Allied Esports Entertainment, Inc.

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 join the question queue, you may press star then 1 on your telephone keypad. 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 Lasse Glassen, 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 Entertainment's Chief Executive Officer, Claire Wu, and Chief Financial Officer, Tony Hung. Judd Hannigan, 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 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 financial measures are useful to investors. With that, it's now my pleasure to turn the call over to LID Sports Entertainment's CEO, Claire Wu. Claire?

Thank you, Nathan, and thank you, everyone, for joining us this afternoon. I will begin by discussing the recent leadership transition at AESE and then an overview of the key operating highlights from this past quarter. In addition, I will provide an update on the company's strategies as our board of directors and the management team evaluate future exciting plans. Tony Hong, our chief financial officer, will follow with additional details on our second quarter financial performance. Similar to recent quarters, the financials we are reporting today pertain to our continuing operations which includes our AI and e-sports operations and the company's top core expenses. As previously announced, we completed the sale of the World Poker Tour, or WPT, to Element Partners earlier in the third quarter, and therefore the WPT results are presented as discontinued operations for the three and six-month period ended June 30th as well as the comparable periods for the previous year. Having been appointed to the role of CEO, President, and the General Counsel of AESE just about five weeks ago, I'm very honored to lead the day-to-day operations of the company. For those of you who are not familiar with my background, I bring more than 50 years of relevant experience to AESE. most recently as Vice President and General Counsel for Asia Pacific Capital Inc., as well as Senior Counsel at the New York Law Firm, David Hunter and Central. In addition, prior to accepting the CEO, President, and the General Counsel positions, I served and will continue to serve as a Director on ABS-C Board. Throughout my career, I have had extensive legal and business experience in cross-border transactions, U.S. securities regulations, mergers and acquisitions, capital market transactions, as well as corporate strategic planning and structuring. I believe this will serve the company well as we look ahead to the future and attract the calls for AASE going forward. On behalf of the entire team, I would also like to express our thanks and gratitude to Frank Ng, who led the company since it became publicly traded two years ago and helped AESDN navigate the complexities of the COVID-19 pandemic. We wish him all the best in his future pursuits. With that, let's move on to an overview of our results for the second quarter of 2021. Overall, I'm pleased with the steady progress of our esports business as demonstrated by the 65% quarter-over-quarter growth in revenue. This growth was driven by the gradual recovery of the in-person panel of our e-sports business as we slowly emerged from the COVID-19 pandemic and continued to benefit from increased food traffic in Las Vegas and the return of live events and social gatherings. In addition, during the second quarter, we saw the early revenue contributions from our multi-platform content panel. While the resumption of in-person events will be an important growth driver of our e-sports revenue in the near term, we have also made good progress over the last several quarters, building out capabilities within our multi-platform content panel. During the quarter, we announced the launch of AE Studios, which will serve as the original content development, storytelling, and the production services for partners of Ally Esports. I will provide additional details on this important initiative later in my remarks. And finally, subsequent to quarter end, We completed the sale of WPT to element partners in an all-cash transaction for $105 million. The sale of WPT is a key milestone as it significantly improves our liquidity position. With over $100 million of cash today, we have significant financial flexibility as we look to maximize shareholders' value through the utilization of our cash and concluding our strategic exploratory process for our esports business. Now, let's turn to our second quarter operational highlights for our esports business. We saw the start of the COVID-19 pandemic recovery in the second quarter as cautionary restrictions were lifted in Las Vegas during the first. This resulted in increased demand for our terminate and production services, and NATO allied exports production of 81 events in the second quarter, an increase of 135% compared to the prior quarter, including 38 pre-territory events and 43 third-party online and in-person productions. Between in-arena and online third-party tournament productions, over 14,200 players competed in online esports-produced tournaments in the second quarter of 2021, as compared to approximately 1,700 players in the pre-quarter. Preparatory productions at the HyperX Esports Arena Las Vegas were up 23% from the player quarter, with the company adding Lockdown, a new fighting game competition, to its weekly schedule, which continues to draw players from all around the United States. In April, the company also hosted a new edition of its Legend series tournament, which was the world's first esports tournament production during live animated commentators in a partnership with motion capture technology leader, Accent. The event deployed a three-day, 14-minute takeoff format that included wagering opportunities for better. During the quarter, we announced WaveSonic as the official gaming monitor and the streamer room partner of HyperX Esports Arena, Las Vegas. As part of this partnership, all players in arena and on the NL esports track in North America have the opportunity to play on the brand of gaming monitors. Additionally, the company partnered with esports and the company creation organizations AT6B Esports sponsored activations with Zapp's potato chips and other branded snacks around NIA Esports in-arena programming, lockdown, and Saturday night speedway. Third-party events increased nearly 15-fold quarter-over-quarter. The significant increase was driven by our new tournament organization partnership with tension-backed streaming platform, Travel, for whom LA Esports will produce over 100 tournaments across North America, Europe, and Latin America throughout 2021. In addition, prior to the lifting of in-person restrictions in early June, the HyperX Esports Arena continued to serve as a COVID-19 safe bubble environment both 5th IP production of the Rainbow Six North American Air, as well as the host of the Zombies World Championship. Although the company's more expansion plans with Salmon Properties and Brockfield Property Partners continue to remain on hold, the NI Esports track will continue to bring gaming activations to fans around the country. To this end, we recently announced a seven-stop e-sports track tour with NASCAR that locked off in working green New York earlier this month and will be making stops at Daytona International Speedway, Caledonia Super Speedway, Michigan International Speedway, Kansas Speedway, Maxwell and Felix Raceway throughout the rest of the summer and into the fall. Throughout the pandemic, Allied Esports had made a significant stretch to advance the company's multi-platform content pair. A foundational effort of this effort was our 24-hour content strategy on Twitch, which saw 4.5 million live views in the second quarter alone and increased followers by 28% from the previous quarter. Altogether, the company has delivered over 30 million live views on its Torch channel since launching the 24-hour strategy in November 2020. As I highlighted at the beginning of our call, we announced the AE Studios during the second quarter. This new division of the company will serve as the original content development story painting, and the production services arm of AI Esports for partners looking for a training solution outside of Esports tournament operations and broadcasts. Through AE Studios, we will leverage our years with digital content creation and world-class production facilities to design and produce digital-first projects for clients and partners spanning a variety of industries such as gaming, entertainment, pop culture, music, and sports. AE Studios has hit the ground running with the production of a 24-episode series of a celebratory showdown for Twitch. The interactive content series features celebrities competing in studio and head-to-head on the virtual versions of some of the top golf clubs in the world. Concurrently, streamers participate from home on the desktop version of the game. The show's second season kicks off on August 24 on Twitch.tv slash Twitch Sports. Distribution of our growing content library, which concurrently holds over 600 hours of esports programming, continue to see strong demand and is now live on seven over-the-top or OTP streaming platforms. Through a distribution agreement, we have along with MoxIP to distribute LI Esports content around the world. We believe this is the beginning of additional distribution opportunities for our content library and will stay over 250 hours. of our esports tournament content air on those platforms. Before turning it over to Tony to discuss our second quarter financials in more detail, I would like to also provide a quick update on the company's longer-term strategy for our esports operations. The rapid growth and the popularity of gaming and esports during the COVID-19 pandemic has driven significant interest in allied exports. With the WPP sale complete, we have began to accelerate our previous announced plan to explore strategic options for the export business, including a possible sale, in order to maximize the shareholder value. As part of the process, we are actively working with Lake Street Capital Markets as an advisor. With that said, No definitive buyer has been identified to purchase the esports business, and there are no active negotiations as yet in respect to the sale of the esports business. In the meantime, we will continue to operate the esports business and execute our business plan. On the performer basis, including process from the WPT sale, our cash position is led of outstanding debt totals $101 million. With this cash, along with any cash that may become available as a result of any sale of the esports business in the future, we intend to explore opportunities to acquire or merge with our existing business. This includes the business in online entertainment, real money gaming, and other gaming sectors. However, the company does not plan to limit itself to any particular industry or geographic location in its efforts to identify or prospective target business. Key criteria for a potential targeted business includes a proven business model, an experienced management team, and accretion to the company's adjusted EBITDA. The company expects to engage with an investment bank to assist in this process. However, I do want to make it clear that at the present, we do not have any specific merger, asset acquisition, reorganization, or other business combinations under consideration or contemplation. We will 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 Tony Hom, our CFO, for an update on our second quarter financial results. Tony.