Allied Gaming & Entertainment, Inc. (NASDAQ:AGAE) Q3 2023 Earnings Conference Call November 9, 2023 5:00 PM ET

Company Participants

Tyler Drew - Addo Investor Relations
Yinghua Chen - CEO
Roy Anderson - CFO

Conference Call Participants

Operator

Good afternoon, and welcome to the Allied Gaming & Entertainment, Inc. Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Tyler Drew of Addo Investor Relations. Please go ahead.

Tyler Drew

Thank you, operator. Good afternoon, and welcome to the Allied Gaming & Entertainment 2023 Third Quarter Earnings 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 be identified as 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. And with that, it is now my pleasure to turn the call over to Allied Gaming & Entertainment CEO, Yinghua Chen.

Yinghua Chen

Thank you, Tyler, and thank you all for joining us this afternoon. As we share our exciting development from the past quarter, we're committed to executing our strategic plan to focus on our growth in the realms of e-sports, gaming and entertainment.

Beginning with our financial performance in Q3, we've achieved a significant milestone by recording positive net income. This accomplishment reflects our relentless effort to enhance operational efficiency and reduce expenses in anticipation of robust revenue growth in 2024. Our unwavering commitment to improving profitability remains steadfast despite the challenges we faced in Q3, particularly in the form of a 28% decrease in revenues, largely due to decrease of life events, reflecting the impact of economic uncertainty.

Our dedication to streamlining our general and administrative expenses resulted in a remarkable reduction of over 50% in Q3. This accomplishment not only improved our net income, but also bolstered our adjusted EBITDA results, setting us on a path to manage and grow our business at this lower expense levels.

During the quarter, our subsidiary, Allied Esports International, AEI, provided its audiences with more world-class experiences at both its HyperX Arena and Omen Mobile Arena. We produced a total of 79 event days during Q3, comprising 44 proprietary event days and 35 third-party event days.

Notable events at HyperX Arena included Boxing Weekend Reception, a dynamic and fun gaming event honoring boxing legends, such as Mike Tyson and Evander Holyfield; a Red Bull and Riot Games event showcasing brand-new game plays from Riot's upcoming title Project L, for the first time during the most attended Evolution Championship Series 2023 tournaments in the history?

Hacker1, a 5-day hackathon event and an industry event by Cox Communications to discuss their leading connectivity capability. In September, we also hosted the UNLV Hockey Annual Giving Day, a fundraising event in partnership with UNLV utilizing our Omen Mobile Arena, forging a stronger connection with our local community. Our Omen Mobile Arena was also active during the quarter with events, including the NHL Draft and 3 UNLV college football games at Allegiant Stadium in Paradise, Nevada.

In recognition of our contribution, we're deeply honored that the Clark County Commission officially declared October 14 as Allied Esports Day in Clark County. We're excited about the awareness this brings and look forward to providing even more memorable experiences to our audiences.

Turning to our partnership with HyperX. Recently, we rolled out a new set of HP Omen PCs and monitors to retrofit and update the gaming zones within the HyperX Arena. The Arena, which is considered the world's most recognized venue and production facility for eSports is entirely outfitted with state-of-the-art equipment.

In conjunction with in-person live events, we're currently in production on our original content series WANNABE Season 2, which will be available on the YES app. After generating strong viewership numbers during season 1, we expect to release season 2 in the spring. We're focused on incorporating more of the most well-known New York Yankees players together with top ranking pro gamers into the show to increase its reach.

Furthermore, we're actively engaging with potential partners to create new and engaging content series for our viewers, similar to one of the ELEVATED SHOW. Stay tuned for more details as these partnerships evolve.

Let's turn to our Allied Mobile Entertainment subsidiary, or AME, which is dedicated to exploring opportunities in the massive and growing mobile games market. Subsequent to the end of the quarter, on October 31, 2023, we closed on the previously announced strategic investment in Beijing Lianzhong Zhihe Technology Co. or Zhihe, prominent mobile games developer and operator. We are delighted to finalize this strategic investment, establishing AGAE as the majority shareholder in Zhihe, while also assuming a controlling interest in the Board.

This move reinforces our presence in the highly lucrative mobile games market and strengthens our position to grow within the global games industry. Zhihe has demonstrated impressive results in just 18 months in operation, and we expect this investment will be immediately accretive to our top and bottom line while bringing valuable digital IP into the Allied ecosystem.

We also continue to make progress within our Allied Experiential Entertainment subsidiary, or AEE, which focuses on organizing general entertainment live events, experiential entertainment venue operation management and consultation. We're actively exploring opportunities to co-organized partner events in Macau. Recently, Macau has made a substantive effort to diversify its economy and generate more non-gambling revenue in the area. As such, casino operators have pledged billions of dollars in investment over the next decade.

We plan to use our event and content expertise to assist some of the casino operators in providing more nongaming entertainment options to their customers and expanding the revenue stream in a similar manner to Las Vegas. As discussions are finalized, we will update the market with additional details.

We also continue to believe our stock is undervalued and have now repurchased approximately $2.7 million of AGAE stock between the announcement of the plan in November 2022 and the end of Q3. And with that, I'd like to turn the call now to our CFO, Roy Anderson, to provide updates on our Q3 financials.

Roy Anderson

Thank you, Yinghua Chen. From a profitability perspective, our third quarter revenues of $1.1 million were down 28% from the prior year period. As Yinghua alluded to, the year-over-year revenue decrease was primarily due to a decline in third-party in-person events at our HyperX Arena in Las Vegas. Total cost and expenses for the third quarter of 2023 were $1.8 million, a decrease of 46% compared to the third quarter of 2022. The decrease was driven by a strategic reduction in our G&A expenses of 63% and a 48% decrease in our in-person expenses relating to the decline in third-party events held during the quarter, along with certain operating efficiencies we have implemented in our in-person events segment.

The 63% reduction in G&A includes cash compensation, stock-based compensation and the recognition of employee retention credit refunds under the 2020 CARES and subsequent acts. These decreases were partially offset by an increase in depreciation and amortization expenses, acquisition-related professional fees and consulting fees incurred in connection with other strategic investment opportunities.

Net income for the third quarter of 2023 improved significantly to $0.1 million compared to a net loss of $1.6 million in the prior year period. Our results for Q3 2023 include approximately $716,000 of interest income earned on short-term investments. Our adjusted EBITDA loss was $0.2 million in the third quarter of 2023, a considerable improvement from a loss of $1.8 million in Q3 2022. Our adjusted EBITDA includes adjustments for depreciation, amortization, business acquisition transaction costs, stock-based compensation and interest income.

Now moving on to our balance sheet. As of September 30, 2023, our cash and short-term investments position totaled $77.4 million, including $5 million of restricted cash compared to $86.8 million at December 31, 2022, which also included $5 million of restricted cash. As of September 30, 2023, the company's working capital position was very strong at $73.9 million including the current portion of an operating lease liability of $1.4 million that was recorded in connection with the implementation of the new leasing standard, ASC 842 on December 31, 2022.

Also during the quarter and under our stock repurchase program, we acquired 183,021 shares of our common stock in open market transactions at an average selling price of $0.98 for a total repurchase cost of $171,355, excluding broker fees. This brings us the $2.7 million in aggregate repurchases of our common stock since the commencement of the plan. Moving forward, the manner, timing and amount of any purchases will continue to be based on the evaluation of market conditions, stock price and other factors. I will now turn the call back over to Yinghua for closing remarks.

Yinghua Chen

Thank you, Roy. In summary, we remain excited about the growth prospects ahead of Allied Gaming & Entertainment. We have done significant work in the background, which we believe has built a strong foundation. And along with our recently closed investment in Zhihe”, will soon become more evident in our financial results. We look forward to providing you with additional updates on our progress when we release our fourth quarter and full year 2020 results in March. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.

Question-and-Answer Session

End of Q&A