Earnings Call: Q2 2021

Aug 16, 2021

Thank you for standing by. This is the conference operator. Welcome to the Allied Esports Entertainment Second Quarter 2021 Earnings Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Ase Glaassen Investor Relations. Please go ahead. Thank you, operator. Good afternoon, and welcome to the Allied Esports Entertainment 2021 Second Quarter Results Conference Call. Speaking on the call today is Allied Esports Entertainment's Chief Executive Officer, Claire Wu and Chief Financial Officer, Tony Hung. Judd Hannigan, who is leading the Allied Esports Operations is also available for the question and answer session. Before I turn the call over to management, please remember that our prepared remarks and responses to questions may contain forward looking statements. Words such as may, will, expect, intend, plan, believe, seek, could, estimate, judgment, Targeting, should, anticipate, goal and variations of these words and similar expressions are intended to identify forward looking statements. Actual results could differ materially from those implied by such forward looking statements due to a variety of factors discussed in the company's public filings, including the risk factors discussed in documents filed with the Securities and Exchange Commission. Although the company believes the expectations reflected in such forward looking statements to update any forward looking statement whether as a result of new information, future events or otherwise. In addition, certain of the financial information presented in this call represents non GAAP financial measures. The company's earnings release, which was issued this afternoon and is available on the company's website, presents definitions of such non GAAP financial measures, reconciliations to the appropriate GAAP measures and an explanation of why the Company believes such non GAAP financial measures are useful to investors. With that, it's now my pleasure to turn the call over CEO, Claire Wu. Claire? Thank you, Nathan, and thank you everyone for joining us this afternoon. I will begin by discussing the recent leadership transition at AGSE and then an overview of the key operating highlights from this past quarter. In addition, I will provide an update on the company's strategies as our Board of Directors and the management team evaluate future exciting plans. Tony Hoang, our Chief Financial Officer, will follow with additional details on our 2nd quarter financial performance. Similar to recent quarters, The financials we are reporting today pertain to our continuing operations, which includes our Allied Esports operations and the company's top call expenses. As previously announced, we completed the sale of the World Poker Tour or WPT to Element Partners earlier in the Q3 and therefore the WPT results presented of discontinued operations for the 3 6 months period ended June 30th as well as the comparable periods for the period year. Haven't been appointed to the role of CEO, President and General Counsel of ADSE. Just about 5 weeks ago, I'm very honored to meet the day to day operations of the company. For those of you who are not familiar with my background, I bring more than 15 years of relevant experience to AESE, Most of this is made as Vice President and General Counsel of Asia Pacific Capital Inc, as well as Senior Counsel of the New York Law Firm, David Hunter and Central. In addition, prior to accepting the CEO, President and the General Counsel positions, I served and will continue to serve as the Director on APSC Board. Throughout my career, I have had In terms of legal and business experience in Q1 transactions, U. S. Securities regulations, mergers and acquisitions, Capital Markets transactions as well as corporate strategic planning and restructuring. I believe this will serve the Company well as we look ahead I'd also like to express our thanks and gratitude to Frank A who led the company since it became publicly traded 2 years ago and help the AVS team navigate the complexities of the COVID-nineteen pandemic. We wish him all the best in his future pursuits. With that, let's move on to an overview of our results for the Q2 of 2021. Overall, I'm pleased with the steady progress of our esports business as demonstrated by the 65% quarter over quarter growth in revenue. This growth was driven by the gradual recovery of the in person panel of our esports business As we slowly emerged from the COVID-nineteen pandemic and continue to benefit from increased food traffic, in Las Vegas and the return of live events and social gatherings. In addition, during the Q2, We saw the early revenue contributions from our multi platform content pillar. While the resumption of in person events will be an important growth driver of our esports revenue in the near term, We have also made good progress over the last several quarters, building out the capabilities within our multi platform Content Tailor. During the quarter, we announced the launch of AE Studios, which will serve as the original content development, storytelling and the production services for partners of Allied Esports. I will provide additional details on this important initiative later in my remarks. And finally, subsequent to quarter end, we completed the sale of WPT to Element Partners We are on all cash transaction for $105,000,000 The sale of WTT is a key milestone that significantly improved our liquidity position. With over $100,000,000 of cash today, We have significant financial flexibility as we look to maximize shareholders' value through the utilization of our cash and concluding our strategic exploratory courses for our Esports business. Now, let's turn to our Q2 operational highlights for our e sports business. We saw the start of the COVID-nineteen pandemic recovery This resulted in increased demand for our Terminate and Production Services and Metro Allied Esports production of 81 events in the 2nd quarter, an increase of 135% comparing to the prior quarter, including 48 proprietary events and 43 third party online and in person production. Between in arena and online third party tournament productions, Over 14,200 players competed in Online Esports Productive tournaments in the Q2 of 2021 as compared to approximately 1700 players in the prior quarter. Proparatory productions at the HyperX Esports Arena Mazators were up 23% from the prior quarter with the company adding lockdown a new fighting game competition to its weekly schedule, which continues to draw players from all around the United States. In April, the company also hosted a new edition of its Legend Series tournament, which was the world's 1st esports tournament production, featuring live animated commentators in a partnership with motion capture technology leader, Xcent. The event deployed a 3 day, working, winner takeoff format that included wagering opportunities for better. During the quarter, we announced the Win Sonic as the official gaming monitor and the streamer room partner of HyperX Esports Arena Las Vegas. As part of this partnership, all players in arena and on the Allied Esports track in North America Have the opportunity to play on WaveSpice Elite brand of gaming monitors. Additionally, the company partnered with Esports and Content Creation Organizations. 8060 Esports on sponsor activations with Zeps 3rd party events increased nearly 15 fold quarter over quarter. This Significant increase was driven by our new tournament organization partnership with tension backed streaming platform, Travel, For whom Allied Esports will produce over 100 tournaments across North America, Europe and Latin America throughout 2021. In addition, prior to the lifting of in person restrictions in early June, The HyperX Esports Arena continue to serve as a COVID-nineteen face bubble environment for face IP production of the Rainbow 6 North America Net as well as the host of the Zombies World Championship. Although the company's more expansion plans with the Simon Properties and the Broadfield Property Partners continue to remain on hold, the Allied Esports Truck will continue to bring gaming activations to fans around the country. To this end, We recently announced a 7 stop Esports track tour with NASCAR that walked off in Walking Green, New York earlier this month and will be making start at Daytona International Speedway, Canada Super Speedway, Litchfield International Speedway, Kansas Speedway, Marcusville and the Civic's Raceway throughout the rest of the summer and into the fall. Throughout the pandemic, Allied Esports has made a significant strides to advance the company's multi platform content pillar. A foundational effort of this effort was our 24 hour content strategy on Twitch, which saw 4,500,000 live reviews in the 2nd quarter alone and increased the followers by 28% from the prior quarter. Altogether, the company has delivered over 13,000,000 live on its Torch channel since launching the 24 hour strategy in November 2020. As I highlighted at the beginning of our call, we announced 8 studios during the Q2. This new division of the company will serve as the original content development, storytelling and the production services of Allied Esports for partners looking for a training solution outside of Esports tournament operations and the broadcast. Through AE Studios, we will leverage our years with digital content creation and world class production facilities to design and produce digital first projects for clients and partners spanning a variety of industries such as gaming, entertainment, pop culture, music and sports. AE Studios have hit the ground running with the production team of a 24 episode series of a celebratory showdown for Twitch. The interactive content series Future of celebrities competing in studio and head to head on the virtual versions of some of the top golf carts in the world. Concurrently, streamers participated from home on the desktop version of the game. The show's 2nd season kicks off on August 24th on page. Tvtragespot. Distribution of our growing content library, which concurrently holds over 600 hours of Esports programming continue to see strong demand and is now live on 7 over the top or OTT's cable platform. Through a distribution agreement, we have launched with Musk IP to distribute Allied Esports content around the world. We believe this is the beginning of additional distribution opportunities for our content library and we'll see over 2:50 hours of our Esports tournament content here on those platforms. Before turning it over to Tommy to discuss our Q2 financials in more details, I would like to also provide a quick update on the Company's longer term strategy for our e sports operations. The rapid growth and the popularity of gaming and esports during the COVID-nineteen pandemic has driven significant interest in Allied Esports. With the WPT sale complete, we have begun to accelerate our previous announced plan to explore strategic options for the Esports business, including a customer sale in order to maximize shareholder value. As part of the process, we are actively working with Lake Street Capital Markets as an advisor. With that said, no definitive buyer has been identified to purchase the Esports business and there are no active negotiations of yet in respect to the sale of the Esports business. In the meantime, we will continue to operate the Esports business and exclude our business plan. On a pro form a basis, including process from the WPT sale, Our cash position, net of outstanding debt, totals $101,000,000 With this cash, along with adding cash that may become available as a result of any sale of the Esports business in the future, we intend to explore opportunities to acquire a merge with our existing business. This includes the business in online entertainment, Real Money Gaming and Other Gaming Sectors. However, the company does not plan to limit itself to any particular industry or geographic location in its efforts to identify our prospective targeted business. Key criteria for a potential type of business includes a proven business model and experienced management team and accretion to the Company's adjusted EBITDA. The Company expects to engage with an investment bank to assist in this process. Business. However, I do want to make it clear that at the present, we do not have any specific merger, Asset Acquisition, reorganization or other business combinations under consideration or contemplation. We will provide you with an update on our progress with respect to this pursuit on future calls. That concludes my prepared remarks. And at this time, I'd like to turn the call over to Tony Hom, our CFO, for an update on our 2nd quarter financial results. Tony? Thank you, Claire. Good afternoon, everyone, and thank you for joining us today. While the pandemic continued to impact our business in the 2nd quarter, We saw the beginning of recovery as cautionary restrictions were lifted in June in Las Vegas and economies across the country began to reopen. Demand for our tournaments and production services also increased and Allied Esports experienced meaningful improvements this quarter. In addition, we've continued to make progress on the development of our multiplatform content pillar and announced a new division of the company, AE Studios, during the quarter. Momentum is building and Allied Esports is well positioned to continue driving improved results in the second half of the year. Now, let's turn to our Q2 results from continuing operations. Total revenues for the Q2 increased 32.9% to $800,000 compared to the Q2 of 2020. Looking at these results in greater detail, in person revenues for the Q2 increased 8.1 percent to $700,000 compared to $600,000 in the Q2 of 2020. As a result of the increased number of events and loosened restrictions of operating hours and social distancing measures at our HyperX Esports Arena Las Vegas. The increase in in person revenues were partially offset by a decrease in sponsorship revenue due to a lack of in person activation and Truck events in Europe, where the lingering effects of the COVID-nineteen pandemic remain a concern. Our multi platform content pillar generated $200,000 in revenues for the Q2, driven by our new tournament organization partnership with Trovo, and Tencent backed streaming platform. Total costs and expenses for the Q2 were $5,000,000 down from $5,300,000 compared to the prior year period. The year over year decrease was primarily the result of the one time impairment charge of $1,100,000 against our investment in ESA during the Q2 of 2020. This decrease was partially offset by several factors. 1st in person pillar costs and expenses increased by 29.2% and selling and marketing expenses increased by 50% compared to the prior year period as the recovery of live in person events grew. 2nd, general and administrative expenses increased by 25% as compared to the Q2 of 2020. This year over year increase was primarily due to salaries returning to original levels in 2021 professional fees incurred this past quarter in connection with the sale of WPT. We continue to prioritize expense management and actively reduce all non essential spending across all of our costs and expense items. Adjusted EBITDA for the quarter was a loss of $3,000,000 compared to a loss of $2,200,000 in the prior year period. Net loss from continuing operations for the Q2 was $4,300,000 compared to a net loss of $10,700,000 in the Q2 of 2020. The year over year improvement was primarily a result of a onetime non cash conversion inducement expense of $5,200,000 from our debt refinancing that occurred in the prior year period. Now moving to our balance sheet. At June 30, 2021, our cash position totaled $16,800,000 including $5,000,000 of restricted cash and $4,100,000 of cash in connection with the WPT business and included in current assets held for sale, but which was available to fund the Allied Esports business until the closing of the WPT sale transaction on July 12, 2021. This compares to our total cash position of $14,200,000 at June 30, 2020, which included $5,000,000 of restricted cash and $7,400,000 of cash held at WPT. As of June 30, 2021, we had convertible debt in BridgenNotes totaling $3,400,000 in gross principal, which was paid off concurrent with the closing of the WPT sale. We continue to see progress in our esports business. Our in person pillar is gaining traction and we are excited to see more activity and events booked for the remainder of the year as we slowly emerge from the pandemic. We also continue to strengthen our offerings in our multiplatform content pillar, while judiciously managing our costs and expenses. The significant cash received from the sale of WPT also strengthens our liquidity position to explore strategic options for the Esports business and maximize shareholder value. While we are not yet in the clear from the effects of the pandemic, The recovery is certainly underway and we expect our business to continue to improve in the second half of the year. That concludes our prepared remarks and we would now like to open the lines for Q and A. Operator? Thank you. We will now begin the question and answer session. Comes from Derek Soderbergh with Collier Securities. Please go ahead. Hi. This is Ryan on for Derek. Thanks for taking my questions. I'm wondering if you can provide some more detail on the M and A environment out there and how you're prioritizing using the cash. Is this environment favorable at the moment to find growing and profitable companies at a reasonable Can you maybe describe your ideal target? And is the company in real money gaming, content producing or any more detail now would be great? Hi, Derek. Thank you for the question. Yes. With 100,000,000 cash from the WPT deal, we intend to explore many M and A opportunities with existing business. And like you mentioned that includes business in online entertainment, real money gaming and other gaming sectors. With that being said, currently the company does not plan to limit itself to any particular industry or location and its efforts to identify possible potential business. And Tony, do you have anything to add to the topic? Yes. No, Ryan, I think, as you've probably been following, the market obviously has been pretty active for M and A, and I think that's something that we're watching very carefully. And as Claire described, I think the good thing is that we have a pretty broad mandate in terms of looking at M and A activities. So we're not kind of boxed in to have to do a particular deal under a particular timeframe and then have to do it under core economic deal terms. So I think that gives us a lot more flexibility to be able to find the right deal that's going to maximize shareholder value. Yes. Thank you. And as a follow-up, I'm wondering if you could help us understand your expectations for what cash burn are and where we should be modeling OpEx for the rest of the year. Thank you. Yes. Regarding the cash burn of Esports Business, currently, our main priority We'll be continuing to grow revenues while at the same time to reduce expense and become a more efficient company. In terms of revenue growth, we already see the in person revenue bumping back and we are very excited about the growth of our multi platform content panel. As far as the improve of efficiency side, as the new CEO of the company, I'm leading the team to take a fresh look at all costs and expense as well as the elements of our business of which are most profitable. Now, let me turn it to Tony to add in more details. Yes. And Ryan, I guess just to kind of follow-up on what Claire said. I would say for the short term, as you've kind of seen from our earnings release probably, Historically, we've been burning somewhere around $800,000 to $1,000,000 a month between the kind of Esports business as well as our corporate topco expenses. And so for the short term going forward, I would expect that to be kind of a nice placeholder. But as Claire mentioned, obviously, we're going to be looking at new revenue opportunities and also potential ways to have identify more operational efficiencies to kind of help bring that down over time. Conference call. This concludes the question and answer session. I would like to turn the conference back over to management for any closing remarks. Thank you for your support and for joining us on today's call. We look forward to speaking with you again where we report our 2021 Q3 in November. Thank you again for your time and attention this afternoon, and please stay safe and healthy. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.