SharpLink Gaming Q3 2023 Earnings Call Transcript

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November 15, 2023

There are 3 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the 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 Fithian 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.

Operator

With that said, I would now like to introduce Rob Fithian, CEO of SharpLink. Please go ahead, Rob.

Speaker 1

Thank you, Cat, and good morning, everybody. SharpLink posted another strong quarter marked by triple digit percentage revenue growth for both the 3 9 month reporting period. The revenue expansion that we achieved over the past 3 consecutive quarters is due in large measure to the successful execution of our M and A activities, which began in December 2021 with the acquisition of 4QUBED, followed by our merger with Sports Hub Games Network just 1 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 4QUBE 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.

Speaker 1

With 4Q's 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.

Speaker 1

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 betters. 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, vetting 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 Sports Hub 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 contests 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.

Speaker 1

As Bob will share, Sports Head 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 of fantasy sports assets represent. For instance, LeagueSafe, our fantasy sports league management platform collected nearly $32,000,000 in total entry fees from over 56,000 private fantasy football leagues for the 2023 2024 season. This represents a 22% increase over the prior year season. While the broader Wall Street market is yet to recognize and reward Sharplank 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 Q3 results.

Speaker 2

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 3 9 month reporting periods. As Rob noted, revenues were strong climbing 153% and 101% for the 3 9 month period ended September 30, 2023, respectively. More specifically, total revenues increased to $3,300,000 in Q3 2023 compared to $1,300,000 for Q3 of last year. Looking at the performance of each of our 4 business units, Sports Hub contributed $1,400,000 to our total sales in Q3 of 2023, which compared to 0 last year due to the fact that our merger was completed in December of 2022.

Speaker 2

Affiliate Marketing Services U. S. Contributed $232,000 for the 3 months ended September 30, 2023, up from $115,000 last year and affiliate marketing services international achieved revenues of $1,200,000 in Q3 compared to $761,000 in Q3 of 'twenty 2. 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 of revenues for the 3 months ended September 30 this year, which compared to $417,000 in Q3 of last year. For the 9 months ended September 30, 2023 compared to the 1st 9 months of 2022, total revenues rose to $9,900,000 from $4,900,000 respectively.

Speaker 2

Drilling down further, Sports Hub represented $3,600,000 of our total sales in 2023 for the 9 month period. Affiliate Marketing Services U. S. Generated $817,000 compared to $285,000 Affiliate Marketing Services International revenues climbed to $3,300,000 from $2,500,000 and the sports gaming client services increased revenues to $2,200,000 compared to $2,100,000 on a year over year basis. As Rob mentioned, we saw sharp expansion in our gross profit margin in both the 3 9 month reporting periods.

Speaker 2

Gross profit increased 505 percent to $1,100,000 for the 3 months ended September 30, 2023 from gross profit of approximately $188,000 for the comparable 3 months in 2022. For the 1st 9 months of 2023, gross profit nearly tripled rising 281 percent to $3,500,000 from $905,000 Likewise, gross profit margin increased to 34.8% and 34.7% for the 3 9 months ended September 30, 2023. This compared to 14.5% 18.3% for the 3 9 months ended September 30, 2022. Moving down the income statement. For the 3 months ended September 30, 2023, total operating expenses increased 71 percent to $3,600,000 up from $2,100,000 for the 3 months ended September 30, 2022.

Speaker 2

The increase was attributable solely to higher selling, general and administrative expenses attributable primarily to our December 20 2 merger with Sports Hub as well as expensing initiatives associated with our affiliate marketing services business units. For the 9 months ended September 30, 2023 2022, operating expenses declined 18% to 11,000,000 2022, operating expenses declined 18 percent to $11,000,000 from $13,400,000 largely due to goodwill and intangible asset impairment of $4,700,000 recorded in the 9 month period ended September 30, 2022. The total net loss attributable to ordinary shareholders increased 39% to $2,900,000 or $0.99 loss per share, which compared to a net loss attributable to shareholders of $2,100,000 or $0.86 loss per share for the same 3 months in 2022. For the 9 months ended September 30, 2023, the total net loss available to ordinary shareholders was $9,200,000 or $3.35 loss per share, reflecting a 34% decline when compared to the total net loss attributable to shareholders of $13,900,000 or $5.89 loss per share reported for the comparable 9 month period in the previous year. Now looking at our cash flows as of September 30, 2023, the company had $49,300,000 in cash and $14,900,000 in restricted cash as compared to cash of $39,300,000 and restricted cash of $11,100,000 as of December 31, 2022.

Speaker 2

For the 9 months period ended September 30, 2023, cash provided by operations from continuing activities was $6,300,000 which compared to cash used in operations for continuing activities of $6,400,000 for the 9 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 Prizes 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 Sharpenk's Investor Relations page under SEC filings.

Speaker 2

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?

Speaker 1

Thank you, Bob. In just a couple of weeks, on 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 email at irsharplink.com. That's

Speaker 2

irsharplink.com.

Speaker 1

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 and 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 Q4, we're pleased with our execution thus far this year. While we are certainly mindful of the ongoing uncertainties with the market challenges affecting the U. S.

Speaker 1

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.

Speaker 1

Operator, back to you.

Operator

Thank you for attending today's conference. We appreciate your participation. You may disconnect your lines at this time and have a wonderful day.

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SharpLink Gaming Q3 2023
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