, and we're having a lot of success with that game working with Hut 8 was a great partnership in 2023 -- sorry, 2022, we expect to be making further announcements regarding integrated partnerships with ev. As it pertains to the rest of our library, we're working on a pretty robust pipeline. The Little Big Snake team is working on a new additional title, which we're looking to launch in 2023, which is going to be really helpful for growth, and we're excited about it. But these partnerships are kind of a work in progress. And so I would say that Little Big Snake, not a part 2, but a whole different game is in the works. And we have ev.io and we'll likely announce further partnerships in the near term with it as well.

Okay. And then maybe one for Nick. Now that you've been here for a little bit, do you see or what opportunities do you see to really highlight Luminosity,, as a brand, that can be monetized in more ways versus Enthusiast as, say, a holistic home for direct sales campaigns?

No. Well, I think -- it's a very good question. I think that we're -- I'm looking at it with the team that every individual product we have, has got to be dynamic and competitive in its own way and drive a level of specific engagement of value with the brands, with its own consumers, with its fans and what is that business plan. And I don't think it's just about being in within the Enthusiast portfolio as the kind of credibility play. It's a very significant brand for us. And as we know, and its revenues last year, we're seeing an increase and estimate to be able to do smarter business with it. But I'm not -- the team -- I've met the team briefly, the team leading that one and spending time working with them again and extend not just for its own direct sales, so it's relevant for those brands that really do lean in to esports and have a very specific level of interest in how they can work without -- in conjunction with our media play. But the principle you talk about that each -- and it doesn't really matter whether it's Icy Veins or Pocket Gamer or U.GG. I mean any of the individual plans and the products that we have within the portfolio, all must be demonstrating how they're going to be demonstrating their own traction, their own customer base opportunities as well as augmenting everything else we're doing. So I concur, I'm not going to say exactly what that strategy is yet or other enhancements for that, too early to do that, but the principle you're talking about is exactly right.

This concludes our question-and-answer session as well as the conference. Thank you for attending today's presentation by Enthusiast Gaming. You may now disconnect.