Super Group Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 17, 2023

There are 8 speakers on the call.

Operator

Good morning, and welcome to Supergroup's Second Quarter of 2023 Earnings Conference Call. All participants will be in listen only mode. Following management's prepared remarks, We will open the call for Q and A. Please note this event is being recorded. I would now like to turn the call over to Lisa Kemp, Vice President of Investor Relations, please go ahead.

Speaker 1

Good morning, everyone, and thank you for joining us today to discuss Supergroup's results for the Q2 of 2023. During this call, we may make comments of a forward looking nature that are subject to risks, Uncertainties and other factors discussed further in our SEC filings that could cause our actual results to differ materially from our historical results or from our forecast. We assume no responsibility to update forward looking statements other than as required by law. On today's call, we may refer to certain non GAAP financial measures. These non GAAP financial measures are in addition to and a substitute for Measures of financial performance prepared in accordance with GAAP.

Speaker 1

We have provided a reconciliation of the non GAAP financial measures to the most Comparable GAAP figures in the press release issued earlier today and available on the Investor Relations page of Supergroup's website. In addition, we will speak to our financial results and metrics for Q2 2023 in 2 parts, highlighting our profitable and cash generative global business separately from our investment into the U. S. This aligns with the annual guidance we have provided for 2023 and is consistent with both how we view our business internally and how we report going forward. We recommend that investors refer to our supplementary presentation posted to our website.

Speaker 1

On this call, I am joined by Neil Manasche, Chief Executive Officer and Olinda Van Wyck, Chief Financial Officer. During the Q and A session, we will also be joined by Richard Hudson, President and Chief Operating Officer. And now I would like to turn the call over

Speaker 2

to Neil. Thank you, Lisa. Good morning, everyone, and thank you for joining us. Today, we are delighted to report a strong set of Financial results for quarter 2, 2023. Total revenue for the quarter ex U.

Speaker 2

S. Was €374,000,000 an increase of 16% year on year. Ex U. S. Operational EBITDA grew even more strongly to 80 €3,000,000 a 54% increase year on year.

Speaker 2

Separately for the U. S, our net EBITDA investment for the quarter was €13,000,000 We experienced continued growth of our customer base with strong momentum continuing on from where quarter 1 left off. April was really good with a new monthly record of 3,900,000 active customers in the month. For the quarter, we achieved a new record of 3,700,000 average active customers per month compared to 2,700,000 in the prior year quarter, a 40% increase. Our strategy of investing into markets where we see the greatest returns is reflected in our strong quarterly results.

Speaker 2

We achieved EBITDA margins of at least 20% in 3 of the last 4 months up to June with the EBITDA margin for the 2nd quarter averaging a solid 22%. Our quarterly results further demonstrate the market by market economies of scale that we are achieving. I want to reiterate that operating leverage is at the core of our business model, which when combined with additional cost synergies It's ultimately the key to sustaining an EBITDA margin of greater than 20% over the longer term. As a business, We remain committed to investing for the long term. Central to this strategy is our marketing spend, which was 22% of net revenue

Speaker 3

for the

Speaker 2

quarter. While this is slightly lower than last quarter, it does not reflect any change in our marketing strategy, but rather some specific market factors in the quarter that we do not expect to prevent us from achieving our target level of investment for the full year. In recent weeks, we further strengthened our ready impressive brand partnership portfolio, becoming the official partner of U. S. Major League Cricket And also the official betting partner of Toronto's National Bank Open.

Speaker 2

These partnerships will further expand Betway's international cricket and tennis audience and enhance Global Brand Recognition. Now turning to some of our key markets. Africa continues to be a strong performer, new records for customer numbers, net revenue and EBITDA despite some adverse currency fluctuations during the quarter. We continue to refine our proprietary technology platform by also increasing brand awareness through a combination of global and localized marketing efforts, an approach that continues to generate impressive results. In Europe, we saw a continuum momentum driven largely by the U.

Speaker 2

K. And Spain. In the U. K, casino benefited from the inclusion of Jumpman Gaming, We also saw strength in the sports product, an encouraging sign following the recent regulatory pressures faced in this market. Canada remains an important region for us.

Speaker 2

Canada ex Ontario performed well with year over year growth despite adverse movement of the Canadian dollar against the euro last year. In Ontario, we remain encouraged and despite tough comparators This quarter, our performance is tracking well and is in line with our expectations. Moving to the U. S, we're now live in 9 With Louisiana having gone live earlier this month. Our priority remains migrating all states onto The Bedway Global Technology before we begin ramping up marketing spend.

Speaker 2

Optimizing the tech in order of this stage is a big undertaking and And we know that it will take time and investment. But this is something that we have done successfully for the last 2 decades and we remain confident with our approach. Looking at our balance sheet, we continue to show a strong cash position with €229,000,000 of unrestricted cash and no debt. Our priorities for using our cash remain unchanged from what we have discussed in previous earnings calls. To that end, we're pleased to announce that earlier this month, Supergroup bought a majority stake in SportsCC, a data enabled provider of sports media content.

Speaker 2

We believe that this acquisition will be a great help in driving improvement in our sporting content and will ultimately serve as a strong customer acquisition tool. On the same front, we're making good progress in our discussions with our sports software provider, Apricot, and are advancing towards completion of the acquisition of a dedicated sports book from them. I will now turn the call to Linda to discuss the financial results in greater detail.

Speaker 4

Thank you, Neil. I will now take you through our financial results for the quarter, where we have materially exceeded our performance compared to last year and the Q1 of 2023. Excluding U. S. Results, total revenue for the quarter was an all time record Of €374,000,000 net revenue, which doesn't include brand license fees, Strengthened to €364,000,000 a 15% increase from last year.

Speaker 4

Looking at our results by segment. Sportsbook revenue increased by €33,000,000 in the 2nd quarter, growing 30%, While casino net revenue increased by €15,000,000 or 7%. Net revenue growth in both European markets led by the U. K. And Spain, an increase in revenue in Canada outside of Ontario, And this growth was partially offset by a decline in APAC regions, lower revenue in Ontario due to the ongoing transition to regulated market and The devaluation of certain currencies against the euro.

Speaker 4

Moving on to customers. We saw growth in both the sportsbook and the casino segments, driven largely by consistent investment in new acquisition and strong retention strategies. Customer numbers increased by 40% year on year for the sports book and 59% for casino. Despite the quieter seasonal sporting calendar, customers remained active and we experienced Positive momentum from continued improvement in our overall customer experience, thanks to ongoing rollouts of new gaming content and further enhancements to our gaming platforms. Looking at the bottom line for the quarter.

Speaker 4

We achieved operational EBITDA €83,000,000 for the ex U. S. Business. This is an increase of 54% year on year. EBITDA margin came in strong for the quarter at 22%.

Speaker 4

As Neil alluded to earlier, we remain laser focused on overall margin improvement from a combination of the inherent operating leverage in our business and the rationalization of our cost base. But this will not come at the cost of reduced investment into areas which drive long term growth. Now looking at our cost base. For the quarter, marketing as a percentage of net revenue was 22%. This ratio is not a reflection of our current run rate in marketing spend and was lower compared to quarter 1, 2023, Due to a quieter sporting schedule, which resulted in a lower spend along with strong revenue growth.

Speaker 4

We continue to work diligently in where we can best invest our marketing spend for the highest return on investment and long term growth and expect this ratio to be normalized over the full year. Turning to operating costs. The expected synergies that we outlined in our guidance assumptions are now starting to come through. We appreciate that this may not be 100% clear in the quarterly results as we now have Jumpman Gaming consolidated into our numbers. And more importantly, we continue to invest in our key growth markets.

Speaker 4

Nevertheless, I'm very happy with the progress that we have made, and we remain on track to realize our expected 2023 operating cost savings. With reference to our guidance for our ex U. S. Business, We had a strong start to the year, generating year to date total revenue of €705,000,000 We feel comfortable reaffirming our outlook for 2023's total revenue of €1,350,000,000 Taking into consideration the volatility of the sports book margins and the currency fluctuations in some of our key markets. Moving on to operational EBITDA ex U.

Speaker 4

S. We have generated €134,000,000 during the 1st 6 months of this year. This gives us confidence in our ability to exceed our previously stated guidance of €220,000,000 So we are raising our expectations for operational EBITDA ex U. S. To at least €240,000,000 implying an EBITDA margin for the year of around 18%.

Speaker 4

For the remainder of the year, We anticipate continued year on year revenue growth in line with our projections and the realization of cost efficiencies without any fundamental Station, in our overall performance, our projected EBITDA guidance account for incremental marketing spend expected during the second half of the year, making up for the lower spend this quarter. In the U. S, our EBITDA investment to date now totals €29,000,000 And we remain on track for the net EBITDA investment of €70,000,000 for the year. Finally, our balance sheet remains strong, And our ex U. S.

Speaker 4

Business continues to generate a healthy level of cash. As discussed in our last quarterly quarter's call, We used restricted cash of €138,000,000 to pay off DGC's equivalent value debt this quarter. As for June Messettias, Super Group is again debt free, and we concluded the quarter with an unrestricted cash balance of €229,000,000 To conclude, here are my thoughts on the quarter. We set multiple new records, including our highest ever total revenue in a quarter. Our customer numbers are stronger than ever and will be a key driver of future growth in our business.

Speaker 4

We are not slowing down when it comes to investing for the long term and achieving scales in each of our markets and realizing cost efficiencies remains a key focus as we continue our journey in getting back to a consistent EBITDA margin of greater than 20%. I will now turn the call back to Neil.

Speaker 2

Thanks, Alinda. Super Group has delivered an Standing quarter demonstrating the benefits of our business model. Revenue growth, combined with operating leverage and continued focus on cost, Delivered an EBITDA margin of 22%. This was a quarter to be proud of and we're happy to say our positive momentum continues With July closing ahead of the previous year, we are excited about our performance for the quarter and our prospects for the remainder of the year. We've raised operational EBITDA guidance and are committed to delivering long term growth for our shareholders.

Speaker 2

I'll now turn the call over to the operator to open the

Operator

The first question comes from Bernie MacTiernan with Needham and Company. Please go ahead.

Speaker 5

Great. Maybe just to start in the U. S, I'd love just to hear some of the success that you're seeing in acquiring Players and what types of players, if any states are doing better, just any kind of early indication that you can provide in terms of how the U. S. Opportunity is flying out on the top line?

Speaker 3

Hey, Bernie. Richard here. So just on the U. S, I think as you know, we are currently live in 9 states there. 4 of the states on the Betway Global Technology and other 5, we have the plan in place for that migration.

Speaker 3

High level without going into state by state detail, we are seeing some very encouraging numbers on the new technology. And the plan there is, like I say, once we have all the technology in place to begin ramping up the marketing across those states.

Speaker 5

Understood. Okay. And so maybe on that point, you mentioned good progress in discussion with Apricot. But these discussions have been going on for a while. So any like major sticking points or time frames we should be thinking about a potential deal

Speaker 2

No, we're hoping by the quarter 3, by quarter 4, beginning of quarter 4, we are all done. It is quite complicated with the IP and everything is to make sure that everything is in place, but it's on track and it's been a big process to do, but we are getting there and we are very excited as well to bring them to have to own the IP of this technology.

Speaker 5

Great. And maybe just lastly for me, any additional information you can provide on sport. Cc and why you think it could be helpful in customer acquisition?

Speaker 3

Sure. So, it's a business which we've known for a long time. It's effectively A business that's going to help us enhance our content, our sporting content specifically, it's not In any way, a change in strategy of obviously what we're doing, but just another way of how we can look to improve the customer experience and the customer offering.

Speaker 5

Got it. Thank you both.

Operator

The next question comes from Michael Graham with Canaccord. Please go ahead.

Speaker 6

Hey, good morning. Could you just talk a little bit about What markets are driving the biggest user growth? I know you just talked about the U. S, but is there anything you have done differently over recent quarters that You think you can attribute the acceleration of user growth to? And then, I just wanted to ask for a little more color around the decision to Leave the revenue guidance unchanged, but raise the profitability outlook and maybe just highlight what went into that decision.

Speaker 2

Okay. So I'll talk about the countries. Effectively, North America, remember, it's the ex U. S. Business.

Speaker 2

North America is predominantly Canada, right, and that we've seen material growth. And that I would say, even after The devaluation of the Canadian dollar to the euro compared to a year ago. In Ontario, we're in line with our expectations. That's going well. And as we said Africa seeing good user growth across with all record numbers, Europe as well, especially Spain and the UK.

Speaker 2

Germany is still a bit difficult only because of the transition to the new regulatory regime there and all the controls and systems you have to put in place. And we still do not have casino offering in Germany. And Netherlands, we are still waiting on our license application there. So for us, It's across the world we're seeing stuff. Our biggest impact, which Alinda can then come to with the revenue, is just the currency movement.

Speaker 2

So we have to bear that in mind because on constant currency, these markets are doing really well.

Speaker 4

Thanks, Michael. Just to reiterate what Neil just said. So our operational EBITDA, we definitely see the impact of the Improved operating leverage coming dropping straight to the bottom line, and that's why we feel comfortable to raise that guidance. But like Neil alluded to, on the revenue side, we're just a bit more conservative due to mainly two reasons. The currency effect, We are growing in countries that does see this effect, as well as, the later part of the year.

Speaker 4

We obviously are back On the sporting calendars, we've got sporting events, and we just make sure that we take into consideration the volatility of the sports book margins. And that's why we're not raising the revenue guidance.

Speaker 6

Okay, perfect. Thanks a lot.

Operator

The next question comes from Jed Kelly with Oppenheimer. Please go ahead.

Speaker 7

Hey, great. Thanks for taking my question. Just looking at your North America revenue, particularly in iGaming, it increased sequentially. So can you just talk about some of the stabilized trends you're seeing in that area? And then just circling back to the U.

Speaker 7

S, I know you get this question all the time, but Given

Operator

some of

Speaker 7

the recent competitive dynamics that's going on in another larger player entering the space or a larger brand, Can you just talk about how you're thinking about that market strategically? And have any of your profitability targets that you gave out at the beginning of the year, Have they changed? Thank you.

Speaker 2

Okay. So I'll do the North America. So I think across the globe, not only North America, We have been focusing on our casino by gaming offerings and the promotions around that and all The targeted marketing digital campaigns we're doing and our retention techniques in those markets and I see we are bearing fruit there. I mean, the fruits would have been even better if they had enough devaluation of these currencies. So we're excited about that.

Speaker 2

We've got obviously our Jackpot City Casino, which is our major brand and that's being launched across the globe as well. So we're seeing big economies there, same way we've got the One Ventway brand, we've also got that. And we're just working. As I said, this business is all about step by step. It's customer by customer and we keep enhancing and that's why the investments in tech Everything goes towards this total ecosystem, whether it's a sports customer or I mean a sports customer or an iGaming customer.

Speaker 2

So we've been really been working a lot on that to get that right.

Speaker 3

Hey, Jed. So just touching on the U. S. Then, Yes. Note your points about another operator entering the market.

Speaker 3

And for us, it doesn't really affect our strategy. Yes, that remains the same for us. It's a big market. It's obviously a competitive market, but competition is what we see all over the world. And for us, it remains a very attractive opportunity applying that same toolkit as we have to the rest of the world applying that on a state by state basis to the U.

Speaker 3

S. And like anywhere else, while we have a multiyear plan, It's not necessarily a multiyear commitment right now, and we'll continue assessing everything on a ROI driven basis as we progress On a day by day basis.

Speaker 2

Yes. And then I can just add something that having a casino with the casino within our sports book is also resonating And adding to the attractiveness of our offerings across the globe as well. So all of that together is coming is working well and we're pushing at On all these offerings across all the countries that we operate in and in taking that into the U. S. Is obviously a key part of our strategy.

Speaker 2

Thank

Speaker 7

you. And just a follow-up, just on the back half revenue guidance, just around the conservatism, is that being driven more by Sort of some the FX are comping last year's World Cup. Can you just touch on some of the critical factors around the concern of Tack half relative to the 2Q growth? Thank you.

Speaker 4

Yes. Thanks. It might be On the back of the there is some relevance of the sporting calendar towards the end of last year. And then remember, In quarter 1, in February, we had this worst sports margins ever, unprecedented, we've never seen before. So I think based on just The risk around that, but Jade, I don't think you understand it because we've got so much currencies involved In our offering across the world, this multinational company, especially currencies out of Africa, some North America regions.

Speaker 4

But it really had an impact this year on our growth. So if you track these countries On the local currencies, the growth has been exceptional, even more than what we're seeing. But when you then I have to obviously In euros, which is our reporting currency, we do see the impact and we just want to make sure we feel comfortable around that with our guidance.

Speaker 7

Right. And then are you just exposed to any of the some of the geopolitical risks coming out of Africa recently? That's my final question.

Speaker 2

Yes. Listen, our view is we in lots of countries across Africa, lots of countries in Europe, so that's The business, right? So we've always been at. So we've got new countries, etcetera. So it's no different.

Speaker 2

Europe is the same.

Speaker 7

So that's

Speaker 2

the business model is to be efficient in as many of these

Operator

Thank you, ladies and gentlemen. This concludes our question and answer session and thus

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Super Group Q2 2023
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