Sportradar Group AG Q1 2023 Earnings Call
Good day, and thank you for standing by and welcome to the Sport later first quarter 2023 earnings Conference call.
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I would now like to hand, the conference over to your Speaker today. He was senior Vice President for Investor Relations Rima Hyder. Please go ahead.
Thank you Lee good morning, everyone and thank you for joining us for sport radars earnings call for the first quarter of 2023.
Note that the slides we will reference during this presentation can be accessed via the webcast on our website at investors don't support radar dot 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 investors in the interest of time. Please limit yourself to one question plus one follow up.
Please note that some of the information you'll hear during our discussion today will consist of forward looking statements.
Looting 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 20-F.
<unk> with the SEC in March and the form 6K furnished with the SEC today, along with the associated earnings release.
We assume no obligation to update any forward looking statements or information, which speak as of their respective dates.
Also during today's call, we will present, both I F. R S and non <unk> financial measures.
Additional disclosures regarding these non I FRS measures, including a reconciliation of.
Non.
Measures are included in the earnings release supplemental slides and our filings with the SEC each of which is posted on our Investor Relations website joining.
Joining me today are Carsten, Carl our Chief Executive Officer, and Rick Carbone, Chief strategy Officer.
Thank you Ramon and good morning to everyone.
We are pleased with our strong start in 2023 and once again, we produced solid results with great execution across all our businesses.
We had wins across the globe, including the U S Asia Pacific and Latin America.
To strengthen our organization with our new CFO , Cheryl Griffin, New CTO Alexander earthquake Lawsky.
As mentioned last quarter.
You will see HR, all salaried River region.
We delivered first quarter 2023 revenue growth of 24% and adjusted EBITDA growth of 37% versus the prior year.
As in previous quarter, our core putting products in the rest of the world and U S segments led the way for this growth and strengthened our profitability compared to last year.
Once again, we have demonstrated that we have the best in class product.
Mission critical to our clients, whether they are operators media what sports teams.
The rest of the world business, our value add product managed batting service and lifeboats service grew 40, and 29% year over year, respectively. As a result of our strategy to move customers up the value chain as well.
As a positive impact from our recent acquisitions.
In the U S. We saw very strong growth across Baring media ads.
At sports betting products growing over 80% year over year, and once again, surpassing sales to our media clients, which was up until now the larger client <unk> in the U S.
The higher sales as a result of more states legalizing betting and increase in employee betting and an increase in sales for our ads products as operators look for targeted solutions to engage more France.
The first quarter is a big sports period for U S sports fans.
And all of our U S business supports many facets of this busy period Super Bowl March Madness, now, we're running into the playoffs for NHL and NBA opening day for the MLP and this all creates deeper engagement with broadcasters, especially with their OTT platforms.
This actively also increases batting volumes and more investments in digital advertising for operators in 38 regulated states.
Our revenue share model and enables us to capture a robust chair of the GTR generated by all the sports.
Additionally, we believe that through our partnerships with leaks, we have the ability to capture deeper data, especially player data and continue to leverage that data into proprietary products and solutions that serve our customers.
This is how we move up the value chain offering operators are higher margin product.
In the U S. We also have doubled down on our efforts to expand into college space.
We recently announced the renewal of our partnership with Victor and network to power their OTT picked one Jeep plus platform through 2024 to 2025 College athletics season.
Additionally, with the massive growth we have seen an AD platform. We now integrating does that technology into snapchat, creating a new channel for bearing operators to engage and acquire customers using our paid social media advertising service.
While we execute on our growth. We also remain focused on our costs and where and how we invest we are the leaders in sports technology.
By revenue, but we must continue to invest to maintain our leadership position meet our clients' needs in advance.
After industry, we believe that our ability to build products based on technology that hand, with big data and sports content and fan and user preferences embedding liquidity and increasingly become valuable for our customers and partners.
Therefore, we continue to invest into our tech capabilities to automate data capturing in real time with computer vision and enhancing analytics and deep data in sports as well as preparing liquidity data in real time based on artificial intelligence.
Our investments include tourist.
Upgrade our tech stack for betting and gaming and engineering, which will enable us to drive higher revenue per engineering cost.
Recently hired our new CTO, Alexander's Coke landscape, who will oversee this upgrades and our overall technology transformation.
Investments into computer vision technology to automate deep data capture in real time as the basis of advanced products. We have developed the first fully automated product for table tennis and rolled out this technology into other sports and we have already seen an increase in more data capture.
Three more matches and soccer tennis and basketball.
This automation will also allow us to scale, our scaled network over time ultimately we believe this investment creates more bearing opportunities sport events and leading to greater revenue per match over the cost base.
Improving the trading algorithms for our fastest growing product MTS.
Using AI to improve liquidity trading in the real time.
Analyses of deep sports data.
The resulting margin improvement we can realize over time here is both a benefit for us and for our clients.
And then before.
<unk> investment in the U S to continue a hyper growth in this key market to U S business is already showing results of our investment in both topline growth and operating leverage is demonstrated.
Straight quarter.
Positive adjusted EBITDA and improved margins.
While it is great to see this improvement.
Our goal is to continuously improve the U S segment module. This leads to margin expansion for the entire company.
It is evident to us that this investment today.
Yield positive results tomorrow for both top line growth as well as margin expansion.
It will keep caring operate smarter connected data and analytics to manage their sports book give media companies towards to engage more with fans give teams leagues and federations that data they need to improve their performance and expand their reach and finally.
Keep the industry clean by detecting and preventing fraud doping and match fixing.
I'm coming to my closing remarks in summary, I am very pleased with how we have started this year, we are reaffirming our guidance our guidance for 2023 that we gave last quarter.
Before I turn over the call towards at.
I want to thank him for stepping in to lead our finance team since last December as interim CFO .
As you May have seen we announced a new CFO a few weeks back I am excited to welcome share our Griffin to support radar Shira and early work on smooth transition over the next few months as I noticed there is looking forward to speak with all of our investors.
I'll now turn the call over to Lee to discuss the financial results.
Thank you Carsten and good morning, everyone.
As constant already stated we had a strong start into our fiscal 2020 free demonstrating our strategy for growth and our prudent investments in key markets and products.
Let me take you through our quarterly results in detail.
Revenue in the first quarter 2020 fleet increased 24% to 208 million euros versus the first quarter of 2022.
This was driven by strong growth across all our segments with the highest growth coming from the U S.
Our adjusted EBITDA grew 37% over the last year, primarily as a result of higher revenues and operating leverage as we remain disciplined with our costs.
Our adjusted EBITDA margin was 18% an increase of almost 200 basis points over the same quarter in 2022.
We also had the customer net retention rate of 120% driven by our ability to upsell and cross sell to our existing customer base.
Now looking at the segment revenue and detail.
Our rest of the world betting revenue, our largest and highest margin segment grew 25% in the quarter to 108 million Euro.
This growth was primarily driven by an uptick in our higher value add offerings, including managed betting services or MBS, which grew 40% year over year.
Within the MBS, our MTS product the match trading services product, so annualized close turn over.
Annualized turnover growth of 52%.
This was solid growth despite having a shorter trading month in February and sports results adversely affecting hold rates from our betting operator partner.
Rest of World betting adjusted EBITDA grew 6% to 47 million euros.
Rest of World betting adjusted EBITDA margin was 44% compared to 51% in the prior year, primarily as a result of our investments in technology and products. We expect the margin to improve for the full year 2023 compared to the first quarter as some of the investments translate into high.
Revenue and operational leverage.
Rest of the World segment decreased 3% of two.
245 million euros year over year.
Although the company saw growth from both new and existing customers revenue was impacted by the expected completion of the tenants Australia contract.
With its impact starting this quarter.
Rest of foot AB <unk>, adjusted EBITDA increased 27% to $11 million.
The adjusted EBITDA margin improved to 25% from 19% in the comparable quarter last year.
Improvement was mainly due to the savings from the completion of CFO mentioned tennis, Australia contracts.
Remain prudent in our contract negotiations and prioritize long term profitability for our sports rights.
Turning to the United States, our highest growth segments.
Revenue grew 55% in the quarter to 40 million euros, we saw more than 80% growth in our betting and gaming revenues, surpassing our media business in the U S.
This is the second quarter in a row that we've seen betting and gaming business outpace the media business and early indication of the growth opportunity, we have MBS with our higher value products.
Our advertising business also experienced growth of 87% in the quarter.
This market remains strong as online betting expense to more states and betting operators increase fan engagement and more mature states for same gave pilots and more targeted advertising.
The U S. Adjusted EBITDA was 7 million. This represents the third consecutive quarter of positive adjusted EBITDA for the U S market.
The adjusted EBITDA margin was positive 17% versus a negative margin of 25% in the prior year as a result of the growing scale of our business despite continuous investments.
Turning to our costs.
<unk> costs for the quarter increased by 25 million to $77 million compared with the same quarter last year, However was down almost $4 million compared to Q4 and 2022.
The annual increase was driven by increased head count associated with our investments in artificial intelligence and computer vision technologies higher share based compensation and inflationary adjustments for labor costs.
As we have outlined before these are investments to support the future growth of core bedding products and obtain operational leverage in the medium to long term.
At the same time, we have the ability to cut cost costs, if needed to maintain growth and continue to deliver margin.
Other operating expenses were $21 million, an increase of $2 million or 9% over prior year.
The increase was a result of higher software licenses as we hire more employees marketing and travel expenses tied to certain major events like the ice exhibition.
Higher costs for audit and implementation of a new financial management system.
Total sports rights costs decreased by almost 3 million to $51 million in the first quarter of 2023.
The decrease was primarily the result of the completion of the tennis, Australia contract and our efforts to optimize our sports rights mix for.
For the quarter, our sports rights for 25% of revenue in line with our guidance.
Our liquidity remains strong at the end of March with cash and cash equivalents, plus our undrawn credit facilities, resulting in the $460 million liquidity.
We generated over $12 million and adjusted free cash flow for the quarter, even with our 2022 bonus payout.
And some adverse FX effects the.
Cash conversion was 34% in the quarter compared to compared to 48% in the prior year and a significant improvement over the negative cash conversion last quarter.
We continue to focus on improving our cash conversion cycle.
As a reminder, our more mature products such as life data life.
Visual services are based on a subscription model with our fastest growing segments like all IMAX trading services and our U S. Bedding products are based on a revenue share model.
Revenue share has an inherent delay in receipt of payments as it can invoice customers only after the service periods by subscription services Invoiced at the beginning of the service periods.
Our first quarter working capital result is an early indication of the effectiveness of several initiatives, we are undertaking to improve our cash flow conversion.
We are reaffirming our annual guidance for 2020 free with revenue to be in the range of $902 million to $920 million, reflecting annual growth of between 24 and 26%.
For adjusted EBITDA, we are guiding to a range.
Of 157 million to 167 million euros, representing a year on year increase of between 25 and 33%.
Lastly, it has been a pleasure to serve as the interim CFO at spot right now.
I'm excited to begin the transition to <unk> and introduce them to all of you as <unk> stated we are off to a strong start in 2020 fleet. We remain focused on executing on our growth strategy, maintaining financial discipline and returning value to our shareholders.
With that we're now happy to open the call for questions. Operator can you. Please open up the lines for questions.
Thank you so much for centuries, and ladies and gentlemen, as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.
Your question. Please press star one again and please standby, while we compile the Q&A roster.
Your first question comes from the line of Bernie Mcternan of Needham <unk> Company. Your line is now open.
U S has been adjusted EBITDA positive for three consecutive quarters now how should we expect the margins to trend for the rest of the year and into 'twenty four with the new NBA contract and potentially kind of this contract as well.
Separately on the MBA just any additional color you can provide for how revenue and costs will be recognized.
What are you I think that's a question for you.
Yes no.
Happy to take this one and Bernie Thanks, a lot for that.
We expect that.
Overall, the U S segment will continue to show profitability as we see revenues grow it over the fixed cost base.
We've communicated on previous calls.
As you also stated in the fourth quarter, the new NBA contract will kick in and it's more of an accounting issue that will be reflected in the fourth quarter since we have to.
Amortize bigger rights deals over the entire rights period and.
Sorry.
We have to capitalize pick out rights deals at the beginning of the Reits peers, and then have to amortize it over the.
Useful life and in a straight line method and therefore, we would see that in the beginning of the rights period, we will have higher amortization as compared to the cash payments that we have to make for leaks because we basically have to amortize already the average of the H, Yes rights period, and therefore, we expect that the profitability in the fourth quarter.
In the U S segment will go down.
Essentially slightly negative.
But overall in the year, we expect that the U S. We remain positive.
Understood. Thank you for the color.
Then just you guys called out AI investments in computer vision impacting the quarter were just love to get your thoughts in terms of.
Maybe how long those are going to be a net drag on the P&L, how you expect that to drive revenue growth.
Over what timeframe. Thank you.
The industry is in a transformation process. So we are replacing human beings connecting sport inflammation with digital systems. So that's a continuous process and it will be rolled out over most of the support what it provides is much deeper insights into the sport what it provides is.
That we can create new value, creating products for all clients. So the answer here is it's a continuous investment and you're going to need to do it to be on top of the technology and to serve declines with products, which are creating value for them you will see this in for US now for the record sports we.
<unk> and table tennis.
So the answer is that.
Great. Thanks, Carsten Thank you Larry.
No problem.
So much. Your next question comes from the line of Brian signal of Craig Hallum Capital Group. Your line is now open.
Okay.
Start with so the tennis, Australia contract appears like it wasn't profitable based on just the movement in the financials here.
Is that correct and then are there any more opportunities to optimize rates contracts for any low no margin business that you guys have.
Well I think we are demonstrating pretty well how good we are managing this cost. So we are flat. If we are looking now from.
The proportion on the revenues to spend what we are doing with the sport rights.
I think last year, we had a lot of debate about the inflation on the sports right costs I think we've demonstrated that we can manage this very well with this quarter results looked.
Looking now specifically into tennis, Australia, whenever we are closing spot where ideas we want to have a return for our investors and we want to reach our core margin that was not possible in this case.
And you see it reflected now in our results. So we increased our margin by more than 7%.
Comparing the quarters last year to this year. So that shows it was the right decision to be done.
And then for my second question the integration within ads into Snapchat, how has that gone thus far and then secondly is there opportunity to expand that into other social networks thinking tictoc, Instagram Facebook et cetera.
We are exactly thinking in this direction. There are a lot of talks here, it's for us an exciting area.
Snap.
He is from a technology perspective, very quick and adapting and integrating so that was naturally very good partner for us in this but the paid social is besides the programmatic advertising a very interesting segment for us and you will see more rollouts here.
Great. Thanks, guys. Good luck.
Thank you.
Thank you so much.
And your next question comes from the line of Michael Kim.
Canaccord Your line is now open.
There've been a lot of allegations around <unk>.
Gambling in college Athletics and I, just wonder if you could refresh us on sort of your your integrity services and how important that is in your in your product portfolio.
And then I just also wanted to ask a broad question.
U S economy.
It seems like it's going to go in a recession. It's widely expected just can you comment on how your business is expected to perform in pockets of soft economic activity either in the U S or around the world just what do you typically see from your customers and how does the business tend to perform in those periods.
Hi, Michael This is <unk>, so let's put it into two pieces I will take over the first then.
And Thats go Willy on the recession piece.
You might refer to the Alabama case, where we had a coach in college.
Who use knowledge for placing his bets.
That is not something which is unusual.
But.
It happens really but it happens so I think it's a masterpiece to show how important regulation as we can.
Could detect this because there is a regulatory framework people are not wagering abroad in some.
Normalized way with some doubtful.
Operators, which are processing. This the U S has a very strong regulation. So this pops up and I think it's it's a masterpiece to show and demonstrate how important regulation is looking now to integrity.
<unk>.
It's everything in sports betting, but it's everything in sport, we all love sports, we all want to see a fair competition beyond must make sure that this is the case and that youre not sports and sports betting industry.
And operators like us so integrity is key for this that's the reason why we invested since 15 years continuously and we proud ourselves to have the most robust most universal interact with the system in the world and by far the most partnerships this sport leagues and federations.
Thank you have to extend this also with standards in responsible gaming and gambling standards, how we monitor from where those pads. The rise and we are in that process in the U S. I see very positive signs here and I see the industry being fully aligned on this but I have to reiterate it is so important that there is a regulation.
And the Alabama case shows this.
It can be detected and can help to keep the spill clean and to act in a responsible way in sports betting now I hand over to Uli.
For the ASO under recession.
Yes, Thanks constant then.
Yes, Michael happy to to answer the question, we actually looked at the impact on recession is more from a global perspective, not U S specific because there are simply more more data available and.
The global battery market is expected to grow 11% annually through 2027, and when we look at the historical growth rates.
Basically I've seen that the glue.
Global betting market like our underlying market is growing for all of the crisis with the only exception being in 2020 when due to the pandemic a large number of sports competitions did not take place and when we look at our company our Companys performance, our revenue growth compared to the bedding market, we see that.
<unk> consistently managed to grow almost three times faster than the underlying market.
Due to our ability to up and cross sell to our customers and move them higher up the value chain.
Based on these growing revenues as we expand our margin due to the operational leverage that we have for an hour.
Our model and that obviously trends into into our profitability and.
Resilience of the underlying markets, but in particular also of our business model has led to a consistent growth of sport radar since its inception. Despite all of the crisis that we've seen and a good example is probably even in the in the year 2022, when the global bedding markets, where contracting by 11% subordinated.
Still managed to grow by 6% and therefore.
Actually got pretty confident about.
Our underlying market, we're performing the crisis, but in particular.
Our company will perform in a recession.
Okay. Thank you.
Yeah.
Thank you. So much. Your next question comes from the line of David Katz of Jefferies. Your line is now open.
Yes.
Taking my questions.
Sure.
You've covered a lot already and quite frankly the question on my mind is the one you just answered but I'd like to go a step further if you could just talk about the <unk>.
Puts and takes and ore.
The pivotal factors that may lead you to.
Outside to your guidance this year versus downside.
You are the issues that are maybe hanging in the balance that may or may not be within your control.
Hum.
David.
We we are sports company. So let me answer with something which I hear from a lot of coaches and sports you should never judge to final match an outcome on the result in the first quarter.
It's an indication and we confirmed our guidance and taking it was that support growth.
I think it's too early.
We changed something on this we confirm our guidance based on the data we are exactly in the plan.
The reason why we do what we do we have now a new CFO coming in with Joe Griffin and New CFO will brief you very critical or the numbers. We did this in the Onboarding process already I expect no changes here, but it can be always happening but.
There is no expectation mandates so confirming the guidance is I think a strong signal in the confidence of our plan and the business, which we have developed and what we saw in quarter. One hope that answers your question.
Yes, it does.
Thanks very much.
How much and again, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
Okay.
And presenters there are no further questions I would now like to turn the conference back to Carsten for closing remarks.
Thank you for joining us today, our first quarter results reflect the solid execution, we expect to see also for the rest of the year, we continue to invest against our long term growth opportunities and we are confident that our business will deliver long term growth and recurring revenues.
High client retention strong cash flow generation and higher value for our shareholders. Thanks for joining this call.
Two presenters and thank you, ladies and gentlemen for joining US today. This concludes today's conference call. You may now disconnect have a great day.
Okay.
Okay.
Okay.
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