Allied Gaming & Entertainment Inc. (AGAE) Q4 2022 Earnings Report, Transcript and Summary

Greetings. And welcome to Allied Gaming & Entertainment, Inc. Fourth Quarter and Full Year 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tyler Drew, with Addo Investor Relations. Thank you. You may begin.

Thank you, Operator. Good afternoon. And welcome to the Allied Gaming & Entertainment 2022 fourth quarter and full year results conference call. Speaking on the call today are Allied Gaming & Entertainment’s Chief Executive Officer, Yinghua Chen; and Chief Financial Officer, Roy Anderson. Before I turn the call over to management, please note that our prepared remarks may contain forward-looking statements. Words such as may, will, expect, intend, plan, believe, seek, could, estimate, judgment, targeting, should, anticipate, goal and variations of these words and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from those implied by such forward-looking statements due to a variety of factors discussed in the company’s public filings, including the risk factors discussed in documents filed with the Securities and Exchange Commission. Although the company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be attained. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, certain of the financial information presented in this call represents non-GAAP financial measures. The company’s earnings release, which was issued this afternoon and is available on the company’s website, presents definitions of such non-GAAP financial measures, reconciliations to the appropriate GAAP measures and an explanation of why the company believes such non-GAAP measures are useful to investors. With that, it is now my pleasure to turn the call over to Allied Gaming & Entertainment CEO, Yinghua Chen. Yinghua?

Thank you, Tyler, and thank you everyone for joining us this afternoon. It is with great pleasure that I address you today to share the positive momentum we experienced at Allied in 2022, which has carried forward into 2023. I would like to begin by briefly touching upon our recent announcement made in December regarding the company’s restructuring plan. As you may know, we spent a significant portion of last year conducting a thorough strategic review process, which was overseen by the company’s Board of Directors, with the support of The Benchmark Company, our financial advisers on potential business acquisition. After considering a wide range of options, the Board concluded that the best way to maximize shareholders’ value was to restructure our Esports business operations and expand our focus to include a wider variety of gaming and entertainment products. In line with this shift in strategy, we were also excited to unveil our new corporate rebranding, Allied Gaming & Entertainment, Inc., which better fits with our new and increased scope of products and services. To gain a better view of the rebrand, I encourage you to visit our new website at alliedgaming.gg. We are very confident in our current trajectory, especially within the entertainment industry, where gaming has emerged as one of the largest and fastest-growing markets. With a staggering 3.1 billion gamers worldwide in 2021, the global gaming industry was valued at $202 billion and is projected to grow at a compound annual growth rate of 10.2% between 2022 and 2030, driven primarily by mobile gaming and Esports. With more than five years of strategic investments in the Esports and entertainment space, Allied is ideally positioned to help brands reach these consumers and capture a good portion of the disposable income of Gen Z, a cohort with more than $360 billion in disposable income. At Allied, we have historically focused on building a global Esports and gaming entertainment company by taking advantage of our world-class assets such as our HyperX Arena in Las Vegas and our Unique Mobile arenas in the U.S. and Europe. We believe we are well suited to expand our focus to now include a broader array of entertainment and gaming products, capturing a greater share of the significant growth reported and projected in this industry. More specifically, we are now laser focused on providing the rapidly growing world of gamers with new and unique experiences through our renowned assets, products and services. These experiences will include live and virtual entertainment events for the gaming lifestyle, unique show formats focused on consumer engagement, in-person and online gaming tournaments and events, proprietary entertainment content and royalty rewards programs. These products and services will drive revenue directly from consumers and from advertisers looking to reach these consumers. And we are particularly excited about our new live and virtual event experiences, which have undergone a series of test events and we are eagerly anticipating an official launch in Q3 of this year. In addition to our event initiatives, we have also made significant strides towards our core objective of advancing our multi-platform content strategy. This includes the strengthening of our original content program. We have successfully renewed and expanded our partnership with Progressive Insurance to produce Season 2 of Elevated. This Elevated series is designed to help up and coming twitch streamers to break through the clutter, get discovered and grow their audiences. Season 2 will premier in May with another 10 episodes scheduled to be released. Each episode will be hosted by a different one shooting content creator, which has a collective following of over 50 million people. Elevated will continue to bring entertainment to viewers and participants alike, while further growing Allied’s reach. Furthermore, we are also thrilled to announce our partnership with YES Network to launch our second original content series, WANNABE, through the Emmy Award Winning YES app. WANNABE explores the journey of professional gamers and professional athletes, who have appeared on the YES Network. All of whom have a strong passion for Esports and competitive gaming and the common themes between their different careers. These new original content series in addition to our partnerships with the esteemed companies such as Progressive and YES Network highlight our progress in expanding and monetizing our multiplatform content offerings. We are currently working on multiple original content series and look forward to providing you with further updates during our future communication. With respect to our live events, we are delighted to report that they have fully recovered from the COVID-19 pandemic. In the fourth quarter of 2022, we produced a total of 89 events, comprising 45 proprietary events and 44 third-party events. The latter recorded an impressive 25.3% increase compared to the fourth quarter of 2021. Notable third-party events include The Ultimate Crown: MrBeast versus Ninja event, Red Cross Rescue Royale, Splinter Fest, Mogul Moves, CYN Tempest Awards and PBR-Mario Kart, just to name a few. The venue also hosted 20 VIP events and 55 HyperX sanctioned community Esports tournaments during this quarter, which attracted over 2,400 attendees. The demand for live events has remained strong in 2023 thus far. To expand our digital IP aside from the original content mentioned above, we have initiated efforts to acquire proprietary casual mobile gaming licenses, which would grant Allied the exclusive rights to utilize the software, to operate the game and to obtain ownership of the user data for full monetization. This will enable us to build out our digital asset library, expand our unique digital offering and further strengthen the loyalty of our rapidly growing gaming community. Our diligent work behind the scene is beginning to yield results. In 2022, we achieved a 28% increase in revenue from the previous year and have carried forward solid momentum into 2023. We maintain our belief that our stock price is undervalued, and to that end, our Board of Directors approved a stock repurchase program of up to $10 million of outstanding common stock in November. We continuously evaluate market conditions and between the announcement at the year end, we repurchased approximately $600,000 worth of stock by December 31, 2022 and Roy will provide further details during his remarks. With that, I’d like to turn the call over to Roy Anderson, our CFO, for an update on our fourth quarter and full year financial results. Roy?

Thank you, Yinghua. Good afternoon, everyone, and thank you for joining us today. Our full year 2022 results highlight our momentum throughout the year as demand for our tournaments and production services continued to improve and we further expanded our service offerings. Total revenues for the year were $6.4 million, up $1.4 million or 28% from 2021. The increase was primarily driven by growth in our in-person pillar, including a sponsorship agreement with Progressive Insurance and Tyson Foods for Season 1 of Elevated, an increase in live events at our HyperX Arena and an increase in our U.S. Esports Truck operations. On a quarterly basis, revenues for the fourth quarter were $1.2 million, down from $1.9 million in the prior year. The decrease was primarily driven by the non-recurring nature of our 2021 live streaming partnership with Trovo. Turning to expenses. In 2022, operating costs and expenses of $18.1 million were down $2.6 million or 13% from $20.7 million in 2021. The decrease was primarily due to one-time bonuses and professional fees related to our 2021 sale of the World Poker Tour, a decrease in depreciation and amortization expense and a decrease in cash and stock-based compensation expense. These decreases were partially offset by higher expenses in our in-person pillar due to the strong post-pandemic recovery of our live events. For the fourth quarter, total cost and expenses of $3.8 million were down $1.9 million or 33% from $5.7 million in 2021. The decrease was primarily due to a decline in corporate professional fees and compensation expense at our Las Vegas Arena and within our European operations. Our loss from continuing operations was $10.8 million in 2022, down from $15.1 million in 2021, which was driven by both the aforementioned increase in revenues and the reduction in costs and expenses. For the fourth quarter, our loss from continuing operations of $1.7 million improved from $3.8 million in the prior period. Our 2022 adjusted EBITDA loss of $8.6 million was down from a loss of $10.5 million in 2021. Our fourth quarter adjusted EBITDA loss of $1.7 million also improved, down from a loss of $2.1 million in the fourth quarter of 2021. Our adjusted EBITDA includes adjustments for depreciation, amortization, stock-based compensation and interest income. Now moving on to our balance sheet. At December 31, 2022, our cash and short-term investments position totaled $86.8 million, including $5 million of restricted cash, compared to $97.9 million at December 31, 2021, which also included $5 million of restricted cash. The company’s working capital surplus, defined as current assets minus current liabilities was $79.1 million at December 31, 2022, compared to $89.0 million at December 31, 2021. Our working capital at December 31, 2022, was reduced by a lease liability of $1.2 million we recorded in connection with our implementation of the new leasing standard i.e. ASC 842. Also during the quarter and under the stock repurchase program, mentioned by Yinghua, we acquired 581,746 shares of our common stock in open market transactions at an average selling price of $1.02 for a total repurchase cost of $593,110, excluding broker fees. We continue to believe that our current share price does not reflect the company’s intrinsic value and we will evaluate further repurchases based on market conditions, stock price and other factors. In summary, we are proud of the progress we have made throughout the year for our business as we continue to improve and expand our service offerings in a post-pandemic environment, which has led to substantial growth in our in-person pillar and bodes well for 2023. I will now turn the call back over to Yinghua.

Thank you, Roy. We have a clear strategy moving forward and are excited about the trajectory and future of Allied Gaming & Entertainment. The overall gaming and entertainment industry is undergoing rapid expansion and companies are eager to reach this massive market. We are confident that building upon Allied’s original focus of live events and our multi-platform content, while adding new revenue drivers, such as, virtual entertainment events and online gaming tournaments will drive future positive financial results. Thank you for your time today. We look forward to speaking with you again in May when we report our first quarter 2023 results.

Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.