FansUnite Entertainment has reported an increase in revenue and a reduction in net loss for the full year 2023, according to its Q4 and Year-end Earnings Call. The company's revenue grew to $23.7 million, up by 3%, with significant strides in its affiliate business, including a 402% revenue surge in its Props.com domain.
Despite challenges in some states, the company has managed to improve its financial standing by selling certain assets and focusing on cash flow-positive segments. FansUnite's CEO, Scott Burton, highlighted the company's customer acquisition success and the potential for future growth, particularly during major sporting events like the Super Bowl and March Madness.
Key Takeaways
- FansUnite Entertainment reports a 3% revenue increase to $23.7 million for 2023.
- The company saw a net loss of $18.3 million, indicating an improvement from the previous year.
- Strategic sales of assets, including McBookie and the Chameleon Gaming Platform, were made to concentrate on cash flow positive operations.
- Affiliate business, particularly Props.com, experienced significant revenue growth.
- The company completed its transition away from B2B platform licensing with the sale of their platform.
- FansUnite aims to eliminate debt, avoid dilution, and maintain positive cash flow.
Company Outlook
- FansUnite is focusing on strengthening its balance sheet and funding growth internally.
- The company plans to expand its affiliate business through strategic partnerships and improved digital assets.
- There is potential for selling the Chameleon source code in 2024.
- FansUnite plans to eliminate debt and minimize dilution.
Bearish Highlights
- Revenue was offset by reduced performance in New York, New Jersey, and Arizona.
- The company recorded a net loss, although it was an improvement from the prior year.
Bullish Highlights
- Affiliate segment and Props.com domain saw substantial revenue increases.
- Positive cash flow was achieved in 2023.
- Betting Hero had strong performances during key events.
Misses
- Specific markets underperformed, contributing to a net loss despite overall revenue growth.
Q&A Highlights
- CEO Scott Burton discussed customer acquisition and improving online search rankings.
- The company is in discussions to sell the Chameleon source code.
- The partnership with Betr is progressing well, with positive interactions.
FansUnite Entertainment (ticker not provided), with its strategic shift towards a more profitable affiliate business model, has set a course for continued growth and financial stability. The company's ability to pivot and adapt to the changing landscape of online betting and gaming has been underscored by its improved financial results and operational decisions in 2023. Investors and stakeholders will be watching closely as FansUnite aims to capitalize on major sporting events and further solidify its market presence in the coming year.
InvestingPro Insights
FansUnite Entertainment's financial journey through 2023 has been marked by strategic decision-making and a focus on profitable segments. The company's commitment to this strategy is reflected in the InvestingPro Tips which highlight a high shareholder yield and impressive gross profit margins. These tips suggest that FansUnite has been effective in creating value for its shareholders and maintaining a strong position in its operational efficiency.
From a data perspective, the InvestingPro Data provides a snapshot of the company's financial health. With a market capitalization of $10.54 million and a gross profit margin of 62.73% for the last twelve months as of Q4 2023, FansUnite demonstrates a solid command over its cost structure. However, the company's revenue declined by 13.12% over the same period, indicating potential headwinds in market demand or operational challenges. The negative price-to-earnings (P/E) ratio of -0.51 reflects the company's current lack of profitability, aligning with the reported net loss despite the increase in revenue.
Investors considering FansUnite should take note of the company's volatility, as the stock has experienced a significant price drop of 20.0% over the last three months. This level of price volatility can present both risks and opportunities for traders and investors alike. With these insights, stakeholders can better understand the dynamics at play within FansUnite's financial landscape.
For those seeking a more comprehensive analysis, there are additional InvestingPro Tips available for FansUnite at https://www.investing.com/pro/FANS. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and access a wider range of metrics and insights to inform your investment decisions.
Full transcript - None (FUNFF) Q4 2023:
Prit Singh: Hi, everyone. Welcome to FansUnite Entertainment's Q4 and Full Year 2023 Year-end 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 the legal disclaimers. I will pause here for a minute so that our viewers can read the statement. On today's call, we will be covering FansUnite's key Q4 and fiscal 2023 financial and operational highlights, as well as their outlook for the remainder of 2024. We will also host a Q&A session at the end of the webinar. [Operator Instructions] Our presenters today will be the CEO of FansUnite, Scott Burton, and CFO of FansUnite, Graeme Moore. I will now turn the conference call over to Graeme Moore, CFO of FansUnite Entertainment, to discuss the company's Q4 and full year 2023 financial results.
Graeme Moore: Thanks, Prit. Just so everyone knows how this will be structured, I'm first going to speak to the statement of profit and loss for the year ended December 31, 2023. All the figures that I reference here should be interpreted as for the year ended. I'll then move on to the balance sheet as we did have some changes there this year. Before I get started, I want to take a bit of a step back and note that the statement of profit and loss represents our continuing operations only. As we'll mention a few times in this presentation, we sold some key assets last year, and as a result, we shut down our iGaming division. So all the figures represented here, we've pulled out McBookie and Chameleon from our 2023 numbers as well as from the 2022 compares. In 2023, our revenue increased by 3% to $23.7 million, up from $23 million in 2022. This change was primarily as a result of our focus on optimizing customer engagement in our core markets. The main market in which we saw growth was in Nevada. We also saw strong activity in Ohio, which was in its first full year of operations as a legalized state. This growth was offset by reduced revenue from states such as New York, New Jersey and Arizona. A cyber attack at one of our customers, as well as the labor strike, also had a negative impact on revenue during the year, which is especially unfortunate as the events led to operator inactivity for several days during the NFL regular season, which is one of our most active periods of the year. Despite the above factors, we were able to increase revenue by focusing on our flagship markets as well as our flagship customers. For 2023, we had a cost of revenue of $8.8 million as compared to $10.2 million in 2022. Our gross margin for the year was 63% compared to 56% in 2022. The improved overall gross margin percentage relates to the continued gain in efficiency related to AmAff as we've shifted our focus away from pursuing growth of our digital asset portfolio, diversified our Betting Hero business lines and focused on growing our high-margin revenue streams, such as research. Such efforts led to the signing of multiple research contracts with premier US sportsbooks during the year. Overall, we will work to further increase our margins in the coming years as Betting Hero gains even more efficiencies in existing markets and continues to sign additional research contract. Our net loss from continuing operations for the year ended December 31, 2023, was $18.3 million, which compares to $41 million loss in 2022. The change here is primarily as a result of increased gross margin noted above as well as a significant decrease in noncash expenses, which I'll detail in a minute, as well as a reduction in financing fees. The acquisition of debt in 2022 resulted in $1.4 million of financing fees, and no such expenses were required in 2023. There is a decrease of share-based payments to $1.7 million, which is down from $6.1 million in 2022. This figure was exceptionally high in 2022 due to stock options associated with our earnout buyout and the debt. Our amortization of intangible assets, which is a noncash expense went from $19.7 million in 2023 -- sorry, went to $19.7 million in 2023 from $20 million in 2022. During the year, accretion of our contingent consideration, another noncash expense, decreased to $1.7 million from $10.6 million last year. I want to pause here and point out that if you add up the accretion of our contingent liability, the amortization of intangible assets and our share-based payments, all of which are noncash expenses, you get to $23.1 million of expenses in 2023. Our net loss this year from continuing operations was $18.3 million. I say this not to sidestep losses. I acknowledge them, and we really want to turn this into a profitable company. But our focus in 2023 was on cash flow and cash-related expenses, and I'm really proud of the work that we did in 2023 around that goal. Operationally, the main expense continues to be salaries and wages. Salaries and wages increased to $11.5 million in 2023 from $9.1 million in 2022. As American affiliate in Betting Hero experience growth and enter new markets, the management team had needed to grow in order to provide proper oversight for the regional teams and incentives for that management team. Our professional fees increased to $1.8 million in 2023 from $1.3 million in 2022 due largely to the fees associated with the equity raise in March of 2023, the sale of Chameleon and McBookie as well as other strategic initiatives. As I mentioned above, due to the sale of McBookie on May 1, 2023, and the sale of the Chameleon Gaming Platform on May 8, 2023, both McBookie and Chameleon are considered discontinued operations as at year-end. Net income from discontinued operations was $1.6 million in 2023, which compares to a loss of $20.2 million in 2022. As no major information has changed here from what was disclosed in Q3 when both these assets were first classified as discontinued, I won't spend too much time on these assets. But if you would like more information, please feel free to submit a question for the end of this session or reach out to us after the call. Okay. On to the balance sheet. Our total assets decreased to $57.4 million on December 31, 2023, which is down from $77.4 million on December 31, 2022. When McBookie was sold, we had a disposal of $1.2 million of total assets. Similarly, when Chameleon was sold, we recorded a reduction of $5.9 million in intangible assets. Intangible assets were further reduced by amortization of $19.7 million for the 2023 year. These decrease in assets were offset by increases in investments of $2.2 million related to the share purchase warrants in Betr and an increase of $1.7 million in receivables related to milestones, both resulting from the sale of the Chameleon Gaming Platform. Total milestones of -- total liabilities of $27.2 million as of December 31 represents a decrease from $34.7 million in 2022. The primary driver of the decrease in liabilities was the result of a repayment of $5.5 million of bank indebtedness. Deferred and contingent consideration, associated with the acquisition of American Affiliate, decreased to $17.3 million from $20.8 million on December 31, 2022. This is due to scheduled cash payments, a favorable exchange rate, which was offset by the accretion that I mentioned above. We recognize that these liabilities are significant for a company of our size, and our focus in 2024 is to work with our creditors to find a solution to these liabilities. As of December 31, 2023, FansUnite had $2.2 million of cash on hand, which decreased by about $700,000 since December 31, 2022. The decrease in cash is largely due to the aforementioned $5.5 million repayment of debt as well as $737,000 of routine and early interest repayment and a total of $2.3 million in earnout consideration paid during the year. The cash outflows were mitigated by a receipt of a non-brokered private placement cash proceeds of $3 million, the cash receipt of $3.3 million for the sale of Chameleon Gaming Platform and cash proceeds of $5.2 million for the sale of McBookie. As with Q3, I want to recognize here that our cash position is lower than our $3 million covenant, and we're once again working with our lender as business partners. Our accounts receivable were once again strong at period-end and cash plus AR is in a very similar position to September 30 at over $8 million. Our plan remains to work with our lender to get through the timing issue at hand. We recognize that this, along with the liabilities that I noted above, have to be the top priority for management in 2024. That's all for the financial update on FansUnite, and I'll now turn the call over to Scott Burton, our CEO.
Scott Burton: Thanks, Graeme. I'll move on to the operational highlights from 2023, and then we'll finish with the Q&A. So during the year, we went through significant transformation to line of business, excuse me, to be in a much better position to generate sustainable cash flow going forward. Some of those changes included, as Graeme mentioned, the sale of McBookie, the Chameleon Gaming Platform, our Malta B2B license and migrating DragonBet off of the Chameleon Gaming Platform. The sale of those assets gave us substantial cost savings and has allowed us to focus on the cash flow positive affiliate businesses that we have. To help support the new strategy, where we cleaned up the business, we did do the placement of $3 million led by Tekkorp, just to help support the business as we work through the transition. I'll touch on the asset sales each a little bit, the first being the Chameleon Gaming Platform. In May of 2023, we completed the agreement to sell the source code related to the Chameleon Gaming Platform to Betr Holdings. We've been providing the player account management system for Betr operations, making the acquisition of the source code to fit with their long-term strategy of owning their own technology platform. In the agreement, we expect to receive total consideration of $10 million for the sale of the platform. Purchase price is comprised of $3 million in cash paid on closing, $2 million in warrants to purchase preferred shares of Betr at a price of US $0.01 per share and milestone payments of up to $3 million in cash and $2 million payable by way of additional share purchase warrants. Those milestone payments are payable over 12 months. So the one year will be the May of this year. The sale of FansUnite -- we've retained the use of the Chameleon Gaming Platform and a copy of the source code. So we have the ability to continue to sell that code in the future. With the -- or certainly after the sale of Chameleon, we migrated our white-label customer DragonBet off of the platform. The migration of DragonBet, combined with the sale, completed our transition away from business-to-business platform licensing. As a result of this transition, we expected to achieve an annualized cost savings of approximately $7.8 million, which includes reductions in salary and selling, general and administrative costs. Our 2023 review pushed us to focus on the largest revenue and cash flow-generating business, which is the affiliate business, which led us to the decision to remove ourselves from the B2B space and the B2C betting and casino operations. In May of 2023, we sold our wholly owned subsidiary, McBookie Limited, for $5.2 million net of fees and payments. FansUnite acquired McBookie in March of 2020 for $2.2 million in total consideration. That included $1 million in cash and $1.2 million in Fans stock. With the UK continuing to tighten regulations on gaming operators, we considered it the right time, a strategic move to get ourselves out of that market. Betting Hero drove the affiliate revenue for the business in 2023. Q1 of the year started slow, and we had a bit of a battle all year to recover from that. However, we were encouraged that the three subsequent quarters in 2023 all saw year-over-year growth and strong margin performance when compared with 2022. Key events, such as the Super Bowl, were up year-over-year in 2023, which we saw again this year in 2024, and increasingly bespoke research contracts with that growing as well. We're positioned well to maintain the growth momentum that we saw in the last quarters going into 2024. In Props.com, we're pleased to record substantial growth in revenue from that domain. It had a 402% increase year-over-year, going from $47,000 revenue in 2022 to over $237,000 in 2023. The performance of Props underscores the efforts to optimize the efficiency and drive profitability, which reflects the commitment we have to sustainable and strategic expansion with our properties. We remain optimistic on our ability to continue to grow Props and look to capitalize on other opportunities for digital growth and product innovation. So overall, 2023 was a transformational year for the business, which has resulted in significant cost reductions and a path to profitability with a leaner and more focused company. We have a clear direction moving forward. Revenue from the affiliate segment reached $23.7 million for the year. Initiatives with Props have seen success, contributing to the growth and our diversification efforts. Additionally, the research segment within Betting Hero is on an upward trajectory. They've secured contracts with multiple US-based sportsbooks. The growth of research will help bolster our goal of improving margins and mitigating seasonality challenges inherent in the sports industry. Looking forward, our affiliate business is poised for growth and market expansion. We'll leverage the momentum of the sports betting and iGaming legalization to continue our diversification efforts with additional revenue streams through our strategic partnerships, improved digital assets and advanced research capabilities. Changes we made in 2023 will allow us to focus on strengthening our balance sheet and funding growth without having to raise additional capital going forward. But overall, we're very pleased with what we were able to accomplish in 2023 that put us in a position to go forward and reach profitability and work to clean up the other things we talked about around the balance sheet. That's the operational side. Thank you for joining the webinar and listening. I'll let Prit now take over on the Q&A.
A - Prit Singh: Thank you, Scott. Thank you, Graeme. [Operator Instructions] So the first question here, I guess, for Graeme. Can you expand on the company's debt repayments that took place in 2023? And are you still in line with all covenants from the lender?
Graeme Moore: Yeah. First of all, as I mentioned in my presentation, we are in compliance with all of the covenants except for the requirement to have $3 million in cash. So there are a couple other requirements, such as EBITDA to debt and a number of activations we have to hit every month in the quarter. We're in compliance with all of those except for the $3 million balance that I mentioned earlier. As far as 2023 goes in the repayments, in our agreement with our lender, they have the right to sweep the proceeds from the sale of any assets. And last year, they exercised that right, and so -- about $5.7 million from the sale of McBookie and Chameleon. So the result there is lower monthly interest payments. And again, we're on a path to being debt free in 2024.
Prit Singh: Okay. Perfect. Just another follow-up. Graeme, I know you answered this, but all strategic events now complete in 2023, what's the path to generate cash flow?
Graeme Moore: Yeah. I kind of touched on it a little bit in my presentation, I guess, where I kind of pointed out all the noncash expenses. So we are generating positive cash flow, certainly on a quarterly basis. I think we wrapped up all of our strategic reviews and the migration of DragonBet off of our Chameleon Platform, right in time for NFL season, which obviously is our busiest time of the year, aside from March Madness, which has just wrapped up or will be wrapping up this weekend. So we have really achieved our goal of generating positive cash flow. And our focus in 2024 is going to be on cleaning up the balance sheet, getting in compliance with our cash covenant and settling some of our liabilities. So you might not see that cash balance significantly grow in 2024, despite the positive cash flow, but we do plan on using the cash generated to strengthen our balance sheet.
Prit Singh: Okay. Can you provide more insight into Betting Hero's operational performance in fiscal 2023? What area stood out?
Scott Burton: I'll jump in on that one. Betting Hero continues to execute at a very high level. I think they have a strong leadership position on the US in live activations. I don't think anyone's even close to coming or matching them in that. So in addition to maintaining their leadership position and being able to grow with existing customers, they outperformed again in the key milestone events that we look at. And that was the Super Bowl and March Madness. So those are two good indicators on what's going on in that business and how they continue to operate in those markets that some may see as mature but still have the ability to grow around those key events that we watch. So we expect that going forward. And then an area that starts to stand out for us was, as we talked about, on the research side, and specifically the bespoke research. So these are projects that we get approached with by our major partners, and we continue to see more and more of those come through. So we're excited about the growth on the research side, in that bespoke research business. They're also working hard on the digital side of Betting Hero, which is their website and being able to offer digital affiliate revenue on top of the live activation, so continued success in what they're good at and always have been good at, growing on the research and then really working hard on the digital side or the keys -- or the areas that stood out.
Prit Singh: Okay, thank you. [Operator Instructions] Can you expand on Props.com's significant growth?
Scott Burton: Yeah. So Props, a lot of effort went into Props last year, but it did start more so -- first, we address the cost side of that business and try to get those in line. And so there's a lot of initiatives to reduce cost first on Props. So it was a bit slower to see the growth as we work through that. But we also spent a lot of time working on the -- we have a proprietary affiliate platform, an ad tech that we built to support Props and other digital brands. So that work was completed as well. And so once we get the cost in line and the ad tech ready, then we were able to go back and focus a lot on bringing on new customers. So we brought in a lot of new customers last year. We were able to show good conversions for those customers, which will help maintain and allow us to go get more. And then over the year, we also saw much better ranking. So if you were to search for specific prop bets on sports, you would see Props.com getting ranked on the first page, typically. So all of that helped to grow the revenue quite a lot last year and then put us in a good position going forward with a much better cost base, better conversions, better technology and now a track record of being able to show people, especially during the NFL, that we can convert people to users for them.
Prit Singh: Okay. Thank you. Do you have any additional prospects for selling your Chameleon source code in 2024 or beyond?
Scott Burton: Yes, we do. We've had a couple of approaches, and we are in discussions. So the -- I guess the answer is yes. There are prospects that we're working with right now to see if we can get to a deal on selling a copy of the code again.
Prit Singh: And just moving on to Betr, how is the partnership with Betr going or relationship with Betr?
Scott Burton: Relations is fine. It's -- yes, I think it's good. We had initial milestone payments that we received, somewhat regular communication. Obviously -- I think 28 of our team went over there. So we do check in on them as well. So I think, overall, they've been very pleased with the team, what they've been able to do with the technology. And yes, we just keep checking in regularly and things are going well.
Prit Singh: Okay. Great. So for the remainder of, I guess, next 6 to 12 months, what are some catalysts investors can expect?
Scott Burton: Well, we expect to, again, be able to show positive growth on those major event drivers for the affiliate business, again, primarily Super Bowl and March Madness. 2023, we had great results there, and we expect the same for 2024, which we see as a good key indicator in what we can show in terms of our ability to keep growing in new and mature markets. We said a lot, 2023 was really about positioning the business to be self-sustaining, which meant significant cost reductions, asset sales and solidifying the existing business revenue streams we had. I think we were successful on that. This year, we will focus on the balance sheet with -- our aim is to eliminate debt and minimize the dilution that we have through the liabilities. Just seeing what we did last year to execute on the cash flow situation and be successful in doing that, we set that goal at the beginning of the year that by the end of the year, we needed to be cash flow positive, confident that this year we'll achieve the same. So we'll come out of this year with a much stronger balance sheet situation, more certainty around dilution and the cash flow business going forward without debt.
Prit Singh: Great. Perfect. So that's all the questions we have today. If we didn't get to any of the questions, please, again, e-mail us at ir@fansunite.com. That's ir@fansunite.com. Scott and Graeme, thank you for your time today. That's all the questions we have today.
Graeme Moore: Thank you everyone.
Scott Burton: Thank you.
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