Q3 2020 Allied Esports Entertainment Inc Earnings Call
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Koenigs call.
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Surety Allied sports Entertainment.
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And many of your first name please.
Sure Good B K C eight.
Last name Hi on a Y O N.
Thank you Ma'am your company name as well.
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Yes, I'm, an era that Skeight hi, ERP.
Yes.
Okay.
Thank you so much I'll join writer.
Oh, the rate and our ability to monetize all three pillars of our strategy.
Importantly, we believe this has put us in a great. This vision to better serve our customers in the future and take full advantage of this it never can grow up opportunities as the economy continues to recover and the environment normalize.
Despite the near term impacts depend that make has had on our financials. We do see a longer term silver lining Oh, I used sports and W.P. T.
Scammers abide by stay at home restriction and with fewer entertainment options. During the pandemic gaming is filling the void and its popularity is clearly on the rise.
On the Eve, what's side more time spent on gaming.
The proportions of gamers, who spent five plus hours per week gaming jumped from 63% to 82% during the pandemic similar.
Similar I mean.
More money is being spent on gaming.
Gaming industry has experienced a 39% increase in gaming span where compared to.
To prevent damage levels and expected to increase an additional 21% post pandemic well that's just.
Two spending before COVID-19.
And finally gamers are watching them more E sports content.
Audiences watched 7.5 billion hours of content across all live streaming platforms in the third quarter.
Year over year, the live streaming industry is up 92% compared to Q3 2019.
Well, that's left shift gears and review our third quarter results total revenues for the quarter of 5.9 million declined just two 2.5% from 6 million in the third quarter last year.
Considering the significant restrictions we had in our ability to operate how important events for both our E sports and W.P.G.. We are pleased with the results.
During the quarter, we generated a strong year over year growth in interactive services revenue as well as a solid increase in revenue if a multi platform content.
However, this was offset offset by sharply lower revenue from in person experiences as a result of COVID-19 that persisted throughout the third quarter.
As announced earlier in the year, we took significant actions to reduce our expenses and minimize the negative impact on our financial position results from the pandemic.
These actions, which included salary reductions and other cost savings measures reduce our DNA and selling and marketing expenses by 1.7 million this quarter versus the same period last year.
At the bottom line.
Our adjusted EBITDA loss of 1.1 million improved significantly from an adjusted EBITDA loss of 2.1 million a year ago, marking the third quarter as the best quarterly adjusted EBITDA results. Since we entered the public markets one year ago.
Overall, we remain confident in our ability to capitalize on the valuable positions. We created in the boy aging eastwards marketplace. While W.P.T. continues to steadily build his business and we believe.
Hi seem promising outlook.
As we have stated previously our goal is to maximize the potential of these complementary businesses through model built around three strategic pillars in person experiences multi platform content and interactive services.
With that let's turn to our third quarter operational highlights as well as an update on the Piercingly announced strategic partnerships.
Beginning with enforcing experiences similar to most businesses in the live entertainment and event industry in person experiences for both all our E sports and W.P.T. continued to face significant operational headwinds during the third quarter looking.
Looking first at all our exports after being forced to completely shut down due to the pandemic on our 17, our flagship Hyperworks E Sports Arena Las Vegas at the Loxo Hotel and casino. So sassoli reopened on June 25th with certain restrictions and modify schedule for daily play and weekly tournament.
To ensure the health and safety of guests and team members I've heard like E. Sports Arena has implemented an extensive sanitization protocols for all the venue and has deployed reduce operation operating hours.
Furthermore, enforced physical distancing remain in effect through all the quarter lowering customer capacity by approximately 35% are pretty pandemic levels with food and beverage service also limited.
We believe we have earned the trust of our customers to provide a safe place to play with our enhanced safety and Sanitization protocols.
That is that since the reopening.
The demand we have seen for our weekly tournament's is very encouraging.
Third quarter highlights included a weekly events at high for at least once the Reno Friday, Fracs, featuring fortnight and Saturday Night Speedway, featuring Mario Kart.
Both have shown considerable growth across all viewing matrix in the third quarter by comparison to the first quarter of free pandemic levels.
Most notably unique viewers increased 1144% with Friday, Frac and 136% with Saturday Night Speedway as compare to the pre pandemic level in the first quarter of 2020.
Well in person events continued to be limited by quite a pandemic during the third quarter. We are pleased to execute two events with the high Fourx East coast truck, including an outdoor event with local Saturday night Speedway sponsor Finley Volkswagen.
Oh, sorry, five on hiatus. The W.P.T. also resumed the in person pillar office business during the third quarter.
In August the W.P.T. returned to live poker with direct record setting WPP, Japan event in Tokyo.
The vans grew 726 players in W.P.D. first live event since March 2020, and marks the first time W.P.D. secure a mainstream sponsor for W.P.D. that WP to Japan was saga Sammy Corporation.
In September the W.P.D. hosted a second event with party proper U.S. network that featured another record breaking price pool in the New Jersey market of more than 432000 for the first four that W.P. the online Borgata Cirrus main event.
With the ongoing restrictions of important events during the quarter, we remained focused on interactive services and multi platform content.
Not only that this health.
Recruit nearly all off the in person revenues lost as a result of the pen endemic we are confident our efforts here will also help strengthen the pipeline of new fans as potential attendees at a live event when the pandemic subsides.
Similar to last quarter, the shift to holding events online continued to strengthen our interactive service pillar.
In the third quarter, we saw strong growth in our proprietary offerings, we extended the legend series brand and tournament format to valor and completing five online dollar and legend series tournament sponsored by Switzerland based home of exports.
Our community building efforts in dollar and let US do a partnership with riot games on a dollar an ignition serious where we launched our enforce Odyssey a six day event featuring the top teams in Europe.
They then set a company viewership record with 1.6 million lives views and 1.1 million hours watched on Twitch, but.
The success of our events in the third quarter grew our Twitter followers by 358%.
We also became a member of the East Force Integrity Commission and forge strong partnerships with E Sports Entertainment group and grid each boards that have begun to generate monetization opportunities through E sports betting via the licensing of video and data rights.
The vibe out Gigi CS go legend series ran for two weeks in September and deliver 1.7 million unique viewers across multi platforms, while driving a 400% increase in new users and a 300% increase in deposits on E Sports entertainment groups by that.
Gigi platform.
Hey, Vance, what's the story for all our airports its partners and the state of New Jersey, as the New Jersey Division of gaming enforcement and the New Jersey Economic development Authority and now has regulatory approval, allowing all events to be the first to offer legal E sports wagering end.
State.
In addition to violate our GGP. The event was carry on several other sports book platform, including Draftkings porn spat Bax 306, five technical you. When you have all one works and fun back.
We also laid out our vision for continued growth of our online tournament offerings in North America, where we will be hosting the combinations of month long series and single day pop up events to drive participations and viewership.
The valor runs dry strive serious.
And rocket lead combustion serious both ran throughout the quarter with more than 1700 players participating online.
The interactive services pillar for the ally E Sports business continues to mature input.
Importantly, the platform, we've built to host online esports tournament represent an important foundational building block.
In the future we expect to further develop the platform as an always on subscription based online service, where E sports player in Fandstan watch play and wins with other members of the sports community, along with East West personalities and inferences. This.
This online platform, we will be closely integrated with our offline experience is to create a how comprehensive and authentic esports tournament experience for fans.
Turning next to WPP.
We demonstrate further online success during the third quarter from July through September WPP hosted the first ever WPP Wall online Championships on party poker.
The serious was phenomenally successful with 100 million in guarantees in the festival and five W.P.D. champions crowned and their names added to the mice Sexton WPP Champions club pickup.
The 10000 by in $10 million guaranteed WPP main event drew more than 1000 players and became the largest WPP prize pool of season a team.
In addition to being one of the most successful event in W.P.D. history. This festival underscores the growth growing brand value of WPP online globally.
In addition to the online events the successful World Poker Tour Interactive services strategy includes club WPC online membership platform that offers a subscription based poker club with no purchase necessary.
Earlier in the year club WPP launched its $100000 club Wptz Diamond Championship promotion, which has proven very popular with members Paula.
Qualify us rent from June through October Cumulating in a $100000 price for events in November.
This became the largest single day tournament Prize pool in club Wptz history, with first place taking home $25000.
We also continue to be pleased with the new premium level of club WPC membership.
Club WPC Diamond.
Which successfully launched in June.
Diamond subscribers have exceeded our expectation and comprises a meaningful portion of the overall call WPP revenue.
Thanks in part to these activities clump wptz can points to some impressive growth statistics through the end of Q3, including new registrations increased 29% year over year total subscription revenue increased 105% year over year daily active users average increase 41% a year over year and.
And virtual currency sales on club W. PD are up 171% computer compare to par to the prior year.
Rounding out our business model pools in multi platform content, where we generated content that is live streamed post produce or package for consumptions on the 24 by seven basis and retain optionality in monetizations of content via direct distribution and sponsorship use of third.
Party distributors or other various hybrid solutions.
Our poker tour has executed this successfully for many years.
Overall, we continue to experience strong demand for our corporate television product.
During the third quarter WPC online sponsorship revenue from AD sales grew 23% over the prior year period, which is a promising sign as more content opportunity moves online to a global audience.
Moreover, WPP studios began the process of securing syndications for seasons 13, and 14 of the WPP television series in 2021, where they forecasted 80% clearance.
This could w. PD in the position of selling national advertising buys in 2021 and pushing for upfront revenue.
I think it is also important to note that linear household viewership in the third quarter was up 77% year over year, while OLTP household viewership grew 368% over the prior year period.
In fact, OTI third quarter viewership of 22 million households, surpassed lineage television viewership of 17 million households for the first time.
Before turning it over to Tony to discuss our third quarter financial in more detail I would like to provide an update on our strategic relationship with Simon property group and Brookfield property partners, who we are working with to deliver EA sports experiences as select Simon and Brookfield properties.
Earlier in the year Simons mall of Georgia located in the Atlanta Metro area was selected as the location for an hour E sports venue.
While the Simon project is currently suspended due to the pandemic these ports remain.
A key strategic initiative for Simon and to allow for this we.
We are talking about further extending the milestone dates under our partnership agreements until the Qubic banking crisis has ended.
With respect to our similar strategic relationship with Brookfield. We are following a similar path to open and on mall venue concept at Brookfield retail location. Once the COVID-19 crisis has passed.
Although the pandemic delays our timeline with expansion to mall, we remain confident in the prospect of this business initiative and we'll continue to update you on our progress in future calls.
With that I would like to turn the call over to Tony Hunt, our CFO for a more detailed update on our third quarter financial results Hey, Tony.
Thank you Frank good afternoon, everyone and thank you for joining us today.
Thank mentioned, our third quarter performance demonstrates the resiliency of our business and our ability to pivot our strategic focus within our three pillars admits that dynamic and challenging operating environment.
While our in person pillar continues to be impacted by the travel restrictions and social distancing protocols as a result of the pandemic. We made strides on the development of our multi platform content.
Interactive pillars, where we saw strong revenue growth this quarter.
As we continue to leverage these two pillars, while diligently working on the recovery of live in person the event.
Priority remains to manage our expense base strengthened our liquidity position, while executing our strategy and positioning ourselves for long term growth.
Now turning to our third quarter results total revenues for the third quarter of 2020 or $5.9 million down 2.5% year over year, primarily due to lower in person revenues, which were nearly offset by higher revenues from the multi platform content and interactive services pillars looked.
Looking at these results in greater detail in person revenues for the third quarter totaled zero point $7 million compared to $2.6 million in the prior year period.
The decrease of 73.1% year over year was the result of postponed events reduced operating hours and social distancing measures from the pandemic.
Multi platform content revenues totaled $1.3 million compared to $1.0 million in the prior year period, an increase of 22.6%. This.
This growth was primarily due to an increase in distribution revenue from two major customers.
Finally interactive services revenues totaled $3.9 million for the third quarter compared to $2.4 million in the third quarter last year or an increase of 62.1% the.
The increase was primarily attributed to strong growth in club W.P.T. subscription and continued success of our new premium club Wptz Diamond service.
Overall total revenues in the third quarter of 2020 derived from Allied sport decreased to 0.6 million from $1.9 million in the third quarter of 2019.
Total revenues derived from WPP increased to 5.3 million from $4.1 million in the prior year period.
While the effects from the pandemic across the globe continued to significantly impact our sports business.
Oh poker tours mature multi platform content and interactive services pillars allowed us to still realize revenue from the transition to online services and events and generate strong year over year growth through the quarter.
Total costs and expenses for the third quarter were $9.2 million down 6.6% from $9.9 million in the prior year period.
We significantly reduced our expenses in the in person pillar by 46.5% or zero point Sixmillion selling.
Selling and marketing expenses by 76.2% or zero point $5 million, and gn expenses by 23.7% or $1.1 million compared to the prior year period.
The decreases reflect our priority to manage expenses during the quarter and actively reduce all non essential spending.
The year over year decrease in total costs and expenses were partially offset by several factors first expenses in most in the multi platform content pillar increased 18% or zero point $1 million to 0.9 million expense.
<unk> expenses in the interactive services pillar increased a 119.5% or 0.7 million to $1.2 million compared to the third quarter of 2019 and online operating expenses increased 90.7% or zero point $2 million as we continue to build out online events and production services as the Rick.
Every of light in person events continue.
Total net loss for the third quarter was $6.5 million compared to a net loss of $4.3 million in the third quarter of 2019 total net loss for the third quarter of 2020 was negatively impacted from a noncash extinguishment lot 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 payment on the senior secured convertible debt during the period.
Moving to our balance sheet.
At September 32020, our cash position totaled $10.8 million, including $5 million of restricted cash compared to 12.1 million at December 31, 2019, which included $3.7 million of restricted cash the.
The decrease of cash is primarily due to funding our operating activities and the repayment of our prior bridge notes, partially offset by new funds raised during the year.
As of September 32020, we had convertible debt and bridge notes totaling $3.4 million in gross principal which matures on February 20, Threerd of 2022.
We also had convertible debt in the gross principal amount of 5.7, which is payable in monthly installments through June of 2022, and can also be accelerated at the option of the lender into.
In total we reduce the outstanding principal of our convertible debt balance by 3.9 million from the prior quarter.
Subsequent to quarter end, we pay down our convertible debt principle to $3.1 million.
In summary, we continue to strengthen our offerings and multi platform content and interactive services pillars as evidenced by the significant growth this quarter and those pillars and the successful W.P.T. model continues to serve as a guide for the expansion of the Allied is sports business.
We remain focused on maintaining safety for our employees and customers, while continuing to look for opportunities to optimize our capital strengthen our balance sheet and create value and growth for the future.
With that we will now open the line for Q any operator.
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Our first question is from Brian Kinstlinger with Alliance Global Partners. Please proceed.
Great. Thanks, just a couple things.
Thanks for taking my questions you mentioned on the in person events now your capacities at about 65% I think I got that right.
Can you talk about first of all.
How full the average events are and then how is that improve gotten worse. The same you know how are the trends in October November compared to may be September.
John can you step into a good his question.
I'd be happy to thanks, Brian for your question. So are in person events are limited.
To 65% of capacity do social distancing based on how many computer stations, we can get on our arena floor.
We've seen great numbers as far as the capacity.
Concerned we're filling that we're filling those.
Those stations week in week out on our event night. So we remain bullish add if we are able to increase the capacity when social distancing lift we will be able to continue.
Continue to to fill those Ah fill those seats.
Great and then in terms of a potential second wave of co good to take us through whats happening.
In Las Vegas.
There is issues at all and you know are.
Are there do you see any need to make any changes in today's environment, which as you know.
Every month is different.
I'm happy to take that question as well so the Vegas was was one of the one of the strictest places.
Debt.
At the early onset of the pandemic.
And so at the end they have also been able to open up earlier than than that many locations out there and I think what we've recently seen is an increase in the permitted gathering number from 50 up to 250, I think one of the things that.
The general climate in Vegas is really focused on trying to bring conventions back.
And so there is a lot of collaboration not only with event organizers, but with check and and the medical field to be able to create a safe environment I think thats one of the things being an operator in Vegas and having.
Having our facility there will tend to benefit from some of those early waves of technology that that increase the safety of gatherings.
So what we're seeing right now is not really any kind of change in protocol we're seeing.
The folks kind of like holding at that number and that number is only increased to 250 recently, so we haven't seen any downward pressure against that number.
So at the moment, but we'll continue to evaluate that going forward one of the things. We've we've done is we've really earned the trust of our customers who come back to us weaken weak out.
Because we put on a safe we put out a safe environment for people to play.
And and do that.
There is little concern as possible given everything that's going on in the world.
Great switching gears, a little bit turns into real gaming model in Jersey event can you remind us how you monetize gambling events are you taking a vague.
Percentage of that big by the operators just maybe a quick description on on how you'll generate revenue.
[noise], Jeff happy to yes, so what we do with that we're selling the we're licensing our data and video rights. So if you think about US is operating the event within that game, where we're operating a server which.
She is hosting that game and so we're we're leveraging the data and video rights off of our stream and and our our game play and ER, and then selling that to and licensing that to operators sportsbook operators around the world.
And so we will collect the licensee for.
For them to be able to ingest ingest that information and to create lines and ER and create.
Great great offerings around our country.
Thats the sports folks around the world will be able to replay on events.
Or.
Yes, I would I understand they're not likely going to fill a replay events and sports books, you can place bets on these events.
So they are absolutely lives just to correct that and they are absent major live events, yeah, they're taking in a live feed from us and and then ultimately then being able to process that and and create lines and in some cases provide that video on their platforms as well find a pay.
Great Great question.
Yeah, we're not going after that you know about that this experiment is what we tried to do is create an experience or offering that is.
Custom made a full four bookmaker. So that you know we can create the consistency the frequency.
Good few hours block every day, so that they can continue to see actions on on their book. So is the trial I think our partners are very happy about the results so far.
Great last question I have you talked about the cost reductions yet you still burn $3 million in cash from operations just back of the envelope looking at the cash flow statement show is more being done to reduce the cash burn or just maybe some thoughts you know high level I'm I'm what needs to be done to reduce that.
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Sure. Brian This is Tony why don't I go ahead and take that one yeah.
Yeah, Q3 was a little bit of an anomaly in that we had some timing issues in some kind of one time items that were kind of part of our normalized burn.
There was some some timing with.
Cards to the tax withholding payments that we had to made for a bunch of the shares that were issued to a number of our employees. We also had a large dino insurance premium and a few other things like that so those all affected or the the normal operating burn I would say more from an.
Normalized perspective, we've been doing everything we can to bring those costs down and I think we've done a very good job of those and that you should be able to see it continue going forward.
Okay. Thanks, so much.
Our next question is from Derek Satterberg with Colliers Securities. Please proceed.
Hi, guys. Thanks for taking my questions I wanted to start with the World Poker tour business as it relates to the club W.P.T. side.
Can you give us any details on your expectations for the business from here and then also how would you guys sizing that opportunity.
Yes. So this is out of speaking thanks for the question.
So right now we've launched our new Diamond club and so I think we still have a lot of growth in that and what what I can.
Sorry, just you know when you when you go from 24 to $27 up to $150.
It's it's not so much that the.
The margins change because you do have additional you doubt do have additional price will put the absolute dollar amount of changes and so it gives us a lot more room and what it does it also gives us a lot more room to do still yet marketing some things that the the the <unk> club.
Club at that level really it's not as competitive with some of the.
Online gaming affiliate models out there. So what we see is a great opportunity to begin affiliate marketing something that we have not done but we are now.
Now able to do and you know I think that that provides a good avenue for us as well and in addition.
As real money gaming starts to open up you know social gaming is a great entry place for gamers of calls a ball locations and so what we're finding is that we're getting a lot of inward bound inquiries from real money gaming companies not just in poker, putting sportsbook in other areas as well who real.
Why is it this is a very valuable database.
These are people who or.
They're coming in they have an interest in competition online competition at the same time, the fact that they're in the social gaming space probably indicates that a you know there at the portion of their journey, they've not selected a real money gaming partner mix.
That wasn't available in the U.S.. So I think that that provides another avenue.
Growth in that respect as well.
Okay, and then with in interactive you guys have the virtual product revenue you know the same going on those others are.
Are those businesses benefiting as well from some of the trends that we're seeing and then how are those partnerships going.
Yes so.
Yeah, I think in general everybody is benefited from a from the.
People being home people.
Realizing that this is a entertainment and so so some more than others in terms of Oh, our captive clay.
All right you know agreement to acquire Wptz side of the business.
That which as you know so.
Far more based on a Rev share I think that that you know we do see some.
Do see benefit from that in terms of the relationships are the relationships with the good part of the decisions that we have to make going forward is related to database and names ultimately you know it's.
We take great pride, besides that people want to license the WPP name.
But it does present an opportunity in the in the future we might want to consolidate these things and put them on just so that all of the names fall under our umbrella you know as opposed to the licensing model. So we'll see about that but you know it's so far things is.
Things have been a good and we agree with you.
I enjoyed the partnership's pretty well.
Great and then my final question is just kind of a broad question on the industry. I know you guys had mentioned some really nice numbers on viewership and I was wondering if you can provide some additional commentary on you know how.
How you guys are going to monetize some of that for the online events you know.
Viewership is clearly up.
I'm wondering.
However, as revenue per event, particularly online events has had been trending upwards.
Have you seen increased engagement from.
New customers any additional detail on sure. How you guys are monetizing those trends sure.
Sure sure, let's not apples to apples because before you know we've always had basically 60 fives physical events suddenly we had a pandemic. Fortunately we were prepared to test out our first online that before the pandemic.
We just accelerated that that was the event in may that proved so successful that we did the world Championship with party poker.
Which you know as Frank mentioned, they put a $100 million of guarantees behind it.
What is.
What is very nice about the online opportunities and we will you know we're never going to go back to a world where there's no online.
World Poker tour events is first of all the margins are significantly better.
Secondly, the intrinsic value that we bring can be replicated over thousands of people. You know we still have you know we still have our host.
Having dialogue with you know the winners at the final table, but now over social media instead of a stream that might you know reach a you know seven.
Seven is several thousand people that you know, while you're while you're at that at that time before the TV show goes out you have the chance to many many many people.
Who have been playing in right are watching the news the other aspect about this is yes. The viewership is up but one of the things that I. You know you want to point out was for the first time.
We saw.
Total viewership on line exceeding linear television so.
So that's a that's a good turning point.
And that's relevant in two respects first of all the World Poker Tour has one of the largest databases.
Quality poker content.
You know five or six years ago, when the world went on to streaming the World Poker Tour continued to do high end television multimillion dollar productions.
So we were able to make relationships through say Pluto, where we could come in and say Hey, you don't worry you're not getting a couple of seasons or whatever we have an entire channel that we can start from day, one that is going to be quality for you know what the online platforms or are trying to develop it.
Make no mistake those online platforms are becoming competitive with a linear networks in that respect. The other reason why that's important is because if you think about it you're watching television and you know we tell you. We do other car club call outs. We tell you to go club W.P.T., we want you to watch the show.
So historically for the last 15 years people would watch the show they get off watching the show they sign up.
Well, you're that much closer and that <unk> and much fewer much less friction when your online and you're watching and you see an AD and you can convert over and so we think that we will be seeing more and more of that effect is our growth in the online platforms and no TT platforms continue.
Also we have a massive database of some of the greatest moments of poker those.
Those little clips become so immensely valuable that we have in inbound inquiries for them and we're using them for ourselves because in essence those are a little viral pieces of information you put them up you have thousands of people watching you know we had a.
We had over we had over a half a million views in a few days from one viral Cook we had put out.
A few weeks ago and afterwards, you can still put your same ads on those so we think that the online growth and the fact that we control our database on a percent of our database and were able to work with the online platforms is a strong managed the company.
Great. Thanks.
We have reached the end of our question and answer session I would like.
Like to turn the call back over to management for closing remarks.
Okay. Thank you for your support and for joining us on today's call.
We look forward to speaking with you again and when we report our 2024th quarter in March. Thank you again for the 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.
Thank you.
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