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

Good afternoon, and welcome to the Enthusiast Gaming Fiscal Second Quarter 2023 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Matt Chesler, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to the Enthusiast Gaming Second Quarter 2023 Results Conference Call. I'm Matt Chesler of FNK IR. With me today is our Chief Executive Officer, Nick Brien; and our Chief Financial Officer, Alex Macdonald. We'll begin with some prepared remarks and then open the floor to questions. But before we begin, I'd like to remind everyone that today's presentation contains forward-looking information that involves known and unknown risks and uncertainties and other factors that could cause actual events to differ materially from current expectations. These statements should not be read as assurances of future performance or results. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from those implied by such statements. A more complete discussion of the risks and uncertainties facing the company appears in the company's management discussion and analysis for the 3-month period ending June 30th, 2023, which are available under the company's profile on SEDAR and EDGAR, as well as on the company's website at 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 I'd like to turn the call over to Nick Brien, CEO of Enthusiast Gaming. Take it away, Nick.

Thanks, Matt, and welcome to everyone participating on our earnings call. I joined Enthusiast Gaming, as its Chief Enthusiastic Officer 5 months ago, and my conviction continues to be that the gaming media sector is a huge growth opportunity for us, as the #1 gaming property in the U.S. as measured by Comscore. Throughout the course of my remarks, I'll share concrete examples of our occurring and new business momentum that strengthens my conviction on a daily basis. I'm excited to share with you the strong progress we have achieved over the past quarter, as the management team has focused diligently on executing the strategic initiatives developed, as part of our 2023 transformation velocity plan. I will discuss these in detail, but I first want to share some important industry context. The video gaming industry demonstrates continued momentum in terms of exciting game -- new game launches such as Diablo IV and Baldur's Gate 3 and continued user growth across the mobile gaming sector. Gaming is an entertainment industry that's significantly expanding year-on-year, projected to be worth $366 billion by the end of the year. Massive tech and entertainment companies see the value and opportunity of entering the gaming space, as they expand their footprint in gaming through organic growth and acquisitions. The U.S. media industry continues to rapidly evolve from the dominance of the walled garden digital players, such as Meta and Google, to high-growth innovative digital media sectors, such as CTV, retail media and commerce media. Yet the disruption of legacy media players continues, as Amazon posted a 22% gain this quarter, Discovery posted a 13% decline. These newer media players continue to attract advertising dollars, as they provide marketeers with scaled audiences, first-party data and brand-safe environments. Uber is on its way to building a $1 billion ad business within the next year. My visit to the Annual Cannes Lions Advertising Festival in June reinforced the strong interest from industry leaders in the gaming media sector, given the scale and breadth of the gaming audiences and the remarkably high use engagement metrics they offer. Major brands and leading agencies know that gaming audiences are the future customers they must reach. These same brands remain largely uninformed and confused about how to engage the gaming audiences with respect, relevance and critical authenticity can connect in exciting and effective ways. During the week at Cannes, I met with many of the largest global marketeers, including P&G, Unilever, Intel, PepsiCo, Microsoft, Pfizer, Diageo and Lenovo and the message was consistent for gaming to become an established media sector attracting large advertising budgets, we must offer these mega brands several things. First, we must offer scaled audiences, not niche gamers. Second, we must ensure brand safe environment to protect their brand equity, while respecting the gaming audiences' attention. Third, critical that we provide independent measurement to prove ROI. When we and our peers deliver against these criteria, gaming media will move swiftly from being a nice to have to becoming a must buy. Enthusiast gaming is uniquely resourced to provide leading brands and agency partners with strategic planning, content creation, first-party audience targeting and marketing campaign measurement to meet industry standards, while providing necessary innovation and ROI. While media channels and marketing approaches continue to evolve, the mission for CMOs remains the same, to build brands and fuel growth. The industry has historically been highly fragmented. Enthusiast Gaming was no different with several businesses operating completely independently with insufficient communication or coordination. Our strategy of breaking down silos and creating comprehensive brand solutions at scale, operating on a single tech stack to ensure brand safety and providing real-time feedback is exactly what these mega brands are looking for. Our reorganization efforts in Enthusiast Gaming reflects these opportunities to double down on brand solutions, previously called direct sales to create a high-quality environment that excite and delight the enthusiast, who come to our gaming sites, play, learn, create and connect and to work with leading creators to develop exciting content tentpole and live experiences that delight their communities and attract leading brands. Even in these early days, this reorganization is driving improvement. Our aggregate monthly average users across our network of gaming sites has increased to nearly 56 million, the largest scaled audience in aggregate of any U.S. gaming property, bigger than the likes of Twitch, Roblox and Activision Blizzard. Our continued focus is to strengthen our operating model and refine our go-to-market positioning. We are building a solid foundation of robust MarTech technology and first-party data to ensure that yield optimization is embedded into everything we do. Our enterprise technology platform is now centrally managed across the entire organization by Shinggo Lu and Alan Liang recently promoted to Chief Product Officer and Chief Technology Officer, respectively. This extremely talented team of gaming leaders has now extended their highly successful U.GG product to become a platform that offers similar player statistics and gaming information for World of Warcraft and VALORANT. At the same time, U.GG has just released its first stand-alone desktop app, and downloads have exceeded expectations and on target to reach 500,000 by the year-end with no paid marketing support. This product to platform initiative is now being implemented across The Sims Resource, Icy Veins and select casual games and community sites within Addicting Games. We all know that delivering ad tech excellence is a prerequisite for building a profitable media business in today's programmatic media [ mind ] world. [ So 2 ] is offering the market exciting integrated solutions that enable brands to collaborate with leading creators to develop the gaming content and experiences they are seeking to differentiate from their competitors. Our content division has delivered such creative projects on behalf of major brands such as NFL, Xbox, State Farm and Mondelez amongst others. To highlight our commitment to creative excellence, we've now rebranded our content division, as [ Final Boss Studios ] led by our gaming -- by our gaming obsessed executive, creator, [ Tiger Lapis ]. He and his talented team are busy developing the content tentpole road map to build on our continuing success of the NFL Tuesday night game. We're now in active negotiations with 2 other major U.S. sports leagues to create unique content platforms involving their top players competing against the most influential creators. We just sold our largest brand deal ever for major sponsorship of the NFL Tuesday Night Gaming for season 2, and our pipeline is full of significant blue-chip brands, including a number of returning sponsors renewing and expanding their commitment in season 1. This achievement, coupled with the increased contribution of brand solutions, as a percent of our consolidated revenue further demonstrates the progress we are making. We are rapidly moving beyond selling ads, only selling ads and instead selling integrated solutions. This is especially important considering the continued industry headwinds in the programmatic ad business. We signed several of the biggest streamers in the world, as [ team captains ] for season 2, the identity of which will be announced shortly with the launch of a new season. Season 2 of NFL Tuesday Night Gaming will now be streamed on Twitch, the biggest live streaming platform for games by more than 12x of YouTube and Facebook combined in total hour streamed and more than 3x bigger in hours watched. As we analyze our sales pipeline, we're excited to see 78% recurring revenue for 2023, as well as an impressive asset mix diversification with over 80% of our brand solutions utilizing more than 2 of our assets and over 50% utilizing more than 3. The breadth of Enthusiast diversified portfolio across the gaming ecosystem allows us to productize our innovative Brand Solutions offering marketeers the opportunity to do so much more than only push display or video ads. Media placements usually accompany our large sponsorship deals and creative properties such as the Fortnite map, we just produced for Shell in conjunction with Team Unite and WPP's Essence agency. To drive Enthusiast Gaming transformation from being a loosely affiliated portfolio of sites for operating as a centrally managed company with a diversified network of gaming asset, I continue to upgrade our management team and recruit proven industry experts to help accelerate our growth momentum and operational excellence. We recently hired a sales analyst, a product and pricing specialists, a data analytics expert and a product marketing genius to ensure that our sellers are knowledgeable about every single product we're developing across our network. To ensure that our programmatic media offering is securing the highest CPMs possible, we're now in the process of finalizing the hiring of a senior ad tech engineer to strengthen all SSP, DSP, and ad server integrations. There can be no room for error, as we fight to optimize the yield of our precious media inventory. At the same time, as we shared on our last earnings call, we're determined to drive more growth from a highly profitable subscriptions revenue. To unlock this subscriber growth and strengthen our gaming communities overall, we have hired a leading consultant from Microsoft to drive this important initiative. Our newly created strategic partnership division led by EVP, Matt Goodman continues to develop exciting and unique properties, such as NFL Tuesday Night Gaming, while increasing our dialogue and ideation with leading players across sports, music, fashion and retail. Many of the world's biggest brands are seeking meaningful engagement in the gaming sector beyond running pre-roll video ads or simply sponsoring a creator. Long-term partnerships involve thoughtful strategic planning and clear performance indicators to evaluate ROI for both brand building and lead generation. We could not be more excited with the momentum in this critical area of our business. We have improved our pipeline visibility and revenue forecasting, enabling us to invest more wisely and more precisely guide the company towards profitability for the first time in its history. The pipeline for quarter 3 and especially for quarter 4 is robust, with 55 potential new logos in the second half pipe, representing 45% of the overall pipeline. Our clients continue to be well diversified across industry verticals, with CPG being at the top of 20%. Entertainment continued to be strong for us, signifying that Enthusiast Gaming remains a key destination despite this industry verticals headwinds. We've just signed a large deal with Dove, representing our first win with Unilever, as we continue to secure new brand assignments from Coke, Mondelez, Google and AT&T. I see massive untapped opportunity in other key industry verticals that are poised for growth, such as travel, food and beverage and retail. Under the expert leadership of Amanda Rubin, EVP Brand Solutions, we have reorganized our overall sales effort by industry vertical and agency holding company, as well as the independent agency sector. We expect to convert our strong second half pipeline of existing and new logos, while cementing these clients' convictions that the gaming media sector represents the most innovative and efficient way for brands to reach their future customers, while extending their brand vitality in the most dynamic and culturally connected entertainment sector that exists today. I will now hand over to Alex Macdonald, our CFO, to discuss the details of our quarter 2 earnings. Thank you, Alex.

Thank you, Nick, and thank you to all our shareholders, analysts, lending partners and other stakeholders for joining us today to discuss the progress we made in the second quarter of 2023. During the second quarter, we advanced the initiatives Nick has been speaking about since becoming our Chief Enthusiast Officer. We are focusing on profitable revenue streams and margin expansion, as well as creating comprehensive brand solutions and leveraging our diverse assets, as a platform, as the digital ad market begins to normalize, the second quarter results are beginning to reflect the work we are putting in place to ensure a swift transition to profitability. I'll speak on the numbers shortly, but first, here are my usual notes. I note that our results are presented in Canadian dollars. 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 our forecasting results. I note that our business is affected by seasonal trends in digital advertising with sequential increases each quarter throughout the year, driven by increasing ad prices and demand, which peaks in Q4. The seasonality is isolated to our media and content revenue streams. Now let's get back to the financial results. Q2 revenue was $42.6 million, which is down 17% year-over-year, but roughly flat versus Q1. Q2 revenue by source was as follows: Media and Content, $36.9 million, Subscriptions, $4 million, and Esports and Entertainment, $1.7 million. The Q2 Media and Content revenue of $36.9 million compares to $45.4 million recorded in Q2, 2022, a decrease of 19%. The decrease was primarily driven by a decrease in RPM caused by lower CPMs in the programmatic markets. Our web RPMs were down 28%, while our video RPMs were down 13% in Q2 year-over-year. These year-over-year RPM declines improved in Q2 compared to Q1, and we expect them to continue to narrow with further improvements being noticeable subsequent to June 30. Q2 Media and Content revenue was also impacted by lower video views year-over-year with 5.7 billion video views being measured in Q2, 2023, as compared to 7.1 billion video views in Q2, 2022. The lower video views related to specific low-margin channels, which we elected not to renew, as we focused on more profitable revenues and pruned our portfolio, as Nick discussed. Q2 Media and Content revenue was also impacted by the rescheduling of all NFL TNG episodes originally scheduled for Q2 to later in the NFL TNG Season 2. This was done to better service our customers' objectives. This had an impact on Brand Solutions revenue for Q2. However, these episodes will now air in season with the related revenue being recognized in those periods. Q2 Subscription revenue remained at an all-time high of $4 million, up 14% from approximately $3.5 million in Q2 last year. This increase was largely driven by an increase in paid subscribers, which were 272,000, as of June 30, 2023, as compared to 258,000, as of June 30, 2022. The yield on a per subscriber basis was also slightly higher year-over-year. Q2 Esports and Entertainment revenue was $1.7 million, down 23% from $2.2 million in Q2 of last year. The decrease in Esports and Entertainment revenue is mainly attributable to decreased esports sponsorship activities, which was offset by an increase in event revenue. Gross profit was $15 million in Q2, which was similar to the $15.3 million of gross profit reported in Q2, 2022. However, gross margin increased 520 basis points to 35.2% from 30%. This gross margin increase reflects the greater contribution of Brand Solutions and Subscription revenue to our overall revenue profile, as well as the elimination of certain unprofitable products and channels, as well as the year-over-year decline in market-driven CPMs. In other words, our strategy to reduce our reliance on network programmatic revenue and focus on profitable revenue is driving improvements in our margin profile. Total operating expenses were $24.6 million, down 15.6% from the second quarter last year and down modestly from the $25.2 million we expensed in Q1. Operating expenses in Q2 include non-cash items of amortization and depreciation of $2.9 million and share-based compensation of $1.8 million. Notably, operating expenses also include approximately $1 million of expenses relating to restructuring, which are included in salaries and wages and will be non-recurring. The decrease in cash-based OpEx year-over-year was primarily due to decreases in esports player team and game expenses of $900,000 and decreases in office and general expenses, which decreased by $800,000. In addition, Q2 of last year included $2.2 million related to the Annual General Meeting, legal and advisory costs, with such costs being nominal this year. We expect somewhat higher operating expenses in the third and fourth quarters, as the NFL TNG Season 2 kicks off in mid-Q3, with the related revenues also coming back online. Net loss narrowed 40% to $10.2 million in Q2, down from $16.9 million in Q2, 2022, resulting in a net loss per share both basic and diluted of $0.07 in Q2, down from $0.12 in Q2, 2022. Turning to the balance sheet. The company ended the quarter with $2.7 million in cash and in addition, had an available operating line of $5 million for total available cash of $7.7 million, as of June 30, 2023. The change in cash during the quarter was largely due to $1.4 million in cash generated by operating activities, offset by $1.3 million used in financing activities mostly relating to repayment on the company's term facility and $800,000 used in investing activities, which is attributable to an earn-out payment relating to the acquisition of Fantasy Football Scout in April 2022. Subsequent to the quarter end, we are in advanced discussions with our lender to document an amendment to our credit facilities to provide additional liquidity through our operating line. Given the improving trends we are seeing in our business and industry, along with the benefit of the amendment to our operating line, we are confident we have sufficient liquidity to execute our near-term objectives. We continue to believe we will exit 2023 and enter 2024, as a profitable business. And now I wish to speak about the primary drivers for the rest of the year. The best way to do that is to use this second quarter, as a baseline. Q2 this year was relatively flat compared to Q1 with some modest margin compression, but there are some significant differences that need to be considered when analyzing this, and these same items will be the primary drivers of revenue, gross margin and gross profit lift for the rest of the year. Number one is, of course, seasonality, which is expected to significantly impact both CPMs and Brand Solutions. While CPMs remained challenged in Q2 and are still down year-over-year, we do expect a significant lift in the second half, similar to what we have all heard from the earnings commentary of other large digital publishers over the last few weeks. As ad spending increases in the second half, we also expect a positive impact on Brand Solutions. Second is NFL TNG. NFL TNG had no episodes in Q2, as it is currently in the off-season. NFL TNG has a material impact on Brand Solutions revenue and will return in September. And third is events. The company does not have any major events in Q2, like the Pocket Gamer Connects London event, which was held in Q1. Our large events will return in Q3 with Pocket Gamer Connects Helsinki scheduled for September. These events are accretive to gross margin. These items, combined with our product initiatives, including U.GG's expansions into VALORANT and World of Warcraft, Icy Veins quickly becoming the primary destination for fans with the newly launched blockbuster title, Diablo IV and TSR undergoing a complete subscription upgrade drive -- drive increased management confidence about the second half. And while our product offerings continue to entertain our communities of gaming fans, our Brand Solutions continue to help brands reach our coveted audiences, and the stats about our repeat business speak for themselves. In the second quarter, repeat business accounted for 62% of total direct sold deals and 66% of total Brand Solutions revenue. This means that a customer of Enthusiast Gaming is likely to come back, and when they do, they are likely to spend more. Therefore, it should be no surprise that we continue to set records with the single largest direct sold deal in company history being sold subsequent to the second quarter. For all these reasons, we believe we have a clear sight line to a successful and profitable second half, particularly in Q4. I wish to thank my team for their work on the quarter, and I also wish to congratulate Nick on his first full quarter, as our Chief Enthusiast Officer. We've been very hard at work and are glad to bring this quarter to market and are looking forward to getting back to our business. And of course, ladies and gentlemen, our business is a business of gaming. Thank you. Operator, I kindly turn it back to you.

[Operator Instructions] Our first question is from Mike Crawford with B. Riley Securities.

First question is regarding Brand Solutions deal pricing. I know, it's not a simple answer because it's not just like programmatic CPMs, but how would you characterize the types of prices you're able to negotiate with your customers that are advertising for your integrated solutions?

Well, Hi, Mike. It's Nick here. Thank you for that question. I think there's no one standard fits all. We've recognized that it really does depend on the mix of the solution that's being designed. What is the level of content build? What is the scale and popularity of the creative that they want, some are more -- some brands are more discerning and determined to choose and be very involved in that process, others [ alleviate ] for us? What is the set cost going to be? What level of media support is around it? What kind of impression level do they want? What I would say is that like anything we're recognizing that 2 things that we have made a significant shift on. One, we hired a top executive in all things pricing and packaging from Barstool Sports. Now every single one of the Brand Solutions in terms of the way the package and price is going through a central function to ensure that we've secondly got that consistency. The second thing that's important is we've changed all compensation terms for -- we're changing is going on right now with our sellers to ensure that gross margin is a key factor within their commission plans, as well as gross profit and gross profit margin, as opposed to just gross revenue. So we're looking at the mix of media is certainly higher when we're selling video with display that is obviously the video that we're generating on YouTube, and we're packaging that up directly. So I'm very pleased with the level of price increase we're generating across the board, and we're especially seeing that on recurring clients. But there isn't, Mike, one standard set price, but there is increasingly a standard process and a standard format by which we have individual criteria and the components of each Brand Solutions being quite accordingly.

And then maybe an extension of some of the unique proprietary content you're creating with Tuesday Night Gaming with the NFL is what -- when might we hear one way or the other regarding the discussions with 2 other major U.S. sports leagues. And would it be out of the question that something could be done this season with them?

[ Not with what ] unlikely to announce both in quarter 3, we are very confident to announce 1 in quarter 3, and we're very -- as soon as we have a deal signed, we are packaging and productizing and taking that to market. And we've already been doing that conceptually enough to give us the confidence that this is an important partnership deal that Matt Goodman is looking to close down. I think it's unlikely that the second one will be in market in quarter -- in 2023, but very confident that's going to start very soon in 2024.

Excellent. Just one more, if you don't mind. So on Friday, it was disclosed that Barcelona has agreed to -- its media arm that includes esports and other proprietary content they're creating is going public potentially with a business combination, with a SPAC, with a $1 billion valuation. And I'm wondering not only the parallels between maybe that business and your business, but if you had any sense of what revenue that entity has since from what we could tell, those revenue details were kind of missing.

Well, they are, I would imagine that -- that is a very -- obviously, with Barcelona being such a high-profile global team, that is a really smart move for them. And I think they're going to look to leverage that and leverage that brand equity and into esports, it does make all the sense in the world. Luminosity, we're striking deals with one now. We've already done one. We're striking deals with second of the biggest Mexican teams, and we're also having other conversations across Latin America. So I think that we're certainly keen to talk with Barcelona and the [ Barca ] package that we've also seen to discuss with them how they realize that opportunity because it's important for us and the big opportunity with obviously Spanish content being so strongly followed and engaged by the U.S. Hispanic Latino population, there's an opportunity there for us. And that's the other thing that I want to make sure that you raised a very, very good point that we want to take onboard is the fact that when we think about the importance in a market, where our main focus is in the U.S. [ which of 332 million ] people, we do know we have 42 million African-American citizens, we have 62 million Hispanic Latino, we have 18 million Asian-American. We know that there are remarkable opportunities for brands seeking to better engage with particular audiences and particular communities, and we strongly believe that sports and our partnership with sports leagues and even within esports is an important opportunity. So we're going to be investigating that, Mike.

I was very pleased to hear Alex say, you expect to be profitable by year-end.

Your next question is from Kevin Krishnaratne with Scotiabank.

Just on the -- just want to confirm on the Brand Solutions revenue was down Q1, Q2, but that's because of the dynamic of NFL, right? So would it have been up quarter-over-quarter? And is that the sort of trend that you expect to see over the Q3 and Q4?

Well, Kevin, thank you for your question, and the answer is a conclusive yes. The level of effort and resource and energy we're putting against the Brand Solutions, it continues unabated and the acknowledgment of the market. And certainly, as I talked about in my remarks, when I look at the pipe for quarter 2 -- for quarter 3 and quarter 4, and I look at the scale and size of the logos coming back recurring clients, as well as new logos and the size of the deals, it's very reassuring. So the answer is, as we had NFL in quarter 2, we would have been in the marketplace and really merchandising and selling those deals, but we didn't.

And so there was some revenue, I guess, pushed out from content that you produced from Q2 into Q3, Q4, so that will come into Q3. Does the profit profile look better though in Q3 because you've already sort of incurred some of the expenses for the production on that content in Q2. So just trying to think about the profitability profile heading into Q3?

Yes. Alex, can you take that one, please?

I'd be happy to. Thank you, Nick. Hi, Kevin. Yes, so as Nick said, definitely, it had an impact. Brand Solutions down slightly quarter-over-quarter, but Brand Solutions included a significant amount of NFL revenue in Q1. And now what we see in Q2, there were some NFL costs -- there was [ 0 ] NFL revenue recognized in Q2 simply because we did not deliver air any content. But as you also heard from myself and Nick, a lot of content has been sold, including our largest deal ever. So yes, that revenue -- those episodes will be pushed and served later in the year. Some costs were recognized in the quarter and no revenue was recognized. So that will improve the profit profile somewhat when we do hear those episodes, but there will still be a regular, I wouldn't say, it'd be too material, I would still expect the NFL TNG because it is a live show, right? So most of the production cost, most of the talent costs will still come into play with those episodes. However, we are selling individual episodes and these sponsorships are being done profitably. So there will be some lift to the profit profile for NFL in the later quarters because there were some expenses in this quarter without any revenue recognized.

Okay. Got it. I think you made -- it looks like by your assumptions, you've exited some relationships on the video side of some customers that were maybe less profitable. Do you have an estimate for how much that is on an annual basis in terms of revenue?

I can take that again. I mean, it's baked in now. So that's -- it's baked in now. So you can see in the MD&A, we do disclose the movements in RPMs and how much video comes from -- how much revenue, excuse me, comes from video and how much comes from web platforms. So all the details are in there. Look, Media and Content was down substantially year-over-year, just over $8 million decrease there. But a big chunk of that is CPM and then further that decrease in the video views, which I guess would be about 15% on the video view side. So those would be the pieces that tied together. The bigger driver is still the CPMs, but the video views did have an impact, but that's baked in. I wouldn't expect -- it's normalized at this point. So -- so I wouldn't expect a further decline from that.

Okay. No, I was just trying to get a sense for -- I think there was some commentary that you exited some relationships with some content creators, and if there was a view on how much revenue at -- those creators may have accounted for in the base? I can just take it offline with you.

Oh, no problem. That is -- sure. All that information is in the MD&A. It be -- yes, oh, the video -- it will be the -- it's more -- it's -- but the primary driver is still the CPM. So think of it like 5% -- 1% -- 3% to 5% would be an approximate number of the total revenue. But more -- for more specific details, all the RPMs, the video views and the movement on -- specifically on the video, all the stats are provided there.

The next question is from Robert Young with Canaccord Genuity.

In the release, I think in the prepared comments, you talked about profitability timeline. What type of profitability is that EBITDA you're talking about there? Was it by end of the year? Maybe just refresh that for me, please?

Yes. Robert, thank you for that question. As I've said all along, I said in the last quarter's earnings certainly reemphasizing it now. We will be a profitable company, as we go into 2024. It is our determination as a leadership team. We're focusing on the big 5 drivers to ensure that we enter 2024, as a profitable business. So I can't give you the specifics as to exactly what month we're going to be turning profitable, but we're very confident we're going to be doing that by the end of the year.

Then the second question, I think, just commentary around having sufficient cash and availability on the credit line to get to that profitability, and you also said that you're in negotiations around that credit line. I was just curious, are you able to get to profitability on the current credit line? Or would there -- is there -- are you suggesting -- or would you be required to expand that credit line to get there?

No. Well, I say, I'll let Alex take that because he's done a very good job working with our existing lenders to demonstrate to reassure their confidence in our business model. So Alex, why don't you respond to on that, please?

Well, thank you, Nick, and maybe I'd be happy to hear, Rob. So yes, I mean, what I've always said, there's a couple of things we're doing. One, we're being extremely efficient, like all businesses in our sector and even the broad tech industry for being as efficient as possible on our expenses. Number 2, though, more importantly, and I've said this a number of times, we are also being very efficient, strict -- being more strict with our working capital. And I've always said there is actually a lot of value tied up in there. This quarter, we have about $33 million of accounts receivable, trade receivables and other receivables on the balance sheet. At the same time, when we look then to our facilities, we have an operating line against that of $5 million. So I believe we are underleveraged on a debt equity basis. I believe we're underleveraged on a debt to asset basis as well, and this one is a no-brainer. So to answer the question, could we get there without? I believe we could because we could further find ways to unlock the value of our working capital. However, we also are very bullish about our pipeline. And we are setting -- we are selling -- selling bigger and bigger deals. And some of our success in the short term, we had to pay for, and that's more campaigns to run, and we want to make sure we're prepared for that. So -- but with that said, subsequent to the quarter end, we are, as mentioned, in advanced discussions with our lender to document an amendment to our credit facilities to make sure that we have the sufficient and ample liquidity to execute our near-term strategies, and, of course, this through the end of the year, and by the end of the year, we're very confident we will be profitable. So we're just -- we're locking that down. We're moving any short-term liquidity risk because we have a clear sight line to the end of the year, and we want to make sure that there's no hiccups along the way. So I think we could without it. But remember, our operating line is also by far our cheapest cost of capital. So it's a preferred method for myself. And as Nick said, we're very grateful to our long-standing lending partners, who no doubt are listening, and we appreciate their confidence in us and value them as partners.

Thanks a lot for the detailed answer. Maybe last one for me. Last year, if I remember, I think you suggested that there was some holding back for the Q4, just to make sure that I think brands are worried that they wouldn't have enough powder for the important Q4 period now that you're served through maybe a little bit of Q3 here. I'm just curious if you could -- is that same dynamic at play? Are people -- are your customers weighing up for Q4? Or is it more of a linear dynamic this year? And I'll pass the line.

Alex, why don't you take that?

Sure. Thank you. We are seeing it. And we don't want to create this as a KPI, but we can see the -- we have increased visibility. As Nick said, we are increasing our visibility, so we can see a pipeline, Nick gave some stats on that. So I don't want to give more or less they're out there. But those are very good stats. You can see the visibility we have. And yes, we are seeing activity, a lot of interest in Q4. I think the normal seasonality, Rich -- Rob, you'd be familiar with over the years, I'm very hopeful that we're returning to that normal, and we have a lot of interest in orders in Q -- for Q4. And as I mentioned earlier, that's one of the reasons this demand for back half of the year, media assets and other solutions for our brands is one of the reasons we rescheduled those episodes for the NFL TNG. So we're seeing a return to that normalcy, which we all recall that in the prior years until -- at least until 2022, that's how it works, right? All like it was always booming in Q4. So hopeful and optimistic for that. But yes, I don't think it's linear. I think it's a lift for Q3 and a bigger lift for Q4.

The next question is from Drew McReynolds with RBC.

Yes. 2 for you Alex, I think, and then 1 for you, Nick. Just on the first 2. On the operating line, Alex, in terms of getting that larger, can you without giving a number, obviously, can you quantify? Is it doubling the size or maybe something more? And on the sustained profitability, good to hear, as you get into the seasonally softer Q1 of next year, presumably, just based on your commentary, you expect to remain profitable. So if you could confirm that? And then Nick, just bigger picture on the organizational changes, you alluded to quite a few of them. Where are you on kind of your own road map of optimizing the organization? Are you middle innings, late innings, early innings? Any context there would be great?

Okay. Alex, you go first.

Sure. Thank you. Hey, Drew, how are you doing? So -- okay, so I'll start with the operating line. Look, it's sufficient I'll put it this way. We're not talking about a major change to our capitalization. We're not really changing the capitalization of the business. Just a modest increase to ensure we have access to tap our working capital for the remainder of the year, and well, it is a permanent increase with the term of the facility. So I would expect to double or less, like it is modest. We're not really changing the capitalization, but it's sufficient for us. As our loss narrows significantly and turns positive in the back of the year, then it's plenty for us to work with. With that said, I think the second question was on the timing of profitability and then the patterns for next year. Is that correct? So...

Yes. The -- they are seasonally soft in Q1 and into next year, like obviously, you'll have good momentum coming out of Q4?

Yes. So what we're seeing there, yes, we have great momentum coming out of Q4. When we start looking into the next year, of course, we would expect seasonality to kick back in, like it traditionally does or customarily does in the industry in January, so that would have an impact on CPMs, also on Brand Solutions. But we have some interesting dynamics here that I think are shining through more and this quarter, particularly versus last quarter because now we've introduced a couple of things. We're in a post-COVID world and our events are actually up 40% year-over-year, some of these events, London, and we got Helsinki come up. Like here's a real -- it's a much smaller part of the revenue profile, but it's profitable, it's accretive to margin and we love them, and they're doing great. So that -- the reason I point that out is because now we've introduced London, we got in Q1, and the NFL TNG season, that's the other element of you call it seasonality that we've introduced that's now having a stronger-than-expected impact. So that's why when I look at Q1, I think, okay, yes, for CPM and yes, for Brand Solutions, but we will still have NFL, and we'll have London, and the events are booming and NFL TNG is in high demand. So I do expect absolutely it to be less than Q4. But I think our seasonal distribution is starting to flatten out in the first half of the year a bit, and that's why we're seeing comparable Q1s and Q2s because Q2 may be flat this year, but it's missing a big event and it's missing NFL. So apples-to-apples, it's actually not -- it's a reasonable increase, which we would be used to seeing. So I think that those 2 events, those 2 items in Q1 are starting to flatten that seasonality in the first half. So that -- so yes, I would expect it to be down, but to be kind of more flattish Q1 and Q2, and then a lift up for the second half.

Yes. And Drew, if I could pick up your third question, and thank you for asking it because when you talked about our road map transformation, I love questions by that because I always want to remind everyone that the numbers were a consequence of the business and the business isn't a consequence of the numbers. And the business is being looked at by the leadership team, which is not just exec, there's 32 people in our senior leadership team, who took on the lens that I provided to look at the business, through the lens of product, through lens of content, through lens of brand, growth, culture and operations. And each of those 6 pillars make up our transformational velocity, and they -- the teams work in a cost functional way to ensure that we actually break down silos, increase communication, increase trust and knowing between the different leaders of the different operations because, as you know, we have 230 employees, and we have over 75 different sort of entities that operate between different games and sites and teams, and you name it. Now everyone is looking at this through the enterprise lens. And when we think about products, the big 3 there, obviously, technology, platform and data, you cannot build a skyscraper on weak foundation. And the foundation for this business is, just like a SaaS company, we are a platform company. We have a platform, on top of the platform, our products, on top of the products, our services. So the technology integrity, the platform rigor across the first-party data capture and leverage is part of that, the content [ charter ]. We talked about the content factory. We are in the ideas business. So we have now rebranded our factory, Final Boss Studio. They're doing great work. They've stopped doing the work that they thought they should be doing, that we couldn't see merit in, either from a fame point of view or fortune point of view. We're developing the tentpole calendar. Longtime [ in advance ], we have a tentpole calendar planned out to mid-2024. So the sales teams can get out there and be selling it and not be twiddling their thumbs, wondering what's happening, and then we see NFL. The NFL has proven to be a major landmark marquee for the biggest brands in the world to be leaning in because it is the biggest and most culturally relevant sport in the U.S. today and following right behind it are the other sports leagues, who are also looking to engage with their next generation of fandom, who are found playing, communicating and connecting in the gaming communities. And then we talk about our brand, not just our awareness, but obviously, our industry leverage. And I've talked about it before, how we're going to market from an industry point of view. How can Uber now be a $1 billion ad business at the end of the year, putting things, doing pop-ups in Uber Eats and then what are they going to do? We have TV screens. Next, we have an Uber experience. I look at the growth of CTV. I look at the growth of retail media. Streaming audio is an $8 billion category. We are predicting that the TV industry, the linear TV is an [ 80 ] -- well, linear TV, this is going to be $61 billion, $25 billion is already in CTV. Why is it in CTV? Because linear TV's pain is CTV's gain. What does it have over traditional TV, targeting measurement interactivity and e-commerce. We have all those same things, who is out there talking to the marketplace, talking to all the big brands, why is it if I'm looking at traditional TV, you've got [ $67 billion ], I'm estimating over $11 billion will peel of linear TV in the U.S. in the next 3 years, and we are determined to be there to capture it because the industry spends this whole time talking about retail media, commerce media, CTV, no one talked about gaming media because no one has been out there representing the scale, the interactivity and the measurement of that. And then so when we talk about growth, we talked about it. Our ad tech needs to be brilliant. We're not going to have an SSP partner. We're not going to -- not be integrated with the [ white ] data partners. We're not going to have a confusion about who's our ad serving partner. We're cleaning it all up at speed. And then we're driving our Brand Solutions, and then we're really focusing on subscriptions and making sure that where we can, we're going to build those alternative sources to our growth. But from a cultural point of view, that's been important because teams win, no individuals and every team needs a leader, but it's not about the leaders, it's about the team. And now we have a team that's connecting, that's communicating, that's establishing some real pride in the fact that we are at the vanguard of not just fixing a business or building a brand, but building an industry category. But to do that, we also need the operations, great operational rigor, operations like a proper ERP network, working with NetSuite, having fully integrated all the leverage on AI, whether we do now ChatGPT for engineering, we'll now have AI policies on all the data and privacy security, we use an advanced AI for all data insights and analytics and then where can we drive automation. So the business focus, where are we? We meet as a team. They meet weekly. They meet me by weekly by group and then we meet as a full SLT on a monthly basis. So we are on the road map. It is -- people say, it's very tough, and it's aggressive. It's not, it's just accountable. We're introducing a culture of meritocracy and accountability. So people have to do what they say they're going to do, and they're doing it. So I could not be more proud of this young, highly entrepreneurial organization, who's getting up to speed very swiftly with what it's like to be an enterprise business with a mentality that we're already a $1 billion market cap. So I hope that answers your question, Drew.

Yes. It does, Nick.

The next question is from Gianluca Tucci with Haywood Securities.

Most of my questions have been answered. But just on subscriptions, it's nice to see the continued and methodical growth in that business line. Could you speak to the efforts there and growing the subscriber base going forward, if there's anything different that you guys are doing to add subscribers?

Well, Hi, Gianluca, and thank you for your question. I mean, at this stage, we have started [ single analysis ] and engineering point of view, there are 18 steps for signing up to be a subscriber. It's now down to 3. We're changing the credit card acceptance policies on that. So more flexibility about that. And then there's a greater level of analysis going into every e-mail, so we've identified that we have in our system, whether they're active or inactive and how can they be used for remarketing, so we can actually use those as well. So as I said, we've signed up our consultant, who's got tremendous experience with Expedia and Microsoft, and he spent his whole life in the whole customer acquisition subscription building phase. And we've got a readout from him in 3 -- in 2 weeks actually to the exec team. And we're most excited because he's not just focusing on The Sims Resource, and where already the engineering work is already underway in terms of the site redesign and the site reorganize, as I said, all things sign on, to make that smooth and seamless UX. But I think, importantly, we're going to be looking where are the sites and the community areas or the games, where we can start to integrate -- what value add could we offer to be able to charge a subscription. And certainly, we're going to institute a policy, where there isn't just going to be all things free easy download without any attempt, capture people's identity and still today in the U.S., the e-mail is the #1 fidelity for identity that exists. So I on our next call, I'll give you substantive response to that specific questions by actually telling you the things we've done and how they're driving an uptick to subscription revenue. But I can't really say much more today.

Thanks, Nick. I appreciate the color. And then, just in terms of your pipeline for the back half of the year, like -- I like to put it in, I guess, context, how -- like can you quantify the degree to which it is bigger than the first half of the year? I'm just trying to get a sense of the magnitude of difference the second half will look from the first half of the year?

Well, that's a great question and certainly will be bigger, how much bigger. I think, Alex, to make sure that we give the right kind of guidance, I think you should handle that response, please.

No problem. My pleasure. Well, I'll put this way, it will be materially bigger. We don't want to set a KPI around it specifically because I'll give you an example. For example, we've just sold our largest sale ever, and so these are -- some of these deals are getting bigger and bigger. Of course, Haywood, and you, Gianluca would, there was a time when we celebrated 50,000 deals, 100,000 deals, then we sell at a $0.5 million and $1 million, we're well above that now. So single deals can now move the levers, which is why I'm cautious to set any KPI against it. What we like to see is a full pipe. We like to see new logos. We like to see repeat business coming in at higher rates like it did this quarter. 62% of deals of repeat clients generate 66% of the Brand Solutions revenue. So I will just say -- expect moderate uptick in Q3 like we spoke about, and then that will be helped -- partly fueled by NFL, and then a larger leap in Q4, like I spoke about earlier. I will say it will be material [ for ] certainly.

Yes. I'd like to jump on that, though Gianluca. I think there is another part of this. What I get excited about is I'm seeing new logos in the pipeline like Dove, having won, that's our first -- we've got our first Unilever brand. When I think about P&G, P&G has 60 household brands. It spends $4.4 billion on global advertising. It has $11 billion brand. They have [ Charmin ], they have Crest, they have Dawn, they have Gillette, they have Pampers, they have Tide. They have decreased their digital spend by $200 million over the last year, and then increasing it in TV and radio and retail media. And now, I'm going to go to the top of P&G, and I already have done to really understand the Global Head of Innovation and the Global Head of Marketing, give us a test. You're testing with us, so now give us another brand -- or of that individual brand, we want a bigger share, which you got to get in. And same way we're getting in with PepsiCo, and we're getting in with Unilever, and we're getting in with Google, and we're getting in with Coca-Cola. These are huge multi-brand players, and they are all relatively uninformed yet excited and supportive in understanding how to navigate their way through the gaming media beyond just running the pre-roll video on Twitch. So they see that, that's just handled as a programmatic buy, as part of the media buy. I'm talking here about how they can create truly competitive and differentiating platforms, these are what I'm excited about when I look at the pipe, which is why I need to be out there with our Head of our Brand Solutions making sure that those most senior marketeers understand what they're testing, and we have no ambiguity in what the measurement for success is. That's what I see as the biggest opportunity when I look at our pipe for the second half. And by the way, we've now instituted a big deals [ call ]. There is no deal over $250,000 that does not combine me. But I'm talking about the idea, the proposal, the pitch, the negotiation, I'm all over this now, those biggest and anything to do with the big -- the biggest advertisers in the world, I'm all over that as well.

Amazing context and talk to you soon.

This concludes our question-and-answer session. I would like to turn the conference back over to Nick Brien for any closing remarks.

Well, thank you, everyone, for dialing in. I appreciate the level of support our analysts provide us with the -- for the accuracy here. I also want to extend a vote of thanks for the vote of confidence from our lenders to increase our lending facility, should we need to be able to use it against our increasingly attractive size of our book or blue-chip brands that are signing up to work with us. And I want to reiterate to everyone that this -- and I understand there's been historical turbulence on this young company, but I have never worked in an industry sector in my 35 years that I felt so much wind in our sales, that is not just a brand to be built or a business to be fixed, so an industry category, I can't do it alone, but boy oh boy, there's a level of receptivity and excitement and that is because this is not just a business. This is part of popular culture. It is a defining global phenomena, and it is not slowing down. So we have a lot of work to do. We have a very aligned leadership team. We are bringing together a very strong culture. And as I've explained to this company, we are no longer multiple companies operating in the gaming media and entertainment space, we are one company with multiple brands. And as we start to execute against that vision, we will start to see the results for sure, as night follows day. Thank you so much for everyone participating in this call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.