Esports Entertainment Group, Inc. (GMBL) on Q1 2021 Results - Earnings Call Transcript
Operator: Thank you for standing by. This is the conference operator. Welcome to the Esports Entertainment First 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. I would now like to turn the conference over to Jeff Cohen, Vice President, Strategy and Investor Relations. Please, go ahead, sir.
Jeff Cohen: Good afternoon, everyone. Thanks for joining us today for our first quarterly conference call as a NASDAQ-listed company. Before we begin, I'm just going to read some brief Safe Harbor language. Statements we make during this call that are not statements of historical fact constitute forward-looking statements that are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from our historical results or from our forecast. We assume no responsibility for updating forward-looking statements. For more information, please refer to the risks, uncertainties and other factors discussed in our SEC filings.
Grant Johnson: Thank you for joining us on our first fiscal Q1 earnings call. Given this is our first conference since our uplist in April, I'd like to take a few minutes and walk you through some of the significant milestones we've achieved since the uplisting, as well as take you through our company strategy. After which, our CFO, Dan will, of course, go over the results of the current quarter in detail. Before we jump into strategy, I think it's important to take a minute or two to frame for you why there's such a tremendous opportunity in the Esports market. With over 500 million viewers globally, Esports has become the fastest-growing subsector of digital media. And with the COVID-19 pandemic, this has absolutely accelerated this rapid growth. We've even seen Esports break into the mainstream, with advance broadcast on national TV on ESPN and FOX Sports. Those of us that have followed this sector for some time have always expected these things to happen over a period of time. However, the pandemic has accelerated this time line. Esports fans are young, digitally native and affluent. Third-party research has also found that Esports fans are more likely to be influenced by their favorite team being sponsored by brand, than traditional sports fans are. One of the things we hear a lot from investors is there's very few Esports investment opportunities in the public markets. We believe Esports Entertainment Group with our three-pillar strategy -- three-pillar growth strategy, excuse me, can provide investors with a broad exposure to the large and rapidly growing Esports market. We structured our business to be able to deliver diversified Esports and online gambling company, under our -- under these three pillars. The first pillar is Esports Entertainment and Infrastructure. On the closing of the pending acquisition of EGL, Helix and ggCircuit on the B2B side -- or B2C side, excuse me, we'll be able to offer our tournament platform and LAN centers. And on the B2B side, we'll have the Genji Analytics and the ggCircuit, which is the leading operating system software provider for LAN centers on a global basis. The second pillar, of course, is our Esports wagering. Here the focus will be on both traditional wagering with VIE.gg-branded platform and skill-based player versus player wagering. On the buy side, we've announced that we're planning to be live on our proprietary wagering platform here in the United States in New Jersey as of Q1 next calendar year, via our partnership with the Twin Rivers Casino. And on the skilled player versus player side, we're working alongside New Jersey Gaming Commission to launch a pilot offering at around the same time in that state.
Dan Marks: Thank you, Grant. Good afternoon, everyone and thanks again for joining us today. Before we dig into the quarter just gone, I wanted to provide some additional detail around the guidance we've given the market for both this coming fiscal year ending June 30, and also next fiscal year. From our core Argyll, VIE and EGL platform for fiscal 2021, we continue to expect revenue of $13 million. And for fiscal 2022, we expect revenue of $25 million. EBITDA for the same periods are expected to be minus $9 million and minus $1.4 million in fiscal 2022. Pro forma for our acquisition of ggCircuit and Helix, we have revised our fiscal 2022 revenue guidance up to $42 million and EBITDA will improve to positive $2 million in fiscal 2022. Turning now to the results of the quarter just gone. In the 12 months preceding the impact of COVID, the Argyll brands were realizing $1 million of revenues per month. However, the business encountered a challenging operating environment during this quarter. Post the Argyll deal closing on August 4, revenue in the subsequent two months was $222,000. The main driver of this reduction was this simultaneous to the negative impact of COVID on the global sporting calendar. Argyll also underwent a routine compliance audit with the U.K. Gambling Commission in June. Such compliance assessments are conducted regularly as part of the U.K. GC's oversight of its licensed operators. The audits review and verify compliance with the commission's code of conduct, in particular in relation to safer gambling player protection and anti-money laundering practices. Argyll did complete the audit successfully, which against the backdrop of many examples over the last two years as operators both large and small, who have failed compliance assessments and received large fine and/or had their licenses revoked, it was very positive news.
Operator: Thank you. We will now being the question-and-answer session. Our first question is from Michael Kupinski with NOBLE Capital Markets. Please go ahead sir.
Michael Kupinski: Thank you. And thanks for taking my questions. Just a couple here, macro and then a couple of micro questions, you mentioned -- talked about the pandemic and how that might be helping you. And it sounds like, there's some talk about shutting down economies, as COVID seems to be spiking again. Can you give us a sense of, how this is helping or hurting you in terms of implementing your development plans at this point?
Grant Johnson: Sure. It's Grant Johnson here. I'll take the first part of that. It's -- of course there's -- the list of positive things that have come out of COVID is a very short-list. I think we can all agree on that. However, what it has done is our online elements have definitely had an increase in activity. So the best example I can give you is, as COVID continues to wreak havoc, the sports teams will continue to reach out to us. And this is expanding our opportunities with our tournament platform, most definitely. And these opportunities will be revenue drivers for us as we move into the next -- into fiscal 2022. In addition to that, the VIE.gg platform is specifically an online platform. So the pandemic will have -- it has a positive effect in driving traffic online into that site as well. I think it's safe to say, it will have a negative impact on -- continuing negative impact on LAN-based operations. So those are -- that will potentially have a negative effect on the sports weekend. Not at this point in time they seem to be operating at a bubble, which the games will be played without fans for the foreseeable future, lets see. But that will not have a negative impact on the sports book. So as awful as the pandemic is we are positioned well to be a benefactor of this activity. I don't know, if Dan would like to add to that or not.
Dan Marks: No. I think you're right, Grant. I mean during the first lockdown, at least within the U.K. particularly when sports were shut down we saw a movement from traditional sports onto either, esports or casino products. So our turnover didn't -- wasn't impacted. They're slightly -- at least a slightly lower-margin product in the sports book. But actually turnover itself wasn't hugely impacted. I think with sports remaining open currently, I wouldn't expect to see the same change in product mix, assuming the sporting calendar continues to be open.
Michael Kupinski: Thank you for that color. And I was wondering, can you give us the parameters of the $43 million acquisition on the Helix and ggCircuit in terms of how you plan to finance that acquisition? And then are you still in acquisition mode? Are you planning to integrate what you currently have purchased at this point? If you can just give us a sense of the M&A environment right now.
Grant Johnson: Sure. Those -- we are working very closely with our banking partners on the finances of the ggCircuit and Helix transaction. That will -- the only color I can give you at this point in time is going to be the transaction side $43 million is going to be effectively a mix of 60-40 equity to cash and debt. That transaction will go to shareholder vote we expect in January, at which point in time we will finalize the last segment on how much is cash and debt. With regards to other acquisitions we have been broadcasting for quite some time that we do have multiple conversations online with iGaming operators. These are accretive acquisitions. We have multiple conversations underway to occur, who is our advisory group out of the UK. And we've been keep -- working with our bankers to discuss putting debt vehicles in place for these acquisitions because of the high revenue nature of them. We anticipate to be far enough along by the end of this calendar year to engage in a -- announce one of these transactions, but it -- all of them are a little premature as of this call. But we are definitely pursuing those as we've -- as same as we did with Argyll, there are others that will be coming down the pipe here in the near future. We are not entertaining any new discussions, simply because we have -- all we can possibly manage at this moment in time.
Michael Kupinski: And just a final question and I'll let others ask questions. I know that there were some initial disruptions in revenue at Argyll. And you mentioned revenues that in October of $600,000. Was that in line with expectations? And I know -- I just kind of want to get a sense, I know you're giving guidance in terms of revenues for the fiscal year. But so far, in November, are you still seeing some disruptions into November or revenues ramping? And then, if you could just give us a sense of what's driving the growth? Is it the number of players? But just in general what the color there is?
Grant Johnson: Sure. I'll take first pass, and I'm going to hand it over to Michael, the CEO of Argyll and SportNation. Clearly, when the acquisition was negotiated COVID was not upon us, of course, and nor could we have forecast what the impact of that was. So, I'd have to say that some of it was not anticipated nor could we have anticipated the audit taking place during COVID from the UK GC. So, it was a bit of a one, two that we did not plan on. However, we are quite pleased with the numbers since. I'm going to turn it over to Michael, who's on the phone Michael Wilson, COO of SportNation to get into a little more specifics on that point. Michael, can you take the call -- question please?
Michael Wilson: Yes. No problem. Thanks Grant. Michael, here. So the October bounced back, and also the momentum also in November is largely driven through retention and increased retention and also the new players that we're acquiring. We're acquiring players through new channels along with our existing affiliate network. We're branching more out into social where we're seeing a whole new batch of players coming in. And also, as I mentioned as well, the retention figures are creeping up and up and up. And in fact, October saw the largest retention figure as a month two from FTDs the month before that we've seen on record. That momentum of the new players and the players returning to the site, we're seeing continue through into this month as well. To tell you last week as an individual week, we saw the highest number of actives that we've had on record and also the highest number of FTDs as well. So I think it looks as though at this stage the momentum is all moving forward to hitting the $1 million revenue by December again. And the final point I'd make as well, part of the acquisition in the – sorry, part of the retention of customers and also the revenue that we're seeing from them is tied into the rewards program that we have. We're seeing that loyalty that we're getting through customers showing through the decent numbers that the customers are doing on-site and also driving that retention and seeing those retention figures increasing as well.
Michael Kupinski: Thank you. I’ll let others ask questions. Thank you.
Operator: Our next question is from Lisa Springer with Singular Research. Please go ahead.
Lisa Springer: Thank you. I'm wondering what kind of timetable you have for the pilot with the New Jersey Gaming Commission for the LANduel? And how -- if you could explain to us how adding the skill-based player-to-player wagering how that really is going to expand your opportunities?
Grant Johnson: Certainly. The product has through its evolution been tested with the commission's involvement. So they are mindful and this is the people from Genji, Helix and ggCircuit have been working with them. The product we expect to launch in a Helix center in their New Jersey center in Q1, that's our time line. How it will impact our revenues? We believe it will have substantial impact. Esports fans are very engaged with each other and comparing their skills against each other's. Player-versus-player betting has always been talked about in esports and this will be the first time a product has come out that's actually been better and approved by a gaming commission in terms of skilled betting. So this would allow me to play you in any video game any esports, we can bet against each other. I will get the next kill I win the match $10. And the house -- the facility would take a commission a rate not unlike a poker room where they -- the house doesn't take a position of risk, but the house benefits from providing the environment where the action takes place. And so this will be unique. It does not exist anywhere else currently in esports. Think of it if I could make a sporting comparison, think in terms of golf and all the foursomes in golf. It's very common to bet the long shot closest to hole. Hole-by-hole there's more betting that takes place on the links around the world than will take place betting on the masters. So think of it that way. We anticipate the environment to get to the point in time with this product where there'll be more activity taking place on the person versus person betting that will end up taking place on these major tournaments. So it will have -- we believe it will have a profound positive effect on both our growth and on our revenues.
Lisa Springer: Okay. Excellent. And you've got a lot of visibility out of the title sponsorship with the tournament. I wonder what can we look for in terms of more tournament sponsorship during this year. I mean do you have a schedule of how many you'd like to do? And what kind of shape that would take?
Grant Johnson: Actually we are in discussion with Allied on that exact topic frankly. So we are -- where we've gotten to is we both enjoyed the results. We both see the merits and benefit in working together in future tournaments. I would expect a minimum four working with Allied next calendar year possibly more including additional titles and being focused in different geographic regions of the world. So that's about as far as we are in the details. We expect to come out with a schedule early in the New Year.
Lisa Springer: Okay. Excellent. Looking forward to it. Thank you.
Grant Johnson: Thank you.
Operator: There are no further questions registered at this time. I would like to turn the conference over to Grant Johnson for any closing remarks.
Grant Johnson: Thank you. Again, I'd like to thank everybody for joining us for our earnings call. Thank you for your questions. I believe that we do offer the most diversified offering in the esports sector and then that we will create tremendous value for our shareholders. Thank you for joining us here today and we look forward to delivering more and larger exciting results as we continue to execute our business model.
Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
