Earnings Call: Q2 2021

Aug 10, 2021

Earnings release

Good day, everyone, and welcome to the Enthusiast Gaming Holdings Inc. Fiscal Second Quarter 2021 Financial Results Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Eric Bernofsky, Chief Corporate Officer. Please go ahead. Thank you, operator. Good afternoon, everyone. Welcome to Enthusiast Gaming's Q2 2021 earnings call. Name is Eric Bernofsky, the Chief Corporate Officer of Enthusiast Gaming. I'm joined by our Chief Executive Officer, Adrian Montgomery Our Chief Financial Officer, Alex MacDonald and our Chief Operating Officer, Thumbatharmalingam will begin with commentary on the quarter before opening the floor to questions. 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 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 June 30, 2021, which are available under the company's profile on SEDAR and EDGAR as well as on the company's website. You are 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 Adrian Montgomery, Chief Executive Officer. Adrian? Thank you, Eric. Good afternoon, And welcome to our Q2 2021 financial earnings call. It is my pleasure to once again report on the financial and operational accomplishments our team made last quarter and speak about what we believe will be an exciting second half of the year. I'm extremely pleased with our results this quarter and the significant growth we have achieved across all of our financial and operating metrics. And I would like to thank each and every one of the hardworking enthusiast employees for all of their efforts to put us in the position that we are in today. Despite the headwinds posed by unfavorable exchange rates, We managed to exceed expectations across the board on revenue, gross profit and gross margin. I'm pleased to report that Q2 revenue grew by more than 427 percent to $37,100,000 from $7,000,000 in Q2 last year and gross profit grew to $8,000,000 from $3,200,000 a year ago, while gross margin improved to 21.6%, which is a nearly 200 basis point increase from just 1 quarter ago. Revenue growth continues to be driven by our focused Buy and build strategy. Key organic growth drivers, including direct advertising and sponsorship sales, grew to $4,400,000 in the quarter from approximately $500,000 in Q2 last year and double from $2,200,000 just a quarter ago. Some of the partners we worked with In this past quarter include major blue chip brands such as State Farm, Bell, Bethesda, HBO Max, Twitch, Hasbro, Noom, GFuel, Riot, Exit Lag, Excedrin, The number of paid subscribers at June 30 was 155,000 compared to 111,000 a year ago, an increase of 40%. Most notably, however, is the acceleration of growth we are seeing in paid subscriptions. This quarter, we added 18,000 net new subscribers, the highest quarterly growth in 4 quarters. This is a direct result of the investment we made in Q4 last year to establish a team dedicated to growing subscriptions. The upward momentum in net new subscribers this quarter is proof that, that strategy is working. We remain confident that subscriptions will continue to show meaningful growth in the back half of the year. As we've mentioned previously, we believe subscriptions to be one of our most exciting growth opportunities. That's why we announced our plans to build a pan enthusiast Social Network with a premium subscription opportunity for our target Gen Z and Millennial audience, code named Project DD. We are making strong progress on this front, and I'm pleased to announce today that we expect to release an exclusive alpha version with select gamers toward the end of September. As we said before, direct sales and subscriptions are 2 of our highest margin revenue streams, And you can see how the growth this quarter has contributed to gross margin improvement by nearly 200 basis points are nearly 2 full percentage points. We like the direction both of these businesses are moving in and the upward trajectory they're on as we move through the second half of twenty twenty one, which is our busiest time of the year. You've heard me talk about our proprietary flywheel in the past, And I'd like to take a moment to reiterate why we believe this is the right strategy. Every month, Millions of video game and esports fans come to 1 or more of our 100 plus web properties, our 1,000 plus YouTube channels, Watch our talented Luminosity Gaming streamers on Twitch, and I would point out we are the number one most watched The first season of Gamers Greatest Talent aired in Q2, and it was sponsored by TikTok and e. L. F. Cosmetics. Live streamed on Twitch over 6 episodes, GGT had a total audience reach of north of 10,000,000 viewers. Discussions are now in full swing on another follow-up season. Another unique content experience we are For the event in May, we collaborated with DJZoo and Luminosity Gaming, Starfresh, to launch an exclusive remix of Coldplay's Coldplay's new hit single Higher Power, which was live streamed on Luminosity Gaming's Twitch channel. The collaboration of music and gaming is Proving to be a powerful combination for fans and sponsors, and we look forward to more events like this in the future. This is our fan flywheel, which delivers great content and experiences throughout the gamers' fan journey. And we will continue to add meaningfully to this fan flywheel, both through organic and acquisitive means. At the same time, companies across North America are trying to build out and deploy strategies to reach Gen Z and Millennials at And we have been out there talking about it in recent months. You can read and see it in places like Bloomberg, The MIT Sloan Management Review, USA Today, Digiday, Washington Post and others. We are winning in the marketplace because we offer more touch points to Gen Z and millennials than anyone else out there. We're selling integrated packages that include media, sponsorship, unique content, talent activations and esports. The breadth of offering is proving to be a winning strategy as is evidenced by the doubling of our direct sales business this quarter to $4,400,000 from $2,200,000 in Q1 of this year. On a currency adjusted basis, our Q2 performance in direct sales It's similar to the direct sales for all of Enthusiast in 2020. In Q2, we partnered with the U. S. Ad Council and the COVID Collaborative on their COVID-nineteen vaccine education initiative promoted COVID-nineteen vaccine awareness and Education Among Young Adults. It was the largest and most significant public health communications campaign in U. S. History, and we were very proud to be the Ad Council's gaming partner. Hollywood Studios and filmed entertainment remain an exciting growing category for us. This quarter, we completed activations for Universal Pictures to promote the North American release of F9, the latest in the Fast and Furious franchise. We worked with Walt Disney Studios to promote Black Widow, and we partnered with United Artists to promote the Guy Ritchie film, Wrath of Man. Those studios leveraged our innovative For F9 specifically, the activation included custom content activations with Luminosity Gaming Talent and across enthusiast gaming media brands. 5 exclusive Grand Theft Auto events throughout the launch Fans versus Luminosity All Stars Gameplay, even during the finals of Gremers' greatest talent. We remain confident that Hollywood and filmed entertainment will continue to be an exciting growing category for us as we move through the rest of 2021. And the pipeline of opportunities continues to grow. Subsequent to the quarter, we announced a renewed and expanded Luminosity Gaming Sponsorship deal with G Fuel as well as an integrated media and esports partnership With the United States Navy that will include the creation of multiple unique gaming activations incorporating our company's roster of gamers, We are also currently in market with innovative campaigns for State Farm and DoorDash to name just a few. Another activation I'm particularly proud of is the innovative work we are doing with LEGO. In partnership with Lego Technic, we have launched the Luminosity Academy to push the boundaries of creativity and guide the development of young gamers. As you can see, we have worked with top brands on their biggest campaigns this quarter. We've executed on many new programs and provided innovative ways for brands to reach the elusive Gen Z audience, and it's working. So anticipating that, we'll continue to build on this exemplary quarter. We are adding more staff. We now have more people in key centers, including New York, London and Los Angeles. We've added people in Detroit, and we are looking at adding members to our direct sales team in Chicago. Our monetization flywheel, which consists of a diversified revenue continues to gain significant traction each and every month. I've already highlighted the performance of direct to brand sales and paid subscriptions, But we're also seeing gains within our content licensing and distribution segment, particularly on platforms like Snap, where we are distributing more content that leverages our expertise and reach for the type of content gamers want. In May, we launched a new YouTube channel called Arcade Blocks, focused on Roblox related content. That channel has already garnered almost 100,000 subscribers and nearly 1,000,000 watch hours. We're also pushing deeper into storytelling with original content for gaming audience. Our new brand Upcomer, which also launched in Q2, expanded into Snap with 2 different properties, Livestream fails and rage quit. These are properties we've created from scratch that are already contributing through new subscribers and content. This quarter, we completed our NASDAQ listing and subsequently raised gross proceeds of just over $60,000,000 This raise significantly improved our balance sheet and has allowed us to accelerate our business plans with a particular focus on mergers and acquisitions. On the M and A front, we successfully closed the IC Vanes and TabStats acquisitions in the quarter, and they are integrating well into our fan and monetization flywheels. We are well funded to continue to execute on additional acquisitions that will expand our audience reach, provide a deeper and more authentic fan experience, unlock new revenue streams within our flywheel and be accretive to margin. We anticipate being able to execute on additional exciting transactions this quarter. We're just getting started and believe very much in our buy and build growth strategy centered around our proprietary monetization flywheel. As you can see, we have accomplished a lot in the first half of twenty twenty one, and we are confident in our team's ability to continue to grow and to continue to execute in the back half of the year. I will now turn the call over to our CFO, Alex McDonald for further commentary on our financial results. Thank you, Adrian. And we find ourselves here once again in a fortunate position to be able to comment on an exemplary quarter, our Q2 2021. I have a few notes to mention before I begin my commentary. I note that our results are presented in Canadian dollars. I note that our business is affected by seasonal trends in digital 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 revenue streams. As we head into the second half of the year, I want to note that the increase Between Q4 and Q3 ad prices is much greater than the increase between Q3 and Q2 ad prices. Also note that the acquisition of Omnia Media occurred on August 30, 2020. The comparative financial figures relating to Q2 2020 in the statements and the MDA Do not include the results of Omnia except where noted. The 2021 balance sheet and income statements include the balances of the company including Omnia. And now back to the Q2. We've seen continued progress across the metrics which drive this business. Q2 revenue was $37,100,000 up 430 from the reported Q2 2020 revenue of $7,000,000 This increase was driven by our acquisition strategy, including Omnia, as well as strong organic growth in direct sales and across all three of our revenue streams of Media and Content, Esports and Entertainment and Subscriptions. Q2 revenue by source was as follows: Media and Content, dollars 33,500,000 subscription, dollars 2,000,000 and Esports and Entertainment, dollars 1,600,000 The Media and Content revenue of $33,500,000 compares to a $4,200,000 reported in Q2 2020 or nearly 8 times. Q2 Media and Content revenue attributable to Omnia is $26,000,000 which is up 29% year over year. Q2 Media and Content revenue excluding Omnia is $7,500,000 which is up 79% year over year. Increase in Q1 Media and Content revenue apart from the impact of the Omnia acquisition is mainly due to a significant increase in direct sales, The majority of which are recognized in media and content and a portion of those are recognized in Omnia. Total direct sales were $4,400,000 in Q2 21 as compared to $600,000 in Q2 2020. Number 2, a web RPM, which was 175% higher in Q2 as compared to Q2 2020, which was caused by our continued internal ad platform optimization efforts and a shift in the distribution of views amongst different properties. This result is also driven by the prior year's downturn of the digital ad market relating to the COVID-nineteen pandemic, A downturn we now declare has fully recovered. Number 3 was the addition of 18 new partner websites added to the web platform in the first half of twenty twenty one. And number 4 is the continued expansion of our owned and operated video properties, which also contributed to the increase in sequential quarterly video views. Video views were $9,700,000,000 in Q2 compared to $7,300,000,000 in Q1 this year. Q2 subscription revenue was $2,000,000 up 18% from $1,700,000 in Q2 2020. The increase in subscription revenue is attributable to an increase in paid subscribers. The company had approximately 111,000 paid subscribers as at June 30, 2020. This number has increased to approximately 155,000 paid subscribers as at June 30, 2021. The company continues to grow the subscriber base on its The increase in paid subscribers outpaced the increase in subscription revenue due to movements in foreign exchange rates, which I will discuss shortly. Q2 Esports and Entertainment revenue $1,600,000 as compared to $1,100,000 in Q2 2020. This 45% increase year over year As a result of the growth of our virtual events such as Pocket Gamer Digital as well as increased sponsorship of Luminosity. So there is a revenue headwind I want to point out relating to Q2. The significant majority of our revenue is earned and measured in U. S. Dollars, which is translated into Canadian dollars for presentation in our financial statements. The average USD to CAD exchange rate in Q2 twenty twenty was 138.5%, which dropped to 122.8% in Q2 2021. Had the exchange rate remained constant At 138.5, revenues in Q2 2021 would have been $4,900,000 higher for a total of $42,000,000 Even on a pro form a basis, to include the acquisition of Omnia on a constant currency measurement, revenue would have been up 54% year over year, While the FX movements have a similar effect on cost of sales in certain areas of OpEx with limited net economic impact, We feel that the strong momentum the company has shown in Q2 should be considered in light of this revenue headwind. 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. Gross profit was $8,000,000 for Q2, up 150 percent from the reported Q2 2020 gross profit of 3,200,000 driven by both our acquisitions and growth strategies. Our growth strategies include higher yield and higher margin revenue streams, such as direct sales and subscription. This, Coupled with the tuck in acquisitions of TabWire and Vadadis in Q2 resulted in continued progress in gross margin. The gross margin For Q2 was 21.6%, up from 16.7% pro form a in the same quarter last year. As we continue to execute on our growth strategies, this 4.90 basis point improvement in gross margin in 1 year reveals a compounding effect when considering the significant growth in revenue over the same periods. Operating expenses were $19,600,000 in Q2, up substantially from $7,500,000 for Q2 2020. This increase is due to the acquisition of Omnia as well as significant non cash expenses, including $1,700,000 of amortization, which relates largely to the initial recognition of intangible assets upon acquisitions and $4,000,000 of stock based compensation, which relates to option and RSV awards granted in Q2 and in prior periods. I also wish to note, We incurred costs related to the SEC registration, the NASDAQ listing and the financing conducted in Q2. Professional fees were $1,200,000 as compared $600,000 in Q2 2020 with the increase attributable to these efforts. We expect these expenses to be reduced in periods of less corporate activity. Office and general expense was $2,200,000 compared to $500,000 in Q2 2020. A significant portion of this increase is also related to the registration of with the SEC and the NASDAQ listing. Office in general includes items such as insurance and filing and listing fees. Many of these expenses, such as the required insurance, will continue for the foreseeable future. Net loss and comprehensive loss was $12,800,000 resulting in a net and comprehensive loss per share, both basic and diluted of $0.11 in Q2. We continue to invest in our operations, Expanding our technology and content capabilities as well as our staffing levels throughout the first half of this year. We are proud to say that our full time staff as at June 30, 2021 With 160 people, up from 90 people as of December 31, 2020, most of these hires are focused in 3 areas: direct sales, content and product development with Project GG being a notable area. These are important investments for the future of the company and these are driven people passionate about what they do on a daily basis. I've noticed in the first half of this year, they have become acutely aware of the metrics, which drive this business. Therefore, They are, in my judgment, our most valuable asset. I reiterate that we are investing in order to drive the capacity of the business. There is a tremendous opportunity ahead to monetize our audience and we are confident in our pursuit of this opportunity. We are once again more than ever of the opinion the Results of operations and the financial condition of Enthusiast Gaming has never been stronger. In June, we conducted a public offering of common shares, issuing 8,600,000 shares for gross proceeds of approximately USD 50,000,000 or CAD 60,000,000. In Q2, We also completed the acquisitions of both Tabwire and Vadadis, bringing the popular properties of TapStat and IC Veins into our portfolio. And of course, worthy of another mention. In April, the company became an SEC registrant. And on April 21, the company commenced Trading on the NASDAQ Global Select Market. To all the stakeholders joining us today as a result of that listing, I want to once again express our appreciation for your time and support And welcome to the Enthusiast family. Certainly, it was a busy quarter. As I reflect on the quarter and the past year, As we approach the anniversary of the acquisition of Omnia, I'm proud of the consistent progress we have made towards our growth strategies and the unwavering dedication the company shows towards its stated objectives. We maintain our original proposal The direct sales model is a compelling investment thesis in and of itself. As a Comscore top 100 Internet property in the United States With a growing portfolio of notable clients, we are as confident as ever in the direct sales model. However, we have always been of the belief and have said in the past But there will come a day when Enthusiast Gaming is as well known for selling advertisements as Amazon is for selling books. In Q2, we have continued to advance our data capabilities, both internally and through the acquisition of Tabwire. Our subscription offerings are being significantly expanded, most notably through Project GG. And in early 2022, we will bring to the public a social network made by gamers for the nearly 3,000,000,000 gamers in the world. This will also represent a significant step into the mobile space, unlocking a completely new market for enthusiast gaming. For these reasons, we have never been more excited about the short and long term future of the company. I'd like to welcome the 2 analysts who initiated coverage since the beginning of Q2, being Scott Buck with H. C. Wainwright and of course, the one and only Jeff Phan with Scotia Capital. To all our analysts, thank you for the work you do on Enthusiast Gaming. And to our shareholders, we don't stop working hard for you. Thank you for your continued trust in us as custodians of your business, of our business. And of course, ladies and gentlemen, our business is The Business of Gaming. Operator, I kindly turn it back to you. Our first question today comes from Robert Young from Canaccord Genuity. Please go ahead with your question. Hi. In the press release, you highlighted that you expected margin improvements, I think sequentially through the year. Is that gross margins, operating margins? What type of margins would that be? I'm assuming gross? Gross, yes. That's right, Rob. Okay. And then, I was hoping that you could talk about, the direct advertising bookings. Have you given us a bit of a flavor around the pipeline and The bookings around that business, maybe you could talk about how they pace from Q4 to Q1 into Q2. And as a part of that, I was hoping you could talk a little bit about the if there's any way to parse between new and existing customers. Sounds like you've added a lot of logos this quarter. But I wanted to see if these customers are coming back after it's proven and upping their engagements and use of your direct sales model? Sure. So I think as it pertains to the pipeline and as we've seen it Evolved from Q4 to Q1, and now we're in Q3. We've been Really pleased with how the pipeline has developed. And I think certainly if you look at the number of RFPs that we're getting, That number has grown substantially. We're getting, on average, 13 RFPs a week. I think If we were to remember back to the beginning of Q4, just a little while ago, it would be 2 or 3 a week. And We've built out a customer success department that knows how to churn and burn these RFPs really quickly, which has given us a leg up. But seeing the growth in from 3 RFPs a week to 13, that has been an Encouraging sign and seeing our pipeline develop has been an encouraging sign. And I can say that We were that $4,400,000 that doubling of direct sales in Q2 over Q1 Certainly exceeded our expectations. But as we sit here today and as we look at the pipe and we look at what we're executing and we look at back to school coming up, We expect to see growth beyond that in Q3. And then of course, Q4 is its own animal. It's what we live for In a business like ours, we have American Thanksgiving and Black Friday and Cyber Monday and the holiday season and people Spending budgets and we are extremely well positioned to capitalize on that. In terms of The repeat business that we're seeing, again, we started this journey as a direct sales Operation in Q1 of 2020 candidly went down to Madison Avenue, went down to Los Angeles and no one knew who we were. And so it took a lot of effort, a lot of success winning business. And again, the customer base at the time was not fully sold on gaming and esports. They were Testing, they were dipping toes in the water, and that has changed massively, to the point that you're seeing Big companies and name brands investing heavily in this space because they realize What the guys at Enthusiast and others have been saying is true. If I need to get in front of Gen Zs and more importantly, if I want a shot at them paying attention to me, I better have a gaming strategy and I better have an e sports strategy. We're very encouraged and excited by our renewal of our G Fuel deal. That's the most iconic drink brand in the space. We went from a 1 year deal to an 18 month deal. The size of that deal has grown substantially. We've done repeat business with HBO Max. We've done repeat business with Disney plus We've done repeat business with Procter and Gamble And Gillette and Activision. And so we're starting to develop a recurring model. We're at the front end of that. But people are really excited by our customer offering and by the fact that we are really the only ones in the space You can deliver media, you can deliver video media, web media, talent activation and e sports sponsorship. And our ability to be a one stop shop is a winning formula and it's starting to manifest itself in significant repeat business at higher and higher spending levels. Okay. So is it fair to say that a lot of the direct sales revenue today is very experimental? And then where you're seeing the customers come back, they're upping the size of deals? Not as we sit here today. As we sit here today and we think about the campaigns we're doing for State Farm, For the United States Navy, for G Fuel, for DoorDash, these are significant campaigns with a lot of moving parts and We are officially as an industry and officially as a company beyond the experimentation phase. Up to and including A bit of Q1 this year, certainly people were experimenting, but we're beyond that as an industry and as a company as we sit here today. Okay. Thanks a lot. I'll pass the line. Thank you. Our next question comes from Jeff Fan from Scotiabank. I've got a couple of questions, maybe a follow-up on some of the sales Activities here. Can you talk about the capacity that you have within this The current staff that you have to grow productivity further And maybe also talk about how much you want to add sales staff in the coming months or quarters based on the activities you're getting on the RFPs? And also on these RFPs, how far are these advertisers planning ahead? Are they looking to execute these campaigns within months, 6 months, can you elaborate a little bit on that? So I'll let Jeff, I'll let Thumba, Our COO will expand upon those questions. Go ahead, Sanjay. Hey, Jeff. Just to And to the first part of your question on our sales team and the growth of the team, if you look at where we are right now, As we discussed before, a productive sales rep for us takes anywhere from 3 to 6 months to meet to get to their optimal Capacity. So we're still in the early stages with some of our reps. We're continuing to hire. We've opened up offices in Chicago and Detroit. We've opened up office in London, UK. So we're continuing to expand our direct sales team. I don't think we're at maturity yet. I would expect significant growth even as we go into 2022 as we see a huge opportunity for us to work with a number of different brands With the asset that we got, that's the first part of the question. The second part of the question, Jeff, if you can maybe clarify and then I'll add color. Just on some of these RFPs and campaigns that advertisers are considering, are they planning for how far are they planning ahead is really the question. Are we talking about this fall or within 6 months? Sure. The good news is we're definitely seeing a turnaround in the economy, especially in the U. S. We're at theatrical, for example. These companies plan 6 to 9 months in advance and we're seeing big Hollywood studios starting to plant put together their marketing plans for movies that are releasing 6 to 9 months out and we're in those RFPs. So there is some advanced planning on in some verticals, but then there are some verticals that have sort of You know, held back on spending throughout the most part of this year, but now are spending as fast as they can, such as travel and tourism is a good example of that industry that just all of a sudden showed up and they're starting to spend. So it varies, but it is a very good healthy sign to see that There is advanced planning going on in the marketing departments and those RFPs are starting to come in. Right. That's good to hear. And maybe just a couple of quick ones on Project GG. You talked about releasing a limited alpha In September, can you just talk about what you're hoping to learn from that? It's coming up pretty soon. I know it's you probably don't want to give away all your secrets, but just curious what you're hoping to learn from that relief. And on the more the financial side, this is part for Alex, regarding tech support costs, how do you how should we think about the Spend as you go through product launch and further development on the tech support side? Sure. I'll take the GD one and then I'll pass to Alex for the tech support. So on the alpha release, Jeff, the thinking really is To bring in our first 1000 to 2000 testers and the evangelists, the enthusiasts that we have within our community And to get as much user feedback as possible, as you know, we've highlighted that we built we're building this because we're seeing the need for gamers And we want to get as much user feedback as possible so we can incorporate that into our feature set, into our roadmap. That's essentially what we're going to try to do with the 1st cohort of testers that we'll let in. And then as we start to Advance our road map, we'll slowly add different parts, different groups of audiences to bring in that represents the wider enthusiast community. So you'll hear us sort of give you more guidance and information around what we're learning from the initial test and which cohorts are we bringing in, But that's the objective behind the First Alpha release and the cohorts that we're looking to bring in. Hey, Jeff. Alex here. The areas you want to watch, of course, are Tech Web Development and Content, that expense line and salaries and wages, those would be the areas that's going to relate to GG. I'd say that a lot of the costs for G and G are kind of already incurred and running. A lot of the increases you can see in tech and content as well as salaries and wages are in support of that this year, that and related initiatives such as data, such as fulfillment and subscription and whatnot. So I would Expect though continued modest increases in both of those areas, but not quite to the level we've seen in the first half of this year. VG is reasonably staffed up. It's a working internal product. And from here on out, I think that Most of the hires will be more specialty roles and not necessarily bulk hires. There will be some tech investments associated with the public launch, But I wouldn't think that those would necessarily move the needle given the size of our existing tech portfolio already. It's, of course, some additional servers And whatnot. So that's how I look at the cost for G2. Great. Thanks guys. Our next question comes from Brian Kinstlinger from Alliance Global Partners. Please go ahead with your question. Great. Thanks. One follow-up on the direct sales force. Obviously, with the success you're having, it sounds like You're going to invest in more people. Can you talk about how many people you started the year with? How many people you And did 2Q with? And where do you hope to get to in the next 6 to 12 months? We started the year with about 5 direct sales people, and now we would have 12 or 13, that's not plus customer success. Yes. So if I could add, Adrian. So We started the year out with about 5 direct sales. We're at about 13 to 15 right now with The producing headcounts, we're also building remember, we're as we become sophisticated, we're also segmenting our sales team into Direct sales, inside sales and building out a full fledged customer success function. So net net, we're about a 35 People organization combined as a sales and inside sales organization at this point. And we're really about 5 to 15 right now on the Actual non support people are the ones going after the business, right? Correct. And where do you hope to get that fit? I mean, you're having so much I assume the more people you add, the more you can reach out and touch brands. So do you expect that, especially this is the busy season, 4 months ahead of it. Do you expect that to end the year at 2020 much faster? Is it hard to find people right now? Just maybe take me through the plans on the hiring side. Yes. So for us, we think that a really good sales executive, Sales professional within our flywheel can generate $1,000,000 And so again, What I would what I don't want anyone not hearing on this call is there has been a sea change In Corporate America and the Corporate World's understanding of the importance of gaming in a Gen Z strategy. And so we're past the experimentation phase, To Rob's point, Chief Marketing Officers, middle aged people who didn't quite get it before COVID have seen firsthand in their homes Just exactly what their kids are doing and that has resulted in companies like Coca Cola, Anheuser Busch building out esports and gaming departments to evaluate opportunities, etcetera. And so we're beneficiaries of that. And we think that great quality salespeople, The metric we think about is give them a quarter and a half to 2 quarters to ramp up, and the good ones should be doing $1,000,000 or if not more. And so for us, we evaluate not on the basis of the size of the headcount, but plugging in people with those expectations to satisfy those opportunities. But I can say The opportunities are not slowing down and in fact they're growing in quite an exciting fashion. In terms of, are people hard to find? Look, Managing salespeople is an art. It's not it's an art. Thankfully, Samba and I have a lot of experience in that area. But the other advantage that we have, and I think Alex might have mentioned this, Since January, this company, in addition to raising money and listing on the NASDAQ and Buying 2 other businesses and executing against our strategy, this company has also onboarded 70 people. And so the benefit though that we have is, we're like Willy Wonka's chocolate For a lot of young people who love video games and so we're kind of a cool company to work for. We're an interesting company to work for. We have, what, 10000, 11000 followers on our LinkedIn account. So we have an ability to get talent and to get talent who want to work for us. So that's a tremendous advantage that Enthusiast has on the HR front. Great. My follow-up question is, you're growing subscriptions nicely, the amount of paid subscribers. Can you just, From a high level, talk about is the majority still coming from SIEMs or I know you've started some other subscriptions, Maybe provide some detail on where that growth is coming from. Sure. It's Thumba here. I can add color on that one. So we continue to grow across most of our properties and Sims was Synth definitely had the early mover advantage on subscriptions and we're seeing really good growth there. We're very pleased with that. We are starting to get good traction on some of our other properties such as Escapist and IC Veins. So definitely seeing good momentum there. And I think to the earlier point that Adrian made in his opening remarks is that What we're super excited about is the Pan enthusiasts subscription offering that is going to combine all the other properties that we've got and offer through We think that is the big game changer for us in subscriptions, but we're very pleased with the current trajectory of the individual properties themselves. Sorry. And lastly, that subscription you hope, if I think I read the MD and A right, It's the Q1 is the hope or is the Q2 of 2022 where there's a hard launch or did I read that incorrectly? I think the comment the exact comment was early 2022. And as I alluded to here on the call, We'll bring in the alpha users in September. And then based on that, we'll bring in more Beta testers and then we're hoping to be out in the public in early 2022. Great. Thanks so much for answering my questions. Thank you. Our next question comes from Mike Crawford from B. Riley. Please go ahead with your question. Thanks. So you're number 1 performer on the Twitch platform. What about overall if you look across platforms including Facebook, Twitch or Snapchat, TikTok, whatever. Do you have any data on that? So, I mean, hey, Mike, I mean, we don't have exact data readily available, but Yes. We're number 1 on Twitch. I was specifically talking about Luminosity. But we're a Tier 1 org. There's that's a small class Of Esports Organizations. And I think that Twitch is probably the most relevant for That niche area of the gaming industry, I think that's the most relevant stat for an org at least. Sure. I mean, if I understood the question correctly, it was about our status across the platforms and especially on Twitch, is that it? Right, beyond Twitch. Right, beyond Twitch, okay. So if you look at I think we published our Comscore results. We're top 100 in our property in North America. We command the number one gaming audience in A number of markets, if you look at U. S. Alone, we are number 2 next to Twitch. But within Twitch, luminosity streamers hold the number one spot. So we're well positioned from a gaming audience perspective. But even if you look at outside of North America, we hold number 1 spots to our properties in a number of different markets, which is one of the reasons why we're building aggressively in the UK. We hold the number one spot for gaming audience there. But our properties are really Tier 1 properties that resonate really well with our gaming audience and we continue to capitalize on Okay. Just since you mentioned Luminosity Streamers, so what tends to happen for these influencers' Own viewership levels once they join Luminosity and also I guess Related to that is what is a typical revenue share look like? What was the last part of that? What is the share, sorry? Revenue look like for someone who signed on, like say, XQC? Yes. So look, I think that go ahead. Sorry, Mike. Yes. Yes. Or I mean, I can name like 10 others, but Sir, these people that are affiliated with Luminosity? Yes. Look, we have I mean, one of the reasons we've had the success we've had at Luminosity is we have, a pretty strong track record of building helping Content creators build followings, and it goes back to Ninja. If you look at Somerset and her growth, if you look at Tory Perino and her incredible growth, Rocky Nohands, Fresh, who has completely blown up since he has joined Luminosity and Nick830, I think you have a number of examples where we've grown alongside and helped nurture This talent and it's not independent and happening just on Twitch. I think it's a direct result Also of the Enthusiast Gaming Flywheel, putting Fresh and giving him an opportunity to DJ to a massive audience and work with Coldplay giving him an opportunity to do a merchandise drop with Lil Tecka. And then you think about GGT and the viewers, the 10,000,000 viewers that GGT pulled in and you think about all the Luminosity talent that we invited to serve as judges, including Muselk. There's a halo effect here of the proprietary properties and content we're Creating inviting our Luminosity talent to participate. We created a whole content piece around Darius Slay, Slay versus on Twitch and have grown his following. So, I think we have a pretty strong and track record to be proud of in terms of helping our creators build their audiences. And again, we can't take a lot of credit for XQC. He He's a supernova and a superstar all to himself, but it's no coincidence that his girlfriend, Adept, Wanted to join Luminosity and wanted us to help with her career. And so those are the touch points. And look, The Twitch revenue stream is basically exclusive to the creator. We don't touch it. So We help them grow. They make more money. And presumably, they're happy with the involvement with Luminosity. Okay, great. And then just final question, just coming back out to a bigger picture, if there is any update on where you envision long term business model, Margins to be for enthusiasts in terms of like gross or EBITDA or when we might get there or what needs to And that long term vision, we have been I actually love that about us. We've been very dedicated to our growth strategy and It's coming it's been coming true. Everything we said a year ago has been coming through. And here we are today, we're pulling forward Certain aspects of the growth strategy that we originally thought would be farther out, such as the social network. So therefore, in the terminal state, I don't see any difference. I've always kind of compared it to traditional media companies and the P and L profile That they enjoyed at the peak of that industry, which were margins low over 50% and very healthy operating margins. I could easily see it going to 25% or 30% on a terminal basis. And if anything has changed, I think that we are we have a clearer vision of those outer growth strategies, Which I think may pull them forward a couple of years. It's still though, it's still of course those profiles are still our Long term plan, as you can see the incremental gains we're getting, we're getting 50, 100, 200 basis points a quarter and that's just fine. That's what we want. You can imagine on a long term basis, which a lot of people would define as 5 years, that adds up. That adds up significantly and changes the profile of this business. So that's how I view the income statement profile. And I also think just as one Contributing data point to that, we talk internally and have always talked internally about In a few years' time doing $100,000,000 of direct sales. And That might have sounded fanciful when we had 2 employees, but we want to move 10% of our inventory to being Directly sold. And I think the trajectory that we're on, the success that we're having, the repeat business that we're winning And the type of companies that we're doing business with, We are confident that we're executing in a manner That supports those kinds of performances. Excellent. Thank you, Adriano. Thanks, Mike. Our next question comes from Kevin Mack. Please go ahead with your question. My question has to do with expenses. In the Q4 conference call, You guys talked about how $50,000,000 in expenses annually was a good run rate to look at and model things. But these past two quarters have been substantially higher than that. So just curious if that's from one time investments and that's going to relax a little bit or if we're looking at a higher run rate looking forward? Hey, thank you. So I don't think it's too much Higher than that, to be honest, but certainly it certainly is higher. But where that higher where the portion that is higher A lot of it is because we've seen the ROI. I think direct sales is performing as well as We could have expected that. I will tie it through the fact that we have said a year ago when we put $100,000 in the Q1. Look, next year Q2 direct sales is going to be 12% of our overall revenue. In the same period that revenue It's grown well over 30%. We've seen that ROIs we've accelerated. The other things that we've accelerated are Of course, the social network and the data capabilities, which as of even 6 months ago, were farther down Our growth path, we've accelerated those, being a bit of opportunists, to be honest, as well. We saw the opportunity and we're seizing on it. So I wouldn't say that we will go back, certainly not to a lower Those were investments that were consciously made. And although I wouldn't expect the next The same increase we've seen in the first half of this year, the water growth business. I do want to point out too though, OpEx is up significantly. If we talk about some of the non cash amortization and the stock based comp, it is up nearly 100% Not pro form a. But not pro form a, the revenue was up much, much more than that, of course, but even the gross profit It's up significantly more than that. So we're seeing some ROI and we keep doubling down and as long as we keep seeing that ROI, we're going to do that. Yes. Look, the opportunities got bigger quicker and we are hell bent on capitalizing on them. And also, so direct sales, thanks to COVID, those budgets increased. We wanted to hire people. We wanted to pull forward our ability to exploit a void in the marketplace to deliver on a subscription based social network. And at the same time, this is a company and again, it's not dissimilar to a lot of High growth companies, but we're executing building out direct sales, building out G and G, building out Upcomer. And in our spare time, we raised $120,000,000 in the 1st 6 months of the year. We listed on NASDAQ. We bought 2 companies, And we put a $250,000,000 base shelf in place. So these are corporate a lot of corporate actions that requires spend, but we're confident that we're being really, really opportunistic about Seizing our moment in the sun here. Thank you for sharing your mindset there. My other question has to do with The drama that has unfolded around Activision and corporate culture and work environment, and I just wanted to hear your thoughts on what you guys are doing Yes. No, thank you for the question. Certainly, Vancouver titans and Seattle Surge, of which we have ownership stakes in, issued statements time ago, Supporting everyone taking a stand against discrimination and harassment in the workplace. And we believe as business that everyone deserves the right to feel safe, valued and included in the workplace without fears of Judgment or prejudice based on gender, race or orientation, and that was a statement that was important for us to attach And it's a statement that we believe as a company. We just hired our new Head of People and Culture, Candice Levy, It starts next week, and we take these values seriously. We have an incredibly Diverse group of people that work for Enthusiast. We do our best to make sure That their voices are heard and respected and we're going to make the investments in people and culture To walk the walk and talk the talk. Great. Thank you. And my last one has to do with Just wanted to hear what your thoughts might be about how you're going to potentially convert existing subscribers, someone who might be just on the Sims and converting them over to this, pan enthusiast offering that I assume will come at a higher price point? Sure. I can take that one. Just on the first point on the conversion, remember, It isn't going to be a brand migration for the existing subscribers on any of our platforms. Really what this will do for Anyone who is on, whether it's on Escapist or Distractoid or Simmsa Resources, this will just make it a single sign on access that allows them to access Multiple different features, assets, networks, apps in the wider enthusiast gaming asset mix. So it's not exactly a brand migration that we will not go down that path. We would want the communities to remain within their communities, But we'll have access to the wider asset mix that Enthusiast Gaming offers. As far as pricing of GD and how we think about it, I think it's too soon for us to comment on any of that. Again, our focus right now is heads down, let's get the product stabilized, let's make sure that we're building the right Launch in early 2022. That's our focus. And I think as we develop more of a commercial sense on what the pricing structure would look like, we'd be more than happy to that at that point. Great. Thank you. You guys are at the tip of the spear in a lot of things that you're doing and I appreciate your efforts. Thank you. And ladies and gentlemen, with that, we'll conclude today's