Please standby. Good afternoon, and welcome to the Esports Entertainment Group's First Quarter Fiscal 2022 Conference Call. As a reminder, this call is being recorded and all participants are in a listen-only mode. We will open the call for question-and-answer after the presentation.

On the call today is Esports Entertainment Group's CEO, Grant Johnson; and CFO, Dan Marks. The company would like to remind everyone that various remarks about future expectations, plans and prospects constitute forward-looking statements for purposes of safe harbor provisions under the Private Securities Litigation Reform Act of 1995.

Red Cat cautions that these forward-looking statements are subject to risks and uncertainties that may cause their actual results to differ materially from those indicated including risks described in the company's filings with the SEC.

Any forward-looking statements made on this conference call speak only as of today's date, Monday, November 15, 2021, and the company does not intend to update any of these forward-looking statements to reflect events or circumstances that occur after today.

With that, I'd like to turn the call over to Esports Entertainment Group's CEO, Grant Johnson. Please go ahead, Mr. Johnson..

Bladepoint. The six-figure contract is an example of the type of agreement that we were seeing more of as we continue to integrate and bundle the various offerings within the EEG games.

EGL also announced last month, the launch of our ClubClash IP in partnership with Tampa Bay Buccaneers, New England Patriots, New England Revolution, Philadelphia Union, Indianapolis Colts and the other pro teams we've signed.

This new, immersive program gives fans the opportunity to play on their team's behalf to prove which team has the greatest gamers. We're very excited about initiative and we are actively working to bring more teams onto the platform.

As we've noted in the past, we are also looking to augment these digital relationships with physical installations in our Helix game centers. The Patriots installation at Gillette Stadium in Foxborough has gotten the attention of many teams who are now exploring ways to install game centers at their stadiums.

So far, we've announced two new Helix centers, one in North America, the first at the Hall of Fame Village in Canton, Ohio, and the second at the UCLA Student Union. We expect the UCLA location open around the time students return to campus following the 2021, 2022 winter break.

And our plan is to open approximately one center per quarter for the next two years. Finally, we also debuted LANDUEL at the East Coast Gaming Congress in Atlantic City, this last October. It was met with tremendous interest from the casino operators and the tenants. And we had spoken with many regarding upcoming partnership opportunities.

The LANDUEL software is currently going through testing and the New Jersey gaming enforcement lab and we expect to announce casino partner data for a pilot project in Atlantic City in the coming weeks. Before I turn the call up to Dan, I want to comment briefly, about a recent capital raise.

On Friday, we announced the price of 800,000 shares of convertible stock at $10 resulting in gross proceeds of $8 billion.

These funds allow us to make our final payment to Gameday Group for the Bethard acquisition, which leaves us with several million in cash on our balance sheet to continue executing our growth strategy, to achieve our goal of exceeding the $100 million of revenue this fiscal year.

We're excited and energized with a strong start to the year and we look forward to supporting our shareholders throughout the year, not only with growing financial results with increased visibility of the U.S. capital markets.

Now with that, Dan, can you take us through the numbers please?.

Yes. Thank you, Grant. Good afternoon, everyone again for joining us today. As Grant mentioned, we're pleased to announce that we generated $16.4 million of net revenue for the quarter, up $16.2 million compared to the first quarter of fiscal 2021 and up $7.6 million or 86% versus the fourth quarter of fiscal 2021 revenue of $8.8 million.

Gross profit for the quarter was $10.0 million, up $10.2 million compared to the third quarter of fiscal 2021 and a 92% rise from $5.2 million of gross profit in the fourth quarter of fiscal 2021. Gross margin of 61% in the quarter improved from 59% in fourth quarter 2021.

The completion of the Bethard acquisition in July provided our iGaming business with a full quarter contribution from Bethard for the first time.

We also drove growth through strong player engagement and monetization within our UK and Ireland sportsbook business, measured through average revenue per user as ARPU grew by 48% within our Sportnation.bet flagship brand versus the current quarter.

Our sportsbook results reflect typical intra-quarter seasonality with July and August lower reflecting a limited 14 calendar. While in September, we had record average deposits per customer of over $2,800. So, inciting with the first four months of the European soccer season and the launch of the NFL season.

Quarter-on-quarter group average holds with broadly in line with the previous quarter, whilst on the sportsbook side hold was 8.0% in Q1, slightly down from the 9.2% achieved in Q4. Casino hold was up to 6.0% from 5.1% last quarter. Adjusted EBITDA for the quarter was negative $2.7 million compared to negative $5.5 million in Q4 fiscal 2021.

Sales and marketing expenses were $7.4 million, up from $5.1 million last quarter, driven by a full quarter of that high marketing costs, as well as the expansion of our roster of professional sports team partnerships with new agreements signed in the quarter, including the Indianapolis Colts, Tampa Bay Buccaneers, and the LA Chargers.

General and administrative costs on an adjusted EBITDA basis was $7.0 million, up from $5.7 million in Q4 fiscal 2021, driven by acquisition of Bethard operational costs and the continuation of our investment in our technology team related to the ongoing development of our in-house Phoenix betting platform.

In the quarter, we spent $9.7 million of non-cash and other items that we exclude from adjusted EBITDA, but include in GAAP operating income, such as $3.3 million to amortization as acquired intangibles and depreciation, $2.3 million for interest payments and $0.9 million for stock-based compensation.

This $9.7 million was offset by an $11.8 million release in the fair value of warrant liability. These warrants were issued in connection with the senior convertible note we took out in May and are classified as a liability. Under U.S. GAAP accounting standards, we're required to update the warrant liability to its fair value at each reporting period.

And this quarter, the change in fair value due to a decline in the warrant liability linked to the decline in our stock price during the period resulted in a favorable adjustment to our income statement of $11.8 million.

All-in-all, total net loss for the period was $0.6 million versus a net loss of $1.8 million in fiscal Q1 2021 and net loss of $4.8 million in fiscal Q4 2021. Moving onto our balance sheet and liquidity.

While we ended the quarter with $0.9 million of total cash and cash equivalents on our balance sheet, subsequent to the end of the quarter, the company raised $8 million in gross proceeds by our preferred stock offering to help fund medium term operating expenses.

That said, our ATM equity offering program and existing self-registration give us additional flexibility and access to capital, should we need it to opportunistically pursue additional new avenues of growth. Looking forward to fiscal 2022 guidance, we are excited about the growth and momentum of our iGaming business.

As mentioned during our recent fiscal 2021 year-end call, the acquisition of Bethard in July brings new material revenue and EBITDA streams along with two new gaming licenses in Sweden and Spain and increased cross-sell opportunities between our brands. We have really only just started our cross-selling efforts.

And the ongoing consolidation of our digital gaming businesses will allow us to exploit both revenue and expense synergies. For example, from next month, we will be able to offer a sports product to our 220,000 registered lucky diner casino customers for the first time.

Average player values on our other brands who have been cross-sell between sportsbook and casino can be up to 2 times more valuable in ARPU terms than a customer who only plays either sports or casino.

So, we see a real opportunity to increase active player values, as well as reactivate any dormant Lucky Dino players with a competitive and integrated sports for offering.

Furthermore, Grant alluded to our expected esports betting platform launching New Jersey will come in a matter of weeks combined with potential license options in other states and expanding our existing sportsbook and esports betting products offering deeper into new jurisdictions namely Canada and LATAM will provide further growth opportunities for the iGaming division.

On our EEG game side, we have a number of initiatives that we forecast will drive material growth across the rest of the year. Within ggCircuit, the reason we launched omega products, the turnkey solution profoundly entertainment centers, bowling alleys, casinos, et cetera, is off to a strong start.

We do see a very robust pipeline for the coming months. Our crypto mining has grown months over months since we launched in May and we expect it to roll out – roll it out to more than 300 land centers currently using our software for mining.

We’re open to – are due to open the new Helix Centers with the UCLA student union in January, and have announced a partnership with the Hall of Fame Village for a center to be open in Ohio late next year.

And EGO announced in last month regarding the launch of the club clash online tournament schedule in partnership with several teams will allow access to new customers, which will drive numerous monetization opportunities.

And finally, the expected launch this year – later this year of LANduel, our player versus player skill-based betting application is also another hugely exciting addition to our product suite.

With all these new initiatives in mind, underpinned by the marketable cross-sell opportunities within the iGaming division, we are still guiding to annual revenue of a $100 million in fiscal 2022, split approximately 85/15 between our iGaming and emerging EEG games businesses.

Whilst we’re not providing guidance for 2022 adjusted EBITDA at this time, we are still squarely focused on achieving positive adjusted EBITDA, which we still expect to achieve at the end of calendar 2022.

In closing, we are excited by these significant opportunities for our business, and we will continue to advance the development and enhancement of our proprietary betting to our new platforms. At the same time, we expect to realize revenue benefits and expense savings from our enlarge group as the year progresses.

And we look forward to updating the market further throughout the year as we execute our plan. With that, I’ll turn the call back to the operator for the Q&A session..

Thank you. [Operator Instructions] And our first question will come from Michael Kupinski with NOBLE Capital Markets..

First of all, congratulations on achieving your expectations in maybe doing a little bit better on the adjusted EBITDA on your first quarter. Couple of questions here. Was wondering if you can, your gross margins looked like it was a little bit better than I was looking for.

Were there anything in those gross margins that, I would assume product mix, but can you just give us your thoughts about gross margins and how you look at them going forward?.

I think with the addition of Bethard, which obviously we didn’t have in the prior quarter, we achieved good margins during the quarter on Bethard. Hence, why the quarter-on-quarter overall is slightly up. I think, high-50%s or 60% margins going forward is what we are still modeling. So, we’re slightly ahead last quarter..

And pardon me, if I may miss this.

Can you tell me how much did Bethard contribute in terms of revenues in the quarter?.

I don’t have off the top of my head, Mike, but I will come back to you on that..

Okay. And then in terms of your Helix, you mentioned the college campuses and then you’re going – your plans to do those one per quarter.

Can you talk to a little bit about the CapEx per campus? What is the spend for doing that?.

Well, there’s a number of fact – Mike, it’s Grant here. There’s a number of factors in there depending on the size of the facility and obviously the condition of the existing space when we take it over. So, it could range from $500,000 to $1.5 million. We look at an ROI of about 18 months on these facilities on average..

Got you. And then in terms of New Jersey, can you just kind of give us an update when you plan to start to see revenues? I know you, you asked for a transactional waiver, but when should we really start factoring that in? And then you mentioned a little bit about license options in other states.

Can you give us any roadmap or thoughts on where – and you might see additional states come in?.

Sure. Well, of course, everybody has listening to this call knows that I was very optimistic that we would be late spring, early summer. We’d be up in Jersey. And that was based on our experience with the five licenses, the five tier one licenses we have in Europe.

However, we have to keep in mind, we were the first esports company to apply in the state of New Jersey. It was during a COVID year and up until last week, the governor hadn’t signed esports wager into law. So, we had a few things working against us in terms of moving quickly.

That said based, on our conversations at the Congress, we would all be very surprised if we’re not up and making a market before the end of this calendar year in the state of New Jersey for our Vie.gg, esports betting platform.

In terms of next state, we have actually the two fellows on the call with me here, Jeff and Dan presented in the Ohio Senate. And based on those presentations was instrumental in getting esports added to the language of the regulatory framework in Ohio. We feel quite strongly that Ohio will be the most likely next state for us.

Also, we are looking at moving aggressively into Ontario as Canada’s largest gambling market. Those are probably the most likely next two. After that there’s a series of states that are very interesting, but it’d be premature to mention any others at this point. Those would be the next two jurisdictions..

And then my final question in terms of adding Bethard now to your mix, what would be the burn rate per month for the company at this point?.

Still just under – just under $1 million cash burn per month..

Okay. All right, I’ll let others ask questions. Thank you..

And our next question will come from Edward Engel with ROTH Capital Partners..

Hi. Thanks for taking the question. Again, congrats on completing all the acquisitions.

I was just wondering, could you talk about maybe how you’re thinking about the balance sheet over the next few quarters, and then maybe just talk about your decision to raise cash via the convertible preferred rather than some of the avenues you talked about last year’s results such as the shelf and the ATM?.

Sure. The tradable prep was brought to our attention by our banking partners as an auction to not put pressure on the share price, by going to the ATM at this point in time, allowing the market to get some of these benchmarks down.

Obviously two extremely strong earnings K and the strong Q and the other benchmarks we’ve just mentioned in terms of our land dual and launch of our New Jersey gambling platform for Esports. So, we elected to, I guess, focus on options that were not going to be a hindrance to the share price, well say.

We remain in a position where we can use our shelf. We do have the shelf and have used it previously. That’s how we may pull kind of acquisition and having the ATM, as you would know, is just a more efficient way of being able to draw down on the shelf if the opportunity presents itself.

So, we have those available to us, but we continually look for all options – financial options that do not affect our shareholders in a negative way. So that’s really how the tradable prep credible came into being..

Okay, great. Yes, that’s super helpful. And then just kind of curious could we just maybe – I know not giving quarterly guidance, but just directionally what the quarterly cadence of revenue would look like.

Assuming that you should get some benefit from having an entire quarter of BetHard and then probably safe to say just given the European sports calendar, you’re probably going to be more weighted towards the second half of the fiscal year than the first half.

Is that a fair assumption in terms of revenue ratings?.

Yes. I think that’s a very fair assumption and we’ve always built in back ended waiting towards our revenue. I think it’s probably going to be on a roughly 65-35 split waited towards H2. As I mentioned earlier, we’ve really only scratched the surface in terms of our cross-sale capabilities.

This past quarter has very much been an integration quarter where we’ve now got all of our business units in place. And the cross-sell into the Lucky Dino casino brands with our sports book from December will be the main initiative we have to, to really start getting the benefits from these cross-sell partnerships.

So, it is definitely an H2 weighted to the guidance..

Great. Thank you. And then just lastly, squeeze on here.

Once you do get approval New Jersey for the Esports book what would that go-to-market strategy look like for driving customer acquisition? Is it going to be mostly through the marketing affiliates or do you see any immediate opportunities to advertise within some of these Helix Centers?.

Well, definitely be advertising our second biggest center is in North Bergen in New Jersey. We have a new strategy in terms of PR and that we'll be implementing and, working with media outlets advise that Vie.gg is up and active in the only licensed esports gambling site in the North American market.

So, we do expect to get some additional attention from that. We have relationships in New Jersey with Harris Blitzer and Dignitas, of course, as mentioned, we do have our major Helix center there. We will also advertise throughout the state with influencers in the esports and in the traditional sports world that are gamers.

As you've seen, we have quite a large footprint with the pro teams their players that game. So, we'll be using all the tools in our Arsenal to promote the launch of that that platform..

Great. Thank you.

And now, yes, looking forward to when that gets approval?.

And our next question will come from Mike Hickey with The Benchmark..

Hey, Grant, Dan, Jeff, hope you guys are good. Congrats on a strong quarter. Just a couple questions. Dan, just curious to revenue level you're assuming in Q4, the EBITDA positive there [indiscernible]..

Sorry, Mike, I didn't quite grab, I didn't quite hear that.

Please repeat the question?.

Yes.

Just trying to figure out the revenue level, you're assuming speaking for the positive in Q4?.

How much revenue you think we're going do in Q4 to get to….

Yes. You guided positive EBITDA in Q4.

I'm just trying to figure out the revenue level to buying that?.

I think the expectation is that we should be somewhere in the sort of lows mid-30s by $30 million in, by Q4 in terms of revenue..

Okay. Thank you. And it sounded like Grant, you just gave you, just so curious the feedback there sounds like you're close to announcing partner. Just sort of curious if you can expand on the opportunity of Lando..

Yeah. Well, there was Lando product, we expect to be extremely well received in the gaming community, gamers are competitive, and this is a skill-based game, not playing you, Mike, and we're going to play we're rollout Madden first. So, whether betting $2, $5, $10, like in poker, there'll be a pot. The winner will win the pot.

The house will take a commission where the house. We expect that to be extremely well received and once received or once we get through the inaugural launch, we do plan to roll it out aggressively through our Helix Centers first, and then through the wider ggCircuit infrastructure 600 plus centers two and a half million somewhat on that platform.

That said, this product was extremely interesting to traditional casino operators who have been looking at how to integrate Esports into their physical plant for some time, as you're probably aware. And they were never really able to figure how it fit. Now with LANduel, we have a betting product that makes sense to casinos.

And as a result, we are engaged in multiple conversations of what that could look like in these physical operators. In addition to that, as mentioned on the call, we've already put in two of our turnkey omega centers systems in large malls, and these are six figures, each installation, these are standalone turnkey operations.

So, the combination of the omega and the LANduel, we now have a suite of products that's B2B for the casino vertical..

Nice. Thanks, Grant. Last question for me is you talked about Lucky Dino here, the opportunity now to open the sports book and convert casino players, the sports book.

Can you just sort of talk about as much as you can, the relative UA spend of the conversion system like that versus open market and the expansion of LTV? I think you touched on it, just how, are you certainly sort of upstream here do you think on casino sports book versus sports book casino, or is that you see a strong overlap in the demo that would have a desire to want to do sports betting as well as casino? Thanks guys.

Good luck..

I think one of our main comparables is our, yes, one of our main comparables is our entertainment brand, which is a sports book led brand, SportNation.bet is a sports book led brand. And much of our acquisition is towards sports book players, but we've been able to convert over time 40% to 45% of those onto a casino – onto casino activity.

So, we do certainly see the ability to do the reverse and market into casino players, a sports book products that will be integrated onto the same platform that those casino players are currently using. Obviously, hugely reduced customer acquisition we've already got the customers, we've already got their details.

And we can go out to them with an offering that we hope to get a reasonable conversion rate on the 220,000 customers that we've already got registered on the platform.

And we also, we know that a cross-sell customer is playing sports book and casino can be worth up to two times, if not more than a customer playing just a sports book or just playing casino on some other competitors, they think it can be five times as much as a sports book only customer.

So, we do see a huge opportunity there to increase the values from players that are currently active with us, but also the ability to reactivate any players that have been dormant with us for some time with a sports book offering..

Thanks guys..

Thank you. Our next question will come – and our next question will come from Scott Buck with H.C. Wainwright..

Hi, good afternoon, guys.

I'm curious, did you host any franchise partnered tournaments during the quarter? And if so, what was turnout, what was feedback, any color there would be helpful?.

In terms of the EGL platform, no, we didn't. The first one is going to be going off with including Cavalry, and it'll be the first one with the new club clash format. From this point forward, we will have one of these major tournaments pretty much weekly from this, this moment in time or from the moment that that tournament takes place on.

We are going to be beefing up our internal team to manage these tournaments, because the marketing might of these pro-teams, I mean, they range from 4 million fans up to 25 million fans depending on the franchise.

So, we are expecting fairly high participation and because we have multiple ways of monetizing in terms of their sponsorship, their subscription of course we're going to be, as we move forward, we will be rolling out the LANduel product for those that do have the gaming computers at home, they'll have the opportunity to do crypto currency mining.

So, we're going to roll in a host of other revenue opportunities with these. So, we're pretty excited, but the right answer to your question is no, we didn't have any of those. So, we expect that start to contribute materially till the numbers going forward..

I appreciate that, Grant. I mean, I guess my follow-up is what's the best way for us to think about the incremental value then of, of each team added, right. So, take the culture example.

How do we think about what the revenue opportunity is there over a one or three-year period?.

Well, whenever you're trail blazing and you don't have a roadmap or a blueprint to follow, it's a little difficult to do accurate forecasting.

Simply because nobody's done this before, however when doing forecasting, I think you'd agree you can get down to fractions of a percentage point as your – where they started becoming accretive or lucrative for us.

Given the size of the databases of the NFL teams in particular, we only need about one-third of one percentage point of their fan base to participate just in the subscription side to make these very profitable. And then when you layer on the sponsorship and the other monetization opportunities we have, it takes that down from there.

So, until we have the core or full operation, we won't be able to give accurate numbers. However, if our – if our target rate is a one-third of a percentage point, I like our chances..

No, that's very helpful.

And then last one from me, I'm just curious not to beat up on New Jersey again, but what do you guys have factored into your $100 million revenue guide for 2022 and at what point does that start to be threatened if you're not up and running in New Jersey?.

Well, we are going to get up and running New Jersey. That's a fact, but I'll let Dan take the question..

Yes. Thanks Grant. Yes, we've only factored in a very, very prudent amount of revenue for Jersey this year in the sort of $1 million range in total for the fiscal year. So, we – we it's really going to be a – it's kind of wait and see product rollout. And again, that the projections are very, very prudent.

We're hoping we'll massively exceed those, but as things stand, there's only a $1 million in their forecasted for fiscal 2022 for New Jersey..

Okay. That's very helpful. I appreciate the time guys. Thank you..

Thank you..

And our next question will come from Lisa Springer with Singular Research..

Thank you. My question is regards to G&A expense. I was wondering was some of the increase in G&A during the first quarter one time.

And how should we think about modeling G&A for the balance of this year?.

Hey, Lisa. So, I would say within G&A, I said on an adjusted basis, adjusted EBITDA basis, we're at about $7 million for the quarter. So that's removed anyone offs or non-cash item.

So, I think we're probably at a reasonably consistent number now with that $7 million from – just from a G&A perspective, I don't foresee meeting a material increase, in resources, if anything, we're looking to find efficiency savings. So, from that perspective, I think you can model around $7 million per quarter..

Okay. Thank you. That's very helpful.

And this one is kind of for Grant in terms of, should we think about, what do you think about M&A activity in 2022? Are we – should we expect the company to make some more small acquisitions? Is it, I'm sure most of the focus is going to be on integration and organic growth, but I was wondering if there's some small pieces you might want to pick up if they're available attractive prices?.

Well, you just, you answered the question earlier with your last line there. If they're attractive prices and they're they fill a GAAP in our technical lineup, we of course will look at them.

But as you just mentioned, our focus right now is on taking the assets, we have acquired and making sure that we're getting all the efficiencies out of them and cross-selling out of them.

But we got here this quickly, largely because of M&A opportunity and if the right opportunity presents itself at the right price, we will seriously have a look at it most definitely..

Okay. Thank you, Grant..

Thank you..

Thank you. And that does conclude the question-and-answer session. I'll now turn the conference back over to you for any additional remarks..

Again, thank you everybody. It's a very exciting time for us. Keep in mind, it was only 18 short months ago that we went effective on the NASDAQ and from that time we've gone from 11 bodies to about a 260 and 100,000 revenue to forecasting a $100 million. Some of our largest projects are still just being launched now.

Our Mega project and our LANduel project was rolled out to we’re very exciting initial reviews at the Gaming Congress. So, I would think our shareholders should be, would be expecting that the, continued growth and continued innovation from as I hope that reflects itself and your confidence in the market. Thank you for your support..

Well, thank you. And that does conclude today's conference. We do thank you for your participation. Have an excellent day..

Thank you..