SharpLink Gaming Ltd. (NASDAQ:SBET) Q1 2023 Earnings Call Transcript

SharpLink Gaming Ltd. (NASDAQ:SBET) Q1 2023 Earnings Call Transcript May 16, 2023

Operator: Good morning, everyone, and thank you for participating on SharpLink’s webcast. Joining us from SharpLink Gaming today is Rob Phythian, Co-Founder and CEO; Bob DeLucia, SharpLink’s CFO; 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 end results may differ materially from what is expressed in or implied by these forward-looking statements. With that said, I’d now like to introduce Dodi Handy. Dodi, the floor is yours.

Dodi Handy: Thank you, Kat, and hello, everyone, and welcome to SharpLink Gaming’s First Quarter 2023 Earnings Call. Before we begin, I’d like to thank all of the shareholders who kindly submitted questions to us in advance of today’s call. We greatly appreciate your active engagement and helping us to ensure that we cover the topics of most relevant interest to you. We’re going to be kicking off today’s call with Bob DeLucia first reviewing the financial results for the 3 months ended March 31, 2023, after which Rob will endeavor to address the questions we’ve received. So with that, Bob, I’m going to turn it over to you.

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Robert DeLucia: Thanks, Dodi. In my remarks today, I’ll discuss our quarter 1 financial performance. All the financial metrics will be discussed on a GAAP basis and all comparisons will be discussed on a comparable quarter-over-quarter basis. Yesterday afternoon after the market close, we filed our first quarter report on Form 10-Q with the SEC. If you’ve not had a chance to view it, you may access it on sec.gov or via the SharpLink’s Investor Relations section on our website under SEC filings. I encourage everyone to read our 10-Qs and other SEC filings to ensure you have a full understanding of our business and financial results and important information disclosed. In quarter 1 2023, our revenue growth was notable, rising 79% to $3.39 million from $1.9 million for the first quarter of 2022.

The increase was largely attributable to the new revenue contribution from our SportsHub Gaming network, which we acquired in late December 2022. However, we saw revenue growth across each of our business segments. Specifically, the newly merged SportsHub/Fantasy Sports group contributed $1.4 million for the 3 months ended March 31, 2023, which compared to $0 in the prior year. Revenue generated by our Sports Gaming Client Services group rose 17% to $1.05 million from $911,000 on a comparable quarter-over-quarter basis. Our Affiliate Marketing international business group contributed $1.01 million to total Q1 2023 revenues, which was up 9% when compared to the $924,000 reported for the same 3-month period in 2022. And finally, our Affiliate Marketing U.S. business segment saw revenues climb 355% to $280,000 from $62,000 for the 3 months ended March 2023 and ’22 respectively.

Our gross profit increased 114% to $1.34 million in Q1 of this year, which compares to a gross profit of $627,000 in the previous year’s first quarter period. Further, our gross profit margin also improved, thanks to our expanding mix of higher-margin products and services to 40% from 33%. Moving down to P&L. SharpLink succeeded in reducing our quarterly operating expenses by 51%, which declined to $3.6 million for the 3 months ended March 31, 2023, compared to $7.55 million in the first quarter of 2022. After factoring the net loss discontinued operations of SharpLink’s legacy MTS business of $145,000 for the first 3 months of 2023 and a net loss from discontinued operation business of $108,000 for the same 3-month period last year, our net loss declined 60% to $2.82 million or $1 per basic and diluted share from a net loss of $7.04 million or $2.99 loss per basic and diluted share, respectively, representing a significant improvement.

Now moving over to the balance sheet. As of March 31, 2023, we had $28.83 million in cash and $10.97 million in restricted cash. This compares to cash of $39.33 million and $11.13 million in restricted cash as of December 31, 2022. The decrease in cash and restricted cash is primarily attributable to the payouts for the Fantasy Sports prices following the end of the 2022-2023 NFL season that occurred in January. This was offset by payments received for the beginning of the 2023 Major League Baseball season as well as our normal working capital spend. During the first quarter of 2023, our financing activities resulted in $4 million raised via a senior convertible debenture with one of our largest institutional investors. In addition, we also secured $7 million line of credit from our primary lender, Platinum Bank.

So there can be no guarantees. We believe the cash on hand in connection with the cash generated from our revenues will be sufficient to fund the next 12 months of operations from March 31, 2023, notwithstanding any extraordinary acquisition opportunities or unanticipated challenges that we may encounter as the year unfolds. That now concludes my review of the Q1 financial results. So I turn the floor back to you, Dodi.

Dodi Handy: Thank you, Bob. Okay. So now I’d like to welcome SharpLink’s Co-Founder and Chief Executive Officer; Rob Phythian to our call. Hi, Rob.

Robert Phythian: Good morning, Dodi, and good morning to everyone joining our Q1 results webcast.

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Q&A Session

A – Dodi Handy: Rob, why don’t we get started with discussing the recent 1-for-10 reverse stock split? Received quite a few phone calls regarding this. On our last call, you had mentioned that you believe SharpLink would qualify for an additional 6-month period with NASDAQ, in which we could work to regain compliance with the minimum bid price requirement. But that appears not to have been the case. What transpired that led our company to implement the reverse immediately?

Dodi Handy: Okay. Thank you, Rob, and thanks to you, Bob, as well. Folks, our next quarterly webcast will be held following the release of our second quarter results, which is expected to happen on or about mid-August. So for those of you who would like to listen today’s webcast again, a replay of this call will be available later today on our website, sharplink.com. So with that said, I’d like to wish everyone a great day. So Kat, the floor is back to you.

Operator: Thank you. This does conclude our conference. We thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.