Enthusiast Gaming Holdings Inc. (EGLX) on Q3 2021 Results - Earnings Call Transcript
Operator: Good afternoon, and welcome to the Enthusiast Gaming Holdings Inc. Fiscal Third 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 this event is being recorded. I'd like to turn the conference call over to Eric Bernofsky, Chief Corporate Officer. Please go ahead.
Eric Bernofsky: Thank you, operator. Good afternoon, everyone, and thank you for joining Enthusiast Gaming’s third quarter 2021 financial results call. My name is Eric Bernofsky, Chief Corporate Officer of Enthusiast Gaming. With me today is our Chief Executive Officer, Adrian Montgomery; our Chief Financial Officer, Alex Macdonald; and our Chief Operating Officer, Thamba Tharmalingam. We'll begin with commentary on the quarter from Adrian and Eric 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 from current expectations. These statements should not be read as assurances of future performance or results. Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance or achievements to be materially different from those implied by such statements. A more complete discussion of the risks and uncertainties facing the company appear in the company’s management discussion and analysis for the three month period ending September 30, 2021, which are available under the company’s profiles on SEDAR and EDGAR, as well as on the company’s Web site, enthusiastgaming.com. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. 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 will turn the call over to Adrian Montgomery, CEO of Enthusiast Gaming. Adrian?
Adrian Montgomery: Thank you, Eric. Good afternoon, and welcome to our third quarter 2021 financial results conference call. It is my pleasure to once again report on the financial and operational accomplishments in the quarter and year-to-date and to reiterate why we believe our plan to dominate the video game and esports fan experience is on the right track. I'd also off the top like to thank all the hard working enthusiast who show up and give it their all every day, the outstanding results of this quarter are all because of you and we appreciate you very, very much. At the beginning of the year, we told shareholders; one, that revenue and gross profit would trend up throughout the year in terms of both dollars and percentages; two, that direct sales would increase in each subsequent quarter of the year; three, and that paid subscriptions would increase in each subsequent quarter. I am extremely pleased to update shareholders today and to tell you that we are delivering on these commitments. Revenue in the quarter grew 165% to $43.3 million from $16.3 million a year ago. Pro forma the acquisition of Omnia Media revenue grew 37% from $31.7 million in Q3 last year. Gross profit grew to $10.1 million, marking the first time in the company's history that quarterly gross profit passed $10 million, up from $4.1 million just one year ago. Gross margin improved to 23.4% in Q3, up nearly 700 basis points from the same quarter last year and up 180 basis points from Q2 this year and 360 points from Q1. Our buy and build strategy continues to underpin our revenue growth and margin expansion. Again, we communicated to shareholders in the middle of 2020 that we would dedicate the necessary resources and focus towards shifting our revenue model from a media aggregator to an integrated media, content and entertainment model and in doing so meaning meaningfully improve the margin profile as well. In the last four quarters, I am very pleased to report that we have made incredible strides in this area. Direct sales revenue grew to $6.8 million in Q3, up from just $1 million in Q3 last year and up 55% from just one quarter ago. Direct sales this quarter accounted for 16% of total revenue compared with just 3% in Q3 last year. And with the premium rates this type of revenue commands, it has contributed a meaningful portion with nearly 700 basis point margin improvement in the same period. This is part of the secret sauce of our buy and build strategy. We have consistently proven that we can increase the monetization of the assets we acquire through our unique flywheel. By combining more touch points to our Gen Z and Millennial consumers, we’re increasingly recognized as a partner of choice and a one-stop shop for large brands and advertisers. Some of the partners we worked within the quarter include America's Navy, with whom we collaborated on an integrated media and esports activation. Icy Hot, where we worked with them and the Shaquille O'Neal foundation on an activation that saw top esports players team up to compete against Shack in NBA 2K. We also began new relationships with DoorDash, Puma, Elevation Pictures, Bacardi and Paramount Pictures to name a few. As you can see, we are working with a diverse group of brands across government, food and beverage, apparel, entertainment and gaming. One activation I am extremely proud of and everyone I've Enthusiast is proud of is the work we are doing with Lego. And I would be remiss if I didn't recognize the incredible creativity and execution of our content, talent and sales teams for bringing this project to life. In July, the Luminosity Academy was launched to push the boundaries of creativity and guide the development of young gamers across North America. After several weeks of auditions and filming in Los Angeles, episode one of the Luminosity Academy Lego Technic First Class was released this past weekend with 30 competitors competing for a spot in the Luminosity Academy. As of this morning, there are almost 500,000 views on YouTube in just a few days with four more episodes in the season to come. So why did Lego choose us? Well, again, it goes back to being able to offer brands more touch points and more integrated packages than the competition, all while offering the highest level of brand safety, which is of paramount concern to Lego. The success of the Lego campaign follows several other integrated media content, talent and esports deals, including the first season of Gamers Greatest Talent, which aired in Q2 of this year and was sponsored by TikTok and Elf Cosmetics, as well as our work with Universal Pictures and Walt Disney Studios to promote theatrical releases. I would also note that not only are our integrated offerings winning in the marketplace with brands, others have taken notice as evidenced by the recent news that Gamers Greatest Talent has been nominated for a 2021 Digiday Award for best gaming or esports campaigns. While we are monitoring global trends, including supply chain challenges, the direct sales pipeline remains strong into the first part of Q4 and Q1, and we continue to expect sequential growth this quarter. Turning to paid subscribers, another area of high growth for the company. The number of paid subscribers at the end of the quarter was 207,000 compared to 112,000 at the end of Q3 last year, an increase of 84%. This quarter, we added 52,000 subscribers, aided in part by the acquisitions of GameKnot an Addicting Games. As I've said on previous conference calls, the strong growth we are seeing is a direct result of the investment we made in Q4 last year to establish a team dedicated to growing our subscription business. From a revenue perspective, the growth areas of direct sales and subscriptions totaled $9.3 million in Q3 or about 21% of total revenue compared to just $2.6 million or 8% in Q3 last year. This nearly threefold improvement in the mix of higher margin revenue is something we are particularly proud of. We believe there is still more margin growth to come in these two areas. Late in the quarter we announced the Alpha release of Project GG, cross platform pan Enthusiast Gaming social network, uniting gaming and esports fans on desktop and mobile. Project GG will enhance the company's ability to deliver a more complete fan experience with a targeted, engaged and personalized product for gamers and customers alike. It represents a significant step towards the company's evolution to becoming a technology powered media, esports and entertainment company. Project GG Alpha will serve as a test version of the gaming social network, while offering feedback to Enthusiast Gaming’s design and user experience teams. That feedback and testing will assist our teams as they prepare for Project GG to transition to a beta version in 2022. As you can see, we have executed on many fronts in the quarter. We successfully closed the GameKnot and Addicting Games acquisitions in the quarter, and they are integrating well into our fan and monetization flywheels. Some have asked why these deals make sense for Enthusiast Gaming and in particular, how Addicting Games fits in with our overall strategy. Well, it's all about the flywheel, which is about owning more content that could be integrated across enthusiast and Luminosity properties, content and talent. Let me give you an example. Shortly after the acquisition closed, we began integrating Addicting Games. Last week, we tested an internal cross promotional campaign bringing together Addicting Games’ content and Luminosity creators. We created dedicated Luminosity art called skins or virtual goods inside the popular casual desktop and mobile game Little Big Snake. For the past week, different Luminosity streamers have been playing Little Big Snake live during their streams on Twitch and promoting the game to their fans. Collectively, Little Big Snake was promoted to millions of new potential users while also creating content at the same time. And while today, the virtual goods being purchased within Little Big Snake have no inherent value outside of the game, we now have a platform to begin developing NFT's for some of our own intellectual property as our research demonstrates there's a marketplace for these items. While this was just the first test, we are excited about potential cross promotional opportunities in our sites, not to mention some of the sponsorship opportunities we're already working on with Addicting Games’ properties. We are extremely well funded to continue to execute on additional accretive acquisitions that will expand our audience reach and provide a deeper, more enriched fan experience. We're just getting started and believe very much in our buy and build growth strategy constructed around our proprietary flywheel. We have accomplished a lot through the first nine months of 2021 and we are confident in our team's ability to execute in Q4 as we continue to execute on this strategy and we will continue to deliver results. I will now turn the call over to our CFO, Alex Macdonald, for further commentary on our financial results. Alex?
Alex Macdonald: Thank you, Adrian. Once again, we have a great quarter to present here this evening and what quarter it was our third quarter 2021. A few quick notes 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 advertising with sequential increases each quarter throughout the year, driven by increase in ad prices and demand which peaks in Q4 the seasonality is isolated to our media and content revenue streams. I also note that the acquisition of Omnia Media occurred on August 30, 2020, the comparative financial figures relating to Q3 2020 in the statements of MDA include approximately one month of Omnia results. The 2021 balance sheet and income statement includes balances of the company including Omnia. Now, let's talk about the business. We continued to deliver growth. Q3 revenue was a record high $43.3 million, up 165% from the reported Q3 2020 revenue of $16.3 million. 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 entertainments and subscriptions. Q3 revenue by source was as follows; media and contents $38.7 million, subscription $2.5 million and esports and entertainment $2.1 million. The media and content revenue of $38.7 million compares to a $13.6 million reported in Q3 2020, an increase of 185%. Q3 media and content revenue attributable to Omnia is $30.2 million, which is up 25% year-over-year. Q3 media and content revenue excluding Omnia is $8.5 million, which is up 77% year-over-year. The increase in Q3 media and content revenue apart from the impact of the Omnia acquisition is mainly due to; one, a significant increase in direct sales, the majority of which are recognized in media and content, total direct sales were $6.8 million in Q3 2021 as compared to $1 million in Q3 2020; and two, a web RPM, which was 103% higher in Q3 as compared to Q3 2020. Q3 subscription revenue was $2.5 million, up 55% from $1.6 million in Q3 2020. The increase in subscription revenue is attributable to an increase in paid subscribers. The company had approximately 207,000 paid subscribers as at September 30, 2021, which is up substantially from approximately 112,000 paid subscribers as at September 30, 2020. The increase in paid subscribers is 85% year-over-year of which 51% is organic and 34% is from acquisitions. The company continues to grow the subscriber base on its existing subscription offerings and continues to offer additional subscription offerings on new platforms. Q3 esports and entertainment revenue was $2.1 million as compared to $1.1 million in Q3 2020. This 100% increase year-over-year is as a result of the growth of our virtual events, such as Pocket Gamer digital, as well as increased sponsorship of Luminosity driven by direct sales. We are very proud of the growth in the company's top line. However, the growth on a currency adjusted basis is even greater. A significant majority of our revenue is earned and measured in US dollars, which is translated into Canadian dollars for presentation in our financial statements. The average USD to CAD exchange rate in Q3 2020 was 1.33, which dropped to 1.26 in Q3 2021. Had the exchange rate remained constant at 1.33, revenues in Q3 2021 would have been 2.3 million higher for a total of 45.5 million. Even on a pro forma basis to improve the acquisition of Omnia, on a constant currency measurement, revenue would have been up 44% year-over-year. These FX movements have a similar effect on our cost of sales in certain areas of OpEx with limited net economic impact. We are proud of the significant growth in revenue both with and without considering currency movements. The exchange rate between the US dollar and our presentation currency of the Canadian dollar should be monitored and considered when analyzing or forecasting results. Gross profit was an all time record high of $10.1 million in Q3, up to 149% from the reported Q3 2020 gross profit of $4.1 million. Our growth strategies include higher yield and higher margin revenue streams, such as direct sales and subscription. Direct sales and subscription revenue reached all time highs of $6.8 million and $2.5 million respectively, which helped drive gross profits. Direct sales and subscription now account for approximately 21% of total revenue, up from approximately 8% in Q3 2020. The gross margin for Q3 was 23.4%, up from 16.8% in the same quarter last year pro forma Omnia. As we execute on our growth strategies, this 660 basis points improvement in gross margin in one year continues to reveal the compounding effect of our business model when considering the significant growth in revenue over the same period. Operating expenses were $21.4 million in Q3, up from $8.2 million for Q3 2020. Close to half of this increase is isolated to non-cash expenses of share based compensation and amortization, which were $5 million and $2.4 million in Q3 respectively. A portion of this increase also relates to the registration of the company with the SEC and the NASDAQ listing, office and general includes items such as insurance, filing and listing or sustaining fees. Many of these expenses began in Q2 of this year, such as the required insurance and will continue for the foreseeable future. In the first part of this year, we made investments in our business to support anticipated growth. These investments were focused on headcounts reflected in salaries and wages expense, on content production, programmatic yield and data capabilities reflected in technology and content expense and we allocated additional resources to esports and entertainment. This expansion slowed in Q3 and while we expect the associated line items to continue to increase over time, we do not anticipate the same level of expansion in operating expenses in the near future as was invested in the first part of this year. We have professionalized the business and it has, as of today, existing capacity for significant growth. Net and comprehensive loss was $12.3 million, resulting in a net and comprehensive loss per share both basic and diluted of $0.10 in Q3. Net cash used in operating activities was $3.8 million for Q3, significantly improved from Q2 and we ended the quarter with a healthy cash balance of $33.5 million. I want to be clear that the company does not have any current intent to access the equity markets for operational cash. We remain of the strong opinion that the results of operations and the financial condition of Enthusiast Gaming has never been stronger. We have the cash, the operational capacity, the right strategy and the right leadership to continue our growth, and the potential for growth for the company is only increasing. In Q3, we acquired Addicting Games, unlocking new markets of both casual and mobile gaming for the company. This brings with it expanded subscription capabilities, e-commerce opportunities and mobile inventory for our direct sales teams. It is a welcome addition to our portfolio. I want to mention that the company is aware that other digital publishers are expressing concern regarding Q3 and now Q4 CPM due to the macro effects of supply chain interruptions and labor shortages. In theory, supply constrained clients reduced their short term ad spend due to an inability to service incremental customer demand. However, with that said, clearly, we did not see any impact in our Q3 numbers and our CPMs remain strong to date in Q4. With Black Friday, Cyber Monday and holiday shopping still ahead of us, we are watching closely. We will continue to monitor the pricing on our bidding networks and optimize if or as necessary, but we have no concerns at this time. I'd like to officially welcome Drew McReynolds of RBC Capital Markets who initiated coverage in October. Thank you to Drew and his team, we are very pleased to have you here. To all our analysts, thank you for the work you do on Enthusiast Gaming and to our shareholders, thank you for your continued support and trust in us, we will continue to work hard for you. I will close by saying that we often describe Enthusiast Gaming as owning the fan experience. This would be imagined as being part of every aspect of a gamer's journey from the moment they put down the controller. However, with the acquisition of Addicting Games, Enthusiast Gaming now owns its very own game titles and its very own game studio. When we connect our existing and future casual game titles with our roster of talent creators and influencers, we can make magic happen and that's good for our business. And of course, ladies and gentlemen, our business is the business of gaming. Operator, I kindly turn it back to you.
Operator: Our first question comes from Mike Crawford with B. Riley.
Mike Crawford: Adrian, as Enthusiast shifts towards this more integrated media, content, entertainment business, how does that affect your long term financial model?
Adrian Montgomery: I think it's consistent, Mike, with our long term financial model. And it's the result of moving away from low margin aggregator of eyeballs selling programmatic ads at commoditized rates and shifting the business the way we have continuing to shift it the way we have will only result in upon successful execution, the kind of growth in margins and profits that we've long talked about. So we think it's consistent with our growth model and the numbers, terminal state numbers Alex has referenced in the past too.
Mike Crawford: And then a couple of questions on the Project GG. So one, what have you learned in the Alpha tests? And then two what is the subscription pricing plan for GG?
Alex Macdonald: We've learned a couple good things in the early days of the Alpha, the reception is very good. A lot of the initial learnings were on, I mean, it's important but the UI and the UX from the user perspective, which is a very important part of an Alpha test, in fact, arguably, could be one of the most important parts. So that's where the Alpha is focusing right now, user interface, user experience. As far as pricing, the way I look at it, we haven't said it yet, we've become much more intelligent on optimizing our subscription models for pricing, with a growing number of existing subscription offerings, we've become good at managing that. I think we are going to continue to monitor the reception and the offering and the value we can bring to users and of course we’ll price accordingly. I like where our existing subscription offerings are going. They're moving north every few months on kind of an average basis. But anyway, we're not quite priced there, at least we haven't announced prices yet for the subscription, but it is coming.
Mike Crawford: One last question, if you don't mind. So thanks for talking about that Little Big Snake and the little bit of your NFT strategy. But do you have a broader NFT or strategy to share with us?
Adrian Montgomery: Nothing specific in the sense of a definitive strategy, as you describe. What we know is NFTs are very, very real. We know because our creators are fully invested in them. We see this incredible intersection between NFTs and the metaverse and we sit with this incredibly loyal, incredibly large audience of people who are going to be the main denizens of that metaverse, who are going to be the purchasers of those NFTs. And we find ourselves in an advantageous position, because in addition to that audience that's tailor made for both the metaverse and NFTs, we also are a content factory. And at the end of the day that is what you need to be successful. With non-fungible tokens, we have a ton of creators who can amplify, we have a ton of content, we have a large audience and so we see the metaverse, we see NFTs as two very, very real, very, very positive trends that this company is uniquely positioned to take advantage of. And so that in very short order has become another one of our key priorities to develop and explain as they unfold.
Operator: The next question is from Robert Young with Canaccord.
Robert Young: Last quarter you were giving us some trends around the RFP volume that you're seeing on the direct sales side? Sorry, if I missed it. But can you maybe update us on those trends, if they’re still trying growing? If you can talk a little bit about the repeat activity with existing customers that’d be helpful too?
Thamba Tharmalingam: In terms of your first question on RFP volume, very consistent with the momentum that we saw in the previous quarters. Q4 is very alive and well for us, great momentum out there, average number of RFPs are actually higher than what we've seen in the last quarter. So very pleased about that. To your second question on repeat clients. Look, as we mature our sales team and our relationship with the advertisers, we're having ongoing dialogs with some of these brands where it's not repeat campaign for a quarter, but it's starting to become repeat businesses where it's more than a quarter long and we're very pleased with that. Some of the big brands that Adrian in his remarks are brands that are huge Fortune 500 companies and they're becoming repeat clients of Enthusiast Gaming for inventory.
Adrian Montgomery: Robert, I think that if you look at the growth in the business, in terms of the number of film titles we've promoted G FUEL as an important repeat customer, Gillette, expanding through other Procter & Gamble names, HBO, TikTok, these are all big, big names and they're all officially repeat customers. So we're feeling excited that our value proposition has been validated by some of these household names who have said you're delivering for us and you're delivering ROI for us, and that's a key part of our momentum right now.
Robert Young: So like a repeat, customer would be bigger and like some have said, longer duration. So these are longer duration contracts or is it -- or what you're trying to say is they give you more visibility on their spend over time?
Thamba Tharmalingam: I can take that one. So it's a combination of -- it's all the above and more because when you're in Q4, one of the other things that happen is some of the advertisers start planning for 2022. So the advantage for us is not only are we having Q4 conversations where we're having 2022 conversations. And in addition to the RFP volume, the average RFP dollar value size is also increasing. Again, that's another healthy sign for us and we're super excited about that, especially from these big brands that Adrian just mentioned.
Robert Young: And then in the past -- you've talked in the past about the ad inventory that you have that's applicable to the direct sales model, I think it was a very small percentage of your ad volume. Maybe you could get updated on that and give us some revenue percentages, and how much would that revenue percentage represent in your ad volumes?
Alex Macdonald: So effectively that metric, hey, Rob it's Alex again. And that metric has always been our very first formula here, and that was 10% of the inventory at 10 times the price. So if you look at the programmatic media content, of course, a good chunk of that 6.8 is in there. But those numbers should be equal to programmatic and the direct should one day become equal. In fact, the direct should one day exceed. So we're still at quite a low percent, so we’re still certainly sub 3. But that direct sales number as it grows, that's slowly climbing up. It's a good chunk of the way there actually, though. But what we're also finding is also in that direct sales as we move media, we're doing combined packages. So as we move media, we also move sponsorship for Luminosity as part of that package. We also move sponsorship to the entertainment assets, such as Rising Stars, Games Greatest Talent, the Navy was a perfect example. So anyway -- so it's not a direct correlation. Now we see direct sales as a bigger than just percent of inventory. But to answer the original question, it's still sub 3 but it is growing.
Adrian Montgomery: Rob, I would also add to that and again, it's this is another thing that we're proud of. When we executed the Omnia transaction, one of our main theses, as you will recall, is that that video pre-roll inventory because it's skewed gamer, US, Gen Z. It was among the more undervalued video inventory on the Internet. And certainly, when we took in Omnia, we took in a whole, whole bunch more inventory. But when we talk about the Navy and we talk about DoorDash and we talk about Samsung and we talk about Disney and HBO, a big component of these campaigns in almost all cases is access to that YouTube pre-roll and access to that video inventory. And the clients love it. And it's just a nice validation that our investment thesis has been proven correct. They can't get enough of that YouTube inventory and it's a key part of all our integrated offerings.
Robert Young: And one last question just on the subscription ads. I was trying to untangle the contribution from Addicting and GameKnot and I assumed that this quarter in front of project GG would be a lower quarter for sub ads and it seems like you had 52,000. So is there a way to understand, is there some project GG in there, is it just the organic business and how much comes in from Addicting and GameKnot? And then I'll pass the line.
Alex Macdonald: I knew you would ask that, Rob, so we've provided the number. It's in the MDA, it's about 35,000 from acquisitions. The percentages, of the 85, I think, I mentioned this partly, The 85% year-over-year growth, 51% is organic and 34% is from acquisition. And the exact number is provided for in the MDA. This is -- so I'm not going to go for now and keep the time, but it's there and that's the percentage breakdown, 51% organic, 34% growth from acquisitions.
Robert Young: …
Alex Macdonald: No, zero. But again, this also -- that's a healthy number and a healthy growth number 207,000 subscribers. Certainly, it speaks to a pretty disciplined acquisition strategy. And one of the criteria we evaluate quite methodically is we want to see subscription potential in the assets that we buy, either they have no subscription but the right for subscription or they have a bunch of subscribers that we can bring in to the Enthusiast Gaming model. We get that recurring revenue, we get that lifetime value, but we can also migrate them to GG and other places as we go forward. So Addicting Games and GameKnot have had strong base level subscription businesses, we've brought them in and it's only upside from here.
Operator: The next question is from Jeff Fan with Scotiabank.
Jeff Fan: Last quarter, I think on the financial side, there was some references to turning EBITDA positive and that being around the corner. Just wondering if you can give us a bit of an update on that. Is that still the case? On the sales and advertising pipeline, I think I missed the answer to the previous question. Did you give any kind of qualifiable metrics? Because last quarter, I think, Adrian, you gave us the number of RFPs per week that you were seeing. And I guess the point there was that we're seeing a lot of momentum compared to what you saw earlier in the year. Has our momentum continued or is that volumes is kind of stay consistent over the last few months? And then I guess the final question is just on supply chain. Why do you think you're not seeing the impact? Is it because of the mix of advertisers that you have. Just wondering why you're not seeing that? Thanks.
Adrian Montgomery: I think to go through those questions in order, the net loss, the adjusted net loss in this quarter is smallest it's ever been. And I think given our revenue profile it points to EBITDA positivity being around the corner. As we've said and certainly the pace at which we're growing gross profit to go from $8 million to $10 million in a quarter is an encouraging sign for that as well. Again, we have an ability to be EBITDA positive tomorrow. We could not invest in GG, we could not invest in some of the few, we could not have made some key hires to grow our direct sales team in the United Kingdom, et cetera, et cetera, and we could manage a very nice EBITDA positive business. But the growth is in front of us, we see it every day and we want to position ourselves to take advantage of it. So I believe the adjusted net loss, Alex, was sub 3 or 3.9, 3.8.
Alex Macdonald: Yes, depending how you calculate excluding amortization and stock basically…
Adrian Montgomery: Net cash used in operations…
Alex Macdonald: Net cash used in operations was $3.8 million compared to 3 million left in the bank…
Adrian Montgomery: So it’s pretty good numbers. So we feel like we're trending in the right direction. But we also have these other opportunities that we're uniquely situated to. And as the metaverse becomes more and more of a topic of conversation, as NFTs become more and more real and there's lots of macro points, again, we sit at the intersection of a lot of these trends. And so, we'll capitalize on positioners ourselves for growth, but that would be the answer to that question. In terms of the momentum we see in Q4, we see strong momentum in Q4 in terms of the number of RFPs. Yes, Thamba did answer that a little earlier but he's more than happy to answer it again. Thamba?
Thamba Tharmalingam: I can quickly recap the answers from earlier. For Q4 on average, we're seeing about 15 RFPs in a week, again, that number fluctuates, but on average, it's a very good RFP volume number. In addition to that, also, the average RFP amount that we're seeing is higher than what we saw in Q3. Again, another great positive news for us. So we're definitely capitalizing on both of those. I think the rest of the question, in terms of overall Q4 I mean, on the supply chain, I would say, based on the momentum we're seeing where it's almost a non issue for us, I mean, great momentum that we're seeing from all sorts of different advertisers. Some of the brands we mentioned, repeat clients like HBO, Lego, Fuel, Mattel, it's the endless list of names that we work with. No disruption to us and we're not bothered by it at all.
Jeff Fan: And if I may just follow-up maybe a question for Adrian. FaZe recently announced that they're in the middle of your SPAC. Wondering if you, at a high level, just kind of compare/contrast how you see your business compared to something like that?
Adrian Montgomery: Well, I think it's exciting for our industry that FaZe is coming to join us in the capital markets. I think there's a lot of excitement around that brand. I think obviously they're commanding a valuation, which is commensurate with the growth that we all see in the industry and good for them. I think it's nothing but positive, big fan of theirs and what they’ve built. Luminosity is an exciting esports organization. We play against FaZe, our Call of Duty team plays against their Call of Duty team, we compete in that vertical. But again, we're the only ones who are building across the fan experience. So over and above, Luminosity versus FaZe, there are owned and operated Web sites, there are YouTube platforms. There is our Pocket Gamer events that are held around the world and virtually. There are all the businesses that we're building, which go far and beyond building an esports organization or lifestyle brand. And so we've purposely taken on a bigger mandate, because connecting those fans through that flywheel is exciting for us, and gives us a unique differentiator with our customers, as well as gives us a diversity of asset mix, which is important. Again, and I think FaZe is fantastic, I don't know, if FaZe and Lego work together. But building a kid's esports academy with Lego and Luminosity definitely works. We have one of the most popular female fan sites in the world being The Sims Resource and we can work with Elf Cosmetics. And so we appeal to a broad swath of demographics through our purposeful building of our asset mix. And again, Addicting Games is such an incredible opportunity for us to enter the casual gaming market. I don't know about anyone in the US. But if you type the word games into your browser up here, Addicting Games is the first name that pops up. So that just gives you an example of the strength of these Addicting Games brand, shows you guys that know what they're doing. So again, diversity of asset mix makes us different, one stop shop makes us different, different demographics. But all that being said, the excitement that FaZe is creating in the public market south of the border can only be good for our industry and I wish them the very, very best.
Operator: The next question is from Brian Kinstlinger with Alliance Global Partners.
Brian Kinstlinger: Two questions. The first chart I joined late, if you said this, but in terms of GG. Did you give an update on when the plan hard launches or is that unknown right now?
Alex Macdonald: No, we didn't give an update, it's consistent 2022. We're in Alpha right now. No change. Alpha’s only been out for a couple of weeks. And what we did say was that what we're learning in Alpha is focused primarily on UX and UI, that's the initial feedback we're getting, which is very valuable, part of the Alpha testing. But other than that we still have an eye for early 2022 and that's what we said and no change.
Brian Kinstlinger: You said early 2022, is that what you just said?
Alex Macdonald: Yes.
Brian Kinstlinger: Second, I'm not sure you would track this on the programmatic side, if you'd be able to. But is there a vertical breakdown of who your advertisers are on the direct sales side, maybe 10% entertainment? I'm not sure necessarily. But if you could provide any of the top verticals that would be wonderful?
Adrian Montgomery: We're pretty well diversified. And there's obviously the biggest macroeconomic bucket of endemic versus nonendemic. But Q3 in particular, we did work with governments, food and beverage, apparel, entertainment and of course gaming, so pretty well diversified. And quite honestly, there's a lot of new brands coming into the space. I think one of our biggest customers right now is State Farm Insurance. You wouldn't have thought that State Farm Insurance would be a big gaming and esports customer perhaps a year ago, but here they are today. Any more specifics on that Thamba?
Thamba Tharmalingam: The only thing I would add is that, certainly, we also have a ton of room to grow across all these verticals and break into new verticals. So the way that we're focused on is not necessarily on dominating one vertical, but rather expanding our coverage and footprint across different geographies, a huge success there. We haven't really verticalized our sales team and sales approach yet but it is across the board at this point and we're seeing huge success across all verticals.
Brian Kinstlinger: And so my question or my point may be that you just aren't seeing a lot of advertising to begin with, with companies that are facing shortages. I mean, State Farm doesn't have a shortage, for example, right? So that was what I was trying to figure out. But thank you.
Alex Macdonald: I want to add quickly, I agree. Because we also look at it like we're not anywhere close to capacity. So it could be that we are seeing it but it's hidden under the growth. We don't, we wouldn’t, maybe we don't know. But you're right. A lot of our verticals don't have exposure, a demo has less exposure and we’re not even close to capacity. So who knows maybe the growth there would have been an extra 5% higher without it, but we can’t tell.
Thamba Tharmalingam: If you remember our commentary couple of quarters ago where we didn't see certain verticals, like we didn't see hospitality, we didn't see certain verticals in the market. But now I wouldn't say there's a vertical that we're not seeing as not participating at least through our lens where we play.
Operator: The next question is from Derek Soderberg with Colliers.
Derek Soderberg: I joined the call late as well, so my apologies that this has been covered. So you guys have a nice contribution from working with the Biden campaign back in 2020. Did you benefit at all from recent political campaigns, whether it’d be in Canada, the US, anywhere else? Do you expect contribution to direct sales from political campaigns and the upcoming 2022 elections in the United States? It'd be great if you just talk about that opportunity for you guys.
Adrian Montgomery: Certainly, as we discussed, we did a significant amount of work for one presidential campaign in 2020. I think it was extremely well received. We've had conversations at the state level, at the national level with respect to 2022, which is exciting, but nothing firm to announce there, obviously, given when that election cycle happens. We did not do anything in the Canadian elections. However, we did a number -- because of the work we did in the presidential campaign, we did a number of really cool work campaigns with the Ad Council around vaccine awareness and other things. And so there was a direct link between the presidential campaign in the fall and the stuff we did with the Ad Council, which we’re really proud of. We're in the mix for 2022 which is cool and we'll report on that when we get closer.
Derek Soderberg: And then I did want to ask about direct sales, you guys are seeing some nice growth there. Are you talking about repeat customers, your customers are seeing the ROI of those investments? At the same time, it's still a very small portion of the marketing budget of your customers. So I guess I'm wondering what sort of holding them back from doing like a $50 million deal with you guys? And would you have the inventory or capacity to handle a direct sales deal of that magnitude?
Adrian Montgomery: The short answer is anyone around here had said no to $50 million deal wouldn't last long in Enthusiast Gaming, including myself. I think that what I can tell you is that in a very short amount of time, $5,000 and $1,000 test campaigns have turned into $100,000 campaigns, have turned into $500,000 and seven figure canteens. And as advertisers have gotten more and more comfortable with really understanding this space, they've upped their budget significantly and presumably have taken money away from traditional media to put it to this world. As well as the fact that when we get in front of them, the fact that we are a one stop shop, the fact that we can put their logo on a Luminosity jersey and create programming, like the Lego Academy that gets half a million views in a couple of days on YouTube and we can get the biggest gamers of the world invested in promoting their product on stream, when we can wrap ourselves around our customer in a way that no one else can that is seeing an increase in the amount of money that they are willing to spend. I think that as companies like Pepsi and KFC developed in-house esports departments as this industry matures at such a fast rate, the $50 million deal is definitely out there. And the fact that we can service any demographic, male, female, competitive esports, content creation, live events, virtual events, we can integrate casual games into a value proposition. We can integrate content activation, like Gamers Greatest Talent. We can do all those things, we can be a one-stop shop and we can take that money from those customers. So that's why we're pretty excited about where we're going with this.
Operator: The next question is from Drew Mcreynolds with RBC Capital Markets.
Drew Mcreynolds: Just one follow-up for me and it's related to kind of previous comments. I mean, it seems like no matter where you are out there, there's a gaming strategy that's being launched by a lot of players out there. So I think people are recognizing, I think, the segment you're in more and more as the days go on. So just want to talk on the M&A side. Just what you're seeing in terms of valuations out there. And then I think with you Adrian talked about your M&A criteria, obviously, looking for in some situations a subscription component. Can you just elaborate on just generally what your M&A criteria is at the moment?
Adrian Montgomery: And I believe this is your -- could be his first ever call . So this is the inaugural question from RBC, we appreciate it. We, as we said from the outset, we're connecting gamers through our communities, content, creators and experiences. We're a community based company and we want as many fan communities as we can. And so the first criteria for us is buying from an M&A perspective fan communities. We want them to be in game titles or game genres that we're not currently dominant in that would be a second criteria. We want to feel good that there's a certain evergreen nature to the type of content that they produce, that would be another criteria, subscription, direct sales are other two criteria that we look at very, very carefully, as well as video inventory. If we see a fan community that's performing well that has a very, very small percentage of its ads as video ads, we get really, really excited. Those would be other criterias that we look for. Alex, would you care to expand?
Alex Macdonald: Some of the quantitative, we look for significant amount of Tier 1 traffic, which is typically US and Canada and Western Europe, that monetizes at the highest rate. So we look for trends in that. Obviously, we look for what we see as under monetized ad units and inventory. The viewership trends that Adrian mentioned are very important on a quantitative basis is their viewership growing is of course important. But I really focus on is the genre that they're in the game titles. As Adrian said is there an evergreen is that growing. The kind of micro environment that they exist in is there macro is that growing. Engagement, we look at engagements. The more -- the higher the engagement stats you know repeat visits, time on site, time on platform, those point to better subscription possibilities, the user experience data, we love data with data comes things like percent registered users. So we look at that. I mean, those are those are some of the top …
Adrian Montgomery: Alex, you’re giving our proprietary playbook away …
Drew Mcreynolds: Well, I don't wanted to give all away, so we'll stop there, but nice to see the momentum and the resilience of the business. I think that's in contrast to a lot of other companies out there. Thanks very much.
Operator: This concludes our question-and-answer session, and the conference is also now concluded. Thank you for attending today's presentation. You may now disconnect.
