Enthusiast Gaming Reports Q2 2024 Results

Enthusiast Gaming Holdings Inc. (“Enthusiast Gaming” or the “Company”) (TSX: EGLX)

, a leading gaming media and entertainment company, today announced financial results for the three months ended June 30, 2024 (“Q2 2024”).

"In Q2, we delivered on our commitment to establish a stable financial footing and create a clear pathway to scalable profits. We’ve also delivered significant strength to our balance sheet, adding $20 million of liquidity through our debt financing to fund growth. We completed the outsourcing of our ad tech stack through our partnership with Playwire, a decision that has already resulted in significant performance improvements across our network. We’ve established an efficient and scalable operating model that has positioned us for substantial profitability improvements throughout the second half of 2024. Meanwhile, alongside all of these advancements, we have also reached the finish line on our path to profitability, in a quarter where we remained impacted by seasonal headwinds and did not have the benefit of any of our tentpole events or partnerships,” said Adrian Montgomery, Board Chair and Interim CEO of Enthusiast Gaming.

“It is safe to say this is the turning point,” continued Mr. Montgomery. “We look out across a number of catalysts that we have in place to drive top line growth in the second half of the year, each of which is poised to amplify our profitability across our lean operating model and record gross margins. On top of traditional second half seasonal lifts, we’ve invested in our direct seller base, doubling the number of sellers in market in Q3 2024 versus the previous quarter; we have Season 3 of our tentpole program, NFL Tuesday Night Gaming, in September, along with the launch of our newest sports league partnership with the NHL; we anticipate strong organic growth in our web properties through long-awaited expansion releases in major game titles covered by our flagship properties; and we have the return of PocketGamer events in Helsinki and Jordan, all alongside a number of other growth drivers across our portfolio. Each of these elements builds on our solid Q2 baseline, setting the stage for a series of increasingly strong quarters. With this renewed momentum, I am more confident than ever that we are just getting started."

Financial Highlights for Q2 2024

• Revenue of $14.7 million, compared to $42.6 million in Q2 2023, with the vast majority of the decline being attributable to the strategic deprioritization of low margin video platform revenue.
• Gross profit of $9.7 million, compared to $15.0 million in Q2 2023, with gross margin expanding to 66.2% from 35.2% in the year ago period.
• Operating expenses of $11.6 million, a $13.0 million year-over-year decrease from $24.6 million in Q2 2023 as a result of strategic initiatives taken to establish an efficient and scalable operating model in March 2024.
• Adjusted EBITDA loss of $0.4 million, a $3.0 million improvement compared to $3.4 million in Q2 2023, and a $1.4 million improvement compared to $1.8 million in Q1 2024.
• Net loss and comprehensive loss of $2.9 million in Q2 2024 compared to $12.4 million in Q2 2023.

Business Highlights for Q2 2024

• The Company secured $20 million of additional funding by way of a four-year non-revolving term loan, strengthening its balance sheet and providing significant growth capital, with the financing closing on July 12, 2024.
• The Company amplified its focus on its highly engaged communities, increasing unique visitors across its web properties by approximately 30% in Q2 2024 relative to the year ago period, leading to an increase in overall time spent across its web properties of 26% year-over-year, in each case according to Comscore.
• The Company’s focus on owned and operated web properties yielded a 71% increase year-over-year in RPM in Q2 2024, following the outsourcing of its ad tech to Playwire, which began in mid-May 2024 and was substantially completed in June 2024.
• The Company made a number of expansions to its product and entertainment offerings, including U.GG’s expansion into Helldivers 2 and Swarm (a new League of Legends game mode), Icy Veins’ expansion into Zenless Zone Zero and World of Warcraft’s Cataclysm Classic, The Sims Resource adding VIP curated Bundles and free trials for paid subscribers, and Luminosity hosting multiple invitational events featuring Smash and Rocket League for sponsors including Amazon Prime and Kroger Gaming.
• The Company announced the extension of its NFL Tuesday Night Gaming partnership for a third season and launched its first special episode for Season 3 on July 23rd achieving over 60,000 watch hours and counting.
• The Company signed a partnership with the National Hockey League to launch NHL Puck ‘N Play which will commence in Q4 2024, adding another flagship product to our direct sales offering and opening doors to a roster of major existing NHL sponsors.

“We feel confident in the strategic decisions we made to improve profitability in 2024 by focusing on higher gross margin revenue lines coupled with a lower cost structure,” said Felicia DellaFortuna, CFO of Enthusiast Gaming. “This was further punctuated by delivering a strengthened balance sheet in July 2024 as well as significant growth in engagement of its communities in Q2 2024.”

Second Quarter 2024 Results Comparison

Revenue was $14.7 million in Q2 2024, a 65% decrease compared to $42.6 million in Q2 2023. Media and Content revenue was $10.6 million in Q2 2024, a 71% decrease from $36.9 million in Q2 2023. The Company’s strategic decision to de-prioritize the lower margin video platform revenue accounted for $19.5 million of the $26.3 million reduction. Direct Sales (the majority of which is included in media and content revenue) decreased from $8.7 million in Q2 2023 to $4.1 million in Q2 2024 mainly due to a lower number of ramped sellers than the year ago period, contributing $4.6 million to the decline in revenue. Esports and Entertainment revenue showed a decrease in Q2 2024 at $1.0 million relative to $1.7 million in Q2 2023 mainly due to the timing of certain events. Subscription revenue decreased from $4.0 million in Q2 2023 to $3.1 million in Q2 2024 mainly due to the sale of certain non-core, non-profitable assets in April 2024.

Gross profit was $9.7 million in Q2 2024, a 35% decrease compared to $15.0 million in Q2 2023. Gross margin increased to 66.2% in Q2 2024 from 35.2% in Q2 2023.

Adjusted EBITDA loss was $0.4 million in Q2 2024 compared to an Adjusted EBITDA loss of $3.4 million in Q2 2023.

Net loss was $2.9 million, or $(0.02) per share, in Q2 2024, compared to $12.4 million, or $(0.07) per share, in Q2 2023.

Investor Conference Call

Management will host a conference call and webcast on Wednesday, August 14, 2024, at 5 p.m. ET to review and discuss its Q2 2024 results. Conference call details:

• Dial-in: 1-800-717-1738 or ‘Call me’ link: https://emportal.ink/4cJQ1Yp
• Live webcast: https://viavid.webcasts.com/starthere.jsp?ei=1679160&tp_key=70e22f4748  

A replay will be available on Enthusiast Gaming’s website at enthusiastgaming.com/investors.

Supplemental Information

Enthusiast Gaming’s financial statements and management discussion and analysis (“MD&A”) are available at www.sedarplus.ca and enthusiastgaming.com/investors. All amounts are in Canadian dollars.

About Enthusiast Gaming

Enthusiast Gaming is a leading gaming media and entertainment company, building the largest platform for video game enthusiasts and esports fans to connect and compete worldwide. Combining the elements of its five core pillars: creators, content, communities, games, and experiences, Enthusiast Gaming provides a unique opportunity for marketers to create integrated brand solutions to connect with coveted Gen Z and Millennial audiences. Through its proprietary mix of digital media, content and gaming assets, Enthusiast Gaming continues to grow its network of communities, reflecting the scale and diversity of gaming enthusiasts today.

Forward-Looking Statements

This news release contains certain statements that may constitute forward-looking information under applicable securities laws. All statements, other than those of historical fact, which address activities, events, outcomes, results, developments, performance or achievements that Enthusiast Gaming anticipates or expects may or will occur in the future (in whole or in part) should be considered forward-looking information. Often, but not always, forward-looking information can be identified by the use of words such as “plans”, “expects”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates”, or “believes” or variations (including negative variations) of such words and phrases, or statements formed in the future tense or indicating that certain actions, events or results “may”, “could”, “would”, “might” or “will” (or other variations of the forgoing) be taken, occur, be achieved, or come to pass. Forward-looking statements in this news release include, but are not limited to, statements regarding trends in certain financial and operating metrics of the Company, and expectations relating to the financial performance and the financial results of future periods.

Forward-looking statements are based on assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, including, but not limited to, expectations and assumptions concerning: interest and foreign exchange rates; capital efficiencies, cost saving and synergies; growth and growth rates; the success in the esports and gaming media industry; the Company’s growth plan, and judgment applied in the application of the Company’s accounting policies and in the preparation of financial statements in accordance with applicable financial reporting standards. While Enthusiast Gaming considers these assumptions to be reasonable, based on information currently available, they may prove to be incorrect. Readers are cautioned not to place undue reliance on forward-looking statements. In addition, forward-looking statements necessarily involve known and unknown risks, including, without limitation, risks associated with general economic conditions; adverse industry events; and future legislative, tax and regulatory developments. Readers are cautioned that the foregoing list is not exhaustive. For more information on the risks, uncertainties and assumptions that could cause anticipated opportunities and actual results to differ materially, please refer to the public filings of Enthusiast Gaming which are available on SEDAR+ at www.sedarplus.ca. Readers are further cautioned not to place undue reliance on forward-looking statements as there can be no assurance that the plans, intentions or expectations upon which they are placed will occur. Such information, although considered reasonable by management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated. Forward-looking statements contained in this news release are expressly qualified by this cautionary statement and reflect our expectations as of the date hereof, and thus are subject to change thereafter. Enthusiast Gaming disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

Non-GAAP Measures

This press release references certain non-GAAP measures, including Adjusted EBITDA, as described below. These non-GAAP measures are not recognized measures under GAAP and do not have a standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those GAAP measures by providing further understanding of the Company’s results of operations from management’s perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of the Company’s financial information reported under IFRS.

The Company uses non-GAAP measures including:

“EBITDA”, which is defined as earnings before interest, taxes, depreciation and amortization. Enthusiast Gaming calculates EBITDA using gross margin less total operating expenses plus share-based compensation, amortization and depreciation and annual general meeting legal and advisory costs; and,

“Adjusted EBITDA”, which is defined as EBITDA plus severance and other non-recurring public costs. Non-recurring costs include items such as annual Nasdaq listing fees and directors and officers (“D&O”) liability insurance specific to the Company’s former listing on Nasdaq.

Neither the Toronto Stock Exchange nor its Regulation Services Provider (as that term is defined in the policies of the exchange) accepts responsibility for the adequacy or accuracy of this release.

Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Loss and Comprehensive Loss
For the three and six months ended June 30, 2024 and 2023
(Unaudited - Expressed in Canadian Dollars)
						For the three months ended						For the six months ended
						June 30, 2024			June 30, 2023			June 30, 2024			June 30, 2023
	Revenue				$	14,704,634		$	42,598,769		$	38,032,873		$	85,478,735
	Cost of sales					4,974,098			27,616,077			14,226,178			53,730,485
	Gross margin					9,730,536			14,982,692			23,806,695			31,748,250
	Operating expenses
		Professional fees				345,530			690,063			898,088			1,143,399
		Consulting fees				477,109			1,595,468			1,929,345			2,903,952
		Advertising and promotion				243,556			938,613			723,360			2,394,724
		Office and general				580,681			1,930,338			1,575,079			4,222,121
		Salaries and wages				5,413,206			9,932,310			13,759,507			19,139,334
		Technology support, web development and content				2,836,032			4,156,966			7,104,691			9,452,990
		Esports player, team and game expenses				568,051			645,715			1,177,163			1,281,162
		Foreign exchange loss				35,599			22,851			141,534			137,408
		Share-based compensation				377,777			1,788,490			(1,620,480	)		2,918,821
		Amortization and depreciation				715,967			2,886,075			1,431,461			6,224,098
	Total operating expenses					11,593,508			24,586,889			27,119,748			49,818,009
	Other expenses (income)
		Investment in associates impairment				26,497			-			26,497			-
		Other long-term asset impairment				1,098,506			-			1,098,506			-
		Share of net loss (income) from investment in associates and joint ventures				6,477			(106,277	)		(18,905	)		66,170
		Interest and accretion				563,310			605,385			1,186,524			1,215,725
		(Gain) loss on revaluation of deferred payment liability				(46,468	)		374,101			(63,368	)		202,077
		Gain on sale of assets held for sale				(344,852	)		-			(344,852	)		-
		Loss on disposal of property and equipment				25,997			-			25,997			-
		Loss on modification of long-term debt				397,058			-			397,058			-
		Interest income				(396	)		(1,514	)		(5,449	)		(62,721	)
	Net loss before income taxes					(3,589,101	)		(10,475,892	)		(5,615,061	)		(19,491,010	)
	Income taxes
		Current tax expense				24,554			22,279			127,137			225,771
		Deferred tax expense (recovery)				(200,377	)		(281,579	)		(27,173	)		(763,489	)
	Net loss for the period					(3,413,278	)		(10,216,592	)		(5,715,025	)		(18,953,292	)
	Other comprehensive (loss) income
	Items that may be reclassified to profit or loss
		Foreign currency translation adjustment				479,575			(2,141,800	)		1,465,701			(2,135,249	)
	Net loss and comprehensive loss for the period				$	(2,933,703	)	$	(12,358,392	)	$	(4,249,324	)	$	(21,088,541	)
	Net loss per share, basic and diluted				$	(0.02	)	$	(0.07	)	$	(0.04	)	$	(0.12	)
	Weighted average number of common shares
		outstanding, basic and diluted				155,721,839			152,171,249			155,699,940			151,970,362

Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Financial Position
As of June 30, 2024 and December 31, 2023
(Unaudited - Expressed in Canadian Dollars)
					June 30, 2024			December 31, 2023
	ASSETS
	Current
		Cash		$	2,160,540		$	6,851,966
		Trade and other receivables			12,498,506			31,502,732
		Income tax receivable			98,065			31,251
		Prepaid expenses			1,129,808			1,820,144
	Total current assets				15,886,919			40,206,093
	Non-current
		Property and equipment			185,756			124,640
		Right-of-use assets			1,050,543			1,441,149
		Investment in associates and joint ventures			278			2,888,730
		Long-term portion of prepaid expenses			188,455			182,108
		Intangible assets			81,431,598			85,421,227
		Goodwill			106,868,938			105,868,081
	Total assets			$	205,612,487		$	236,132,028
	LIABILITIES AND SHAREHOLDERS' EQUITY
	Current
		Accounts payable and accrued liabilities		$	25,671,337		$	47,101,272
		Contract liabilities			3,465,082			6,078,950
		Income tax payable			77,018			274,924
		Current portion of long-term debt			21,894,730			21,888,597
		Current portion of deferred payment liability			-			82,231
		Current portion of lease liabilities			665,803			740,212
		Current portion of other long-term debt			13,007			9,668
	Total current liabilities				51,786,977			76,175,854
	Non-current
		Long-term portion of deferred payment liability			2,098,507			2,083,262
		Long-term portion of lease liabilities			634,774			938,845
		Other long-term debt			145,018			140,613
		Deferred tax liability			14,100,341			14,076,780
	Total liabilities			$	68,765,617		$	93,415,354
	Shareholders' Equity
		Share capital			452,994,596			444,474,076
		Contributed surplus			25,736,189			35,877,189
		Accumulated other comprehensive income			8,667,677			7,201,976
		Deficit			(350,551,592	)		(344,836,567	)
	Total shareholders' equity				136,846,870			142,716,674
	Total liabilities and shareholders' equity			$	205,612,487		$	236,132,028

Enthusiast Gaming Holdings Inc.
Condensed Consolidated Interim Statements of Cash Flows
For the six months June 30, 2024 and 2023
(Unaudited - Expressed in Canadian Dollars)
				June 30, 2024			June 30, 2023
	Cash flows from operating activities
	Net loss for the period		$	(5,715,025	)	$	(18,953,292	)
	Items not affecting cash:
	Investment in associates impairment			26,497			-
	Other long-term asset impairment			1,098,506			-
	Amortization and depreciation			1,431,461			6,224,098
	Share-based compensation			(1,620,480	)		2,918,821
	Accretion			(31,188	)		137,327
	Deferred tax expense (recovery)			(27,173	)		(763,489	)
	Share of net (income) loss from investment in associates and joint ventures			(18,905	)		66,170
	Gain on sale of assets held for sale			(344,852	)		-
	(Gain) loss on revaluation of deferred payment liability			(63,368	)		202,077
	Foreign exchange (gain) loss			(463,931	)		24,480
	Loss on disposal of property and equipment			25,997			-
	Gain on settlement of accounts payable			(622,413	)		-
	Loss on modification of long-term debt			397,058			-
	Provisions			4,166			165,145
	Changes in working capital:
	Changes in trade and other receivables			19,982,340			5,108,139
	Changes in prepaid expenses			843,787			736,371
	Changes in accounts payable and accrued liabilities			(20,543,835	)		2,974,533
	Changes in contract liabilities			(2,124,657	)		(477,981	)
	Changes in income tax receivable and payable			136,207			594,894
	Income tax paid			(400,927	)		(114,502	)
	Net cash used in operating activities			(8,030,735	)		(1,157,209	)
	Cash flows from investing activities
	Proceeds from sale of assets held for sale			2,693,339			-
	Distribution from investment in associates, net of adjustments			1,416,830			-
	Repayment of deferred payment liability			(85,700	)		(844,350	)
	Acquisition of intangible assets			-			(27,488	)
	Acquisition of property and equipment			(115,815	)		(17,156	)
	Net cash from (used in) investing activities			3,908,654			(888,994	)
	Cash flows from financing activities
	Proceeds from long-term debt, net of transaction costs			1,520,877			-
	Repayment of long-term debt			(1,769,118	)		(2,176,470	)
	Repayment of other long-term debt			(3,002	)		(6,775	)
	Lease payments			(465,179	)		(439,184	)
	Net cash used in financing activities			(716,422	)		(2,622,429	)
	Foreign exchange effect on cash			147,077			(5,096	)
	Net change in cash			(4,691,426	)		(4,673,728	)
	Cash, beginning of period			6,851,966			7,415,516
	Cash, end of period		$	2,160,540		$	2,741,788

Enthusiast Gaming Holdings Inc.
EBITDA and Adjusted EBITDA
For the three and six months ended June 30, 2024 and 2023
(Unaudited - Expressed in Canadian Dollars)
		For the three months ended						For the six months ended
			June 30, 2024			June 30, 2023			June 30, 2024			June 30, 2023
	Gross margin	$	9,730,536		$	14,982,692		$	23,806,695		$	31,748,250
	Operating expenses		(11,593,508	)		(24,586,889	)		(27,119,748	)		(49,818,009	)
	Share-based compensation		377,777			1,788,490			(1,620,480	)		2,918,821
	Amortization and depreciation		715,967			2,886,075			1,431,461			6,224,098
	EBITDA		(769,228	)		(4,929,632	)		(3,502,072	)		(8,926,840	)
	Severance		121,430			995,563			705,628			1,056,548
	Listing fees & D&O insurance specific to the Company's Nasdaq listing		240,935			530,117			619,970			1,411,355
	Adjusted EBITDA		(406,863	)		(3,403,952	)		(2,176,474	)		(6,458,937	)

Contacts

Enthusiast Gaming: Felicia DellaFortuna, Chief Financial Officer
Investors: [e-mail]
Media: [e-mail]