SharpLink Gaming Ltd. (NASDAQ:SBET) Q4 2022 Earnings Call Transcript

SharpLink Gaming Ltd. (NASDAQ:SBET) Q4 2022 Earnings Call Transcript April 5, 2023Operator: Good afternoon, everyone, and thank you for participating in SharpLink’s Webcast. Joining us today from SharpLink Gaming are Rob Phythian, Co-Founder and CEO; Bob DeLucia, the company’s Chief Financial Officer; and Dodi Handy, Director of Communications. 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 Dodi Handy. Dodi, the floor is yours.Dodi Handy: Thank you, Kat, and thanks to everyone who is listening in on the webcast. On behalf of everyone at SharpLink, we sincerely appreciate your interest in our company and hope we succeed today at providing you with a meaningful insight into our recently reported financial performance for the year ended December 31st, 2022, and hopefully to provide you with some perspective on what exciting things may be ahead for us is 2023 unfolds. So, let’s get this started. Hi, Rob, are you with us?Rob Phythian: Hey, Dodi. Yeah. I’m here and good afternoon to all of you on the webcast. We’re delighted you can join us. Dodi, why don’t we begin by having Bob provide a summary of SharpLink 2022 financial results announced via press release this morning and provide everyone additional color on the numbers. Bob, take it away.Robert DeLucia: Thanks Rob. I too would like to thank everyone for taking their valuable time to listen in. Looking at our income statements for the full year ended December 31st, 2022 and 2021, SharpLink revenue increased 177% to $7.29 million from $2.63 million, respectively. This growth was largely attributable to the new revenue contributions stemming from our successful M&A activities, which included the acquisition of FourCubed on December 31st, 2021, and the recently completed merger with SportsHub Games Network on December 22nd, 2022. Before I further drill down, is important to note that SharpLink receives the benefit of multiple revenue streams generated by four primary business units. The first is our Sports Gaming Client Services Group, which designs, develops, hosts and manages online free-to-play games and mobile apps for several of the biggest names in sports and sports betting.Story continuesThese include the NBA, the NFL, NHL, Women’s Tennis Association, PGA Tour, NASCAR, BetMGM, Tipico, and Turner Sports, just to name a few. In fact, it is the business unit that has created the official NCAA March Madness Live Bracket Challenge for more than a decade, along with other fun popular freedom play games that you may be familiar with. Our Client Services Group also provides sports betting market integration services for major league sports and sports media clients. For the 12 months ended December 31st, 2022, this unit generated revenues of $2.49 million or 34% of the total sales in the past year. This compares to the revenues of $2.42 million or 92% of SharpLink total sales in 2021. Our second business unit is our new Fantasy Sports Group, which came into being with our merger with SportsHub at the end of 2022.Games, gaming, gamerPhoto by ella-don-ZARLJPBTozQ-unsplashThrough this business unit, SharpLink owns and operates a variety of real money fantasy sports and sports simulation games and mobile apps, and is licensed to operate in every state in the U.S. where fantasy sports is legal and in which we choose to operate based upon the financial viability of operating in that state. Despite only being able to recognize revenue as of the closing date of the SportsHub merger December 22nd through December 31st, our fantasy sports group contributed proxy $951,000 to an overall sales in those 10 days or 13% of the total 2022 sales. Our third business unit is our affiliate marketing international, or AMI, business unit, which came from our acquisition of FourCubed in December, 2021. This group is focused on delivering quality traffic and player acquisitions, retention and convergence to U.S. regulated and global eye gaming operator partners primarily across Europe through a proprietary affiliate marketing network known as revenues generated by our affiliate marketing services international group totaled $3.43 million compared to zero in the prior year. This was due to the timing of the acquisition, and it represented 47% of the overall sales in the past year. Our fourth and final business unit is our newly formed Affiliate Marketing Services-U.S. Group, which was launched in November of 2022. We created this unit to leverage our AMI International Group’s historical success in Europe and replicated in the emerging U.S. sports betting and iGaming markets. While this business unit is relatively new and subject to a phase rollout of product and services, it is a key driver behind SharpLink’s long-term growth strategy to deliver unique and expanding fan activation and conversion solutions to our U.S. sportsbook and casino partners yielding us a strong reoccurring revenue stream that is expected to exponentially scale over time.In 2022, the AM-U.S. group generated revenues of $415,450 or 5.7% of the total revenues for the year. Moving down the income statement. Gross profit totaled $1.13 million for the year ended December 31st, 2022. This compared to a negative gross profit of $300,000 in the previous year, reflecting a 478% improvement. As a result, gross profit margin percentage also climbed rising to 16% from a negative 11% on a comparable year-over-year basis. The increase was primarily attributable to higher revenues in a mix of higher margin products and services sold in 2022 as a direct result of our acquisition of FourCubed and the merger with SportsHub. Now looking at expenses. For the 2022 year total operating expenses dropped 50% to $16.61 million from $33.20 million recorded in the prior year.SG&A expenses accounted for $11.8 million of the total operating expenses in 2022 compared with $9.89 million in 2021 or a 21% increase year-over-year. Non-cash charges included in the total operating expenses were a $4.73 million goodwill and intangible asset impairment charge in 2022 and a $23.3 million commitment fee expense in the prior year. For the reasons I’ve covered after factoring total other income and expenses net of $185,000 and income tax expense of $11,000, the net loss from continuing operations for the year ended December 31st, 2022, totaled $15.23 million. This represented a 54% reduction from the net loss from continuing operations of $55.64 million from the prior year after other income expense of $29,000 and an income tax expense of approximately $4,200.Net income from discontinued operations of SharpLink’s legacy MTS business totaled $70,000 for the year ended December 31st, 2022, which compared to a net loss from discontinued operations of $22.17 million in the prior year. Now moving on to the balance sheet. As of December 31st, 2022, we had total cash and restricted cash of $50.34 million, which compares to cash of $6.07 million as of December 31st, 2021. The increase in cash and restricted cash is primarily attributable to our merger with SportsHub. In January, 2022, we secured a $3.25 million loan note with our commercial lender Platinum Bank. It is important to note that we also assumed $5.39 million in debt obligations in December, 2022 from the merger with SportsHub, which stems from a $3 million term note and a $5 million reviving on credit that SportsHub had originally received from Platinum.In February of this year, 2023, we closed an additional $7 million revolving line of credit with our bank and a $4.4 million convertible debenture with an existing institutional shareholder of the company. As a result, and notwithstanding an extraordinary development such as a large acquisition or other strategic opportunity, we believe we have sufficient cash available to us to fund our current business operations for the next year without having to raise additional debt or equity funds. With that, I’ve concluded my overview of the financial highlights and, I’ll invite Dodi to resume the floor. Dodi?Dodi Handy: Great. Thanks Bob. Great job. I’d like to say that SharpLink operates in a very complex, highly regulated industry, and managing all the various financial aspects of this organization does require a level of skill, experience, and heart that is really tough to find. So Bob, I just want to say we’re really lucky to have you.See also 10 Most Profitable Small Businesses in 2023 and 10 Best April Dividend Stocks To Buy.To continue reading the Q&A session, please click here.

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