SGHC Limited

NYSE:SGHC

Earnings Call Analysis

Record Revenue and Strong Growth in 2023

Super Group achieved a record-breaking year in 2023 with total revenue reaching EUR 1.406 billion, surpassing their guidance and marking an 8% increase from the previous year. In a particularly challenging Q4, plagued by low sports margins and the Indian market's closure, they still posted their highest fourth-quarter revenue ever at EUR 352 million. Their operational EBITDA also beat expectations, totaling EUR 255 million for the year, with Q4 EBITDA at EUR 54 million. The company grew its customer base to 4.7 million active monthly users, a year-on-year increase of 1.2 million, despite exiting India. Focused on their profitable, cash-generative global business, separate from U.S. investments, they expect a minimum of EUR 280 million in adjusted EBITDA in 2024, forecasting over 10% top-line growth to EUR 1.55 billion. The strong year-end balance included EUR 242 million in unrestricted cash without any debt.

Strong Finish Despite Headwinds

The company faced significant challenges in Q4, including unprecedented low sports margins from soccer results and market closure in India, affecting revenue. Nevertheless, they achieved the highest ever total revenue for a fourth quarter at EUR 352 million. Their robust performance, particularly in the casino segment which accounted for over 85% of net revenue, allowed them to offset headwinds and set a new December record for EBITDA, solidifying their resilience.

Impressive Customer Growth and Retention

Despite hurdles, the company grew its unique active monthly customers to an average of 4.7 million worldwide, a substantial year-on-year increase. This growth is a testament to strong customer retention and acquisition strategies, which helped reach new highs in daily customers and deposits.

Annual Earnings Exceed Expectations

For the year 2023, the company surpassed its revenue guidance, bringing in EUR 1.406 billion, which is an 8% increase year-on-year. The operational EBITDA also outperformed, achieving EUR 255 million, up by 22% from the previous year, easily surpassing the expected EUR 240 million.

Geographic and Sectorial Expansion

The company saw significant growth in key jurisdictions, with Africa experiencing strong revenue growth, Europe showing advances in mature markets like Italy and Spain, and Canada maintaining solid performance aided by industry regulations in Ontario. The innovation of localized gaming content and technological adoptions indicates a potential for sustained growth across these regions.

Challenges and Strategy Re-evaluation in the U.S.

The U.S. market remains challenging, prompting a careful state-by-state evaluation of the company's strategy, as the invested amount is high compared to the current scale of regulated iGaming states. The 2023 U.S. investments led to an EBITDA loss of EUR 18 million for the quarter and EUR 57 million for the full year, slightly less than the forecasted range of EUR 60 million to EUR 65 million.

2024 Guidance Optimism

Looking ahead, the company forecasts strong growth outside the U.S., expecting a minimum of 10% year-on-year growth, bringing revenue to an estimated EUR 1.55 billion. Additionally, the EBITDA guidance for regions outside of the U.S. is projected to be at least EUR 280 million, which represents close to a 10% increase from the previous year.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, everyone and thank you for joining us today to discuss Super Group's results for the fourth quarter and full year 2023. 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 from the company's forecast. Super Group assumes no responsibility, to update forward-looking statements other than as required by law.On today's call, Super Group may refer to certain no-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 measures -- 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 its financial results, and metrics in two parts highlighting Super Group's profitable, and cash generative global business, separately from its investment into the U.S. This aligns with the annual guidance that Super Group has provided for both 2023 and 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 its supplementary presentation posted to the website.On this call, I am joined by Neal Menashe, Chief Executive Officer and Alinda Van Wyk, Chief Financial Officer. During the question-and-answer session, we will also be joined by Richard Hasson, President and Chief Operating Officer. [Operator Instructions] Please note this event is being recorded.And now, I would like to turn the call over to Neal.

[Neal Menashe, executive]

Thank you. Good morning, everyone, and welcome to Super Group's Quarter 4 and Year-End 2023 Earnings Call. We have made tremendous strides in 2023. We are cementing our position as a profitable and geographically diverse online sports betting and iGaming operator.We have a clear and sustainable path to future long-term growth. I'm so proud of what we achieved in the last year, and I'm really excited about the outlook for 2024. We feel like we are just getting started as we head into our third-year as a New York-listed business. We are determined to deliver meaningful long-term shareholder returns.Let's take a quick look at our 2023 numbers, excluding the U.S. For the full year, we set a new annual record for total revenue of EUR 1.406 billion. And for operational EBITDA, we achieved a total of EUR 255 million, meaning that we easily surpassed guidance on both fronts.Moving on to Q4, total revenue came in at EUR 352 million, with operational EBITDA of EUR 54 million. The fourth quarter had its challenges, with October's unprecedented low sports margin, driven by soccer results and the closure of the Indian market. However, we made a strong recovery, and set some new records. Total revenue was the highest ever for a fourth quarter, and December was our best-ever EBITDA month.The ability to navigate these bumps in the road is a testament to our diverse and loyal customer base. Our customers are active across both sports betting and casino. Over 85% of our net revenue in the fourth quarter came from casino, proving that even when the sports results go against us, we still have the ability to deliver record-breaking results.In the U.S., our net EBITDA loss for the quarter was EUR 18 million, taking our full year investment to EUR 57 million. Worldwide, our customer growth is impressive. Even without India, our customer numbers grew to an average of 4.7 million unique active monthly customers. That is 1.2 million more customers than we had at the same point last year and 700,000 more customers than last quarter.Our customer retention remains strong, and this, along with new customer acquisitions, drove us to new highs, for daily customers and daily deposits. Each quarter this year, we set records on each of those fronts, and consistently surpassed them. We are a technology-driven business, with customers being at the center of our universe. And it's great to see continuous engagement, from both new and existing customers, some of which have been playing with us for over 20 years. These strong metrics make us confident that we will achieve the double-digit top-line growth that we are projecting for 2024.Now to provide an update, on some of our key jurisdictions. Starting with Africa, we had another quarter of strong revenue growth. We accomplished this, even though the African market was a key driver, behind the negative sports margin for the business in October. Moving forward, we continue to explore the introduction of new products and brands, into both new and existing markets. Just last month, we successfully launched our Jackpot City brand into our first African market. And we are super excited about the prospects that [ Asena ] brand presents for us across the continent.In Europe, we're encouraged to see growth in markets, which we would typically define as more mature and established. In particular, Italy and Spain were standout performers. Both regions grew their casino segments significantly year-on-year, by offering new localized gaming content.In the UK, Betway delivered strong growth. Jumpman delivered its most profitable quarter ever. And similar to Africa, we rolled out the Jackpot City brand. We are well positioned to handle the UK Gambling Commission's plan to introduce a cap per spin for online slot games later this year. We expect this to have a limited impact on revenue, because of the nature of our UK business, and the composition of the customer base.In Canada, casino grew well, and overall this remains a strong market for us. In Ontario, industry regulation prompted an initial dip. But our customer attention is now exceeding, what it was before the new rules took effect. Customer values, are as good as they ever were. And revenues, which initially stabilized, are now great.In the U.S., while we continue with our previously communicated technology, migration and marketing plan, we are not pleased with the status quo. Given the size of the investment required, the competitive landscape, and the relatively small number of states that are currently regulated for iGaming, we are actively evaluating our U.S. strategy on a state-by-state basis and will make changes as required.We announced in February that, we completed the sale of DGC's B2B assets to Games Global. The B2B division of DGC is in great hands, and we wish all the parties, the best of luck moving forward. The completion of the transaction aligns with our goals, which is the growth of our worldwide B2C business.Finally, I'm pleased to let you know that we are very close to finalizing commercial terms and agreements with Apricot to assume full control of our Betway Global sportsbook technology. This includes a favorable risk-sharing deal structure, which comprises an upfront consideration, and an earn-out. Once completed, this will be a monumental milestone for our business, and will allow the global rollout of the software to new and existing markets, whether built organically, or through M&A. We look forward to getting this wrapped up, and will provide an update before the end of the month.I will now hand the call over to Alinda to discuss the financials in greater detail. Alinda?

[Alinda Van Wyk, executive]

Thank you, Neal. Reflecting on 2023, I'm pleased with how the teams have navigated various challenges, to deliver strong growth across both the top and the bottom line. Our business model remains adaptable, resilient and primed for future growth.Let's get straight into the numbers. For 2023, we set a new record for ex-U.S. total revenue, which came in at EUR 1.406 billion, up 8% year-on-year and 19% in constant currency. And therefore, comfortably beating our total revenue guidance of EUR 1.35 billion. We also delivered the highest-ever total revenue for the fourth quarter of EUR 352 million, up 7% year-on-year and 15% in constant currency.As we touched on the last earnings call, sportsbook revenue was impacted in the fourth quarter, due to October's customer-friendly results in soccer. We rebounded in November, and even performed better in December, but sportsbook revenue still declined for the quarter to EUR 53 million, a decrease of 39% year-on-year and 34% in constant currency. This decline was further impacted, by the closure of the Indian market, which of course is included in the comparative quarter.Moving on to casino, net revenue came in at EUR 289 million, an increase of 22% year-on-year or 52% in constant currency. This growth was driven by strong performance in Africa, Canada and some of our European markets. Despite the strong performance in this segment, growth was offset by the closure of India. I am very pleased with the progress we have made in optimizing costs in the right areas. We are not about cutting costs for the sake of improved margins. Instead, we continuously analyze our costs, and understand the areas where we can operate more efficiently. We are investing in technology, AI and enhanced processes to drive long-term efficiencies and innovation. All of this allowed us to reduce our headcount over the year by more than 11%.This focus has led to our total operating costs as a percentage of net revenue in the fourth quarter falling to 19% compared to 22% in the same quarter of last year. This is a huge saving of 3% of net revenue. Another area where we will continue to invest is our marketing. We spent 29% of net revenue on marketing during the fourth quarter. We scrutinized the return on investment per market and per channel to ensure optimal delivery of our revenue targets, and to deliver top-line growth. We never want to sacrifice long-term growth for the sake of short-term margin improvements.Operational EBITDA ex-U.S. for the full year came in at EUR 255 million, being 22% year-on-year growth, comfortably beating our 2023 guidance of at least EUR 240 million. Our EBITDA margins for the year was 18%, an improvement of 200 basis points as compared to 2022. This is a positive step in the direction of our long-term target of maintaining EBITDA margins of above 20%.For the quarter, operational EBITDA grew 29% year-on-year to EUR 54 million, resulting in a margin of 15%. The margin for the quarter was impacted by the robust sports results, which actually resulted in negative EBITDA for the month. However, in December and November, we achieved EBITDA margins of around 24% and 22%, respectively, demonstrating the strong end to the year and our operating leverage kicking in. The U.S. EBITDA loss for the year was EUR 18 million, resulting in negative operational EBITDA for 2023 of EUR 57 million, being slightly less than our forecasted spend of EUR 60 million to EUR 65 million.Moving to 2024, ex-U.S. guidance, we estimate that our top line will continue to grow strongly with year-on-year growth of just over 10% to EUR 1.55 billion. Going forward, and to ensure that we are aligned with best practice, we will now report on adjusted EBITDA instead of operational EBITDA. The difference in 2023 between these two metrics was immaterial. Our 2024 guidance for ex-U.S. adjusted EBITDA is a minimum of EUR 280 million. In the U.S., we have started the year's spending at a similar rate to last year. As expected, we are constantly evaluating the spend and the returns being generated.And while we are still in the process of assessing various options for the U.S. market, I do not think that it is likely that our 2024 adjusted EBITDA loss, will exceed what we spent last year. Lastly, we ended the year with a strong balance sheet, which include an unrestricted cash of EUR 242 million and no debt.I will now turn the call back to Neal. Thank you.

[Neal Menashe, executive]

Thanks, Alinda. Despite customer-friendly results in October, we recovered extremely well to set the highest ever total revenue for a fourth quarter, and for a full year. I thank our entire Super Group team, for their dedication and commitment this past year. Our business model puts us in a good position to overcome adversity. When sports betting results go against us, we can rely on our casino segment.Casino proves to be a great anchor. Over 78% of our net revenue came from casino in 2023, with the ratio in the fourth quarter growing to 85%. We are confident that this era of our business, will continue to trend upwards. 2023 was a fantastic year for Super Group. We are a customer-centric business and our customer base continues to break records. This is very encouraging for future growth.We have a clear, very clear game plan for 2024. We are focused on a number of areas, including the continued optimization of our global footprint, including the U.S. Ongoing investment into marketing channels, which yield the highest return on investment, fine-tuning our product and technology, realization of further cost efficiencies in the right areas, the rollout of our Jackpot City casino brand, across new and existing markets. The delivery of these objectives will help us achieve our projections of double-digit growth on the top line, continued increase in our EBITDA, and meaningful free cash flow. We have high expectations for 2024, and look forward to continued success.I'll now turn the call over to the operator to open the call up for questions. Operator?

[Operator]

[Operator Instructions] The first question comes from Michael Graham with Canaccord.

[Michael Graham, analyst]

I just wanted to ask for a little more depth on, your plans for the U.S. business in 2024. You mentioned assessing a range of options on a state-by-state basis. Could you just maybe comment on, I guess, number one, are there any states you're sort of happy with your competitive position? And number two, just what can you say about the range of options in each state? What can you say about the timing of some of these decisions?

[Richard Hasson, executive]

Michael, Richard here. So, as Neal pointed out, we are looking at a number of options, and obviously going through them all in extensive detail. At this point, we are assessing them all, and they range from, relooking at our current geographic footprint to, potentially looking just at casino states and of course, alongside that also any possibility of M&A. But this is very much front of mind and getting a lot of focus and, of course, we'll update you with more details as soon as we can.

[Michael Graham, analyst]

Okay. And then maybe just a quick one on Brazil. Just wondering, how you're thinking about your strategy in Brazil and any updates you can give us on your thinking there?

[Neal Menashe, executive]

This is Neal here. Brazil, like all other countries, we operate there currently. So, we are waiting for the regulated regime with -- what it means for our product, for the taxes, et cetera. So, of course, it's an important market and we are waiting for the final regs to come out there.

[Operator]

The next question comes from Jed Kelly with Oppenheimer.

[Jed Kelly, analyst]

Just given your outlook, can you talk about, what regions, you're baking in, probably maybe like the most upside from? And then just can you talk about how your tech migration is coming and what percentage of your technology is vertically integrated and [indiscernible] owned?

[Alinda Van Wyk, executive]

Jed, on tech migration, I think Richard will just --you're referring to the tech migration in the USA. I mean, you'll get an update on the acquisition of Apricot software. Can you just repeat your first question again? You want to know --

[Jed Kelly, analyst]

Yes, just on your outlook, like can you tell us what regions, you're -- where you're seeing the best growth?

[Alinda Van Wyk, executive]

Jed, as we pulled out, Neal also went into quite a few detail on our countries that we listed out but Africa is always on top of the list. It's really doing very well in that couple of African countries, and also some of the Central European. Neal called out Spain and Italy is doing very well. And then rest of Canada has really lifted its head as well with really, really strong growth this year. And there was also a good overview of Ontario that, we say is getting back to the standards we saw before.

[Richard Hasson, executive]

Jed, touching on the U.S., on the technology migration, seven of the nine states that we're live in have currently migrated, with the two last states expected within the next month or so. But, of course, that migration is being considered as part of our wider assessment of the various options that we're currently looking at.

[Operator]

The next question comes from Bernie McTernan with Needham & Company.

[Bernard McTernan, analyst]

Maybe just to start to stay on the U.S., you mentioned M&A. What kind of assets could be interesting in M&A? And then a follow-up there as well. Has iGaming legislation, has your outlook changed, or has it just been slower than expected? You mentioned it, on a state-by-state basis, assuming that has to do with iGaming legislation but just interest in your thoughts there?

[Richard Hasson, executive]

All right. So, yes, on the iGaming point, as Neal mentioned, there's a relatively small number of states that are currently regulated. And I think, yes, I think the pace that they're running out of this regulation has been slower than, the industry has expected. Within our global business, of course, a large number, a large amount of our revenue comes from gaming.So that's obviously important for us. In terms of M&A, we're looking at a range of options. And again, it's one of the numerous options as we assess the overall strategy for the U.S. And at risk of state and obvious, any M&A we look at has to be done, at the right price for both parties and make sure that it makes sense for our shareholders.

[Bernard McTernan, analyst]

Got it. Makes sense. And then if I just look at Slide 16 and the constant currency growth and appreciate that you guys are providing it. But just the difference in performance between sports betting that happened in '23, versus on like casino, should we expect them to kind of meet in the middle in '24, to get to about the 10% revenue growth or how should we be thinking about each product?

[Neal Menashe, executive]

Yes, I mean, listen, it's Neal here, just from my side is obviously sports betting over time, you've got to set margin, but it can be a bit volatile, as we saw in October, but then obviously November, December was great. So yes, based on that, I would say still 75%, 80% casinos, where I probably would set your targets on.

[Operator]

[Operator Instructions] And we have a question from Mike Hickey from The Benchmark Company.

[Michael Hickey, analyst]

Sorry I got on the call late, guys, but just curious. Latin America obviously looks like it's getting some heat here. Just curious the opportunity you see there in terms of your longer-term growth. And then just on the U.S., obviously you put a lot of energy and capital into the market, and maybe, the share hasn't spread, as we thought it would. But just curious, I know it's a challenging environment, but your motivation here, trying to drive a business, because it seems like you put the right pieces of the puzzle together. The optionality in the U.S. market alone seems, to be of value, but maybe that's not the case anymore? But thanks, guys, for any color there?

[Neal Menashe, executive]

Neal here. Because it's all about LatAm. Listen, we obviously LatAm is starting to regulate. So from our point of view, we see it very similar to the African continent. We've been there a long time. We are waiting to see what the regs mean in each of the countries, if it's Chile, Brazil, Peru, et cetera. So for us, it's of course an important market.And -- the software we use, et cetera, is very similar to Africa. So it all bodes well for that. And we've just got to see how the regs fall. And then that's part of our journey. And Richard will address your U.S. point now.

[Richard Hasson, executive]

Mike. Yes, so as you point out and as it's becoming clear, yes the U.S. is proving tough. And while we have spent time and put investment to work in the market, similar to all of the other markets around the world, it's important to us that we are constantly evaluating and re-evaluating, what we've invested in the market, and ultimately how we can get to a profitable, sustainable business.And that's what we're currently doing in the U.S. It's getting a lot of attention internally. We're very much on top of it, and assessing these options in detail. That's what we're going through now very actively. And we will update as soon as we have a response to that.

[Neal Menashe, executive]

And then I just wanted to update. One of the questions was asked on our tech, on our new tech stack. So this is obviously with Apricot almost there. It means the sportsbook is simple. We've got our 1 sportsbook that we can use across the globe, including Africa. Jumpman has its own proprietary tech stack, Betway Global. And Africa, we will then own it from beginning to end.And that means that we can then deliver all our products, and all our pricing, et cetera, across the globe. So, we're super excited about that. It has taken long, but we're almost there now.

[Michael Hickey, analyst]

Yes. One quick follow-up, gentlemen. When you look at the U.S. market, I mean, does it make sense, to sort of narrow your approach in terms of focus? I think some of the smaller operators that have also kind of suffered near-term from share have sort of focused more on states that offer both iGaming and sports betting. And I think they found that to be a profitable business. And so, obviously you guys are respected operators. You have the brand, the tech. I mean, how far off the mark do you feel you are at this point? Does it have to be something transformative in your mind, to sort of get the business? We obviously saw Penn do their deal with ESPN, TBD, but maybe not the result they wanted out of the gate. But needless to say, does it have to be, something transformative, Neal or Richard, or is it something you can kind of, just narrow your focus on states that matter in terms of a combined LTV? And then just sort of innovate and build from there?

[Richard Hasson, executive]

Mike, so it's very much a work in progress. And the type of option that you're speaking to there, those are exactly the type of options that we're assessing, across a broad spectrum. One of those is looking at the geographic footprint that's called inclusive of sports betting and gaming. Another one of those potentially is just looking at the iGaming states. And as I said earlier, there's also always the possibility of M&A. So, we really are going through the full range of options and going to work out what is best for the business and for the shareholder.

[Operator]

This concludes our question-and-answer session and Super Group's results for the fourth quarter and full year 2023 conference call. Thank you for attending today's presentation. You may now disconnect.