U.S. Markets close in 1 hr 38 mins

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

Q3 2019 NTN Buzztime Inc Earnings Call

CARLSBAD Nov 8, 2019 (Thomson StreetEvents) -- Edited Transcript of NTN Buzztime Inc earnings conference call or presentation Wednesday, October 30, 2019 at 8:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Allen Wolff

NTN Buzztime, Inc. - Executive VP, CFO & Interim CEO

* Sandra Gurrola

NTN Buzztime, Inc. - SVP of Finance

================================================================================

Conference Call Participants

================================================================================

* Kirsten F. Chapman

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

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good afternoon, ladies and gentlemen, and welcome to the NTN Buzztime Third Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Kirsten Chapman of LHA Investor Relations. The floor is yours.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you, Sachi. Good afternoon, everyone. Thank you for joining us today for NTN Buzztime's Third Quarter 2019 Results Conference Call and Webcast. Joining us today our interim CEO, Allen Wolff; and SVP of Finance, Sandra Gurrola.

Before we begin, let me remind you that during this conference call, management may make forward-looking statements about the company's planned strategies and goals as well as the company's anticipated financial and other performance. Forward-looking statements by their nature address matters that are, to different degrees, subject to risks and uncertainties that could cause actual results to differ materially and adversely from those expressed in any forward-looking statements. Those risks and uncertainties are outlined in our press release issued today and in greater detail described in Part 1, Item A -- 1a, risk factors of our annual report on Form 10-K for the fiscal year ended December 31, 2018, and described in other documents we file from time to time with the Securities and Exchange Commission including our quarterly report on Form 10-Q for the quarter ended September 30, 2019, that the company expects to file on November 1.

The forward-looking statements made today are as of the date of this call and 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 Allen Wolff. Please go ahead, sir.

--------------------------------------------------------------------------------

Allen Wolff, NTN Buzztime, Inc. - Executive VP, CFO & Interim CEO [3]

--------------------------------------------------------------------------------

Thank you, Kirsten, and thank you for joining us today. Before we get started, I'd like to take a moment to introduce myself further for those I have not met yet. As you may know, I have been with Buzztime almost 5 years. Prior, I owned a successful restaurant and have expertise in meeting teams to build value in growth during uncertain times and turning challenges into opportunity. I know the team well and believe that we have the ability to deliver revenue on a shorter horizon, build a better player experience and scale the business to achieve Buzztime's full potential. I'm excited to lead Buzztime.

It's been a busy quarter, and I have enjoyed the discussions I've had with many of you directly in the last 30 days. Today, I'll highlight -- I'll share highlights of our third quarter performance as well as review some changes we are making designed to achieve our vision more quickly.

For the third quarter, gross margin reached 71%, and our year-to-date cash flow from operations increased to $1.8 million, more than tripling the prior-year period. We expanded the number of locations using our new lighter product, Buzztime Basic. We also grew our ad exchange revenue.

For our hardware solutions, we signed a repeat order and a new partner as well as more than doubled our sales pipeline from earlier in the year to over $30 million today.

To help us operate more efficiently and optimize performance, I have instituted a few key shifts. We have consolidated some functional roles while elevating other key positions including a director responsible for player experience. Also, we are narrowing our focus to a few key initiatives, prioritizing generating revenue and returns in a more timely fashion. We will continue to invest in our lighter offering, expanding features for our venue partners and improving our player experience.

From a product and revenue perspective, we are focused on hardware, entertainment and advertising. Let's get into the details and start with our hardware solutions.

We have a core competency in designing, manufacturing, deploying and supporting tablet-enabled solutions for our partners. Within our market, we have identified a gap on which we can capitalize. Consumer off-the-shelf tablets do not offer the durability or customizability for B2B providers like we offer. And we believe the combination of our differentiators, pricing and experience cannot be matched. Our product line has strong competitive advantages in a growing market, which we believe creates an exciting opportunity. As evidence of these advantages, in Q3, we signed a second order in the correctional facility industry for $3 million. Delivery will commence in Q4 and extend through the end of 2020.

We also signed an agreement with Spendgo, a leading digital marketing and loyalty platform that plans to use our tablets to service retail locations including Cold Stone Creamery. Spendgo ran a competitive evaluation process, and our tablets were selected based on our impressive results. We expect initial orders in the fourth and first quarters. As their business grows, we anticipate a steady flow of reorders.

Our differentiators continue to capture new sales opportunities including a recently launched pilot for a foodservice company that has over 200 locations. The pilot is going well, and if successful, we anticipate an initial tablet order in 2020.

We are positioned to scale hardware revenue in 2020. As we sign new partners, we expect to recognize revenue via initial orders followed by subsequent orders. In the long run, tablet orders can be complemented by licensing our content and offering device management services.

Okay. Let's move on to our entertainment initiative. Our hosted trivia and our broadcast trivia are made available through various product packages that provide flexibility for customers to choose the best Buzztime experience for their environment. First, I'll share an update on the tablet-based solution Buzztime Elite. As mentioned on prior calls, the multiyear Buffalo Wild Wings agreement expires in mid-November. Over the last few months, we have engaged with franchisees directly to secure continuing service. We signed extensions with 72 franchise locations, have verbal commitment from 40 locations and are in continuing discussions with 300 additional locations. Franchisees that sign extensions will offer Buzztime without interruption. Locations not continuing service will be decommissioned, and to ensure continuity of play for our players, we have migration plans in place. We will communicate with players, educating them about other Buzztime locations to continue to play our games.

It's important to note that the majority of franchise locations that extended are keeping the Elite solution, illustrating that tablets continue to offer strong value. Their new managers tell us they like that our tablet offering provides gaming experiences for all ages. Solo play with Trivia or parents looking to entertain their children are some of the examples. Our customers shared that their guests will drive miles to their location for the Buzztime Elite experience.

Let's move on to review of Buzztime Basic, our new lighter product offering. As of today, we grew Buzztime Basic to over 120 locations. In recent weeks, we began selling the solution to our inbound leads and close lost accounts and are getting good market feedback. We are continuing to test various go-to-market strategies, which could include field reps and/or various distribution channel partners. By year-end, we anticipate reaching close to 200 Basic locations. The Basic solution is a compelling offering. It is a self-installed device that provides our scheduled Trivia content as well as digital signage functionality for the location to promote specials with in-house ads. We can deploy this solution at a much, much lower capital cost, in some cases up to 95% reduction from Elite. As the network grows, we become more attractive to advertisers, and we believe that programmatic ads will scale to offset a significant amount of the reduction in the subscription revenue. I'll discuss more about programmatic ads shortly.

At roughly the same price of some cable subscription packages, we are offering venues a flexible and customizable solution to drive engagement with their customers. This could be consistent daily play or high-density play on certain days. For example, we have a small venue that has Taco and Trivia Tuesdays, driving sales and fun into their venue in a targeted way. We see certain segments perform better than others and are refining our ideal customer profile so we can scale the network more efficiently.

The Basic offering is driven by a mobile app experience that we also launched in Q2. Adoption and conversion of play to the mobile app is still in its infancy. Our team realizes that our mobile app needs improvement. We are soliciting feedback from our customers and evaluating how we can improve both the experience and the social hooks to enable more viral growth in today's environment.

In addition, we believe there are opportunities to engage players out of venue and drive them back into our venue partners in new and unique ways due to the mobile app. Stay tuned for exciting updates in future months' releases.

Both our Elite and Basic services have integrated our programmatic ad network, a key part of our future growth.

Programmatic digital out-of-home advertising is attracting more ad dollars, and infrastructure investments are expanding the access to all levels. We are excited about our ability to bring monetization through this type of advertising into our network. To date, we have integrated one exchange and launched it on our system in Q2 in a limited release, and more broadly in Q3. While we are evaluating several additional opportunities to expand access to the network, we are pleased with the initial exchange performance.

The exchange enables us to service both private marketplace purchases as well as programmatic ad exchange buys. Our private marketplace has delivered one campaign with a second one underway shortly. The average deal size for a private marketplace campaign to date is over $30,000 for approximately a 1-month run. Buying on the exchange is showing promise. So I wanted to share some statistics on Q2 to Q3 growth.

A majority of advertisers purchased again -- majority of Q2 advertisers purchased again in Q3. Gross advertiser spend increased from just over $2,000 to approximately $50,000, more than a 20x increase. The majority of ad aired in locations outside of the B-Dubs system.

For insight into Q4, we have already increased the number of advertisers by 25% over Q3 with continued growth in quarter-to-date performance. We continue to release additional functionality, which should help increase the sell-through rate on our network. While it's still early and revenue is still in its infancy, we are very bullish on the results and the opportunity.

Now I will turn the call over to Sandra Gurrola, our Senior VP of Finance, for a review of our Q3 financials. Sandra, please go ahead.

--------------------------------------------------------------------------------

Sandra Gurrola, NTN Buzztime, Inc. - SVP of Finance [4]

--------------------------------------------------------------------------------

Thank you, Allen. For the third quarter of 2019, revenue was $4.6 million compared to prior year revenue of $6 million, reflecting a decrease in subscription revenue due to lower site count and a decrease in hardware revenue due to the timing of delivery for our larger hardware deals. Total site count, excluding our new Buzztime Basic locations, was 2,565 for the third quarter of 2019 compared to 2,609 sites at the end of last quarter.

Third quarter direct costs were $1.3 million compared to $2.1 million in the prior-year period, reflecting the impact of the lower hardware revenue.

Gross margin improved to 71% from 65% in the prior-year period due to revenue mix.

SG&A expenses were $3.5 million or about $20,000 higher than the prior-year quarter. During the current period, we continued to optimize SG&A expense and implemented further cost management initiatives. As a result, we remain on track to achieve the revised 2019 SG&A expense target of $13.5 million. For the third quarter of 2019, net loss attributable to common shareholders was $351,000 or $0.12 per share compared with net income attributable to common shareholders of $222,000 or $0.08 per share in the prior-year period.

As previously stated, in the prior-year period, we recognized revenue from a significant hardware sale, which had a favorable impact on our bottom line.

We are pleased to continue recognizing positive EBITDA for a 14th consecutive quarter. EBITDA for the third quarter of 2019 was $465,000 compared to $1.1 million in the prior-year quarter.

Cash, cash equivalents and restricted cash totaled $2.8 million, flat when compared to year-end 2018.

Net cash provided by operations for the first 9 months of the year was $1.8 million compared to $528,000 in the prior-year period. We continue to manage cash very carefully as we shift to monetize our hardware platform and our capital-light advertising and mobile-based product set. We continue optimizing our balance sheet as we reduce our inventory levels, and as a result, we ended the quarter with $1.6 million in site equipment to be installed compared to $2.5 million at year-end 2018.

As of September 30, accounts receivable was $777,000, decreasing from $1.1 million at year-end 2018. In Q4, we expect the previously announced repeat hardware order from a jail service provider to partially offset revenue declines from lower site count related to the end of our Buffalo Wild Wings contract in mid-November. Also, we expect to reduce total Q4 SG&A expense to approximately $3 million, reflecting additional cost controls.

And with that, I will now turn the call back over to Allen.

--------------------------------------------------------------------------------

Allen Wolff, NTN Buzztime, Inc. - Executive VP, CFO & Interim CEO [5]

--------------------------------------------------------------------------------

Thank you, Sandra, and thank you for your continued commitment and leadership at Buzztime. We are entering a period of time that requires a narrowed focus, perseverance and financial discipline to reach our potential. With that in mind, we will continue to explore adding capital to the balance sheet designed to ensure we can execute on our growth strategy. Our plan is to obtain capital with some flexibility in the short term in the event our strategic process results in a transaction.

In closing, I believe we can operate more efficiently, achieve significant growth and build a buzz time where the best years are ahead of us.

Thank you for joining us today, and I look forward to continuing the discussion with each of you directly.

Operator, you can now close the call.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may now disconnect.