Good day. And welcome to the Enthusiast Gaming Holdings Inc. First Quarter 2024 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference to J.B. Elliott, Chief Strategy Officer and General Counsel. Please go ahead, sir. J.B. Elliott: Thank you, operator. Good afternoon, everyone, and welcome to the Enthusiast Gaming first quarter 2024 results conference call. I'm J.B. Elliott, Chief Strategy Officer and General Counsel. With me today is Interim Chief Executive Officer, Adrian Montgomery, and Chief Financial Officer, Felicia DellaFortuna. 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 events to differ materially from current expectations. These statements should not be read as assurances of future performance or results. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from those implied by such statements. A more complete discussion of the risks and uncertainties facing the company appears in the company's management discussion and analysis for the three month period ending March 31, 2024, which will be available on the company's profile on SEDAR+ as well as on the company's website at enthusiastgaming.com. You are cautioned not to place undue reliance on these forward-looking statements, which only speak as of 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. Now I'd like to turn the call over to Adrian Montgomery. Adrian, the call is yours.

Thank you, J.B. It's been an eventful four months since I returned to the CEO role. During this time, I've been energized by the ongoing enthusiasm within our communities, the robust demand for our product and innovations, the traction gained through our direct sales initiatives with top tier brands, and the dynamic collaborations with our enviable strategic partners, including the National Football League. In these areas, we've been diligently advancing our efforts while also sharpening our focus on driving profitable revenue, expanding gross margins, and optimizing our cost structure. I'm proud to share that our team's hard work has already translated into consistent victories across all of these fronts, which I will be outlining for you today. But before diving into details, I'm thrilled to kick off with a significant announcement, one that underscores Enthusiast Gaming's position as the premier platform for engaging gamers. I am pleased to announce that we have just signed our latest strategic partnership, a collaboration with the National Hockey League to launch an entertainment series bringing together celebrity athletes and sports fans with gaming influencers and gaming enthusiasts. It is a multi-year partnership which will launch with the 2024-2025 season. We look forward to announcing the details of the series and the launch date jointly with the NHL in the near future. This announcement follows a number of catalysts achieved over the last four months, which are rapidly advancing and stabilizing the business, having already led to our best reported quarterly adjusted EBITDA in company history, and that was in Q1, which is our slowest quarter of the year. On the business front, we previously stated that we wanted to focus on profitable revenue streams, particularly around owned and operated properties, and drive significant gross margin expansion, all while being as disciplined and efficient as possible on our costs. We are accomplishing this. In March, we announced a CAD 10 million cost reduction program which has already shown benefits in our Q1 numbers, with such benefits to increase as they normalize in Q2 and thereafter. Also in March, we announced an ad tech partnership with Playwire in order to partner with a global leader to monetize our properties, enabling us to increase our yield and drive growth to our bottom line. This partnership is already live, and we are quickly seeing a significant increase in yield while also realizing substantial cost savings. In April, we announced the sale of a small subset of a certain non-core, non-profitable casual gaming assets for a purchase price of over CAD 4 million, further trimming our adjusted EBITDA loss and adding liquidity to our balance sheet. And of course, today, we announced our next strategic partnership, a collaboration with the National Hockey League. This will further strengthen our direct sales offering and open up new channels to bring additional Fortune 500 brands to Enthusiast Gaming. These moves have brought a new spark to the business, and the results are already showing, including in our strong Q1 adjusted EBITDA results. However, we've also been busy on the product front, which is our lifeblood over the last four months. In U.GG, advancements continued, most recently demonstrated by the platform's expansion into another game title, being the popular Riot Games' title Teamfight Tactics. This brings the total number of game titles in U.GG to four, also including League of Legends, World of Warcraft, and Valorant. These advancements have helped continue the growth of U.GG as one of our flagship products, with the desktop application having now surpassed 2.5 million downloads. These enhancements to U.GG will continue, with more planned expansions to additional game titles, including Helldivers 2 and 2XKO, both coming soon. The Sims Resource continues to dominate as the largest and most engaged Sims fan community. Time spent per user on TSR continues to be nearly triple that of the largest competitor, and our thesis remains that when we bring users to TSR, they will stay for the long run. To that end, TSR has now deployed its very own first-party data analytics platform. This will enable us to be more targeted and expansive with our acquisition approach. The high engagement already enjoyed by the site is translating into a healthier and more profitable paid subscriber base. As of today, the majority of our subscription activations are into premium plans, which we define as 3, 6, or 12-month packages. This is a new achievement for TSR. Premium subscribers have a much higher LTV and generate much more upfront value, which will enable us to put more resources towards customer acquisition, thereby allowing TSR to grow its status as the number one fan community for all things Sims for years to come. Icy Veins has been expanded to cover the game title Last Epoch, offering guides, news, and trusted character builds for fans of the game. Icy Veins has a promising year ahead, with this expansion now live. But more notably, with the much anticipated World of Warcraft expansion The War Within scheduled for release in the fall of 2024, and the much anticipated Diablo IV expansion Vessel of Hatred scheduled for release in late 2024. This will be a double header for Icy Veins, as these expansions into major game titles supported by Icy Veins typically bring vast increases of traffic to the site, and this year we are getting two of them. Luminosity Gaming has been hard at it in the first few months of this year, packing venues across North America and running its own events for tens of thousands of live viewers online, along with tens of millions of views on its recently launched Smash channel. Luminosity Gaming recently started working directly with Amazon to create Boost Blitz, a fun twist on the traditional Rocket League tournament. We are honored and humbled that one of the largest companies in the world, Amazon, continues to choose us as a trusted partner to reach gaming and eSports audiences, and we expect that relationship only to grow in the coming months and years. Luminosity Gaming also held the Kroger Smash Invitational in April, and this weekend is hosting the Get On My Level, Smash and fighting game live event in Toronto. The Kroger Smash Invitational had an average watch time of 84 minutes and peaked at over 16,800 concurrent live viewers, and the Get On My Level live event is expected to be attended by over 2,000 attendees this weekend. Pocket Gamer is celebrating its 10th anniversary year and is lined up to have a busy year full of record events, both existing and new. The year started strong for Pocket Gamer with our flagship event, Pocket Gamer Connects London, being held in January. PGC London was the largest Pocket Gamer event ever, with over 150 sponsoring partners and over 2,600 delegates representing 1,300 companies. Further in March, we held the first-ever Pocket Gamer Connect San Francisco, with over 1,000 delegates in attendance. And just recently, two weeks ago, we held the second annual Dubai Game Expo Summit, which also set records, including approximately 1,400 delegates in attendance. The 10th anniversary year is just getting started for Pocket Gamer, with large events still to come, including the Mobile Game Awards in Germany in August, PGC Helsinki in the Top 50 Game Developers Series in October, and PGC Jordan in November. We see continued demand for our B2B mobile gaming events and are evaluating other opportunities across Europe, the Middle East, and Asia for additional events both this year and next. Fantasy Football Scout remains one of the top choices for fantasy sports and Premier League fans and has had a strong start to the year, including a current 20% increase in partnership and sponsorship revenue year-over-year. Through FFS, we are working directly with the Premier League, UEFA, Sky Sports, and Draft Kings, among other notable partners. I'm pleased to announce that FFS is currently working with UEFA on a Euro 2024 fantasy game to be hosted in June and July, alongside the launching of a dedicated podcast. FFS has launched new tools and features for members this year, and as of recently, its content even appears in the EU Standard, the UK's third largest publication. And of course, in Q1 this year, we finished Season 2 of NFL Tuesday Night Gaming. Season 2 saw a tremendous increase in engagement over Season 1, with 5 million weekly average impressions and over 111 million impressions for the entire season, resulting in a 53% increase in engagement year-over-year. Notable sponsors of season two of NFL TNG included Lego, Campbell's and Carnival. NFL TNG is a tremendous asset for a direct sales team and the recent leaps in engagement make us excited for its future. Based on these results, I am pleased to announce that along with our partner, the NFL, we will be bringing NFL TNG back for season three, starting this fall with a renewed creative concept focusing on our most successful segments and evolving consumer demand trends, details of which will jointly follow with the NFL closer to the launch of season three. Underlying these and all of our other owned and operated assets lies a coveted community of gaming audiences, and I identify these as our most valuable assets. And the underlying strategy remains the same, leverage our large and highly engaged audience to derive a higher percentage of direct sales and subscription revenue with less reliance on network revenue. This will and is leading to significantly expanded gross margins, which when paired with disciplined spending will allow us to generate stable and increasing returns. And we are quickly realizing these benefits. The adjusted EBITDA loss reported in Q1 was a record low CAD 1.8 million, a 42% improvement year-over-year. There are two reasons why this is extremely notable. One, the CAD 10 million cost reduction program was finalized in March, and the resulting savings are not yet fully normalized and flown through the Q1 numbers. And two, Q1 is the seasonally lowest quarter of the year, and the results are expected to continue to improve substantially and sequentially as we move throughout the rest of the calendar. There has been a lot of work done in a very short period of time to set the company up for success this year, bringing new focus, stability, and excitement to the business. Some of this work involved making decisions around shedding large segments of low margin network revenue, resulting in a significant decrease in top line revenue, which was CAD 23.3 million in Q1 as compared to CAD 42.9 million last year. However, this enabled us to shed significant costs with little impact to gross profit, which was CAD 14.1 million as compared to CAD 16.8 million last year, resulting in our record low Q1 adjusted EBITDA loss of CAD 1.8 million compared to CAD 3.1 million last year. Those of you who know me will know that decrease is not a word I like to use. Growth is in this company's DNA, and we are quickly getting back to growth. These last few months, we've had to make changes to rapidly position ourselves to support and sustain profitable growth in this new environment. These changes have created a streamlined business model designed for sustainable and scalable profitability and focused on what we are and what we own and control. We are a media and entertainment company for gamers. We own and control our highly engaged communities, which are best-in-class in their respective verticals. We are focused on increasing the size and engagement of our vast audience, and we are now streamlined and efficient with gross margins of over 60%. This means that we can reach breakeven and profitability at a much lower gross profit threshold, significantly enhancing our ability to scale profits rapidly and sustainably. Therefore, we are investing in high margin revenue producing areas of the business to drive profit. We are investing in direct sellers to continue to unlock the value of our vast digital inventory and to capitalize on our unique offerings, including our partnerships with both the NFL and the NHL. We are investing in our product offerings, including more game titles on U.GG and Icy Veins, and more events in Pocket Gamer and Luminosity, and we are investing in existing and new subscription offerings, such as The Sims Resource and Fantasy Football Scout, which boasts the highest quality offerings as measured by engagement, but still have plenty of market share to conquer. We find ourselves here today following a wave of positive catalysts in the first few months of the year, with record adjusted EBITDA loss results posted in Q1 and seasonal tailwinds at our back. Because of this, I remain of the strong opinion that our outlook has never been stronger, and I have full confidence that 2024 will be a prosperous year for Enthusiast Gaming. We've set the stage to make that happen, and we'll keep working hard to maintain this momentum. Thank you. And I will now turn the call over to Felicia to provide further commentary and details on the financial results. Felicia?

Thank you, Adrian. At the start of the year, we had identified that we needed to accelerate changes being made to Enthusiast Gaming's business model, and in Q1, we executed on that. By strategically deprioritizing lower-margin video platform revenue, we mitigated the expected year-on-year decline in revenue. This, alongside a focus on improving gross margins and reducing costs, resulted in an adjusted EBITDA loss of CAD 1.8 million for Q1 2024, a CAD 1.3 million improvement on the year-ago period, and a company record. In our first full quarter, we completed the following. We enacted cost savings measures at the beginning of March that generated CAD 10 million in annual run rate savings, with one month's benefit being shown in Q1 2024. We successfully increased our page view traffic in Q1 2024 compared to Q4 2023 by over 20% as a result of our continued focus on highly engaged communities on our owned and operated properties. And we increased gross margin to over 60%, yielding a better revenue mix and cost structure focused on sustainable adjusted EBITDA profitability. In our last earnings call, we also announced that we are focused on a couple of major areas that reduce costs while focusing on growth. We announced outsourcing our ad tech to Playwire to leverage their expertise in gaming and complete technology platform to power our network of gaming websites, channels, and apps. We are now live on Playwire's ad tech stack with our flagship owned and operated sites and apps such as U.GG, Icy, The Sims Resource, and Pocket Gamer. Secondly, we in-sourced our production capabilities and have converted our Los Angeles office into a production studio in order to be able to better serve our strategic partners. Further, while we reduced our workforce by 25% relative to December 2023, we have expanded our direct sales team, enhanced technologies to increase our highly engaged communities, and signed our second sports league, the NHL. We are driving towards significant improvement in adjusted EBITDA, a KPI included in our filings, by delivering our lowest reported adjusted EBITDA loss ever in Q1 2024 of CAD 1.8 million. he changes we've made have set us up with an achievable path to adjusted EBITDA profitability in the near term. We also have made notable improvements in strengthening our balance sheet. We completed the asset sale of certain non-core non-profitable casual gaming assets of approximately CAD 4 million. We continue to work closely with our lender to establish a mutually agreed foundation going forward and have finalized an agreement with our lender to provide additional deferrals of principal repayments under our term loans. We have made considerable progress in reducing net payment terms across our material receivables, and we continue to actively seek out additional sources of balance sheet strength throughout our organization. All of these sources of funds and changes to our working capital needs, combined with the much lower adjusted EBITDA loss, have given us the runway we needed to advance and stabilize the business. With the remaining adjusted EBITDA losses quickly trimming as we sit here halfway through Q2, we are on a strong path in the right direction. And we continue to feel confident in this direction because our audiences, our community are as engaged as ever. Excluding video platform, minutes per user increased by 60% in Q1 year-over-year as we continued focus on our highly engaged communities. We increased overall web page views Q1 2024 compared to Q4 2023 by 20% due to the successful expansion of certain owned and operated properties in the web platform. In respect of our more detailed financial results, I would first note that our results are presented in Canadian dollars. The significant majority of our revenues and expenses are measured in US dollars and are translated into Canadian dollars for presentation in our financial statements. The exchange rate between the US dollar and our presentation currency of the Canadian dollar should be monitored and considered when analyzing or forecasting results. Additionally, it's important to note that the historical financial results don't fully reflect the cost reduction and changes in emphasis we have discussed, so historical financials will likely not bear a strong resemblance to future results. Turning to the financial results for the first quarter. We ended the quarter with CAD 1.7 million in cash as of March 31st, 2024. And as of that date, we had a net working capital deficiency of CAD 36 million, which is unchanged to the deficiency noted at December 31st, 2023. The majority of this deficiency comes from CAD 22 million in current debt relating to our credit facilities and CAD 4 million in contract liabilities or deferred revenue to be recognized in future periods, with the remainder being ordinary course working capital items. Addressing our balance sheet continues to be a primary focus for our management team. Now to our P&L. In Q1, revenue was CAD 23.3 million, a 46% decrease compared to CAD 42.9 million in Q1 2023. Media and content revenue decreased from CAD 35.5 million to CAD 15.9 million, a 55% reduction. The primary factor was the strategic shift to deprioritize lower margin revenue on our video platform, resulting in a CAD 14.5 million decrease in revenue. Direct sales revenue decreased by approximately CAD 3 million period-over-period from CAD 10 million to CAD 6.6 million as a result of the timing of ad spend associated with certain sales verticals, such as consumer products and technology and telecommunications relative to the year ago period. Net revenue retention for direct sales deals over CAD 50,000 remained consistent at 60%. Net revenue retention is calculated by dividing the direct sales revenue for the trailing 12-month period from advertisers who were active in the previous 12-month period by the total direct sales revenue for the trailing 12-month period. Said another way, there is a healthy base of large recurring customers who continue to generate a significant portion of our direct sales revenue. This gives us a foundation of repeat business from which to grow. While revenue retention remained consistent, average spend per advertiser decreased year-over-year for consumer products and technology and telecommunications, yielding the decrease in year-over-year revenue. As part of its focus on growth, the company has made an investment in increasing its seller count in Q2 2024 relative to Q1 2024. Esports and entertainment revenue remained relatively consistent year-over-year and, finally, subscription revenue also remained consistent year-over-year. Gross profit was CAD 14.1 million in Q1, down 16% compared to the CAD 16.8 million of gross profit reported in Q1 2023. Gross margin increased from 39.1% to 60.3%. This gross margin increase reflects the greater contribution of owned and operated properties, direct sales and subscription revenue to our overall revenue profile, as well as the deprioritization of certain represented video channels. Total operating expenses in Q1 2024 were CAD 15.5 million, down almost 40% from the year ago quarter. Operating expenses in Q1 include non-cash items with a depreciation and amortization of CAD 700,000 and share-based compensation credit of CAD 2 million, mainly due to the forfeiture of stock options from the previous CEO. Adjusted EBITDA loss was CAD 1.8 million in Q1 2024 compared to an adjusted EBITDA loss of CAD 3.1 million in Q1 of last year. This quarter's adjusted EBITDA excludes approximately CAD 600,000 in severance and CAD 400,000 in public company costs relating to incremental listing fees and D&O insurance costs, which are non-recurring following our delisting from Nasdaq and our SEC deregistration. Adjusted EBITDA loss in Q1 2024 includes approximately one month of the CAD 10 million of cost savings initiatives enacted. Net loss and comprehensive loss was CAD 1.3 million in Q1 2024 as compared to CAD 8.7 million in Q1 of last year. Our net loss has significantly improved year-over-year, largely in part due to the cost saving initiatives implemented. We continue to be focused on our highly engaged communities, improving our financials, so that we can be sustainably profitable and ensuring we continue to conserve cash and strengthen our balance sheet. Thank you. Operator, I kindly turn it back to you.

[Operator Instructions]. Your first question comes from Kevin Krishnaratne from Scotiabank.

Just a question on the direct sales, CAD 6.6 million. You called out a couple of items there. I think there's two different ones you called out. One is that CPG, the second is macro-impacting tech. I'm wondering on the CPG, is that just timing on their part? Were there campaigns that they typically run in Q1 that are coming into Q2? I'm just wondering, do you think you'll expect to catch up on those campaigns? Any thoughts there? On the tech, you just called it out. Can you remind us how big that vertical is for you? What are some of your other larger verticals?

CPG is in fact just timing as it relates to the Q1 2024 relative to Q1 2023. We do anticipate from our outlooks at Q2 and towards the end of the year for that to simply be timing on the results. Tech telco is one of our major verticals but not the only major vertical. We do also have pretty large verticals in entertainment, as we've mentioned, with Amazon and other sponsorships across the Enthusiast Gaming portfolio. Travel is also a large vertical for us. Of course, gaming is another material vertical as well.

What you're saying is macro softness is only having an impact on the tech telco and not those other larger ones to bigger effect?

That's correct.

Second question, it looks like your strategy moving more to own content is working well. If I look at your total media and then less the direct sales, about CAD 9.5 million there, can you talk about the mix of that right now between owned and third party content and then how you see that evolving into Q2?

In Q4 2023, the vast majority of our revenue was on the video platform in the media and content revenue line. In Q1 2024, it's equal parts across our direct sales owned and operated properties and video platform. As we continue to deprioritize video, as we have in Q1, we would expect direct sales and our owned and operated properties to be the majority of the media and content line.

Just one last one for me on OpEx. Thinking about OpEx for Q2, can we look at the OpEx that you did in Q1? I think you'll get about a CAD 1.5 million benefit from the extra two months of savings there on the CAD 10 million dollars annual saving. But then you've got maybe some increases in OpEx coming on headcount increases for direct sales. I'm just wondering if you can sort of talk about how to think about run rate OpEx for Q2. And then, I guess related to that, are you thinking about being able to generate sequential EBITDA improvements quarter-over-quarter over 2024?

As it relates to the operating expense, in Q1 2024, we had one month's worth of the cost savings. So simply taking the CAD 10 million, it's averaging at around CAD 800,000 per month. So we will have the benefit in Q2 2024 of an incremental CAD 1.5 million of savings. We are working on direct sales. So the investment in direct sales associated with the incremental sellers is five and that should…

But that's happening in quarter. So the cost impact in Q2 is going to be muted as a result. So I would just point that out.

Okay. Sorry, did you say five? I don't know if I caught that properly.

Five, yes.

You think you'll be moving even higher EBITDA? I don't think you give guidance, but just thoughts on your ability to continuously move up on the EBITDA, compress the EBITDA losses here.

Yes. So, look, the new platform and the new cost structure that we affected in Q1 is going to pay dividends on a go-forward basis. And so, when we think about a record narrow EBITDA loss of sub-2 million in Q1, when we think about seasonal lift in CPMs and new partnerships with mega brands like the National Hockey League and a more mature relationship even still in its infancy with Playwire, you can expect to see that accelerated path to profitability and it's up to us to execute, but the stage has been set. And again, it's fun to scale a 60% margin business, and there's real operating leverage that you can generate from it. And now it's up to us to take the benefit of the medicine that we took in Q1 and use it to our benefit in Q2, Q3, and Q4.

Your next question comes from Griffin Boss from B. Riley Securities.

I'm not sure if this is exactly what you were just talking about or not. I missed what you were talking about regarding the five number, but are you expecting a similar level of upfront investment required for the new NHL series relative to what we saw for Tuesday Night Gaming? Or is that going to come down now that you've built out that business over a couple seasons with the NFL?

Yes. Yes to what you just said. First of all, we're thrilled with the NHL announcement for three reasons. One, within our stakeholder community, it became the question of all questions, when are when are you going to get another sports league? So it's good to have that behind us. We're thrilled because of the strength of the brand, but to your point, we also see a tremendous economic opportunity in leveraging the production capabilities that we have, now that we've pulled NFL in-house and being able to scale on top of that platform with the NHL. So we expect a much improved right-out-of-the-gate economic model as a result of being able to scale beyond just one sports league.

Are you seeing an overlap maybe between the sponsors you've been able to attract for the NFL's Tuesday Night Gaming and those you think you'll be able to attract with the NHL? I guess said differently, are you seeing interest from those existing sponsors that you're already working with for this new series or is it just too early to tell?

No, we're seeing strong interest initially across the board. Certainly, there's a lot of focus on hockey right now because it's the playoffs. I think our sales leadership in Canada thinks that we've partnered with just about the most important brand in this country. But hockey has continued to ramp in popularity in the US. All the games are on ESPN and we're seeing a lot of interest from significant companies south of the border. There is some overlap. There is some new. But we're really excited about it and in no way, shape or form do we feel that the NHL and the NFL will in any way cannibalize each other. It's actually quite the opposite.

One more maybe for Felicia. How much of the entire expected reduction in video programmatic revenues were realized in the media and content line for the quarter? I guess, just looking forward, how much should we expect still need to come out in maybe 2Q and beyond?

The total reduction in Q1 was approximately CAD 15 million. And so, I would anticipate around that, if not slightly higher in looking out to Q2 and beyond.

Your next question comes from Gianluca Tucci from Haywood Securities.

Firstly, just on the media and the content business, is there more low margin cutting to be done there, or is there a good level to model growth from going forward?

I would say that the majority has been completed in Q1, but there's always areas of further optimization as it relates to gross margin. As we continue to grow our owned and operated sites relative to our representative sites, that should yield some margin improvement as well as we move through the year.

On the subscription side of things, nice sequential growth there. Can you unpack the moving parts here and how you're able to better extract more of your users' wallets?

I think we're, again, moving into longer term subscription offerings, has been a priority of the business. We've seen a lot of success with that. As recently as today, we have really started to capitalize on first party data, which allows us to use event-driven tracking to categorize and cohort our users, replaces the use of cookies, and we can trace new users back to their acquisition source. This has engagement in advertising applications. So that's a more detailed answer of that. As we move people into longer-term packages, their checkout value is higher, which means we can afford, from an accretive perspective, to spend more on customer acquisition, then you layer on the first-party data that we worked hard to obtain and deploy. And now you've got an efficient strategy to increase subscribers in a very effective way. The Sims has recently launched an expansion pack. There's news that the great Margot Robbie is going to be producing and perhaps starring in a Sims movie. We all saw the attention that generated from Barbie. And so, there's a lot of attention around this property. We're far and away the market leader. And so, now that we're using data and effective tactics and moving people into longer term packages, we're increasing our ability to deploy consumer acquisition methods. And so, the sum total of all of that is good for us.

I would also add that focusing on 3, 6 premium subscribers has also been one of the initiatives to improve upon our net working capital. With the subscribers paying upfront for their subscription packages, that's also been a positive change for us as we work on strengthening our balance sheet. So it hits all of the points that Adrian mentioned, but also improves upon our liquidity.

And I guess just lastly, could you update us on your head count as of today, guys?

We're approximately around 130.

Congrats on the hockey partnership with the NHL.

Your next question comes from Robert Young from Canaccord Genuity.

Congrats on the NHL. If I think back, I think there were discussions with two major sports leagues. I'm not sure if that was before the NFL and the NHL or if there was a third one out there. I was curious about the pipeline, given you've had such success with two major sports leagues already. I'm sure you have an exciting pipeline to share.

Felicia's mom is Italian and my mom's Italian and that question reminds me of when I got 9 out of 10 on a math test. We can't even savor the NHL. No, I'm just teasing you, Rob. We do have a pipeline. And again, what I would stress here is a couple things. One, because of the success of the NFL – I would include the renewal of the NFL into the third year as almost two announcements in this along with the NHL. Again, we're having a lot of success working with the NFL to the point that we're renewed for season three. We've got a relationship with the NHL. We're doing a lot of work through FFS with the Premier League. And so, that presents an opportunity for us potentially. But again, these sports leagues are – the initial contact, in many cases, has been in bounds because they've seen the success that we've had with the NFL and they want to replicate and they want to get more proactive about engaging a younger audience. So, we do have a pipeline, but our immediate focus is launching NHL and launching it successfully.

My second question, I'm not sure I understood the timing comments related to CPG on direct sale. The quarter-over-quarter decline was pretty stark. And so, I was hoping to give maybe a little more color on what that means. And then I also was curious, given that's a very high margin piece of the business, if that rebounds, what type of gross margin contribution is possible in the short run. Despite the fact you're at 60%, which is great, but what potential upswing is possible in the margins if the direct sales goes back to CAD 13 million or above where it was in Q4.

To elaborate on CPG specifically, as I'm looking at our book dollars for the rest of the year, as well as our pipeline activity, there's certain clients that were heavy spenders in Q1 2023 that have returned. They just haven't returned in Q1 2024. And so, that's what I'm saying as it relates to timing. Obviously, being in the advertising space, they want to make sure that their advertising campaigns are associated with certain launches or certain initiatives. And so, with CPG specifically, that is what the change in timing is. With tech telco, it was more macro. But, yes, CPG has just been related to timing. For example, there's some large events coming up like the Olympics and things like that, where consumer products may want to put their advertising dollars in lockstep with those. On the gross margin profile, yes, it's a significant gross margin contributor, but it isn't necessarily the number one gross margin contributor. Subscription is the highest gross margin revenue line that we have. As we focus on our owned and operated properties across our programmatic offering, that is also a very significant gross margin profile to our business and direct sales is also there. So we have opportunities across direct sales to mitigate some of those changes.

I think, Rob, specific to where you were going with that, I would look more to the EBITDA line. When you think about direct sales ramping back up, that impact is really going to fall to the bottom line. And that's where it gets a little bit exciting.

I guess that kind of suggests that direct sales is kind of at the corporate margins roughly.

Maybe last question. The subscription opportunity going forward, I know that's an area you've touched on in the past. It feels as though it's maybe a little untapped. And maybe if you could just talk about that, given it is the highest margin piece of the business and where that can go, and then I'll pass on.

I think that with our ability to start to deploy first party data, our ability to – as we've increased the lifetime value of our subscribers through moving them into longer and longer-term subscription offerings, we have an ability to deploy more intelligent user acquisition strategies, cost-effective user acquisition strategies, and so we're pretty bullish on now being able to get more smart about going out and acquiring subscribers, and we feel like we have the platform to do it. And I would also talk about Fantasy Football Scout and the work that they're doing with UEFA, Euro 2024 is this year. There's an opportunity to cross pollinate those learnings and the success that we're having on The Sims. So you're quite right. It's a big focus of us. It's a big focus of our business, given the margin profile. And given the fact that we are far and away the market leader on TSR, we're one of the market leaders in fantasy for the Premier League, and so continuing to increase our market share is very, very distinct given the level of engagement that's on TSR, given that it's triple what our nearest competitor is. So we're going to continue to focus on that, and we see a lot of upside there.

The next question comes from Drew McReynolds from RBC Capital Markets.

Obviously, Adrian, like a lot of good kind of things happening through the business as you kind of revamp things here. I think we're all obviously interested in the adjusted EBITDA trajectory just in the near term until that kind of builds. Felicia, you talked about lender support and the waiver and amendments with the deferral principal repayments. Can you just give us kind of a sense of the bridge here in terms of liquidity or covenants that you just have to get over to get to the other side here as that profitability flow through builds into 2024 and 2025?

We're definitely focused on the balance sheet in multiple fronts. So the first and foremost is the sale of the non-core assets, which isn't reflected in our March 31st cash balance. But that transaction closed in April 15th for that amount. So that was the big win in us shoring up the balance sheet. We also had noted, right, that we've been working with material receivable providers in improving upon those terms. So bringing cash upfront and improving upon our overall DSO. The subscription initiatives that we noted is one positive path to liquidity. The second is our relationship with Playwire. And so, rather than working with the individual SSPs that may tend to play slower, we are now concentrated but committed through one partner, which will give us preferable receipt terms. And so, that's just bringing our receipts forward. Also, significantly improving upon our operating expense structure, specifically as it relates to headcount, that has very much decreased the amount of cash outlays that we expect in Q2. And so, we feel now with showing two more months' worth of savings in Q2 that the cost structure is more attainable. And it has reduced the break-even point that we need on gross profit significantly to start to create positive cash flow into the business.

You have a follow-up question from Kevin Krishnaratne from Scotiabank.

It's just a follow-up to Drew's there. It's probably in the financials, but can you remind us how much revenue is associated with the non-core assets that you're selling, that you sold?

It was less than 2% of our total revenue.

Thank you. There are no further questions at this time. I'll now turn the conference back over to Mr. Montgomery for closing remarks.

Thank you, operator, and thanks to those who've tuned into the call. I think you can tell from our remarks that we're pretty excited about the path that we're on. The focus is on sustainable and scalable profitability, and we're in the zone to start executing on that. But as I end these calls, there's been a lot of work on multiple fronts, a lot of difficult decisions that have been made and undertaken. And I just want to thank the hardworking people at Enthusiast Gaming who come in every day, who share their passion and their commitment and their optimism about the future for this business. And it really is the energy that we all feed off of. So Enthusiasts, thank you for everything that you do and continue to do. You're our greatest strength. And we're going to keep building on the momentum that we've established in this quarter. And we're excited to visit with you again in a few short months. So thank you very much. And have a good evening.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.