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spk08: Good morning and welcome to Supergroup's third quarter of 2022 earnings conference call. Following management's prepared remarks, we will open the call for a question and answer session. I would now like to turn the call over to Lisa Kampf, Vice President of Investor Relations.
spk05: Good morning, everyone, and thank you for joining our call today to discuss Supergroup's results for the third quarter of 2022. During this call, we may make comments of a forward-looking nature that are subject to risk, 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 forecasts. We assume no responsibility to update forward-looking statements other than as required by law. Additionally, on today's call, we may refer to certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for measures of financial performance prepared in accordance with GAAP. 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. We suggest that all investors refer to the supplemental presentation posted to the IR section of our website which includes the financial information that will be referred to during this call and additional information for the quarter. Today, I am joined by Neil Menashe, Chief Executive Officer, and Melinda VanVeek, Chief Financial Officer. After our prepared remarks, we will open the call up for questions when we will also be joined by Richard Hasson, President and Chief Operating Officer. And now, I would like to turn the call over to Neil.
spk04: Thank you, Lisa. Good morning, everyone, and thank you for joining us today. Our results for the third quarter of 2022 demonstrate the benefits of our global footprint and our positioning of the company for the longer term. Total revenue was 308 million euros and operational EBITDA was 50 million euros. On a life-for-life basis, meaning not including Jumpman Gaming, which we acquired on September 1st, we entertained on average 2.7 million customers per month this quarter, up 6% from the prior year quarter. Alinda will discuss the financial results in greater detail in a moment. I will first elaborate on the progress we have made this quarter. In Canada, we successfully transitioned Betway and Spin to Ontario's regulated environment. Performance since then has been in line with our expectations, including the activation and engagement of historic Ontario customers with the new Ontario-specific platforms. Overall, Canada continues to perform and remains profitable for us. Our African business continues to operate at scale on our proprietary technology, and we recently launched in our eighth regulated market on the continent. In the United States, we hope to close the DGC acquisition in January. Betway is currently live in seven states through DGC, with Louisiana and Ohio expected to launch in the first quarter of next year. Both will be launching on Betway's global tech, taking the total number of states using this platform up to four. I want to now talk about three ways we invest in our business. One, investment in technology. Two, investment in our brands. Three, investment in expanding our product offering through M&A. Firstly, in line with who we are, an online-only technology business, we remain focused on improving the customer experience with ongoing enhancements to our global platform in order to optimize engagement and customer value. As a result, our demands for dedicated tech resources are high and our requirements have increased over time. Consistent with these requirements, we've entered into an arrangement with Apricot, a major sportsbook provider outside of Africa, to increase the resources dedicated to Betway's platform. To cover the spending, we've provided a funding facility to Apricot in the amount of €42 million, which can be drawn down until March 2023. And we have started discussion with Apricot to explore the possibility of obtaining full ownership of the sportsbook technology for our Betway global products. Well, in the early days of these talks, I can't say how long they were gone for or the eventual outcome. Next, we are investing to reinforce the Betway and Spoon brands around the world. Spoon's best-known brand, Jackpot City, enjoyed its first sports sponsorship with the Toronto Maple Leafs and the Toronto Raptors during quarter three and went live in October. On the Betway side, following the crisis sports calendar in Q3, marketing has picked up its plan in the fourth quarter to leverage the international audiences of the T20 Cricket World Cup, which ended last weekend, and the FIFA World Cup, which kicked off on Sunday. The third way we expect investment growth in our business is through M&A. As we previously announced, we're quite a majority stake in JumpBank Gaming during the third quarter, a profitable UK-focused online casino business in an all-cash transaction. In addition to the opportunity that we see for JumpBank in the UK, given its focus on a more recreational segment of the online casino market, we are also excited about the future expansion of the business into other markets with its proprietary technology platform. Turning now to our capital structure, just under two weeks ago, we launched an SEC-registered exchange offer for publicly held warrants, and we're also seeking consent of the warrant holders to amend the agreements to cancel the outstanding private warrants. If the exchange and consent solicitation are successfully completed, then the SPAC sponsor and their affiliates and the pre-merger supergroup shareholders will cancel their warrants and their rights to receive shares as part of the earner. The purpose of this exchange offer is to simplify capital structure and reduce the potential diluted impact of the warrant and earn-out rights. We also expect that eliminating the outstanding warrant and earn-out rights will increase our free float and result in less overall volatility in our quarterly results, since we no longer have to revalue those liabilities each quarter. We are pleased with the progress we made during the third quarter and so far in the fourth quarter of this year. a monthly average customer number that picked up materially from August. During October, even excluding Jumpman Gaming customers, we recorded a daily record in excess of 1.2 million customers and reached 3.2 million customers for the month. Supergroup is a global, online-only sports betting and online gaming business with continuing opportunity for growth, strong financial fundamentals, and an exciting future ahead. I'll now turn the call over to Linda for detailed discussion of our financial results.
spk06: Thank you, Neil. Today, I will provide the financial highlights for the third quarter of 2022 compared to the prior year quarter, referencing the adjusted numbers included in the presentations posted on our website. In the third quarter, our net revenue increased by 2% to €302 million. Taking our brand license income into account, our total revenue was €380 million. With reference to EBITDA, we continue to present operational EBITDA, which is EBITDA adjusted for fair value adjustments on warrants and earn-out liabilities, associated and unrealized foreign exchange movements, and non-recurring items. For the third quarter, we achieved operational EBITDA of €50 million. looking at the results by business statement. Our sportsbook performed very well this quarter, even with the unforeseen first found matches in the English soccer calendar. Overall, sportsbook revenue increased by 13 million euro, or 14%, primarily driven by strong customer acquisition and retention in Africa and APAC, overall growth in Europe, growth in Canada, excluding Ontario, offset by a modest decline in Ontario driven by Betway's transition to regulated market. Moving on to casino. Net revenue decreased by 8 million euro or 4%. The decline was driven by inflationary pressures on spending, especially in the Canadian and APAC markets. Short-term disruptions in Ontario from customers transitioning into the regulated market. These declines were partially offset by growth in Canada, excluding Ontario, despite some competitive pressures. Overall growth in the UK, which included jump main gaining as of September 1st, and positive momentum in Africa. As it relates to EBITDA margin, business mix had a downward influence, with Betway increasing to 54% of net revenue compared to 49% last year. As you know, the Betway segment has a lower profit margin than SPIN. EBITDA margin for the quarter was 16%. That is not where we want to be. We remain focused on growth and cost-saving strategies to push margins back to higher levels in 2023. Diving deeper into expenses, general and administrative costs increased by €22 million due to similar drivers experienced in previous quarters. The key ones were higher stock costs, public company costs, and increased investment in technology. As it realized the marketing cost, we saw a decrease in variable marketing and an increased investment in brand spend. This resulted in a net decline of 8 million euro. Looking at our financial position, our balance sheet remains strong with unrestricted cash and cash equivalents of 266 million euro at the end of September with no debt. In conclusion, Results for this third quarter are in line with our expectations, and we are reaffirming our 2022 full-year guidance of total revenue between €1.15 and €1.28 billion and operational EBITDA between €200 and €215 million. I will now turn the call back to Neil for his final remarks. Thank you.
spk04: Thank you, Linda. In summary, Supergroup remains financially strong with solid growth prospects. We continue to explore ways to optimize our global footprint and operate more efficiently to leverage our scale. We remain focused on investing in technology and marketing, as well as other opportunities that provide us with long-term growth and profitability. I'll now turn the call over to the operator to open the call up for questions.
spk08: Thank you. At this time, we will be conducting a question and answer session. Also joining the management team today for the Q&A session is Richard Hasson, President and Chief Operating Officer of Supergroup. To ask a question, please press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up the handset before pressing the keys. To withdraw your question, please press star then 2. Once again, that was star then 1 to ask a question. And at this time, we will pause momentarily to assemble the roster.
spk09: And our first question comes from Jed Kelly of Oppenheimer.
spk08: Please go ahead.
spk02: Hey, great. Thanks for taking my question. Just a couple, if I may. Just first on the 4Q guidance, it looks like it's a pretty wide range of revenue outcomes. I mean, we're more than halfway through the quarter. So can you just give us an update on the visibility into 4Q? And then can you provide an update just on how we should be thinking around 2023 with sort of the economy macro pressures? And then I have a follow-up. Thanks.
spk06: Thanks, Jed. Thanks for your question. As we're all aware, we're very excited about the World Cup that is now ongoing in quarter four. Even though there is some fluctuating results usually in a sports book, we feel optimistic, especially our casino is usually very strong during the fourth quarter as well. October had some promising numbers, like Neil just made reference to a good customer increase to about 3.2 million customers for the month so far, which is a good result. Although you know that there is some volatility in the sports, as we all know, especially around the parlay results, and we've seen some of those volatilities coming through in November already, but we have a very strong customer base and we keep on engaging our customers.
spk02: Got it. Okay. And then just in North America, it looks like the North America casino, the impact, it seems like you're getting your footing around some of the Ontario regulations. The growth decline was less. So can you kind of give us an outlook on Ontario and Canada? And then can you just talk about anything you're seeing in the macro? Thanks.
spk04: So it's Neil here. So Deadway and Spin obviously are now live on the Ontario respective platform. Obviously, switching to a regulated market has its cost in the short term, but has long-term benefits. We've seen a high percentage of the historic .com customers activated and continue to engage on the new platform. And early signs are positive and aligned with our projections included with our guidance. And then obviously outside of Ontario and Canada, we obviously spend competitive pressures in all the markets we operate in. Canada is no exception. But, you know, we've got our platforms, we've got our customers and all our tech, and we're constantly working to enhance our marketing.
spk07: Thank you.
spk08: The next question comes from Michael Graham of Canaccord. Please go ahead.
spk00: Hey, thanks a lot. I had a couple. The first one is just on the U.S. market. You mentioned some of the states, but you've been up and running on your global tech stack in Arizona and Virginia for a decent period now. Just be curious how you would characterize performance there relative to others that are still on third-party tech. And, you know, maybe just talk about how those states are, you know, sort of trending on growth curves. And then I have a follow-up. Thanks.
spk03: Thanks, Michael. Richard here. As Neil mentioned, DGC, we're anticipating that coming into the group in January. At that point, we'll obviously be able to do a much deeper dive into the DGC business plan and their forecast for growth. At this point, as you correctly point out, two of the states are running on that Betware global technology, but it's still early days for them as a business, and it's something which we look forward to getting more stuck into once they become a part of the group.
spk00: Okay, thank you for that. And then sort of a big picture question, you know, you have, you outperformed in the quarter. You've had some revenue declines because of regulatory changes, and Just wondering at a high level when you think about the regulatory landscape and the impact on your business, you know, for next year, do you see, you know, sort of the setup being similar or do you see things being different?
spk04: As a normal, we operate in so many countries across the globe. That's been our business for the last two decades. So it's basically navigating each of those countries, and as you know, we've got teams looking after each of those countries. So each one is its own business with its own rights. So it's a game. It's navigating it, getting the software and the tech right, the marketing returns right. But that's what we do, and that's what this business is about.
spk07: Okay. Thank you.
spk09: The next question comes from Bernie McTernan of Needham.
spk08: Please go ahead.
spk01: Great. Thank you for taking the questions. To start, we'd love to see if there's any added color on the 3.2 million MAUs in October. That number has been pretty consistent over the past year in terms of 2.6, 2.7 million. So any way to dive deeper in terms of what was driving the strong results in October?
spk04: So basically, it's all about the engagement on our platforms across casino and sports. And obviously, lots of sports events happened in October. So again, the customer is being re-engaged into it. And it's about these are high-quality customers, and our aim is obviously to keep bringing them back and keep increasing that. And with that, and obviously, as Elizabeth mentioned, dealing with increasing our margins and getting that operational leverage back into the business.
spk01: Understood. And then maybe as a follow-up to the first question on the guidance or fourth quarter, is there a way to think about maybe drivers in terms of what would cause you guys to hit the high end of the range versus the middle or versus the low end?
spk06: Thank you, Bernice. Like I've said, the volatility of the sportsbook, obviously, is not so easy to plan towards the end of the quarter, but we feel comfortable that the casino is strong and then the results should speak for itself by the end of the World Cup. And as you've just realised in the... I mean, a couple of matches that's now been finished in the World Cup. It is so volatile. You never know. The results fluctuate beyond our control. So we just have to make sure that we keep on engaging the customers. And luckily, our customer base is strong. So it marginalized our volatility in the results.
spk01: Got it. And then just lastly, The Jumpman transaction, we'd love just to get your thoughts on the rationale for the deal and then if you're able to size how big of a revenue generator that asset is.
spk03: So, hi, Bernie. Richard here. So, the rationale for the transaction, Jumpman, it runs proprietary technology. It's built a great platform over the last many years. And While it is a UK-focused business, it's an opportunity for us, one we're very excited about, about helping them expand into additional markets. They appeal to a different segment of the market, a much more recreational segment to our existing customers. In terms of Size of revenue, we disclosed before that in the month of September, it did around 7 million euros of net gaming revenue. And at this point, that will be disclosing about the transaction. Got it.
spk07: Thanks for taking the questions.
spk09: Thank you, ladies and gentlemen. This concludes our question and answer session.
spk08: And that concludes our call today. We thank you for your interest and participation and you may now disconnect.
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