EGLX Enthusiast Gaming Holdings Inc

Enthusiast Gaming Holdings Inc. (“Enthusiast Gaming” or the “Company”) (TSX: EGLX), a leading gaming media and entertainment company, today announced financial results for the three (“Q4 2023”) and 12 months ended December 31, 2023 (“FY 2023”).

“We are moving swiftly to simplify and streamline our business in order to improve financial performance,” commented Adrian Montgomery, Board Chair and interim CEO of Enthusiast Gaming. “The actions we have taken in Q1 2024 to focus on our core communities, content and experiences, position Enthusiast Gaming to quickly enhance our profitability and position us for growth as we move forward.”

Added Montgomery, “Enthusiast Gaming embarks on this important year of transformation with many strengths: a large and highly engaged audience of gamers and esports fans, world-class marketing brands that want to reach them, and an enviable set of strategic partners such as the NFL.”

Financial Highlights for Q4 2023

• Revenue decreased by 13% to $47.1 million, with the majority of the decline related to a decrease in lower margin revenue on the video platform
• Gross profit increased by 5% to $18.9 million, with margins expanding 670 basis points to 40.2%
• Adjusted EBITDA loss improved to $3.0 million compared to a loss of $5.2 million in Q4 2022
• Net loss of $39.5 million includes non-cash impairment charges of $38 million

Full Year 2023 Business Highlights

• Direct sales (included in revenue) for the year ended December 31, 2023 was $41.7 million as compared to approximately $37.4 million for the year ended December 31, 2022
• Paid subscribers were 268,000 at December 31, 2023, a 2% increase from 262,000 at December 31, 2022
• Unique Visitors of 52 million, a 4% increase year-over-year, extending position as the #1 Gaming Property in the U.S., based on the latest digital media ratings from Comscore (December 2023)

“2024 is an important year of transformation for Enthusiast Gaming, including a $10 million cost reduction program implemented in March, to help us achieve profitability and deliver value for our shareholders,” said Felicia DellaFortuna, CFO of Enthusiast Gaming. “Some of these actions will result in lower revenue as we deprioritize low margin activities such as programmatic advertising through the network, but will also drive improved overall profitability in the form of higher gross margins and the foundation for positive Adjusted EBITDA.”

Fourth Quarter 2023 Results Comparison

Revenue was $47.1 million in Q4 2023, a 13% decrease compared to $54.0 million in Q4 2022. Media and Content revenue decreased 13% to $42.6 million and Subscription revenue decreased 13% to $3.3 million, partially offset by a 9% increase in Esports and Entertainment revenue to $1.2 million. During the quarter, the Company experienced lower views on its web and video platforms in part due to the strategic decision to de-prioritize lower margin businesses. Direct Sales (included in revenue) increased by 3% to $13.2 million in Q4 2023 compared to $12.8 million in Q4 2022.

Gross profit increased 5% to $18.9 million in Q4 2023 compared to $18.1 million in Q4 2022, with gross margins expanding to 40.2% from 33.5% in Q4 2022.

Adjusted EBITDA loss was $3.0 million in Q4 2023 compared to an Adjusted EBITDA loss of $5.2 million in Q4 2022. Adjusted EBITDA in Q4 2023 excludes $2.6 million in severance and $0.4 million nonrecurring public costs such as annual Nasdaq listing fees.

Net loss was $39.5 million, or $(0.26) per share, in Q4 2023, compared to $11.8 million, or $(0.08) per share in Q4 2022. Net loss in Q4 2023 includes $38 million of non-cash impairment charges primarily related to goodwill and intangible assets.

Full-Year 2023 Results Comparison

Revenue was $178.2 million in 2023, a 12% decrease compared to $202.8 million in 2022. Media and Content revenue decreased 14% to $154.8 million, partially offset by a 10% increase in Esports and Entertainment revenue to $8.3 million and a 3% increase in Subscriptions revenue to $15.0 million. Direct Sales (included in revenue) increased by 11% to $41.7 million in 2023 compared to $37.4 million in 2022.

Gross profit increased 6% to $67.4 million in 2023 compared to $63.5 million in 2022, with gross margins expanding to 37.8% from 31.3% in 2022.

Adjusted EBITDA loss was $13.0 million in 2023 compared to an Adjusted EBITDA loss of $15.1 million in 2022. Adjusted EBITDA for the year excludes $4.0 million in severance and $2.3 million in annual Nasdaq listing fees and D&O insurance costs.

Net loss was $117.7 million in 2023, or $(0.77) per share, compared to $76.8 million in 2022, or $(0.54) per share. Net loss in 2023 includes $86.2 million of non-cash impairment charges primarily related to goodwill and intangible assets.

Organizational Updates

As previously announced by the Company, Mr. Thomas Hearne was appointed to the Board of the Company on March 20, 2024. Mr. Hearne has subsequently been appointed Chairman of the Audit Committee of the Board. Additionally, the Company also announced that Ms. Tara Fournier is no longer with the Company. Ms. Fournier has served as the Company’s Chief People Officer since May 2023.

Investor Conference Call

Management will host a conference call and webcast on Monday, April 1, 2024, at 5 p.m. ET to review and discuss its Q4 2023 results. Conference call details:

• Dial-in: 1-855-239-1101 or 1-412-317-5231 (Conference ID: 10187154)
• Live webcast: https://viavid.webcasts.com/starthere.jsp?ei=1660990&tp_key=d2cb2eac63

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

Supplemental Information

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

About Enthusiast Gaming

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

Contacts

Enthusiast Gaming: Felicia DellaFortuna, Chief Financial OfficerInvestors: FNK IR, Matt Chesler, CFA, investor@enthusiastgaming.comMedia: press@enthusiastgaming.com

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

Forward-Looking Statements

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

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

Non-GAAP Measures

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

The Company uses non-GAAP measures including:

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

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

Enthusiast Gaming Holdings Inc.
Consolidated Statements of Loss and Comprehensive Loss
For the three months and year ended December 31, 2023 and 2022
(Expressed in Canadian Dollars)
			For the three months ended						For the year ended
			December 31, 2023			December 31, 2022			December 31, 2023			December 31, 2022
			(unaudited)			(unaudited)			(audited)			(audited)
Revenue		$	47,141,121		$	53,970,597		$	178,178,127		$	202,835,921
Cost of sales			28,204,166			35,901,209			110,756,401			139,371,400
Gross margin			18,936,955			18,069,388			67,421,726			63,464,521
Operating expenses
Professional fees			596,256			332,589			2,413,954			2,691,148
Consulting fees			2,320,745			1,196,070			6,904,431			5,789,576
Advertising and promotion			1,386,966			1,265,340			4,335,937			2,682,684
Office and general			1,659,298			2,300,740			7,950,085			9,533,291
Annual general meeting legal and advisory costs			-			-			-			3,386,596
Salaries and wages			9,610,955			9,358,074			37,564,336			36,493,089
Technology support, web development and content			8,787,448			8,549,067			24,902,819			21,858,408
Esports player, team and game expenses			565,742			733,389			2,527,541			4,352,150
Foreign exchange loss (gain)			80,043			659,105			174,399			(446,625	)
Share-based compensation			1,191,567			2,414,753			5,474,447			7,751,370
Amortization and depreciation			1,646,055			3,450,031			10,432,382			16,707,844
Total operating expenses			27,845,075			30,259,158			102,680,331			110,799,531
Other expenses (income)
Goodwill impairment			20,005,377			-			64,827,952			31,281,286
Intangible asset impairment			14,602,083			-			21,440,143			-
Investment in associates impairment			17,363			-			17,363			-
Other long-term asset impairment			3,364,584			-			3,364,584			-
Transaction costs			-			-			-			114,853
Share of net income from investment in associates and joint ventures			(383,893	)		(240,682	)		(456,062	)		(1,241,684	)
Interest and accretion			615,761			656,205			2,449,139			3,620,186
Loss on settlement of deferred payment liability			-			-			-			3,302,824
(Gain) loss on revaluation of deferred payment liability			(23,068	)		(82,225	)		592,053			(621,780	)
Loss on modification of long-term debt			419,953			-			419,953			-
Loss on derecognition of long-term debt			-			-			-			482,282
Gain on sale of intangible assets			-			-			-			(4,836,075	)
Gain on player buyouts			-			(13,384	)		-			(518,581	)
Interest income			(1,020	)		(28,274	)		(64,316	)		(36,252	)
Net loss before income taxes			(47,525,260	)		(12,481,410	)		(127,849,414	)		(78,882,069	)
Income taxes
Current tax expense			(135,170	)		(258,476	)		261,947			250,955
Deferred tax recovery			(7,734,130	)		(399,505	)		(10,437,753	)		(2,302,219	)
Net loss for the period			(39,655,960	)		(11,823,429	)		(117,673,608	)		(76,830,805	)
Other comprehensive (loss) income
Items that may be reclassified to profit or loss
Foreign currency translation adjustment			(1,107,935	)		(661,523	)		(1,427,872	)		8,102,682
Net loss and comprehensive loss for the period		$	(40,763,895	)	$	(12,484,952	)	$	(119,101,480	)	$	(68,728,123	)
Net loss per share, basic and diluted		$	(0.26	)	$	(0.08	)	$	(0.77	)	$	(0.54	)
Weighted average number of common shares outstanding, basic and diluted			154,393,280			151,264,623			153,191,778			143,535,305

Enthusiast Gaming Holdings Inc.
Consolidated Statements of Financial Position
As of December 31, 2023 and December 31, 2022
(Expressed in Canadian Dollars)
			December 31, 2023			December 31, 2022
ASSETS
Current
Cash		$	6,851,966		$	7,415,516
Trade and other receivables			31,502,732			37,868,107
Investments			-			125,000
Loans receivable			-			50,935
Income tax receivable			31,251			367,092
Prepaid expenses			1,820,144			2,017,004
Total current assets			40,206,093			47,843,654
Non-current
Property and equipment			124,640			180,621
Right-of-use assets			1,441,149			2,099,996
Investment in associates and joint ventures			2,888,730			2,450,031
Long-term portion of prepaid expenses			182,108			279,814
Intangible assets			85,421,227			116,967,438
Goodwill			105,868,081			171,615,991
Total assets		$	236,132,028		$	341,437,545
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities		$	47,101,272		$	32,823,320
Contract liabilities			6,078,950			5,380,378
Income tax payable			274,924			129,485
Current portion of long-term debt			21,888,597			17,431,625
Current portion of deferred payment liability			82,231			2,391,863
Current portion of lease liabilities			740,212			872,429
Current portion of other long-term debt			9,668			10,891
Total current liabilities			76,175,854			59,039,991
Non-current
Long-term portion of deferred payment liability			2,083,262			1,451,939
Long-term lease liabilities			938,845			1,478,438
Other long-term debt			140,613			144,844
Deferred tax liability			14,076,780			24,671,326
Total liabilities		$	93,415,354		$	86,786,538
Shareholders' Equity
Share capital			444,474,076			442,781,376
Contributed surplus			35,877,189			30,402,742
Accumulated other comprehensive income			7,201,976			8,629,848
Deficit			(344,836,567	)		(227,162,959	)
Total shareholders' equity			142,716,674			254,651,007
Total liabilities and shareholders' equity		$	236,132,028		$	341,437,545

Enthusiast Gaming Holdings Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2023 and 2022
(Expressed in Canadian Dollars)
			December 31, 2023			December 31, 2022
Cash flows from operating activities
Net loss for the year		$	(117,673,608	)	$	(76,830,805	)
Items not affecting cash:
Goodwill impairment			64,827,952			31,281,286
Intangible asset impairment			21,440,143			-
Investment in associates impairment			17,363			-
Other long-term asset impairment			3,364,584			-
Amortization and depreciation			10,432,382			16,707,844
Share-based compensation			5,474,447			7,751,370
Interest and accretion			191,722			2,334,783
Deferred tax recovery			(10,437,753	)		(2,302,219	)
Share of net income from investment in associates and joint ventures			(456,062	)		(1,241,684	)
Loss (gain) on revaluation of deferred payment liability			592,053			(621,780	)
Loss on settlement of deferred payment liability			-			3,302,824
Gain on sale of intangible assets			-			(4,876,659	)
Foreign exchange loss (gain)			245,058			(775,004	)
Gain on player buyouts			-			(518,581	)
Gain on settlement of accounts payable			-			(587,769	)
Loss on modification of long-term debt			419,953			-
Loss on derecognition of long-term debt			-			482,282
Shares for services			-			(179,374	)
Provisions			105,512			479,007
Changes in working capital:
Changes in trade and other receivables			2,865,276			(3,328,743	)
Changes in prepaid expenses			289,713			128,180
Changes in loans receivable			-			125,995
Changes in accounts payable and accrued liabilities			14,277,952			944,457
Changes in contract liabilities			698,572			1,142,087
Changes in income tax			633,073			98,932
Income tax paid			(151,793	)		(156,784	)
Net cash used in operating activities			(2,843,461	)		(26,640,355	)
Cash flows from investing activities
Cash paid for mergers and acquisitions			-			(2,937,520	)
Cash acquired from mergers and acquisitions			-			1,748,602
Proceeds from sale of intangible assets			-			5,460,959
Proceeds from player buyouts, net of transaction costs			-			518,581
Proceeeds from redemption of investments			125,000			6,865
Repayment of deferred payment liability			(844,350	)		(472,833	)
Acquisition of intangible assets			(27,488	)		-
Acquisition of property and equipment			(20,430	)		(11,278	)
Net cash (used in) provided by investing activities			(767,268	)		4,313,376
Cash flows from financing activities
Proceeds from long-term debt, net of transaction costs			8,222,904			9,758,128
Repayment of long-term debt			(4,129,561	)		(2,588,238	)
Proceeds from exercise of options			-			289,034
Repayment of other long-term debt			(12,569	)		(12,871	)
Lease payments			(986,802	)		(948,040	)
Net cash provided by financing activities			3,093,972			6,498,013
Foreign exchange effect on cash			(46,793	)		590,220
Net change in cash			(563,550	)		(15,238,746	)
Cash, beginning of year			7,415,516			22,654,262
Cash, end of year		$	6,851,966		$	7,415,516

Enthusiast Gaming Holdings Inc.
EBITDA and adjusted EBITDA
(Unaudited - Expressed in Canadian Dollars)
	Three months ended December 31,								Year ended December 31,
		2023				2022				2023				2022
Gross margin	$	18,936,955			$	18,069,388			$	67,421,726			$	63,464,521
Operating expenses		(27,845,075	)			(30,259,158	)			(102,680,331	)			(110,799,531	)
Share-based compensation		1,191,567				2,414,753				5,474,447				7,751,370
Amortization and depreciation		1,646,055				3,450,031				10,432,382				16,707,844
Annual general meeting legal and advisory costs		-				-				-				3,386,596
EBITDA		(6,070,498	)			(6,324,986	)			(19,351,776	)			(19,489,200	)
Severance		2,617,134				257,989				4,049,127				664,419
Annual Nasdaq listing fees and D&D insurance		429,797				876,490				2,270,949				3,747,171
Adjusted EBITDA	$	(3,023,567	)		$	(5,190,507	)		$	(13,031,700	)		$	(15,077,610	)