Rivalry Corp.

Good morning, ladies and gentlemen, and welcome to the Rivalry first quarter 2024 conference call. At this time, all lines are in 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 Thursday, May 30, 2024. I would now like to turn the conference over to Jeff Codispone, Investor Relations for Rivalry Corp. Please go ahead.

Thank you, and good morning, everyone. Our speakers on today's call will be Stephen Fowles, 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 security. These statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results or achievements of Rivalry Corp in 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 presentations, 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 MD&A, dated April 30, 2024, 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. I'll now turn the call over to Stephen Saltz. Stephen?

Thank you, Jeff, and thank you, everyone, for joining us today. This morning's news release contained two key announcements, our first quarter financial results and our decisive moves to more deeply tap into the crypto segment. On the first quarter, I'll offer a high-level overview, and then Kata will provide additional details on the results. Following Kata's remarks, I'll devote the bulk of my comments to the rivalry token announcement and what it means for us strategically. Q1 marked a return to growth after a relatively flat finish to 2023. Betting handle was up 11% from Q4 2023. Growth gaming revenue increased by 20%, and net revenue was up 51% from Q4. We benefited from a range of recent product introductions, audience diversification efforts, and a ramp up in marketing, which has brought total registered accounts on Rivalry to more than 2 million. A particularly encouraging aspect of our Q1 results is the margin strength. We identified margin stabilization and improvement as a priority last year and launched a number of initiatives to help move the needle throughout the back half of 2023 in particular, and those efforts are starting to bear fruit in Q1. For example, new products like same-game combos and pre-made parlays are driving users to higher-margin verticals that also offer them a more entertaining betting experience. In addition to these higher-margin products, we've also been reviewing, and where appropriate, adjusting our posted margin higher on our sportsbook, where rivalry may have been too far below market. It's worth noting, though, that any adjustments where they were made are still at a level where we remain competitive. As a result of these efforts, Q1 net revenue margin of 58.5%, equivalent to what was previously reported as gross margin, was the highest of any quarter in our history. As a percentage of betting handle, net revenue margin of 4.7% was among the highest in our history. While we expect to see continued variability in margins, the recent trend is certainly positive, and we believe there is further upside to be gained as we continue to refine our product offering. Customer KPI, including average revenue and handle per user, remain at the record levels achieved last year, while branded entrenchment in gaming and internet culture continues to profitably acquire under 30 customers. All that said, we are very encouraged by the positive momentum behind us and believe our strengthening business model will continue delivering more to the bottom line as we grow. In this context, our expansion into the crypto space, which opens up significant new avenues of growth, is very timely. More on that in a moment, but first I'll turn the call over to our CFO, Keita, to review our financials in greater detail.

Thank you, Stephen. As Stephen described, our Q1 2024 results can be characterized as a return to positive trends following a more flattened sequential trend in the back half last year. Betting handle was 94.7 million in the first quarter, a sequential increase of 9.6 million. from $85.2 million in Q4 2023. Betting handle in Q1 was split roughly 60% to 40% between the gaming and sportsbook segments, respectively. This is in line with the Q4 breakdown and reflects an ongoing trend of gaming claiming an increasing share of handle as we build out our casino product suite and add new original games. In contrast, sportsbook continues to generate a larger share of gross gaming revenue, or GGR, at roughly an 80-20 split versus the gaming segment in the first quarter. That is in line with the average split for 2023. GGR of $7.7 million in Q1 was up $1.2 million from the fourth quarter. Based on the respective contributions to GGR, the sportsbook segment has been a greater focus in our efforts to improve margins. Gaming typically generates lower but more predictable margins. As Stephen mentioned, many of the new Sportsbook products we have introduced in recent quarters offer the advantage of higher margin contributions. We saw the results of this product evolution in the first quarter. Net revenue, which we previously reported as gross profit, was $4.5 million in Q1, an increase of $1.5 million over Q4 2023. Expressed as a percentage of DGR, our net revenue margin of 58.5% this quarter was a record high for rivalry. The comparable figure was in the 45 to 46% range throughout each quarter of 2023. I'll now turn to operating expenses. Total operating expenses decreased by approximately $1 million or 10% compared to the fourth quarter. The only OPEX item that increased up approximately $350,000 sequentially was the marketing, advertising, and promotion expense. As we mentioned when we raised capital last fall, we made the decision to invest more in marketing at the start of 2024 to take advantage of growth opportunities. We believe that spending helped drive the increased betting handle and increased adoption of the new products. Our largest OPEX line item, general and administrative expense at 4.5 million, was roughly flat from the average experience throughout last year, demonstrating continued prudent cost management. Net loss was 5.2 million in Q1 2024. This represented a 3.4 million improvement from Q4 2023 and was our lowest net loss of the last four quarters. While we're encouraged to see improved profitability trends, we've decided to update our previous profitability guidance. Our new guidance is to reach profitability by the end of 2024. Lastly, I will briefly touch on our financial resources. We ended Q1 2024 with $9.4 million of cash, which includes $3.3 million of restricted cash. We remain confident that we have sufficient liquidity to fund our continued growth. I'll now turn the call back to Steven.

Thanks, Keita. I'll start by reiterating what I often say on these calls, which is that rivalry is defining the future of online gambling for a generation born on the internet. To expand on that briefly, this is a consumer entering the fold that is markedly different from the traditional online gambler that the industry has been built around. They're consuming less sports content and engaging with video game content, following social creators in place of celebrities, and are immersed in online culture. Winning business from this new generation of players means adapting to a shift in entertainment preferences and technologies that Rivalry has spent the last six years writing the playbook for. We're very proud to have built the leading esports betting brand in that time, getting unique traction among digitally native millennials and Gen Z who identify with gaming and internet culture. As we scaled, however, we recognized that our growth potential would be constrained if we limited ourselves to esports due to lower average bets and size relative to other segments of the online gaming market. which we have seen create some drag on our potential growth profile over the last few quarters. While our esports business continues to generate incremental growth and acquire a unique user base into our ecosystem, we've been pursuing a strategy to diversify our product offering for the past two years. This has resulted in a highly differentiated casino product suite, increasing strength in areas like traditional sports betting and fantasy, driving record customer unit economics. Today, Rivalry has become much more than an esports story. We have a demonstrated ability to build well-differentiated consumer products and ones that resonate with the targeted demographic of digitally native users specifically. This has created a generational brand in online gambling which can capture, engage, and retain the industry's customer tomorrow. The launch of Rivalry Token represents the next chapter of our vision and pursuit to own this demographic and opportunity. Rivalry Token is a native cryptocurrency token that will act as a nexus between Rivalry, Web3, and Gamblers that we expect to launch later this year. It will be integrated across our sportsbook and casino with built-in features that layer into our existing betting experience. This will provide customers with more incentives to play on Rivalry and welcome a fast-growing audience of crypto gamblers into our product universe. This announcement is meaningful for several reasons. But first, I want to quickly describe the current experience on the announcement. which is that eligible users, meaning those that can legally use Rivalry, can start to pre-earn into the token by being active on the site. And by doing so, they earn basically a token, a pre-token currency we call NETs. We call this Play to Farm, and users participate in this at various NET ranks, which are assigned to them based on their total activity level and carry different attributes. Think of it as an RPG game where you do things, being activity on Rivalry. You level up a character, which is your nut rank, and you collect loot, which is your nuts, which builds your inventory. The more nuts you collect, the more tokens you receive on the eventual airdrop. The experience is incredible and was made possible by the world-class talent at Rivalry. Okay, back to why it's meaningful. Outside of the public eye, new online gambling products built around blockchain technology are capturing the next generation's attention and taking market share from incumbents. Cryptocurrencies are often a centerpiece, enabling a product that is ubiquitous globally, faster in speed and processing, transparent, and credits instantaneously for an experience that we believe is objectively better in nearly every way.

Industry estimates now put crypto wages at Excuse me, this is the operator. Please stay on the line while we reconnect the call. Thank you.