Q4 2019 Earnings Call
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I'd like to have the conference over to your speaker today, It's Kirsten Chapman from L.A.J. Investor Relations. Thank you. Please go ahead.
Thank you Ginny good afternoon, and thank you for joining us today for the NTN Buzztime fourth quarter and year end 2019 results conference call and webcast joining us today are CEO, Alan walls, and SVP finance Sandrock roll out before we begin let me remind you that during this conference call management may make forward looking so.
Treatments about the company's plans strategies in gold and the comedies anticipated financial and other performance.
Forward looking statements by their nature address matters that are two different degrees subject to risks and uncertainties that could cause actual results could differ materially and adversely from those expressed in any forward looking statements.
Those risks and uncertainties that are outlined in our press release today.
In greater detail described in part one an item that anyone in the risk factors up our annual report on form 10-K and describe in other documents, we file from time to time.
Securities and Exchange Commission. The forward looking statements made today are as of the get it is calling are based on current expectations, except as required by law. The company undertakes no obligation to revise or update publicly any forward looking statements for any reason.
Now it is my pleasure to turn the call over to Alamo. Please go ahead Alan.
Thank you Kirsten and thank you for joining us today I'm glad to be with you and share our results and vision 2019 culminated with our fourth consecutive year of positive EBITDA.
For 2020, we remain focused on growing our digital entertainment and hardware businesses in an efficient manner.
To that end in January 2020, we seize the opportunity to monetize a non core business and sold our hosted events asset.
We have been prioritizing opportunities with the quickest return on investment and have made significant progress validating our roadmap that was struck establish a strong foundation for scalable growth.
These include our mobile base and then you solution with an expanded feature sets out a variety of price points.
Ability to ship and support they self installed product.
Our programmatic advertising that provides strong contribution margin and our hardware solutions platform.
Okay first let's discuss the backbone of bus line or entertainment services.
We deliver scalable trivia entertainment and various product packages, providing flexibility for customers to choose the best bugs time experience for their environment and maximizing the product market fit.
But as time basic or lighter offering launched in the summer of 2019.
It includes a small fight held for venues that enables players to compete using their mobile device.
We now have multiple attractive pricing packages, including a prepaid annual subscription as well as weekly or monthly pricing.
Buzztime basic has a broad market appeal due to its a light offering and lower price point.
After a few months in pilot, we began selling the service and to date have approximately 165 sites both both paid an unpaid.
We are seeing paid sites performed better than our initial free pilot flights and we'll continue to invest in the Buzztime basic offering to expand the feature set with engagement Hawks as well a shorter games refine our go to market strategy to optimize the sales funnel and bus capitalize on advertising revenue markets.
And explore partnerships for sales distribution and licensing to enable efficiency and scaling the network.
Although the revenue per venue as lower with Buzztime basic we believe the products low cash requirements high gross margin and broader market appeal will help us scale the network and build growth.
Well, we understand the strong headwinds and difficult market conditions, we are facing to grow site count. We continue to remain focused on building value when the product offering inefficient go to market strategies, which we believe will enable us to ultimately grow our network.
The effect of the co bid 19.
Pandemic on the restaurant and bar industry has been wrap it and its scope and magnitude is uncertain.
We are monitoring the restrictions being imposed on restaurants and bars by various levels of governmental authorities and we'll evaluate steps we can take in an effort to mitigate these effects on our business.
Both finally offers a more robust product offering on tablets, including single player arcade games and poker.
Part of the you know elite network included the Buffalo Wild wings locations.
Number of 2019, as previously announced our relationships with Buffalo Wild wings, corporate restaurants, and most of the franchisees and it.
As a result, we ended 2019 with 1440 elite sites, which included approximately 100 franchised Buffalo Wild wings venues, who continue to leverage bus times compelling benefits.
We have seen close to 10000 players from B dubs locations that no longer offer bus fun migrate their play to new locations, which include both B dubs franchise locations that continue to offer bus line and are independent venues.
We believe that in todays competitive restaurant industry and challenging market conditions. These loyal players offer significant value through their frequency and overall false then to our venue partners.
In reviewing the landscape of our current customer base I think it's important to note the tenure of our site.
Over 45% of our elite network sites have been customers for over 10 years and over 60% have been customers for over five years, which we believe demonstrates the value that these venues place on R&D offering.
As discussed the tablets earn attractive component that many of our sales leads are interested in when they acquire about our solution.
However, the elite price point can be cost prohibitive.
With this in mind, we are developing a mid range hybrid solution, specifically tablets with more limited functionality rolled out in a basic environment with self installation.
This hybrid solution will enable us to offer an upgrade to the basic offering but at a more cost effective price than the elite solution.
We intend to bring this option the market in 2020 and launched the tablet add on with single player arcade games first.
Let's talk a bit about our feature set in road map.
To start 2020, we launch social fine on and are seeing positive indicators of new registrations utilizing social integration.
Our 2020 player promotions will focus on driving key metrics frequency mobile downloads and targeted audience programs like trivia for charity and download the mobile app to win.
We are aligning our 2020 road map with our go to market strategy.
Our focus is on enhancing the experience expanding the audience and maximizing social impact.
We are creating opportunities for potential partnerships with customizable channels to expand the audience.
We will extend the house ABS platform for venues to take full advantage of marketing their specials and promotions in house.
And finally, we will continue to enhance our integration into the social footprint by adding features such as invite and Sherry.
We're attempting to do this with a much smaller team in a difficult market and macro economic conditions.
We also have liquidity constraints will need to raise capital to effectuate growth and we'll need to navigate the challenges from the uncertain effect of the Corona virus pandemic.
Okay onto a review of our advertising expansion and goal.
It mid 2019, we launched our first programmatic AD exchange a key part of our future growth integrated into both our elite and basic services.
To date transaction traction has been fantastic.
As you May recall in Q3, we realized approximately 50000 in gross advertising revenue.
In Q4, we grew gross advertising revenue from the exchange over 50% sequentially to 78000.
In Q1 2020 revenue is on track to more than double sequentially from Q4.
Please remember Q1 has 40% less flights from the beginning of Q4 2019.
We continue to explore how to maximize our subscription products go to market strategy with advertising revenue through new partnerships and monetization opportunities.
We believe our network and offerings position us well to capitalize on the growth in digital out of home advertising.
Our goal is to build advertising revenue as a complement to our subscription revenue, while adding both predictability and positive contribution margin.
However, as with other aspects of our business the effects of the Corona virus pandemic on continued short term growth of our advertising revenue is uncertain.
Now, let's review our hardware solutions, where we have a strong competency in designing manufacturing deploying and supporting tablet enabled solutions for our partners.
As previously mentioned, we signed a second order and the Correctional.
Facility industry for $3 million.
Delivery of tablets commencing in Q4, and we anticipate the majority of the remaining quantity will deliver throughout 2020.
Our product is now supporting video visitation, which is increasing in demand given the current market conditions.
We continue to deliver tablets to our partner spend go.
Additionally, we now have to hardware pilot opportunities with large casual dining organizations.
We continue to carefully monitor and support these efforts and if it proves to be the rights solution, we anticipate tablet orders in 2020.
With our hardware pipeline healthy at over $30 million, we continue to be bullish on the market opportunity.
We believe the hardware business will expand as a key part of our revenue growth.
However, these sales opportunities are unique in their individual demands an implementation. So looking ahead, we anticipate some lumpiness to the orders and revenue.
Regarding hardware inventory as our hardware is manufactured in China, using a significant number of Chinese source parts, we're closely watching the impact of the Corona virus on our supply chain.
Our current inventory is robust in part as a result of acquiring tablets with newer technology from Buffalo Wild wings for only the cost of shipping.
We're in active discussions and exploring how to monetize our existing inventory.
That said supply chain disruptions may impact our ability to deliver products during the second half of 2020.
Before I turn the call over to Sandra I'd like to comment on our relationship with Abbott Bank.
We recently signed an amendment to our loan agreement with AVOD Bank under which the amount of our monthly payment obligation on our term loan increased such that is to be fully repaid by December 31 2020.
We continue to explore financing opportunities that provide custom and flexible solutions for us to meet our debt servicing and liquidity needs as well as strategic alternatives for the company.
We have and will continue to take steps to lower our overhead.
Includes a recent staff reduction, resulting in 38 full time employees currently.
As the environment is changing rapidly we're closely connected to our contacted AVOD bank and understand they are evaluating how they will support companies affected by the Carenow virus pandemic and its impact to their short term financial performance.
In summary, we have narrowed and refined our core strategy launch new products with validation and compelling margins and are now increasing our focus on channel partners with for fine priorities in a clear vision, we will work together to grow revenue from our improved entertainment suite.
Our new advertising solutions, and our robust hardware business.
I will now turn the call over to Sandra ROA for review of our Q4 and full year financials.
Andrew Please go ahead.
Thank you Alan revenue with $5.2 million for the fourth quarter of 2019 compared to $4.6 million in the third quarter 2019, and $5.9 million in the fourth quarter of 2018.
For the full year 2019 revenue was $19.8 million compared to $23.3 million in 20 team.
Q4, 2019 hardware revenue increased due to the delivery of the first tranche of tablets are Joe partner ordered earlier in the year.
We expect to continue delivering the majority of the remaining tablets under this order throughout 2020.
As Alan mentioned during the quarter, we acquired tablets with our newer technology from Buffalo Wild wings for only the cost of shipping.
We expect to redeploy these assets to our existing and new customers as well as look for ways to monetize them.
The increased inventory enabled us to write off older tablets, and cases for $675000, which increased direct costs and lowered gross profit.
For the fourth quarter 2019, direct costs were $2.9 million, including the equipment write off and expenses associated with increased hardware revenue compared to $2.1 million in the fourth quarter of 2018.
Fourth quarter 29 teen growth margin with 43% lower than typical due to revenue mix and the equipment write off.
2019, gross margin was 62% compared to 65% in 2018.
Although revenue mix will continue to result in margin fluctuations, we continue to optimize our gross margins and anticipate that it will be higher than the fourth quarter of 2019 in future quarters.
For the fourth quarter 2019, SG any expenses were $2.9 million decreasing 15% from the prior year period due to our continued efforts to execute efficiently and reduce cost.
For the full year, we achieved our goal to reduce ftn expenses to less than $13.5 million.
Reporting 2019, as DNA of $13.2 million compared to 14.5 million in 2018.
We continue to Mattis DNA to our current product strategy in profile of the company.
To this end after taking into account the anticipated impact of our recent head count reduction and other cost management initiative.
In 2020, we are tracking for s. DNA to be less than $10 million, though that number excludes the uncertain impact that the coven 19 pandemic may have.
During the fourth quarter of 2019 operating expenses included a noncash impairment charge of $498000 for capitalized software development projects that no longer fit in our strategic product Road map.
For the fourth quarter of 2019 net loss attributable to common shareholders was $1.3 million or 45 cents per share compared to net income attributable to common shareholders, a $44000 or two cents per share in the fourth quarter of 2018.
For 2019, net loss attributable to common shareholders with $2.1 million or 72 cents per share compared to net loss attributable to common shareholders.
$275000 or 10 cents per share in 2018.
[noise] EBITDA loss, including the 1.2 million dollar impact if the previously mentioned noncash items with $555000 in the fourth quarter of 2019 compared to an EBITDA gain of $732000 in the fourth quarter of 2018.
In 2019, EBITDA was positive for the fourth year in a row at $1.1 million compared to $2.8 million in 2018.
2019 cash flows from operations with $2.7 million up $1.4 million from 2018.
We had negative working capital of $25000 at December 31st 2019, compared to working capital of $2.8 million at December 31st 2018.
Primarily due to reductions insight equipment to be installed.
The increase payable as an operating lease liabilities and reclassifying our debt to current as a result of the amendment to our loan agreement with our bank that Alan previously mentioned.
Due to increased debt service obligations under our loan agreement. The company does have liquidity constraints and we are seeking creative ways to continue funding our operational plan as well as finding opportunities to optimize our cost structure.
Cash cash equivalents and restricted cash for $3.4 million at December 31st 2019, compared to $2.8 million at yearend 2018.
Site equipment to be installed decreased $1.1 million to $1.1 million at December 31st 2019.
And $2.5 million at prior year end.
We anticipate further reduction insight equipment to be installed as we shift to more capital efficient options, such as our but time basic offering.
And with that I will now turn the call back to Alan.
Thank you Sandra.
Thank you in conclusion and 2020, we will continue to expand our hardware business explore licensing and maximize our opportunity to accomplish more with less.
I will also continue to explore partnerships and together with Sandra and the board we will explore strategic alternatives.
To augment our position, we're diversifying or set of entertainment offerings, thereby creating a solid set of packages for our target market and new verticals.
Complemented with advertising our products offer a compelling contribution margin, providing the foundation of growth for our scalable business.
Thank you for joining us today, we appreciate your support and we look forward to connecting with you throughout the quarter.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your programming you may now disconnect.
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