FansUnite Entertainment Inc. (FANS) reported a significant increase in revenue for the first quarter of fiscal 2024, with figures reaching $8.3 million, primarily fueled by major sporting events and the successful launch of regulated sports betting in North Carolina. The company's net loss from continuing operations decreased to $3.9 million, thanks to increased revenue and reduced non-cash expenses. However, the balance sheet reflected a decrease in total assets to $55.6 million and a rise in total liabilities to $28.2 million, with a cash position reduced to $1.4 million due to debt repayment and earnout consideration paid. The report also highlighted the strong performance of Betting Hero and digital activation brand Props.
Key Takeaways
- FansUnite's Q1 revenue increased to $8.3 million.
- The launch of sports betting in North Carolina contributed over $450,000 in revenue.
- Net loss from continuing operations decreased to $3.9 million.
- Total assets decreased to $55.6 million, and total liabilities increased to $28.2 million.
- Cash position decreased to $1.4 million due to debt repayment and earnout considerations.
- The company expects operator payments to increase in the coming months.
- Props.com showed significant revenue growth and is moving towards positive cash flow.
Company Outlook
- FansUnite anticipates increased operator payments in April and May.
- The company aims to grow existing business, clear liabilities, and fund growth through positive operating cash flow.
Bearish Highlights
- Decrease in total assets and cash position due to debt repayment and earnout considerations.
Bullish Highlights
- Revenue growth driven by regulated sports betting and diversified revenue streams.
- Props.com's successful expansion into the fantasy sweepstakes space.
Misses
- No specific launch date set for the Hero Hotline project.
Q&A Highlights
- The final payment from the sale of Chameleon source code to Betr was completed, including C$750,000 in cash and 500,000 Betr warrants/shares.
- FansUnite is engaging in pre-launch research in states poised to legalize sports betting, such as California, Texas, and Georgia.
- Questions not addressed during the call can be submitted via email.
The earnings call emphasized FansUnite's strategic focus on improving its financial health and operational performance. The company's efforts in clearing out liabilities and using positive operating cash flow to meet obligations, rather than relying on external capital, were highlighted as part of its restructuring efforts. FansUnite also discussed the benefits of new states regulating sports betting and iGaming, which could potentially expand the company's market reach. The update on the progress of various projects and the strong performance of Props.com underscored the company's commitment to growth and innovation in the competitive online gaming and sports betting industry.
Full transcript - None (FUNFF) Q1 2024:
Operator: Okay. Let's begin. Hello, everyone. Welcome to FansUnite's Q1 Fiscal 2024 Earnings Call. My name is Prit Singh, and I will be the moderator for today's call. Before we begin, I would like to go over some legal disclaimers. I will pause here for a minute so our viewers can read. Okay. So on today's call, we will be covering FansUnite's key Q1 fiscal 2024 financial and operational highlights. We will also be hosting a Q&A session at the end of the webinar. If you have any questions during the webinar today, feel free to send them in using the Zoom (NASDAQ:ZM) Q&A function at the bottom of your screen. If you're calling in to listen to the webinar today, please email your questions directly to ir@fansunite.com. Again, that's ir@fansunite.com. We will address these questions at the end of the presentation during the Q&A session. Our presenters today will be the CEO of FansUnite, Scott Burton; and CFO of FansUnite, Graeme Moore. I will now turn the conference over to Graeme Moore, CFO of FansUnite to discuss the Company's Q1 2024 financial results.
Graeme Moore: Thanks, Prit. Just so everyone knows how this will be structured, first, I'm going to speak to the statement of profit and loss for the period ended March 31, 2024. I'll then move to the balance sheet. I just also want to point out here that all comparative figures that I talk to are from continuing operations. So any business units that have been discontinued in the last year or so are not in any comparative figures when you are looking at 2023. So during the three months ended March 31, 2024, revenue increased to $8.3 million compared to $7.3 million over the same period last year. This change was primarily a result of the company's ability to capitalize on major sporting events such as the Super Bowl, which was held in Las Vegas this year, and improved results of the March Madness basketball tournaments as well as growth realized in our diversified revenue streams. The successful launch of regulated sports betting in North Carolina in March of 2024 contributed over $450,000 in revenue for the period. Research revenue grew substantially due to the signing of multiple new recurring research engagements as well as the delivery of multiple bespoke research reports. The Research segment contributed $451,000 to revenue for the three months ended March 31, 2024, compared to $46,000 in 2023. Our cost of revenue of $3.1 million for the quarter as compared to $2.6 million over the same period in prior year and our gross margin correspondingly have 63% compared to 65% in the same period prior year. The launch of new states always comes with investment, something we have seen in the past and is expected. With the success realized with Betting Hero Research during the quarter, the company has turned its attention to other growth opportunities such as Betting Hero digital. As a proven leader in live activation, we've made initial investments into growing our digital presence while maintaining gross margins of over 60%, which we do feel is a healthy gross margin on a continuing basis. Our net loss from continuing operations for the quarter was $3.9 million compared to $4.4 million over the same period in the prior year. The decrease was a direct result of our ability to increase revenue during the quarter as outlined above, compounded by a reduction in non-cash expenses. During the period, non-cash expenses related to accretion of our contingent consideration decreased to $264,000 compared to $569,000 in prior year. Share-based payments decreased to $195,000 compared to $629,000 in the same period in the prior year. These decreases were offset by a revaluation of contingent consideration of $433,000 due to revised payment expectations largely correlated to the successful Q1 that we had. General and administrative expenses decreased to $708,000 for the quarter compared to $832,000 last year. Q1 of last year, we did have some large expenditures that we didn't see on the books this year, such as replacing our tablet fleet, that we use in our live activation, partially due to obsolescence, but also we had to buy a few more as our team is growing and we are in new states and just doing more. Salaries and wages increased to $2.3 million for the three months ended March 31, 2024, compared to $2.2 million over the same period in the prior year. As American Affiliate experiences growth and enters new markets, the team has needed to grow in order to provide proper oversight for our regional teams. The growth experience in the Research segment has also contributed to the hiring of research specific team members. But as we saw there, we had significant revenue growth that we do feel justifies the additional spend. Okay, for the balance sheet. Total assets decreased to $55.6 million on March 31, 2024, compared to $57.4 million as at December 31, 2023. Our intangible assets were reduced by amortization of $4.9 million for the three months, which was offset by increase in our deferred tax asset of $1.1 million from $3.7 million as well as an increase in receivables from $2.1 million to $8.2 million. The increase in receivables, obviously it's great to have more assets on your books. But I'll get to the cash position in a little second, which obviously has gone down not by the increase in AR. But we do see this as we exit our company's busiest quarter. A further increase in foreign exchange rates resulted in an increase of $1 million in asset value for the intangibles and goodwill. Our total liabilities increased to $28.2 million as of March 31, 2024 compared to $27.3 million at year end. The primary driver of our increase in liabilities was deferred in contingent consideration associated with our 2021 purchase of American Affiliate. That increased to $18.2 million compared to $17.3 million at year-end. This was partially due to a revaluation, unfavorable exchange rate movements and accretion. Managing the company's liabilities is a key focus for the management team going forward, and we are looking at optimizing our capital structure in order to maximize shareholder value as well as put the company in a position to capitalize on opportunities as they arise. A further increase is related to the income tax payable, which increased to $241,000 from a receivable position in the prior year. For the three months ended March 31, 2024, the company's cash position decreased by $846,000 to $1.4 million. The decrease in cash is primarily due to a $248,000 repayment of debt, $69,000 of routine interest paid, and a total of $316,000 in earnout consideration paid during the period. The decrease in cash was compounded by the movement in non-cash working capital amounts, which contributed to a decrease of $1.6 million in the period, which was primarily driven by what I mentioned earlier, an increase in receivables, which stand at over $8.2 million as of quarter end. Now, that is a big number, but if you look back, the company has historically seen operator payments lag in March as a result of the timing and busy schedule of both March Madness and Super Bowl. So a lot of our clients are super focused on just performance, performance, performance during the quarter. And we sometimes see the payments lag. Those pick right back up in April and May, and I'm happy to say that a large, large portion of that $8.2 million that was sitting has been received by the company as of today. Our attention likewise as a company is more focused on customer acquisition and revenue in Q1 and operators historically revert back to normal payments, and our team shifts our focus back onto collections early in Q2. So that's all for the financial update on FansUnite. I'll now turn the call over to Scott Burton, our CEO.
Scott Burton: Thank you, Graeme. I will talk about the operations. Covered a lot there, so thank you. Starting with Betting Hero, so we saw they had strong results. Again, another quarter of revenue growth, revenue for that line of business, the affiliate business rose to $8.3 million compared to $7.3 million in the first quarter of 2023. Betting Hero continues to be the premier live activation company in North America, growing both the core business, which is the live activation. And then the new units that Graeme's been talking about mostly around research and now moving to digital. So we saw year-over-year activation growth in the major events being the Super Bowl and March Madness in the first quarter of the year. And we expect that trend to keep going throughout the rest of 2024, which improved performance over the previous year and previous quarters. The first quarter was also helped by opening of a new state, in North Carolina. We got a bump and I believe that one opened in March, so we only had it for part of the month – one of the months of the quarter. So we'll continue to see new states regulate, come online and we are positioned to be in market on day one of those launches. Our ability to do that is due to the team infrastructure that Betting Hero group has built out. And then the existing relationships we have with the major operators. So we usually have people on the ground prior to an opening as well as contracts in place. So we have first mover advantage in that space. I just want to say as always, we are pleased with how that business is going. The core business with Betting Hero and the activation, we are excited by the growth they have. We saw a big growth in the research arm and they continue to sign new contracts with the largest sportsbook in the U.S. and we're starting to see now repeat business, additional business on top of the typical standard research reports are doing. But now the bespoke research, so we're being asked to do a lot more project based for large operators. On the digital side. Our digital activation brand Props saw significant growth in revenue in the quarter. We continue to focus on the operational efficiency side of that as well. So we saw that moving towards being a cash flow positive unit in the quarter, and we keep looking for additional ways to maximize the value of that brand and the site. So I think the message here is our first quarter results show that all the hard work that we did and have talked about for a number of these calls now is proving effective and moving us in a positive direction. Our focus remains on growing the existing business, both organically and through new diversified units. In addition to it growing with existing partners in states we're operating, we'll continue to see the benefits and it can be quite large benefits each time a new state regulates and opens up to sports betting. And then as we move towards iGaming or online casinos also opening up in additional states. So aside from the revenue growth and operational efficiency measures, we are focused on the balance sheet, Graeme's talked about it, we talked about it in the year-end call. That just means we are going to be clearing out liabilities such as the debt payable and other creditors. The success of the restructuring efforts we've done allows us to make this the focus now and supports the ability to use our positive operating cash flow to satisfy obligations as opposed to needing to look for outside sources of capital to help that. So again, we focused on the revenue and operational side. Last year for the big part of it, and now we are moving towards cleaning up on the balance sheet and eliminating the debts and have cash to fund growth as we go forward. So I think that's it for my part. We'll move to the Q&A that Prit will be hosting.
Q -:
A - Prit Singh: Hi. Thanks, guys. As mentioned at the top of the call, if you do have any questions, please do submit them to the Q&A function at the bottom of your screen. Alternatively, if you are calling in today, please email us at ir@fansunite.com. Again that's ir@fansunite.com. First question, has the final better payment been fulfilled.
Graeme Moore: Yes. I can speak to that. So we sold Chameleon source code on May 7 of last year to Betr with it came four different milestone payments. Two of them were time-based, two of them were kind of more contingency based. We have received the two time-based payments now, as well as one of the contingency based ones. So what we have left is one contingency payment, that is outstanding for C$750,000 in cash and 500,000 more in Betr warrants/shares.
Prit Singh: Okay. Thank you. Next question, are there any discussions with Hero Research on obtaining contracts with the states of California, Texas, and Georgia before they become legal?
Scott Burton: Yes. We've done that a few times, so operators will ask us, we can't speak to the contracts we have in place right now because most of them are confidential with our partners. But we do get asked to go into markets pre-launch and do research for groups. It could be customer surveys or looking for what people are looking for in their apps or if they've seen apps or gone to other states and used apps, which ones they use. So we can get business prior to a state opening up.
Prit Singh: Perfect. Is there an update with Hero Hotline and potential launch date?
Scott Burton: Yes. There's work going on. Some of the folks just shifted, but yes, they are doing a lot of additional work right now for partners and looking at the digital side. We don't have, I don't have a specific date on when the hotline will go live. But more of the focus right now has been on getting the digital product up to speed that will allow them to support partners online and then move towards more of the hotline that they've talked about.
Prit Singh: Okay. Thank you. Can you provide more insight into Props.com's performance in Q1 2024?
Scott Burton: Yes. So Props, did very well. I think if anyone listened to the last call, we talked quite a bit about it. We again spent a lot of time on the infrastructure. So the things that people don't see, but allowed us to generate significant revenue from the platform that we put together. So we have a proprietary affiliate platform that can host as many sites as we want. It's got better advertising tools. So better banner products and things we can do for the partners. And then we moved our focus to some other groups. So we saw growth outside of the sports betting products [indiscernible] in the fantasy sweepstakes space. So it was a bit of product getting better and focus on customers changing to a bit of a different market which proves successful and we'll keep moving that direction.
Prit Singh: Okay, perfect. So if anyone has any questions, please do submit them in the Q&A function at the bottom of your screen. Alternatively, you can call in ir@fansunite.com. Again, that's – sorry email us at ir@fansunite.com. Just waiting momentarily. Okay. It doesn't look like there's any other questions. If for whatever reason we missed your questions, please do email us at ir@fansunite.com and we can get back to you promptly. Scott, Graeme, thank you for your time and for our viewers, thank you for listening. There will be a recording of this webinar we can send to everyone. Thanks, again.
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