Enthusiast Gaming Announces Third Quarter 2022 Results

Toronto, Ontario, CANADA


Revenue of $50.6 million, up 17%YOY
Record gross profit of $16.6 million, up 64%YOY
Record gross margin of 32.7%, up 930 bps YOY
Record direct sales of $10.1 million, up 49% YOY
Record subscription revenue of $3.8 million, up 51% YOY

LOS ANGELES, Nov. 14, 2022 (GLOBE NEWSWIRE) -- Enthusiast Gaming Holdings Inc. (“Enthusiast Gaming” or the “Company”) (NASDAQ:EGLX; TSX:EGLX), an integrated gaming entertainment company, today announced financial results for the three and nine months ended September 30, 2022.

“We are pleased to report that we have achieved yet another record quarter on the back of all-time-highs in key KPIs, including quarterly gross profit, gross margins, direct sales and subscriptions, all despite the macroeconomic headwinds impacting the digital media and entertainment industry,” commented Adrian Montgomery, CEO of Enthusiast Gaming. “These results reflect the strength and resilience of our flywheel business model, which has allowed us to maintain strong financial growth while building out diversified revenue streams. Our disciplined focus on high-margin revenue opportunities, cost efficiencies and strategic investments like our first-of-its-kind partnership with the NFL for Tuesday Night Gaming have built Enthusiast into a fully-integrated media and entertainment company, a partner of choice for the world’s leading brands, and a dominant player in the gaming and esports world, now on the cusp of sustainable profitability with ample liquidity to achieve that objective.”

Q3 2022 Financial Highlights

  • Revenue of $50.6 million, a 17% increase vs revenue of $43.3 million in Q3 2021. The year-over-year increase in revenue was driven by increased direct sales, higher subscription revenue, the acquisitions and growth of the Addicting Games and U.GG properties.
  • Gross profit of $16.6 million, a 64% increase vs gross profit of $10.1 million in Q3 2021, and the highest quarterly gross profit to date.
  • Gross margin of 32.7%, an increase of 930 bps vs gross margin of 23.4% in Q3 2021. The increase in gross margin is driven by the high growth in direct sales and subscription revenue, and strong performances by Addicting Games, U.GG, and Pocket Gamer.
  • Direct sales of $10.1million, a 49% increase vs direct sales of $6.8 million in Q3 2021. Renewals and additional business with existing customers accounted for 65% of direct sales. Direct sales are included in revenue.
  • Subscription revenue of $3.8 million, a 51% increase vs subscription revenue of $2.5 million in Q3 2021. The increase in subscription revenue was driven by an increase in paid subscribers and pricing optimization. Paid subscribers were 260,000 as at September 30, 2022, a 25.6% increase vs paid subscribers of 207,000 as at September 30, 2021.
  • Recorded a non-cash goodwill impairment expense of $31.3 million.
  • Secured $10 million expansion of credit facility in September.
  • Sale of certain video gaming editorial websites for a purchase price of approx. $6.8 million, representing a multiple of approx. 4.5x associated revenue, and resulting in a gain on sale of intangible assets of $4.8 million.

Q3 2022 Operational Highlights

  • Renewals or new business with key notable partners including State Farm, HBO Max, Lego, Hulu, Nickelodeon, Amazon, RBC, Universal Pictures, Uber, Doordash, Hasbro, Nintendo US, Pandora Jewelry, GFuel, the FDA and Fidelity.
  • Signed multi-year partnership with the NFL to launch a first-of-its-kind gaming collaboration, NFL Tuesday Night Gaming (NFL TNG), which debuted on September 13, 2022. NFL TNG had approximately 1.9 million views across livestream and video content in Q3 2022.
  • EV.IO’s limited edition NFT mint of 2,500 tokens sold out in six hours at a price between 2.00-2.50 SOL.
  • Hosted two live events of Pocket Gamer Connects - Toronto in July and Helsinki in September.
  • Launched Raise Your Game initiative, a new inclusivity campaign which aims to support women in gaming.

Update on CEO Search Process

As previously announced on August 8, 2022, the Search Committee of the Board – which was struck immediately following the Company’s annual general meeting and is comprised entirely of independent directors – is conducting a thorough review process to identify a world-class executive to lead the Company as it continues to build the pre-eminent media and entertainment company for gamers, centered around Communities, Content, Creators, and Experiences.

Having interviewed a number of leading firms based in the United States, the Search Committee retained Russell Reynolds Associates by way of its CEO-practice based in California to assist the Search Committee with its identification and review of potential candidates. The Search Committee, together with Russell Reynolds, remains deep in-process conducting interviews and is encouraged by the quality of initial candidates.

Earnings Announcement and Supplemental Information

Management will host a conference call and webcast on November 14, 2022, at 5:00 p.m. Eastern Time to review and discuss the third quarter 2022 results.

Please call the following numbers to participate:

North America (toll-free): 1-855-239-1101

International: 1-412-317-5231

Conference ID: 10172910

A live webcast can be heard at https://www.enthusiastgaming.com/investors. If you are unable to join live, an archived recording of the webcast will be available on the Investor Relations page of the Enthusiast Gaming website.

Certain information provided in this news release is extracted from financial statements and management’s discussion & analysis (“MD&A”) of the Company for the three and nine months ended September 30, 2022, and should be read in conjunction with them. It is only in the context of the fulsome information and disclosures contained in the financial statements and MD&A that an investor can properly analyze this information. The financial statements and MD&A have been published on the Company’s profile on SEDAR and EDGAR.

All amounts are in Canadian dollars.

About Enthusiast Gaming

Enthusiast Gaming is an integrated gaming entertainment company, building the largest media and content platform for video game and esports fans to connect and engage worldwide. Combining the elements of its four core pillars: Communities, Content, Creators, and Experiences, Enthusiast Gaming provides a unique opportunity and integrated approach to reach and connect with its coveted GenZ and Millennial audience. Through its proprietary mix of digital media and entertainment assets, Enthusiast Gaming has built a vast network of like-minded communities to deliver the ultimate fan experience.

Contacts

Enthusiast Gaming Investor Relations:
Eric Bernofsky, Chief Corporate Officer
investor@enthusiastgaming.com

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.

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.sedar.com. 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.


Enthusiast Gaming Holdings Inc.      
Condensed Consolidated Interim Statements of Financial Position   
As of September 30, 2022 and December 31, 2021     
(Unaudited - Expressed in Canadian Dollars)      
     September 30, 2022  December 31, 2021  
         
 ASSETS      
 Current      
  Cash $15,815,860 $22,654,262  
  Trade and other receivables  37,579,516  33,801,990  
  Investments  131,858  131,342  
  Loans receivable  50,935  176,931  
  Income tax receivable  305,105  356,366  
  Prepaid expenses  2,791,103  2,145,184  
 Total current assets  56,674,377  59,266,075  
 Non-current      
  Property and equipment  198,528  247,988  
  Right-of-use assets  2,355,477  2,885,662  
  Investment in associates and joint ventures  1,886,271  885,269  
  Long-term portion of prepaid expenses  283,181  261,922  
  Intangible assets  120,526,179  129,138,595  
  Goodwill  172,196,371  195,097,659  
 Total assets $354,120,384 $387,783,170  
         
 LIABILITIES AND SHAREHOLDERS' EQUITY     
 Current      
  Accounts payable and accrued liabilities $34,433,167 $34,391,221  
  Contract liabilities  4,797,857  3,890,569  
  Income tax payable  403,375  114,094  
  Current portion of long-term debt  2,000,000  2,000,000  
  Current portion of deferred payment liability 2,172,633  27,244,146  
  Current portion of lease contract liabilities  849,051  796,835  
  Current portion of other long-term debt  8,016  11,121  
 Total current liabilities  44,664,099  68,447,986  
 Non-current      
  Long-term debt  16,547,428  7,681,867  
  Long-term portion of deferred payment liability 1,410,008  20,794,275  
  Long-term lease contract liabilities  1,752,038  2,213,512  
  Other long-term debt  146,769  136,324  
  Deferred tax liability  25,143,587  25,740,885  
 Total liabilities $89,663,929 $125,014,849  
         
 Shareholders' Equity      
  Share capital  439,922,535  387,087,948  
  Contributed surplus  30,582,079  25,485,361  
  Accumulated other comprehensive income  9,291,371  527,166  
  Deficit  (215,339,530) (150,332,154) 
 Total shareholders' equity  264,456,455  262,768,321  
 Total liabilities and shareholders' equity $354,120,384 $387,783,170  
         



Enthusiast Gaming Holdings Inc.          
Condensed Consolidated Interim Statements of Loss and Comprehensive Loss        
For the three and nine months ended September 30, 2022 and 2021         
(Unaudited - Expressed in Canadian Dollars)  For the three months ended For the nine months ended 
     September 30, 2022  September 30, 2021  September 30, 2022  September 30, 2021  
             
 Revenue $50,578,758 $43,341,907 $148,865,324 $110,421,843  
 Cost of sales  34,018,169  33,216,294  103,470,191  86,345,922  
 Gross margin  16,560,589  10,125,613  45,395,133  24,075,921  
 Operating expenses          
  Professional fees  766,057  434,862  2,358,559  2,385,837  
  Consulting fees  1,338,329  725,408  4,593,506  3,111,761  
  Advertising and promotion  662,279  609,587  1,417,344  2,465,529  
  Office and general  2,288,057  1,963,965  7,232,551  4,836,416  
  Annual general meeting legal and advisory costs  1,149,396  -  3,386,596  -  
  Salaries and wages  9,325,237  6,574,338  27,135,015  16,768,850  
  Technology support, web development and content  6,050,270  3,146,453  13,309,341  7,239,996  
  Esports player, team and game expenses  623,913  1,615,655  3,618,761  4,609,978  
  Foreign exchange gain  (480,528) (1,060,724) (1,105,730) (2,136,979) 
  Share-based compensation  821,811  4,971,949  5,336,617  14,690,294  
  Amortization and depreciation  4,055,415  2,372,839  13,257,813  5,668,276  
 Total operating expenses  26,600,236  21,354,332  80,540,373  59,639,958  
             
 Other expenses (income)          
  Goodwill impairment  31,281,286  -  31,281,286  -  
  Transaction costs  -  301,343  114,853  510,472  
  Share of (income) loss from investment in associates and joint ventures 226,940  158,415  (1,001,002) 230,675  
  Interest and accretion  414,203  430,538  2,963,981  1,702,839  
  Loss on settlement of deferred payment liability  -  -  3,302,824  -  
  Loss (gain) on revaluation of deferred payment liability  332,208  33,162  (539,555) 122,346  
  Loss on derecognition of long-term debt  482,282  -  482,282  -  
  Gain on repayment of long-term debt  -  -  -  (39,502) 
  Gain on sale of intangible assets  (4,836,075) -  (4,836,075) -  
  Gain on player buyouts  (24,660) -  (505,197) -  
  Change in fair value of investment  -  288,093  -  444,764  
  Loss on settlement of vendor-take-back loan  -  -  -  316,241  
  Interest income  (5,257) (9,315) (7,978) (50,546) 
 Net loss before income taxes  (37,910,574) (12,430,955) (66,400,659) (38,801,326) 
             
 Income taxes          
  Current tax expense  202,185  127,101  509,431  161,138  
  Deferred tax recovery  (1,018,542) (130,212) (1,902,714) (255,273) 
 Net loss for the period  (37,094,217) (12,427,844) (65,007,376) (38,707,191) 
             
 Other comprehensive income          
 Items that may be reclassified to profit or loss          
  Foreign currency translation adjustment  6,904,338  124,873  8,764,205  3,579  
 Net loss and comprehensive loss for the period $(30,189,879)$(12,302,971)$(56,243,171)$(38,703,612) 
             
 Net loss per share, basic and diluted $(0.25)$(0.10)$(0.46)$(0.33) 
            
 Weighted average number of common shares outstanding, basic and diluted
  150,257,805  126,395,192  140,930,554  118,514,822  
              



Enthusiast Gaming Holdings Inc.      
Condensed Consolidated Interim Statements of Cash Flows      
For the nine months ended September 30, 2022 and 2021      
(Unaudited - Expressed in Canadian Dollars)      
    September 30, 2022  September 30, 2021  
        
 Cash flows from operating activities      
 Net loss for the period $(65,007,376)$(38,707,191) 
 Items not affecting cash:      
 Goodwill impairment  31,281,286  -  
 Amortization and depreciation  13,257,813  5,668,276  
 Share-based compensation  5,336,617  14,690,294  
 Interest and accretion  2,266,161  606,060  
 Deferred tax recovery  (1,902,714) (255,273) 
 Share of (income) loss from investment in associates and joint ventures (1,001,002) 230,675  
 Gain on sale of intangible assets  (4,876,659) -  
 Loss on settlement of deferred payment liability  3,302,824  -  
 (Gain) loss on revaluation of deferred payment liability  (539,555) 122,346  
 Foreign exchange gain  (1,416,264) (101,302) 
 Gain on player buyouts  (505,197) -  
 Gain on settlement of accounts payable  (587,769) -  
 Loss on derecognition of long-term debt  482,282  -  
 Gain on repayment of long-term debt  -  (39,502) 
 Loss on settlement of vendor-take-back loan  -  316,241  
 Shares for services  84,388  110,565  
 Change in fair value of investment  -  444,764  
 Changes in working capital:      
 Changes in trade and other receivables  (2,476,193) (3,896,016) 
 Changes in prepaid expenses  (645,919) (2,584,504) 
 Changes in loans receivable  125,995  37,500  
 Changes in accounts payable and accrued liabilities  2,479,331  2,383,538  
 Changes in contract liabilities  559,566  881,756  
 Changes in income tax  371,458  209,890  
 Income tax paid  (93,433) (359,358) 
 Net cash used in operating activities  (19,504,360) (20,241,241) 
        
 Cash flows from investing activities      
 Cash paid for mergers and acquisitions  (2,937,520) (27,071,176) 
 Cash acquired from mergers and acquisitions  1,748,602  489,107  
 Proceeds from sale of intangible assets  5,460,959  -  
 Proceeds from player buyouts, net of transaction costs  505,197  -  
 Repayment of deferred payment liability  (472,833) -  
 Investment in associates and joint venture  -  (125,000) 
 Acquisition of property and equipment  (5,245) (3,398) 
 Net cash provided by (used in) investing activities  4,299,160  (26,710,467) 
        
 Cash flows from financing activities      
 Proceeds from the issuance of shares for Offerings, net of transaction costs  -  95,150,810  
 Proceeds from long-term debt, net of transaction costs  13,621,717  944,787  
 Repayment of long-term debt  (5,362,673) (14,023,470) 
 Proceeds from exercise of options  69,821  784,431  
 Repayment of vendor-take-back loan  -  (6,158,329) 
 Repayment of other long-term debt  (13,026) -  
 Lease payments  (705,075) (531,085) 
 Net cash provided by financing activities  7,610,764  76,167,144  
        
 Foreign exchange effect on cash  756,034  (12,725) 
 Net change in cash  (6,838,402) 29,202,711  
 Cash, beginning of period  22,654,262  4,323,823  
 Cash, end of period $15,815,860 $33,526,534