Allied Gaming & Entertainment Inc (AGAE) 2020 Q4 法說會逐字稿

Greetings. Welcome to Allied Esports Entertainment's Fourth Quarter and Full Year 2020 Earnings Conference Call. (Operator Instructions) Please note, this conference is being recorded.

I will now turn the conference over to your host, Lasse Glassen, Managing Director of Investor Relations. Thank you. You may begin.

Thank you, operator. Good afternoon and welcome to the Allied Esports Entertainment 2020 Fourth Quarter and Full Year 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 assurance that its 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 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 and year, and our ongoing efforts to grow our business amidst the current COVID-19. Tony Hung, our Chief Financial Officer, will follow with additional details on our financial performance.

Before proceeding, I have some housekeeping items. The financials we are reporting today pertain to our continuing operations, which includes our Allied Esports business and the corporate's [OpCo] AESE expenses. World Poker Tour, or WPT, had a very solid quarter, but since it is in the process of being sold to Element Partners under our existing stock purchase agreement, WPT's results are now being presented as discontinued operations for the fourth quarter, full year 2020 and our comparable periods for the prior year. I will discuss the pending WPT transaction in more detail shortly, and Tony will go through WPT's financial results and operational highlights in his remarks.

In addition, we have filed a Form 12b-25 with the SEC to extend until April 15, 2021, the due date for following our annual report on Form 10-K for the year ended December 31, 2020. Despite our best efforts, we were simply not able to complete the substantial work required to file the 2020 Form 10-K by the original deadline of March 31 due to our team's preoccupation with the WPT transaction. Therefore, the results we are reporting today are unaudited preliminary results for the fourth quarter and full year. We expect to file our annual report on Form 10-K with our complete audited financial statements in accordance with GAAP on or before April 15, 2021, and investors are encouraged to review that report once filed.

With that, let's move on to a discussion of our unaudited preliminary results for the fourth quarter and full year 2020.

Despite the unprecedented operation -- operating challenges and macroeconomic uncertainty encountered throughout most of the 2020 as a result of the COVID-19 pandemic, Allied Esports finished the year with a solid performance in the fourth quarter. As we have mentioned throughout the year, the In-person pillar of our business model remains the primary growth driver of our Esports business, and this activity was significantly curtailed globally during the pandemic due to the operational restrictions, including limitations on social gatherings and other health and safety protocols.

However, I remain very pleased with our team's ability to pivot towards remote content creation and online events and adapt to the challenges posed by the pandemic. Within days of the global lockdown last March, we built a quarantine command center that launched Allied Esports North American online tournament offering and grew our customer base at a time when most businesses and industries were unable to operate.

For the year, Allied Esports produced 287 events with 250 proprietary productions and 37 third-party productions, which allowed nearly 17,000 players to enter into those events in 2020. We also made good progress throughout the year conceptualizing and building out the multiplatform content pillar of our business model. In addition, we launched an online tournament offering in North America and has begun to grow our database of online players, which we believe will help our interactive services efforts in the future.

Although the Esports business has not yet generated significant revenue from these second and third pillars of our business model, I believe the work and progress we made will serve us well in the quarters and years ahead, particularly as we focus on more content development opportunities. I was also pleased with our ability to reduce operating expenses and better align our cost structure with the lower revenues generated during the year.

And finally, we made tremendous progress in 2020 to improve our capital structure. As Tony will discuss in further detail, we reduced the company's total debt burden, excluding the PPP loan by 71% during 2020 and ended the year with a bridge and convertible debt principal balance of just $4 million. As we look ahead, we believe our accomplishments during 2020 have improved our ability to serve our customers in the future and take full advantage of the significant growth opportunities in Esports as the economy continues to recover and the environment normalizes.

With that, let's turn to our fourth quarter operational highlights as well as an update on the previously announced strategic partnerships. Beginning with our In-person pillar. Similar to most businesses in the live entertainment and events industry, In-person experiences for Allied Esports continued to face significant operational hurdles during the fourth quarter due to the effect of the pandemic. Although our flagship HyperX Esports Arena Las Vegas at the Luxor Hotel & Casino successfully reopened in late June, throughout the fourth quarter, we continued to operate under a modified schedule for daily play and weekly tournaments while continuing to comply with the COVID-19-related business restrictions.

Since its reopening, the HyperX Esports Arena has significantly reduced operating hours and implementing extensive sanitization protocols regularly throughout the venue. Furthermore, enforced physical distancing remained in effect throughout the quarter, lowering tournament capacity by approximately 35% of pre-pandemic level with food and beverage service also limited. Overall, we believe we have earned the trust of our customers to provide a safe place to play with our enhanced safety and sanitization protocols.

Beginning March 15, the state of Nevada announced venue customer capacity would increase to 50%, and we have already begun to see increases in our food and beverage revenues. We look forward to gradually expanding daily play and tournament as restrictions from the pandemic loosens and activity in Las Vegas continues to normalize.

During the fourth quarter, Allied Esports produced 48 events with 41 proprietary events and 7 third-party productions across our North American and European business units. The fourth quarter saw strong demand for Allied Esports' proprietary events with 2,576 players competing in online and off-line events including the Trovo Holiday Royale co-organized by Tencent-backed streaming platform Trovo and Allied Esports. The 9-day battle royale festival was produced from our studios at HyperX Esports Arena and saw over 1,000 players from North America and Latin America compete across 3 game titles.

The event was live streamed exclusively on Trovo.Live. We were very pleased to partner our Esports organization and the production experience with Trovo's growing platform. We look forward to exploring more opportunities to work together in the coming year.

Despite limited In-person activities due to COVID-19 restrictions, we did execute 1 event with the Allied Esports Truck in North America with our partners at Findlay Volkswagen. In addition, our infrastructure and production teams were leveraged by third parties for both online production as well as In-person COVID-19 safe bubble for participating teams in an event with no on-site audience. Third-party clients during the fourth quarter include FaceIT, HyperX and Digi 1, among others.

Subsequent to quarter end, we were very pleased to announce the renewal of our naming rights partnership with HyperX for our global flagship property at the Luxor 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 the arena focused on growing their gaming and Esports community.

HyperX has been an incredible naming rights partner over the past 3 years, bringing authenticity and creditability to the most recognized Esports venue and production facility in the world. I'm thrilled to extend our partnership with HyperX as we work together to continue delivering exciting experiences and content for customers and partners.

Given the ongoing restrictions of In-person events, during the quarter, we continued to focus efforts to expedite the monetization of the multiplatform content and interactive services pillars of our Esports business model, particularly multiplatform content. In November, we launched a 24-hour cross-channel content strategy on Twitch, and we are now re-airing our best programming from a growing library of over 500 hours of content every day across our Twitch channels.

Programming includes original productions of high-profile events featuring gaming superstars such as Ninja, KittyPlays, Myth and Pokimane. And in addition to Cleveland Browns' quarterback Baker Mayfield, and New York Mets' pitcher, Trevor May, we are also offering top-tier professional tournaments, including the Allied Esports Odyssey, VALORANT Ignition Series tournament, the Vie.gg CS:GO Legend Series as well as additional legend series events.

And finally, we are airing weekly land and online events showcasing rising stars from Allied Esports gaming community. Live views of Allied Esports' Twitch channels totaled 2.97 million in the fourth quarter, up 6,202% year-over-year. Growth in viewership have also led to increased follower growth on Twitch by 7% in the fourth quarter. This increase in live views emboldens our confidence in our 24-hour content strategy on Twitch. With viewership across streaming platform continuing to increase, we have the ability to tap into our extensive library and deliver a variety of exciting programming to both stalwart and new pandemic-era audiences clamoring for gaming content.

Our expectation is that global distribution of COVID-19 vaccine will bring the return of a normalized world, and with this, the resurgence of In-person events. We're 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 in 2020 will come together alongside the resurgence of live events and the return of maximum capacity at our various properties.

Next, I would like to provide an update on our strategic relationship with Simon Property Group and Brookfield Property Partners, with whom we are partnering to deliver Esports experiences at select shopping mall venues. While we remain on hold with our U.S. mall strategy as we continue to have dialogue with our partners regarding the pandemic, we recently held a 3-day amateur Esports event at Brookfield's First Colony Mall in Sugar Land, Texas from March 26 to 28. The outdoor tournament and broadcaster place using the Allied Esports Truck, which was the truck's first event outside of Nevada and California since the onset of the pandemic.

In addition, I'm also pleased to report that Fortress Esports, our first affiliate program partner of the Allied Esports Property Network covering Australia and New Zealand, officially reopened its store during the fourth quarter at Australia's largest shopping mall in Victoria, in Melbourne, Australia. As you may recall, Fortress closed shortly after its grand opening in mid-March 2020 due to the pandemic. At nearly 30,000 square feet the facility is the largest video gaming and Esports entertainment venue in the southern hemisphere.

Before turning it over to Tony to discuss our fourth quarter and full year financials in more detail, I would like to provide an update on the transaction we are pursuing to sell our World Poker Tour business to Element Partners, LLC on January 19, 2021. Allied Esports announced an agreement to sell the World Poker Tour to Element Partners with a total transaction value of approximately $78.25 million, with $68.25 million payable upfront and $10 million paid over up to 3 years based on a fully guaranteed revenue share of 5% of WPT-branded tournament entry fees on Element's owned or licensed gaming platform.

On March 3, 2021, Allied Esports received an unsolicited proposal from Bally's corporation to acquire the entire company for $100 million. This proposal was subsequently changed by Bally's, such that on March 15, 2021, Bally's adjusted its offered to $90 million for only the World Poker Tour.

On March 19, 2021, Allied Esports announced that Element had offered $90.5 million for the World Poker Tour.

On March 24, 2021, Allied Esports announced that Bally's had offered $100 million, then $105 million for the World Poker Tour.

On March 30, 2021, Allied Esports announced that Element had offered $105 million for World Poker Tour, which Allied Esports has accepted and the parties amended their existing purchase agreement.

The company's Board of Directors will evaluate any additional proposal in due course in compliance with the terms of their stock purchase agreement with Element Partners. At this time, we believe, subject to customary closing conditions that we will close the transaction in the second quarter of 2021.

With that, I would like to turn the call over to Tony Hung, our CFO, for an update on our fourth quarter and full year financial results. Tony?

Thank you, Frank. Good afternoon, everyone, and thank you for joining us today. Our fourth quarter performance demonstrates our ability to rapidly pivot our strategic focus within our business model amidst this dynamic and challenging operating environment. 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 continue to make progress on the development of our multiplatform content pillar, reduced our operating expenses as well as strengthen our liquidity position and improve capital structure.

As Frank highlighted, 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 Sports and our parent company, AESE, and exclude the World Poker Tour.

Now turning to our fourth quarter results from continuing operations. Total revenues for the fourth quarter were $0.9 million, down 52% year-over-year primarily due to lower In-person revenues, which were partially offset by higher revenues from our multiplatform content. Looking at these results in greater detail, In-person revenues for the fourth quarter totaled $0.7 million compared to $1.9 million in the prior year period. The decrease of 62.5% year-over-year was a result of the continuation of postponed event, reduced operating hours and social distancing measures as a result of the pandemic.

Multiplatform content revenues totaled $0.2 million compared to $50,000 in the prior year period. The growth in our multiplatform content pillar was driven by our accelerated focus on this part of the business to mitigate the effects of the pandemic and included the licensing of video and data rights related to Esports betting and our partnership with Trovo.

Finally, all interactive services revenues have historically been derived from WPT. Allied Esports has not generated revenues in this pillar yet, and as such, they are not a part of our results today.

Total cost and expenses for the fourth quarter were $16.6 million, up 135% from $7.1 million in the prior year period. The increase is primarily due to an impairment of investments of $5 million along with an impairment of $5.6 million related to fixed Esports assets. Excluding the impairment, cost and expenses for the fourth quarter were down 11.2%, reflecting our continued prioritization to manage expenses during the quarter and actively reduce all nonessential spending. We significantly reduced expenses in our In-person pillar by 65%, online expenses by 38% and selling and marketing expenses by 82% compared to the prior year period. The reduction in costs and expenses were partially offset by higher G&A and stock-based compensation expenses of 19.8% and 79.3%, respectively.

Adjusted EBITDA for the fourth quarter improved to a loss of $3.5 million compared to a loss of $3.7 million in the prior year period. Total net loss for the fourth quarter was $19.7 million compared to a net loss of $5.8 million in the fourth quarter of 2019. Total net loss for the fourth quarter of 2020 was negatively impacted by the impairment charges I mentioned previously as well as a noncash extinguishment loss on acceleration of debt redemption of $1.7 million that was not incurred in the prior year period. This resulted from the acceleration of monthly payments on the senior secured convertible debt during the period. Interest expense also increased $1.8 million compared to the prior year 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 operations.

WPT revenue for the fourth quarter of 2020 was $5.9 million, up 30.7% compared to the prior year period. And WPT's net income for the fourth quarter was $0.9 million versus a net loss of $0.1 million compared to the prior year period.

While restrictions on hosting events since the start of the pandemic have been stricter in the United States than certain places around the world during the fourth quarter, WPT was able to hold both live and online events in other countries, including WPT Online India on Adda52, the inaugural India ring-fenced series of events in November. In a span of 18 days, 154 events were hosted, attracting over 60,000 total entries and a total prize pool of in excess of $2 million.

Live events also returned to the WPTDeepStacks calendar in Johannesburg, South Africa, and the first ever WPTDeepStacks in Taiwan. Within the multiplatform content pillar, this has been one of the fastest-growing areas for WPT and not only provides high-margin and good monetization for the business, but also create strategic touch points in promotional advertising for both linear and OTT platforms. Allied Esports has also utilized the strategic blueprint with OTT platforms by creating our 24-hour cross-channel content strategy.

Finally, within interactive service ClubWPT successfully completed the largest online cash tournament in the club's history with the $100,000 ClubWPT Diamond Championship, which further supports the value of the diamond membership level and will continue to be a growth area in the online business.

Now moving to our balance sheet. At December 31, 2020, our cash position totaled $9.1 million including $5 million of restricted cash and an additional $3.6 million of cash held in connection with the WPT business that is included in current assets of discontinued operations, and which continues to fund the Allied Esports business until the close of the transaction. This compared to $12.1 million at December 31, 2019, which included $3.7 million of restricted cash and $5.1 million held at WPT.

As of December 31, 2020, we had convertible debt and bridge loans totaling $3.4 million in gross principal, which matures on February 23, 2022. We also had convertible debt in a gross principal amount of $0.6 million, which is payable in monthly installments through June 2022, and can also be accelerated at the option of the lender. In total, we reduced the outstanding principal of our convertible debt balance by $5.1 million from the prior quarter. And subsequent to quarter end, we paid off the remaining $0.6 million of convertible debt that was subject to monthly installments.

In summary, we are proud of the progress we've made throughout the year with the successful pivot towards our multiplatform content pillar, while strengthening our liquidity position and capital structure. Furthermore, the significant cash infusion we expect to receive from the sale of WPT puts us in a strong position to continue to strategically grow our Esports business.

In the near term, we remain focused on maintaining safety for our employees and customers as the pandemic subsides and restrictions loosen, while continuing to execute against our strategy and position ourselves for long-term growth.

With that, we will now open the line for Q&A. Operator?

(Operator Instructions) There are no questions at this time. I would like to turn the conference back over to management for closing remarks.

Okay. Thank you for your support, everyone, and for joining us on today's call. We look forward to speaking with you again when we report our 2021 first quarter in May. Thank you again for your time and attention this afternoon, and please stay safe and healthy.

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.