Earnings Transcript for OAMCF - Q3 Fiscal Year 2024

[Transcript and Audio provided by the Company to Seeking Alpha]:

Operator: Good day, everyone, and welcome to OverActive Media’s Third Quarter Conference Call. At this time, participants are in a listen-only mode. This conference call is being recorded and a replay of today’s call will be available on the Investor Relations section of OverActive Media’s website. It will remain posted there for the next 30 days. I will now hand the call over to Mr. Babak Pedram, Investor Relations for OverActive Media, for introductions and reading the Safe Harbour statement. Please go ahead, sir.

Babak Pedram: Thank you, Jenny, and good morning, everyone. Welcome to OverActive Media’s third quarter 2024 earnings conference call. A copy of the Company’s earnings press release is available on the IR section of our website at www.overactivemedia.com. With us on today’s call are Adam Adamou, CEO, and Rikesh Shah, CFO of the Company. Today we’ll review the highlights and financial results for the third quarter 2024 and recent developments. Unless otherwise specified, all amounts mentioned on today’s call are in Canadian dollars. Before we begin, I will read our cautionary note regarding forward-looking information. Certain information to be discussed during this call contains forward-looking statements within the meaning of applicable security laws, including, among others, statements concerning the Company’s 2024 objectives, the Company’s strategy to achieve those objectives, as well as statements with respect to management’s beliefs, plans, estimates, and intentions, and similar statements concerning anticipated future events, results, circumstances, performance, or expectations that are not historical fact. Such forward-looking statements reflect management’s current beliefs and are based on information currently available to management and are subject to several significant risks and uncertainties that could cause actual results to differ materially from those anticipated. Also, our commentary today will include adjusted financial measures, which are non-GAAP measures. These should be considered as a supplement, not as a substitute, for GAAP financial measures. Reconciliations between the two can be found in our MD&A, which is available on sedarplus.ca and our website. At this time, it is my pleasure to introduce Adam Adamou, Chief Executive Officer of OverActive Media. Adam, please go ahead.

Adam: Thank you, Babak. Good morning, everyone, and thank you for joining today’s call. Q3 marked a pivotal quarter for OverActive Media, as we continued to see the results of our disciplined execution and strategic focus. We achieved significant increases in normalized revenue compared to Q3 2023 while maintaining careful control over expenses. This translated into a notable improvement in our year-to-date adjusted EBITDA, reinforcing the strength of our business model and our commitment to operational excellence. We’ve introduced new financial metrics this quarter, adjusted gross profit and adjusted gross profit margin. These focus on the profitability of our core revenue activities by excluding indirect operating costs, giving investors a clearer view of our ability to deliver value while maintaining sustainable margins. In 2024 we achieved adjusted gross margins exceeding 70%, showcasing the operational leverage we’re building to drive strong incremental profitability as we grow. This quarter wasn’t just about numbers; it was about momentum. Across key markets like the US, Europe, Latin America, and China, our esports franchises are driving fan engagement, revenue, and long-term value. Whether it’s through innovative partnerships, digital MTX sales, or redefining the industry landscape with our restructured league agreements, OverActive Media is leading the evolution of esports. Allow me to highlight some key accomplishments. First, our strategic acquisitions of Riders and the purchase of the KOI assets have significantly enhanced our presence in Europe and Latin America. The iconic KOI brand resonates deeply with fans and their emotional connection is fueling growth across every key metric. Second, we’re leading the way in digital sales. Toronto Ultra has emerged as a top performer in Call of Duty League digital MTX sales. This is a testament to our ability to monetize fan engagement and aligns perfectly with the future of revenue in esports. We believe that there are strong opportunities for us to grow our digital MTX revenues across our esports, particularly in the US, Latin America, and China. Next, our recent restructuring agreements with our publisher and league partners are truly transformative. Together, these agreements have eliminated over $37 million in liabilities and giving us full ownership of our franchise rights with no future obligations. This not only reduces risk, but positions us to fully capture the upside potential of esports. Finally, our partnerships with leading global brands like Pepsi and AMD highlight the strength of our position in the market. These collaborations reflect the trust these partners have in us and reinforce our influence in the industry. These are not isolated wins. They represent the execution of a clear and deliberate strategy to build a sustainable, profitable business that sets the standard for the industry. Esports is evolving rapidly and we’re shaping its future. As we look ahead, our focus is on leveraging our strengths, scalable revenue models, operational agility, and a commitment to innovation. OverActive Media is built to not just compete but to thrive in this dynamic landscape. I’m proud of what we’ve accomplished so far and I’m confident about what lies ahead. Thank you for your continued support as we drive OverActive Media to new heights. I’ll now hand it over to Rikesh Shah, our CFO, to take you through the financials in detail.

Adamou: Thank you, Babak. Good morning, everyone, and thank you for joining today’s call. Q3 marked a pivotal quarter for OverActive Media, as we continued to see the results of our disciplined execution and strategic focus. We achieved significant increases in normalized revenue compared to Q3 2023 while maintaining careful control over expenses. This translated into a notable improvement in our year-to-date adjusted EBITDA, reinforcing the strength of our business model and our commitment to operational excellence. We’ve introduced new financial metrics this quarter, adjusted gross profit and adjusted gross profit margin. These focus on the profitability of our core revenue activities by excluding indirect operating costs, giving investors a clearer view of our ability to deliver value while maintaining sustainable margins. In 2024 we achieved adjusted gross margins exceeding 70%, showcasing the operational leverage we’re building to drive strong incremental profitability as we grow. This quarter wasn’t just about numbers; it was about momentum. Across key markets like the US, Europe, Latin America, and China, our esports franchises are driving fan engagement, revenue, and long-term value. Whether it’s through innovative partnerships, digital MTX sales, or redefining the industry landscape with our restructured league agreements, OverActive Media is leading the evolution of esports. Allow me to highlight some key accomplishments. First, our strategic acquisitions of Riders and the purchase of the KOI assets have significantly enhanced our presence in Europe and Latin America. The iconic KOI brand resonates deeply with fans and their emotional connection is fueling growth across every key metric. Second, we’re leading the way in digital sales. Toronto Ultra has emerged as a top performer in Call of Duty League digital MTX sales. This is a testament to our ability to monetize fan engagement and aligns perfectly with the future of revenue in esports. We believe that there are strong opportunities for us to grow our digital MTX revenues across our esports, particularly in the US, Latin America, and China. Next, our recent restructuring agreements with our publisher and league partners are truly transformative. Together, these agreements have eliminated over $37 million in liabilities and giving us full ownership of our franchise rights with no future obligations. This not only reduces risk, but positions us to fully capture the upside potential of esports. Finally, our partnerships with leading global brands like Pepsi and AMD highlight the strength of our position in the market. These collaborations reflect the trust these partners have in us and reinforce our influence in the industry. These are not isolated wins. They represent the execution of a clear and deliberate strategy to build a sustainable, profitable business that sets the standard for the industry. Esports is evolving rapidly and we’re shaping its future. As we look ahead, our focus is on leveraging our strengths, scalable revenue models, operational agility, and a commitment to innovation. OverActive Media is built to not just compete but to thrive in this dynamic landscape. I’m proud of what we’ve accomplished so far and I’m confident about what lies ahead. Thank you for your continued support as we drive OverActive Media to new heights. I’ll now hand it over to Rikesh Shah, our CFO, to take you through the financials in detail.

Rikesh: Thank you, Adam, and good morning, everyone. Today, I’ll briefly review our third quarter financial results and our performance for the first nine months of 2024. Please note that the financial information we discuss today is prepared in accordance with International Financial Reporting Standards and is in Canadian dollars, unless otherwise indicated. We will also present normalized figures to provide a clear, more comparable view of our financial performance. Normalized figures take into account timing discrepancies in the recognition of certain league revenues that vary year-over-year in providing a smoother and clearer comparison for analyzing our operational success and financial health. In the third quarter of 2024, OverActive Media posted total revenue of $6.9 million, representing a 14% increase from $6 million in the same quarter last year, and on a normalized basis, adjusting for changes in revenue recognition to reflect a more consistent financial performance quarter to quarter, revenue increased by $2.9 million or 72%. This growth is driven by full quarter contributions from our strategic acquisitions of Movistar Riders and KOI along with continued excellence in our team operations and business operation segments, including notable contributions from digital merchandise, or MTX sales. Year-to-date, our total revenue has reached $17.2 million, up 49% compared to $11.5 million in the same period in 2023. Normalized revenue, which accounts for the straight-line recording of certain league revenues, has increased by 59%, reflecting an additional $6.3 million in revenue. These strong figures highlight the ongoing success of our strategic initiatives and strong performance across our league and partnership engagements. Our adjusted gross profit for the quarter, which reflects the net revenue after deducting direct costs, remained robust at $5.1 million with an adjusted gross margin of 74% compared to $4.8 million and 80% for the same period in 2023. On a normalized basis, adjusted gross profit improved significantly from $2.8 million to $5.1 million. And then adjusted gross margin increased from 71% to 74%. This consistency in adjusted gross profit underscores the success of our revenue growth initiatives, driven by digital merchandise sales and contributions from our expanded portfolio. These results highlight the scalability of our business model as we capitalize on strategic opportunities to achieve sustainable long-term profitability. Adjusted gross profit for the first nine months of the year reached $12.2 million with an adjusted gross margin of 71% compared to $7.7 million and 67% during the same period in 2023. On a normalized basis, year-to-date adjusted gross profit saw significant growth, improving from $7 million to $12.2 million, while adjusted gross margin increased from 65% to 71%. This impressive growth reflects the scalability of our model again, driven by the same merchandise sales and expanded team contributions. Operating costs for the quarter were $7.6 million and up 42% over the same period in 2023. This increase remains consistent and is primarily driven by integration costs and costs with our expanding operations. Our commitment to cost management is critical as we continue to integrate and scale our business operations efficiently. As of September 30, 2024, our year-to-date operating costs have totaled $22.4 million. That reflects a 30% increase from the $17.3 million in the same period last year. This rise in operating expenses is due to investments in our team and corporate operations to support our growing business. Additionally, the integration of our recent acquisitions, Movistar Riders and KOI, has brought about necessary expenses that contribute to this increase. While we have seen a rise in costs, it’s important to note that these investments are essential for supporting the expanded scope of our operations and are aligned with our strategic and financial goals to bolster our market position and enhance our competitive offerings. Moreover, our commitment to strategic cost management remains unwavering. We are continuously working to optimize our operations and extract efficiencies wherever possible, and by closely monitoring and judiciously managing these costs, we aim to ensure that our increased expenditures translate into value creation and contribute positively to our bottom line. Adjusted EBITDA for Q3 was slightly breakeven compared to an adjusted EBITDA gain of $777,000 in the same quarter last year. On a normalized basis, this represents a substantial improvement from the $1.2 million loss in Q3 to a gain, ah, a Q3 loss in 2023 to a gain in 2024. This improvement was driven by increased revenues from strategic acquisitions, successful team performances in key tournaments, and changes in revenue recognition from certain league revenues. Furthermore, this turnaround is a testament to our focused revenue growth and strategic cost management, emphasizing our ability to convert revenues to increases in real profitability improvements. And for the nine months ending September 30, 2024 our adjusted EBITDA loss was $3 million, a 45% improvement from the $5.5 million loss recorded in the same period last year. This improvement reflects strong revenue growth from, again, the same strategic acquisitions, the revenue recognition adjustments, and are partially offset by increased costs associated with the integration and restructuring of the acquisitions. Our cash position as of September 30, 2024 was $8.9 million with net working capital improving to $9.4 million. That’s compared to a net working capital of $4.3 million last year, a total improvement of 321%. The strong liquidity position supports our strategic flexibility and our ability to pursue growth opportunities with a high degree of discipline. As Adam mentioned earlier, subsequent to the quarter, we restructured our League of Legends European Championship agreement in a move that significantly strengthens our balance sheet by eliminating $2 million in future franchise obligations. This restructuring not only clears substantial liabilities, but also secures complete ownership of our franchises. This enhancement simplifies our financial commitment and bolsters our capacity for strategic investments and operational agility. To summarize, these results continue to demonstrate our commitment to operational excellence and our agility in a dynamic market, positioning us for sustained growth and profitability. That concludes our prepared remarks and I’d like to pass it back to Adam Adamou.

Shah: Thank you, Adam, and good morning, everyone. Today, I’ll briefly review our third quarter financial results and our performance for the first nine months of 2024. Please note that the financial information we discuss today is prepared in accordance with International Financial Reporting Standards and is in Canadian dollars, unless otherwise indicated. We will also present normalized figures to provide a clear, more comparable view of our financial performance. Normalized figures take into account timing discrepancies in the recognition of certain league revenues that vary year-over-year in providing a smoother and clearer comparison for analyzing our operational success and financial health. In the third quarter of 2024, OverActive Media posted total revenue of $6.9 million, representing a 14% increase from $6 million in the same quarter last year, and on a normalized basis, adjusting for changes in revenue recognition to reflect a more consistent financial performance quarter to quarter, revenue increased by $2.9 million or 72%. This growth is driven by full quarter contributions from our strategic acquisitions of Movistar Riders and KOI along with continued excellence in our team operations and business operation segments, including notable contributions from digital merchandise, or MTX sales. Year-to-date, our total revenue has reached $17.2 million, up 49% compared to $11.5 million in the same period in 2023. Normalized revenue, which accounts for the straight-line recording of certain league revenues, has increased by 59%, reflecting an additional $6.3 million in revenue. These strong figures highlight the ongoing success of our strategic initiatives and strong performance across our league and partnership engagements. Our adjusted gross profit for the quarter, which reflects the net revenue after deducting direct costs, remained robust at $5.1 million with an adjusted gross margin of 74% compared to $4.8 million and 80% for the same period in 2023. On a normalized basis, adjusted gross profit improved significantly from $2.8 million to $5.1 million. And then adjusted gross margin increased from 71% to 74%. This consistency in adjusted gross profit underscores the success of our revenue growth initiatives, driven by digital merchandise sales and contributions from our expanded portfolio. These results highlight the scalability of our business model as we capitalize on strategic opportunities to achieve sustainable long-term profitability. Adjusted gross profit for the first nine months of the year reached $12.2 million with an adjusted gross margin of 71% compared to $7.7 million and 67% during the same period in 2023. On a normalized basis, year-to-date adjusted gross profit saw significant growth, improving from $7 million to $12.2 million, while adjusted gross margin increased from 65% to 71%. This impressive growth reflects the scalability of our model again, driven by the same merchandise sales and expanded team contributions. Operating costs for the quarter were $7.6 million and up 42% over the same period in 2023. This increase remains consistent and is primarily driven by integration costs and costs with our expanding operations. Our commitment to cost management is critical as we continue to integrate and scale our business operations efficiently. As of September 30, 2024, our year-to-date operating costs have totaled $22.4 million. That reflects a 30% increase from the $17.3 million in the same period last year. This rise in operating expenses is due to investments in our team and corporate operations to support our growing business. Additionally, the integration of our recent acquisitions, Movistar Riders and KOI, has brought about necessary expenses that contribute to this increase. While we have seen a rise in costs, it’s important to note that these investments are essential for supporting the expanded scope of our operations and are aligned with our strategic and financial goals to bolster our market position and enhance our competitive offerings. Moreover, our commitment to strategic cost management remains unwavering. We are continuously working to optimize our operations and extract efficiencies wherever possible, and by closely monitoring and judiciously managing these costs, we aim to ensure that our increased expenditures translate into value creation and contribute positively to our bottom line. Adjusted EBITDA for Q3 was slightly breakeven compared to an adjusted EBITDA gain of $777,000 in the same quarter last year. On a normalized basis, this represents a substantial improvement from the $1.2 million loss in Q3 to a gain, ah, a Q3 loss in 2023 to a gain in 2024. This improvement was driven by increased revenues from strategic acquisitions, successful team performances in key tournaments, and changes in revenue recognition from certain league revenues. Furthermore, this turnaround is a testament to our focused revenue growth and strategic cost management, emphasizing our ability to convert revenues to increases in real profitability improvements. And for the nine months ending September 30, 2024 our adjusted EBITDA loss was $3 million, a 45% improvement from the $5.5 million loss recorded in the same period last year. This improvement reflects strong revenue growth from, again, the same strategic acquisitions, the revenue recognition adjustments, and are partially offset by increased costs associated with the integration and restructuring of the acquisitions. Our cash position as of September 30, 2024 was $8.9 million with net working capital improving to $9.4 million. That’s compared to a net working capital of $4.3 million last year, a total improvement of 321%. The strong liquidity position supports our strategic flexibility and our ability to pursue growth opportunities with a high degree of discipline. As Adam mentioned earlier, subsequent to the quarter, we restructured our League of Legends European Championship agreement in a move that significantly strengthens our balance sheet by eliminating $2 million in future franchise obligations. This restructuring not only clears substantial liabilities, but also secures complete ownership of our franchises. This enhancement simplifies our financial commitment and bolsters our capacity for strategic investments and operational agility. To summarize, these results continue to demonstrate our commitment to operational excellence and our agility in a dynamic market, positioning us for sustained growth and profitability. That concludes our prepared remarks and I’d like to pass it back to Adam Adamou.

Adam: Thank you for joining us today and for your steadfast support of OverActive Media. This quarter marks the defining moment for our organization as we continue to realize the benefits of our strategic acquisitions, disciplined financial management, and innovative digital sales strategies. These efforts have propelled a significant revenue growth and operational momentum, reinforcing our leadership across key markets. With the recent restructuring agreements with our league partners, we’ve eliminated future franchise obligations, secured full ownership of our franchise rights, and unlocked new financial flexibility. These transformative changes position us to fully capitalize on the growth of the esports industry and expand our influence globally. Our vision is clear

Adamou: Thank you for joining us today and for your steadfast support of OverActive Media. This quarter marks the defining moment for our organization as we continue to realize the benefits of our strategic acquisitions, disciplined financial management, and innovative digital sales strategies. These efforts have propelled a significant revenue growth and operational momentum, reinforcing our leadership across key markets. With the recent restructuring agreements with our league partners, we’ve eliminated future franchise obligations, secured full ownership of our franchise rights, and unlocked new financial flexibility. These transformative changes position us to fully capitalize on the growth of the esports industry and expand our influence globally. Our vision is clear

Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.

End of Q&A: