Super Group (SGHC) Ltd

Mr. Malott, you may begin. Thank you. Good morning, everyone, and thank you for joining us today to discuss Supergroup's results for the third quarter of 2024. During this call, Supergroup made comments of a forward-looking nature that are subject to risks, uncertainties, and other factors discussed further in its SEC filings that could cause its actual results to differ materially from historical results or the company's forecast. Supergroup assumes no responsibility to update forward-looking statements other than required by law. On today's call, Supergroup 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. Supergroup has provided 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, Supergroup will speak to the financial results and metrics in two parts, finding Supergroup's profitable and cash-generative global business separately from its investments into the U.S., This aligns with the annual guidance the Supergroup has provided for 2024 and is consistent with both how Supergroup views its business internally and how Supergroup will report going forward. To re-recommend that the investors refer to supplemental presentation posted on the website. On this call, I'm joined by Neil Manashi, Chief Executive Officer, and during the Q&A session, we'll also be joined by Linda Van Wick, Chief Financial Officer, and Richard Hodgson, President and Chief Commercial Officer. And now, I'll turn the call over to Neil.

Thank you. Good morning, everyone, and welcome to Supergroup's third quarter 2024 earnings call. Quarter three was a super quarter. Total revenues, x the US, was an all-time high for a third quarter, growing 13% year over year to 395 million euros. Adjusted EBITDA x the US also set a third quarter record, growing 52% year over year to 95 million euros. We are successfully executing our strategy of growing key markets while realizing cost efficiency with a particular focus on optimizing our optics and marketing. These efforts are clearly reflected in our margins. 24% for the second quarter in a row and that's well ahead of our 20% target our casino business is experiencing super growth casino represents 83% of overall net revenue for the quarter we expect continued growth as we utilize our decades of expertise to expand in key markets this includes rolling out our spin brands into existing markets, which aligns with our multi-brand strategy. When it comes to key markets, we'd like to highlight the continent of Africa, where we see success and significant opportunity. For the second quarter running, Africa provides the largest portion of our revenue. We have operated in Africa for more than a decade and have built a super strong competitive moat. Our footprint spans seven locally regulated markets, and we hold podium positions in five of them. And there's more to come. We have a healthy pipeline of new markets that will be viable in the next 12 months. Beyond that, the continent is expected to grow by a billion people, reaching 2.5 billion people by 2050. We are well positioned to capitalize on this growth with our purpose-built platform, local marketing expertise, fully dedicated teams, and deep relationships with key stakeholders. We expect to perform very well in this growing market. Second to Africa is Canada. We are experiencing strong year-over-year growth across both sports and casinos. And I want to note that Jackpot City continues to be a leading brand across the entire country. While we plan to continue growing our presence in Africa and Canada, the U.S. has proven to be trickier. We've completed the shutdown of our U.S. sportsbook operation. I'm pleased that the associated costs came in around 9 million euros less than our previous estimate of 45 million euros. We continue to assess our iGaming business in New Jersey and Pennsylvania. We are closely tracking KPIs, and if we can't reach our goals, we will take decisive action. As we've always said, in order to continue operating in the US or any market, we must be able to see a sustainable path to profitability. We expect our quarter four investment to be less than what we invested in quarter three, and we are pleased to be seeing some green shoots. Moving on to the balance sheet. Our financial position is robust, and we finished the quarter with unrestricted cash of €297 million and no debt. This is after having paid the 10 cents per share initial dividend in July. We are exploring ways to return cash to our shareholders, including our plan to initiate a regular dividend of 2.5 cents per quarter to begin in the first quarter of 2025. In the meantime, an option we are considering in the near term is a further special dividend before the end of the year, a possibility we intend to discuss with our board at our next meeting at the beginning of December. and which may be assessed each year subject to performance and market conditions. Finally, given the strong performance to date, in particular a spectacular October, and assuming normalized sports results for November and December, we are revising our ex-US adjusted EBITDA guidance to exceed €345 million, representing a margin of 22%. We are seeing the operating leverage in our business kick in, and we are really pleased to be above our long-term target margin of over 20%. We look forward to capitalizing on our momentum and closing out a super year for Supergeek. I'll now turn the call over to the operator to open the call up for questions.

Operator? We will now begin the question and answer sessions. To ask a question, please press star then one to enter the queue. If your question has already been addressed and you would like to withdraw it, please press star two. We will now pause momentarily to assemble our roster. Our first question comes from Jed Kelly of Oppenheimer. Please go ahead.

Thanks for taking my questions. Just following up on your last comments, can you talk about sports results globally, how they're trending into 4Q. And then can you just give a view on, you know, how Supergroup is sort of viewing Latin America? And then I have a follow-up.

Okay. Hi, Jed. It's Neil, yeah. So sports results, yes, October were really good. And, you know, for us, and I keep telling everyone, when all the favorites win, that's not good for us. But we've had good results there. September, funnily enough, which was obviously the end of quarter three, didn't have such good results. So we produced a really good third quarter without even having those. So for us, very important for us is that even with the sports, we are counteracting that with our casino, which now makes up 83% of the revenues.

Richard here to come to your question on Latin America. As you know, we are live there in a number of markets at present. Brazil is obviously being spoken about a lot across the industry at the moment. That's a market where we are not currently proceeding. In line with all markets that we look at, we want to ensure that we can identify sustainable path to profitability once we go live. And as Neil mentioned earlier, we currently focus on optimizing our existing footprint and building on our current revenues.

And then just as a follow-up, you know, you're obviously generating a fair bit of free cash flow. Can you just talk about how we should view your capital returns policy and another dividend or, you know, strategic M&A. Can you just give us an update there? Thank you.

Hi, Jay. It's Alinda here. Neil mentioned now that we're definitely considering a supplementary or a special dividend into the last part of quarter four this year. And for the other uses of cash, we still maintain our strategy just to make sure we invest into our technology. and finalizing that project, returning money in the way of marketing spend. That's why, especially quarter four, we support this back. We're spending a bit more on marketing. And on M&A, I will let Richard also confirm, but there's always assessments being done all the time, but nothing firm for quarter four.

Yeah, Jen, that's nothing that's worth mentioning on this call, but as I said, it's constantly looking at potential strategic opportunities across the markets that make sense for us.

Our next question comes from Bernie McTiernan from Needham.

Please go ahead.

Great. Thanks for taking the questions. Maybe just to start, Neil, you mentioned October, really strong month, but it seems like sport outcome might have gone the wrong way. So just can you just detail what you're seeing exactly, whether it's on the cost efficiency side or just better kind of like engagement and retention with your customers? Sure.

So yes, and obviously September sports wasn't as good, but October, but we had great volumes in our system, our customer base, etc. The same happened in October, so really was a spectacular month on all fronts, customer numbers, volumes, revenue, etc. So we're seeing it all come through. We're seeing the focus on the efficiency in our marketing, the operating efficiencies within our different companies coming together. So it's all coming together really well. And also the focus. You can't be in every country. We've chosen the countries we're in and the continents we're on, and we are full on into those and becoming the best that we can in the market in which we operate.

Understood. And then just thinking about the top line still, would love to just get any color in terms of what year-to-date growth has been excluding India. And the reason why I ask is because the growth guide for this year, about 10%, there's some FX headwinds in there. You're, you know, comping the India shutdown. So as we, you know, start to sharpen our pencils on 25 more, I think there's some reasons why reported revenue could accelerate next year, but would love to get your thoughts. Okay.

Okay, so Neil again, just to remind everyone, we closed down India at the end of September last year, so you're 100% right. So ex-India, we're up 24%.

Wow, okay, really strong number. And then just two more for me, kind of same thing, longer term, just all the cost efficiencies they're coming through, margins better than expected. You know, longer term margins is, you know, you mentioned the longer term target of 20% plus, but should we be thinking, you know, how much more of a plus should we be thinking about and maybe how quickly can you get there?

Hi, Bernie. I'm Linda, yeah. Like we've reported now, the two consecutive quarters, we had over 24% margin. The operating efficiency is definitely now drilling down right to the bottom, which is a very good result for the 18 months we've been focusing on that. Second to that, we are really looking into our marketing efficiencies now. We're really unpacking every campaign and marketing investment to make sure there's a great return. So on the long term, when we put out that 20% target, we're happy to beat it, but now we feel comfortable that we probably will lift that to 22% to 24% during 2025 as a standard.

Got it. Perfect. That's great. And then lastly, just one quick modeling question. Should any of the U.S. shutdown costs bleed into the fourth quarter? And also, is any color on the reconciliation, the press release? There's U.S. shutdown costs and then also just other market closures, just what that other market closure was, the 5 million euros. Thank you.

Bernie, I'd be happy to report there's no more to report in quarter four. That's obviously also why there's an impact on the overall profitability that you see in the press release. But sports foreclosure has now been accounted for in quarter three and two. So nothing in quarter full. And then the other market closure is a spillover from India that we just had to report on. It was a processor investment that we just had to impair. But it is just based on last year's closure of India.

Understood. Thanks for taking the questions.

Our next question comes from Michael Graham of Canaccord.

Please go ahead. Thank you, and congrats on the improved profitability outlook. I wanted to ask about Africa. You have a podium position in five of the seven markets that you're live in, and I'm just wondering if you could talk about the difference between those top five versus the other two and just maybe share a little bit about how durable you think your position is in Africa.

Yes.

Hi, it's Anil here.

So basically, as I said, we've been going for 10 years. We've got a dedicated team of over 1,000 people. The brand, the Beto brand in particular, resonates particularly well in Africa, maybe because of all the branding we do on the football, et cetera. Remember, football or soccer is the number one sport there. So, you know, in all the podium countries, I mean, in the five countries there, we're in podium positions. And South Africa, Zambia, Ghana, et cetera, we're really, really performing well. I think the other ones, we aren't as performing as well as we should, but we're on it. And we've got a pipeline of a few others to come. But again, we have to assess each one and make sure we can get it. And very exciting for us is in most of these countries where they offer online casino, we've been rolling out Jackpot City. So we've rolled it out already in South Africa, and we're going to be rolling it out in Ghana, et cetera. And that's been a hold. So it's getting the double... It's the spin approach and the bet way approach for Supergroup in these markets. So it's there. We've got big marketing spends there. We've got big revenue there. So we are very comfortable with the growth opportunities that we see coming out of that continent.

And then I'd love to just get a little more color on iGaming in the U.S., just maybe talk about the long-term view on how you're thinking about online casino for you in the U.S.,

Okay, hi, it's Anil here. So, yes, we tried sports. It didn't work. But casino, we're really good at. So we are in New Jersey and Pennsylvania. We are seeing good revenue increase. We're seeing good green shoots. Again, we're not chasing revenue for revenue and never to make a profit. So we have to make sure we can get to the revenue target that we set the business, which so far they are meeting. and then we want to be able to turn this into a profitable business. But if we feel that it gets too far away from being able to achieve profitability, then we have to change stance. But remember, the casino business is easier for us, and this is what our bread and butter is across the world. So America is no different.

Okay. Thank you, Neil. The next question comes from Mike Hickey of the Benchmark Company. Please go ahead.

Hey, Neil, Richard, Linda. Good morning or afternoon for you guys or evening. Congrats on a great quarter. Fantastic. Great year, too. Kudos to all of you. Just following up maybe on Michael's question on the U.S. market. Neil, appreciate the color there. You've obviously... sized up your losses here, considerably exiting sports betting. On the iGaming front, I mean, it's early days here. Obviously, 25 is going to be interesting. Just getting a better sense, your path to profitability, said you're hitting your revenue targets into 25 and thinking about sort of the political atmosphere and the change here, how you think that could impact potentially high gaming regulation in the U.S. in the 25th.

Yeah, so from our point of view for 2025, we are not aiming to invest more money than you've seen in the last two quarters, right? But what we have to see is can we grow the revenue, which it has been growing, and make sure we do see a path to profitability. With a new government comes new regulations or not changing existing regulations. So hopefully the new Republican government sees that and understands that if you overtax, you get a worse result, right, which, for example, as you know, we've seen in Germany. They basically just created a black market in Germany and then they regulate everyone out of business. So from our point of view, let's see how it goes. I think they're pro-business, so hopefully that should be good.

Looking, I guess, north here in Canada, you've got a great share position, too. Can you just talk about your success in Canada, your market share position, and the plus or minus of Alberta regulating here? Okay, so...

Canada really compared year-on-year growth overall has been very good. Ontario is better. It's not where we need it to be, but we are still in a good position there. So we still have a decent share of the market. Obviously, we learned the lessons on Ontario from going to the regulated regime. So all the lessons we learned there will come into Alberta. Alberta is looking towards the end of 2025, maybe 2026. So we are all ready for that. Our brands resonate there. Remember, we've got Betway, we've got Jackpot City, Spin. So we've learned, we know what we need to do. And I mean, probably in Ontario, probably relatively, we're under-indexing in marketing-wise relative to some of the bigger competitors. But we are now looking at that, fixing that. And I think the rest of Canada, we've really dug deep and we've really sorted out where we were losing traffic, where people were cyber squatting on our brands, especially Jackpot City. You know, we've had lots of dealings with Google. We sorted that out and we're sorting out every little bit along the way. And I think it's showing in our numbers. And I think the distraction of too many countries means that when we're all in on these countries and stuff, we can focus and get it right, which is what we're doing.

Yeah, I guess moving to Africa, you touched on it a bit. You obviously got a huge head start. You've got a number one share position on the continent. Can you just frame for us maybe the market opportunity you see in Africa in terms of ham competition? It seems like some of the more predominant online players aren't in Africa yet. Curious why? But obviously, and on your market share, I know you're number one. I'm just curious how consolidated that share is, if you have a number in terms of what your total market share is in that market.

Yeah. We don't have market shares, but what I can say, on that map we show, we're in podium positions. So if you take the whole continent, we definitely are. Remember, we only open in seven of the countries, right? There's lots of countries we're not, which we're coming to. I think it's been a long time coming. We've been there for 10 years. And remember, the population is exploding. And on top of that, the use of mobile phones is exploding. And we take the micro bets. We've got high-value customers, small customers. So I think it's the product, it's the brand, it's everything. And as they open up more online casino, that obviously helps us. And we know the product from Europe. We know the product from all the other markets we operate in. And I think our key here is that it's a great brand, great technology, and a great, unbelievable, dedicated team that literally every ounce of every country that we are working towards making it. making the product better and i think that's that's that's where we've got a huge head start it's our marketing budget is our global marketing budget has the brand in it we can obviously help resonate and then we can counteract with the work with all the country marketing that we do so now the question is which other markets we go in is the regulation fair in those markets how the tax rates are So that's why we assess them. So we've got a team that can just do that, and that's why as a ring-fenced business, Africa is ring-fenced. It's on its own tech. It obviously uses our feeds and certain stuff that we give them, but it can operate and grow by itself, and that, I think, is the key. And the beautiful part is it's got the Bedway brand, the Chatbot City brand, et cetera. So that's why we see good growth there.

Do you have a sense of how big the TM is? or potential TAM is in Africa and what's been the sort of market growth rate or maybe even your growth rate in the region?

Yeah, so we think the TAM is about $5 billion. And it's obviously been growing and growing. So, again, as they open up more of the regulations, I mean, there are countries like Rwanda, et cetera, that haven't even got the regs yet. So there's Angola, there's lots of them, and then there's Senegal, which has already and we're not even in. So there are lots of them that we can go to, but we've got to find the ones. Remember, every one that we go to, Betway's already there. It had a presence in the brand. So from us, and of course the most important part is the population. It really is a growing population and it's got access to the internet through mobile devices. So we're super bullish on this.

The regulatory piece, like how do you sort of give comfort to U.S. investors that the regulatory situation in Africa is You know, how do you get comfortable there, I guess, Neil, would be the question. Okay.

So, you know, I mean, we get this question all the time. We work with the regulators. We work with all the government bodies. We help draft the regulation. You know, actually, the question could be the other way, is what happened in Germany? What happened in the Netherlands? What happened in Belgium? You know, they've gone the other way. Even what happened to the tax rates in New York? So we understand this. We work with them. And that's a risk we have as a business all over the world. But funny enough, I think in Africa, because we're working with them and we pay all the taxes in these markets, in some of these markets, we're one of the biggest taxpayers. And I think when you're doing that and we're giving our CSR, our BW cares back into the local communities, we are working with them and showing that we are helping.

Do you have any sense of when you think you'll see some of the bigger online players like Flutter, Bet365, some of the global players in online gaming start to look at the market? Maybe they're there already. I don't think they are. But do you have a sense of when they might be coming in?

And the truth is none of them are really there at all. Maybe they will focus in on Brazil. You know, they're basically focusing on Brazil, which is why we're not, you know. So I think we've picked our battles, and that's what you do. I think the only one that's there is really small, is 888, but there's no one else there, really. Okay, good. Local operators, we found ourselves up against, and different ones in different countries.

Okay, appreciate the color, guys. Thank you. Good luck. Thank you.

This concludes the question and answer session. The conference is adjourned. Thank you for attending today's presentation. You may now disconnect.