EGLX Enthusiast Gaming Holdings Inc

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

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

Q3 2022 Financial Highlights

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

Q3 2022 Operational Highlights

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

Update on CEO Search Process

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

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

Earnings Announcement and Supplemental Information

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

Please call the following numbers to participate:

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

International: 1-412-317-5231

Conference ID: 10172910

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

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

All amounts are in Canadian dollars.

About Enthusiast Gaming

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

Contacts

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

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

Forward-Looking Statements

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

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

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

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

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