Q2 2023 Sportradar Group AG Earnings Call
Good day, and thank you for standing by and welcome to the Sports leader second quarter 2020 earnings Conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone you wasn't here an automated message advising your hand is waste and please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today Rima Hyder Senior Vice President of Investor Relations. Please go ahead.
Thank you Leo and good morning, and good afternoon, everyone and thank you for joining us for sport radars earnings call for the second quarter of 2023. Please.
Please note that the slides we will reference during this presentation can be accessed via the webcast on our website at investors Dot dot.
<unk> com.
The slides 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 will hear during our discussion today will consist of forward looking statements, including without limitation, those regarding revenue and future business outlook.
These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast.
For more information please refer to the risk factors discussed in our annual report on form 20-F filed 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 our FRS and non I offer us financial measures.
Additional disclosures regarding these non <unk> measures.
Clothing, a reconciliation of <unk>.
Non <unk> measures are included in the earnings release supplemental slides and our filings with the SEC each of which is supposed to do our investor website.
Joining me today are garston squirrel, our chief Executive Officer, and Gerry Griffin, our Chief Financial Officer.
And now let me turn the discussion over to Carsten.
Thank you <unk> good morning, and good afternoon to everyone.
I'm very pleased with our strong performance in the first half year.
Driven by innovation quality revenue execution and improved operating leverage.
For the first half of 2023, we delivered revenues of $424 million.
Up 23% year over year.
Adjusted EBITDA of 77 million euros.
Up 42% year over year.
And an adjusted EBITDA margin of 18% up 238 basis points. The primary drivers of these results. Thanks to the strong performance of our content.
Sales and operation team.
An increase in sales for our higher margin products, such as MTS in life, what's ongoing expansion of the U S market.
And implementation of measures to improve cost is between resulting in enhanced operating leverage.
These measures include optimizing our portfolio with a focus on products.
That will give us a higher margin setting new standards, such as HR development and fail fast mentality, and new product innovation and streaming our overhead to drive stronger operating leverage.
We always have a strong focus on value creation for our clients and the company moving our clients up the value chain.
More embedded full scale higher value solutions, as well as building innovative and profitable solution.
We will continue to drive this client centric approach as we execute our priorities.
As stated earlier in the year, our priorities for 2023 are to grow our core bedding products and services.
Our expansion in the U S.
Establish a strong foothold in emerging markets.
And invest in content and technology for the future.
I'm happy with the progress we are making in all aspects of our growth strategy.
We continue to execute for today.
And invest for the future.
Today, we are reaffirming our full year guidance for 2023 with the company on track to deliver at the highest revenue in company history, as well as strong EBITDA growth and margin expansion.
We believe our scale technology and leadership in the market positions us to sustainable growth in the years ahead.
Our end to end offering integrated technology and global footprint is deeply embedded across the sports ecosystem.
An important partner for over 900 betting operators.
Over 350 sports leagues and over 500 media companies.
Okay.
We lead on breadth and the brand's coverage for sports data inputs and offer the largest volume of data in the world across all peers, leveraging our global network to collect and process support information to grow both the life and deepen our historical content to put that in a car.
<unk> and 'twenty to 'twenty, two recollected life data events from almost 900000 sports matches generated over 10 billion life and pre metro changes collected over 5 billion patting tickets.
<unk> over 40 billion odd changes for betting operators.
Data, we collect curate and distribute holds significant value and is derived from three main data points.
First recovered the greatest number of sports close to 70 with deep historical coverage.
Second we have success with deep mostly player related data thanks to our partnership with sport leagues, such as the NBA NHL and ATP and we continued to increase this data exponentially.
The player tracking data is valuable and determine how each per year is contributing to the game.
The monetization of this data has great opportunities for us and our clients.
And third with our Amazon platform ads product and the media clients via access to rich sports fan and better data that we can process analyze and monetize.
This rich data pools are some of the most extensive and deep data points in the industry when.
When we layer on AI to connect them in real time, it optimizes, our higher value products, such as lifeboats MTS and that's even further.
We believe that we are in a unique position to leverage this platform given our scale and our worldwide presence this data pool and the new opportunities with AI to analyze connect and learn with them will drive further future innovation in our products and create value for our clients.
With that I will.
Turn to call over to Jeff to discuss the financial results in more detail.
Thank you Carsten.
I am excited to join sport writer and worked with the management team and continue to grow this great company.
I'm aligned with the strategy of the company as we continue our journey of focus on those products and solutions that generate the greatest client and shareholder returns.
My focus will be to help lead the company and improving our operating margins.
Leasing our return on capital and generating greater free cash flow for investors.
But now let's discuss our Q2 results.
We delivered another strong quarter with revenues of 216 million euros up 39 million euros or 22% year over year.
Our diverse product offering part growth across all revenue segments.
Rest of world betting was up $19 million or 20% year over year with.
With good performance across the main product lines in particular, MBS of 25% and life apps and data up 19% year over year.
Rest of World was up 10 million euros or 25% year over year supported by the addition of the new economy, Paul Reitz, and an uplift in services to existing and new clients.
United States segment was up $9 million or 31% year over year as we continued to see growth in this developing market.
All other revenues were up $2 million or 15% year over year, primarily driven by our ads business.
Net profit for the quarter, which included an 8 million onetime loss on the disposal of an equity investment was breakeven.
This compares to $23 million in the prior year.
The year over year reduction was primarily driven by a $19 million of Europe year over year swing in foreign currency gains.
This was partially offset by a $13 million year over year improvement in our profitability on an adjusted EBITDA basis.
Looking at our adjusted EBITDA.
Adjusted EBITDA was $40 million up $13 million or <unk>, 46% year over year.
Adjusted EBITDA margins improved almost 300 basis points to 18, 5%.
This improvement was primarily driven by more profitable revenue mix and operating leverage primarily from sports rights, partially offset by personnel expenses.
Personnel expenses were $84 million up 20 million or 31% year over year as we continue to invest in our product portfolio and talent base.
Personal expenses before stock based compensation.
74 million euros up $18 million or 32% year over year.
Sports rights for $52 million up $4 million or 8% year over year, primarily due to added content in 2023, mainly commie, Paul and Copa del Rey.
Turning to liquidity.
We ended the quarter with $264 million in cash and cash equivalents versus $244 million in the prior year.
We also have a $220 million revolving credit facility with no amounts outstanding.
Effective this quarter, we will no longer externally report, our non <unk> measure for adjusted free cash flow.
This decision was taken in response to a recent comment letter from the SEC on our latest filings.
Free cash flow and the related cash conversion metric will continue to be our primary internal metrics for tracking our cash flow performance, where we continue to see improvements towards our long term goal.
Excuse me towards our long term cash conversion goals.
Should you wish to compute the previously disclosed cash measure you.
We will continue to find the relevant components in our earnings materials.
Before I turn to our 'twenty three 'twenty to 'twenty three outlook I would like to take a moment to talk about operating leverage and cash flow generation.
We see multiple levers for unlocking operating leverage and stronger free cash flow.
To call out a few.
It starts with challenging all aspects of our business to ensure we are focusing our talent and our resources on the most profitable growth opportunities.
This includes assessments of the contributions from our life product portfolio as well as expectations on projects and development to ensure they can deliver on our growth and profitability expectations.
Where necessary, we will streamline investment and resources to be better fit for profitable growth.
Yeah.
We also see the potential to further leverage technology to deliver efficiency across our engineering and development capabilities.
While we will continue to invest in our sports rights portfolio.
We will continue to hold these deals to our rigorous ROI standard.
From a revenue perspective.
We believe we have the potential to achieve stronger take rates from our clients by moving them up the value chain within our existing product offering as well as delivering new value added projects and development.
All of these areas as well as improving working capital management and cash related contractual terms should deliver stronger free cash flow.
Turning to our full year outlook.
We remain on track to deliver strong year over year growth.
And are reaffirming our guidance for fiscal 2023, which is as follows.
Revenue in the range of $900 million to $920 million, representing year over year growth between 24% and 26%.
Adjusted EBITDA in the range of $157 million to $167 million, representing year over year growth between 25% and 33%.
Adjusted EBITDA margins in the range of 17% to 18%.
Yeah.
One factor to consider in assessing our reaffirmed guidance is FX variability in particular the relationship between the us dollar and the euro.
Since setting our guidance, we have seen a strengthening of the euro against the us dollar.
In the absence of this FX impact we would have expected to see approximately 10 million euros more in U S revenues and our latest full year internal financial estimate.
Our latest full year internal estimate.
<unk> assumes that this FX impact will not have a material impact on adjusted EBITDA, given our natural FX hedges.
In summary, we are pleased with our performance through the first half of the year with revenues up 23% and adjusted EBITDA up 42% year over year.
We are confident that execution of our growth strategy positions us well for the second half of the year and into 2024 and beyond.
Lastly, I want to let you know that radar Hyder, our head of Investor Relations is leaving to pursue another opportunity.
Her last day with us will be August 11th hour.
Want to thank her for her contributions to the company and wish you success in the future.
Investors can contact Christian armacost through the Investor Relations E Mail address on our website, if you need to reach out to us.
With that we would like to open the call for questions. Operator will you open the line for questions.
Definitely thank you so much for centers.
And gentlemen to ask a question you will need to press star one on your telephone do either a question. Please press star one again and as a reminder, please limit your questions to one and one follow up on me. Please standby, while we compile the Q&A roster.
Your first question comes from the line of Brian signal of Craig Hallum Capital Group. Your line is now open.
Ask your question.
Taking my questions I wanted to start on guidance. Jerry you mentioned 10 million headwind from FX I'm curious does that move you more towards the lower end of that range or are you seeing strength in the core business and internationally that can offset that to kind of keep you in the middle.
We're not we're not actually finding where in the range, we're going to end up we as we've said we're reaffirming that we believe we will land in the guidance ranges that we set at the beginning of the year. The main point for highlighting the.
The weakening of the dollar versus the Euro is just to say that it is a headwind when you report on a euro basis, obviously, if you flip it around.
The guidance that we're presenting in euros, essentially uplifted by close to 7% on a us dollar basis.
And then just for my follow up some nice competitive wins come to ball that follows ATP earlier. This year I guess can you elaborate on what's really driving that accelerated win and really conquest wins recently.
And then on top of that any update on the MLP potential contract renewal process.
Let me take this one hi, Ryan so the.
The Big thing is for sure ATP and you know the number of matches interpreting the depths, which we have there and the revenue spending against that are not comparable with Carnival Carnival is more something we are super happy because the region is hot.
And it's something which works very well with our portfolio, where we need it a premium soccer content ATP as such was really.
Our game changer and is a game changer for us in next year when this starts.
Want to launch multiple new products driven by the deep data and we did a lot of investments here.
Mentioned in several of the past calls.
Looking now to MLP, we are as I said in the last quarter in close contact with them. We have a very good partnership and we feel very strong positions that we can extend this for multiple years to them.
Whenever the MLP is ready they have internally a couple of things to clean up as we all know with ours, but we are very optimistic that this will come soon to the point that we can extend our existing partnership.
Great. Thanks, guys. Good luck. Thank you. Thank you so much your.
Your next question comes from the line of Bernie Mcternan of Needham <unk> Company. Your line is now open.
First I would love to just get your initial thoughts on the on the Penn ESPN partnership to launch ESPN bed.
Maybe if you could break down the potential impact on both the bedding business, but then also the ads business in the U S.
Look.
Generally we always.
B O the smelt come new activities and that's a that's globally, that's not only focused on the U S. We see globally media companies are beginning to be interested in sports betting. We are welcoming does thats great because they have a high reach to the sport fans high conversion.
Good future clients for us with our scalable business model looking into this deal and its pretty fresh I think it's not a big surprise for nobody that this is happening.
And looking for us I think it might create some adds opportunities.
Which we might have here because it amdocs some of the marketing budgets, which might be.
Reallocated, so that's the high level view.
Okay. That's helpful. Thank you.
And can you talk a little bit about the selling process and the sales cycle for selling the player tracking enhanced data and you also mentioned some of the new products that we're rolling out with the AP ATP, but just would love to get a sense in terms of what that what that process is like how long it takes.
I tried to do this time, because we had that question several times I try to do this time, a slide which hopefully explains this bedroom.
We are we are feeding our machine from three different data points one is the traditional.
Historical and live match data one is the player related tracking data, where we have the cooperation with the leagues.
We pay also some spot right fees for this to get this information episode one is all the behavioral data, which we collect with our platforms. You know we have to MTS platform, we kept adding tickets liquidity movements from players we are running to full SaaS platform operations with MFS services, where we see.
Players and channel switching we have to media partnerships now we begin to.
Aggregate all this data and put relations and why is the player moving to channel when we see in the tracking data some movement or some positions, which are pointing that one player might have an edge over the other player putting that into the models and using it for our scalable products.
Which is the lifeboats into predictive models, which is the trading into risk management and risk, which is the programmatic advertising will power. These products enormously the more data points you analyze the more connections to the <unk>.
That will be we invest it into this in the last years.
And we begin now to harvest this and you'll see it in the margin improvements, which we have staff and there was a long long way for us to lift all clients on our higher value products, which is giving us a good run rate and an optimistic view in the future.
Great. Thanks Carsten.
Thank you. So much. Your next question comes from the line of David <unk> of Jpmorgan. Please go ahead.
But rest of broke betting the margin there that was flat year over year. After a few quarters of decline I wanted to see how we should think about profitability at the segment ahead as you continue to invest there.
And then Karsten just given your competitor's extension with the NFL wanted to get your view on how that impacts if at all your long term strategy here in the U S. Thanks.
Good.
The rest of the World betting is I think a question for for the CFO and I are going to take the NFL.
Can you can you. Please go on the rest of the book adding margin.
No. We expect we've obviously got a lot of focus on our operating margins overall, and we do expect to maintain and ultimately grow our margins in rest of world over time, we will continue under that Hood two to invest in our product portfolio as Carsten Carson has said, but our ambition is obviously too.
Increase our operating leverage overtime.
Now to the NFL.
The NFL has not a big exposure outside of the United States.
Nearly nothing.
Looking now from a numbers perspective, you saw in this quarter rest of the world betting is on a 114 million euros and the U S segment is on a 38 million euros, we reported that the U S segment is consisting of four pieces.
That's the media business, which we have in there that's the business with the betting operators. This is the business with the services and it is the <unk> business, which is there.
So if we put that in a proportionate given that four elements are.
Nearly equal sized strongest growing is betting you see by yourself, how minimal net impact is for us so.
Looking into this of course, we would love to partner with the NFL.
The NFL has chosen to extend that to deal with some of our competitor and that's.
That's hard to accept here, we don't see any disturbance for our existing business we.
We don't see any impact on our core engine the rest of the growth bedding business and we see a strong growth in the U S business with the products, which we have there and we have three of the big four leaks as long term partners much longer than the two years extension for the NFL.
Thank you.
So much. Your next question comes from the line of Robin Farley of UBS. Please ask your question. Your line is now open.
Thank you. Good morning, this is <unk> for Robin.
I was wondering if you could talk.
Talk about so EBITDA growth is tracking up 42% in the first half and that is ahead of your FY <unk> guidance.
Year over year, you're guiding to that 25% 33 range for the year could you go over the puts and takes of kind of implied guide for the back half and also how we should think about EBITDA margin for Q3 versus Q4, and then I have a quick follow up thank you.
Hi, Robyn nice too heavy on the call I think that's one for huge Arab please.
Yes, Hi, Robyn.
In terms of.
The implications for the second half of the year is we will obviously be continuing to invest in our in our products and we also have the launch of the NBA in the U S. So there there will be.
Some pressure on EBITDA. However, what I would say is our focus on our cost management and our overall operating leverage will obviously count for some of that.
In terms of you know Q3.
We don't give intra quarter guidance, so I'm going to I'm going to defer on that.
Okay. Okay.
And then my follow up was you know we have seen operators report structurally higher hold rate in the first half.
Does your back half guidance rely on structural instead of higher hold is that already embedded in your guide or that could be incremental source of upside as we think about second half of the year.
Hmm Robin your few <unk> operators to sports betting gaming operators.
That's right.
So they are depending on the results Q2 results from a sports perspective, I would say has been quite favorable in the U S. If I put it in and a nice smoothing. So we are not depending on this so we have a little trading products in the U S market.
So they are not shifting the needle here for our rest of the world betting we showed stable growth with the MTS product and that's 25% growth and you'll see by yourself, we have a margin in the rest of the world putting this a 45%. So I think this is not comparable to us because we <unk> you operator.
Sure, but in terms of sort of bet in play betting mix sort of going up over time.
Could you quantify any of that in the quarter.
We are not reporting this on a quarter like I've said, many many times. So we see the trend generally that we see a slow conversion from pre match into life. We are witnessing just as we speak but we are not giving the detailed numbers every quarter, but the trend is consistent with what we guided.
We see that slowly drifting into more live betting activities and people will come to this a lot.
Okay. Thank you.
Much.
And our last question comes from the line of David Katz of Jefferies. Please go ahead. Your line is now open.
Good morning, everyone. Thanks for taking my questions I appreciate it.
Okay.
With the interesting moment that we're in.
Particularly in the U S, but certainly globally also.
Wondering what your updated thoughts or philosophies are around M&A.
Given the evolution that we've seen here so.
Obviously, not asking specifics what are aware, but if you could help us just sort of frame out your thoughts on.
What might make sense.
Hi, Dave it's Super interesting area to or can you allude a little bit how we see it.
Yes, no given given our our pivotal position within within the sports ecosystem.
We're always looking for enhancements to our overall business in.
In particular.
Anything that can enhance our platform, whether it's technology or talent.
Thing that can enhance our you know our reach in terms of our addressable market. So those are the areas that we are fundamentally focusing on and.
From from a capability point of view, obviously, we have that we have the resources.
To go after any any targets that we feel would deliver strong growth both top and bottom.
Understood and if I can.
If I can follow that up quickly.
It sounds as though youre more categorically on the buy side.
Rather than.
Assuming there were aspects of your business.
We're attractive elsewhere right as the sell side pretty much out of the question.
Listen we don't we're not going to disregard any any side from from from my perspective.
Aspect to them from the company's perspective, where as we said in our prepared remarks, we we assess all aspects of our business and as long as they're they're fit for delivering on strong growth and profitability towards our long term goals.
And that'll be part of the company if if we find the areas of our business that we feel are not.
No longer fit for that purpose, we streamline our it could be a scenario, where we'd look to get finding another home, but for now we're very happy with the focus within the company and the execution against our growth strategy and.
As I say our position in the sports ecosystem is such that we feel we're well positioned to take advantage of the growth opportunities both in.
In the rest of world.
In America and other emerging markets.
And we have the capital and backing to to look at inorganic additions, but it's not it's not the core we're really much focused on driving the organic growth that we see ahead of us.
David That's a comment from the major shareholder constant girl is we are focusing on the buy side.
Understood perfect. Thank you very much.
So much and we don't have any further questions. At this time I would now like to turn the conference back Divina Hydro.
Thank you.
As Jerry mentioned this is my last call with or radar, it's been a pleasure working with all of you and I look forward to working with some or all of you in the future and we will definitely be speaking today. So thank you everybody leeway. This will end today's call.
Thank you so much for EMA and thank you for centers. So this concludes today's conference call. Thank you for participating and you may now disconnect have a good day.
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