SharpLink Gaming Ltd. (SBET) Q3 2023 Earnings Call Transcript
Published at 2023-11-15 20:48:01
Good morning, ladies and gentlemen, and welcome to SharpLink Gaming's Third Quarter 2023 Results Webcast. Please note that this event is being recorded and will be available for replay shortly after the conclusion of our live broadcast. Joining us today from SharpLink is the company's Co-Founder and Chief Executive Officer, Rob Phythian; and Robert DeLucia, Chief Financial Officer. Before I turn the floor over to them, I remind you that during today's call, statements that are not historical facts, including any projections, statements regarding future events or future financial performance or statements of intent or belief are forward-looking statements and are covered by the safe harbor disclaimers contained in the company's public filings with the SEC. Actual outcomes and results may differ materially from what is expressed in or implied by these forward-looking statements. With that said, I would now like to introduce Rob Phythian, CEO of SharpLink. Please go ahead, Rob.
Thank you, Kat, and good morning, everybody. SharpLink posted another strong quarter, marked by triple-digit percentage revenue growth for both the three- and nine-month reporting periods. The revenue expansion that we achieved over the past three consecutive quarters is due in large measure to the successful execution of our M&A activities, which began in December 2021 with the acquisition of FourCubed, followed by our merger with SportsHub Games Network just one year later in December 2022. Beyond the top-line, our gross profit margin has been a clear positive story, showcasing the logic and strategy that's gone into strengthening our infrastructure and diversifying our technology solutions and service offerings. Our purpose of acquiring FourCubed was to take advantage of its team's many years of success, specialized expertise and experience in building a highly engaged affiliate marketing network for online poker stakeholders across the European continent. With FourCubed skill set and know-how on board at SharpLink, it's been our intention to apply and amplify these assets to build from the ground up in Affiliate Marketing Services business designed to suit the unique needs of the U.S. market. Today, SharpLink's Affiliate Marketing Services, U.S. business and International business remain hard at work to build an affiliate marketing platform that is not only a strong revenue channel but one that delivers SharpLink a broad, sticky audience of sports fans and provides our sportsbook partners with high-quality traffic of new sports bettors. In connection with the phased rollout of our affiliate marketing growth strategy, SharpLink HQ was launched last month, providing a venue for us to unite and showcase SharpLink's advanced technologies, betting tools, and performance marketing capabilities. Moreover, we expect to leverage this new flagship website to benefit from cross-promotional opportunities between all of SharpLink's business units including promos and driving traffic to our proprietary fantasy sports and free-to-play properties with full betting integration built-in. SharpLink's merger with SportsHub was also approached and executed with the intent to own fantasy sports assets that will provide us with a growing proprietary audience of sports fans whose passion for fantasy sports games and contest will fuel their conversion to legal sports betters. After all, it was the rise of fantasy sports in this country that paved the way for legalized sports betting and advertising. As Bob will share, SportsHub is playing a significant role in the growth of SharpLink despite the fact the market is yet to recognize the value this new business unit and its portfolio fantasy sports assets represent. For instance, LeagueSafe, our fantasy sports league management platform, collected nearly $32 million in total entry fees from over 56,000 private fantasy football leagues for the 2023 and '24 season. This represents a 22% increase over the prior year season. While the broader Wall Street market is yet to recognize and reward SharpLink for the success we are achieving on executing our long-term growth plan, we'll nonetheless continue to remain focused on nailing our KPIs and forge ahead with the intent of optimizing, enduring value creation for our shareholders. Before I provide an update on other corporate matters, Bob, let's take a moment to review the actual third quarter results.
Thanks, Rob, and good morning. On Monday of this week, we filed our 10-Q with the SEC after the market closed and published a press release yesterday morning, providing some key highlights of the results for the three- and nine-month reporting periods. As Rob noted, revenues were strong, climbing 153% and 101% for the three- and nine-month period ended September 30, 2023, respectively. More specifically, total revenues increased to $3.3 million in Q3 2023 compared to $1.3 million for Q3 of last year. Looking at the performance of each of our four business units, SportsHub contributed $1.4 million to our total sales in Q3 of 2023, which compared to zero last year due to the fact that our merger was completed in December of '22. Affiliate Marketing Services U.S. contributed $232,000 for the three months ended September 30, 2023, up from $115,000 last year, and Affiliate Marketing Services International achieved revenues of $1.2 million in Q3 compared to $761,000 in Q3 of '22. Our Sports Gaming Client Services group, which produces free-to-play games for our marquee list of sports media operators, leagues, teams and sports books, held steady at $420,000 in revenues for the three months ended September 30th of this year, which compared to $417,000 in Q3 of last year. For the nine months ended September 30, 2023 compared to the first nine months of 2022, total revenues rose to $9.9 million from $4.9 million, respectively. Drilling down further, SportsHub represented $3.6 million of our total sales in 2023 for the nine-month period; Affiliate Marketing Services U.S. generated $817,000 compared to $285,000; Affiliate Marketing Services International revenues climbed to $3.3 million from $2.5 million; and the Sports Gaming Client Services increased revenues to $2.2 million compared to $2.1 million on a year-over-year basis. As Rob mentioned, we saw a sharp expansion in our gross profit margin in both the three- and nine-month reporting periods. Gross profit increased 505% to $1.1 million for the three months ended September 30, 2023, from gross profit of approximately $188,000 for the comparable three months in 2022. For the first nine months of 2023, gross profit nearly tripled, rising 281% to $3.5 million from $905,000. Likewise, gross profit margin increased to 34.8% and 34.7% for the three- and nine-months ended September 30, 2023. This compared to 14.5% and 18.3% for the three- and nine-months ended September 30, 2022. Moving down to the income statement. For the three months ended September 30, 2023, total operating expenses increased 71% to $3.6 million, up from $2.1 million for the three months ended September 30, 2022. The increase was attributable solely to higher selling, general and administrative expenses attributable primarily to our December '22 merger with SportsHub as well as expansion initiatives associated with our Affiliate Marketing Services business units. For the nine months ended September 30, 2023 and '22, operating expenses declined 18% to $11 million from $13.4 million, largely due to goodwill and intangible asset impairment of $4.7 million recorded in the nine-month period ended September 30, 2022. The total net loss attributable to ordinary shareholders increased 39% to $2.9 million or $0.99 loss per share, which compared to a net loss attributable to shareholders of $2.1 million or $0.86 loss per share for the same three months in 2022. For the nine months ended September 30, 2023, the total net loss available to ordinary shareholders was $9.2 million or $3.35 loss per share, reflecting a 34% decline when compared to the total net loss attributable to shareholders of $13.9 million or $5.89 loss per share reported for the comparable nine-month period in the previous year. Now looking at our cash flows as of September 30, 2023, the company had $49.3 million in cash and $14.9 million in restricted cash as compared to cash of $39.3 million and restricted cash of $11.1 million as of December 31, 2022. For the nine-months period ended September 30, 2023, cash provided by operations from continuing activities was $6.3 million, which compared to cash used in operations for continuing activities of $6.4 million for the nine months ended September 30, 2022. The increase in cash and in restricted cash was primarily attributable to fantasy sports league entry fees collected for the 2023-2024 NFL season as well as entry fees for the 2023 MLB season. These were offset by payouts for fantasy sports prices following the end of the 2022-2023 NFL season that occurred in January, along with our normal working capital spend. Rob, that concludes my review of the financial results. I would like to encourage everyone listening to review our actual 10-Q available on sec.gov and on SharpLink's Investor Relations page under SEC filings. Our 10-Q provides much more detailed information regarding our financial performance that is important to investors to read and understand. So with that, I turn the floor back over to Rob. Rob?
Thank you, Bob. In just a couple of weeks, November 29, 2023 to be precise, SharpLink will be hosting an Extraordinary General Meeting of our shareholders to vote on the redomestication of our company from Israel to Delaware. If you have not already voted, I'd like to ask that you take a few moments to do that. In the event you need assistance in getting your vote in, please contact us through our Investor Relations e-mail at ir@sharplink.com, that's ir@sharplink.com. The redomestication of SharpLink has been a long and expensive undertaking, but one that we believe is essential to our long-term growth strategy and overall cost reduction in corporate spend. We are also working towards regaining full compliance with Nasdaq and look forward to providing a more meaningful update on this front in the coming weeks. Overall, as we progress through the fourth quarter, we're pleased with our execution thus far this year. While we are certainly mindful of the ongoing uncertainties of the market challenges affecting the U.S. sports betting industry in general, we remain optimistic as we persist in our efforts to achieve our KPIs and continue to create long-term value for our shareholders. With that, I'd like to thank you all for joining our webcast today, and thank you again for your continued support. We sincerely appreciate you for sticking with us throughout this journey, and we look forward to future calls with you to detail the many progressive milestones we expect to achieve in the coming months. For those of you who'd like to listen to today's webcast again, a replay of this call will be available later today on our website found at sharplink.com. With that, I'd like to wish everyone a good day. Operator, back to you.
Thank you for attending today's conference. We appreciate your participation. You may disconnect your lines at this time, and have a wonderful day. Q -: