Allied Gaming & Entertainment Inc (AGAE) 2021 Q1 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the Allied Esports Entertainment First Quarter 2021 Earnings Conference Call. (Operator Instructions) And the conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to Lasse Glassen, 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's 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 [and is] the current COVID-19 pandemic. Tony Hung, our Chief Financial Officer, will follow with additional details on our first quarter 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's [OPCo] 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 first quarter and the comparable period for the prior year. I will provide an update on the pending WPT's transaction in more detail shortly, and Tony will go through WPT's financial results and operational highlights in his remarks. And finally, since it has been just 7 weeks since our last earnings call, I intend to keep my prepared remarks brief today and just focus on the primary highlights.

With that, let's move on to an overview of our results for the first quarter of 2021. Overall, I am pleased with the first quarter performance of our Esports business despite the headwinds in operational constraints we continue to face within the in-person pillar of our business as we slowly emerge from the COVID-19 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 multi-platform content pillar of our Esports business, which has culminated in recent announcements this month of a new 9-month Esports tournament program with Tencent streaming platform, Trovo, as well as our first distribution partnership with MuxIP, 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 burden by paying off our convertible debt balance and in turn, significantly enhance our capital structure while improving our financial flexibility and liquidity position. As we look ahead, we believe that the strategic pivots we may accelerate 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 normalized.

Now let's turn to our first quarter 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 & 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 HyperX Esports Arena in Las Vegas as the most prominent physical assets in all of Esports, and we are thrilled to continue to have our flagship property associated with the leading peripherals brand and gaming.

In the first quarter, Allied Esports produced 36 events including 33 proprietary events and 3 third-party productions across our North American and European business units. Despite COVID-19 social distancing and capacity restrictions during the period, we continued to experience strong demand for our tournament offerings with more than 1,700 players competing in Allied Esports Tournament in-arena, online and on our truck.

Although the company's mall expansion plans with Simon properties and Brookfield Property Partners continue to remain on hold during the pandemic, the Allied Esports Truck made it's 2021 debut, in March, we took our weekly Saturday Night Speedway Tournament featuring Mario Kart on the road to Brookfield Properties First Colony Mall in Sugarland, Texas. The 3-day event was very well received and served as an attraction for mall goers and imports enthusiast in the Houston metropolitan area. The champion of that event received a trip to compete HyperX Esports Arena for the 100th edition of Allied Esports Saturday Night 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 legend series, which was held in early April and was the first Esports tournament production featuring live animated commentators in partnership with motion capture technology leader, Xsens. The event deployed a 3-day 14 [Winner-take all] format, which included wagering opportunities for betters.

Third-party events in the quarter were led by FaceIT, and its use of HyperX Esports Arena Las Vegas as a COVID-19 safe bubble environment for its production of the Rainbow Six Siege North America League. FaceIT use of our facilities for this purpose begin in Q4 2020 and have continued for consecutive seasons of the R6 (sic) [Rainbow Six] North America lead into Q2.

I am very encouraged that with a widespread distribution of vaccinations, we began to see an increase in food traffic in Las Vegas and believe the COVID-19 pandemic 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 on 60% of the County's population has received at least 1 dose of a COVID-19 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 wait 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 first quarter, our 24-hour content strategy generated 4.7 million live views on live streaming platforms, an increase of 59% compared to the fourth quarter 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 of 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 MuxIP to distribute Allied Esports content to OTT streaming platforms around the world, including Switch TV, RiverTV, [Plaques, Zack] and Sports Tribal. We believe this is the beginning of additional distribution opportunities for our content library, and we will 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 multi-platform 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 first quarter 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 Bally’s Corporations throughout March of the first quarter, on March 30, 2021, we announced that Element agreed to purchase for $105 million, the World Poker Tour. And the parties amended their existing purchase agreement to reflect the updated terms.

To date, Bally’s has not countered the latest offer, and we are proceeding with the sale of WPT to Element. 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 second quarter or early third quarter of 2021.

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

Thank you, Frank. Good afternoon, everyone, and thank you for joining us today. We've made solid progress during the first 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 in 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 first quarter results from continuing operations. Total revenues for the quarter were $0.5 million, down 52.6% year-over-year and all derived from the in-person pillar of our business. Looking at these results in greater detail. The decrease in-person revenues for the first quarter was a result of postponed events, reduced operating hours and social distancing measures that are continuing as a result of the pandemic, while the first quarter of 2020 in comparison had minimal impact from the pandemic.

Total costs and expenses for the first quarter were $5.4 million, a decrease of 42.9% from $9.4 million in the first quarter 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% versus first quarter 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 $3.7 million of restricted cash associated with an escrow agreement with Simon that occurred during the first quarter of 2020.

Adjusted EBITDA for the first quarter improved to a loss of $3.3 million compared to a loss of $3.5 million in the prior year period. Net loss from continuing operations for the first quarter was $5.0 million compared to a net loss of $9.1 million in the first quarter 2020. The year-over-year improvement was primarily a result of lower costs and expenses in addition to decreased interest expense of $0.5 million 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 first quarter of 2021 was $5.3 million, up 7% compared to the prior year period. And WPT's net income for the first quarter was $1.6 million versus $0.3 million in the prior year period. WPT continued to hold both live and online events in the United States and internationally during the first quarter, though stricter restrictions remain for events held in the United States.

The Venetian in Las Vegas hosted its first-ever WPTDeepStacks event in January and was the first WPTDeepStacks event in North America during the pandemic. Later in March, WPT (inaudible) also became the largest $5,000 buying event in WPT's history with 937 entries and a prize pool of over $4 million.

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 sends the third largest field and second largest live event in WPT history and created a total prize pool of over $5 million. 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 first quarter, 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 $18.5 million, including $5 million of restricted cash and $2.9 million of cash in connection with the WPT business that is included in current assets of discontinued operations, but is available to fund the Allied Esports business until the close of the WPT sale transaction. This compared to $9.4 million at March 31, 2020, which included $5 million of restricted cash and $3.5 million of cash held at WPT. As of March 31, 2021, we had convertible debt and bridge notes totaling $3.4 million 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&A. Operator?

(Operator Instructions) 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 (technical difficulty) our 2021 second quarter in 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.