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Edited Transcript of NTN earnings conference call or presentation 9-Aug-19 8:30pm GMT

Q2 2019 NTN Buzztime Inc Earnings Call

CARLSBAD Sep 6, 2019 (Thomson StreetEvents) -- Edited Transcript of NTN Buzztime Inc earnings conference call or presentation Friday, August 9, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Allen Wolff

NTN Buzztime, Inc. - Executive VP & CFO

* Ram Krishnan

NTN Buzztime, Inc. - CEO & Director

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Conference Call Participants

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* Kirsten F. Chapman

Lippert/Heilshorn & Associates, Inc. - MD and Principal

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Q2 2019 NTN Buzztime, Inc. Earnings Conference Call. (Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to turn the call over to Kirsten Chapman from LHA Investor Relations. Ma'am, you may begin.

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Kirsten F. Chapman, Lippert/Heilshorn & Associates, Inc. - MD and Principal [2]

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Thank you, Sydney. Good afternoon, everyone, and thank you for joining us today for NTN Buzztime's second quarter 2019 results conference call webcast. Joining us today are CEO, Ram Krishnan; and CFO, Allen Wolff. After the prepared remarks, we'll open the call for questions.

Before we begin, let me remind you that during this conference call, management may make forward-looking statements about future expectations and plans. Such statements are shown -- are subject to known and unknown risks and uncertainties or other factors that may cause the company's actual results to be materially different from any results expressed or implied during the call. Potential risks and uncertainties that could cause actual results to differ materially include, but are not limited to, the company's ability to compete effectively within the rapidly changing and highly competitive interactive entertainment and game industry; customer and consumer acceptance and adoption of the company's products, platform and technology; the company's ability to successfully introduce new revenue streams based around consumer games and services; the company's ability to maintain or improve its relationship with Buffalo Wild Wings; the company's ability to raise additional funds in the future on favorable terms; the company's ability to satisfy its payment obligations and comply with the financial and other covenants under our credit facility with Avid Bank; the ownership and enforcement of intellectual property; and others more fully described in the company's SEC filings. The information in this conference call related to projections or other forward-looking statements is based on current expectations. Except as required by law, the company undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

Now it is my pleasure to turn the call over to CEO, RAM Krishnan. Please go ahead, Ram.

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Ram Krishnan, NTN Buzztime, Inc. - CEO & Director [3]

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Thanks, Kirsten. We closed our second quarter posting the 13th consecutive quarter of positive EBITDA. It's a very busy quarter, both from a product development standpoint as well as commercially, so let's just jump right in today.

First and foremost, we signed an agreement with Diversified Restaurant Holdings, one of the largest Buffalo Wild Wings franchisees, to extend the Buzztime service at its locations through the end of 2020. This contract represents 64 units or a little more than 10% of the Buffalo Wild Wings franchise community. While we continue to work with Buffalo Wild Wings corporate, we are approaching November when our agreement expires. Now there's a possibility that we will renew our relationship in some fashion. If we do, we expected to change significantly from our historical relationship as we believe they prefer mobile-only Trivia-driven solution as opposed to our tablet-based option.

While that's disappointing in the short run, it's in line with the evolution of our roadmap and we'll need to transition of business through this. We do know that our platform generates value and delivers results. We have been fast at work adjusting the economics. While the mechanisms may change, the core value has remained.

We recently completed an audience study performed by Nielsen media. There are several strong findings from the study. I'll share a few. We have the second largest bar and restaurant network -- ad network in the country. 82% of patrons who visit one of our locations notices and recalls the content on the screen; 62% are actually playing along, though most likely passively; and 42% said our content contributed to their decision to visit. This is powerful information as we pursue our lighter offering that enables us to build our network at scale and quickly. We have known that we needed a lighter product, one the costs us less and customers could use at our lower price. This has been our focus and is a good segue into our new products.

We have been busy with 3 product launches. The first is our new ad platform that enables us to market and sell our ad inventory more effectively. We launched this to our installed base fully in Q2. We took our first direct sale on this platform with an advertiser, which was validating immediately.

We also opened up a small portion of our inventory to the ad exchange and they booked 80 accounts on that network so far. While the program just started with initial revenue minimal as expected, it gives us an indication of what's possible once we open up our entire network and become appealing to more national advertisers as well. We plan to make some enhancements in August to make the platform more robust, which, we believe, is in our best interest to complete before we open up the entire network.

Second is our mobile app that enables in-venue play on a player's own device. In May, we launched our basic beta phase. Now we're testing the right balance of content on the mobile app and the TV screen to ensure the TV continues to create the social experience. We've been adding new features and games little by little and then reserving development capacity to address customer feedback. It's been an energizing process watching the app grow and proliferate. It's a pretty quiet launch. We've already reached 37,000 downloads so far. Gameplay has been good, and we'll continue to release new features and games. And we intend to leverage this new interface for additional advertising.

Our third big release is our capital-light version of our game engine and technology platform that, at a lower cost, enables us to reduce price and reach more of the market. We are testing our Buzztime Basic offering and signing up new locations in our first test to market with a small field sales team. We are pleased with the pace we have been able to acquire new locations.

In June, we limited the number of locations to 10. Since then, we have opened up the funnel to install at will in our test market. And in the first 75 days, we signed up 80 new locations. We're testing go-to-market, the pricing and product offering in a light product that has several new features coming up as well, including more co-branding and promotion for the venue itself and the integration of that promotion inside the app.

As we are evolving the business, we are and will always be about driving engagement between players, brands and venues. Our goal is to have more easily accessible technology and services that get us to more markets faster.

You can see the Buzztime business model being driven by several of our key capabilities. First is events. We are in 300-plus venues per month with live events. These continue to be a core part of our business, connecting customers and venues. We'll begin opening the opportunity to connect brands to this audience and provide our SiteHub product to them as well.

Next is subscription. We continue to sell our subscription model that is perfect for sites that have built-in audience and use tablets or a digital signage platform.

Third is advertising. We're expanding our ad platform and aim to use it to monetize our lightest offering and also the entire network. We have substantial ad inventory in the network today. More locations will translate into more inventory.

Finally, as the use of our mobile app increases, we can see the potential for in-game transactions. As our mobile app is deployed and downloaded, there are a wide range of features and capabilities we can unlock with these transactions.

While we are prudent with capital, we continue to explore and evaluate financing alternatives to help us execute our operating and strategic plan and to better position the company to expand. Given our sense of where things are with our largest customer, we will be taking a strong approach to adjusting our SG&A run rate to offset the change in economics.

Our investments in the tablet platform, however, continue to see interest, and we are excited to announce that our jail partner just placed a second order, more than doubling the quantity of tablets from our first order. This reaffirms the strong capability and performance of our ruggedized tablet and platform. This is a growing segment for our partner, and we expect to grow and go alongside as they win new accounts and contracts, and we continue to full tablets -- fulfill tablets for their customers. We expect this to deliver 3 million -- approximately $3 million in revenue over the next 12 to 18 months.

We're also working with a major casual dining chain on integrating their POS software on to our tablets. This order has the potential to be in the $3 million to $5 million range after some initial piloting. While it will take time to complete and deliver, both are very key anchor clients for us to build off of.

Now I'll hand the call over to Allen.

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Allen Wolff, NTN Buzztime, Inc. - Executive VP & CFO [4]

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Thank you, Ram.

For the second of quarter of 2019, revenue was $5.2 million compared to prior year revenue of $5.7 million, reflecting a decrease in subscription revenue and other revenue. Specifically, our other revenues saw an increase in advertising revenue, offset by decreases to professional developments and live hosted events.

We ended the second quarter with 2,609 total sites, excluding our new Buzztime Basic locations compared to 2,632 sites at the end of last quarter.

Second quarter direct costs were $1.7 million compared to $1.9 million in the prior year period, reflecting the impact of lower service provider and other fees.

Gross margin improved to 67% from 66% in the prior year period.

SG&A expenses were $3.4 million compared to $3.7 million in Q2 2018 primarily due to cost management efforts. We plan to continue to optimize SG&A expense and impose further cost management initiatives that are expected to reduce 2019 SG&A forecast from $14 million to less than $13.5 million.

For the second quarter of 2019, net loss attributable to common shareholders was $98,000 or $0.03 per share compared with $132,000 loss or $0.05 per share in the prior year period.

We are pleased to report that EBITDA was $686,000, in line with $691,000 in the prior year. This is the 13th consecutive quarter where we recognize positive EBITDA.

Cash, cash equivalents and restricted cash totaled $3 million compared to $2.8 million at year-end 2018. Cash flow from operations for the first 6 months of the year was positive $1.3 million compared to $239,000 in the prior year period. We continue to manage cash very carefully as we shift to monetize our hardware platform and capital-light advertising and mobile-based products set.

We ended the quarter with $1.7 million in site equipment to be installed compared to $2.5 million at year-end 2018, reflecting continued delivery of prepaid tablets to a large customer. One of our objectives is to continue to find ways to optimize our balance sheet while reducing inventory levels.

As of June 30, accounts receivable was $732,000, decreasing from $1.1 million at year-end 2018.

As we look ahead, we will continue to review our options for growth and within the capital markets to best position Buzztime for successful execution on our expansion plans, which include growing our hardware business and expanding under our new lighter product position and ecosystem.

I will now turn the call back over to Ram.

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Ram Krishnan, NTN Buzztime, Inc. - CEO & Director [5]

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Thanks, Allen. This is a transformative time at Buzztime as we're seeing growth from our core tablet platform in new markets and seeing the results of our new mobile app light product and ad platform in our core market. We believe we have the building blocks now, the lower cost model and an easier to sell and distribute product in a way to monetize it on a local and regional basis. As we work the economics out, we'll begin looking at national expansion, while exploring different revenue models in the test market we've launched in.

Thanks for listening. We look forward to reporting more successes on the next conference call. Operator, you can now open the line for questions.

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Operator [6]

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(Operator Instructions) And I'm not showing any questions at this time. I would now like to turn the call back to Ram Krishnan for closing remarks.

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Ram Krishnan, NTN Buzztime, Inc. - CEO & Director [7]

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Okay. Well, thank you, operator, and thanks, everyone, for joining us. We'll talk to you again next quarter.

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Operator [8]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.