Esports Leisure Group, Inc. (GMBL) CEO Grant Johnson on Q1 2021 Outcomes – Earnings Name Transcript

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Esports Leisure Group, Inc. (NASDAQ:GMBL) Q1 2021 Earnings Convention Name November 16, 2020 4:30 PM ET

Firm Individuals

Jeff Cohen – Vice President of Technique & Investor Relations

Grant Johnson – Chief Government Officer & Chairman

Dan Marks – Chief Monetary Officer

Michael Wilson – Chief Working Officer, SportNation

Convention Name Individuals

Michael Kupinski – NOBLE Capital Markets

Lisa Springer – Singular Analysis

Operator

Thanks for standing by. That is the convention operator. Welcome to the Esports Leisure First Quarter 2021 Earnings Convention Name. As a reminder, all contributors are in listen-only mode and the convention is being recorded. After the presentation, there will probably be a chance to ask questions. [Operator Instructions]

I’d now like to show the convention over to Jeff Cohen, Vice President, Technique and Investor Relations. Please, go forward, sir.

Jeff Cohen

Good afternoon, everybody. Thanks for becoming a member of us in the present day for our first quarterly convention name as a NASDAQ-listed firm. Earlier than we start, I am simply going to learn some transient Protected Harbor language. Statements we make throughout this name that aren’t statements of historic reality represent forward-looking statements which can be topic to dangers, uncertainties and different elements that might trigger our precise outcomes to vary materially from our historic outcomes or from our forecast. We assume no duty for updating forward-looking statements. For extra data, please discuss with the dangers, uncertainties and different elements mentioned in our SEC filings.

Internet hosting the decision in the present day, we’ve Grant Johnson, Chief Government Officer and Chairman of Esports Leisure Group; and Dan Marks, Chief Monetary Officer of Esports Leisure Group, who will present a overview of our financials. Afterwards, we’ll then open up the road to questions.

I am going to now flip the decision over to EEG’s CEO, Grant Johnson. Grant?

Grant Johnson

Thanks for becoming a member of us on our first fiscal Q1 earnings name. Given that is our first convention since our uplist in April, I might wish to take a couple of minutes and stroll you thru among the important milestones we have achieved for the reason that uplisting, in addition to take you thru our firm technique. After which, our CFO, Dan will, after all, go over the outcomes of the present quarter intimately.

Earlier than we bounce into technique, I believe it is vital to take a minute or two to border for you why there’s such an incredible alternative within the Esports market. With over 500 million viewers globally, Esports has turn into the fastest-growing subsector of digital media. And with the COVID-19 pandemic, this has completely accelerated this fast progress.

We have even seen Esports break into the mainstream, with advance broadcast on nationwide TV on ESPN and FOX Sports activities. These of us which have adopted this sector for a while have at all times anticipated this stuff to occur over a time frame. Nonetheless, the pandemic has accelerated this time line.

Esports followers are younger, digitally native and prosperous. Third-party analysis has additionally discovered that Esports followers usually tend to be influenced by their favourite workforce being sponsored by model, than conventional sports activities followers are. One of many issues we hear so much from buyers is there’s only a few Esports funding alternatives within the public markets. We imagine Esports Leisure Group with our three-pillar technique — three-pillar progress technique, excuse me, can present buyers with a broad publicity to the massive and quickly rising Esports market.

We structured our enterprise to have the ability to ship diversified Esports and on-line playing firm, beneath our — beneath these three pillars. The primary pillar is Esports Leisure and Infrastructure. On the closing of the pending acquisition of EGL, Helix and ggCircuit on the B2B aspect — or B2C aspect, excuse me, we’ll be capable of provide our match platform and LAN facilities. And on the B2B aspect, we’ll have the Genji Analytics and the ggCircuit, which is the main working system software program supplier for LAN facilities on a worldwide foundation.

The second pillar, after all, is our Esports wagering. Right here the main target will probably be on each conventional wagering with VIE.gg-branded platform and skill-based participant versus participant wagering. On the purchase aspect, we have introduced that we’re planning to be dwell on our proprietary wagering platform right here in the USA in New Jersey as of Q1 subsequent calendar yr, by way of our partnership with the Twin Rivers On line casino. And on the expert participant versus participant aspect, we’re working alongside New Jersey Gaming Fee to launch a pilot providing at across the identical time in that state.

The ultimate and third pillar is our conventional on-line sports activities reserving on line casino, or igaming. That is our Argyll Leisure asset and SportNation. These manufacturers function within the U.Okay., Eire and have a Tier 1 playing license issued by the U.Okay. Playing Fee. This acquisition, as you already know, closed August 4.

The sports activities guide gives us with strategic licenses and entry to a pool of gamers that we are able to cross-sell our Esports providing into. As well as, as we introduced in Could, we’ve obtained approval for the multi-gaming license. That is additionally a Tier one license. The multi-license is strategically vital. It permits us to promote and do extra 150 jurisdictions globally and throughout the EU. The U.Okay. and Malta globally are globally acknowledged as and powerfully — highly effective regulatory techniques for igaming and supply our gamers and companions with the best ranges of belief and confidence in figuring out they’re coping with an onshore jurisdiction as a result of laws is in step with the relevant EU laws and worldwide agreements. We imagine this multi-tiered portfolio method, gives buyers, broad publicity to 2 main developments, the rise of aggressive gaming and legalization of on-line playing right here in the USA.

Now, I might like to show some operational highlights since our uplisting again in April. Along with the multigambling license, we introduced in Could, which I simply referenced, in August we introduced an expanded partnership with workforce Dignitas, which is an esports asset owned by the Harris Blitzer Sports activities and Leisure Group. Underneath the phrases of the settlement, VIE.gg secured naming rights of Dignitas with their famed Counter-Strike: GO workforce.

Along with VIE’s integration to CS:GO naming rights and New Jersey license, the companions have dominated that strategic digital bodily activations in New Jersey within the judicial market as is a core focus. We have additionally moved our U.S. headquarters into the Dignitas’ workplaces which is subsequent to the Prudential Heart in Newark on Lafayette, the New Jersey — in New Jersey, the place our CFO on this name with us and different U.S. executives together with Jeff will now be based mostly.

In August, we acquired FLIP Sports activities. FLIP is a workforce of builders which have been tasked with constructing, our personal again finish for the VIE.gg platform, so we are able to vertically combine our tech stack. We imagine this funding permits for better flexibility by way of sorts of traces that we are able to provide and in the end present our prospects a greater expertise. We anticipate this mission to be accomplished by the top of this quarter and we will probably be submitting it for testing.

In August, we entered right into a partnership with Twin Rivers to launch on-line esports wagering within the New Jersey market. This announcement — with this announcement, we turned the primary esports-dedicated playing firm to amass a U.S. license. We anticipate, we may have our documentation submitted within the New Jersey Gaming Enforcement within the subsequent a number of weeks and intend to have our proprietary VIE.gg wager platform dwell within the state by the top of March. We anticipate — we definitely intend to broaden the VIE platform into extra U.S. states throughout fiscal ’22.

Additionally in August, we introduced the acquisition of Esports Gaming League, which is a skill-based esports match platform. Of their 10-year historical past, EGL has partnered with manufacturers comparable to Microsoft, Purple Bull, Arsenal FC, Activision and extra. Subsequent to our acquisition of EGL, we introduced first-of-their-kind offers with the LA Kings, LA Galaxy and Philadelphia Union. We’re to be their official esports match supplier.

What we discovered is that, through the pandemic conventional sports activities groups are struggling to interact with their followers with out having the ability to have them in stands due to the net nature. And due to the net nature of esports, in addition to a crossover between conventional sports activities, followers and avid gamers, we imagine we’ve the answer for them.

Since our announcement with AEG, we’ve about over 10 extra sporting organizations to achieve out to us to discover related partnerships. In September, we partnered with Allied Esports to host the VIE.gg CS:GO Legend Collection match. The 2-week competitors drew over 1.7 million distinctive viewers and generated over a million hours watched, making essentially the most watched Legend Collection occasion for the reason that match collection was created again in 2017.

Because the official playing sponsored the occasion, our VIE.gg platform noticed a big will increase in each new and — new customers and deposits. Due to the success of this partnership, we intend to work alongside Allied once more sooner or later in the direction of extra tournaments.

Lastly, in October, we introduced the potential acquisition of Helix eSports and ggCircuit for $43 million. Strategically, these acquisitions match properly inside our three-pillar framework as described earlier including state-of-the-art esports leisure facilities, esports targeted to vertically enterprise software program enterprise and best-in-class esports analytics platform, alongside — and together with this a player-versus-player skill-based wagering platform to our diversified asset base.

Since our acquisition announcement, we have been approached by a number of conventional sports activities groups who’ve expressed an curiosity in constructing out Esports facilities on-premise at their arenas to draw and have interaction new followers. And this acquisition additionally opens up a brand new vertical for us within the on line casino area.

Many brick-and-mortar casinos are struggling to draw youthful demographic and we imagine Esports generally is a answer to this downside. By bringing the capabilities of VIE, EGL, ggCircuit, Helix and Genji to bear we are able to now present a turnkey answer for casinos who want to combine Esports wager into their amenities.

I’ll now flip over the decision to Dan Marks, our CFO, who will focus on our quarterly outcomes and steering. Thanks. Dan?

Dan Marks

Thanks, Grant. Good afternoon, everybody and thanks once more for becoming a member of us in the present day. Earlier than we dig into the quarter simply gone, I needed to supply some extra element across the steering we have given the marketplace for each this coming fiscal yr ending June 30, and in addition subsequent fiscal yr.

From our core Argyll, VIE and EGL platform for fiscal 2021, we proceed to anticipate income of $13 million. And for fiscal 2022, we anticipate income of $25 million. EBITDA for a similar intervals are anticipated to be minus $9 million and minus $1.4 million in fiscal 2022.

Professional forma for our acquisition of ggCircuit and Helix, we’ve revised our fiscal 2022 income steering as much as $42 million and EBITDA will enhance to optimistic $2 million in fiscal 2022.

Turning now to the outcomes of the quarter simply gone. Within the 12 months previous the influence of COVID, the Argyll manufacturers have been realizing $1 million of revenues per thirty days. Nonetheless, the enterprise encountered a difficult working setting throughout this quarter. Put up the Argyll deal closing on August 4, income within the subsequent two months was $222,000.

The primary driver of this discount was this simultaneous to the damaging influence of COVID on the worldwide sporting calendar. Argyll additionally underwent a routine compliance audit with the U.Okay. Playing Fee in June. Such compliance assessments are carried out often as a part of the U.Okay. GC’s oversight of its licensed operators.

The audits overview and confirm compliance with the fee’s code of conduct, particularly in relation to safer playing participant safety and anti-money laundering practices. Argyll did full the audit efficiently, which in opposition to the backdrop of many examples over the past two years as operators each massive and small, who’ve failed compliance assessments and obtained massive advantageous and/or had their licenses revoked, it was very optimistic information.

Nonetheless, the influence of COVID elevated the Fee’s concentrate on making certain all operators increase participant safety requirements throughout the business. And we got steering to implement extra sturdy, safer participant safety instruments on our websites. One such measure undertaken by Argyll was to exhibit with the fee’s steering to combine an automatic buyer affordability instrument. This evaluates the gamers spending capacity on registration, indicating how a lot they can deposit and wager with us and over what time interval.

As soon as built-in, it might guarantee Argyll gives a safer and safer gaming setting, during which our gamers can play responsibly and inside their means. Nonetheless, it took 2.5 months to supply, consider and combine the market-leading affordability instrument supplied in our case by true narratives. The mixing of which was lastly accomplished in the direction of the top of September.

Throughout that point although we proactively took the choice to implement deposit limits and extra stringent KYC disclosure necessities in an effort to safeguard our participant base. However in the end it impacted our high line enterprise. Lively prospects diminished 67% versus the prior quarter. New FTDs diminished by 47% and common participant values fell by over 50% on account of these non permanent handbook however in the end protecting measures we put in place. They have been the important thing drivers within the discount of each turnover and earnings through the quarter.

For the reason that instrument has been efficiently applied nonetheless, advertising spend has recommenced and I am glad to say that October exercise ranges and ranges of turnover, GGR and NGR have broadly returned to pre-COVID ranges. Handover is again as much as the 16 million vary. Our lively buyer base was above 11,000 gamers for the month of October and revenues within the month have been above $600,000.

And as talked about beforehand, our steering on income for the rest of this fiscal yr entailing the VIE, Argyll and EGL companies stays unchanged at $13 million. Complete working bills within the interval totaled $3.7 million. These are principally pushed by payroll, inventory compensation, advertising {and professional} providers charges, of which in complete circa $1 million have been non-repeatable or one-off prices.

One of many key strategic initiatives that we’ve pursued since our uplisting have been to consolidate our tech stack onto wholly owned platforms. The acquisition of Argyll and that of the FLIP Sports activities Belongings along with the enhancement of our in-house tech workforce, elevated the group’s worker base with 13 staff in June 2020 to 56 by the top of the quarter. And this funding in our tech sources bodes properly for delivering a completely functioning on-line wagering platform, through the first calendar quarter of 2021.

Complete internet loss for the interval was $1.8 million, pushed principally by diminished revenues associated to the measures taken publish the Playing Fee Audit, partially offset by a change in honest market worth or warrant legal responsibility of $2.1 million. Turning to the steadiness sheet, as of thirtieth of September we had $8.9 million in money, roughly $2.3 million in working capital and complete shareholders’ fairness of $16.8 million. This included $1 million in internet proceeds from the sale of 275,000 shares issued for warrant train.

Our month-to-month present internet money burn price on operational exercise is within the $0.8 million to $0.9 million vary. And we proceed to be targeted on discovering efficiencies inside our enlarged group’s price construction. We’re assured our current operational outcomes and price base can help a doubling in buyer exercise within the subsequent six to 12 months, while some incremental funding will proceed, in augmenting our know-how operate.

In abstract due to this fact, regardless of the unprecedented setting and important impacts we felt from the pandemic and from the Playing Fee Audit, the latest uptick in efficiency in October, ensures we stay extraordinarily optimistic searching throughout the following 12 months and units us up positively to speed up our improvement into the approaching business’s most diversified esports on-line playing firm.

I believe we are able to now open the road for Q&A. Operator?

Query-and-Reply Session

Operator

Thanks. We are going to now being the question-and-answer session. [Operator Instructions] Our first query is from Michael Kupinski with NOBLE Capital Markets. Please go forward sir.

Michael Kupinski

Thanks. And thanks for taking my questions. Only a couple right here, macro after which a few micro questions, you talked about — talked in regards to the pandemic and the way that may be serving to you. And it seems like, there’s some speak about shutting down economies, as COVID appears to be spiking once more. Are you able to give us a way of, how that is serving to or hurting you by way of implementing your improvement plans at this level?

Grant Johnson

Certain. It is Grant Johnson right here. I am going to take the primary a part of that. It is — after all there’s — the checklist of optimistic issues which have come out of COVID is a really short-list. I believe we are able to all agree on that. Nonetheless, what it has completed is our on-line components have positively had a rise in exercise.

So the very best instance I can provide you is, as COVID continues to wreak havoc, the sports activities groups will proceed to achieve out to us. And that is increasing our alternatives with our match platform, most positively. And these alternatives will probably be income drivers for us as we transfer into the following — into fiscal 2022.

Along with that, the VIE.gg platform is particularly an internet platform. So the pandemic may have — it has a optimistic impact in driving visitors on-line into that website as properly. I believe it is secure to say, it’ll have a damaging influence on — persevering with damaging influence on LAN-based operations.

So these are — that can doubtlessly have a damaging impact on the sports activities weekend. Not at this cut-off date they appear to be working at a bubble, which the video games will probably be performed with out followers for the foreseeable future, lets see. However that won’t have a damaging influence on the sports activities guide. In order terrible because the pandemic is we’re positioned properly to be a benefactor of this exercise. I do not know, if Dan wish to add to that or not.

Dan Marks

No. I believe you are proper, Grant. I imply through the first lockdown, not less than inside the U.Okay. significantly when sports activities have been shut down we noticed a motion from conventional sports activities onto both, esports or on line casino merchandise. So our turnover did not — wasn’t impacted. They’re barely — not less than a barely lower-margin product within the sports activities guide. However truly turnover itself wasn’t massively impacted.

I believe with sports activities remaining open at present, I would not anticipate to see the identical change in product combine, assuming the sporting calendar continues to be open.

Michael Kupinski

Thanks for that coloration. And I used to be questioning, are you able to give us the parameters of the $43 million acquisition on the Helix and ggCircuit by way of how you propose to finance that acquisition? After which are you continue to in acquisition mode? Are you planning to combine what you at present have bought at this level? If you happen to can simply give us a way of the M&A setting proper now.

Grant Johnson

Certain. These — we’re working very intently with our banking companions on the funds of the ggCircuit and Helix transaction. That may — the one coloration I can provide you at this cut-off date goes to be the transaction aspect $43 million goes to be successfully a mixture of 60-40 fairness to money and debt. That transaction will go to shareholder vote we anticipate in January, at which cut-off date we’ll finalize the final phase on how a lot is money and debt.

Almost about different acquisitions we’ve been broadcasting for fairly a while that we do have a number of conversations on-line with iGaming operators. These are accretive acquisitions. Now we have a number of conversations underway to happen, who’s our advisory group out of the UK. And we have been hold — working with our bankers to debate placing debt automobiles in place for these acquisitions due to the excessive income nature of them.

We anticipate to be far sufficient alongside by the top of this calendar yr to interact in a — announce one in all these transactions, nevertheless it — all of them are a bit of untimely as of this name. However we’re positively pursuing these as we have — as identical as we did with Argyll, there are others that will probably be coming down the pipe right here within the close to future. We’re not entertaining any new discussions, just because we’ve — all we are able to probably handle at this second in time.

Michael Kupinski

And only a remaining query and I am going to let others ask questions. I do know that there have been some preliminary disruptions in income at Argyll. And also you talked about revenues that in October of $600,000. Was that in step with expectations? And I do know — I simply form of need to get a way, I do know you are giving steering by way of revenues for the fiscal yr. However thus far, in November, are you continue to seeing some disruptions into November or revenues ramping? After which, for those who may simply give us a way of what is driving the expansion? Is it the variety of gamers? However simply usually what the colour there may be?

Grant Johnson

Certain. I am going to take first go, and I will hand it over to Michael, the CEO of Argyll and SportNation. Clearly, when the acquisition was negotiated COVID was not upon us, after all, and nor may we’ve forecast what the influence of that was. So, I might need to say that a few of it was not anticipated nor may we’ve anticipated the audit happening throughout COVID from the UK GC.

So, it was a little bit of a one, two that we didn’t plan on. Nonetheless, we’re fairly happy with the numbers since. I will flip it over to Michael, who’s on the cellphone Michael Wilson, COO of SportNation to get into a bit of extra specifics on that time. Michael, can you’re taking the decision — query please?

Michael Wilson

Sure. No downside. Thanks Grant. Michael, right here. So the October bounced again, and in addition the momentum additionally in November is essentially pushed by way of retention and elevated retention and in addition the brand new gamers that we’re buying. We’re buying gamers by way of new channels together with our current affiliate community. We’re branching extra out into social the place we’re seeing an entire new batch of gamers coming in.

And likewise, as I discussed as properly, the retention figures are creeping up and up and up. And in reality, October noticed the most important retention determine as a month two from FTDs the month earlier than that we have seen on file. That momentum of the brand new gamers and the gamers returning to the positioning, we’re seeing proceed by way of into this month as properly. To inform you final week as a person week, we noticed the best variety of actives that we have had on file and in addition the best variety of FTDs as properly. So I believe it seems as if at this stage the momentum is all shifting ahead to hitting the $1 million income by December once more.

And the ultimate level I might make as properly, a part of the acquisition within the – sorry, a part of the retention of shoppers and in addition the income that we’re seeing from them is tied into the rewards program that we’ve. We’re seeing that loyalty that we’re getting by way of prospects exhibiting by way of the respectable numbers that the shoppers are doing on-site and in addition driving that retention and seeing these retention figures growing as properly.

Michael Kupinski

Thanks. I’ll let others ask questions. Thanks.

Operator

[Operator Instructions] Our subsequent query is from Lisa Springer with Singular Analysis. Please go forward.

Lisa Springer

Thanks. I am questioning what sort of timetable you’ve got for the pilot with the New Jersey Gaming Fee for the LANduel? And the way — for those who may clarify to us how including the skill-based player-to-player wagering how that actually goes to broaden your alternatives?

Grant Johnson

Actually. The product has by way of its evolution been examined with the fee’s involvement. So they’re conscious and that is the folks from Genji, Helix and ggCircuit have been working with them. The product we anticipate to launch in a Helix middle of their New Jersey middle in Q1, that is our time line. The way it will influence our revenues? We imagine it’ll have substantial influence.

Esports followers are very engaged with one another and evaluating their expertise in opposition to one another’s. Participant-versus-player betting has at all times been talked about in esports and this would be the first time a product has come out that is truly been higher and accredited by a gaming fee by way of expert betting. So this could enable me to play you in any online game any esports, we are able to wager in opposition to one another. I’ll get the following kill I win the match $10. And the home — the power would take a fee a price not not like a poker site the place they — the home does not take a place of threat, however the home advantages from offering the setting the place the motion takes place. And so this will probably be distinctive. It doesn’t exist anyplace else at present in esports.

Consider it if I may make a sporting comparability, assume by way of golf and all of the foursomes in golf. It is quite common to wager the lengthy shot closest to gap. Gap-by-hole there’s extra betting that takes place on the hyperlinks world wide than will happen betting on the masters. So consider it that manner. We anticipate the setting to get to the cut-off date with this product the place there will be extra exercise happening on the individual versus individual betting that can find yourself happening on these main tournaments. So it’ll have — we imagine it’ll have a profound optimistic impact on each our progress and on our revenues.

Lisa Springer

Okay. Glorious. And you have got quite a lot of visibility out of the title sponsorship with the match. I’m wondering what can we search for by way of extra match sponsorship throughout this yr. I imply do you’ve got a schedule of what number of you’d love to do? And what sort of form that will take?

Grant Johnson

Really we’re in dialogue with Allied on that actual matter frankly. So we’re — the place we have gotten to is we each loved the outcomes. We each see the deserves and profit in working collectively in future tournaments. I’d anticipate a minimal 4 working with Allied subsequent calendar yr probably extra together with extra titles and being targeted in several geographic areas of the world. In order that’s about so far as we’re within the particulars. We anticipate to come back out with a schedule early within the New 12 months.

Lisa Springer

Okay. Glorious. Wanting ahead to it. Thanks.

Grant Johnson

Thanks.

Operator

[Operator Instructions] There aren’t any additional questions registered presently. I wish to flip the convention over to Grant Johnson for any closing remarks.

Grant Johnson

Thanks. Once more, I might wish to thank all people for becoming a member of us for our earnings name. Thanks to your questions. I imagine that we do provide essentially the most diversified providing within the esports sector after which that we’ll create great worth for our shareholders. Thanks for becoming a member of us right here in the present day and we sit up for delivering extra and bigger thrilling outcomes as we proceed to execute our enterprise mannequin.

Operator

This concludes in the present day’s convention name. You could disconnect your traces. Thanks for collaborating and have a pleasing day.