Q2 2021 Allied Esports Entertainment Inc Earnings Call
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Thank you for standing by this is the conference operator.
Welcome to the Allied Esports Entertainment second 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 to.
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Should you need assistance during the conference call you May signal, an operator by pressing star and zero I would now like to turn the conference over to Alaska Closson Investor Relations. Please go ahead.
Thank you operator, good afternoon, and welcome to the Allied Esports Entertainment 2021 second quarter results Conference call speaking on the call today is allied esports entertainments, Chief Executive Officer, <unk>, <unk>, and Chief Financial Officer, Tony Hawk.
<unk> had again, who is leading the allied esports operations is 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 Companys 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.
Definitions of such non-GAAP financial measures reconciliations to the appropriate GAAP measures 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 entertainments CEO Claire will Claire.
Thank you Nathan and thank you everyone for joining us this afternoon.
I will begin by discussing the lease then can leadership transition at AFC.
As an overview of the key operating highlights.
Part of the quarter. In addition, I will provide an update on the company the strategy our board of directors and management team evaluate future expansion path.
Tony Hall, our Chief Financial Officer will follow with additional details on our December quarter financial performance.
Now too late in the quarter.
Financials, we are reporting today pertain to our continuing operations, which includes our esports operations under the coordinated top core expenses.
Covid along we completed the sale also world Poker tour or tableau P. T two element parking garage.
The third quarter and the last for the tablet P. T results are presented as discontinued operations.
Three six months period ended June 30, as well as the comparable periods for the pay rate yes.
Having been appointed to the role of CEO.
President and general counsel of Aes <unk>.
Just about the cycle makes us all I'm very honored to lead as the day to day operations of the company.
Those of you who might be put.
Put me in my background I believe more than 15 years of relevant experience to a S E. Most.
Most of the leases.
Yes, President and General Counsel for HFF, Inc.
Well I've seen their counsel and then Europe.
Law firms they are at a hunter I understand trial.
Prior to accepting the C O President and General Counsel position I've served and will continue to serve other director on the board.
Bob.
Throughout my career I have had excuse illegal and the business excuse me in cross border transactions U S Securities regulation.
Jonathan Liquidations capital market transactions as well as co pay of the strategic planning and distracting.
Believe this will serve the company well as we look ahead to the future and attack the cost well see going forward.
On behalf of the entire team I would also like to express our thanks and gratitude to strengthen a bit.
The company has since it became public in a trade it two years ago and the help the E. S P and navigate the complexities of the COVID-19 pandemic.
All the best to AK steel to pursue it.
With that let's move onto an overview of our results for the second quarter of 'twenty or 'twenty one.
Overall I'm pleased the way the state the progress of our esports business.
<unk> created by the 65% quarter over quarter gross revenue.
This growth was driven by the gradual recovery of the in person panel of our esports thickness.
We slowly emerge from the COVID-19, pandemic and continue to benefit from increased before the traffic in Las Vegas, and the return of live events and social gatherings.
In addition, during the second quarter, we saw the early revenue contribution from our multi platform content to Pandora.
While the re assumption of in person events will be an important growth driver of our esports event in the near term. We have also made good progress over the last several quarters building out the capabilities in our multi platform content pillar.
During the quarter, we announced the launch of our <unk> Studios.
Which will serve under original content development.
All the training on the production services.
For partners of esports.
I will provide additional details on this important initiative later in my remarks.
And assign a name that's been acquainted to quarter end, we completed the sale of W. P. P. Tau element partner in an all cash transaction for.
$105 million.
W. P. P is a key milestone as it is the conditions continue to improve our liquidity position with over 100 million for cash today, we have significant financial flexibility as we look to maximize shareholder value through the utilization of our cash on concluding.
Our strategic exploratory profit for our esports business.
Now, let's turn to our second quarter operational highlights well our <unk> business.
Waste for the start of the COVID-19 pandemic recovery.
In the quarter.
Cautionary restrictions were lifted in Las Vegas during the first.
This has resulted in increased demand for all of our terminate.
Actually services under NATO allies export production of 81 events in the second quarter.
An increase of a 137% comparing to the prior quarter.
<unk> 38 per territory event on the 14th straight third party online and in person protection.
B T E Arena and a nice start to pocket tournament the protections.
Over 14200 players compete online it's protected the parliament and the second quarter of 2021.
Compared to approach them to May 17.
How does it play is in the prior quarter.
Preparatory production with Apple the Hyperx esports are right on my fingertips what.
One 3% from the prior quarter with the company either in locked down a deal fighting game competition too if we could schedule, which continue to drove players from all around the United States.
In April the.
The company also hosted a new edition of its merger into serious tournament, which was the word the first the esports tournament the production between live animated commentators.
Partnership with motion capture technology, neither accents.
But you've been deployed a three day football team winner take all format, not including the wagering opportunities for better.
Greenville, clawed our way along the way Sonic.
Facial gaming monitor on the streamer room partner Hyperx esports arena and that's what he does.
As part of this partnership all players arena.
And it is supposed to truck in North America, how does the opportunity to play baseband because in that brand of gaming monitors.
Additionally, the company partner other ways esports and content creation organization.
86 day his boss on sponsor Activations with Ms. That's the potato chips and other brand data snacks around and that is false E arena programming locked down on the Saturday night of Speedway.
Third party events increased amenities 15th for quarter over quarter.
The significant increase was driven by our meal Parliament authorization partnership.
Tension back with streaming platform travel.
Both of whom are asphalt will produce over 100 of parliament.
<unk> North American Europe.
And in Latin America through all the 2021.
In addition, prior towards the lifting of in person restrictions in early June the <unk>.
Hyperx esports arena continue to serve as the COVID-19 States Apple environment, both face IP protection of the Rainbow six in North America as well as the host of the Zombies World Championship.
Although the company is more expansion patents would be San Juan properties, and the Brookfield property partners continue to remain on hold.
I know, it's supposed to truck will continue to break Amy activations to fans around the country.
To this end, we recently announced a sudden stop is supposed to Choctaw with NASCAR.
Knocked off a working Green New York earlier, this month, and we'll be making stops at Daytona International Speedway, Talladega Superspeedway, Michigan International Speedway cancer the Speedway.
Well on the Phoenix Raceway throughout the rest of the summer and into the fall.
Well after the pandemic.
And I had esports have made us the condition tinnitus stretch to advance the company's multi platform content to pair.
Our foundational as part of this effort towards our 20 people all of our content strategy on Twitch, which saw opened 5 million lives will build in the second quarter alone and increase the followers by 28% from the pivot culture.
Altogether. The company has delivered over 15 million lives will.
It's towards channel since launching as a 24 hour stretch due in November 2020.
As I highlighted at the beginning of our call we announced the atheist studios during the second quarter.
This division of the company will serve of the original content development.
Repay me under production services.
Esports for partners looking for a twinkie solution outside of esports tournament operation on the broadcast.
Through <unk> studios, we will leverage our years with digital content creation and a world class production facilities to design and produce digital first the project for clients and partners spanning a variety of industries such as gaming Entertainment.
Pop culture music and sports.
I used to do is have hit the ground running with the protection of our 24 excellent service.
And the breakthrough show them what tweaks.
The interactive content to serious future spend level is complete.
Competing in studio and had to have on the virtual versions of some of the public Golf course aim award.
Kevin Tonight streamers participate as a home on the best could talk a version of the game.
They show the second season kicks off on August 24 hour trip, starting pay rates large to small.
Distribution of our growing content library with two concurrent play holds over 600 hours of esports programming.
With this strong demand and is now live on sell in over the top or OTT streaming platform through a distribution agreement, we have a long way from Lux IP to distribute esports content around the world we.
We believe this is the beginning of additional distribution opportunities for our content library and the real estate over 250 hours of our esports tournament content.
On those platforms.
Before I turn it over to Tony to discuss our second quarter financials in more details.
I would like to also provide a quick update on the company's longer term strategy for our <unk> operations.
The rapid growth and the popularity of gaming and esports during the COVID-19 pandemic has it driven so can this kind of interest is.
His thoughts.
Is that WPZ is still complete we have began to accelerate our progress along the plan to explore strategic options for the esports business.
Calling a possible sale in order to maximize shareholder value.
Out of the process, we are actively working with Lake Street capital markets.
Lisa.
With that said no definitive a buyer has been identified to purchase but it's both business and there are no active negotiations of yet irrespective to the sale of the esports business.
In the meantime, we will continue to operate at the esports business and execute our business plan.
On a pro forma basis.
The profit from the tablet P T cell of a cash position net of outstanding debt totaled $101 million.
With this cash along with any cash that may become available as a result of agent sale of the esports business in the future, we intend to explore opportunities to acquire or merge with our existing business.
This includes a business in.
By independent real money gaming and other gaming sectors.
However, the company does not plan to limit yourself to any particular industry.
Geographic location in its efforts to identify prospective target business.
Okay quit carrier for a potential attack of the fitness equals a pull them through this model and experienced a 90 minute team and accretion to the company is a digested the epitopes.
The company expects to engage with an investment bank to assist us in this process.
However, I do want to make it clear that at the present, we do not have any specific merger asset acquisition right.
Reorganization or other business combinations under consideration or contemplation.
I'll provide you with an update on our progress with respect to this pursuit on future calls.
That concludes my prepared remarks.
And at this time I'd like to turn the call over to Tommy home Overstay F O for an update on our second quarter financial results Tony.
Yeah.
Thank you Claire good afternoon, everyone and thank you for joining us today.
While the pandemic continues to impact our business in the second quarter, we saw at the beginning of a recovery as cautionary restrictions were lifted in June in Las Vegas, and economies across the country began to reopen.
And for our tournaments and production services also increased and allied esports experience meaningful improvement this quarter.
In addition, we've continued to make progress on the development of our multi platform content pillar and announced a new division of the company as studios during the quarter.
Momentum is building and Allied esports is well positioned to continue driving improved results in the second half of the year.
Now, let's turn to our second quarter results from continuing operations.
Total revenues for the second quarter increased 32, 9% to <unk> 8 million compared to the second quarter of 2020.
Looking at these results in greater detail in person revenues for the second quarter increased eight 1% to <unk> 7 million compared to zero point $6 million in the second quarter of 2020 as a result of the increased number of events and loosened restrictions of operating hours and social distancing measures at our Hyperx East.
Sports Arena Las Vegas.
The increase in in person revenues were partially offset by a decrease in sponsorship revenue due to a lack of in person activation and truck events in Europe, where the lingering effects of the COVID-19 pandemic remain a concern.
Our multi platform content pillar generated <unk> 2 million in revenues for the second quarter, driven by our New tournament organization partnership with <unk>. The 10 sent back streaming platform.
Total costs and expenses for the second quarter were 5.0 million down from $5.3 million compared to the prior year period.
The year over year decrease was primarily the result of the one time impairment charge of $1.1 million against our investment in E. S. A during the second quarter of 2020.
This decrease was partially offset by several factors.
First in person pillar costs and expenses increased by 29, 2% and selling and marketing expenses increased by 50% compared to the prior year period as the recovery of live in person events grew.
Second general and administrative expenses increased by 25% as compared to the second quarter of 2020. This year over year increase was primarily due to salaries returning to original levels in 2021 versus temporary lower salaries in the second quarter of 2020 and reaction to the Covid pandemic as well as <unk>.
Increases in legal and professional fees incurred this past quarter in connection with the sale of W. P T.
We continue to prioritize expense management and actively reduced all nonessential spending across all of our Cogs and expense item.
Adjusted EBITDA for the second quarter was a loss of 3.0 million compared to a loss of $2.2 million in the prior year period.
Net loss from continuing operations for the second quarter was $4.3 million compared to a net loss of $10.7 million in the second quarter of 2020.
The year over year improvement was primarily a result of a onetime noncash conversion inducement expense of $5.2 million from our debt refinancing that occurred in the prior year period.
Now moving to our balance sheet.
At June 32021, our cash position totaled $16.8 million, including 5.0 million of restricted cash and $4.1 million of cash in connection with the W. P. T business and included in current assets held for sale, but which was available to fund the allied esports business until the closing of the W. P T cell trans.
Action on July 12, 2021.
This compares to our total cash position of $14.2 million at June 32020, which included 5 million of restricted cash and $7.4 million of cash held at W. P T.
As of June 32021, we had convertible debt and bridge notes totaling $3.4 million and gross principal which was paid off concurrent with the closing of the W. P T cell.
We continue to see progress in our esports business. Our in person pillar is gaining traction and we are excited to see more activity and events booked for the remainder of the year as we slowly emerge from the pandemic. We also continue to strengthen our offerings in our multi platform content pillar, while judiciously, managing our costs and <unk>.
<unk>.
The significant cash received from the sale of W. P. T also strengthens our liquidity position to explore strategic option for the esports business and maximize shareholder value.
While we are not yet in the clear from the effects of the pandemic. The recovery is certainly underway and we expect our business to continue to improve in the second half of the year.
That concludes our prepared remarks, and we would now like to open the line for Q&A operator.
Thank you.
I'll now begin the question and answer session.
To join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request.
You are using a speakerphone please pick up your handset before pressing any keys.
To withdraw your question. Please press Star then two.
We will pause for a moment of callers join the queue.
The first question comes from Derek Soderberg with <unk> Securities.
Please go ahead.
Hi, This is Ryan on for Derik. Thanks for taking my questions. I'm wondering if you can provide some more detail on the M&A environment out there and how youre prioritizing using the cash as this environment favorable at the moment to find growing a profitable company for a reasonable price that can you maybe describe your ideal target and as a company and real money gaming content producing.
Or any more detail that'd be great.
Hi, Derek Thank you for the question.
Yes, with one hundreds of millions of cars from the W. P. T deal, we intend to explore many of them onto a opportunities with the completion business.
Calculation does that include business, all night attainment real money gaming and other gaming sectors.
With all that being said the carbon today the company does not plan to limit yourself to a particular industry or location.
It's ever had spent identify possible potential business.
And the Tani do you have anything to add to that topic.
Yeah, No Ryan I think as you've probably been following the market. Obviously has been pretty active for M&A and I think that's something that we're watching very carefully and it's Claire described I think the good thing is is that we have a pretty broad mandate in terms of looking at M&A activities. So we're not kind of boxed in to <unk>.
To do particular deal under a particular timeframe and then have to do it under poor economic deal terms. So I think that gives us a lot more flexibility to be able to find the right deal that's going to maximize shareholder value.
Yes, Thank you and as a follow up I'm wondering if you could help us understand your expectations for what cash burn are and where we should be modeling opex for the rest of the year. Thank you.
According you want me to grab it ends up.
I can answer first on backing up to not to record details.
Yeah regarding the cash burn of esports business cousins and their R&D priority.
We will be continue to grow revenue, while the opposite Tom can reduce expense.
A more efficient company.
In terms of our revenue growth and we are.
This as an important revenue bumping back either they are very excited about the growth of our multi platform content panel as.
As far of the improve of efficiency side.
CEO of a company I'm, leading the team to take a fresh look at all costs and expense as.
As well as the elements of our business.
We saw most of the profit at all.
And now I'm going.
And then they pay us to Tony to add any more details.
Yeah, and Brian I guess, just to kind of follow up on what Claire said I would say for the short term as you've kind of seen from our earnings release, probably you know historically, we've been burning somewhere around 800000 to a million a month between the kind of esports business as well as our corporate Topco expenses and so for the short term going forward I would.
Expect that to be kind of a nice place holder, but its Claire mentioned.
Obviously, we're going to be looking at new revenue opportunities and also potential ways to.
Identify more operational efficiencies to kind of help bring that down over time.
Thank you very much.
Sure.
This concludes the question answer session.
I would like to turn the conference back over to management for any closing remarks.
Thank you for your support on the phone joining us on today's call. We look forward to speaking with you again, when we report our 'twenty countrywide third quarter or in the window.
Again for your time agitation. This after now I'm, a crazy stay safe and healthy.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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