Rivalry Corp.

Good morning, ladies and gentlemen, and welcome to the Rivalry Q3 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, you will need to press star-zero for the operator. This call is being recorded on Friday, November 29, 2024. I would now like to turn the conference over to Ms. Sami Obidogan. Please go ahead.

Thank you, Operator, and good morning, everyone. Our speakers on today's call will be myself and Stephen Soles, co-founder and chief executive officer of Reverie 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 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 November 29, 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 will now turn the call over to Stephen Soles. Stephen?

Thank you, Debbie, and thanks, everyone, for joining us today. The third quarter was the most decisive period in Rivalry's history. It was marked by a complete product overhaul, major organizational realignments, and a substantial reduction in operating expenses. This work was done to better attune ourselves to an evolving online gambling market where cryptocurrency has become the global payment method of choice and to align our offering with the experiential expectations of the players driving this industry-wide shift. These initiatives were set in motion during the second quarter alongside the announcement of Rivalry Token, now called NUTS, And I'm proud to say we are now emerging out the other side of this immense undertaking as a leader company and one better position for growth. To touch briefly on the product overhaul completed just this week, it is in orders of magnitude the largest in Rivalry's history and was completed at an absolute breakneck pace. It included a revamped registration flow, login, sportsbook, new crypto first cashier, completely redesigned casino offering, and a comprehensive VIP rewards program. This is effectively the entire product rebuilt or 99% of interactions occur. It was all done in about 90 days. I would not do the team justice by describing how tirelessly they worked day and night, seven days a week to make this happen. So I'll just say thank you. And that this is what it takes to win. And that is our objective. I will detail these new releases later, but we're confident this evolved product set debuted alongside a more mature digital first rebrand. will accelerate Rivalry's position as a global crypto native operator and enable us to capture high value players. And we already have some immediate internal data to share on this. In just the two short months since we began to deploy the initial set of these efforts, meaning the start of October, from the start of October, so about 30 days into the 90-day sprint, our average net revenue per user has hit all-time records, increasing by 51% as compared to the 2024 year-to-date average up until that point, and by 70% as compared to the trailing three-year average. Additionally, our native crypto token is developed materially alongside these efforts. It is integrated with our VIP strategy and overall growth plan, allowing us to better scale the crypto gambling category. To touch on the organizational impacts during the quarter, we reduced our headcount by approximately 50% through two workforce rationalizations, one that occurred at the start of Q3 and one in the final days. On the back of this, we significantly adjusted our performance culture, resulting in a more robust and higher output organization with measurable output climbing over 200%. It is this culture shift that made this product overhaul in record time a reality. And I want to again thank the team for not just their resilience through this period, but also their determination to deliver at a level that far exceeds historic standards at Rivalry. With the associated cost savings from this organizational realignment, and a significantly drawn down marketing spend associated with our prior strategy, both now near fully realized. I'm pleased to say that Rivalry's current run rate operating expenses are approximately 50% lower as compared to those in today's Q3 2024 report. Additionally, Rivalry's Chief Technology Officer Ryan White and Chief Operating Officer Kevin Wimmer have taken a voluntary 100% reduction in their salaries as of August and September, respectively. I've also opted to reduce my salary by 100% as of October, and now by 50% as of November. It's important that the leadership team share in the sacrifices we've asked of our team and shareholders in the near term as we complete this top-to-bottom realignment and strategy shift, which we can now build off of. We are confident that our current run rate reflects a leaner, more efficient cost base, positioning us well, and enabling us to return to growth. Alongside today's third quarter results, we shared Rivalry's native crypto token, has continued to deliver positive results, generating $3 million in deferred revenue in Q3. As noted on the Q2 conference call, token sales record as deferred revenue until we officially launch the token and deliver it to the wallets of those who pre-purchase them. The anticipated date for this is early 2025. In the meantime, we expect token sales to continue throughout the remainder of the fourth quarter and into the first quarter of next year. The revenue driven by our token during this period signals that this product is finding market fit among our target audience and being well received in the broader crypto community. Beyond the direct revenue contributions, we're seeing encouraging downstream effects among customers engaging with the token, including revenue profiles that are on average 200% higher and retention rates that are 30% above average amongst crypto wallet connected users on arrival relative to our fiat customers. Lastly, we successfully closed the second tranche of the non-broker private placement announced earlier this week, totaling $3 million raised. It has been gratifying to get the support of insiders, family and friends, and long-term shareholders as we press ahead in this new chapter of the company. This financing strengthens our balance sheet, underscores insider and long-term investor confidence, and supports our trajectory to profitability while enabling us to resume an offensive growth strategy. Before going any further, I will ask Demi to review our Q3 2024 financial results in greater detail. Now, Demi, over to you.

Thank you, Stephen. Betting handle was $79.9 million in the third quarter, representing a 9% sequential decrease from quarter two of 2024. As Stephen communicated, the significant drawdown in marketing expense associated with our previous strategy throughout the third quarter had a direct impact on betting handle as we worked to reposition the business. Additionally, a portion of the recorded marketing spend in the quarter represented agreement exit costs and was not put toward player acquisition. Adjusted revenue in Quarter 3 of 2024, inclusive of $3 million in deferred revenue for nuts, was $6 million. Net revenue was $3 million in quarter three of 2024. The nine months ended net revenue was $12.1 million, down 8% from the comparable period in 2023. This is again, primarily a result of the reduction in marketing spend and an increasing mix of casino betting handle, which although more stable is lower margin than sports book. Looking at our two segments, Gaming generated 62% of handle, with sportsbook accounting for 38%. Gaming handle has continued to trend up compared to 60% last quarter and 51% in quarter three of 2023. And as a percentage of net revenue in the third quarter, casino accounted for 40%, up 14%, and 2% year-over-year, respectively, while Sportsbook represented the difference. Rising casino share is attributed to new content, exclusive games, and continued product development. I will now turn to operating expenses. Total operating expenses decreased by $0.7 million, or 8%, compared to Q3 of 2023. However, as Stephen noted in his opening remarks, with a meaningful portion of our operational adjustments executed throughout Quarter 3 nearly fully realized, the run rate operating expenses of the company as of the date of this release are approximately 50% lower than what was reported in this quarter. Marketing, advertising, and promotion expenses decreased by 0.9 million or 30% from the previous year. Net loss of 5.8 million represented a small increase of 0.2 million from quarter three of 2023. Lastly, I will briefly touch on our financial resources. We ended quarter three of 2024 with $2.1 million in of cash. Subsequent to quarter end, Rivalry closed a non-brokered private placement for gross proceeds of $3 million, which further supports a balance sheet. With our current cash position, the aforementioned material reduction in operating expenses, and overall cost structure adjustments, we are confident in our liquidity position. I will now turn the call back to Stephen.

Thank you, Debbie. Last quarter, I spoke to Rivalry's top priorities, and that's where we'll start today. The first is developing our VIP customer base. The second, capturing crypto gambling market share. And the third, profitability, which will be an output of successfully executing the first two initiatives. As detailed in this morning's press release and at the start of this call, we finalized the most substantial product overhaul in Rivalry's history. This effort, expanding product, brand, payment, CRM, and marketing, was intentionally designed to serve these core priorities and position us for scalable growth. To walk through these developments in more detail, first, we've launched a revamped Sportsbook product with 40 new titles, improved features, and a streamlined interface. Leveraging highly customizable white-label technology, we both massively improved our offering, preserved Rivalry's unique, entertaining feel, while also significantly reducing internal development resources required to maintain this vertical. This enables us to better manage engineering costs and direct resources toward other high ROI areas of the business. Onto our casino, our product has been completely revamped to improve functionality and accommodate an expanding catalog of content. We also debuted casino races, an interactive way for players to compete against one another and earn rewards based on their wagering activity. This has been driving more action from our largest players in just a few short weeks since its release. Casino has been a consistent and stable revenue source with rising share in early data showing it accounted for two-thirds of betting handle among crypto native players. Casino will continue to play a vital role in our long-term strategy. Building on our wallet improvements earlier this year, we've integrated a crypto first cashier system. This provides faster, more flexible deposit and withdrawal options across multiple digital currencies and strengthens our appeal amongst crypto native players globally. Players can now wager with digital currencies, an important offering that deepens the experience for users. To strengthen player retention and drive activity among high-value users, we've launched an expansive VIP program offering cashback, free spins, monthly, weekly, and daily rewards. This asymmetrically rewards larger play, so Rivalry's most loyal players have more reasons to play every day, driving wallet share amongst high-value players. We'll be iterating this program at an extremely rapid pace tweaking and tuning based on observed player interaction and direct dialogue with these players. This customer-centric and highly iterative way of building is central to our DNA and will be an important contributor to sustaining our growing net revenue per player levels. At the same time, we've also made significant enhancements to our customer relationship management flows, or CRM. These improvements are already helping us convert new users more effectively and reactivate churn players. Next, our registration and login journey has been streamlined to reduce friction and expedite user onboarding while remaining compliant. We've also begun rolling out a strategic rebrand across our product and marketing channels to better target crypto gamblers and digital native players. Brand has played a key role in Rosary's competitive differentiation, and we feel confident this new direction will resonate with both our existing users as well as the crypto audience. Lastly, I'd like to discuss our crypto project, Rosary Token, now rebranded as NUTS, NUTS supports our expansion into the crypto segment, engages high-value players, and creates a new revenue stream for Rivalry. Once fully launched, which was anticipated in early 2025, NUTS will function like any other cryptocurrency, deposited as a user's digital wallet, priced by the market, and usable both on and off Rivalry's platform. Importantly, NUTS addresses a fundamental challenge in online gambling, the traditional win-lose dynamic between players and the house. The token acts as a technological solution to create alignment between players and the house. In betting, the challenge is that the experience is primarily a win-lose cycle. Deposit, wager, win some, lose some, and repeat. In online gambling, customers' losses are the operator's revenue, and that creates a relationship between the operator and the user that is atypical in consumer products. This explains the loyalty challenge in online gambling and why many players will have accounts on multiple platforms at the same time. Creating alignment between player and house to find a win-win approach is a sizable opportunity here. And that's what we aspire to solve with NUTS or certainly move the needle on. This problem set in online gambling and solving it is one we've been thinking about deeply since founding the company and solutions that looked and sounded in many ways like NUTS were ones that we had ideated and proposed back in 2017 when we originally were pulling together a license application in the Isle of Man. It was too early then with the technology not developed enough nor legal frameworks in place, so it's incredibly exciting to be able to build upon our early philosophy and now execute it with this token project. All to say this is not an overnight concept for us. For the last six months, customers have been earning nuts through onsite activities like sports betting and casino. Tokens are earned on every wager, win or lose, and customers can amplify their earnings through daily missions, excuse me, and campaigns we're running that are designed to encourage engagement. Once fully launched, these tokens can be used to battle rivalry, claim rewards, and much more. As a cornerstone of our VIP strategy, NUTS enables us to deliver more customer-centric experience, foster loyalty, and deepen site engagement. Looking ahead, we will continue to enhance the token's utility, launch new products to attract more users, and drive connected wallets and additional revenue. With that said, at this point, we'll open up the call for Q&A. So operator, can you please provide the instructions?

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star four by the one on your telephone keypad. Should you wish to cancel your request, please press star four by the two. If you're using a speakerphone, please lift the handset before pressing any keys.

One moment, please, for your first question. Your question comes from the line of Jack Vanderaarde from Maxim Group. Please go ahead.

Okay, great. Good morning, guys. Thanks for the update. And good work on plenty of things going on. Good work on a lot of the corporate overhaul and the rebrand. There's quite an effort. You know, and congrats on the recent capital raise as well. Stephen, with all these moving parts going on, I know you've kind of walked away from the guidance for now, but Do you have a sense of, just to touch on kind of your cash runway as well as the current OPEX levels, which you've reduced significantly, how much runway do you guys think you have right now, and is there a chance you reestablish a profitability guide next year once the dust kind of settles?

Yeah, I think if you look at the PR, our language there is kind of the way we feel about it, whereas you can imagine looking at this release, it's like a 3,000-word release. We've done a lot the last three... excuse me, three to four months. And significantly, yeah, overhauled effectively every element of the company. So I think in my quote in that release, we noted we still have near-term profitability. I think just triangulating it with the same precision is not something we want to do right now. In terms of like the runway and the ability to get there, we obviously feel confident we will. I mean, if you look at, let's say, just a simple math of current operating expenses being 50% down from what people are seeing in our financials. Even if you assume, let's say, stable revenue off these levels, no growth, you can see a pretty clear path to being there quite soon, which is why we still kind of noted near-term profitability. So, yeah, I think early next year, We would maybe look to reestablish it, but I also expect that over that period we're looking to try to hit profitability as well. So, yeah. The work we've done on operating expenses, the financing, which helps to bolster the balance sheet a little bit. And again, you just piece together the op exchanges, the overall revenue picture that we have right now. And yeah, it doesn't take much to work back to the company generating cash flow. So yeah, I think we feel comfortable with our liquidity position. We feel comfortable with our ability to get there with where we're sitting today. And then with kind of the various catalysts coming up related to token, additional revenue that comes in there, potentially releasing that early next year. These are all things that support our ability to cross that threshold, which is still like our number one priority right now.

Okay, got it. I appreciate the color there. And, you know, it's good to see, I think you actually had kind of an acceleration, if you call it that, from deferred revenue kind of run rate coming in, the 3 million. Yep. I think last quarter you were talking about $1.7 million in the first two months to $1.3 million in the third month, which is great to see. When you touched on the users that you were talking about, 50% were reactivated users and I think 15% or so were new to rivalry users. I think that was last quarter. Do you have an update on that kind of stat more recently and I guess in the second half of this year? Has that kind of changed or Just curious about the user base and customer.

Yeah, I mean, like, not, yeah, not that specific one. I think, yeah, you know, we're seeing a pretty significant uptake of people that are going to connect their walls to farm nuts and therefore eventually earn instant release of the token. As mentioned, they're like much larger players. They represent a decent percentage of our overall, let's say, high value player user base. Um, in terms of like, which amount is reactivated versus not, I don't honestly have that, that, that stat right now. I think the thing that we were most excited to provide that, that is definitely new is, um, the combination of, of everything that's been going on with the token specifically. And again, that specific player base, which is an increasing percentage of the overall player base of rivalry, um, the overall efforts to bring in more of a crypto native crowd, meaning people that are the problem in crypto. And then the early, you're talking like the first like third of the deployments of new product releases that went live in October until today, the aggregate company-wide average net revenue per user is up significantly. That figure is like, you know, basically the last 60 days as compared to the period of 2024 up to that point and the trailing three-year period. That's effectively like our ARPU, right? I mean, it is effectively ARPU. Yeah, I think that to us is the best signal right now that the things we're doing are leading us in the direction that we wanted to, where, you know, if having average net revenue, I'm sure you've covered lots of companies, like having an ARPU increase by like 50% at historical levels is a pretty big achievement. And then the same thing when you compare to a trailing three-year basis. So I think this is more where we're trying to push the dialogue because that's really what counts. Like our ability to prove that we are engaging VIP players better, which just means people that are depositing more and playing more. Our ability to build product that is centered around high value players, specifically like a crypto native audience, like that will manifest and represent itself in like the aggregate, call it, ARPU of the company going up. So yeah, we've seen, you know, like our internal kind of BI system it's like a hockey stick looking chart basically, right? So, to a degree we've never had in our history by far and obviously hence kind of hit these historical levels on those figures. So, what that means is like we need far few players to generate the revenue that we're looking for and then obviously when you Combine that with an operating expense base that is down significantly, this is just going to create way more leverage and torque for us. We need way fewer players because we're generating way more revenue per player now, and we're seeing that continue to go up. And then the overall call it OPEX base that needs to be crossed to deliver profitability is half of what it was even in the third quarter, let alone if you compare it to, let's say, Q1 this year or sometime last year, it's probably down 60%, 65%, right? So these things are all playing to our advantage right now, and we're seeing exactly like the KPIs that we would want to see from the strategy shift that we started, you know, four or five, six months ago.

Okay, great. And then, you know, maybe just kind of a touch on kind of the last question, just on the handle, handle trends, sportsbook, gaming. Gaming's kind of stabilized, it looks like, for the most part. Sportsbook's also somewhat stabilizing, it looks like, as well. Do you have an idea of just Can you just touch on those two handle dynamics and where you see them kind of trending and is, you know, the third quarter seasonality wise, just all these elements just to help give them.

Yeah, we both will grow. That's kind of what we're moving back to now. And now that we've, we've completely, yeah. Reset the entire foundation of the company basically the last four months. But as a percentage of the total, my expectation is, casino will continue to grow as a percentage of the total. I think what we've seen, and we put that in the script a little bit, is crypto depositing players have a much higher propensity to be casino players than sports bettors currently. This is kind of a trend we see elsewhere, to be honest. It's not this rivalry. If you look at other operators, it would be similar. So I think we obviously want the total pie to grow, fully anticipate it will. And then as a percentage of that overall pie, Our expectation is, seasonality or not, is that casino will continue to be a majority share and probably like a rising majority share. That trend, which is what we've been seeing the last, let's say, two to three quarters, is what we expect we'll continue to see going forward right now.

Okay, great. I think that's it for me. I appreciate the update. Thank you. All right. Thank you.

Thank you. There are no further questions at this time. I will now hand the call back to Mr. Zolf for any closing remarks.

Thanks, Operator, and thank you, everyone, for joining us for this third quarter of calls. And as always, shoot us an email. I'm happy to continue the discussion offline. Thanks, everyone.

Thank you. And that concludes our conference for today. Thank you all for participating. You may now disconnect.