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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and welcome to the Enthusiast Gaming Third Quarter 2023 Financial Results Conference Call [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Matt Chesler, Investor Relations. Please go ahead.
Thank you, operator. Good afternoon, everyone, and welcome to the Enthusiast Gaming Third Quarter 2023 Results Conference Call. I'm Matt Chesler of FNK IR. And with me today is our Chief Executive Officer, Nick Brien; and our Chief Financial Officer, Alex Macdonald. We'll begin with some prepared remarks and then open the floor to questions. 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 results to differ materially from current expectations. These statements should not be read as assurances of future performance or results. A more complete discussion of the risks and uncertainties appears in the company's management discussion and analysis for the 3-month period ending September 30, 2023, and which are available under the company's profile on SEDAR as well as on our website at enthusiastgaming.com. You are cautioned to not to place undue reliance on these forward-looking statements, which speak only as the date of this presentation. The company disclaims any intention or obligation, except to the extent required by law, to update and revise any forward-looking statement as a result of new information, future events or for any other reason. And now I'd like to turn the call over to Nick Brien, CEO of Enthusiast Gaming. Take it away, Nick.
Thank you, Matt, and welcome to everyone joining our call today. We are making solid progress against our business strategy to build the most scaled gaming communities in North America, creating a platform for infinite growth. The core building blocks are our sites, channels, events and esports. Our creator communities are producing the most compelling content to engage with their communities as we witness their grown influence in today's creator-led economy. As we continue to invest in our vision to become the leading gaming media and entertainment company in North America, we are extremely thoughtful and deliberate, focusing on our largest opportunities. Today, over 56 million users visit our site, games and channels each month to play, learn, create and connect. Certainly, traditional media's declining audiences across linear TV and movies helps us maintain our position as America's #1 gaming media platform as measured by Comscore. Our single-minded focus is to achieve profitability in quarter 4 by prioritizing high-margin brand solutions revenue in favor of low-margin programmatic media revenues. The decision we took in quarter 2 to focus primarily on North America is bearing fruit as we continue to drive cost efficiencies and consolidation across every area of the business. Today's clear operating model built on a unified technology platform and supported by the most professional functions is reducing internal friction and increasing our speed to market for each of our products and services. Collectively, these initiatives will enable us to exit the year as a profitable business.
We're fortunate to operate in the largest and fastest-growing entertainment sector globally. The continuing growth of diverse gaming audiences worldwide demonstrates their passion to plan, connect with like-minded communities in the immersive gaming experiences that the industry imagined. There are today 3.4 billion gamers worldwide in an industry expected to reach $665 billion in value by 2030 with a CAGR of 13.4%. This exponential growth will demand innovation to craft the next generation of tools, products and platforms to satisfy gamers' hunger for simulation and creativity. It's clear that the impact of video games will not be limited to the video game industry, innovation, skilled talent and a large audience supported by deep-pocketed developers will flow across entertainment sectors. We're already seeing the convergence as the Unreal Engine is now powering games and revolutionizing film and TV production. Game IPs are becoming hit movies and Wave ZR (sic) [ Wave XR ] and other studios are transforming live musical performances. The industry's growth across all age ranges defies a traditional gamer stereotype as young men playing console games in their parent's basements. Microsoft closed their largest ever acquisition of Activision Blizzard, completing their vision to bring great games to players everywhere on any end point. Already with Game Pass, they are redefining how games are distributed, played and discovered. I'm not alone in believing that the high price also reflected -- the high price they paid also reflected the value of Activision's gaming IP. Given the players spend hundreds of hours over many years with the games that they love, creating remarkable brand equity with some of the most famous games in the world. We are witnessing the continuing transfer of gaming IP to Hollywood. The leading creators being hired by top gaming companies to ensure that their content strategies are not only creative and compelling but also authentic and faithful to the original game design. The power of gaming IP in such a crowded digital media world support Netflix's decision to create a streaming video game service as the next big growth bet. Gaming is increasingly exciting for brands and their agencies. There is a growing realization that gaming media is no longer a nice to do, but a need to do. with their elusive Gen Z audiences abandoned traditional media to focus their attention on social media, gaming content and interactive experiences. Brands are now competing for attention in the creative economy, where content is created and consumed in fundamentally different ways than even 5 years ago. It's exciting for us to pioneer the next-generation gaming media and entertainment company for players, creators and brands. Operationally, we have consolidated as one company on a unified technology platform to ensure that our products and services are streamlined to create more efficient brand solutions for marketeers and advertisers. Our rapidly improving programmatic stack ensures that our ad network is optimized to reduce unsold impressions and increase yield. We recently initiated a cloud services review to ensure that our web hosting costs are optimized, our critical AI functionality is fully integrated across the business. Across our sites, we continue to demonstrate our ability to capture momentum and audience attention around tentpole game releases. U.GG the leading data and insights player site for the League of Legends with over 9 million users strengthens its product-to-platform strategy as it extends to the World of Warcraft site with data sourced from Blizzard API. U.GG launched its League of Legends desktop app in alpha in quarter 3 to enhance gamers performance and provide a personalized experience. To date, we've gotten over 250,000 downloads without $1 in marketing spend. In the month of September, we recorded 630,000 user sessions with an average session duration of an hour and 18 minutes. This is 819,000 hours of audience attention. The time on site metric is indicative of the stickiness and the added value of desktop apps as they're able to provide real-time live data-driven insight and advice to our user base. This success informs our decision to pursue additional desktop app properties and the next launch will be Valorant in November. Icy Veins has launched a brand-new content management system to support Diablo 4. And in the month of July, Icy Veins set a record for unique users in a month. 5.9 million, 26 million sessions and 1.7 million hours of time spent on site from our user base. This gives us a positive use case to further expand our CMS to enable us to repeat this success over and over to make Icy Veins and U.GG, the dominant multi-titled gaming community and insights platform. Addicting Games continues to rationalize its portfolio of casual games and strengthen the competitiveness of its key titles. Shockwave, has added a new collection of daily games, resulting in a 57% increase in page views in quarter 3, up 18 million from quarter 2. TypeRacer has seen a 250% increase in subscriptions from quarter 2 to quarter 3 by simply increasing the number of accepted payment methods. [ Ev.io ] underwent technical refactoring to reduced load time by 90%, leading to a 13% growth in users and 15% more new users compared to quarter 2 2023. With this impressive improvement in growth, we are now focusing on in-game economy and user retention with daily bonuses.
The Sims Resource is a vital contributor within our portfolio providing a unique resource to enable the Sims 4 community to celebrate its creativity and culture across generations. Our strategic initiatives kicked off in quarter 2 to focus on converting free traffic into paid subscribers, while increasing LTV and ARPU and low in churn. We have launched several projects to ensure smooth payment processing globally while aligning pricing geographically to optimize for conversions. This includes a soon-to-be launched change on the site, which will require all users to provide us with their e-mail address in order to perform a free download of our content. The TSR team is using landing pages, e-mail marketing, paid media and social media to drive conversions, engagement and education with the goal to increase retention and conversion rates. Social media and community engagement are providing users and visitors with a strong sense of value from the TSR offerings as well as driving new traffic into TSR.
The momentum continues into quarter 4 and beyond with a new e-mail marketing platform with new data attributes to help us drive engagement and conversion rates. A new landing page platform will enable rapid testing and optimization of new billing and pricing configurations, an option to determine the most effective scenarios to increase conversion rates globally and drive overall revenue growth. Pocket Gamer remains the preeminent mobile games conference organizer globally. During quarter 3, we ran 2 Pocket Gamer Connects conferences one in Toronto and one in Helsinki and 2 fringe events, the Metaverse Mixer and the top 50 games makers dinner at Gamescom in Germany. Pocket Gamer celebrated its eighth addition of PG Connects Helsinki and next year, Pocket Gamer Connects celebrates its tenth anniversary. In that time, we've hosted over 44 Pocket Gamer Connects conferences in 14 countries with over 40,000 delegates attending. All event activity generated a profit in quarter 3 to Helsinki registry in a 52% gross profit, while Pocket Gamer Toronto live delegate numbers increased by 28% year-on-year. Following a successful June event in Dubai, we're now currently in negotiations for a 3-year partnership with the Dubai economic forum to run the Dubai Games Expo Summit powered by PG Connects from 2024 to 2026. We're also in active discussion with the local agencies in Singapore about potential activity in the APAC-SEA region in 2024 to 2025.
Gaming communities continue to demonstrate their insatiable desire to consume gaming-related content, whether on the major streaming channels such as Twitch and Kick or leading social media networks such as YouTube and TikTok. Content remains, therefore, a major strategic pillar of our business. Final Boss Studios, which we launched in quarter 2, now operates in 5 key verticals that maximize content resources and cross-functional support in postproduction, tentpole creations, the NFL Tuesday Night Gaming and the O&O activation, animation for families and Luminosity content. Our content calendar with new content series and channels is spanning the cross-section of gaming, esports and popular culture. Our channel expansion strategy begins with Bitslam comedy. We sold out the Bourbon Room in L.A. within 24 hours. This innovative approach for leading gamers playing against leading comedians generated partnership interest in some of the biggest names in the comedy business.
Luminosity, our esports and talent organization continue to thrive and expand around the esports winter that sees many larger competitors struggling with unsustainable business models. Throughout 2023, we have pursued a prudent cost structure that will lead to a sustainable and profitable esports business in 2024. This is a key part of building our creator community to fuel our growing talent needs while directly supporting our various sites and channels. We launched a Luminosity Smash channel breaking 2 million views in the first 60 days since launch as well as our Pokemon Unite documentary, which surpassed 10,000 views in a week. There is no shortage of creators who want to become part of the Enthusiast network, whether it's through Luminosity or Omnia Media as they understand the value that Enthusiast Gaming can bring to them throughout their creator journey, leading to increased revenue and brand activation opportunities. New brand partners tapping into our internal talent rosters on Nintendo, Bandai, Netflix, Nickelodeon, Coca-Cola and many more. Brand solutions continues to improve its performance since its establishment in quarter 2, both more revenue and a gross margin point of view. We strengthened the team with some key external hires. George DeVardo joined us from Barstool Sports to lead Revenue Operations, Madison Lockhart joined from Epic to lead Product Marketing and [ Jerry Lu ] just joined us from Sony to drive our thought leadership efforts, while coordinating all our research and insights. Account management has now been fully integrated into the brand solutions org, enabling a deeper specialization of sales support to flip our approach from reactive selling to proactive solutions creation and delivery, creating engaging campaigns that can span multiple business units. We have an exciting pipeline of new brand partnerships in quarter 3 with both new and returning clients. including Coca-Cola, State Farm, the UPS store, AT&T, Toyota, Netflix, Shell and Dove for men. State Farm and Dove are both new sponsors for the NFL Tuesday Night Gaming with State Farm being a 6-figure deal and the largest deal in our history. AT&T, Shell, Netflix and the UPS Store have all partnered with us to create custom maps in leading games. This growing appetite by gamers to explore user-generated content in many of the biggest games such as Roblox, Minecraft and Fortnite, is only set to continue. Our industry-leading partnership with the NFL continues to bear fruit. As we iterate and optimize NFL's Tuesday Night Gaming week in and week out to improve program innovation and strengthen user engagement. Year-to-date, we have generated 40 million total impressions across all NFL TNG platforms, representing a 72% growth in overall impressions compared to season 1. To date, the NFL Tuesday Night Gaming has increased the number of advertisers from 11 in season 1 to 14 in season 2. Our sponsors include some of North America's most recognized brands, Campbell's Chunky, Carnival Cruise Lines, State Farm, LEGO, USAA, a wonderful company. Travel Texas, Little Caesars, Dove, Netflix, the U.S. Navy, Warner Bros., DAZN and ESPN. Our active creator success with the NFL has reinforced our ability to work with major IP holders, leading to active conversations with other leading U.S. sports leagues. Our commitment to operational excellence is the opportunity to harness the power of automation and AI to improve our product and business performance across the entire organization. We're actively using the test in ChatGPT, that's the most widely applicable AI chatbot, but campaign created concept brainstorming to coding QA, active campaign, to sales e-mail marketing to leverage subscriptions and remarketing. Unbounce to build landing pages for AB testing, testing subscriptions. TubeBuddy as tool to drive channel growth for YouTube. And vidIQ for channel analytics of all YouTube videos. And Semrush for SEO optimization, fracking and search ranking.
We currently utilize a number of automation applications such as Power BI for data visualization of revenue dashboards, Monday.com as program management tool, BoostUp for order management, media plan development, rate card management and ad server management and Assertive Yield for automated centralized reporting for our programmatic performance of all SSPs. We have made significant operational progress in establishing a stable platform for profitable growth. Much of this progress has not yet been reflected in our income statement. As we have eliminated low-margin revenue that represented a drag on profitability and focused on strategic or higher-margin opportunities. These initiatives are resulting in significant gross margin expansion, a reduction in unsold impressions and higher CPMs and serves the foundation for future financial improvement. We expect you will see this progress manifested in the fourth quarter and we look into 2024 with a fully integrated, efficient platform for sustained profitable growth. No great business was ever built on its capabilities alone. We believe passionately that a more disciplined and accountable culture is necessary to build long-term success for all stakeholders. We also recognize that great cultures require sustained effort and commitment to ensure that the most talented people are fully motivated to deliver their best performance each and every day. Leveling up is easier said than done. Our people and culture function continues to make great strides in many important areas of talent management, specifically in DEIB progress and women in gaming and women in leadership roles. We have tripled the number of female senior leaders since inception in April 2023. We signed the California Equal Pay Pledge. We've established a Raise Your Game, ERG, employee resource group, focused on elevating women in gaming and supporting women Enthusiasts in career growth and leadership opportunities, which launched in April and we already have 26 members. We're partnering with the historically black college and universities, and these HBCUs are providing us with mentoring, career opportunities and a development pipeline of great talent. Last but not least, we are committed to creating the high standards of commercial acumen across the organization to ensure that we are optimizing the yield of every single dollar of revenue we earn. Today, I'm pleased to announce that we have hired Felicia DellaFortuna as our new Chief Financial Officer. Felicia joins us from BuzzFeed, where she has worked for the past 8 years. Felicia joined BuzzFeed in 2015 after serving as a Senior Finance Director of Viant Technology, the parent company of MySpace and various financial leadership roles at 19 Entertainment and Ernst & Young.
Felicia's deep digital media expertise across BuzzFeed's many media brands, content channels, commerce sites and live events makes her ideally suited to help us fully optimize our portfolio of assets today. At the same time, her extensive public markets and fundraising experience strengthens our commercial prowess as we focus on reducing cash burn and driving profitability. Alex Macdonald has performed a pivotal role in both the creation and growth of Enthusiast Gaming. We're extremely proud and grateful for the massive contribution Alex has made from day 1 to diversify our business, serve our community and build a strong team that lays the foundation for our future profitable growth. Alex will transition for to role of a consultant and work with me and the Board on a number of key strategic projects while collaborating with Felicia to ensure the smoothest handover of all finance and accounting functions. This ends my prepared remarks, and I'd like to now hand over to Alex Macdonald to talk through the details of our financials. Over to you, Alex.
Well, thank you, Nick, and thank you to all of our shareholders, analysts, lending partners and other stakeholders for joining us today to discuss the progress made in this third quarter, 2023. During the third quarter, we continued to advance the initiatives Nick has been speaking about since becoming our Chief Enthusiast Officer. We are continuing to focus on profitable revenue streams and margin expansion as well as creating comprehensive brand solutions and leveraging our diverse assets as a platform. The results of these initiatives include margin expansion and narrowing losses as we move towards profitability. I'll speak on the numbers shortly, but first, here are my usual notes. I note that our results are presented in Canadian dollars. The significant majority of our revenues and expenses are measured in U.S. dollars and are translated into Canadian dollars for presentation in our financial statements. The exchange rate between the U.S. dollar and our presentation currency of the Canadian dollar should be monitored and considered when analyzing or forecasting results. And I note that our business is affected by seasonal trends in digital advertising with sequential increases each quarter throughout the year, driven by increasing ad prices and demand, which peaks in Q4. This seasonality is isolated to our media and content revenue streams. Now let's get back to the financial results. Q3 revenue was $45.6 million, which is down 10% year-over-year, but up approximately 7% compared to Q2. Q3 revenue by source was as follows: media and content, $39.8 million, subscription $3.7 million and esports and entertainment $2 million. The Q3 media and content revenue of $39.8 million compares to a $44.5 million reported in Q3 2022, a decrease of 11%. The decrease was primarily driven by a decrease in RPM caused by lower CPMs in the programmatic markets. Our web RPMs were down 14% and while our video RPMs were down 22% in Q3 year-over-year with similar trends observed in the broader programmatic market. These year-over-year RPM declines narrowed in Q3 compared to Q2, and we expect them to continue to narrow with further improvements being noticeable subsequent to September 30. The decrease in Q3 media and content revenue was offset by higher video reviews year-over-year with 6.4 billion video views being measured in Q3 2023 as compared to 6.1 billion video views in Q3 2022. Web page views also increased year-over-year with 3.7 billion web page views occurring in Q3 compared to 3.6 billion in the same quarter last year. Notably, total views once again crested over the 10 billion milestone for Q3. Q3 Subscription revenue was $3.7 million, down slightly by 2% year-over-year. Paid subscribers were 265,000 as of September 30, 2023, as compared to 260,000 as of September 30, 2022. The yield on a per subscriber basis increased slightly year-over-year. Q3 esports and entertainment revenue was $2 million, down slightly from $2.3 million in Q3 of last year. The decrease in esports and entertainment revenue is mainly attributable to decreased esports sponsorship activity and a slightly lower event revenue. Gross profit was $16.7 million in Q3, up 1% compared to the $16.6 million of gross profit reported in Q3 2022. Gross margin increased 400 basis points to 36.7% from 32.7%. This gross margin increase reflects the greater contribution of brand solutions and subscription revenue to our overall revenue profile as well as the elimination of certain unprofitable products and channels as well as the year-over-year decline in market-driven CPMs. In other words, our strategy to reduce our reliance on network programmatic revenue and focus on profitable revenue is driving improvements in our margin profile. Total OpEx was $25 million, down 6% from the third quarter last year. Operating expenses in Q3 this year include noncash items of amortization and depreciation of $2.6 million and share-based compensation of $1.4 million. The decrease in cash-based OpEx year-over-year was primarily due to decreases in professional fees, advertising and promotion, office in general and salaries and wages relating primarily to certain restructuring efforts. Also the prior year third quarter included approximately $1.1 million in fees related to the Annual General Meeting. This year, the meeting was held during the second quarter. Additionally, the third quarter reflects costs associated with the kickoff of season 2 of NFL TNG. Net loss was $59.1 million in Q3, including a noncash impairment charge of $51.7 million. Net loss per share, both basic and diluted was $0.38 in Q3 2023. Due to a combination of higher interest rates, inflation, contracting equity valuations and continued industry pressures, the company determines that indicators of impairment were present in Q3. Therefore, the company performed impairment testing across its 7 CGUs. The results of this testing were impairment charges totaling $51.7 million. This is a non-cash adjustment and the details and assumptions surrounding this expense are disclosed in Note 9 to the financial statements. Turning to the balance sheet. We ended the quarter with $2.8 million in cash and in addition, had an available operating line of $4.5 million for total available cash of $7.3 million as of September 30, 2023. Subsequent to the quarter end, we announced that we had extended and amended our credit facilities, providing additional liquidity of up to approximately $7 million. Given the improving trends we are seeing in our business and industry, along with the benefit of the amendment to our operating line, we are confident we have sufficient liquidity to execute our near-term objectives. We continue to believe we will exit 2023 and enter 2024 as a profitable business. And as we drive through Q4, we do have certain expectations surrounding the key drivers for the rest of the year. We expect relative consistency across total views with the recent short-term trend towards increased video views to be maintained. We expect an increase in CPMs across both web and video and we know positive pricing movements observed subsequent to September 30. However, we remain cautious that seasonal trends in the programmatic markets, while returning, will not yet be as strong as would normally be expected. Similar to all other large digital publishers, they are watching closely as we approach Black Friday and the holiday season, a period which typically sees significant CPM increases. We expect to set records for total direct sales in Q4, and this number is key to profitability. Direct sales is expected to be an all-time quarterly high for the company. And we do not expect a significant movement in subscription revenue in Q4. The result of all of the above will be continued gross margin expansion expected to result in an all-time high gross profit. It is in the gross margin the short-term profitability will initially be found and expanded throughout the next year of profitable growth. For all these reasons, we believe the company has a clear sight -- line to a successful and profitable Q4. It is an exciting time for the company. particularly as our year of transformation comes to an end and the company sets its sites back towards growth. I take particular pride in what has been built here and my role in that over the past 5 years. I want to thank Nick for his kind words earlier and for the opportunities he provided to me to date as CFO, including being part of an exceptional executive team, which is leading change across the organization. I shall -- wish to thank our Board of Directors, particularly our Chairman, Adrian Montgomery, for their partnership over the years. I look forward to continuing to work directly with Nick and the Board on a number of strategic projects. But perhaps my greatest pride is the finance team that has been built at Enthusiast Gaming. They know exactly who they are, a best-in-class group led the VP Finance, Nathan Teal himself, a team member of the company's senior leadership. The company is in good hands with them. And speaking of being in good hands, I welcome Felicia, the incoming CFO of the company. Felicia's deep digital media expertise will be a tremendous asset to help lead the next phase of the company's evolution. Between Felicia, the rest of the executive team and of course, Nick, our CEO, I have full confidence that the best arrangements will continue to be made for our business. And of course, ladies and gentlemen, our business is the business of gaming. Thank you. Operator, I kindly turn it back to you.
[Operator Instructions] Our first question comes from Griffin Boss with B. Riley.
So just to start off, on the last earnings call, I think, Nick, you mentioned that you were hopeful to have a deal signed in Q3 for another content partnership similar to NFL Tuesday Night Gaming with a different major U.S. sports league. And I know you talked about continued progress on that front in the prepared remarks, but just curious if there was any sort of delay there or what the cause of delay is? And just -- I mean, just more broadly, how you're thinking about those conversations?
Yes. Well -- Griffin and thank you for the question. We -- yes, it has been delayed, and I think that only directly down to the fact that some of the biggest advertisers that we experienced in season 1 for the TGN, for NFL were from the entertainment sector. And with the Hollywood strike and also combined with the auto workers strike, we saw some of those categories come down. So the revenue expectations from this particular league and the minimum guarantees and the negotiation around that have extended. We're confident we're going to get it finalized. I'm in New York this week, one of those meetings is to get that is moving in the right direction that they get it finalized. So we remain extremely bullish and very excited about it. But yes, it did take longer than I would have thought. Yes, but I understand the reasons why.
Sure. Okay. Yes -- no, makes sense. And then just sticking with Tuesday Night Gaming, the engagement, the 72% increase in impressions year-over-year is strong, it's nice to see. I'm just curious because I believe you transitioned this season from YouTube to Twitch. So is any of this increase in impressions, maybe a result of easier discoverability on Twitch? Or do you think it's really just more a function of sustainable growth due to just growing popularity in the content?
Very good question. I think it's a combination of both. I mean, as people -- obviously, word-of-mouth spreads, it started to build its own audience. And I just think there was a lift up with Twitch being such a strong streaming channel, and this has being a live -- essentially a live experience. And then we also had a growth in our highlights, our Shorts highlights that we were developing with YouTube. So I think it's a combination of those 2 things. And those are certainly what we're going to be looking to build on as we go into season 3.
Got it. Okay. Great. And then just last quick one for me and I'll jump back in the queue. Alex, I think I missed some of your programmatic talk, and I was just curious. I think we've been hearing among other companies we talk to sort of about pockets of stabilization in programmatic CPMs for display and video particularly. So just curious -- that's going into the fourth quarter. So curious to get more color on sort of what you're seeing currently in the programmatic market.
Yes. I think stabilization is certainly a good word to use. Stabilization of the market, and we have seen subsequent to September 30 positive movement. The interesting point in time we find ourselves that as you would typically expect -- and then even in the next week, significant movements that would continue through December, we are still cautious about that. As I said, I don't think it will be a similar pattern to say, 2018, '19, 2020. However, I'm quite hopeful that some form of normalcy to the seasonal pattern is starting to return and stabilize, like a return to normalcy would be a tremendous thing for us. I also note that the year-over-year declines in CPMs are normalizing, right? So we've absorbed a lot of that. Our declines narrowed in Q3, and that number will continue to narrow in Q4. So cautiously optimistic on the programmatic markets.
Your next question comes from Kevin Krishnaratne with Scotiabank.
Kind of a follow-up on the last question. So RPM losses year-over-year. The trends may be narrowing. The other lever you have there through revenue is views over the 10 billion mark again this quarter. Can you talk about how you can increase views either by opening up more inventory, entering more deals for content? Can you just broadly talk about the thoughts there as the other lever.
Yes. Alex, do you want to take that one?
For sure. Kevin, so I'll start with one thing. It is nice to see -- we have noted that this year, particularly in the back half of last year, we were trimming. We were not going to spend excess, extra OpEx in order to take on low profitable or nonprofitable channels, think of them as almost useless views for our P&L. However, even after doing that, look, the organic growth still comes back and the trend is back up. It's not the hugest quarter, but I actually like to see that metric. It's a measure of inventory for our financial purposes, but it's also a measure of audience and the measure of engagement. So it is nice to see the strength shining through there. With that said, we're seeing it in a number of areas. We are bullish on video. Part of it is a proliferation of video due to the monetization of YouTube Shorts. So we have a huge amounts of that type of content that is in its infancy of being monetized. So there's opportunity there. However, I would say -- I would point more at what Nick was talking about in his remarks about all the optimization and after an attention that's being put into the programmatic stack that applies more to our web impressions. So it's not necessarily that we need to generate more impressions. We -- for the lack of a better term, I would say we have inventory coming out of our ears. We have plenty but reducing the unsold amount, further optimizing, making sure our inventory is selling to the highest rate possible, at the highest price possible. The networks are optimized with the proper number of SSPs and partners in there. And I think Nick, as you saw highlighted that his comments and he is a big believer in that. I'll steal his words here and say like he says programmatic is important. It's how we make money when we sleep. So it's important to us. It's a key initiative of the company. And I think that is how we unlock additional revenue, not necessarily by driving more views, which we will do, but by monetizing them better and more optimized and selling a higher percent of our inventory.
Awesome. Yes. Got you. Maybe moving down the P&L, the gross margin that you highlighted, a record gross margin percentage in the quarter. Does that -- I couldn't recall, I know you're going to do record gross profit in the next quarter. Does the gross margin go up as well? Last Q3 to Q4, it was up 100 basis points. Just wondering what you get there, you talked about some other things that you're doing in the model, some web host optimizations. And you also mentioned that gross margin profile -- sorry, gross margin in brand solutions was up quarter-over-quarter. I think you said that. Can you talk maybe about what the gross margin profile looks like within brand solutions. So yes, I guess, number one, do you expect to see quarter-over-quarter improvement in gross margin? And then number two, where does the upside come from? Is it strength in brand solutions?
Sure. So overall -- I'll start with the [ core result ]. Yes, we expect set records in gross profit, and that will be driven by the gross margin. So I would expect records in gross margin as well. So that growth is back, which I want to see. For me, that's always been a KPI. So the profile of the P&L on those top 2 lines is back to growth, certainly. And I would expect that for Q4. A lot of it is driven by brand Solutions. The profile of the brand solutions itself, the margins have been going up there. The reason that's happening is really a lot of it is the custom content, particularly NFL TNG, which have very low variable costs. Their costs are quite, in some ways, fixed. So the gross revenue we bring in is higher margin on those deals as opposed to when we sell certain types of inventory or other assets, which may have a variable COGS. So as NFL is selling more. And as we capitalize on some of those tentpole-content initiatives, we reap the gains in gross profit from the investments we made in OpEx to that over the years. And it doesn't necessarily increase. A lot of these sponsorships, the show already exists. You can layer in sponsorships for very little additional cost. So the investment is made, and that's going to be a key driver going forward to the gross margin and the gross profit.
Got it. Last one for me, a clarification. Do you expect to be EBITDA profitable for Q4 or exiting, i.e., could it be the month of December? I'm just trying to understand some of the commentary you talked about exiting being profitable.
When we say exiting the quarter, it's what the quarter represents. And that's what we're aiming for. Do we see that the real energy of that is for -- in the month of December? Yes, but we've yet to get into that. So again, the focus is on making sure that we are profitable in quarter 4, and we're able to take that kind of energy into 2024. So we're not going to give a specific forecast on the month of December yet.
Our next question comes from Gianluca Tucci with Haywood Securities.
Just a question pertaining to brand solutions revenue. What's the target there in terms of percentage of overall sales given that it is a major margin driver? And could you give us an update as to the head count in brand solutions compared to about a year ago?
Well, in terms of the -- Gian, first of all, thank you for the question. Yes, you can see that if we look at it on a global basis, of the line of business in advertising, we've been aiming for a total of about 30% of the ad line of business. And as I said, with a number of the key hires we've made to strengthen the infrastructure around brand solutions. It's been not on direct sellers, the number of actual sellers has held steady. What it is, it's the expertise around pricing and packaging that George has provided and Madison on the product side to ensure that our conversion rate increases of the RFIs we're responding to as well as the fact that we are able to generate a high yield on what we're selling. So I would imagine that this is a relatively new part of our business to evolve it from the direct sales as was. We're going to continue to drive that up, especially when we have big tentpole opportunities that we were talking about that we're looking to grow beyond just the NFL TNG, which is of itself is a whale opportunity for us. In my mind, offset our targets of being 50% of our ad revenue coming from brand solutions over time. That, I think -- we called it direct sales in the past. But at the moment, head count, we had repurposed -- head count hasn't increased across the organization, we have repurposed talent and we've basically changed roles and responsibilities and found consolidation in other areas that really provide the support and resource to ensure that we're doing brand solutions as well as we can.
And in Q3, I don't know if you guys, red lit -- perhaps, I -- or I just missed this. But in Q3, how much of brand solutions came from existing customers?
70%.
Excellent. Great. And just -- I'm sorry, Nick, please go ahead.
No, I'm just saying we're very excited about that. When I look at our book of business, and we look at the balance. I was just talking about this with the Board. It's really encouraging to see -- and again, this tracking that we've now put in place. So we're seeing where every dollar of revenue is actually coming from and what's in the pipeline, and the volume of returning clients or current clients versus new logo is a really healthy sign because we're dealing with some of the biggest brands in the world, some of the biggest global marketeers. And as we talk about whether you're in with General Mills, in with Coca-Cola or in with Unilever, once we get in with one brand, as you know, there's multiple product divisions. There's multiple brands and to see them back and spending more is really exciting.
Yes. That's a great percentage. And excellent color. Just lastly for me, perhaps a housekeeping item for Alex, in terms of OpEx, how should we be thinking about that in terms of percentage of revenue going forward after all the companies, I guess, repurposing, if you will.
Well, I mean it's fairly normalized now. This quarter, of course, we have -- NFL TNG is in there. So that's normalizing and you will see that again in Q4 and then somewhat in Q1. So -- and of course, I'll say it as -- we're back into the revenue. But look, what do we want to do? I mean, at least subject to adjusting for non-cash items as a percent of gross profit, we wanted just under 100%, right? So that's how we're think of that on a percent basis, at least in comparison to the gross profit. But it is normalizing now. So we had a bit of front-loaded stuff for TNG, of course, again, right, season 2 kicking off, changes there, production investments again. So I wouldn't anticipate any significant increases from any angle in the next few quarters.
Our next question comes from Scott Buck with H.C. Wainwright.
I just have a follow-up question from something earlier. What percentage of your inventory are you actually monetizing today? And where could that potentially go to over time?
When you say -- well, first of all -- Scott. Can you just clarify, when you say inventory, are you talking about our total impression -- of the total impressions...
Yes, exactly.
Well, I think in this quarter, 60% has been converted, sold. Or as Alex said earlier when we were talking with Kevin, it's not -- this is not about us generating more impressions, it's about us being very clear and focused in our ad tech stack that we're optimizing the yield and we're reducing, let's say, the bad impression or those that are just they're being put into the auctions and they're not being bid on for whatever reason. And that focus of our engineering team and our yield optimization teams is to ensure that we get that percentage higher of the impressions sold.
Yes. No, that's helpful. And then I was curious if you could give us just some color around the decision to delist from Nasdaq and maybe where and what some of those cost savings could be?
Yes. Well, the delisting decision was one that the Board took after careful consideration. As you know, we received a notice from Nasdaq of the requirement to get our share price up to a certain level to maintain that listing. The costs involved, the time involved. It was a decision -- it was a thoughtful decision by the Board that -- to remain on the TSX and to voluntarily delist as opposed to effect the share consolidation. Overall corporate costs as a consequence, will reduce on a year-on-year basis. And I think we had a range on that. Alex, did we give a range on -- the listing costs to be saved?
Yes, they are estimated to be incurred at about USD 2 million annual, and I would expect that to start normalizing on a quarterly basis next year, particularly in Q2, there are -- we are still a registrant with the SEC. So that hasn't changed. And I would expect -- so I would expect that to start normalizing in Q2 of next year. But yes, the number we provided was USD 2 million of annual costs.
Our next question comes from Robert Young with Canaccord Genuity.
I just wanted to get a little more color on the profitability here in Q4 and then into Q1. If I read the comment earlier, Nick, it's that the pace of business in November and December is really the determinant on whether Q4 will prove to be EBITDA positive or not. Did I hear that correct? And then if it's driven by top line, should we assume that seasonality in Q1 will push EBITDA back negative in Q1?
All those assumptions are valid because we know the -- ultimately, Q1 revenue is obviously considerably lower. We know that quarter 4 is usually as Alex said in his prepared remarks, exactly what happens with the whole Thanksgiving and then Black Friday period is really important as well as seeing what level of commitment comes back for the movie industry. The Hollywood strike and what happened, I mean there was a lot of content that wasn't produced.
So I think we're -- in my view of the fourth quarter, I just was studying the Trade Desk. I mean I think as a DSP, they are the canary in the coal mine for the economic work. I mean they work with every single one of Ad Age's top 200 advertisers. And they had a great Q3. At the same time, they were very cautious, and we're seeing some in media -- the big media companies also release the quarter 3 and explain that cautiousness for what's happening in quarter 4. So we need to be thoughtful about that. And that's why we've got a very tight grip on expenses and we're focusing like laser, as I said in my remarks, on those areas of our business that we're going to see a really tangible increase each single week, every single month. and make sure we get maximum impact for that. So I'm not here able yet to give you that precision as to how quarter 4 is going to end up because we are and it's only the 13th of November, and we've got -- these are very critical 6 weeks. What's going to happen in quarter 1? Obviously, quarter 1 will come back from quarter 4. It always does, CPMs will, ad spend does but we go into next year as a much stronger business with a lot of the organization and the transformation challenges that we've taken on board this year that will be bearing fruit in 2024. And that starts in January.
Okay. That's very helpful. I -- the comments previously on the repeat revenue from repeat customers. I think you said 69% or 70%, very strong. And I was curious, the NFL contract, I'm not too sure what the contribution would have been in the quarter or if that would have been a significant driver behind that growth and repeat. Or -- and then I think you said State Farm was the large deal. I'm pretty sure that's a repeat customer, if I remember from past calls, and so if you were to normalize for those 2 big deals, would it still be up -- would repeat business still be up year-over-year? I assume it's still big drivers of business. Just curious what the...
Yes, it absolutely would. I mean, obviously, quarter 3, we had -- because it's the start of the season. I mean this is a start of season 2. So we always said and we said that in quarter 2 that we were very much anticipating a more exciting quarter 3 with the beginning of the football season. But to see brands come back and then significantly up their spend like State Farm has done, and we -- others as well. It's a testament to the fact that this is an exciting time in the industry. I mean, this is where gaming culture, meet sports culture, meets entertainment culture, meets geek culture, it is pop culture, and it's going to be that way for many years to come. So this is a really exciting time when the NFL -- and we've got some significant announcements to make in quarter 4 about the continued energy and effort the NFL are putting into the gaming property and the gaming platform, which we're extremely proud of having created with Tuesday Night Gaming. So we remain extremely bullish with a number of the big brands that are choosing to going to get integrated into this fusion between gaming culture and the biggest sports franchise -- one of the biggest sports franchises in the world and certainly the biggest in the U.S.
Yes. Okay. And last question for me is just on the subscriber business. In the prepared comments, I think you said that the subscriber count was up, and there was some big growth in some of the parts of the business in subscriber and -- but the revenue was down. And just I'm trying to understand what the driver might be. Is that a temporary thing? I think you mentioned KPIs or some sort of a change in the way you're measuring things. Maybe just talk about that, especially given you said it would be flattish in the current quarter. And then I'll pass the line.
Yes. Yes. Well, we did. I mean, to be clear, the biggest driver of our subscription business is the Sims Resource. And we've got a whole new team, leadership really focusing on every element of this, and there's been a number of painful elements, whether it be on back-end code, whether it be payment providers, whether it be on pricing. I mean there's a huge focus going in, and there's change has been happened to make sure maybe we go back ever so slightly to go forward. I mean, here, we have the Sims Resource, 75% of our traffic globally is non-U.S. I mean our subscriptions, when we think about our subscribers to users, around the rest of the world. We haven't been mixed and we haven't been testing different pricing structures. We haven't really focused on managing what's really going on when it comes to payment and how well we can do that. I mean not every country in the world -- we've got a big business in Brazil. There you strike. I mean it's payment. We've got to be working with the best payments, we've got to have great back-end code, things have got to work well.
So our focus here is on net new subscribers, personalization and customization. We have to make sure that e-mail is fully integrated in everything we do. We have a whole new e-mail marketing campaign program. And we have to make sure that's fully privacy compliant. And so what is the role here with the CSR? Is to convert and keep our traffic and to grow the top of the funnel, the traffic drivers. I mean we have 210,000 subscribers, but we've got 2.5 million registered and active. They're registered and they're active. We've got over 10 million users who are active, but they're not registered at all. They're anonymous. So our opportunity in this business is significant but we are making a number of strategic changes in both the way we're managing our product, which is the artists as well as managing our merchandising, which is around all the asset management that we need to do, as I talked about in my prepared remarks. So work -- heavy lifting work has been done on all these elements to ensure that we have a stronger, more profitable growth business in our subscription area in 2024.
Our next question comes from Drew McReynolds with RBC.
Nick, you just answered one of mine. So just 2 left here. First, on the revenue optimization where you're pruning for the most profitable revenue streams. Are you largely done that now from your perspective? And then secondly, on just liquidity and cash, maybe for you, Alex, you've talked a little bit about kind of the working capital swings as we've moved through 2003 -- or the 2023 here. What do you see for Q4? And anything you care to comment on as we head into next year.
Well, thank you, Drew, and thank you for the question. Well, I'll answer the first one on revenue streams. And I'll say the work is never done. We're always going to be looking to optimize but there is not one area of our business, not one of our lines of business that we don't -- we are not now tracking with granularity every single dollar of revenue to every single dollar of cost. So if it is not delivering the kind of margin we expect. We're obviously doing the analysis to find out why not and how and how we're going to be driving us. So there's heavy work in progress. As I said in my notes, within Addicting Games, that's a very large portfolio at play. And without breaking that down, which hasn't been really done in the past to the way we're doing it now, you couldn't always identify those individual areas of games or sites that weren't pulling their weight. And now we either fix it or we resolve what we're going to do with it. But there's no area of the business that we're tolerating an underperformance. And as we focus with that kind of granularity and that's across our sites, our games, our channels, our esports and even our events business, every single one of our core pillars has clear attention to both what top line revenue should be and most importantly, what is conversion level. What is the conversion from gross revenue to gross margin to then EBITDA. And that is under -- that is aggressively underway, and it goes on every single day. So is the job done? No, I don't think it's ever going to be done. Have some of our problem children being identified and the necessary action taken by the existing team or by a new team? Yes, there's not an area of the business that is not been unpacked and rebuilt across anything, all right? So that's what I can say on the revenue streams. Alex, did you want to take the second question? Second one of Drew's questions on the liquidity?
Yes, no problem. So on liquidity, I mean, so looking where we're at, of course, ended that quarter -- there's now $2.8 million of cash, $4.5 million available on the line of credit, that's $7.3 million available cash. We remain laser-focused on our cash flow, big time. I've quoted I think in prior calls, talking about how much value there is in the working capital, and we continue to unlock that value, that's notable in the cash used in operations number, which is actually quite a low number. And then, of course, subsequent to the quarter end, we announced the amendment to our credit facility. There's another up to $7 million liquidity. So that -- those things between working the cash flow and the working capital, the available cash at the end of the quarter and of course, the subsequent liquidity injection. Those things help us get through our near-term objectives, key near-term objective, Q4, obviously, profitability. So that gives us a long runway also to point out the amendment comes in multiple ways, like our principal payments on our debt turned off for 6 months, additional line of credit. Room for us, which is our lowest cost of capital possible. So I love that. You use it. It's the lowest cost of capital when you don't use it, you don't pay. That's great. And then, of course, further extensions being made available. And then we're -- and then it's a different ball game, right? When we crest that, business model gets that validation to it, we're into next year and it's a whole new ball game. I think, of course, we're in [indiscernible] for long-term capital structure of this company needs -- does need to be improved and addressed because we want to go back to growth.
That's what Nick's saying. Next year is -- this was transformation velocity, next year is growth velocity. But with this structure in place and reaching profitability and parting with breakeven already. It really opens up a lot of new ways for us to turn our sights back towards growth. But in the meantime, we're covered for the near term through all the things that I mentioned.
This concludes our question-and-answer session. I would like to turn the conference back over to Nick Brien for any closing remarks.
My closing remarks to everyone on the call is what we said we would do when I had my first call with you. This is a year of transformation and transformation velocity. The exec team and the boarder SLT, the senior leadership team, know that gross margin leads to the profitability. And if we manage our costs as tightly as we are, we're optimizing everything we're doing by being smarter about the revenue, and there are certain elements in the media and advertising industry that we know that the gross margins really are poor. We know that we also -- so while we are focusing on really strengthening our ad business and the gross margins, not just through direct sales and brand solutions, but by making sure our ad tech stack is fantastic, and we've really optimized every element of our ad service, our DSP, our SSP partnerships. Our partnership with Google, what we're doing with Omnia and then also focusing on the great sticky revenue of subscription, and the subscriptions leading to commerce and then our event business as well. We start to diversify our revenue streams, and we start to really focus on growth. And next year is a year of growth velocity. I made it very clear to the executive team. We are not going to take those operational and internally focused organization and reorganization elements into 2024. They have to be done and finished and completed in 2023, and we are well on track to do that. In fact, we're ahead of target. So this is a business that is built on that stable, really solid unified platform. On top of that platform, we have great products. On top of the products, we have the services to make sure we excel. Brand solutions, content solutions, publisher solutions, the opportunity remains really strong. And I'm very excited that we become that business that really is tech-enabled, safety-driven and ideas-led, and we take that into the market with a very proactive point of view that these are the audience are the most engaged audiences in the history of the planet and they are not lazily scrolling for an Instagram feed. They're certainly not watching linear TV. So they are gaming, they are connecting with gaming content, they're connecting with their communities and their friends and brands have the opportunity to truly integrate in native, creative and highly impactful ways. And brands and advertisers and their agencies need to pay for that privilege. And unless we price it accordingly, they will buy it as cheaply as they can. And that's how I spent 30 years in my career on the buy side, so I know what that is. And now I am that poacher turned gamekeeper, and these are our products and our communities and our sites. And this is our precious inventory, and we need to make sure our currencies are really stable so we get maximum yield for the efforts we're putting in. And you will see that bear fruit significantly in 2024. So thank you for your time, your attention and your enthusiasm for Enthusiast Gaming.
The conference has now concluded. Thank you for attending today's presentation. You may all disconnect.