Earnings Call: Q1 2021

May 23, 2021

Thank you for standing by. This is the conference operator. Welcome to the Allied Esports Entertainment First 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 Lasse Glayson, Investor Relations. Please go ahead. Thank you, operator. Good afternoon, and welcome to the Allied Esports Entertainment 2021 First Quarter Results Conference Call. Speaking on the call today is Allied Esports Entertainment's Chief Executive Officer, Frank Ng and Chief Financial Officer, Tony Hung. The company's President and Long Time World Poker Tour CEO, Adam Pliska and Jud Hannigan, who is leading the Allied Esports Operations, are 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 are based upon reasonable assumptions, it can give no assurances that the expectations will be attained. The company undertakes no obligation 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 measure 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 to Allied Esports Entertainment's CEO, Frank Ng. Frank? Thank you, Lasse, and thank you, everyone, for joining us this afternoon. My remarks today will focus on an overview of the key highlights from this past quarter in our ongoing efforts to grow the business amidst the current COVID-nineteen pandemic. Tony Hung, our Chief Financial Officer, will follow with additional details on our Q1 financial performance. Similar to last quarter, the financials we are reporting today pertain to our continuing operations, which includes our Allied Esports Business and the Corporate TopCo AESE Expenses. World Poker Tour, or WPT, is in the process of being sold to Element Partners under our existing stock purchase agreement, subject to our stockholders' approval. Therefore, WPT's results continue to be presented as discontinued operations for the Q1 and the comparable period for the prior year. I will provide an update on the pending WPT sale transaction in more detail shortly, and Tony will go through WPT's financial results and operational highlights in its remarks. And finally, since it has been just 7 weeks since our last Earnings Call. I intend to keep my prepared remarks free today and just focus on the primary highlight. With that, let's move on to an overview of our results for the Q1 of 2021. Overall, I am pleased with the Q1 performance of our esports business despite the headwinds and operational constraints We continue to face within the in person pull up of business as we slowly emerge from the COVID-nineteen pandemic. While in person events were the primary growth drivers of our esports revenue prior to the pandemic, I have been impressed with our team's ability to pivot towards remote content creation and online events and adapt to the challenges posed by the pandemic. In doing so, we have made good progress over the last several quarters building out capabilities for the multiplatform content pillar of our esports business, which has culminated in recent announcements this month of a new 9 month esports tournament program with Tencent's streaming platform, Trovo, as well as our first distribution partnership with MUX IP, which will result in the airing of hundreds of hours of our content library on OTT platforms. In addition, as Tony will discuss further in his remarks, we further reduced our debt's burden by flexibility and liquidity position. As we look ahead, we believe that the strategic pivot we make accelerates Our ability to further monetize aspects of the esports ecosystem and take advantage of significant growth opportunities as economy continues to improve and the environment normalizes. Now let's turn to our Q1 operational highlights for our Esports business. We were very pleased to announce the renewal of our naming rights partnership with HyperX for our global flagship property at the Luxor Hotel and Casino in Las Vegas. As part of the renewal agreement, HyperX will continue to receive prominent branding and signage inside and outside of the venue as well as across all arena promotions, Content and Social Media Platforms. HyperX and Allied Esports will continue to partner on a variety of co branded experiences and events at our flagship arena focused on growing our respective Gaming and Esports Communities. The Sports Business Journal has referred to Hybriq's Esports Arena Las Vegas as the most prominent physical asset in all of esports and we are thrilled to continue to have our flagship property associate with the leading peripherals Brand and Gaming. In the Q1, Allied Esports produced 36 events, including 33 proprietary events and 3 third party productions across our North American and European business units. Despite COVID-nineteen social distancing and capacity restrictions during the period, we continued to experience Strong demand for our tournament offerings with more than 1700 players competing in Allied Esports tournament in arena, online and on our trunk. Although the company's small expansion plans with Simon Properties and Brookfield Property Partners continue to remain on hold during the pandemic, The Allied Esports Truck made its 2021 debut. In March, we took our weekly Saturday Night Speedway tournament featuring Mario Kart on the road to Brookview Properties First Colony Mall in Sugar Land, Texas. The 3 day event was very well received and served as an attraction for more goers and esports enthusiasts in the Houston Metropolitan Area. The champion of that event received a trip to compete at HyperX Esports Arena for the 1 hundredth edition of Allied Esports 7th 8 Nights Speedway, which was held last week. The outdoor tournament and broadcast was the truck's first event outside of Nevada and California since the onset of the pandemic. Taking Saturday Night Speedway on the road and bringing esports events to the public environment as we emerge from the pandemic has sparked increased interest in the role Allied Esports can play in creating live experiences again for our partners. We also announced our next edition of the 11 series, which was held in early April and was the 1st Esports tournament production featuring live animated commentators in partnership with motion capture technology leader, Xsense. The event deployed a 3 day 14 Winnetec all formats, which included wagering opportunities for betters. 3rd party events in the quarter were led by Faceit and its use of HyperX Esports Arena Las Vegas as a COVID-nineteen safe bubble environment for its production of the Rainbow 6 Siege North America League. Face's use of our facilities for this purpose began in Q4 2020 and has continued for consecutive seasons of the R6 North America League into Q2. I am very encouraged that With the widespread distribution of vaccinations, we began to see an increase in food traffic in Las Vegas and believe the COVID-nineteen Recovery is well underway. Importantly, restrictions are also easing in Nevada where on May 1, Clark County decreased social distancing requirements to 3 feet from 6 feet and increased permitted indoor capacity to 80%. The county has stated that these restrictions will be completely lifted 160% of the county's population has received at least one dose of a COVID-nineteen vaccine. These efforts And those around the world are creating a foundation for the resurgence of live events. This bodes well for our in person pillar and we are starting to see an uptick in event bookings and calendar holds in the second half of the year. As we continue to adjust to and wish for the ongoing headwind for in person events to pass, Our efforts are focused on expediting the monetization of the multi platform content pillar of our esports business model. In the Q1, our 24 hour content strategy generated 4,700,000 live views on live streaming platforms, an increase of 59% compared to the Q4 of 2020. In addition, we increased followers by 21% across our Twitch and YouTube channels. At the end of the first quarter, Allied Esports ranked in the top 0.03% of all Twitch English channels According to twitchtracker.com, which ranks channels based on average viewers, followers, views and stream time during the most recent 30 day period. We believe The steps taken to execute our 24 hour content channel strategy along with the increased viewership it has garnered has positioned us for additional distribution opportunities. Last week, we announced a distribution agreement with MUX IP to distribute Allied Esports content to OTT streaming platforms around the world, including Swooch TV, River TV, Plaques, and Sports Tribal. We believe this is the beginning of additional distribution opportunities for our content library and we'll see over 250 hours of our Esports tournament content air on these platforms. Our belief is the return of a normalized world and the resurgence of live events is at its early stages, But we are seeing positive market indicators for strong recovery in the second half of this year. We are optimistic that we will soon be operating in an environment where the company's foundational strides made on the multiplatform content pillar of our business will come together alongside with the resurgence of live events and the return of maximum capacity at our various properties. Before turning it over to Tony to discuss our Q1 financials in more detail. I would like to provide a quick update on our pending transaction to sell our World Poker Tour business to Element Partners LLC. After multiple competing bids for WPT between Element Partners and Volley's Corporations Throughout much of the Q1, on March 30, 2021, we announced that Element agreed to purchase for $105,000,000 The World Poker Tour and the parties amended their existing purchase agreement to reflect the updated terms. To date, Volley has not countered The latest offer and we are proceeding with the sale of WPT to Elements. To this end, A preliminary proxy statement detailing the transaction and seeking the approval of the transaction by our stockholders was filed with the SEC on May 14. Our Board of Directors will evaluate any additional proposal in due course in compliance with the terms of the stock purchase agreement with Element Partners. At this time, we believe, subject to customary closing conditions, that we will close the transaction in late Q2 or early Q3 of 2021. With that, I would like to turn the call over to Tony Hung, our CFO, for an update on our Q1 financial results. Tony? Thank you, Frank. Good afternoon, everyone, and thank you for joining us today. We've made solid progress during the quarter of 2021. While our in person pillar continues to be impacted by the travel restrictions and health and safety protocols as a result of the pandemic, We believe recovery is underway as we are seeing an increase in foot traffic in Las Vegas and an uptick in event bookings and calendar holds for the second half of the year. We've also continued to make progress on the development of our multi platform content pillar and reduced our operating expenses. As a reminder, the World Poker Tour segment of our business is being treated as discontinued operations for accounting and disclosure purposes. Therefore, our results presented today relate to the continuing operations of Allied Esports and our parent company, AESE, and exclude the World Poker Tour. Now turning to our Q1 results from continuing operations. Total revenues for the quarter were $500,000 down 52.6% year over year and all derived from the in person color of our business. Looking at these results in greater detail, the decrease in in person revenues for the Q1 was a result of postponed events, reduced operating hours and social distancing measures that are continuing as a result of the pandemic, while the Q1 of 2020 in comparison had minimal impact from the pandemic. Total costs and expenses for the Q1 were $5,400,000 a decrease of 42.9 percent from $9,400,000 in the Q1 of 2020, reflecting our continued prioritization to manage expenses during the quarter and actively reduced all nonessential spending across all of our costs and expense items. Notably, in person pillar costs and expenses decreased by 45.5 percent versus Q1 of 2020, selling and marketing expenses by 42% and online operating expenses by 34.7%. In year over year comparisons, we also benefited from the return of $3,700,000 restricted cash associated with an escrow agreement with Simon that occurred during the Q1 of 2020. Adjusted EBITDA for the Q1 improved to a loss of $3,300,000 compared to a loss of $3,500,000 in the prior year period. Net loss from continuing operations for the Q1 was $5,000,000 compared to a net loss of $9,100,000 in the Q1 of 2020. The year over year improvement was primarily a result of lower costs and expenses in addition to decreased interest expense of 0 point $5,000,000 compared to the prior year period due to less principal balance of notes payable outstanding during the period. Before I turn to a discussion of our balance sheet, I'd like to briefly touch on the World Poker Tour's results, which are being presented as discontinued operation. WPT revenue for the Q1 of 2021 was $5,300,000 up 7% compared to the prior year period. And WPT's net income for the Q1 was $1,600,000 versus $300,000 in the prior year period. WPT continued to hold both live and online events in the United States and internationally during the Q1, though stricter restrictions remain for events held in the United States. The Venetian in Las Vegas hosted its first ever WPT Deep Stacks event in January and was the 1st WPT DeepStack event in North America during the pandemic. Later in March, WPT at Phoenician also became the largest $5,000 buy in event in WPT's history with 937 entries and a prize pool of over $4,000,000 WPT also returned to live main tour events in January with the WPT Lucky Hearts Poke Open at the Seminole Hard Rock in Hollywood, Florida. This event sent the 3rd largest field and 2nd largest live event in WPT history and created a total prize pool of over $5,000,000 WPT also entered a new market in Hanoi, Vietnam for the WPT Deep Stacks Hanoi Festival at Crown Poker Club in March. The multi platform content pillar continues to be one of the fastest growing areas for WPT, not only providing high margins and good monetization for the business, but also creating strategic touch points in promotional advertising. And finally, within Interactive Services for the Q1, Club WPT total subscription revenue grew 92% compared to the prior year period, driven by strong subscriber growth at both Club WPT and Club WPT Diamond. Now moving to our balance sheet. At March 31, 2021, Our cash position totaled $18,500,000 including $5,000,000 of restricted cash and $2,900,000 of cash in connection with the WPT business that is included in current assets of discontinued operation, but is available to fund the Allied Esports business until the close of the WPT sale transaction. This compared to $9,400,000 at March 31, 2020, which included $5,000,000 of restricted cash and $3,500,000 of cash held at WPT. As of March 31, 2021, we had convertible debt in bridge notes totaling $3,400,000 in gross principal, which matures on February 23, 2022. In summary, we are pleased with the progress we've made during the quarter with pandemic related restrictions still in place while managing our costs and expenses efficiently. The significant cash infusion we expect to receive from the sale of WPT will also strengthen our position to continue to strategically expand our esports business and explore new growth opportunities. We are excited to see more activity and events booked for the remainder of the year as we remain focused on executing against our strategy and positioning ourselves for long term growth while maintaining safety for our employees and customers. That concludes our prepared remarks. And at this time, We would now like to open the line for Q and A. Operator? Thank you. We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. There are no questions in the queue. I would like to turn the conference back over to management for any closing remarks. Okay. Thank you for your support and for joining us Our 2021 Q2 is August. 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.