Rivalry Corp.

Good morning, ladies and gentlemen, and welcome to the Rivalry Corp fourth quarter and year-end 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. You can press star 1 at any time. And if at any time during this call you require immediate assistance, please press star 0 for the operator. This call is being recorded on Friday, April 5, 2024. I would now like to turn the conference over to John Vintich. Please go ahead.

Thank you, Operator, and good morning, everyone. The speaker on today's call will be Stephen Saltz, co-founder and chief executive officer of Rivalry Corp. 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 used in this conference call presentation such statements 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 will turn the call over to Stephen Saltz. Stephen?

Thank you, John, and thank you, everyone, for joining us today. Typically, we host our investor call the same day we publish the full set of audited financial statements in MD&A. However, this being year-end, we're still wrapping up the audit, and those statements are still a few weeks away. In the interest of keeping shareholders as current as possible, we wanted to publish these preliminary results as soon as they were ready, and we will be happy to answer any questions you may have at the end of this call. Now, on to the results. As you saw in this morning's news release, in 2023, we delivered a strong full-year result. Betting handle of $423.2 million in 2023 was up 82% from the year prior. Revenue reached $35.7 million, a 34% increase over 2022. And gross profit was $16.2 million, a 66% increase from full year 22. Our offbacks remained relatively steady amid our continued year-over-year growth, with noteworthy declines in marketing spend down $2.2 million, or 15% year-over-year. highlighting the non-linear relationship between spend and growth, which is the key for any business gearing toward profitability, which we remain on the path toward and is why we have maintained our H1 profit guidance. Our net loss in 2023 reduced by 22%, totaling $24.3 million. Player KPIs continued to trend positively in 2023, setting all-time records for average handle per customer up nearly 30% year-over-year, average revenue per user up 38% year-over-year, and record low cost of customer acquisition down 15% year-over-year. The fourth quarter itself represented a slower finish to the year as it's historically experienced. Letting handle the fourth quarter was $85.2 million, a modest increase of 1.5% over Q4 2022, while marketing spend decreased 32% year-over-year. Although within the context of such a significant reduction in marketing spend, we are pleased to still demonstrate modest growth. I will reiterate commentary from our Q3 call in late November surrounding the month of October. That month usually represents the bulk of Q4 before esports goes into the offseason, with October boasting two of the biggest events of the year for two of the largest esports, League of Legends and Dota 2. This year, the events took place in geographies that were completely inverted for the core betting base on rivalry around those titles. meaning that matches took place in the middle of the night and given in-play betting represents the majority of sports bets on rivalry. It did have a negative impact on betting handle experience during the month of October and consequently on Q4 as a whole. With the continued diversification in our business across esports titles, traditional sports, and casinos, we are increasingly blunting the impact of potential events like this. Revenue in Q4 was $6.5 million, a $3 million decrease from Q4 2022 due to less favorable sportsbook outcomes compared to the unusually favorable outcomes experienced in Q4 last year. I'll note, as a percentage of betting handle, revenue was near the average achieved throughout full year 23, highlighting the atypical margin outcome in Q4 22. Gross profit was $3 million in Q4, a $2 million decrease from Q4 22, owing to the relative margin impact noted a moment ago. Gross margin itself was in the mid-40s, consistent with the trend experienced all year. And once again, gross profit as a percentage of betting handle was equal to the average achieved throughout the entire year of 2023, again highlighting the atypical outcome that was counting against in Q4-22 and demonstrating that the margin of the quarter was aligned with the full-year trend. Looking ahead briefly to Q1, we've now begun to strategically deploy the capital from our mid-November investment in areas that are driving customer acquisition and revenue. Among those focus areas are ongoing efforts to stabilize and improve margin that we're proud to say are yielding results with Q4, sorry, with Q1 2024 betting margin trending toward a more than 20% improvement over the average in 2023. We expect the full effect of these investments to begin materializing in our results throughout the first half of 24 and beyond as we amplify proven marketing strategies, release higher margin products, and continue developing proprietary betting experience experiences for our customers. Overall, we are very pleased with what we achieved in 2023. We exited last year with all-time high customer economics, increasingly diversified revenue streams, and a reinforced competitive moat as the market leader in Gen Z betting. We gained meaningful traction in new segments, such as traditional sports, casino, and fantasy, which is widening our opportunity set and positioning us for sustainable growth in the medium to long term. To briefly speak to several of these key accomplishments and tailwinds in more detail, first, we have diversified our revenue streams and products by entering new segments, including the launch of our standalone fantasy NBA app, which is acquiring new users and engaging them in our product universe, supporting the growth we're witnessing in traditional sports, which has grown by 60% since 2022. Additionally, CasinoNow accounts for half our betting handle, and we've continued expanding that product last year with new games, the launch of our iOS mobile app in Ontario, and more. This includes the September release of our latest first-party game, Cash & Dash, which has validated our original game development strategy and its Gen Z customer appeal, becoming the fifth most played casino game on our platform and among the top 10 highest grossing by revenue. The momentum of Cash & Dash is carrying into Q1 and creating downstream B2B licensing opportunities that I'll speak to momentarily. As I spoke to earlier, our customer KPIs reached all-time highs, and by the end of the year, Rivalry's total player registrations eclipsed 2 million. The common thread among these exciting developments is establishing brand and product form factor for Gen Z and digitally native users broadly for viewing Rivalry as an on-ramp to interactive, entertaining, and culturally relevant experiences. Rivalry's brand and the targeted communities of gaming fans and tech-savvy users we've built around us represents one of the greatest competitive advantages in the current sports betting marketplace. Now let's look ahead. 2024 is rife with innovative product releases and developments arriving in Q2 and continuing throughout 2024. Our current pace is incredible and unlike anything in our history, setting the year up for success. I've never had more confidence in our product roadmap and what rivalry is building this year. Apart from new products, original games, and proprietary features, we've been working to dial up the overall feature entertainment value of our core product provide a tech savvy next generation customer with a tailored experience that is well differentiated within the larger sports betting marketplace. In addition to the continued refinement of our product set, we are in the process of unlocking what we believe to be two of the most material developments to our business model since launching Rivalry in 2018. The first is a B2B vertical to license our in-house developed games. And the second is exploration and development within the crypto ecosystem. Touching on the first, we are very grateful for the incredible industry reception Cashinash has received since its late September 2023 release. Our game development strategy has been underpinned by Gen Z expertise, proprietary technology, and entertainment value that we now clearly see as resonating with the next generation of customers. The impact of these games has created a tangible B2B opportunity for our games vertical, opening a new line of revenue for the business that has great potential for global scale. And second, in addition to adding greater support for cryptocurrency on Rivalry, we're also exploring the implementation of adjacent crypto-enabled technologies to meet growing consumer demand and better serve our target audience of digitally native users. The technology in this ecosystem has reached an inflection point that we believe can meaningfully enrich the user experience on our platform, from payments and acquisition to player value and creating enhanced network effects. Evolving alongside our audience and adapting to broader trends in consumer technology will not only maintain our market-leading position among this demographic, but allow us to continue setting the standard for what's possible in this category. Online gambling on the internet in 2024 is quite different from even late 2018 when Rivalry launched. Entirely new internet-based economies earned by significant reduction in payment friction unlocked by cryptocurrency is bringing a whole new global audience into gambling and enhancing many other consumer products. Rivalry's user base grew up on the internet and isn't nearly entirely under the age of 30. Event diagram of Gen Z gamblers, gamers, and crypto enthusiasts or crypto curious has an extremely high degree of overlap, making rivalry uniquely suited to interface positively and unlock value from this emerging ecosystem. We will have much more to say on this in the near future and are eager to demonstrate the value creation potential to our shareholders. With all that said, we're deeply proud of Rivalry's operational excellence demonstrated in 2023 and equally excited about the strategy, product set, and the many other defining opportunities we have on the horizon in 2024. At this point, we'll open up the call for Q&A, so operator, can you please provide the instructions?