This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk07: Good morning, and welcome to the Supergroup Fourth Quarter and Full Year 2022 Earnings Call. All participants will be in a listen-only mode, and should you need any assistance during the call, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. And to withdraw a question, please press star, then two. Please also note that this event is being recorded today. I would now like to turn the conference over to Lisa Kampf, Head of Investor Relations. Please go ahead.
spk02: Good morning, everyone, and thank you for joining our call today to discuss Supergroup's results for the fourth quarter and full year 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 forecast. 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 today and available on the Investor Relations page of the 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 we are referring to during this call and additional information for the quarter. Today, I am joined by Neil Menashe, Chief Executive Officer, and Alinda Von Zeich, Chief Financial Officer. After our prepared remarks, we will open the call for questions, when we will also be joined by Richard Hasson, President and Chief Operating Officer. And now, I'd like to turn the call over to Neil. Thank you, Lisa.
spk04: Good morning, everyone, and thank you for joining us today. Welcome to our call to discuss the results for 2022's fourth quarter and the full year. 2022 was a very significant year for Supergroup, including becoming a publicly traded company in January. Total revenue for the year of 1.3 billion euros exceeded our guidance range, and operational EBITDA came in at our mid-range at 208 million euros. During the year, we continued to grow and invest in many markets, focusing on the long term. Our 2022 revenues decreased 2% for 2021, but remained 25% above 2020 levels, and we continue to generate profits and cash. The 2022 financial results were impacted by a few factors. Comps and macro factors were difficult because 2021 benefited from COVID lockdowns and because consumers began to feel the effects of inflation in certain markets. We had a significant decrease in our contractor brand license fee. Some key markets introduced new regulation. And we incurred significant additional overhead costs due to being a public company. Despite these challenges, for the fourth quarter, Adelaide's monthly active customers increased to 3.4 million from 2.9 million in the prior year, a 21% increase, helped by the FIFA Soccer World Cup and T20 Cricket World Cup, and the acquisition of Jumpman Gaming towards the end of Q3 2022. For the full year, we averaged 2.9 monthly active customers, up 11% from 2.6 million in 2021. We are truly a global business with licenses in over 20 jurisdictions, on the ground teams in 22 countries, supporting 29 languages. We continue to optimize our global footprint, which means opening new markets where we see opportunity and being prepared to close existing markets that are no longer attractive. Of course, in 2023, our global footprint will clearly grow overall, with digital gaming corporation DGC now being part of Supergroup, with its eighth life stage and access and up to an additional five. On the back of Supergroup being fully licensed in these days, welcome DGC to the Supergroup family. We believe the company is uniquely positioned in the industry as we embark on 2023. Our strategic priorities for the year are aligned with how we allocate our cash. Firstly, we are an online-only technology business and remain focused on improving the customer experience with ongoing enhancements to our global platforms in order to optimize engagement, customer value, and adapting and localizing to each market in which we operate. Achieving this is only possible with control of both the front end and the back end of the product. Discussions with our key technology providers, Apricot, are therefore ongoing as we look to ultimately take ownership of our sportsbook technology, which will give us full control over costs and even closer direction of product enhancements and deployment into new markets. Our conversations are progressing well and we'll provide additional updates as soon as available. Secondly, we'll focus on optimizing our global footprint. We're excited about entering the U.S. market, which is $53 billion. We will be approaching the eight markets that we are activating with a disciplined and measured approach. We will apply the same toolkit to these markets that we have successfully built and implemented across the globe over the last two decades. To be clear, we see the U.S. as an attractive opportunity and we're going to invest while constantly re-evaluating the spend and returns being generated on a state-by-state basis. From an investment perspective, the U.S. entry is simply creating optionality for us. Our global ex-U.S. business continues to grow and generate cash and the U.S. presents upside potential on top of that. Keep in mind that it's not a growth at all costs scenario. We've been disciplined in our spending since inception, and we tend to manage this expansion in the same way. The U.S. over the next three to five years is going to require significant investment into a number of areas, including tech, marketing, and customer service, as we directly apply our proven strategies in the U.S. market the same way that we have in other markets worldwide. The investment required for DGC will be funded by the constant cash flow that the remainder of our business generates elsewhere around the globe. Of the eight states that Betway currently lag in, three of those are operating on the Betway Global Tech. And while still very early days, Ohio, the latest days to launch on this technology, is definitely showing some promising metrics and proof of concept. We are working on optimizing our technology and customer journeys in the other markets and look forward to further investment in these states once all components are correctly allowed. We are planning on sharing more data about the U.S. in the coming months. Moving on to non-U.S. markets. The transition to the regulated online casino and sports betting Ontario market and the German sports betting market continues. We've incurred development costs to optimize the customer experience and provide an easy transition, and both markets are tracking in line with expectations. Our majority stake of Jump Bank Gaming is performing well, adding a sizable iGaming customer base from a more recreational segment of the UK market and contributing to our profit. We have taken this opportunity to learn more about this segment with the possibility of using its proprietary tech stacks in other markets around the world. Overall, our approach to our global footprint is strategic and selective, and we continually reevaluate the market that we should enter and the market that we're really operating in. We will never stay in a market only for the sake of a larger footprint. If a market doesn't continue to present us with a feasible case for long-term growth and profitability, then we will leave that market. On the marketing front, we continue to invest in brand and other marketing channels to reinforce both this bet way and spin brands around the world to ensure future growth. Spin, our portfolio of online casinos that now includes the Jumpman brands, focuses on targets and marketing campaigns with ongoing detailed and careful analysis of spend and ROI. Betway, our sports betting brand, allows for marketing at scale and boasts a portfolio of over 60 brand partnerships, continually reinforcing the Betway brand globally. We are continually evaluating strategies in order to deliver meaningful shareholder returns. Given our liquidity position, the Board of Directors approved the share repurchase program in January, and we intend to be disciplined within the authorization provided. In December last year, we successfully completed a warrant exchange at a very moderate cost, cleaning up our capital structure and all outstanding warrants and earn-out rights, and therefore any potential future shelter dilution from these instruments. I would like to point out that all our pre-listing shareholders participated in that exchange at zero cost to the company. In addition, we continue to set a number of strategic acquisition opportunities around the world. In conclusion, on the back of successful 2022, we're excited about the opportunities we have to both strengthen and expand our business while remaining profitable, cash-generative, and debt-free. We are running the business with a long-term outlook in continued pursuit of increased shareholder value. I'll now turn the call over to Linda to talk about a profitable quarter and year, as well as discussing our 2023 guidance. Linda.
spk00: Thank you, Neil. Today I will be referencing operational results included in the presentation posted on our website. I will also discuss the guidance for 2023 and the underlying assumptions driving our projections. As Neil mentioned, 2022's total revenue was €1.3 billion, above the upper range of our guidance of €1.28 billion. EBITDA for 2022 was €208 million, in line with the midpoint of our guidance. In the fourth quarter of 2022, total revenue was €330 million, 3% lower than in the fourth quarter of 2021. The decline was driven by lower brand license fee revenue and regulatory changes in some markets. Net revenue, which excludes brand license income, increased 1% to €322 million. Let's break this down into the business segments. Sportsbook revenue increased by €5 million in the fourth quarter, growing 5%. Sportsbook revenue includes revenue generated from sports, as well as some other offerings under sports licenses in certain jurisdictions. Growth in Africa continued to be impressive, and we are seeing strong growth in active customer numbers. We also had strong growth in Europe and Canada, excluding Ontario. This growth was offset by lower revenues from Ontario as Betway's transition to the regulated market progresses. We did, however, experience month-to-month growth throughout the fourth quarter. This growth Driven by our efforts to attract and retain customers was unfortunately negatively impacted by out-of-the-ordinary sports margins predominantly in the worldwide soccer during November and December. As you know, any sportsbook can be volatile in the short term, thus potentially impacting revenues and profitability. Customer numbers for sportsbook was up 11%, 2022 versus 2021, and 19% if you compare the quarter fourth results. with record numbers for new and monthly active customers. Moving on to online casino. Net revenue in Q4 decreased slightly by €3 million or 1% as compared to the prior year. The business in Ontario faced shortened disruptions due to transitioning into the regulated market, but is improving month on month. We also saw a decline in APAC regions. On the upside, we had significant growth in the UK, which included a full quarter of revenue from Jumpman Gaming, continued growth in Africa, and growth in Canada, excluding Ontario. Customer numbers for Casino was up 12% for 2022 versus 2021, and 41% if you compare the quarter four results. Looking at the bottom line, we achieved operational EBITDA of €42 million for the fourth quarter of 2022. This is a drop from quarter four last year, largely driven by lower brand license fees, higher cost of revenue due to the impact of shifts of business and country mix, with a higher percentage of net revenue coming from Betway, which historically had a lower profit margin, an increase in general and administrative costs due to being a public company, further increase in the investment in technology, and a slight increase in marketing spend. Looking at our financial position, our balance sheet remains healthy with positive growth of unrestricted cash of 255 million euro at the end of December, a balanced capital structure with income generating assets and no debt. Now, moving on to 2023. I want to give a quick overview as how we will be disclosing our figures, including forecasts going forward, given that DGC is now part of the group. To recap, we closed on DGC acquisition on January the 1st of this year. Going forward, we will be presenting our results and guidance split up between our global ex-U.S. business, the supergroup you know up to now, and the U.S. business, being DGC. TGC is at a very different stage of development to the rest of super group business. Both the scale and the investment horizon of the year's opportunity warrants us to split these figures out and also provides more helpful and insightful information to us and to our shareholders and potential investors. We view the multiple markets in the United States as attractive upside investment opportunity, funded by the ample cash flow from the rest of our worldwide business. Moving on to our expectations for 2023. Excluding our US business, we predict revenue for 2023 to be 1.35 billion euro, which represents single digit growth from 2022. We are projecting stronger growth in operational EBITDA of €220 million, driven by a combination of modest top-line growth and better cost control. Some of the material assumptions underpinning our 2023 guidance include net revenue is expected to grow by approximately 5%. taking into account the continued uncertainty in the macro environment affecting both our customers and the local currencies of various markets in which we operate. Brand license revenue for 2023 is expected to be, on average, €2.3 million for the month. Marketing is expected to be 25% of net revenue, reflecting continued investment into all channels of marketing, including brand. And finally, operating costs are expected to be €8 million lower than 2022. We have identified cost efficiencies of €18 million versus the 2022 cost base on a like-for-like basis. This is in part offset by Jumpman being included for the full year compared to four months in 2022, along with an additional investment earmarked for selected markets, which are expected to deliver strong revenue growth in the next financial year. This net effect is that we expect EBITDA margin to step up from the 16% EBITDA margin in 2022. Part of our efforts to eventually return our target margins of closer to 20%. We remain focused on improving operating efficiencies across all our businesses and therefore increasing EBITDA margins. On to the U.S. or DGC. As noted previously, DGC is very much at early stages of its development. This business is live in eight states, where six states have a sports-only offering, and the remaining two have both sports and iGaming. Some of these states are not yet operating on the Betway global technology and need to be migrated over. As this is successfully done, we will begin investing more into those markets, always focusing on areas that produce the best return on investment. DGC's net revenue is thus expected to remain minimal for 2023, and we expect around €70 million loss for the year on operating EBITDA level. This is a significant opportunity for us. Timing is dependent on the speed of regulation and the new states, but based on our current footprint, we expect to break even within the next five years. with our investment in the U.S. being easily funded by operations from the rest of the world. In conclusion, Supergroup remains financially strong, and we continue to run our business profitably while investing in technology and marketing to support future growth. I will now turn the call back to Neil for his final remarks.
spk04: Thanks, Zalinda. I'm proud to say that for Supergroup, 2022 was another year of consistent, healthy revenue and EBITDA, and the business remains uniquely positioned in the global gaming universe. The key to our business model is investing in the short term for longer-term scale and profitability. We could easily cut back on marketing and tech investment today in order to achieve an amazing extra profit. But that won't help us down the road. We look to be efficient in our investment in technology and marketing spend to achieve higher margins in the future. As we continue to grow our business, it's important to note that incremental revenue becomes more profitable from a margin perspective. Operating leverage comes into effect. I'm happy with the progress as far as 2023, which includes a record number of unique customers and a new daily high of almost 1.35 million unique customers. We are, however, still subject to the impact of worldwide currency fluctuations against the euro and the volatility in the sports book, which we saw again in February. But I want to remind everyone that 65% of our revenue comes from online casino, a continued focus area for us. So to summarize, we have a diverse global footprint across sports betting and iGaming. We're an online-only business with a high degree of control of our tech stack and working on extending that even further. We are profitable, debt-free, highly cash-generative with a healthy balance sheet. We will continue to go after long-term profitable growth with a highly experienced team. We are excited about the prospects that 2023 brings, including building a foundation and establishing our footprint in the U.S. We'll now turn over to the operator for questions.
spk07: Thank you. At this time, we will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. And to withdraw a question, please press star, then two. At this time, we will pause just momentarily to assemble our roster.
spk08: And our first question here will come from Jed Kelly with Oppenheimer.
spk07: Please go ahead.
spk06: Hey, great. Thanks for taking my questions. Just two, if I may. One, can you just help us? I think you mentioned the month-to-month overgrowth in Canada. Can you kind of give us any sense on how that's trending into 2023? And then just can you talk about your U.S. strategy? I see in the guidance, you know, you're guiding for $70 million of losses. Can you talk about, you know, the strategy in terms of investing in that market when we continue to see new state launches happening You know, it's kind of, you know, we're seeing two large players really consolidate a lot of the market share. So can you talk about the strategy in the U.S. with the market share dynamics? Thanks.
spk04: Okay, so I'll go first. So on Canada, we are seeing month-on-month growth in Canada and in Ontario, month-on-month increasing in Ontario. As you know, when you go from a new regime with the regulatory changes we have to put in, it takes time to migrate to existing customer base over, but that is all in line with our expectations.
spk00: And continuing into 2023.
spk04: Yeah, and continuing into 2023. Great.
spk03: And Jed, Richard here. So on the U.S., I think Neil touched on it, but in a bit more detail, we're effectively going to be looking at the U.S. the same way we have all the markets around the world. You're correct. For 2023, Linda referred to a €70 million investment. And at the same time, that investment will be assessed on an ongoing basis in terms of finding which states are commercially feasible. And again, in a similar way, we're not going to be going off to states just for the sake of having a large footprint. We're going to be looking to have the brands live in those states that make sense and ultimately applying the same toolkit of which the technology is a very key part, applying that across the country.
spk06: Great. That's helpful. And then can you just talk about, you know, sort of where you are in some of your U.S. partnerships, your media partnerships and how you look at those? And then is there anything in your international markets in terms of the regulatory landscape that we should be aware of for this year? Thanks.
spk03: So on the US, again, in a similar way that we have significant investment into the brand, which is supported by all the other marketing channels, that same approach will be applied to the US. You will be aware of the number of brand partnerships that already exist in the US. But again, it's not just those. It's the global portfolio of the over 60 partnerships around the world. And then it's reinforcing that brand with other return-driven marketing nationally and also, of course, on a state-by-state basis.
spk04: And then I'll come in. So, yes, so across the world, you've got the UK, the white paper. Again, we are waiting for when that will be published. But we've been very conservative in the UK, Betway, for the last five years. So for us, we look forward to seeing what the white paper says. Germany was the other one, significant one. Remember, we had to turn off casino a while back, and now we had to move over to the regulated regime and getting the software compliant in that regime. So we're still there. And then in Netherlands, we're still waiting back from the regulator. And a whole lot of foreign operators still waiting to hear back. But our business is made up of lots of these jurisdictions, and we've learned how to, in every one, get the software, get the technology, and get the marketing-driven returns in those markets. Remember, this business is about market or country by country. And I keep telling everyone, it's always about the extra revenue we get. It has a huge margin because you've got all your other costs already covered.
spk08: Thank you.
spk07: And our next question will come from Bernie McTernan with Needham & Company. Please go ahead.
spk05: Great. Thanks for taking the questions. Maybe just to follow up on the U.S., do you think 23 will be the peak investment year for the country? And then just any early learnings that you've had from the U.S., what you've been successful, maybe what's been more challenging than you previously anticipated?
spk03: Okay, so in terms of the investment in 2024, we expect probably the same ballpark figure. um but you know beyond that as as neil mentioned this is not a kind of bottomless pit of investment uh while we look at 2024 at that level and we continue to assess each state on a state-by-state basis and make sure that we are investing in markets where the economics make sense and you know where we can generate the appropriate returns uh in terms of learnings Again, as Neil mentioned, Ohio, which went live earlier this year on the better way global technology, we're seeing some promising metrics coming out of that. And fortunately, in that light, we are seeing that having the right technology in place is very beneficial to us and talk to the strategy that we're implementing. Again, last point, as Neil mentioned also, we do plan to come out in the coming months with a bit more detail around the U.S.
spk05: understood. And apologies if I missed it, but was there any update on the potential insourcing of the tech stack in relationship with Apricot?
spk04: So as I mentioned, we're still in discussions with them. We're making good progress. So we will come back to you on that. But remember, for us, the key here in this business is technology. It's your technology, your marketing, and your people. And we can't get away from that, that you need the technology. And as regulation changes, as new stuff comes available, we have to be investing in that. And that's why owning and controlling that path is super important to us.
spk05: Understood. Thank you.
spk08: And it also allows you to differentiate yourself from the competitors.
spk07: Again, if you have a question, you may press star then 1 to join the queue. Our next question here will come from Michael Graham with Canaccord. Please go ahead.
spk01: Hey, thanks a lot. I just had two questions. The first one is on your guidance for $1.35 billion in revenue. Could you maybe just talk a little bit about anything we should know about the seasonality as the year plays out and anything to call out in terms of sort of – which parts of the year might be heavier than others. And then you spent some time in your prepared remarks talking about closing markets that become unattractive. And I just wonder if you could maybe add a layer of depth to that and talk about how you kind of quantify that. And do you think that this will be a more important part of sort of how 2023 and 2024 play out as we go forward? Thanks.
spk00: Thanks, Michael. I'll take the first part. Alinda here. The seasonality is predominantly around the sports offerings. In the investor's presentation on the website, we have given a quarterly breakdown. So you can easily see how seasonality on a high level impact the business. So we don't break the guidance up in that format going forward. But, you know, as we've also said, it's interesting what happened in November, December, that you can't really project for sports the volatility of the outcomes of the results and the sports. But being that our projections for 2023 on revenue It's predominantly modest based on the macroeconomic impacts on our industry at this point in time, as well as due to the fact that we've seen such volatility in the currencies around the world. It's also, and we're a multinational company, we're starting to see, we've just taken that also into consideration on the revenue forecast for 2023.
spk04: And then Neil here, and then I'll answer your questions on any markets and how we consider exiting them. We actually have one in Africa and one in Europe, and that was probably based on either the tax regime there that basically your costs are more than your revenue, and also the other one was more based on the technology stack. Like, we've really seen that we need our own technology stack in all these markets that we operate, because then you get your group stack across the world and all the benefits you've got from one country you can then give into the next country. So from us, we look at it based on how that country looks from an operating EBITDA per country. And then we see, are we ever going to get to making money there or not? And that's how we've done it for the last two decades.
spk08: Okay, perfect. Thanks a lot for that extra color.
spk07: Ladies and gentlemen, this concludes our question and answer session and thus concludes our call today. We thank you for your interest and participation. You may now disconnect your lines.
Disclaimer