Slinger Bag Inc

Greetings and welcome to the Slinger Third Quarter Fiscal 2021 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brian Siegel, Senior Managing Director of Hayden IR. Thank you, Brian. You may begin.

Thank you. Good morning, everyone. Welcome to our third quarter fiscal 2021 financial results and strategic update call. Hosting the call today are Slinger CEO Mike Bilardi and CFO Jason Seifert. After their prepared remarks, we will take questions through the webcast portal, and we will do our best to answer as many as we can. Before beginning, I would like to remind everyone that except for the historical information, the matters discussed in the presentation are forward-looking statements involving a number of risks and uncertainties. Words like expect, believe, anticipate mean that these are our best estimates at this time, but that there can be no assurances that expected or anticipated results or events will take place. So our factual results could differ significantly from those statements. Factors that could cause or contribute to such differences include but are not limited to our ability to maintain our competitive advantages, acceptance of existing and new products by our customers, the general economics of our end markets, our ability to finance growth, our ability to continue to attract and retain highly qualified employees, and our ability to identify, close, and integrate acquisitions. Further information on our risk factors is contained in our quarterly and annual reports filed with the USSEC. With that said, I would like to turn over the call to Mike Bilardi, Slinger CEO. Mike?

Okay, thank you, Brian. Good morning, and thank you all for joining us today. Welcome to our second investor call as a public company. I'm Mike Bilardi, CEO of Slingerbag, and as you heard earlier, with me is our Chief Financial Officer, Jason Seifert. I will provide an update on our corporate vision and our business transformation, including our watch, play, learn strategy, and the remainder of our fiscal 2021 year and beyond. Then Jason will review our third quarter results and update our and on our updated financial outlook. Then we'll be happy to take your questions. During the third quarter and the first days of the fourth quarter, we officially closed our transformational Game Face AI and PlaySight acquisitions. While we have been working with them closely throughout this whole process on synergies and strategy, we now have the ability to start executing on the development of our connected platform as well as realizing cost synergies. For those of you who are new to the Slinger story, it has been one of disruption and transformation. Slinger began as a sports equipment brand targeting the global tennis player market, aiming to reach the 100-plus million active players across the globe. Today, we've evolved into a disruptive sports technology company with the ability to build the unified, connected platform that will enable our watch, play, and learn strategies. This platform will provide unique biomechanical analysis and feedback through automated video and data capture, performance AI and professional-level insights, and drills to improve the performance of the sports enthusiasts. We began with tennis and are quickly moving into other racquet sports, including pickleball and padel later this year, followed by baseball and softball in the early parts of 2023. To date, Slingabag launcher is our most prominent product it is a disruptive product offering tennis players a high-performance ball launcher built into a typical roller trolley bag at an affordable price compared to other traditional ball machines this solution provides easy to transport versatile and afforded an affordable piece of tennis equipment that facilitates play anytime anywhere across players of all ages and all abilities over the past eight quarters since its release we've sold over 40,000 launches, including 7,200 in our third fiscal quarter and 21,000 year-to-date. These sales have been mainly direct-to-consumer through our Slinger website in North America. Globally, we sell through a network of third-party sporting goods distributors and also have a strategic partnership with key tennis brands such as Dunlop. In total, this group of distributors has committed... to over $250 million in consumer sales of the Slinger Bag collectively over the next several years. We market the Slinger Bag through an extensive social and digital media platform, strategic partnerships, tennis ambassadors, and by leveraging the support of multiple governing bodies such as the USTA in making tennis more accessible more often. Our marketing programs increase awareness and engagement with tennis players through content creation and advertising throughout the tennis ecosystem. This strategy has been quite successful for us, as over the past 12 months, our ROAS, or return on ad spend, has an average of 10x, a very impressive number. And we are now looking at how we can scale this program effectively for more extensive investments. While this business on its own has impressive growth and profitability potential, we have a much bigger vision for the company. And with the acquisitions of Foundation Tennis, Game Face AI, and PlaySite now closed, we are positioned to turn this vision into reality. The vision is simple. To create a differentiated, connected sports platform that serves as a key enabler and beneficiary of the smart courts, by integrating technologies including performance AI, automated video capture, and advanced analytics. Coupled with this vision is the rapid acceleration of sport courts, fields, pitches, and surfaces becoming smart, all enabled by 5G. The first product of this vision, the Slinger app, which leverages Game Face AI's proprietary AI software, which generates fast, accurate, and relevant insights leading to smarter decisions and better outcomes. The app is almost ready for release into the tennis market with the beta version being available over the next couple of weeks. This app will become a multi-tier subscription offering and will provide AI-based performance analysis on a biomechanical level, drill and fitness recommendations, as well as e-coaching tips. With the acquisition of PlaySight, we are leveraging their work to enable smart courts with their advanced automated video capture and AI technologies used on tennis courts to capture content and data. We plan on leveraging this technology to further enhance our performance and offering to the consumer. Along with Game Face AI's technology, we plan to integrate this into our connected platform on a device that tennis players can use to improve their game. PlaySite has also had success in penetrating the basketball vertical and is now used by over 50% of the NBA teams. We plan to explore opportunities to leverage their position here in the years to come. Foundation Tennis supports our connected strategy by providing a specialized software-as-a-service, or SaaS, platform that uniquely addresses the needs of membership-based facilities such as tennis clubs, whether they be private or public. I believe Foundation Tennis is a unique asset, as it is by far the most robust offering targeted at these types of clubs in the market today, and it will play two roles within our portfolio. On its own, this platform provides facility managers with one-stop shopping for critical business management tools, including website and app templates, member community features such as chat, booking schedulers, and as an affiliate partner of Square, a POS integrated payment option. The market opportunity is large. There are 17,000 tennis facilities in the United States market, and currently only 100 of these use the foundation tennis platform. So there is a huge market penetration opportunity to expand the SaaS business, which we believe is also viable longer term for other verticals such as golf clubs, health, fitness, and other sports in the future. With respect to the connected platform and our watch, play, and learn strategy, the Foundation Tennis Database currently has over 1 million users that we can now directly access. This number will continue to grow as more facilities and members sign on to use the SaaS platform. With a compelling product portfolio and direct access, Blinger's goal is to convert these members from users to subscribers. of our new connected services at what I believe will be a significant conversion rate. We believe we have the pieces to position the new Slinger at the center of a connected sports world in our planned core verticals of racquet sports, baseball, softball, basketball, and cricket, the latter of which is one of the highest participation sports outside of the United States, as well as, you know, us getting involved in several other ball sport categories. Additionally, we believe there is a potential to license our data and content in a variety of areas beyond our core market. One in particular is the online sports gambling market, where PlaySight and Game Face's technology is very suitable for the needs of this industry, as these types of companies operate as intermediaries between rights holders and brands and require strategic partnerships with brands such as PlaySight and Game Face to facilitate the high-quality live stream required and to provide the betting community with real-time match analytics. Moving on to our integration plans, across our company, we have begun implementing a structure to improve efficiency, to drive revenue, and to enhance the customer, user, and service experiences. With the foundation set, we are now in a process of ensuring that our new core provision is easily understood and demonstrable to both our current shareholders and our future investors. Having set the foundation for our long-term vision, I will now talk to our key strategic priorities for 2022 and beyond. Our top priority is to integrate our newly acquired companies under the slinger bag umbrella over the next six months by identifying key operating synergies while constantly improving our customer user journey and experience. This will involve implementing our new operating matrix, building on common sales, marketing, and supply chain teams, and centralizing all finance, legal, and HR responsibilities within the corporate umbrella. Next, we will identify the parts of the business that require further investment. For Slinger, this means investment in our new baseball and softball launcher planned for 2023. For PlaySight, it means investment in advancing the future market leadership in its video technology platforms. For Game Face AI, it means investment in engineers to facilitate the expansion into new sport projects. Investment in Foundation Tennis will focus on sales and marketing activity to drive awareness of this unique software platform and to facilitate sales calls to core facilities across the United States. As a next step in achieving our vision to create a connected platform based on watch, play, and learn activities, We are committed to identifying, launching, and marketing our subscription-based suite of services for tennis players, beginning with the Slinger app. We will then continue to innovate and look to create value-added bundles like exclusive content and enhanced features, and ultimately introduce a multi-product subscription across all of our brands. In our release, we updated our revenue guidance to $16 to $17 million for fiscal 2021. This guidance accounts for potential COVID-related slowdowns in China, South Africa, India, and other distributor-led markets. Over recent months, we have deliberately built up inventory in the United States in anticipation of the impact of Chinese New Year on the production process. ensuring that we will be in good shape over the next quarter or two to deliver launches heading into the tennis season in many of our core markets. In closing, we have had a strong first three quarters of this year, with revenue up 66% and having sold more Slinger launches already than we did in all of 2020. I would like to thank the Slinger team across the globe for their hard work. You have continued to deliver in a more difficult time global macro environment. Before taking questions, I would like to thank you, our investors, for your continued support, especially in the past six weeks, when the entire market, especially in microcaps, have been taking some heavy losses. Despite these near-term stock market-driven challenges, we believe we have the right strategy, assets, and people to deliver strong returns over the next few years. I want to thank our outstanding team of talented people who work at Slinger and who go above and beyond to execute this vision. Thank you. I'll hand over now to Jason Seaford, our CFO.

Thanks, Mike. First, I'd like to welcome everyone to our third quarter earnings call. I'm going to take you through the quarter, and then we'll open the floor for questions. Before I begin, I want to remind everyone that our fiscal year ends on April 30th, and our third quarter ended on January 31st. All comparisons I'll be commenting on are compared to the same period a year ago, unless otherwise noted. Our underlying operating results were impacted by several factors this quarter. Revenue for Q3 increased by approximately $100,000 to $4.2 million. Last year, we had a supply bottleneck in the first and second quarters that was resolved in Q3 leading to an incremental $700,000 in revenue for Q3 2020. Excluding the $700,000 in the prior year, revenue would have been up approximately 23% over the prior year quarter. Despite this, year-to-date revenue is still up over 66% over the prior year. Gross profit also increased $100,000 to $1 million, and gross margin was up 170 basis points to 23%. Gross profit and margin were negatively impacted by two items in the current quarter. First, as Mike mentioned, we built up inventory ahead of the Chinese New Year in anticipation of supply chain. Unfortunately, the global supply chain issues have not been cleared up, and logistics costs negatively impacted gross margin by approximately 400 basis points. Additionally, we ran holiday promotions this year, which did not drive the volumes we had hoped. and also impacted gross margin negatively by approximately 400 basis points. Going forward, our equipment gross margin should generally be in the range of 30 to 35% as we scale this part of our business and continue to expand our distributor network. Moving to our operating expenses, operating losses, net loss, and loss per share, I'll discuss both GAAP and non-GAAP measures. For non-GAAP measures, we exclude non-cash, non-operating items, including share-based compensation, costs associated with financing transactions, conversions and debt extinguishments, amortization of both intangibles and debt discounts, and acquisition-related expenses. GAAP operating expenses for the quarter were $4.1 million, leading to a GAAP operating loss of $3.2 million as compared to $1 million in the prior year. Non-GAAP operating expenses excluded $500,000 in acquisition-related expenses, $300,000 in share-based compensation for equity issued in exchange for services, and $100,000 for the amortization of intangibles. Excluding all of these items, non-GAAP operating loss was $2.3 million for the quarter. Moving to other income and expenses, This quarter, we saw several non-cash and transactional expenses, including $2.8 million for amortization of debt discounts, a $5.9 million mark-to-market gain related to derivatives, a $2.2 million loss on the issuance of convertible notes, and $200,000 in interest expense. We excluded all these items for our non-GAAP net loss and EPS numbers. Our GAAP net loss was $2.4 million, and our loss per share was $0.06 for the quarter. Adjusting for these non-operating and other expense line items I just mentioned, Q3 21 non-GAAP net loss and loss per share was $2.3 million or $0.05 per share compared to $700,000 or $0.02 per share last year. Moving on to the balance sheet, we finished the quarter with cash and cash equivalents of $1.1 million We had $8.7 million of finished goods inventory and $1.8 million in prepaid inventory at the end of the quarter. As we look to the rest of fiscal 2021, I'll comment on the current expectations for the Slinger business. As Mike noted, keeping in mind the headwinds mentioned about China, South Africa, and India, we're still expecting revenue to be in the range of $16 to $17 million. or an increase of 48 to 57% over last year's $10.8 million. The vast majority of this revenue will be from our sales of the slinger bag into the tennis market. With that, I want to thank everyone for attending our earnings call and look forward to speaking with you again at the end of our fiscal year. We'll now move on to Q&A. Operator? Thank you.

Thank you. We will now be conducting a question and answer session. You may submit any questions you have through the webcast at this time.

We have one question.

Why have your fundraising plans changed since you said last year you wanted to raise $40 million and then $5 million plus on the last call?

And you're down to about 1 million cash. And how are you planning on operating the business in that environment?

So if you're following our filings, we have obviously filed an S-1 for an up list. And so we are still considering, you know, the options that we have in front of us, you know, that that could bring in terms of a capital raise. And so at the moment, that's our main route that we're thinking that will generate the capital we need to take the business forward. We were originally planning an earlier up list in December of last year, but the acquisition of PlaySight, which is quite a significant acquisition, required a fully-fledged SEC audit, and that took a little longer than we anticipated. And that meant that we were not able to activate or take the up-list filing that we've replaced any further at that time. So we're now reviewing that situation and looking at options to re-engage with our bankers on an up-list in the near future.

I think that is all the questions. We can close out the call. Thank you.

This concludes today's conference. You may disconnect your lines at this time.

Thank you for your participation.