Q3 2021 Allied Esports Entertainment Inc Earnings Call
Greetings and welcome to the Allied esports entertainments third quarter 2021 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
I'll now turn the conference over to your host lots of glass in Investor Relations. Thank you you may begin.
Thank you operator, good afternoon, and welcome to the Allied E Sports Entertainment 2021 third quarter results conference call.
Speaking on the call today is allied esports entertainments, Chief Executive Officer, <unk>, <unk>, Chief Financial Officer, Roy Anderson and COO.
Co chairman of the board and President Lyle Berman.
Before I turn the call over to management.
Remember that our prepared remarks and responses to questions may contain forward looking statements words, such as May will expect intend plan believe.
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 as 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 entertainments CEO buyer will clear.
Centralized I understand you every one for joining us at least out to know.
My remarks today I will begin our discussion of the recent changes in our leadership team at H E F E.
Overbill after important operating highlights from this past quarter.
We understand all of our Chief Financial Officer.
We will follow with additional detail on our third quarter financial performance.
Lyle Berman.
Co chairman of the board and the President will conclude with an update on the previously announced a strategic process for all of our esports business.
A long ways the company to progress on our ongoing activities to invest our cash from the sale I'll now wanted to poke on tall Oak capital P. T. After our prepared remarks, we will open the floor to questions.
Turning first to listen to changes in our leadership team.
Launched earlier this month Linerboard man cognizant co chairman of the board.
Assumed additional duties as president of the company and will head up our Investor relations effort.
Furthermore, E watch on a kind of a director has been named the Tracy investment officer, together Leila to eat wildly off books.
<unk> the sale of our esports business and identifying opportunities to invest our cash to maximize shareholder value.
And finally <unk>.
I'm very pleased to introduce as we understand our chief financial Officer.
Really joined as a company that's come off and how to truly hated the Columbus Rami.
Say, if all he will have responsibility for overseeing all aspects of our accounting financial reporting on the planet in Calgary and attack the activities.
Before Charlie E F E.
He was a partner that does U S. A.
Depends on the member firm of mass that's cool.
Otherwise on the walk the closing date was the top of it because that piece and investors of companies in the technology media and telecommunications market ranging from startups to large multinational companies.
He brings a strong need of shipping quantities financial insight and the strategic and then eight experience to our executive team.
Combined the waste he's a broad base of industry expertise.
Ideally suited to lead our finance and accounting activities as we move forward.
With that let's move onto an overview of our results for the third quarter of 2021.
This quarter was a very productive period for our U S E highlighted by a strong quarter of growth from our esports business.
You don't leave this quarter, our total revenue more than doubled from the last quarter and the increase to over 182% compared to the third quarter of last year.
This growth was driven by a sharp recovery of the impress and pillar of our east coast business.
The U S economy, almost fully reopened.
Coupled with a steady kind of illustrate that the food traffic and as a return of nine independent events.
That said and the publisher who will all my largest customer parents with the pandemic has not been yet to resume in person events and could provide an additional boost to our in person parallel Wednesday resume normal activities.
In addition, our multi platform content the pillow generally paid a solid revenue contribution and we continue to make strides towards monetizing although of course content library with case screen and partners.
Well as building out our production still gives us the capability to AE studio.
Importantly, during the quarter, we significantly improved our liquidity position leaves us still of W. P T.
Element to partners.
All cash transaction for 105 million.
Since the completion of the tablet P. P transaction in the summer we have made good headway in evaluating opportunities to invest our cash.
We also made good progress exploring strategic alternatives for our esports business and the recently signed a long by being net of intent to sell all of our esports asset light.
Lyle will discuss this in more detail in his remarks.
What does that mix now turn to our third quarter operational highlights for all of our esports business.
The recovery from the pandemic continued in the third quarter with increased demand for parliament on the production services.
Two L E sports production level, sometimes independent events. It was this quarter an increase of 31% versus the last quarter. This included 13 nine per territory events under 71 store Department I'm not on the imports and production.
In total over 8000, the players computed E I like esports cutback data events.
Third quarter.
With the easing of pandemic related restrictions.
<unk> cried territory events, such as locked down under Saturday night as Speedway, so 24% increase in player injuries compared with last quarter.
Also and do they messed up are willing to lend auto dealership in the Metro area.
It becomes a little presenting sponsor.
Saturday night of Speedway mutually merial caught up the Hyperx esports arena and that's because.
Third party events companywide were up by 51% quarter over quarter.
This was driven by an 18, 9% of inquiries is sort of party events onto protection books, either Hyperx esports arena mid fives, They say at the protection of the windfall six North American net.
Where the cost risk kilroy real between well guys I, just don't want to put control final tables.
Additional contributions came from the Companys organization and the production of trouble tight hands in North America, Europe, and Latin America, but patient back to the streaming platform trouble.
E studio the company's new original content.
We pay me Underproduction service arm also produced a number of events, including the celebrity show Dol what Twitch.
Although the company is more expansion plans with the Simon property at the broker sales of property partners continue to remain on hold.
And that is supposed to truck in North America continued to bring gaming activations to fans around the country.
During the quarter and that is false traffic again.
Southern stopped Paul.
Last call Cup series events.
All forward to gain the activation.
The truck, let's also you Tonight, but amongst the energy in its activation.
Three the habit walks first of all what can help them out.
That's pretty close to quarter end October.
The eye is supposed to talk Eagle returned to action.
Waste part of that travel on the pumps named game Arena, which is the largest computer console and the multimedia independent affair in central and East single Road.
Well after the pandemic. We also made a significant strides to advance allied esports multi platform content to pay it off.
To this end the first major milestone was the launch of a 24 hour content of stretch the outrage, which saw a three one to 2 million lives will build in the third quarter of 2021.
The increase the full loss by 24%.
As far as the company has delivered 14 7 million lives will its culture channel since launching the 24 hour trajectory in November 2020.
I am pleased to report that the complex content library cognizant of host over 1000 hours of esports programming with distribution on pin streaming platforms around the world.
Earlier this year, we successfully launched the AE studio.
He used studios will leverage our years, all the digital content creation and the world class production facilities to design and produce digital first content, both clients and partners spanning verity of industries.
Such as the gaming Entertainment pop culture music on the spot.
During the third quarter as studios production levels to literally pay so Dow will trade on the eighth grade just spoke channel are the 16 episode.
Sure Ron was extended from 24 to 30 episodes for 2021.
Subsequent to quarter end.
Allied esports was recognized.
10000 esports business awards in October.
A finalist in the innovative use of technology category.
Awards acknowledge the company or its production will do the work first.
His boss told him and between live animated commentators.
Partnership with motion capture technology leader Excellence.
This is a great honor and reflect the spirit of innovation that has made the allied esports and neither is the competitive gaming industry.
Also subsequent to the end of this quarter.
Studios produced as a live stream of the first ever.
Although trumpf are shaping Suez Invitational tournament flung, the Hyperx esports arena on November 11.
The event was hosted by professional Gamer under Streamer, Tyler's big jump living under real strong as long as the word well able to watch live on you know people talk channel.
Final news comparatively a winner take all 50 solid enterprise.
That concludes my prepared remarks, and at this time I'd like to turn the call over to Brent Anderson RFA, if all well update on our third quarter financial results really.
Thank you Claire good afternoon, everyone and thank you for joining us today.
I am excited to joined H E. S. C. During this transfer transformational period and look forward to contributing my expertise in leading the accounting finance and M&A activities of the company.
As Claire mentioned, we continued to see the recovery from the COVID-19 pandemic positively impact our business with increased demand for our tournaments and production services, which led to strong growth in the third quarter. In addition, we continued to make progress on the development of our multi platform content pillar led by contributions.
<unk> from the recent launch of <unk> Studios.
Now, let's turn to our third quarter results from continuing operations total revenues for the quarter increased to $1 $7 million up 182% compared to the third quarter of last year.
Looking at these results in greater detail in person revenues for the third quarter increased 144% to $1 $5 million compared to 600000 in the prior year period.
Growth was primarily driven by the increased number of events and loosened restrictions of operating hours and social distancing measures at all right.
Hyperx esports arena in Las Vegas.
Multiplatform content revenues for the third quarter totaled $200000 driven by our new tournament organization partnership with <unk> the tension back streaming platform.
Total costs and expenses for the third quarter were $5 $6 million awesome.
Compared to the prior year period.
Year over year increase was due to several factors first in person pillar cost and expenses increased by 95% selling and marketing expenses increased by 66% compared to the prior year period due to the strong recovery of lives in person events, Secondly, general and administrative.
Expenses increased by 41% as compared to the third quarter of 2020.
The year over year increase was primarily due to a $400000 severance for Q4.
Former CEO, along with additional compensation, including of the normalization of salaries in 2021 as compared to the temporary salary reductions that were in place during the third quarter of 2020 in response to the COVID-19 pandemic.
We continue to prioritize expense management and actively reduced all nonessential spending across all of our cost and expense items.
Adjusted EBITDA from continuing operations for the third quarter was a loss of $3 million compared to a loss of $2 4 million in the prior year period.
Net income for the third quarter was $74 $3 million compared to a net loss of $6 5 million in the third quarter of 2020.
The year over year improvement was primarily driven by the gain on the sale of W. P T.
While the gain on the sale of W. P. T for financial statement purpose was approximately $80 million as there are no current federal or state income taxes payable due to a combination of the flowers first.
The company's tax basis in the stock of WP T of 99 $9 million on the date of sale.
Second the company's current year 2021 projected tax losses, and finally as needed. The company has net operating losses generated by E. S E and M life sports that would be available to offset any cash tax liability.
Yeah.
Now moving onto our balance sheet at September 30 of 2020.
One our cash position totaled $102 million, including $5 million of restricted cash.
This compares to a total cash position of $5 $4 million at December 31st 2020, which also included $5 million of restriction restricted cash.
The company's working capital surplus defined as current assets minus current liabilities was $98 1 million at September 32.
2021, compared to $26 $3 million at December 31, 2020, which included $36 $2 million of net assets from discontinued operations.
On July 12, 2021, the company sold the stock of W. P T four $105 million, including a $10 million deposit machines in March of 2021 of which $3 $8 million was used to pay off company debt. In addition, one five.
$5 million was used to pay transaction bonuses fees and expenses on that date $500000 was used to pay board of director fees, including a one.
Including AWP T transaction bonus and a catch up for unpaid fees from January one 2021, and $4 million was used to normalized payables and to fund operations through September 32021, leaving a cash balance of $95 2 million at September 32000.
This is Jim.
Importantly, the company has zero debt, having paid off the remaining convertible debt and bridge notes concurrent with the closing of the W. P T sale during the quarter and.
In summary, we continue to see operational improvements in our esports business that are being driven by strong growth of our in person pillar and a return to more normalized to a more normalized operational environment.
Our multi platform content pillar is also gaining traction as we launched our 24 hour contract strategy on Twitch in November 2020, and AE Studios last Covid quarter.
We will continue to carefully manage our costs and expenses as we continue the process of emerging from the pandemic.
With that I will turn it over to Lyle Berman for a discussion on corporate matters, including an update on the previously announced strategic process for our esports business along with the company's progress on ongoing activities to invest cash from the sale of WP too well.
Thank you Roy and thank you all for joining us today.
Looking forward to my expanded role as co chairman and President during this very exciting time for Allied esports Entertainment first off a quick hulks housekeeping manner.
Our annual shareholder meeting will be reconvened for some time in December 2021.
At which time, we fully expect to obtain a quorum of shareholders to conduct the meeting.
We will be announcing the reconvened meeting in the near future.
Next and as noted on our call last quarter, we have accelerated our plans to explore strategic options for the E Sports business. We have made substantial progress in identifying a path forward for the esports business that maximizes value for the ESC shareholders to this end.
We have entered into a nonbinding letter of intent with a third party.
So our esports business, while we are not yet in a position to publicly announce further details at this time, we will provide updates as quickly as possible.
At the same time, we are continuing to identify opportunities to invest our cash on our balance sheet, along with any cash from anticipated sale of the esports business.
Fire or merge with an existing business.
To date, we have reviewed a number of potential targets, our due diligence and the continued sourcing of other opportunities is ongoing.
In addition, we are also aggressively interviewing a number of investment banks to assist us in this process. We have asked for proposals from several of these investment banks and we expect to complete the selection process and engaged a firm within the next three weeks.
Let me be clear.
While we are working with a sense of urgency to acquire or merge with an existing business.
We are laser focused on finding the absolute best opportunity available to maximize value for our shareholders.
It's a very exciting time and I look forward to providing you with an update on our progress at the appropriate time.
That concludes our prepared remarks, and we would now like to open the line for Q&A operator.
Yeah.
Thank you at this time well be conducting a question and answer session.
If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the stocking.
One moment, please while we poll for questions.
Our first question is from Derek Soderberg Collier Securities. Please proceed with your question.
Yes.
Hey, everyone. Thanks for taking my questions.
So it sounds like you guys did sign an LOI just curious what sort of drove you guys to sell that business any additional color there would be great and then just given your exiting an E sports business I think you've talked about potentially buying another business in that area.
You know why would you exit and then you know.
You're still looking for an asset in that area or should we sort of read that as you're targeting a non esports business as an acquisition target.
If there's any additional detail you can give me on specific sub sectors.
Entertainment, you're targeting any additional color there would be great.
Okay.
Hi, good afternoon, Derek Thanks for the question.
I still believe that.
While they made a strategic decision I will quickly address why on the path to lie at all to add more color to that.
One of the lead the plants can make the decision and it's because of the increased interest.
The whole E sports industry, and as part of the business, especially after a pandemic.
We have been approached by potential buyers.
Who the current wildly spinnaker multiple intently.
And we've got it means that I'm going to pass it awhile.
And I guess this question now alright, Thank you Claire.
Oh.
It wasn't an easy decision for us however.
Although we have made great strides in the esports business. It is still definitely cash burning.
We have found it to be very competitive landscape. So we made a decision that we would like to exit the sport business, if possible and redeploy our cash into a new business. We definitely are not looking at esports businesses. I think you asked the question why would we exit one and look at Enel.
We are not looking at an esports.
<unk> sports of any kind. However, what we are saying is that we are open to anything we are looking at all industries. We're looking at opportunities that can redeploy our cash that are the new company has a number of attributes.
Most likely they.
They need to have a high growth.
Potential they have a documented use of our cash our cash would be used to.
Further the business, we're not looking to buy out other shareholders, we want our cash to go forward.
What we're wide open and looking at any industry that works that makes sense.
And most likely we're looking for a merger where the there's.
There's a very good management team our company would still be on the board of directors, but we're looking for a cup. We're not looking for a company that we would run and manage we're looking for one that comes with management.
Got it got it you did talk about cash burn a little bit.
I'm just curious what that would look like if you did divest the remaining E sports business.
You know what would the corporate structure look like and then just otherwise what should we expect in terms of cash burn from here.
If you do not divest that remaining business.
Yeah I'll take that this is roy so on a combined basis, if you add corporate and AI operations on a quarterly basis, we're right around $2 million at the moment.
Corporate by itself post sale is probably about $1 million, which includes payroll and payroll related costs insurance, along with border tax legal FCC filings and so on and so it's it's roughly it's roughly a $2 million burn of which one is corporate and one is <unk>.
I pre sale.
But the I am bound continues to decline as the revenues continue to grow and margins continue to.
Increased so that'll continue to decline.
Got it got it thanks guys.
We have reached the end of the question and answer session I will now turn the call back over to management for closing remarks.
And people that support and for joining us on today's call. We look forward to speaking with you again, when we report our 2020 launch fourth quarter results in March.
Thank you again for your time and attention this afternoon.
Christie I know his boss independents.
Yeah.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
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