SGHC Limited

NYSE:SGHC

Earnings Call Transcript 2024-Q3

[Operator]

Mr. Milotte, you may begin.

[Brett Milotte]

Thank you. Good morning, everyone, and thank you for joining us today to discuss Super Group's results for the third quarter of 2024.

During this call, Super Group may make 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 forecasts. Super Group assumes no responsibility to update forward-looking statements other than required by law.

On today's call, Super Group 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. Super Group has provided a reconciliation of the non-GAAP financial measures to the most comparable GAAP figures in the press release issued earlier today and available on the investor relations page of Super Group's website. In addition, Super Group will speak to the financial results and metrics in 2 parts highlighting Super Group's profitable and cash-generative global business separately from its investments into the U.S. This aligns with the annual guidance Super Group has provided for 2024 and is consistent with both how Super Group views its business internally and how Super Group will report going forward. Super Group recommends that investors refer to supplemental presentation posted on the website.

On this call, I'm joined by Neal Menashe, Chief Executive Officer. And during the Q&A session, we'll also be joined by Alinda Van Wyk, Chief Financial Officer; and Richard Hasson, President and Chief Commercial Officer.

And now I'll turn the call over to Neal.

[Neal Menashe, executive]

Thank you. Good morning, everyone, and welcome to Super Group's Third Quarter 2024 Earnings Call.

Quarter 3 was a super quarter. Total revenues ex the U.S. was an all-time high for a third quarter, growing 13% year-over-year to EUR 395 million. Adjusted EBITDA ex the U.S. also set a third quarter record, growing 52% year-over-year to EUR 95 million.

We are successfully executing our strategy of growing key markets while realizing cost efficiencies, with a particular focus on optimizing our OpEx and marketing. These efforts are clearly reflected in our margin, 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 7 locally regulated markets, and we hold podium positions in 5 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 1 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 casino. 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 EUR 9 million less than our previous estimate of EUR 45 million. 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 U.S. or any market, we must be able to see a sustainable path to profitability. We expect our quarter 4 investments to be less than what we invested in quarter 3, 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 EUR 297 million and no debt. This is after having paid the $0.10 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 0.025 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 U.S. adjusted EBITDA guidance to exceed EUR 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 up a super year for Super Group.

I'll now turn the call over to the operator to open the call up for questions. Operator?

[Operator]

[Operator Instructions] Our first question comes from Jed Kelly of Oppenheimer.

[Jed Kelly, analyst]

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

[Neal Menashe, executive]

Okay. Jed, it's Neal here. So sports results, yes. October were really good. And 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 3, didn't have such good results, so we produced a really good third quarter without even having those. So for us -- but very important for us is that, even with the sports, we are counteracting that with our casino, which now makes up 83% of the revenue.

[Richard Hasson, executive]

Jed, 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 a sustainable path to profitability once we go live. And as Neal mentioned earlier, we're currently focused on optimizing our existing footprint, yes, and building on our current revenues.

[Jed Kelly, analyst]

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

[Alinda Van Wyk, executive]

Jed, it's Alinda here. Neal mentioned now that we're definitely considering a supplementary or a special dividend into the last part of quarter 4 this year. And for the other uses of cash, we still maintain our strategy just to make sure we, a, invest into our technology and finalizing that project; returning money in the way of marketing spend. That's why, especially quarter 4, [ where ] sports is 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 4..

[Richard Hasson, executive]

Yes. Jim, there's nothing that's worth mentioning on this call but, as Alinda says, constantly looking at potential strategic opportunities across the markets that make sense for us.

[Operator]

Our next question comes from Bernie McTernan from Needham.

[Bernard McTernan, analyst]

Great. Maybe just to start: Neal, 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?

[Neal Menashe, executive]

So yes. I mean obviously September sports wasn't as good. October -- but we had great volumes in our system, our customer base, et cetera. The same is -- same happened in October, so it really was a spectacular month on all fronts, customer numbers, volumes, revenue, et cetera. So we're seeing it all come through. We're seeing a focus on the efficiencies 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 markets in which we're operating.

[Bernard McTernan, analyst]

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 are some FX headwinds in there. You're comping the India shutdown, so as we start to sharpen our pencils on '25 more, I think there are some reasons why reported revenue could accelerate next year but would love to get your thoughts.

[Neal Menashe, executive]

Okay, okay. So it's Neal again. Just to remind everyone: We shut, we closed down India [indiscernible] end of September last year. So you're 100% right. So ex India, we're up 24%.

[Bernard McTernan, analyst]

Wow, okay, really strong number. And then just 2 more for me, kind of same thing longer term, just all the cost efficiencies that are coming through, margins better than expected. Longer-term margins is -- you mentioned the longer-term target of 20%-plus, but should we be -- how much more of a plus should we be thinking about? And maybe, how quickly can you get there?

[Alinda Van Wyk, executive]

Bernie, Alinda here. Like we've reported now the 2 consecutive quarters, we had over 24% margin. The operating efficiencies 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, we -- when we put out that 20% target, we are happy to beat it, but now we feel comfortable that we probably will lift that to 22% to 24% during '25 as a standard.

[Bernard McTernan, analyst]

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 just any color on -- in the reconciliation in the press release, there's U.S. shutdown costs and then also just other market closures -- just what that other market closure was, the EUR 5 million.

[Alinda Van Wyk, executive]

Bernie, it's Alinda here. We'd -- happy to report there is nothing -- no more to report in Q4. That's obviously also why there's impact on the overall profitability that you see in the press release, but sportsbook closure has now been accounted for in quarter 3 and 2, so nothing in quarter 4. 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.

[Operator]

Our next question comes from Michael Graham of Canaccord.

[Michael Graham, analyst]

Congrats on the improved profitability outlook. I wanted to ask about Africa. You have a podium position in 5 of the 7 markets that you're live in. And I'm just wondering if you could talk about the difference between those top 5 versus the other 2 and just maybe share a little bit about how durable you think your position is in Africa.

[Neal Menashe, executive]

Yes. It's Neal here. So basically, as I said, we've been going for 10 years with a dedicated team of over 1,000 people. The brand, the Betway 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 #1 sport there. So in all the podium countries, we -- I mean, in the 5 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 [ then a hold ], so it's getting the double -- it's the Spin approach and the Betway approach for Super Group in these markets. So it's there. We are -- 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.

[Michael Graham, analyst]

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.

[Neal Menashe, executive]

Okay. It's Neal 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 are 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've 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. And remember the casino business is easier for us and this is what our bread and butter is across the world, so America will -- is no different.

[Operator]

The next question comes from Mike Hickey of The Benchmark Company.

[Michael Hickey, analyst]

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. Neal, I appreciate the color there. You've obviously sized up your losses here, well, 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 of your path to profitability: You 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 iGaming regulation in the U.S. [ in ] '25.

[Neal Menashe, executive]

Yes. And so from our point of view for 2025, we are not aiming to invest more money than you're seeing in the last 2 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. Listen. With the new government comes new regulations or not changing the 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, it's let's see how it goes. I think it's -- I think they're pro-business, so hopefully, that should be good.

[Michael Hickey, analyst]

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 in '25?

[Neal Menashe, executive]

Yes, 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're still in a good position there, so we still have a decent share of the market. Obviously, when -- we learned the lessons on Ontario from going to the regulated regime, so all the lessons we learned there will come into Alberta, Alberta 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 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 cybersquatting on our brands, especially Jackpot City. 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.

[Michael Hickey, analyst]

Yes. I guess, moving to Africa. You touched on it a bit. You obviously got a huge head start. You've got a #1 share position on the continent. Can you just frame for us maybe the market opportunity you see in Africa in terms of TAM, 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 #1. 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.

[Neal Menashe, executive]

Yes. We don't have market shares, but what I can say is on that map we show we're in podium positions, so if you take the whole continent, we definitely are -- remember we're only open in 7 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, 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 tremendously. And we know the products from Europe. We know the products 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're in, we are working towards making the product better. And I think that's where we've got a huge head start.

So our marketing budget is -- our global marketing budget has the brands in it, which then obviously helps resonate. And then we can counter that 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, obviously uses our feeds and certain stuff that we give them, but it can operate and grow by itself. And that's, I think, the key. And the beautiful part is it's got the Betway brand, the Jackpot City brand, et cetera. So that's why we see good growth, yes.

[Michael Hickey, analyst]

Do you have a sense of how big the TAM 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?

[Neal Menashe, executive]

Yes. So we think [indiscernible] 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 or -- et cetera that haven't even got [ the regs in ]. So there's Angola. There's lots of them. And then there's Senegal, [ which has a reg in ], 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, everyone that we go to, Betway is 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.

[Michael Hickey, analyst]

[indiscernible] regulatory piece. Like how do you sort of give comfort to U.S. investors that the regulatory situation in Africa is -- how do you get comfortable there, I guess, Neal, will be the question.

[Neal Menashe, executive]

Yes, okay. So I mean we get this question all the time. And we work with the regulators. We work with all the government bodies. We help draft the regulation. Actually the question should be the other way, is what happened in Germany. What happened in the Netherlands? What happened in Belgium? They've gone the other way -- even what happens 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 funnily enough, I think, in Africa, because we're working with them and we pay all of 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.

[Michael Hickey, analyst]

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 -- maybe they're there already. I don't think they are, but do you have a sense of when they might be coming in?

[Neal Menashe, executive]

Yes, okay. And the truth is none of them are really there at all. Maybe they're all focusing on Brazil. They're basically focusing on Brazil, which is why we're not. We've -- so I think we picked our battle. And that's what you do. I think the only one who's there, who's really small, is 888, but there's no one else there really -- local operators. There -- yes. There's local operators we find ourselves up against, and different ones in different countries.

[Operator]

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