Sportradar Group AG

Q1 2024 Earnings Conference Call

5/15/2024

spk06: Good day and welcome to the Sport Radar first quarter 2024 earnings conference call. At this time, all participants are in listen-only mode. After this speaker's presentation, there will be a question and answer session. To ask a question, please press star 1-1. As a reminder, this call may be recorded. I would like to turn the call over to Jim Bombasi, head of investor relations. Please go ahead.
spk02: Thank you, Operator. Hello, everyone, and thank you for joining us for Sport Radar's earnings call for the first quarter of 2024. Please note that the slides we will reference during this presentation can be accessed via the webcast on our website at investors.sportradar.com and will be posted on our website at the conclusion of this call. A replay of today's call will also be available on our website. After our prepared remarks, we will open the call to questions from analysts and investors. In the interest of time, please limit yourself to one question and one follow up. Please note that some of the information you will hear during our discussion today will consist of forward looking statements, including without limitation, those regarding revenue and future business outlook. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast. For more information, please refer to the risk factors discussed in our annual report on Form 20F and Form 6K filed today with the SEC, along with the associated earnings release. We assume no obligation to update any forward-looking statements or information which speaks as of their respective dates. Also during today's call, we will present both IFRS and non-IFRS financial measures. Additional disclosures regarding these non-IFRS measures including a reconciliation of IFRS to non-IFRS measures, are included in the earnings relief supplemental slides and our filings with the SEC, each of which is posted to our investor relations website. Joining me today are Carsten Curl, our Chief Executive Officer, and Jared Griffin, Chief Financial Officer. Now I'll turn the call over to Carsten.
spk11: Good morning and good afternoon to everyone. We are excited to be speaking to you today about the momentum we are seeing across our business and our strong start to the year. There are a number of key takeaways I want to highlight from the quarter and for the year ahead. First, we delivered strong top-line growth with revenues up 28% as we saw strength across our business and benefited from the uptake of our MBA and ATP content and solutions and the strong execution of our team. Second, We continue to be laser-focused on driving efficiencies in our organization and delivered 18% adjusted EBITDA margins, which were ahead of our estimation. Third, we are raising our guidance, giving this strong performance and our confidence in the year ahead. We now expect to grow full year revenue in adjusted EBITDA by at least 21%. Fourth, We recently named key additions to our leadership team, naming a new CFO and a chief technology and AI officer. And fifth, we are commencing our share repurchase program in the upcoming trading window. This action is supported by our confidence in our outlook and the strong value we see in our stock. The success we are seeing is underpinned by our competitive advantages. PodRater is a global technology leader with a differentiated and commanding position in the sports ecosystem. No other company matches our scale, reach our resources, bring together over 800 batting operators, 400 sport leagues, and 900 media partners, covering nearly a million sport matches every year. The breadth and depth of our content data and leading technology provides us unmatched insights into the diverse portfolio of sport and batter's preferences, enabling us to create innovative solutions for our clients and engaging and personalized experience for the sport fans worldwide. Our confidence in the year ahead is backed by our consistent track record, having achieved profitable revenue growth of at least 20% for each of the last three years, as well as being cash generative, we believe there are no other companies in our peer group, public or private, that have achieved this. Now let's turn to our quarter one results. We saw strong results on both the top and bottom line, as we grew revenue 28% year over year to 266 million euros. and adjusted EBITDA 29% to 47 million euros. This marks a great start to the year. Before I get into the details of the results, I wanted to note that this quarter we simplified our financial reporting approach. To align with the recent changes to our organization and to address feedback we have received to present our financials in a simpler way, and that aligns with our business fundamentals. And now to our revenue. Patent technology and solution revenue were up 35%, and sports content technology solutions revenue were up 5%. From a geographic mix, rest of the world revenues were up 90% year over year, while U.S. revenues were up 65% year over year. we saw the tangible and significant benefits from our ATP and MDA partnerships, which are amplifying our revenue growth, helping drive pricing and customer uptake of additional services. The fact customers' uptake on ATP content and solutions is running above our fence, and we have already seen more than 50% of ATP clients signing up for our four audiovisual products. A number are also taking our latest innovations, like sport radio four-star streaming, reinforcing the premium nature of this content. Given this performance, we have raised our full year's outlook for revenue and adjusted EBITDA growth to at least 21%. Underscoring these excellent results, We will be putting our $200 million share repurchase program to work during the upcoming trading window. Now turning to some of the operational highlights in the quarter and more recently. We are very pleased to have recently announced a new long-term partnership with UTR Sports for the UTR Pro Tennis Tour, the top tennis tour for racing professionals. Harnessing our industry-leading AI and computer vision technology, we will create new analyzers and insights in each match, helping to drive fan engagement and expanding in-play opportunities. Tennis is the second most set on sports, and UTR provides sport radar with a consistent volume of tennis matches throughout the year. complementing our tennis portfolio and reinforcing our selective approach to expand our sport. We saw continued momentum in our core products in the quarter, like our managed trading services. Our MTF solution, which offers sophisticated trading risk and liability management for sportsbooks, continues to be a leader in the marketplace. Turnover grew 28% year over year to approximately $9 billion this quarter, ranking us as a top bookmaker globally based on liquidity. In our ad business, we deliver personalized digital advertising at scale that drives customer acquisition for our online betting and casino plans. We work with over 150 brands across multiple digital media channels, including programmatic and paid socials. With over 10 billion ad impressions delivered in the first quarter alone, we rank as one of the top advertisers in the online betting and casino space. Key to our success is our ability to transform the deep data and rich insights from our portfolio of brands, enabling us to develop new and enhanced products and create a more immersive betting experience and stimulate in-play. One of the exciting products we recently launched is AlphaOps, a game-changing offering which builds on our market-leading for op solutions by generating ops tailored for individual sportbooks based on their real-time liquidity and deep data. It has proven to generate a higher margin for sportbooks on their betting tickets. In fact, for the recently concluded UEFA European Championship, championship qualifying match, it increased profits by an average of 15%. While we initially launched Alpha Odds in soccer, it is now live in tennis and seeing promising results. And we will soon be introducing it to basketball. By quarter one 2025, we plan to release it in three more sports, bringing total coverage for our turnover to approximately 90%. We are leading when it comes to innovation and product development, and this is fueling our growth, in fact. Sport Radar made Fast Company's 2024 list of most innovative companies in sport for our leading computer vision technology and enhanced table tennis solutions. Our leadership and team are the drivers for this success. And they have an unwavering commitment and dedication to making Sportradar one of the most exciting places to be in the sport industry. On this front, we recently welcomed two talented executives on the leadership team. I'm delighted to welcome Greg Feilenstein as our Chief Financial Officer and Bijaz Bijadi as our Chief Technology Officer. and Chief AI Officer. Greg is a seasoned finance executive and has over 30 years of experience working in finance on US publicly listed companies, such as Discovery, News Corp, and Viacom. He joins us from Lindblad's exhibitions, where he was CFO for approximately seven years. Greg will be coming on board starting June 1st, and I'm looking forward to partnering with him as we look to continue to drive our business momentum, operational leverage, and shareholder value. Bejas joined us from Google, where he played a key role in developing Google's AI strategy and commercializing some of its most recognized products, including Google Assistant, Google Land, and NextGen AI Assistant. I'm very excited to have him sitting in Switzerland headquarters with me. His dual job title reflects the importance we place in the development of our AI capabilities and the role which he is having in shaping it. You will be hearing more about this in the coming quarters, but I believe his impact will be transformational for our company. These additions complement an executive team that is an already highly talented, passionate, and driven to win. I have great confidence in our team's ability to continue to drive our business forward in the years ahead. I also want to take this moment to thank Juror for his contributions and leadership. He brought meaningful strengths in our financial organization and it's leaving us with a strong team and foundation. I know I speak for the entire organization when I say it has been a great pleasure working with Chair, and we wish him the best of luck in his future endeavors. Now touching on our key priorities. Our leadership team is focused on driving shareholder value through the execution of our growth strategy, where the fundamental pillars are centered around content, data, and technology. By exploring the full depth and breadth of our content data-wise and technology portfolio, we are investing in exciting new products that will deliver future value for our clients and enhancing our growth in the coming years. By using our advanced technology and AI capabilities, we are enhancing our core products across ops making, trading, and marketing services. This, in turn, will help drive fan engagement and operators' monetization. The strategy beyond the immediate priorities is taking shape, with a key step being the recruitment of a technology leader with data skills and experience. As a technologist, this truly excites me. I look forward to sharing more about our plans around AI and our exciting future in the coming quarters. To wrap up, this is the year of execution and we are delivering on our core commitments for 2024 by positioning ourselves for continued growth in the exciting year to come. It was an excellent quarter and we are well positioned to continue to deliver strongly in the year ahead. Our financial performance was underpinned by the depth and scale of our business fundamentals. The strategic investments we are making for the future and our leadership team laser-sharp focus on execution and driving efficiency. All of these factors are enabling us to continue to lead the industry with our growth strategy and unwavering focus on client and shareholder value. I'm extremely optimistic about Sport Radar's outlook and long-term future. And now, I will turn it over to Jeho.
spk12: Thank you, Karsten, for your kind words. It has been a pleasure to work with you and the great team at Sport Radar. I would also like to welcome Craig and Bashad to the leadership team. I remain a big fan of the company and wish you all the best in the exciting broad years ahead. With respect to 2024, We are very happy with our positive start this quarter, where we delivered strong growth top and bottom. Our business fundamentals continue to be strong, and we are well positioned for continued growth and success in 2024, where we are raising our full-year outlook. Before I get into the detail of our Q1 performance and our improved outlook for 2024, I want to briefly comment on the changes we've made to our financial reporting. While there is no change to our core financial statements, we will now report and discuss our financial performance on a consolidated basis, supported by supplemental revenue analysis, by major product grouping, and by a major geographic region. This reporting approach is more in line with our streamlined global organizational structure and how we manage our business. We have posted to our investor relations section of our website an overview of these changes. With that, let's discuss our Q1 financial performance. Our Q1 financial results reinforce the durability and the scalability of our growth profile, as well as our focus on profitability. Revenue was €266 million, up €58 million, or 28% year-over-year. We had a net loss in the quarter of €1 million versus a profit of €7 million in the prior year quarter. Adjusted EBITDA was 47 million euros, up 11 million or 29% year-over-year. Adjusted EBITDA margin was 18% in line with the prior year. Net cash from operating activities was 67 million, up 10 million or 17% year-over-year. Our strong revenue growth was driven primarily by the recurring client revenue streams, leveraging our best-in-class products and content portfolio, amplified this year by the incremental contributions from our ATP and MBA partnership deals. Betting technology and solutions represented 82% of our total revenues and delivered $219 million, up $56 million, or 35% year-over-year. This was driven primarily by streaming and betting engagement of 26 million or 46% year-over-year, live data and odds of 19 million or 29% year-over-year, and managed betting services of 12 million or 32% year-over-year. Forks content technology and services represented 18% of total revenues. and delivered 47 million, up 2 million, or 5% year-over-year, driven primarily by marketing and media services, which grew 6%. On a geographic basis, our rest-of-world client base represented 75% of total revenues and delivered 200 million, up 33 million, or 19% year-over-year. Our U.S. client base represented 25% of total revenues and delivered 66 million, up 26 million, or 65% year-over-year. We generated a loss in the quarter of 1 million euros, compared to a profit of 7 million in the prior year quarter. The year-over-year change was primarily driven by higher finance costs and foreign currency losses, which collectively accounted for 24 million of the year-over-year change. This was partially offset by a $7 million lower stock-based compensation expense and an $11 million improvement in adjusted EBITDA. Looking at our adjusted EBITDA, it was $47 million, up $11 million or 29% year-over-year. Adjusted EBITDA margins were 18% in line with the prior year. While our adjusted EBITDA margins were flat year-on-year, the strategic actions we've taken to date, as well as the continued focus on sustainable profitability in 24, delivered a 10 percentage point improvement in operating leverage collectively in personnel, cost of sales, and other operating costs. This helped to offset the impact on operating leverage resulting from the one-time step-up in sports rights costs, primarily for the first year of the MBA and ATP partnership deals. Personal expenses were 80 million of 3 million or 3% year-over-year as we benefited from the cost actions announced last year and our focus on delivering improved operating leverage. Other operating expenses were 21 million broadly flat year-over-year as they also benefited from the cost actions announced last year and our focus on delivering improved operating leverage. Sports rights were 91 million of 40 million or 78% year-over-year Driven by new rights, in particular, our ATP and MBA partnership deals. This increase was in line with our expectations. We continue to maintain a strong balance sheet, close to the quarter with liquidity of $495 million, comprised of $275 million in cash and cash equivalents, and a $220 million revolving credit facility with no amounts outstanding. On cash flow, we expect to see stronger cash generation over the remaining quarters of this year and are on track to achieve robust cash flow generation for the full year. With our strong business fundamentals and our confidence in the long-term profitability and cash flow outlook for the company, we feel our stock is very attractive at current valuation levels. Accordingly, we expect to commence purchases under our previously announced US dollar 200 million share buyback program in the upcoming trading window. In summary, we delivered a strong Q1 financial performance, including record revenues, as well as a strong adjusted EBITDA, as we continue to be laser focused on improving operating leverage and profitability. With that, let's turn to our revised 2024 outlook. Given our strong start to the year, we are raising our full year outlook and now expect to deliver at least 21% growth in revenue and adjusted EBITDA, which equates to the following. Revenue of 1.06 billion versus the prior guidance of 1.05 billion. Adjusted EBITDA of 202 million versus our prior guidance of 200 million. Adjusted EBITDA margins of approximately 19%. Some factors to consider when assessing our outlook for 2024. Revenue growth will be driven primarily by our strong recurring client revenue streams, leveraging our best-in-class products and content portfolio, amplified this year by the addition of our ATP and MBA partnerships. As we've noted in the past, we are continuously challenging all aspects of our business to ensure that we're focusing our talent and resources on the most profitable growth opportunities and unlocking operating leverage. We expect the strategic actions we've taken to date, as well as our continued focus on sustainable profitability in 2024, will unlock operating leverage in personnel, close to sales, and other operating costs. This should offset the impact on operating leverage resulting from the one-time step up in sports rights costs from the first full year of the NBA and ATP partnership deals. For the year, We expect our adjusted EBITDA margins to progress from the mid to high teens in the first half of the year into the low 20s in the second half of the year. This seasonality is primarily a function of the facing of sports rights costs and the realization of the full-year run rate benefits from our cost actions. We continue to be very much focused on enhancing margins and free cash flow generation. As we look beyond 2024, we see the potential to unlock operating leverage from all major expense line items as we actively manage our operating cost run rates and benefit from a more stable sports rights portfolio cost base. In summary, we are very pleased with our excellent Q1 performance and how the rest of the year is unfolding. Our business fundamentals are strong and we are very well positioned for continued growth and success in 2024. Before I hand off to the operator for questions, I would like to thank all of our investors and analysts for their support. It's been a pleasure engaging with you, and I wish you and Sport Radar success in the exciting years ahead. With that, I would like to open the call for questions. Operator, will you open the line for questions?
spk06: Thank you. As a reminder, if you'd like to ask a question, please press star 1-1. If your question has been answered and you'd like to remove yourself from the queue, please press star one again. Our first question comes from Ryan Sigdahl with Craig Hallam Capital Group. Your line is open.
spk07: Hey, good day, Carson, and best of luck in future endeavors, Chair. I want to start with data rights. So you're on the tail end of your new MBA contract, or I guess you're one of that, but What I guess have you learned, kind of how that's progressed, the ability to pass through price to your customers, and then kind of as you think about negotiating new deals with your existing leagues, but also potential new ones?
spk11: Hi, Ryan Carsten here. So as you see in the numbers, we very successfully integrated ATP and MBA, the new contract in our portfolio. And as you see in the US numbers, We exactly reached and overreached what we had in mind. So we could upsell more of the players in the market with the ATP content, specifically here in this case, AV. So we have the effect from our strong position in the market that we can leverage this. an upsell based on this content. And as you see in the growth and as you see in the adjusted EBTA, we compensated the upstep in the spotlights like predicted, and we demonstrate here a very strong performance with the new properties. We are very happy looking into the next years because as we all know, we have the amortization linear for many years in case of MBA now still seven years to go, in case of ATP of five years. So we will profit with the strong growth year over year because the cost base is linear and similar to this year.
spk07: Very good. For my second question, just curious on guidance. So nice to see kind of strong results in Q1, raising your expectations for the year. I guess the beat on Q1 versus street expectations was bigger than you're flowing through to the guidance. Maybe that is just a little bit of management versus street expectations on kind of a quarterly basis. But anything to be aware of from a cost standpoint or anything kind of throughout the rest of the year on kind of Q1 versus the guide?
spk12: Sure, and it's sure. Listen, as we say, very happy with the Q1 performance, both top and bottom. And I think even more importantly, how we see the year unfolding. Our decision was to release an extra point of growth on revenues and EBITDA through to our updated outlook. In terms of the spend side of things, there was a bit of phasing. We had some credits from a cloud service point of view that hit the quarter where we expected them to turn up mid-year. And there is a little bit of phasing in terms of how some of our projects are rolling out, but As you saw, we're quite happy with how the year's unfolding, and we'll see when we get through the end of Q2 to see if there's more that we can release into the full year.
spk07: Any way to quantify that, Chair? If not, that's okay. Thanks, guys.
spk12: Good luck. It's around $5 million to $6 million from an EBITDA perspective that you'll see sort of blended into the second half of the year.
spk07: Very good.
spk12: Well done, guys. Thank you. Thank you for my endeavors.
spk06: Our next question comes from Michael Graham with Canaccord. Your line is open.
spk03: Thanks a lot. Congrats on the strong performance. I wanted to ask two questions. The first is just with the appointment of Bashad as Chief Technology and AI Officer, just interested in how you see the benefits of that initiative either in terms of growth or in enhanced profitability, just maybe talk about the key leverage points there. And then somewhat related to that, just maybe at a high level, talk about the building blocks to get from where you are now in terms of EBITDA margin closer to your long-term target of 25 to 30%. Hi, Michael.
spk11: Karsten here. I take the first part and leave then the building blocks to Ger. I'm super proud and very excited that we could convince a professional like Bishop to join our company. Knowing that he was really the driving force behind Google's European activities in AI, driving a product like Google Lens and a couple of other things, I mentioned it in the call, you can imagine how proud we are that we could convince him to run our business. Given this, you see MTS performance is strongly up. It's generating a 15% higher profit, which is sensational on trading, comparing it to what we have at the moment. So it's all about to build the engine to ingest massive data on all levels, the fan data, the liquidity information, which is there, and of course, the real-time support data. and then use this in the product to generate the value for our clients. So there is lots to come, a lot of new products, which we mentioned a couple of them, and Bejat will drive this development. The abilities which you have with AI is very hard to predict for the next few years, but one thing is for sure, this is a core technology to be deployed, and we have now a setup which is making us by far strongest in the market. Handing over to Joe.
spk12: Yeah, in terms of the operating leverage, the way we think about the business, if you sort of break down the spend, you've got your sports rights, which this year is a material step up. But as we look to the out years, we see the sports rights call space to be a more stable call space, which will obviously give us the ability to you know, to leverage that from an operating leverage point of view. But the big ticket items, you know, starting at the highest number is our people and talent. That's the largest spend in the company in terms of our personnel costs. And then next will be sports rights, and then you've got all other operating spend and cost of sales. Those lines, as you saw this year, given the actions we've taken and our continuing revenue growth, are delivering at least five points of operating leverage, which is offsetting the step up in sports rights this year. If you think about all of those lines going into 25 and 26 and 27, our expectation is that our revenue growth will be ahead of the growth that will be in those lines, and those lines will meaningfully help us get to our long-term goals of between 25 and 30% EBITDA margins. So sort of the key to it all is you know, having a more normalized level of sports rights and then continuing to drive operating leverage across all lines.
spk03: All right. Perfect. Thanks so much. Thank you.
spk06: Thank you. Our next question comes from Robin Farley with UBS. Your line is open.
spk05: Great. Thanks. I know you mentioned some, I guess, credit that came in in Q1 that you had expected later in the year, so there was some timing shift. But if we just look at the full year, raise your revenues up $10 million, the guidance and the EBITDAs up $2 million. So I just wanted to ask how we should think about flow through, in other words – are there, so revenue is coming in better than you thought, but it seems like expenses are as well coming in a little bit, you know, offsetting some of that incremental 10 million. So if you could just help us think about that flow through. And then my other question is, you're talking about sports rights being, you know, fairly fixed going forward. Can you talk to us about how Major League Baseball may impact that, and I don't know if that's something you'll quantify. I know you haven't officially come out with anything on that, but we should think about that impacting your outlook if those sports rights costs go up. Thanks.
spk12: Yeah, for now, Robyn, we made the decision to give a percentage point. uplift in our growth for uh top and bottom i think in terms of the the revenue performance as we said we saw a very nice pickup in atp both in absolute terms but also in in terms of the mix and you know you will see that our sports rights um were obviously up and so when you think about flow through there is there is a correlation there in terms of the you know the the sports rights cost and and and and the the ramp of the revenue As we progress through these contracts, obviously the flow through gets a lot better. And so you'll see the contribution to margin expansion in the out years. But as we look at it now, it was not a high flow through in terms of the, that you would expect in a more normalized situation. But again, we're giving you an extra point. We're holding the margin. We'll see how we land middle of the year. And yeah, we'll take it from there. The key point I'd like to reemphasize is we love where our fundamentals are, and we like the way the year is unfolding.
spk11: And to the second part, Robin, the MLB, there is nothing to be announced today. But we are very confident that we can grow and extend our relationship with the MLB in the very soon future. They are a very valued partner for us. like many others, NBA, NHL, as a sample, or also UEFA. So we have a very strong portfolio, as we said a couple of times. We see nothing material, nothing which is upcoming in the next couple of years, which is not predicted. So we have a stable portfolio. We can monetize on this. We will always look to the ROI when we invest into new sport rides. And we will execute ruthless on this. So if we have spotlights where we believe they are contributing to our margin, we will look into this. But the portfolio which we have is long-term, is very stable, and is big enough that we can deliver the numbers. So we will do this very selectively with new spotlights, but always looking to the return of investment.
spk05: Okay, great. Thank you.
spk06: Thank you. Our next question comes from Bernie McTernan with Needham & Company. Your line is open.
spk04: Good morning. This is Stephanos Christ calling in for Bernie. Thanks for taking our questions. I just wanted to ask on the new revenue groups, could you talk about the difference in incremental margins between the two? Thanks.
spk12: Actually, from a margin profile perspective, they're not dramatically different. I think, obviously, the difference between the two groupings is that the critical masses are core betting. It's data odds, MTS, and there's strong flow through there. The secondary group, which has sports solutions, media, is slightly less. But we do see opportunities to grow those revenue streams in the future, in particular when we look at advertising, that could improve the overall margin profile over the long term. But right now, yeah, our betting solutions group is obviously a higher margin, but it's not dramatically different.
spk04: Got it. Thank you. And just to follow up, sports betting accelerated in the quarter year over year. You talked about the major drivers, but do you expect revenue to continue to accelerate in your guidance?
spk12: Well, we've given you the guidance, you know, the increase in terms of the extra percentage point. But, yes, year over year, I think all the quarters, you're going to see strong growth.
spk13: Got it. Thank you.
spk06: Thank you. Our next question comes from Michael Hickey with the Benchmark Company. Your line is open.
spk01: Hey, Carson, Jer, Jim, great quarter, guys. Thanks for taking our questions. Good luck, Jer. Miss you. Thanks for the memories, bud. I guess the question is on the U.S. regulatory environment. It certainly looks like the pressure's starting to ramp here, and obviously, Carson, you've run a global business for a couple decades here, so I think you have a pretty good view on how regulatory change can sort of creep into mature markets. Obviously, we're far from mature, but we're starting to see a little bit of pressure. Just sort of curious how you think it's going to play out in the U.S., how it can impact your business, and how you're thinking about maybe proactive steps that you can take as a partner with operators and sort of a service to the industry and sort of getting in front, maybe sort of self-correcting and avoiding the potential federal or state oversight more than we have. Thanks, guys.
spk11: Hi, Michael. So looking now to the U.S. market regulatory environment and the changes in some states, we see at the moment no negative impact on our business. We understand from all our partners that this is a constant process. And if I'm looking now back on all the years I'm in this business, quite usual you need to find your way you need to find what is the sweet spot where to go what are the rules and the values which are critical for everybody for example responsible gaming is very important taxation is very important for the states I'm very confident that we will find here the right way and as I said at the moment there is no negative impact on us And it's a moderation. It's a constant talk with all the players in the market, the sport, the government, the regulators, and of course also our partners in the industry. And that's what we are doing. So I'm very confident that this will continue to develop in the right way. And by the way, as a remark, I was traveling in Brazil three weeks ago, having there also many talks with the finance minister, all the sports which are in there and all the players in the market. It's a pretty similar plot, much more early stage than the U.S., but it takes a while to moderate this, to find the best way to satisfy all interest groups.
spk01: Nice. Thanks, guys.
spk06: Thank you. Our next question comes from David Katz with Jefferies. Your line is open.
spk09: Hey, guys. This is R.L. Mossadash for David Katz. Congrats on the quarter, and thanks for taking my questions. There's been a stated focus on core products. Could you describe how you're thinking about what is core and what isn't, as in what stays and goes and what are the financial implications?
spk08: Thank you.
spk11: Well, we are looking on the product ROI. That's the most important for us. That's where we want to deploy our capital. And so looking now to the products, you will see a lot of activities around innovative products, which are driven by ingesting massive deep data and creating value for our clients. So you will see investments from us in that space because they simply deliver the highest returns. We will look for our operational leverage, like we demonstrated it now in the US marketplace, with some properties and content. ATP is a perfect example of how we can use our engine to massively distribute this kind of content. So we will see some investments there. Always with the reminder, we are looking to the product ROI if we buy those properties. So this is our core focus area. Looking now to the whole ecosystem and to broaden it a little bit, it is very exciting to use fan information for marketing activities, to generate leads for our clients, and of course then to create following up the trading services and probability predictions from them for those board fans. So we are just closing that circle using all the information which we have to provide additional value for our clients.
spk09: Great. That's all for me. Thank you.
spk06: Thank you. Our next question comes from Jordan Bender with Citizens JMP. Your line is open.
spk08: Great. Good morning. Thanks for the question. You know, there seems to be a lot of positive momentum coming from the MBA. Can you maybe just break down, you know, some of those factors, the inputs going in there, maybe between, you know, increased volume or some of the pricing or even shift to in-play? and how those are kind of translating to some of the positive commentary coming out of that. And then for the follow-up, you know, when we think about the path to, you know, your EBITDA margin target of 25 plus percent, do you have all the pieces in place today, maybe from even a technology or a footprint base to kind of achieve those targets? Thank you.
spk11: Well, I take the first part. That's the question with the MBA. It was a hard work during the last 12 months to convince the market with our new MBA contract to get this locked in. As you see in the numbers, we have been very successful with this. Now it is how can we create value with the enhanced partnership? As you know, we have now deep data from the MBA and we can use this in products like foresight or much more important, in the trading products, in alpha odds. So we get now significantly better real-time information, and we can visualize this. And we have products on all levels. Like we said last time with the League Pass, we have now a product that we can put into the live screen to odds directly and stimulate the players. And that's very successful. So this is something where we see a huge potential in the future. I could speak hours about this. But looking now forward for the next couple of years, there is a lot of leverage that we can unlock with the MBA as being one of the premium sports properties in the U.S.
spk12: In terms of thinking about the operating leverage, all the ingredients are effectively in the building, and there's a little bit of timing here. When you look at our core execution in 24, it's all about continuing to drive the core product offering and recurring revenue streams and then layering in ATP, NPA, and the run rate benefits of other clients like the Taiwanese lottery. As you go into 25 and 26, it's continued to focus on driving the core growth. From an investment point of view, continuing to enhance our product portfolio, whether it's rationalizing based on ROI, as Carson said, our core that we have today, layering in new products like AlphaHodds and Embed, and continuing to bring additional products to market driven off deep data and other technology innovations. So that's all embedded into the overall operating model. And as I said earlier, as long as we maintain our focus on, you know, the level of growth that you see in our people costs as we continue to invest in our teams and all other operating spend, and we continue to drive what is a more stable sports rights base, yes, we'll add to it, but not the same material clip that you saw on 24th. then you will start to see the points of margin flow through to the P&L. TBD, how long it will take us to get to the ultimate goal of 25%, 30%, 30%, but it's not that far away.
spk08: Great. Thanks, Jerry. Best of luck. Thank you.
spk02: Michelle, we'll take our last question.
spk06: Thank you. Our last question comes from Sean Kelly with Bank of America. Your line is open.
spk10: Hi, good morning, everyone. Thanks for taking my question. I wanted to ask about pricing, just as we think about the contracts, you know, and the new NBA contract. My question is simply, do we see an increase in pricing that is kind of a one-time movement, i.e., are you changing the contractual rates with your customers that move up and is going to be recognized as sort of the data, as we see the data rights come in, or is a little bit more, is everything more revenue share, and that'll kind of, you know, so we should see continued commensurate growth with what we're seeing now as we move out into the latter part of the year and more into 2025. Thanks. Hi, Sean.
spk11: So, Ms. Carson, the core thing here is looking now to the existing models, which we have in the U.S., it's revenue share, as we all know. So we will grow with the market for the existing product. I think it will never work to overstretch the pricing. We're going to need to create value with innovative solutions, which are providing that value back for our clients. AlphaAlt is a perfect example. So we can simply generate higher profits. Then our clients can do this with ingesting more data into the engine and helping them to uplift it. So that's the way where we see a lot of growth potential. Foresight is a sample where we can use MBA. We are working here with the League Plus to give you a number on the League Plus for the more than 600 matches which we played out there with the solution. We had an engagement rate of 3.7%, meaning 3.7% of all the people which had seen this going into a transaction. This is from a marketing purpose or marketing view, a sensational rate. Usually the rate is significantly lower than 1%. That is a 300% uplift. for the users of the League Plus, and for the operator who is providing the odds here. That's generating pure value for all the players. This is very powerful. Looking now into, yes, we have a good situation. We are sitting on three of the big four leagues in the U.S. We have by far the biggest client base and distribution base there. We can leverage a little bit on the pricing, but our core focus is to create value with new products, which I mentioned a few of them.
spk10: Perfect. Thanks, Karsten. And then my follow-up would just be on Brazil. You obviously mentioned this, and what's the experience when a significant new market like this opens up or moves into regulatory? Are you already in Brazil, or should we expect a bigger step function as you're able to do deals with maybe operators that you haven't done deals with before?
spk11: Thanks. I was personally there, Sean, three weeks ago. So the experience was – was interesting with five bodyguards in Sao Paulo, which we had there on the ground. It's a wide market. It's a very exciting market. By the way, it was not necessary, all these security measurements which have been there. Very friendly environment. People which are very passionate about the sport. Main sport there is, as we all know, soccer. A lot of development opportunities, a lot of activities. The federal government licensed or liberalized sports betting in December. So in June, we will see now a process starting that the first operators get official license, generate taxes for the state. And it was very important for me to speak there with all stakeholders, finance ministry, speaking with the sport, with representatives from the club and from the leagues which are there. And then, of course, speaking with the operators, the foreign operators and the local operators, which are there both on the ground. Understanding their needs is essential to create the right setup. We have a people team down there already. We have a legal setup there and we are investing in that market opportunity. Looking from a size perspective, we believe that this is growing from a 2 billion GGR to around about a 5 to 6 billion in the next three years. It's early days, as I said, and we are coming up with the complete strategy, but we are very interested to expand our footprint in Brazil and to use this close opportunity.
spk10: Thank you, everyone, and good luck there. Appreciate the time.
spk02: Thank you. We want to thank everyone for joining our earnings call. Michelle, I'll turn it back over to you.
spk06: Thank you. Thank you, everyone, for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day.
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