SharpLink Gaming, Inc.

Good afternoon, everyone, and thank you for participating in SharpLink's webcast. Joining us from SharpLink Gaming are Rob Scythian, co-founder and CEO, Bob DeLucia, the company's chief financial officer, and Dodie 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 performances 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 now like to introduce Jody Handy. Jody, the floor is yours.

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 some 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 as 2023 unfolds. So let's get this started. Hi, Rob. Are you with us?

Hey, Dodie. Yeah, I'm here. And good afternoon to all of you on the webcast. We're delighted you can join us. Dodie, why don't we begin by having Bob provide a summary of SharpLink's 2022 financial results announced via press release this morning and provide everyone with additional color on the numbers. Bob, take it away.

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 years ended December 31st, 2022 and 21, Sharplink's 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 4Qs, on December 31st, 2021, and the recently completed merger with Sports Hub Games Network on December 22nd, 2022. Before I further drill down, it's 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. These 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 free-to-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's total sales in 2021. Our second business unit is our new fantasy sports group, which came into being with our merger with Sports Hub at the end of 2022. Through 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 Sports Hub merger, December 22nd through December 31st, our fantasy sports group contributed approximately $951,000 to our 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 4Cube in December 2021. This group is focused on delivering quality traffic and player acquisitions, retention, and conversions to U.S.-regulated and global iGaming operator partners, primarily across Europe through a proprietary and affiliate marketing network known as PAS.net. 2022 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-US Group, which was launched in November of 2022. We created this unit to leverage our AMI International Group's historical success in Europe and replicate it in the emerging U.S. sports betting and iGaming markets. While this business unit is relatively new and subject to a phased rollout of products and services, it is a key driver behind Sharpling'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 recurring revenue stream that is expected to exponentially scale over time. In 2022, the AM US 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 is 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 4Q in the merger with Sports Hub. Now looking at the 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% increase Reduction from the net loss from continuing operations of $55.64 million from the prior year after other income and 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 million.17 in the prior year. Now moving on to the balance sheet. As of December 31st, 2022, we had total cash and restricted cash of $50,000. point three four million dollars which compares to cash of 6.07 million dollars as of december 31st 2021 the increase in cash and restricted cash is primarily attributable to our merger with sports hub in january 2022 we secured a 3.25 million dollar load 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 revolving loan 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 to venture with an existing institutional shareholder of the company. As a result, and notwithstanding any extraordinary developments 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 will now invite Dodie to resume the floor. Dodie?

Great. Thanks, Bob. Great job. You know, I'd like to say that ChartBlank 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.

I couldn't agree more, Dodie. Thanks, Bob.

Thank you. Okay, Rob. So, now let's turn our attention to the operational side of our very multifaceted business and talk about the vision for the future of SharkLink. So, we've made strategic acquisitions and we formed new business units in 2022. Can you explain what the plan is for leveraging the respective strengths, assets, and the talent that we got in those transactions to benefit SharpLink as a whole on a moving forward basis?

Sure, Dodie. Stop me if I get carried away. It's something I'm pretty passionate about, what we're building here at SharpLink. And I can talk about our business all day long if you let me. In the interest of time, I'll try to keep it high level with some relevant drill downs. Start with the vision, because that's what's guiding our decision-making processes every day. Every step we've taken since founding Sharplink has been purposeful and objective-oriented. We have long understood that there's a definite need and one that continues to be underserved for technology-enabled solutions that are built specifically for the U.S. sports betting and iGaming markets. Yes, there are well-established companies in Europe and other global regions which have done a great job of creating fan conversion and performance marketing solutions, but they're built for those legal sports markets and have matured over years and years. But we also know, and others are finally starting to get it, is the solutions are not readily adaptable for the U.S. sports betting market, which, by the way, is projected to be the largest sports betting market in the world. Sharpling's vision is to power targeted and personalized fan experiences across the U.S. sports ecosystem through the delivery of homegrown tech innovations combined with impactful experience-based services that will give us the power to, number one, collect and analyze deep behavioral data on fans. Number two, intelligently connect those fans with sports betting and iGaming content that will resonate with the fans. Number three, convert them into paying customers for our own proprietary properties and for our clients and trusted business partners, who in turn then, number four, capitalize on acquiring and scaling sports betting depositors, resulting in higher revenues and greatly enhanced user experiences. Because the Sharpling team has long worked in and around sports technology and media, with the biggest names in sports for more than two decades, we understand far better than anyone, in my opinion, how to place the right content in the right place at the right time. Sports are about fan interaction, creating a conversation between fellow fans and opposing fans alike, and building that relationship between the fans, the team, and the sports that they love. By creating that dialogue, Sharplink can build further affinity for a sport and keep its fans engaged at a higher level, whether they're in venue, watching from the comfort of their own home, or sitting in a bar with other fans. Through free-to-play games, fantasy sports games and contests, compelling sports content, and other engaging entertainment, we deliver sports betting offers directly to fans in a credible and trusted environment. The result is operators benefit from lower acquisition costs per user and considerable higher lifetime value from each fan. Therein lies the hockey stick growth opportunity for SharpLink. We deliver sports fans to our marketing partners through high quality, relevant tools, games, and content. We enable our customers, and with the acquisition of SportsHub, our own customers, to build revenue driving and community building experiences across hundreds of businesses in the sports ecosystem. And we provide premium conversion and monetization solutions that improve the audience experience and brand results. Simply put, SharkLink is in the sports fan audience and conversion business. We intend to be among the biggest and the best in the business within the next 24 months.

Okay, Rob. Hold up. So, Sharplink shareholders who call and email us do not seem to understand the logic behind these building blocks that we've been assembling through our M&A activities. Can you back up a bit for a minute and help us? everyone understand the underpinning value of the Sports Hub merger in particular, which just closed this past December. More specifically, I guess, what role do you believe the portfolio of diverse fantasy sports gaming properties that we now own as a result of this merger will play in the evolution of SharpLink from small sports technology innovator to what you say is going to be, you know, one of the industry's biggest and best fan conversion companies?

So I have three words for you, Dodie. Audience, audience, and audience. In addition to bringing sharp length, a long history of strong revenue performance and positive cash flow, Sports Hub Fantasy Sports Games and Fantasy League Management Solutions serve over 2 million sports fans that are already primed and ready to convert to sports bettors in legal sports betting states. According to a 2022 study commissioned by the Fantasy Sports and Gaming Association, there are nearly 70 million US adults either actively betting on sports or playing fantasy sports. Of those, approximately 60% do both. Moreover, There is very little cannibalization across sports betting and fantasy sports, with 98% of fantasy sports players turned sports bettors continuing to play fantasy sports. In addition to expanding our audience of fantasy sports players through upgrades and enhancements to our portfolio of fantasy sports games, the real growth will come from engaging and converting our growing base of fantasy sports players into sports bettors through our C4 technology and performance marketing strategy, and generating net gaming revenues earned from sports betting through our platform or customer acquisition fees earned through direct referrals of new sports bettors to our Sportsbook partners. We believe that by Q4 of this year, we will be reporting some tangible revenue growth in Sportsbook referral revenue as we have the NFL, NBA, and NHL seasons kicking off, and our C4 integration should be complete by then. Also moving forward, you'll continue to see Sharplink invest in the expansion and enhancement of our portfolio of fantasy sports games to increase revenue and drive deeper market penetration of the global fantasy sports market. Finally, we believe that there's an opportunity to leverage artificial intelligence and machine learning to drive even greater efficiencies into our customer acquisition and retention strategies and materially enhance user experiences for our fantasy sports and sports betting customers. What's more, by leveraging our newly acquired fantasy sports platform, we have an ideal setup for testing, different marketing approaches, capturing deeper user data, and perfecting our conversion solutions in a low-risk, high-reward environment.

Okay. So... Then now let's talk about 4Cubed. So with that acquisition, what is the value creation it represents for Sharplink shareholders? Because I don't think people, they're not really seeing 4Cubed reflected in our financials. And thanks, Bob, for clarifying in your remarks that this is now the basis for our direct-to-fan strategy. So, Rob, can you expand on 4Cubed a bit and talk about where you see that value coming?

Sure. Just to remind everybody, the strategic thinking behind 4Cubed, the acquisition was centered around the fact that it provided SharpLink with a proven affiliate marketing platform that would allow us to accelerate the direct-to-player, or D2P as we call it, initiatives in the U.S. It's through this acquisition that we have formed two high-margin revenue business units, our affiliate marketing services, International Group, and our new affiliate marketing services, US Group. Search for odds or lines or any given matchup, and the vast majority of results will spring from affiliate sites. The affiliate market has a long history of operating in tandem with sports betting, reaching back to much more mature markets like the UK. Now the affiliate space is broader than ever before. It's become an industry all of its own, and it welcomes changes with open arms. Affiliate marketing companies reside in an interesting space. They're not quite operators, but they seek the same sports bettors. They historically weren't media outlets, but mostly, but now they're respected sources for news and analysis. This shift in identity has formed an industry populated by businesses with unprecedented power and flexibility. On the international side, 4Q brought SharpLink, an industry-respected operating team with decades of combined experience and conversion through affiliate marketing services and expertise in securing recurring net gaming revenue contracts, with many of the leading iGaming companies, including Party Poker, BWIN, Unibet, GG Poker, 888 Poker, Betfair, and others. As part of our strategy to deliver unique fan activation solutions to our sportsbook and casino partners, in November of 2022, we executed the first phase of a planned multi-phase rollout of our U.S.-focused direct-to-player business, with the launch of the state-specific affiliate marketing websites. These state-specific domains are designed to attract, acquire, and drive local sports betting and casino traffic directly to Sharpling Sportsbooks and casino partners, which are licensed to operate at each respective state. In connection with our national audience aggregation and phase direct-to-player revenue growth initiatives, phase two of our plan will be implemented in the second quarter of 2023. when we launch a sports betting education hub for the experienced and novice sports fans. This will be a robust educational website dedicated to teaching new sports betting enthusiasts the fundamentals of and the winning strategies for navigating the legal sports betting landscape. The third and final planned phase of our direct-to-player strategy will focus on introducing an entirely new content experience in the fall of 2023. which we expect to bring all our affiliate marketing assets together in a hyper-local fan-centric experience. Our plan is to power a targeted and personalized sports betting and iGaming environment that organically introduces all fans to our marketing partners through relevant tools, free-to-play games, and high-quality content. The result is expected to be a premium conversion and monetization solution that allows us to achieve Our audience building objectives while delivering quantifiable conversion results for our sportsbook and casino partners through our proprietary affiliate marketing properties.

So what kind of revenue contribution then can we expect from our affiliate marketing services business unit this year? I mean, do you have any idea on that?

So, yes, the Sharpling generates revenue from both our affiliate marketing services, international and United States segments, by earning a commission from sportsbooks and casino operators on new depositors directed to them via our affiliate marketing network in the European markets where we serve and via our direct-to-player websites in America. Depending on the terms of our marketing agreement with each operator and the type of license SharkLink has been granted in a particular state by its regulators, commissions may be paid to us in the form of cost for acquisition or by sharing in net gaming revenues generated by the depositors referred to the operators through our direct-to-player properties. As Bob noted in his review of our financial results, affiliate marketing is already proving to be an exciting new revenue-building channel for SharpLink. Because this is a slow and steady audience build by nature, we're confident that our affiliate marketing business units will continue to ramp and ultimately prove to be among our largest contributors to SharpLink's future revenue growth. For some better perspective on what is possible, take a look at the revenue performance of companies like Better Collective, Catena, or Gambling.com. They're all international companies focused on building out their affiliate marketing platforms in the U.S. While there are peers who are a bit more mature than SharpLink, their 2022 revenue results speak to the size and the opportunity of this market. And we're going to be hard and fast to secure a big piece of it.

Okay, thanks for that, Rob. So let's now talk about Sports Games Client Services Group. So how does this business unit fit into our plans for becoming a dominant force in the U.S. sports betting and iGaming markets in the future?

Yeah, so as Bob clarified in his earlier remarks, SharpLink's Client Services Division designs, develops, tests, hosts, and manages online free-to-play games, and mobile apps for a marquee list of sports media clients, leagues, teams, and sportsbooks. In 2022, our client services group supported more than 2 million players and delivered over 40 free-to-play game types to more than a dozen clients. To highlight a few, for the past 13 years, we have produced the official NCAA March Madness Live Bracket Challenge in collaboration with Turner Sports. We've delivered three free-to-play games for the NBA, including the very popular Playoff Bracket Challenge. We've built multiple game titles for both NASCAR and the PGA Tour, extended our working relationship with these leagues over 10 years each, and created the Stanley Couple game for the NHL. It's a game similar to the social word game Sensation Wordle. An ideal example of how we are capitalizing on the strengths of our client services group moving forward is illustrated by our expanding relationship with BetMGM, which we announced earlier this year. BetMGM has turned to Sharplink to leverage our client services team's game development expertise and the integration of our C4 tech to launch a portfolio of diverse and entertaining free-to-play games designed to reach, engage, and drive engagement. of sports fans to sports bettors across the jurisdictions where BetMGM is currently licensed to be operative. By replicating our free-to-play anchored model with other leading partners, we believe that Sharplink will continue to demonstrate the power of using free-to-play games of contests coupled with the power of C4 to convert casual sports fans into active sports betting depositors for our partners and generating a very robust consistently reliable base of revenues that can only increase from here.

Thanks, Rob. I hope that helps our listeners to better understand and appreciate sharp links acquisition and prevailing execution strategies much better. So now let's address some other relevant questions that our shareholders were kind enough to provide, you know, in advance of this call. First one, Can you please provide everyone with an update on SharpLink's plans to re-domesticate, shifting from being a company incorporated in Israel to one now being incorporated as a Delaware corp in the U.S.?

Sure, Dodie. That's a good question and an area of concentration for our executive team's time and energy. Now that we've filed a 2022 year-end result, we are now free to proceed with the preparing and filing of an S-4 with the SEC to formally re-domesticate our company to the U.S. While we no longer report as a foreign private issuer as of January 1, 2023, we're still subject to operating our business under the confines of Israeli company law. With the sale of MTS on December 31, 2022, we no longer have any business interests in or related to Israel. So, re-domesticating to the U.S. will have a long-term impact on our ability to provide optimal transparency into our business operations moving forward, among other benefits. We do expect to file our S-4 in the next 30 to 45 days, and then we'll proceed with gaining shareholder approval through a proxy process. From beginning to end, we expect this process to be completed by the end of the second quarter, notwithstanding any unforeseen delays.

Great. Thanks for that update. Okay, so moving on, our next question relates to the development of our proprietary C-4 tech solutions. Where does this stand, and how do you see C4 helping SharpLink in its bid to become the biggest and best sports fan activation and conversion company in the industry?

That's another great question, Dodie. Continuing to invest in the development and expansion of our proprietary C4 conversion tech and tech-enabled sports marketing solutions is a core objective for SharpLink in 2023. That's why I recruited Dave Abbott. away from Sport Radar, and he's joined Sharplinks just at the end of last year. He is appointed as the Sharplinks Chief Technology Officer, and he's doing a great job. He's defining the development of the C4 roadmap, and he and his team are accomplishing big things. In the months ahead, we'll be announcing key new features of C4 and provide insight into how we're leveraging the power and capabilities of C4 to benefit SharpLink and drive audience conversion for ourselves and for our clients. Boiled down with C4 implementations, we expect to prove that SharpLink can achieve materially higher conversion rates, sports fans to sports bettors, at a significantly lower cost. than the conventional marketing methods. I believe it is vital to emphasize that as a sports tech company, research and development efforts are critical building blocks of Sharplink, and we intend to continue investing in our own innovations, pioneering new and enhanced products and services that lead to our converting millions of sports fans into sports and iGaming depositors for our sportsbook partners and for our proprietary properties. We believe that by investing in research and development, we can perpetuate the trust and fidelity that we've earned with our customers and with Forrest fans by continuing to deliver innovative, highly immersive fan engagement experiences and quantifiable, cost-effective conversion solutions now and well into the future.

Okay. Thanks for that. So our final shareholder question relates to our stock. and the possibility of our proceeding with the reverse stock split. That seems to be concerning, folks. So is there a plan? Can you provide some illumination on where we stand on a reverse stock split?

Yeah, so first I'd like to thank our shareholders for voting in favor already of granting our board the right to complete a reverse stock split in the event that it becomes necessary to preserve our listing on NASDAQ. In the event that our stock price does not rebound north of $1 by May, will likely request an additional six months to regain compliance from NASDAQ. If they deny us the six-month extension or if circumstances prevail that suggest we need to reverse split the stock as part of a full recap strategy, then we may move forward with one. But at this point, that is pure speculation. As of today, the board has no intention to reverse stock split. But if that changes, we'll communicate with our strategy accordingly.

Okay. So before we bring today's call to a close, would you like to make any final comments, Rob?

Sure. With the explosive growth occurring in the U.S. sports betting and iGaming markets and numerous companies coming into the competitive landscape, many may wonder, you know, why SharkLink? Why are we one of the companies that investors should be betting on? In my mind, the answer is SharpLink provides an investment opportunity in an end-to-end sports fan audience activation platform. It connects audience to real sales outcomes at costs materially lower than most other sports marketing companies. We have built a company with multiple and complementary revenue streams. We have the ability to cross-pollinate the strengths and products and services offered by our four business units. to capitalize on exponential growth opportunities in the industry. And we are committed to building a business that is fully compliant with best practices and state licensing. Through our proprietary C4 tech solutions, coupled with the experience and expertise of our world-class team, ChartLink has all the essential ingredients in place to earn enduring industry leadership and competitively differentiating ourselves in an increasingly populated environment of startups and more established companies who have been in operation for years. We're a company intent on winning, and the need to win is hardwired into each member of our team. People need to pay close attention to Sharplink as the year unfolds, because we believe 2023 is going to be the year marked by our celebrating several key milestones in our evolutionary process, I look forward to talking with everyone again at our first quarter conference call and webcast in May. So, then, thanks again for joining us today. Dodie, back to you.

Okay. Thank you, Rob. And thanks to you, Bob, for adding to today's presentation. Before we close, for those of you who would like to listen to today's webcast again, a replay of this call will be available later today on our website, found at sharplink.com. And unless you have any other questions or concerns, by all means, give me a call at 407-960-4636 or shoot me an email at ir.sharplink.com. So with that, I'd like to wish everyone a great afternoon. Kat, the floor is back to you.

Thank you. This does conclude today's conference. We thank you for your participation. You may disconnect your lines at this time and have a wonderful day.