Hall of Fame Resort & Entertainment Company

Good morning and welcome to the Hall of Fame Resorts and Entertainment Company's third quarter 2022 earnings conference call. This conference is being recorded and all participants are in listen-only mode. We open the conference for questions and answers following the prepared remarks. I'm going to turn the call over to Ms. Anne Grafis, Executive Vice President, Public Affairs. Please go ahead, ma'am.

Good morning, and thank you all for joining us for our third quarter 2022 earnings conference call. Our latest press release, supplemental slides, and Form 10-Q were posted yesterday evening after market hours. These documents can be found in the investor relations section of our website at hofreco.com. After my brief introduction, Michael Crawford, our president and CEO, will give an overview of the quarter's results and an update on our fiscal year. Benjamin Lee, our Chief Financial Officer, will then provide analysis of the quarter's financial results and an update on the company's financial outlook. During today's call, we will make forward-looking statements that reflect the company's current expectations about future plans and performance. These statements rely on assumptions and estimates, and actual results may differ materially due to risks and uncertainties. I encourage each of you to read the full disclosure concerning forward-looking statements in the earnings press release. Additionally, please note that the company uses non-GAAP results to evaluate performance internally as detailed in the press release. We have posted a supplementary slide deck summarizing the quarterly results. These slides can be accessed on our website and will be archived there along with the replay of this call. If you have additional questions, as always, after today, please contact me directly. It is now my pleasure to turn the call over to Michael Crawford.

Thank you, Anne. Good morning, everybody. I hope everyone is having a good week so far. I think you probably saw yesterday, if you have on our Q3 earnings release, I thought it was fantastic. I really think what we're showing here is an ability to overcome a lot of adversity. And I want to thank the team. I think the team has done an admirable job in the face of that adversity. You know, we talk a little bit about some of the things that are happening. Obviously, we've come through COVID. although I know COVID is still around and something that's threatening people's health and safety, supply chain issues, labor challenges, things with inflation, although we saw inflation moderate a little bit last week, and so that's very encouraging. We have had to overcome a lot of adversity, and yet I think as you see the results quarter over quarter and you see the improvement and you see the execution of what was and what still continues to be our stated game plan, it's pretty inspiring. And I think investors and shareholders and partners should take great comfort in this team's ability to execute. From a macro standpoint, we maintain a focus on a couple of things. Number one, consumer spending. And while consumer confidence seems to have gone down a little bit, and I think folks are focused on inflation or recession, The reality is the consumer is still spending and they're talking with their wallets. And I think for a regional destination like The Village, virtual gaming opportunities, sports betting, those types of experiences are still very much in high demand. And when you look at some of the evidence of that, you know, the RevPars for hotels are back to the 2019 levels. Business travelers are coming back. We're seeing that in our own hotel in a fairly significant way. Entertainment, theme parks, they're having record highs in attendance, and people are spending money while they're in those parks. So experiences are incredibly important, and while you may defer buying a home in this environment, or you may defer buying a more significant item in this environment due to interest rates, you still want to go out for meals, and you still want to be entertained, and I like to say escape reality. Sports betting operators are also seeing, by the way, record highs, and especially here in Ohio, as I watched some of the reporting over the last couple of months, it is incredibly encouraging to see that people are enhancing the way in which they engage with sport. And we're very much looking forward to the launch of our sports betting experiences Jan 1. So from a company point of view, I'd just like to highlight some of the more recent news and some of the key areas of focus that we have had. First and foremost, let's talk a little bit about financing. we have closed over $180 million worth of new financing this year alone. And this year is not finished, by the way. That is a big number for a company our size. And in the environment that we're in, I think people should say two things. Wow, the team really had the opportunity to execute. And two, they didn't do it haphazardly. They did it very pragmatically. And so what do I mean by that? You know, when we looked at the debt that we've added, we've added longer term debt. We've added debt that is not as costly as you might imagine in this environment. So the average cost of the debt that we've added so far is 7.4% from an interest rate point of view. I think that's a big win for us and our company. In Q3 alone, we did almost $64 million worth of new debt financing. And we also were very pragmatic around the use of our ATM, bringing in only $2.4 million. Now, one thing that I'd like everyone to remember, because I hear a lot about this in questions, isn't the company taking on too much debt? If you remember the call that we had almost a year ago, we were in the phase of bringing in equity. And so this company to date has raised over $130 million of equity, which has helped support the build of assets, the creation of environments and experiences. We now are in the phase that we talked about at that time of needing to bring in the public and private financing to continue to build assets and build those experiences. So I don't think anyone should be concerned about the amount of debt we're taking. It's the debt that was needed and the debt that we stated we were going to target very early this year. And the team has had great success in doing that longer term. lower cost, and so that is a big win for us, as I said. So the takeaway is we are all invested in the success of this company. When I say we, one of the biggest parts of what the recent transactions we announced were about was the largest shareholder we have, IRG. Now, IRG not only is the largest shareholder from a stock point of view, but they have lent money to the company They have stood behind loans to the company. As a younger startup company, you need that sort of support from a more established entity. They have now continued with that support, providing a $28 million senior loan facility for our hotel onsite that we will start construction in the spring. And they've also provided a construction guarantee for our water park, a completion guarantee, I should say. What that effectively means is, If we weren't successful in raising the money that we needed to build the water park, IRG will provide the funding source that's needed to complete it. It's a guarantee. The water park is now guaranteed. The hotel now has the senior lending that it needs to continue with construction. So again, the takeaway is the largest shareholder here has had significant commitment to this project and to this company and continues to do that. One last point I want to raise. When you talk about taking up residency, you talk about the community support that's needed to do that. The city, the county, a lot of leadership in this community with community foundations have also stood behind the company and provided low-cost, longer-term debt financing that was needed at a time for infrastructure. And infrastructure is the stuff that banks don't like to finance because they view it as non-revenue-bearing stuff. That kind of support from a community, everyone is going all in on the success here. This is not an option to fail from the perspectives of our largest shareholder and our community. So we are incredibly appreciative of that and excited about that level of support. Let me talk now about the topic that I know everyone gets worked up about, the reverse stock split. And so I've gotten many notes and many points of feedback about how horrible it is to consider a reverse stock split. Let me say a few things. Number one, the perception of a reverse stock split is one thing. The reality of what it does is very much different. A reverse stock split is a tool that, if needed, allows us to maintain our listing on the NASDAQ. I think everyone would agree that it's much better to have access to liquidity. It's much better for our shareholders to have the ability to actually trade the shares that they're holding today. And it's much better for us as a company to be at the right valuation from a stock price point of view. And today we're not. We're not at the right valuation at 60 or 70 cents. The company has much, much greater value than what the stock price is reflecting. We are... at the mercy of the indices themselves, we're at the mercy of the inflationary environment, consumer sentiment. But at the same time, you see execution and you see assets being created both physically and virtually. And the revenue that's now starting to be generated quarter over quarter, year over year, shows the ability for growth and the business plan that we've put in place. So let me just give everyone a couple of things to consider here. Number one, If you haven't followed, we did file an extension with NASDAQ for 180-day extension, an extension request for that 180-day extension. We don't have a ruling on that. We won't have a ruling on that until later this month. But we are confident that we meet all the criteria for that extension, and we'll continue to work very closely with NASDAQ on the same thing. We then had a special shareholder meeting because we can't just do this on behalf of the company. from a management point of view. We got to align with the shareholders. The shareholders voted in favor of that reverse stock split. And so it gives us the tools that we need to have confidence that if we need to do something, we can to maintain our listing status. And I won't go back through the positives of that, but I will just say everyone needs to understand we are aligned in this collectively together. I hold shares in this company. Management holds shares in this company. The board holds shares in this company. no one has sold a single share. I'm going to repeat that. No one has sold a single share in this company. And in fact, people have added shares in this company because of the belief of where we're at, because of the execution, and because of the valuation. We think there is a lot of upside, and 23, I believe, will show that. JCI mediation is the next big topic that I'd like to talk about. And I know that there has been some time that has passed since the last update we provided. I have with me in the room our general counsel, Tara Carnes, and so I'll ask her to give just a few brief updates on this as well. But here's what I would say. We've taken the step of mediation. I think the outcome of that is yet to be determined, but the good news is Johnson Controls and the Hall of Fame Resort and Entertainment Company have come together at the table, and there is a sense that both sides are looking for a resolution. Tara, would you?