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May 24, 2024

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The Report Card: The FansUnite (FANS.C) financial rebuild gets a solid B+

FansUnite Entertainment Inc (FANS.C) faced down the torpedoes of 2023 down while its deck was burning and all around it was imploding.

After a brief period of the rising tide of sports betting lifting all boats, the skies darkened quickly and CEO Scott Burton had to change course wit sirens blaring all around him.

THE PROBLEM:

Sports betting, while obviously a growing industry, was quickly dominated a few years back by suspectly financed mega-players out of Eastern Europe. At the same time, the much vaunted liberlization of US state betting laws was slow and unpredictable, and margins were quickly squeezed as the better-financed few got comfy losing money on every bet if it meant growing market share.

For a smallcap betting industry pubco like FansUnite, the future path was clear… adapt or die.

SCOTT BURTON CHOSE ‘ADAPT’:

Instead of fighting the big dogs at the bowl, Burton shifted to a new model SERVING those big dogs in return for a small piece of their incoming business. By not competing with but instead helping to grow the big players, they got out of the way of any blast zone and began generating revenue.

Today, FansUnite posted financials that were less about charging on to the destinationregardless of the heavy winds, and more about changing course safely and, ultimately, surviving long enough to kick on.

Yep, FANS lost $16.6 million in 2023. That’s the damage from the storm. But they’re also still floating, and picking up steam, having backed up and gone around it.

FANS made positive changes in 2023 that, now, have opened the way to better things going forward.

FANSUNITE REPORT CARD:

FansUnite Entertainment Inc. has shown a significant financial turnaround in its fiscal year 2023, demonstrating resilience and strategic acumen in a competitive sports entertainment and gaming industry. This report provides an analysis of the company’s financial performance, highlighting key achievements, strategic decisions, and their implications for investors. With a focus on revenue growth, cost-saving measures, and strategic asset reallocation, FansUnite appears poised for sustained growth and improved financial health in 2024.

1. Financial Performance Overview

1.1 Fiscal Year 2023 Highlights:

  • Revenue Growth: FansUnite reported a modest total revenue increase of approximately 3% year-over-year, reaching $23.72 million in fiscal 2023. This growth, though admittedly modest, is partly due to a management decision to scythe non-core assets, keep costs down, and be less exposed to the ups and downs of market dynamics.
  • Gross Margin Improvement: A notable improvement in gross margin to 63% ($14.88 million) from 56% ($12.83 million) in fiscal 2022 highlights efficient cost management and improved operational efficiency.
  • Debt Repayment: The company successfully repaid $5.51 million of bank indebtedness, improving its balance sheet and reducing financial leverage, which doesn’t generate headlines but is just plain good financial shepherding.
  • Brand Performance: The direct digital activation brand, Props.com, showcased exceptional growth, contributing $237k to revenue, a 402% increase from the previous year. Hey, we’re not going to do backflips on that just yet, but pulling away from assets that take away from the bottom line and hitting breakeven on others is good news.

1.2 Fourth Quarter Fiscal 2023 Highlights:

The annual loss is inflated by things the company wrote off and seld off in previous quarters, but the 4th quarter performance is a good barometer to see where things are sailing now.

  • Quarterly Revenue Increase: There was an 18% increase in quarterly revenue compared to the same period last year, totaling $6.54 million.
  • Gross Margin: The gross margin slightly decreased to 60% in the fourth quarter from 62% in the corresponding period of the previous year, indicating minor fluctuations in cost or sales mix. All told, a wash. But in a turnaround program, I’ll take that as stability.

2. Strategic Initiatives and Operational Highlights

2.1 Asset Reallocation and Cost Savings:

  • FansUnite undertook significant strategic steps including the sale of BetPrep, McBookie, and the Chameleon source code to Betr Holdings. These asset sales were aimed at streamlining operations and focusing on core competencies, leading to anticipated annualized cost savings of approximately $7.8 million, with a few more million in the bag in return for the assets. Translated: There were some gangrenous limbs but, while it’s a shame to see them go, they’re not a problem anymore.

2.2 Capital Generation and Debt Management:

  • A non-brokered private placement was successfully closed, raising $3.04 million. This not only provided the company with essential capital but also played a critical role in debt repayment and operational funding.

2.3 Industry Recognition:

  • FansUnite and its subsidiaries, especially Betting Hero, received nominations in six categories at the 2023 EGR North America Awards, underscoring the company’s industry standing and operational excellence. This is key, because nobody knows your company like the guys trying to beat your company, and those guys appear to think FANS is serious.

3. Growth Outlook and Investor Implications for 2024

3.1 Strategic Focus:

  • In the financials, FansUnite’s CEO Scott Burton highlighted the company’s transition towards generating strong, sustainable margins and cash flow, indicating a strategic pivot to leveraging its affiliate business and focusing on high-margin opportunities. Translated: Finance is hard to come by, so we’re grinding our way to good things. Can respect that.

3.2 Future Expectations:

  • With over $7.8 million in annualized cost savings and a shift towards a more focused operational model, FansUnite is expected to witness improved financial performance in 2024. Investors can anticipate continued growth, better margins, and a stronger balance sheet as the company builds off its current momentum. What this period won’t be is a bonanza cash explosion, but rather a steady continuation of the stable management focus that’s synonymous with the last 18 months.
  • If the market turns upward and financing becomes easier to attain, perhaps you’d see FANS going after opportunities in the merger and acquisition side of things, but if there’s one thing this company has shown itself to be recently, much to its benefit, it’s risk averse.

3.3 Investment Considerations:

  • Investors should monitor FansUnite’s progress in leveraging its strategic asset sales and cost-saving measures. The company’s ability to capitalize on its affiliate business, coupled with industry recognition, positions it favorably for sustained growth and profitability.

Conclusion: FansUnite Entertainment Inc. has demonstrated strategic foresight and operational efficiency in navigating the challenges and opportunities of fiscal 2023. With its focus on cost savings, strategic asset allocation, and leveraging its core affiliate business, the company is well-positioned for continued success in 2024. Investors should remain attentive to the company’s execution of its strategic plans, which are expected to drive further financial improvements and value creation.

THE LETTER GRADE: B+

While the company has made considerable progress in turning around its financials and positioning itself for future growth, the relatively modest year-over-year revenue increase suggests there is still room for improvement in accelerating top-line growth. The B+ grade reflects FansUnite’s strong efforts and significant achievements in improving its financial health and operational efficiency, balanced with the understanding that continued focus on growth acceleration and leveraging its strategic positions will be key to achieving even higher levels of success.

— Chris Parry

FULL DISCLOSURE: FANS is a former client and I do own a smalll holding in the company, based on my belief that it’s undervalued and in good hands. No commercial arrangement.

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