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spk04: Good morning, ladies and gentlemen, and welcome to Rival Record third quarter 2023 financial results call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, November 29, 2023. I would now like to turn the conference over to John Vincic, Investor Additions for Rivalry Corp. Please go ahead.
spk01: Thank you, Operator, and good morning, everyone. Our speakers on today's call will be Stephen Saltz, Co-Founder and Chief Executive Officer of Rivalry Corp., and Keita Corey, Chief Financial Officer. Before we begin, I would like to remind listeners that certain statements made during this conference call presentation may constitute forward-looking information and forward-looking statements within the meaning of applicable securities laws. These statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of Rivalry Corp. and its subsidiary entities or the industry in which it operates to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. When using this conference call presentation, such statements use words such as may, will, expect, believe, plan, and other similar terminology. These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this presentation. These statements involve known and unknown risks, uncertainties, and other factors, including those risk factors identified in the company's annual information form dated May 1, 2023 under the heading Risk Factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, other than as required under securities legislation. And now, I'd like to turn the call over to Stephen Saltz. Stephen?
spk03: Thank you, John, and thank you, everyone, for joining us today. Rodnery delivered solid year-over-year growth in the third quarter, with betting handle up 50%, revenue up 22%, and gross profit increasing 90%, despite a 13% year-over-year reduction in marketing spend. We're also pleased to be tracking toward a strong full-year result, with the year-to-date betting handle having increased 127%, revenue by 70%, and gross profit up 175% over the first nine months of 2022, while OPEC has remained relatively stable in the last three quarters, and again, all achieved while reducing marketing spend. This year-over-year growth is a testament to the inherent operating leverage of the business and merit of our products, supported by the strongest customer KPIs on a year-to-date basis in Rivalry's history. With these strong underlying business fundamentals and the ability to go back on the offensive with marketing spend from our recent financing, which we'll touch on later, we remain on a path for achieving our H1-24 profitability guidance. I'd like to take a moment to remind investors that as discussed in our August Q2 earnings call, Q3 of last year was our first quarter with a meaningful casino offering, having introduced our first casino game in July 2022, which saw rapid initial adoption. This Q3 is now the first time we are lapping that quarter. First, turning our attention to the sportsbook side, where we saw handling increase by 12% year-over-year and revenue up 18%. Esports book results should be viewed in the context of unseasonably low viewership for select esports events in the quarter. In the past, Q1 and Q3 have typically been rivalry's strongest quarters due to several tentpole international events landing in those months. In Q3, global viewership of some major events was lower than usual, and this was due to a number of factors ranging from a lack of compelling matches due to the dominance of certain teams, to the time zones of the events not aligning with large segments of the audience, and particularly those markets and regions where betting on esports is popular and where rivalry is quite active. Despite those headwinds, we still grew year over year and generated the second highest sportsbook handle and revenue of any quarter in the company's history. Additionally, in the past, Rivalry would have been more sensitive to fluctuations in esports viewership, as the segment accounted for over 90% of our sportsbook handle last year, and up until Q3 2022 with the introduction of Casino, that was nearly our entire betting handle base. But as our product mix and brand has continued to mature among an audience of young millennial and Gen Z bettors, The business has become far more diversified geographically and across the product suite, consistent with the initial thesis and premise of rivalry from day one, which is a demographic opportunity led by esports as an acquisition funnel versus esports betting as the end-all, be-all. But more on this point later. More specifically on our geographic mix, we are seeing increasing traction in new international markets, such as those in the Southeast Asia region, where this time last year the company was far less active. That region has now grown materially since last Q3, and we are finding that some of these markets have different seasonal peaks and troughs throughout the year, meaning our overall seasonality patterns as a company are evolving. Additionally, on the market diversification side, in our regulated market of Ontario, we've seen betting handle increase by more than 400% from Q3 2022. We continue to see encouraging trends in Ontario and are benefiting from the crawl, walk, run strategy we discussed in the past and that you can find in our investor material on our IR website. We're optimistic about this market going forward into 2024, given the unit economics and growth that we're seeing. Further on the sportsbook offering itself, esports still represents the majority of our sportsbook handle, but the traditional sports segment on rivalry has been growing. I'll say it again, Rivalry leverages esports as an entry point and top of funnel into a demographic of bettors who can be cross-sold into a broader product mix. The growth we're seeing in traditional sports highlights the success of the strategy. This has been one of the contributors to the increased average handle per customer we're observing over time, which is up 29% on a year-to-date basis this year versus the first nine months last year. We've done particularly well with NBA fans given the global popularity of basketball among Rivalry's demographic. And building on this growth, we recently launched Rivalry Ultimate Fan, a free-to-play fantasy sports app to engage the next generation of basketball fans in a unique way. This app allows us to keep Rivalry users and fans within our branded ecosystem as much as possible, upsell them to real money products, and it has internal monetization mechanics that generate revenue within the app and prizing that is unlocked and utilized on the main Rivalry product. And of course, the best example of our diversification has been the casino segment itself. From a standing start with launch in July 2022, our casino segment generated 30% of our betting handle in Q3 2022 with virtually no marketing or promotional spend. Part of our rapid success in this segment has been driven by Casino.exe, the proprietary platform we launched alongside our initial run of casino games to add to the on-site entertainment value. Casino.exe delivers a unique retro style user experience that's well differentiated from the pack. More importantly, it underscores our thesis in this space that fundamentally entertaining and original products drive organic growth and interest. Since then, we've steadily expanded into new categories, with table games, live dealer, and most recently, slots. In September, we launched a new original casino game developed entirely in-house called Cash and Dash. This innovative product blends elevated graphics, gameplay, and original rivalry IP to meet our audience of millennial and Gen Z users on their entertainment levels. Without the use of marketing spend or free bets, Cash and Dash has already become one of the stickiest games that we offer. Today, CasinoNow makes up roughly half our handle, growing 141% year-over-year in Q3. It's important to note that the growth of Casino has been completely additive, as it has not cannibalized player wallet share, and therefore has been an important contributor to our overall growth. Throughout this evolution and rapid expansion, I believe we've done a good job demonstrating the fundamentals of the business, i.e. the machine works. In the first nine months of 2023, we've seen tremendous growth. Handles up 127%, revenue 70%, and gross profit up 175%. This growth has been achieved with reduced marketing spend down 8% year-to-date due to careful management of costs. Our cost to customer acquisition is lower as well, down 19% year-over-year, off an already low base entering the year. And finally, as mentioned, handle per customer is up by 29% over that period as well. All of this means that for every dollar of marketing spend, we're getting nearly 20% more customers who are then wagering nearly 30% more on average this time this year versus last. We believe we are discovering what works best for this younger generation of consumers. This is something that we do as well or better than anyone in our space. We're developing a proprietary expertise within this demographic that is highly differentiated and creating operating leverage in the business, occasionally tweaking some of the levers available to us in response to the occasional bump in the road. Like any great company, we learn from experience, adapt, and move forward. These strong fundamentals alongside our recently announced $14 million capital infusion gives me high conviction in our ability to deliver growth while managing the business for profitability. I'll return to that in a moment, but first I'd like to turn the call over to our CFO, Keita, to review our financial results in greater detail.
spk00: Thank you, Stephen. Rivalry delivered strong growth in the third quarter on a year-over-year basis, with both segments making positive contributions. Betting handle of $105.5 million was up by $35.5 million, or 50% from the third quarter of 2022. Handle was split relatively evenly between the sportsbook and gaming segments at 52% and 48% respectively. This compares to Q3 of last year, when sportsbook represented 70% of handle. Gaming Handle increased at a faster rate of 141%, driven by a significantly expanded product offering since we entered the category in Q3 of last year. As a reminder, gaming is the segment of the business represented by Casino. Sportsbook Handle increased by 6 million, or 12%, from Q3 2022. On a sequential basis, Betting Handle was down slightly from the second quarter of this year. Nevertheless, we saw sequential improvements in revenue, gross profit, and net income, as I will describe. Third quarter revenue of $8.7 million was up $1.6 million or 22% from Q3 2022, consisting of a $1.1 million or 18% increase in Sportsbook revenue and a $0.5 million or 46% increase in gaming revenue. Consistent with recent quarters, Sportsbook represented a higher proportion of total revenues at 83% compared to its share of betting handle. Rivalry's casino games offer a relatively high RTP or return to player. and therefore contribute less revenue as a percentage of Handel compared to Sportsbook. On the flip side, gaming delivers predictable results for us, including a higher gross margin percentage than Sportsbook. Sequentially, revenue was up $250,000 from Q2, despite the decrease in Handel. Turning to gross profit, year-over-year growth of 90% or $1.9 million outpaced the growth rates of both Handel and revenue growth, owing to enhanced margin profiles. Gross margin has been very consistent this year, ranging between 44 to 46% in all three quarters. We're pleased with that result. By way of comparison, quarterly gross margin in 2022 ranged from 14% to 53%. The increasing diversification of our business, as described by Stephen, has helped smooth our margins this year with some of the seasonal ups and downs we typically see in various parts of the business balancing each other out. We'll now turn to operating expenses. Total OPEX of $9.2 million in the third quarter of 2023 was up by $1.2 million from a year ago. That is roughly $700,000 less than the $1.9 million year-over-year growth in gross profit, and accordingly our loss from operations reduced by $0.7 million. General and administrative expense of $4.7 million was up by $1.4 million compared to Q3 last year, representing the largest increase among OPEX line items. The increase is mostly due to a higher headcount and annual salary increases against that headcount, which in an inflationary environment, increasing cost of living will result in a slightly higher gap there than prior macroeconomic environments, as well as legal and professional fees associated with the scaling of the business. Notably, general and administrative is down by 225,000 from Q2 of this year. In fact, all of our major OPEX items are down sequentially from the second quarter by a combined total of 745,000. As we mentioned last quarter, Q2 included some one-time and annual items, and these did not recur in Q3. The other year-over-year increase we saw in OPEX was technology and content, up $389,000 from Q3 2022, due to the growing betting volume in the business, which drives certain variable costs. Partially offsetting these increases was marketing, advertising, and promotion expenses, which was down $438,000 from Q3 of last year. Steven discussed our efforts to carefully manage this expense item. Overall, our OPEX has been relatively stable in 2023 with some variation due to timing of expenses. We believe the resources we have in place can support a higher volume of business, meaning we can expect expenses to increase at a slower rate than revenue. My final comments will be on our financial resources. We ended the third quarter with $7.4 million of cash, inclusive of $3.6 million of restricted cash. We significantly strengthened the balance sheet with a $14 million investment that we announced on November 15th. The additional liquidity offers strategic options to invest in further growth. To elaborate on that point, I will turn the call back to Stephen.
spk03: Thank you, Keita. Today we reaffirmed the guidance we provided last quarter of reaching profitability in the first half of 2024, and I will explain how we expect to get there, which is through a proven multi-year track record of growth, demonstrated operating leverage, the strongest customer KPIs on a year-to-date basis in our history, and improving handle margin profile. And that proven growth engine is now backed by our recent capital infusion. First, to touch on our track record. Thus far in 2023, we have delivered year-over-year growth across every quarter. And this kind of growth is something Rodway has delivered consistently for years now. Looking at it on a betting handle basis, 2021, we grew more than 200% over 2020. 2022 was up nearly 200% as well. And on a run rate basis this year, we are currently tracking to just under 100%. And this year's growth has been achieved with reduced market expansion on a year-over-year basis, sliding off X and against a number of macro headwinds. That is our operating leverage, which is underpinned by the strongest customer KPIs in our history. To repeat, our cost to customer acquisition is down 19%, off an already low base entering the year, and handle per customer up 29% over that period as well. This means for every dollar of market spend, we are getting nearly 20% more customers who are then wagering nearly 30% more on average at this time this year versus last. And finally, the efforts to improve margin on our sportsbook, which we discussed last quarter as well. This is through an increase in higher margin product mix, such as the recent release of same-game parlays for esports, future product releases and development in comparable product sets, select higher RTP casino games, including original games, marketing higher margin verticals through our media channels, Selective posted margin increases were rivalries below market and beefing up our internal sportsbook operational team to provide greater real-time feedback loops to enhance those efforts. To summarize, we have a team that has delivered consistent growth year over year for many years. Through that period, we have consistently improved underlying customer economics to drive each dollar further, enhancing return on invested capital. And with the ongoing efforts to improve margin, we expect that higher return on invested capital acquired customer to drive additional revenue per dollar wagered. When you combine that engine with our recently announced capital infusion, you see a bridge to profitability. We've outlined this further in our most recent investor deck uploaded today on slide seven, which is available on our corporate site. Now I want to touch briefly on the $14 million financing we announced earlier this month, which has strengthened our balance sheet. As mentioned, we have been carefully managing expenses in recent quarters, pulling back marketing spend consistently in order to prudently manage our balance sheet in the current challenging capital markets environment for growth companies. Although the reduction of marketing spend while still delivering year-over-year growth is a testament to the fundamentals of the business, at this still early stage of Broadway's development and growth ambition, it is not ideal. One benefit of a constrained marketing budget is that you learn which items are most effective at driving results. We've become very ROI-driven, and efficient as evidenced by the metrics I've noted a few times in my remarks. Admittedly, however, lower marketing spend has resulted in us foregoing some growth opportunities. To peel back one final layer here, in terms of supporting growth with that capital, it will come from going back on the offensive with marketing spend. This will still be done with the measured discipline that investors who have been with Rydler for years are used to seeing. Back on the offensive means going deeper in current markets where we see multiple turns on an ARPU to CAC basis with capital deployed, wider new geographies where we believe we can repeat our demographic playbook with success and delivering more world-class original products to drive further increases in average handle per customer on rivalry. This will arrive in the form of new, innovative products such as more original casino games, sportsbook features, and broadly reinventing traditional betting experience for the next generation of consumers through a combination of our one-of-a-kind creative and proprietary tech stack. I'd like to end by commenting on esports betting more generally. Rivalry has been synonymous with esports since its inception. Over time, we've built up a leadership position among esports bettors that have had the opportunity to help pioneer this category at scale. We remain incredibly excited by the overall positive trends we are observing in esports viewership and the growth of multiple new titles that are garnering increasing fandom and show great promise from a betting perspective. And while we've been able to generate a meaningful handle from this segment and expect to continue doing so, esports betting for Rivalry has always been about the demographic. Early investors and rivalry will recall investor material and conversations going back to our 2018 launch, explicitly stating our thesis as esports top of funnel as an acquisition strategy into a demographic of millennial and Gen Z bettors. Understanding where esports comes from, which is gaming culture, and understanding that gaming, of which esports is a subset, is by far the largest content category on the internet for under 30s, and therefore a fixture of modern internet culture unlocks the true opportunity, which is the demographic. The TAM of that demographic in online gambling is massive and will eventually overtake the current 35-plus demo as time goes on. And it's that group which Rivalry has meticulously built its original products, brand, and marketing for. It is our proprietary understanding of this demographic that is the starting point, which informs our product philosophy, design thesis, and the way we position the brand at the intersection of esports, gaming, and internet culture. Our ability to deliver that in a cohesive customer experience is what enables the very compelling customer economics we have, And it's the combination of all that that has placed the rivalry brand in a highly desirable position and created a moat for us in a competitive global consumer category. With that being said, we're very excited about the future opportunities in front of us today, and we're keen to continue driving the business forward with a reinforced balance sheet and stronger than ever customer economics. At this point, we'll open up the call for Q&A, so operator, can you please provide the instructions?
spk04: Thank you. And ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your cell phone keypad. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press the star followed by the number two. And if you're using a speakerphone, please leave the handset before pressing any keys. One moment, please, for your first question. And your first question comes from the line of Adhir Kaddi from 8 Capital. Your line is open.
spk06: Hey, good morning, guys. Thanks for taking my questions. I just wanted to ask about the broader esports viewership. I can certainly appreciate the September numbers that you guys called out. But, you know, into Q4 with some of the more, the bigger events, the marquee events called Dota 2 Worlds and Worlds. What are you seeing from a viewership perspective from those events? I think both events have largely wrapped up. Can you give us a sense of what you're seeing from those events and contrast that to what you saw in September? Was it more just a blip in the kind of radar or what are you seeing more broadly? Thanks.
spk03: Yeah, so in September, like the main events, it's like end of August into early September is the qualification for Dota 2 The International, which is usually one of the big events in October. For people that have been following esports news, you'll see that the game publisher for Dota 2, which is Valve, cut the prize pool or just the way that the prize pool is funded. Because this was always that event that people that have followed the esports sector maybe for years, it's that one that you'll hear that's got this like $30 or $40 million prize pool. It's like the biggest prize pool event in all of esports globally every year for many years. For whatever reason, they decided to change the way that the prize pool was funded. So it went from literally like 30 to 40 million prize pool down to when the event started, it was at like a $2 million prize pool, like just a total gutting of it, which then inevitably ended up killing some of the expected viewership interest in it. So some of the stats for some of the regions for the qualifications, then in late August and September, were showing like, yeah, you know, 30, 40, even 50% declines in average viewership if people just were just watching other Dota events. So it's not to say it was like, you know, crushing to Dota as a whole per se, but yeah, definitely it did impact that event. And then going into October, it was not as significant of a decline in October because you still have the best teams in the world playing against each other. But yeah, absolutely no doubt it did take, you know, a bit of the wind out of the sails of that event within October as well, I would say. And then the other one is, League of Legends Worlds, which was pretty strong. I mean, that one was October, but it also trickled into November. That did show decent metrics. I'd say the only small caveat on that, and I think we had spoken to a few people about this prior, is that there's the time zone basically for the events, just based on where they were regionally located. The event for Worlds was located in Korea, and a lot of the excitement for the event comes out of, let's say, South America from a market perspective. and therefore, you know, the matches took place literally in the middle of the night, like 1 a.m., 2 a.m., which did have, like, a modest impact on some of the potential betting interest, but overall, there was still record viewership in the event itself, so there was still, like, a global interest in the viewership of this event, and therefore, there's still kind of overall strength in the viewership of esports. It just, yeah, there was some prize pool issuing on the one event, and then there was some, let's say, inverted time zone issues on the other, but ultimately, still the trend is strong. And if you look at aggregate viewership stats for esports, it's still up like 10 to 15% this year. Um, but yeah, it's definitely diversifying to do titles and that's just natural within, um, within esports.
spk06: Okay. Awesome. And then just maybe on the capital allocation priority, priority is good to see the balance sheet bolstered this quarter. Um, but can you give us a sense of, of where you're going to spend some of that, uh, some of that cash? I know, you know, you've mentioned some good, obviously, unit economics all make sense. You mentioned Ontario is trending well against your expectations. So where are you going to kind of spend that money? Would you continue to go after the esports viewer or could you maybe spend a little bit more time going after traditional sports viewer? Give us a sense of how you're thinking about that.
spk03: Yeah. I think like to reiterate some of the commentary from the call, like part of the success of like the customer economics and the consistent reduction we've seen this year. And again, like we were sitting on like an all time kind of high in terms of like overall health of our acquisition metrics. And then also just like the general customer economics does still stems from the fact that the brand is led like an internet culture and gaming e-sports brand as, as that top of funnel. Cause we just find that as like one of the better ways to access the demographic in terms of how we, execute our marketing, our content and interact on social. So yeah, I want to continue to be clear. Like I wouldn't have people misconstrue the way that we market as a representation of like the, the overall base of the business, because as people have seen throughout this entire year, we're about 50% casino, but that casino customer is still coming in through that similar top of funnel, which is like a gaming and e-sports and again, like internet culture marketed top of funnel as our way to access that under 30 demo. So I think like, We'll continue to kind of operate in that way. If you do look, though, at some of the things we've done with the NBA, I would use as an example outside of esports more as like a targeted marketing effort. We've definitely seen strength in the NBA throughout this entire year, like both the last season, you know, wrapping earlier this year, and then the new season that's since started off. And that's also why when we put out this rivalry ultimate fan, which is a fantasy product that we can leverage to do more than just NBA. We put it out with, we put out NBA specifically because like the timing of it was at the roll off of, the major esports events that where it now gets a little bit quieter at the end of the year, as it does most years, and then NBA started to spool up. And among the demo, we're finding a lot of cross-selling and a lot of interest where people that are coming in to bet on esports are just in the NBA. And in some cases, definitely, people are just coming in to bet on NBA on Rivalry, but it's still an under-30 demo. So yeah, in terms of allocation of marketing spend, I think we're going to still approach it from a strategy perspective, the way that's been working really well for us. But again, just being able to kind of put our foot back down a bit on the gas for the first time in basically like a year. And doing that within the context of having the best current return on investment capital we've ever had. So we'll be doing that still with the same strategy. We are diversifying a bit into traditional sports and titles like NBA where we're seeing success. We are acquiring customers with that same kind of flavor of marketing. And then from a geographic perspective, As we did have to kind of pull off a bit, we are going to push down a bit in the markets where we're seeing that multiple turn on an ARPU to CAC basis, where we see single-digit month payback periods, which is extremely low within the context of this industry. So we'll continue to go deep in those markets. We'll go wider in some of the adjacent geographies where our license allows us to accept customers, and we just need the capital to spool up a bit of marketing spend and a small team and repeat the playbook that we would usually do. And then, yeah, definitely Ontario. Like, Ontario has been – An increasing kind of bright spot for us, really great customer economics, really great improvement year over year. And certainly we want to continue to go deeper in that market. And we are starting to find a lot of resonance with the demographic we're targeting. So it's kind of a broad answer, but it's just, you know, it's deeper where return is really strong, wider where we see opportunities set in like adjacencies with our demographics. And then certainly just product development and continuing to do things we always do to just put out more original products, which is really, it's capital allocation, but it's really just the op-ex of the team itself and just executing with the team.
spk06: Okay, great. And then my last question. So you kind of alluded to marketing spend kind of going up again. So But you reiterated that you're going to be profitable in H1 of 2024 here. And so just kind of give us a sense of where that additional operating leverage comes from. Is there more optimizations that you're going to do on the two other lines? Or is that just going to come from some of the stuff you've already done that's going to see benefits in Q4 and into Q1, which has been seasonally slower? So just unpack that a little bit for us, if you don't mind.
spk03: Yeah, definitely. And I'll remind people like I would check out in our recent investor deck, we outlined a bit more of like a detailed profit bridge showing kind of like what the indicative levels look like based on our current call it run rate or average gross profit, OpEx, and then what the bridge looks like to get to a profitable run rate. So it's really a combination of one, this definitely growth engine has proven itself over multiple years to grow year over year. And we expect to be able to continue doing that into the future. But the way that we have to get there is continuing to see improvement in our underlying trends within our customer economics. So as I mentioned, like on a year to day basis, our handle is up about 30% per active customer and our cost to customer acquisition is down 20%. So even right now, like the deployment of capital versus last year is already going much further to get like the compound effect of getting 20% more customers for every dollar and getting 30% more handle for every customer that you could bring in on that has a Really nice compound effect. And we're continuing to see improvements on that. And then once that customer is in and on a go forward basis, yes, like over the next period throughout H1, it's two main things. It's one, like a higher margin from an approved product mix, which is parlay style products. We've got the same game combo, which is our same game parlay for esports, which is a much higher margin. And that's, I know, been a huge road driver for US-based operators where SGPs have been really popular and driving really high margins. So we're definitely pushing really hard on that in a marketing perspective and continue to improve that product. We're scoping out very similar products within the traditional sports segment, pre-made parlay style products, but like all these just basically higher margin products that drive growth from a margin perspective in terms of the sportsbook product mix. The second on that one is just also improved margin from just greater margin stability. This is a little circular with just more handle because with more handle, you get more stability. But also just there are operational moves we've been making and just beefing up our internal Sportsbook operations team to just reduce volatility in Sportsbook and just have more consistent and improved margin. And then the last or the other chunk I'd say is just like that handle growth. So just the company continues to deliver year over year growth will then also just drive obviously improved revenue and improved margin. which then is part of the bridge. So it's a combination of all those things. It's just continue to improve unit economics, continue to deliver growth, which just brings in revenue. And then on that incremental handle from growth, driving more revenue from the improved margin mix. So again, those are all the things that are kind of the ingredients that get us there. And yeah, we'll repeat, kind of would tell people to go look at the investor material where everything I kind of just verbalized is there in a more visual way and with some of the data points as well and everything that people can look at.
spk07: Awesome. Thanks, guys. Appreciate the color. I'll pass the line. Good.
spk04: Thank you. And your next question comes from the line of Sutam Sukumar from Steeple. Your line is open.
spk02: Good morning, Steven. Just looking at Q4 and moving into next year, just given some of these structural changes that you're underlying some of the key esports titles in the market today, and given they're going mixed with global markets, casino, and now fantasy, How does that impact the traditional seasonality that you've seen in the business in the past?
spk03: Yeah, for sure. So we talked about this a lot on the last call, and it's definitely one of the factors also that played into this quarter is, and I mentioned in the script, if you look at rivalries, like rivalries relative, let's say regional mix this time last year versus this year is like quite different because we've just seen so much growth in some of the adjacent markets in our core regions last year combined with just growth in Southeast Asia, as I mentioned. And they have very different seasonality characteristics. So, you know, where Q3 might be larger for the South American market, it's much quieter for the Southeast Asian market. And there's almost like an inverse relationship between the two based on the calendar of events and market and any sports that they follow and even traditional sports. And then, so like that, that's one factor for sure. That's just creating almost more like stability throughout the year and making some of the courts feel a little more consistent with one another. It's also why even like our Q2 wasn't down as much as we would normally see. Whereas if you go back a year or two ago, Q2 used to be like a much slower quarter, whereas this year was only like kind of modestly down sequentially. But still, yeah, obviously up significantly year over year. So the geography plays one factor. And then definitely casino. I mean, like we benefit from casino like many of our operators where it's always on 24-7. There's no real seasonality to it per se. Does casino though definitely see more activity during like seasonal spikes for a market that likes casino? For sure. Like when people are there, betting on sporting events that they like, they are much more likely to then flip on and play, you know, a hand of blackjack or play back or at, or play a slot. But, but generally casino being 50% of our business this year just speaks to kind of like that ongoing steady state stability. So our expectation would be still going to be probably with the off season and e-sports being a good chunk of Q4, we still expect that, you know, typical softness, because I think that's one that isn't geographically dependent, i.e., like, the regions on this side of the globe versus the other. There's just not a lot of esports generally for everybody within the quarter. But beyond that, like, I think the Q1, Q2, Q3, we're expecting, like, relative consistency now based on, yeah, geographic and product mix. We're not expecting these, like, huge spikes and troughs in ways that we maybe experienced in the past where the business was dependent on, you know, less markets because it hadn't grown as much. And it was also essentially completely dependent on just Sportsbook. And 90% of our business was esports betting until we launched Casino. So it was a lot peakier and troughier, I guess.
spk07: Thanks.
spk04: Thank you. And your next question comes from the line of Jordan Steiner from Monadical. Your line is open.
spk05: Hey, Steve. Good morning. Really good news on that infusion of capital. It feels like you guys have been fighting with one hand tied behind your back for a while, and now you finally have the ability to go out and make the best of your industry-leading LTV CAC, so that's great to see. Just a little micro. You talked a little about October having to pick up. Website traffic seems to support it specifically in one geography. And November seems to be continuing well, just is that seasonality or have you guys already turned on the marketing tab?
spk03: No, I think like, yeah, like I kind of like a little more context and like you get some data around, around October. So we definitely saw a huge amount of interest activity in October. Like it was still, it was still a solid month for us. The stuff I was mentioning earlier with, with ad year is one. Yes. Like there was just a reduced interest in the Dota international, which is only one of the main stables of October. And then definitely there was like inverted time zones where there's like so much you can do to get people waking up in the middle of the night four weeks in a row to gamble online and live bet. But we definitely saw a lot of interest. Like one of the things I can speak to as a data point is that despite some of those issues which may have had, you know, let's say some kind of impact on Handel because, again, you're not going to get the same level of in-play betting when everything takes place in the middle of the night. But that said, October did see for us a record number of active players or active bettors within 2023. And it was tied for one of our, it was tied for our highest acquisition month as well. So it was still, the event still drove interest in terms of people wanting to be on rivalry, wanting to sign up, wanting to deposit, wanting to place bets and be active. The only, again, the only kink I would say is just with the things happening in the middle of the night. And we quite literally had marketing campaigns that were even like you know, watch and have snacks and essentially getting people to buy energy drinks to stay up to gamble. So, you know, we were doing everything we could to maximize interest in these events. But that's the only caveat I would say. Yeah, like the traffic show is a representation of people wanting to be there and people definitely placing bets and a record number of people showing up to do that. The only thing that took a hit was maybe some of the time zone issues. But the positive other side of it is, yeah, we've now got a hell of a lot more customers that came in through that that were engaging, retaining, cross-selling to NDA, bringing into casino, having in the fantasy app and all that kind of stuff. So October still acted as like a really critical point of engagement for the brand throughout the year as it always does.
spk05: That's great. And it sounds like October was actually still under the old, you know, less optimal marketing plan. So you closed the capital raise about a week or two ago. How quickly can you start deploying that money and putting it to work with high ROI new additions?
spk03: Yeah, I mean, like we've already done a little bit. And I feel like the more important feature of it and part of the conversation at the time of the fundraising and anyone that's kind of in the consumer business that runs on annual cycle like this knows, like all the really critical market deals arrive where, let's say, like large creatives who work with content deals, all that kind of stuff. That stuff all gets renewed in November. I mean, especially within our category of like gaming and esports where again, you have all the major events roll off at the end of October and early November. And then everyone is then looking for their renewals then and all the conversation happens then. Because come like a week from now, it's the holiday of December and people are gone. And in January or kind of let's say mid-January for esports, everything picks up again. So everything is cooked by then. It's not even just cooked by then. It's like you got to sign a deal in November because you start to build the marketing and brief all the marketing now and start to actually build all the content creative and everything for that mid-January launch, right? You start to, like, spool it all up and, like, quite literally, like, execute the work now. So, like, the most critical piece of the timing of that and why that growth capital was important is because, like, it gave us confidence going into next year and creating a setup for next year across our geographies and our creator strategy of which, like, the main pieces of that and the largest kind of, let's say influencers and highest impact pieces of that all get determined in November. Like some of those deals have like now been signed, for example, right? So, cause like now we're basically at the end of November. So like that was the most critical thing of it. So yeah, we're already starting to deploy it in terms of like the actual impact, probably again, more like started next year in terms of just like when things are back and return to e-sports people, people are back from the holidays, all that kind of stuff. But there's definitely been some like incremental stuff and things we've been able to turn on already, like immediately, even as early as kind of a week or so after we closed the capital to just try and flex a bit more in Q4. But I do want to emphasize the most critical thing was just the timing of how you walk in content and your marketing on a one-year forward basis, which all happens now, and having the certainty of knowing what we're working with and what our expectations are for next year going into those conversations, which we had. So that was super critical.
spk05: Great. And just finally, was it a similar story with having to pull back a little on technology spend and SG&A, or are those basically the levels you want?
spk03: No, those are basically the levels we want. I don't think we're going to, we've been saying this for a few quarters, even I think last term or like last year, like we're not, what I would consider like our core OpEx, which is not, you know, not exactly a financial term or just like our OpEx at work that I think is not marketing, which is the thing we've had to like pull down as a cost that we can pull off while managing the balancing sheet. Core OpEx isn't like our people and all of like, you know, tech, all that kind of stuff. We're not expecting to see big spikes there. Within OpEx, there are a few variable costs, talking like payment service provider fees and monthly auth provider rev share and stuff that is rev share based, very common to the industry that will flex a bit with just the growth of the company. But in terms of just the people and where the business is situated, And let's say like the foundation being able to deliver, let's say, you know, a 2X next year or whatever, maybe we don't feel we're going to need to flex that up all that much versus our current levels. And it's really more a question of the deployment of capital and being able to execute on growth now.
spk05: I'll end with a bit of a joke, but you actually raised enough capital, you could have bought out FaZe Clan. That would have been an interesting customer acquisition channel. Although seriously, I think it does go to show that the space has fallen on hard times to an extent, and you're one of the few that turned this into a real business. So congrats to you guys, and congrats on a good quarter.
spk07: Yeah, I appreciate it. Thank you.
spk04: Thank you. And there are no further questions at this time. I'd like to turn it back to Stephen for closing remarks.
spk03: Thank you, operator. Thanks, everyone, for joining us for our third quarter results call. And obviously, as always, happy to continue discussion offline if anyone has any questions. Thanks, everyone.
spk04: Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
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