Q2 2023 SharpLink Gaming Ltd Earnings Call
Good afternoon, everyone and welcome to sharp link gaming Limited's 2023 second quarter results webcast presenting on today's web cast as sharp links Chief Executive Officer, Mr. Rob Fithian, who will be joined by Doty Handy the company's 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.
S E C.
Actual outcomes and results may differ materially from what is expressed in or implied by these forward looking statements. At this time I'd now like to introduce Jodi Handy. Please go ahead doty.
Thank you Karen and good morning, everyone and thanks for joining us on this webcast.
And in support of sharp link is deeply appreciate it and we're glad you're with US due to personal reasons, Bob David <unk>, Our Chief Financial Officer is not able to participate on todays webcast, but he will be back on air when we broadcast our third quarter results in November .
And Bob absence, Rob, we'll endeavor to cover all of the key highlights at the second quarter results and provide you with some meaningful insight into the company's progress and outlook for the remainder of this year.
So let's begin I'd like to first welcome Rob onto our call. Good morning, Rob, Hey, Jodie and greetings to everyone listening and we're pleased to again have this opportunity to connect with our fellow shareholders and hope that you find the time spent with US. This morning helpful in understanding and appreciating.
<unk> yesterday and.
Where we are working hard to get to in the future.
Yesterday afternoon. After the market closed we filed our 2023 second quarter report on Form 10-Q with the SEC.
You haven't had a chance to review it you may access it.
On SEC Gov.
Or via sharp Wang Investor Relations section on our website under SEC filings.
I'd like to encourage everyone to read our 10-Q and other filings with the SEC to ensure you have a full understanding of our business and financial results.
Another important information disclosed.
First looking at our income statement for three months ended June 32023 revenues nearly doubled rising 86% to $3 two 6 million as.
As compared to $1 $75 million reported for the same three months period.
In 2022.
<unk> increase was largely attributable to new revenue contribution.
On the sports hub gaming network.
Which we merged on December 20.
2022.
As well as higher sales from our affiliate marketing services group.
For both the U S and International Division.
More specifically sports hub revenue totaled one $1 3 million in Q2, which compared to zero from the prior year Q2 due to the timing of the merger.
Revenues for our affiliate marketing services U S group increased 182%.
Approximately $306000 up from $109000.
And sales from affiliate marketing services International totaled one $1 3 million.
34% increase over revenues of approximately 840000.
For the three months ended June 32022.
Revenue contribution from our sports gaming client services Division declined 13% to approximately 699000 for Q2 of 2023.
Compared to revenues of approximately 803000 for the second quarter and the prior year.
Now looking at the results for the first half of 2023 total revenues rose 82%.
Two $665 million.
Up from $3 six 5 million reported for the first six months of 2022.
On a segmented basis revenues.
Revenues increased across all business segments.
With sports hub contributing to $1 7 million to overall sales.
<unk> two zero the prior year.
Affiliate marketing services U S revenues increased.
244% to approximately 585000 compared to 170000 in the first half of 2022.
Affiliate marketing services international while revenues climbed 21% to $2 3 million.
From $176 million.
And revenues from sports gaming client services improved 3% to <unk>.
176 million from $1 $71 million.
Gross profit also greatly improved increasing 972% to approximately 965000 for the three months reporting period in 2023.
And 222%.
231 million for the first six months of the year.
This compared to gross profit of approximately 90000 and.
718000 for the three and six months period.
<unk> ended June 32022.
Gross profit margin also improved increasing to 30% from 5% for the comparable three month periods ended June 32023, and 2022, respectively.
And 235% and 20% for the comparable six month period ended June 32023.
2022, respectively.
Both our gross profit and profit margins were positively impacted by the company's broader mix of higher margin products and services.
<unk> from our merger with sports hub, along with expansion initiatives being successfully implemented by our affiliate marketing services divisions.
Moving down the income statement.
For the three months ended June 32023, total operating expenses remained relatively flat.
At $3 $75 million when compared to total operating expenses of $3 $73 million for the same three months in 2022.
For the six month reporting period, ending June 32023, and 2022.
Total operating expenses declined 34%.
274, 2 million from $11 million to $9 million respectively.
The reduction in total operating expenses was primarily due to a $4 $73 million noncash expense.
Associated with goodwill and intangible asset impairment.
Offset by lower selling general and administrative costs reported for the six months ended June 32022.
As a result of the higher sales and lower operating expenses, our total operating loss decreased 24% to.
The $2 $73 million for the three months ended June 32023.
As compared to $3 $65 million reported for the same three months in 2022.
For the six month period in 2023 and 2022.
Operating losses declined 52%.
$5 1 million from $10 $5 9 million respectively.
For the aforementioned reasons and after factoring total other income and expense of approximately $503000 and provision for income taxes of 64 $100.
Net loss from continuing operations for the three months ended June 32023 totaled 329 million.
A 10% decrease from $3 six 6 million reported for the same three months.
In the prior year after factoring total other income and expense of approximately 23000 and provision for income taxes of 700.
For the six months ended June 32023, the company's net loss from continuing operations decreased 44%.
The $5 $97 million after factoring approximately 823000.
Total other income and expense and.
Provision for income taxes of 37000.
This compared to a net loss from continuing operations of $10 6 million for the six months ended June 32022.
After factoring roughly 31000 in total other income and expense.
And our provision for income taxes of $700.
During the three and six month reporting periods in 2023 total other income and expense was largely attributable to interest and other expenses associated with our bank lines of credit coupled with accounting for the change in the fair value of our convertible debenture.
Offset by higher interest income earned on our cash on hand.
Net loss from discontinued operations of sharply legacy Mirror Tele management solutions business declined 87% to 149000.
For the three months ended June 32023.
As compared to a net loss from discontinued operations of 115 million for the three months reporting period in 2022.
For the six months ended June 32023, net loss from discontinued operations of the legacy MTF business totaled 294000.
77% from 1 million to Wi Fi $6 four reported for the same six months in the prior year.
Moving all the way down to net loss available to our ordinary shareholders, our net loss declined 28% to $3 $49 million.
Or a $1 24 loss per basic and diluted share.
Which compared to a net loss.
$4, eight 1 million or $2.04 loss per basic and diluted share for the three months ended June 32023, and 2022, respectively.
For the six months ended June 32023, net loss dropped 47% to 632 million or $2 24 loss per basic and diluted share.
Which compared to a net loss of $11 eight 6 million or $5 two loss per basic and diluted share for the six months ended June 32022.
Now pivoting to the balance sheet as of June 32023, sharp blank CAD $31 8 million in cash and $10 $79 million in restricted cash as compared to cash of $39 $3 3 million and restricted cash of $11 3 million.
As of December 31, 2022.
Total stockholders' deficit was one $7 8 million at June 32023.
Compared to total stockholders' equity of $2 $99 million at December 31, 2022.
That completes my review of the Q2 result, now why don't we talk about some other operational developments that have helped drive our strong second quarter financial performance.
Several of our shareholders currently submitted questions in advance of today's webcast.
Tony would you mind kicking off our Q&A session.
Uh huh.
So our first question relates to the recent announcement regarding sharp links introduction of Steve for that sense can you. Please share how generative artificial intelligence is being used by sharply to drive future growth of our business. This is an important topic Jody.
When compared to the personalized content experience Spotify, Netflix a robust e-commerce experience with Amazon.
A sports fan experience.
<unk> content and commerce platforms.
Is relatively in personal in fact, it's very one dimensional and transactional unless the fan is a high roller or a corporate client.
Generally do not receive a tailored experience that they're accustomed to on their favorite sites and apps.
There is no VIP experience for all our fans like there is for all consumers of Netflix or Amazon.
With advances in AI.
Customer data or <unk> will greatly improve.
Customer data has been leverage for years to create re targeting strategy for consumers.
Vince if you buy a pair of shoes from Amazon.
You'll be notified when those shoes go on sale or have new colors and inventory to choose from.
However, with artificial intelligence additional data sources like behavioral data and content can be fed into the system to further enhance the customer experience.
By understanding behavioral as well as transactional data, we will be able to target the customer where they are.
Who they are uniquely are the better the input the more transformative they experience can be.
Currently in the sports betting industry betters, typically arent be targeted using customized data.
But our fed general mass marketing E mail.
With AI, the Ky I see that it can be so precise sports books are able to spend our promotional notification to a better based on his or her favorite teams players and past that.
At the time that they are the better typically makes bet.
While also providing that better with curated content to better inform their choices.
On top of the call to action of making the bet. The behavioral data can provide a better with options for.
For partner deals with restaurants transportation, our entertainment venues.
Our expectations are for material booths across many key performance metrics, including visit frequency and broader engagement across more sports.
Types, leading to higher Arpus average revenue per user.
Better marketing ROI return on investment.
Greater overall profitability.
What would previously require substantial content resources and technical infrastructure.
We will be available in a fraction of the cost to <unk>.
Enabling enterprise companies from sports media to league embedding operators to efficiently engage and monetize their audiences.
That engagement and retention is playing catch up to the other industries.
E Commerce and streaming.
Where users expect personalized menu of products and offers.
Generative AI it makes it possible for us to.
<unk> being a sports betting enthusiasm easy from knowing your favorite teams and players.
Personalized recommendation.
So where.
Where are we at in commercializing C for a bad thing.
So first it's important to note that we're still in the early development phase of the rollout of the platform.
Don't expect to see meaningful traction from a financial point of view until late Q3. Early Q4 of next year started the 2024 to 25 NFL season, but as part of our development process. We are currently ingesting data from a large operator.
And interrogating that data to derive the critical insight required to know each sports better on a one to one basis.
We're learning their favorite sport teams that type and amount of their average bet among other insights.
We already have access are trending better live game data streams historical game data and related betting content. All of this data become central to ultimate ultimately delivering a personalized experience for fans, which will provide for better content written specifically to engage each better type.
First will be displayed in a format most preferred and understood by each user.
Through tailored E mail text, social media engagements and other user centric communication that will be used to reach.
In effect a call to action.
So then what is the business model, how sharp rank make money from that sense. We have a very flexible revenue model Dougherty that will largely depend on the customer and its unique objectives.
Operators and sports betting platform can outright license our technology.
I would like to pay a fee for every new customer we deliver to boost engagement confidence optimize their operations and ultimately increase their betting revenues.
Rob you mentioned the developments and foresee for that sense that you expect will not be commercialized.
Beginning of next year's NFL season.
Our company drive revenue growth and move closer to positive cash flow before <unk> is ready for prime time.
It's an easy answer Jody.
One of the strengths of our business.
At sharp Lincoln.
I wanted to get into that a little bit on this call. So I'm glad you asked.
We have four primary business segments, each business unit can actually standalone and become high growth businesses in their own right.
While also serving cross functional roles to support and enhance the value proposition of their sister divisions.
For instance, our sports gaming client services group, which already serves a long list of major sports teams leagues media operators sports books.
Working with our lead clients to use free to play games educate and ultimately convert their fans the sports betters.
<unk> services also working with several of the largest sports book, such as MGM to deploy sweeps and free to play games to retain and re engage their players.
In fact, we worked with that MGM to introduce a free bracket challenge during March madness.
So their users this past spring.
Bet MGM users click on information about the bracket challenge.
Created brackets to the tune of 76% that is a conversion number that is unheard of in the bedding promotion space.
Our sports gaming client services group also is working in lockstep with our affiliate marketing services group to.
To deliver free to play games that provide for greater engagement on our state specific direct to players site.
Another example is sports App, which formed a strategic partnership with football guys. One of the nation's leading football advisory service providers to cross for note player participation and fun engaging fantasy football Championships created and hosted by sports hub.
Sports are is also working closely with our client services group to introduce white labeled free to play games with C for conversion technology built in to drive players to our fantasy sports and.
And offer opportunities to gauge and real sports betting.
Each of our business segments represent strategic legs on our proverbial stool.
Both complement one another and strengthened short lengths overall growth opportunity.
Couldnt be more pleased with the collaborative culture that we're building a sharply and the results that our teams are getting working together great.
Content and sports betting conversion solutions that engage both our clients' audience of users and our own proprietary audience of users.
Okay. Thank you Rob that's all great information.
Do you mind, if we switch gears to other business matters of interest to our shareholders.
Sure, let's do it.
Okay. So in June Shackling filed an S. Four registration statement with the SEC relating to the re domestication merger sharply gaming limited, which is an Israeli corporation currently and providing for the company to become sharp Link Gaming, Inc. A Delaware Corporation on past.
Cash is explain the importance and benefits of this re domestication to the U S. So what is the status of the S. Four and when can shareholders expect to re domestication merger to be completed.
So Donny and we're currently working through the standard SEC review and commenting process on the asphalt.
Once the SEC clears that then we will file a relative definitive proxy notice and statement providing for a record date and the date and time for the extraordinary general meeting of shareholders.
Proxy statement will be mailed to shareholders.
So that we can get the vote to proceed with the re domestication.
Once approved by shareholders, then we'll need.
Israeli authorities to also approve the re domestication, which can take up to 30 more days.
If all goes according to plan and assuming our shareholders approved the re domestication.
Which we're counting on they do we.
We hope to have this finally put to bed in late October early November timeframe.
Okay. Thank you Matt.
Now can we talk about the NASDAQ listing, which we then valiantly fighting to protect.
Sell in May shortly after regaining compliance with the minimum listing requirement.
Being a shareholder approved reverse stock split we received another notice from NASDAQ, indicating that we were no longer science with the equity standard for contingent lifting due to our total stockholders equity falling below the minimum $2 5 million requirement.
What is our plan for regaining compliance.
So following the receipt of the notice from NASDAQ in May.
We were provided with 45 calendar days to submit a plan to regain compliance.
We submitted our plan along with relevant materials, NASDAQ and requested an extension to November 22023.
To evidence compliance with the continued listing requirement on.
On August 30, we received a determination notice from NASDAQ granting us the requested expansion.
Subject to our taking the action set forth in our plan.
We have been provided to alternatives to evidence compliance which were detailed in our form 8-K filed with the SEC on August nine.
Regardless of which alternative we choose if we fail to evidence compliance upon filing our periodic report for the year ended December 31 2023 with.
With the SEC SEC NASDAQ the company May receive a written notification from staff.
Security will be delisted.
At that time, the company May appeal staff's determination to hearings panel.
So simply put we essentially have until the end of November to get this job done.
I should add that this notice will have no effect on the lifting of the company's ordinary shares and they will continue to trade uninterrupted under a symbol SPE.
Okay. Thank you Bob you covered a lot of ground on this call.
Before we conclude and allow all of our listeners to return to their busy day.
Do you have any closing comments.
Sure <unk>.
I'd like to have the last word sharp link continues to be Super focused on building our business into one of the leading sports betting and gaming industries preferred providers of highly effective fan engagement and sports betting conversion solutions.
We are very proud of the strong topline growth we have delivered over the past few quarters, even against strong headwinds in very tough market conditions.
I'd like to acknowledge our team members across the company for everything they've done and are doing to help us achieve our mission.
I am absolutely thrilled with them as we clearly accomplished a lot and as we pursue additional opportunities the strengthened sharply.
And build enduring shareholder value, so with that I'd like to wish everyone. A great day. Thank you, Rob and thanks again to everyone who has joined US today. We hope you have a great. One so Karen back to you ladies and gentlemen. This does conclude today's sharp link webcast. We thank you for your participation you may disconnect. Your.
Your lines at this time and have a great day.
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