Super Group (SGHC) Limited (SGHC) on Q3 2024 Results - Earnings Call Transcript
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 forecast. 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 measures 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 investments in the U.S. This aligns with the annual guidance that 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 its supplementary presentation posted to the website. On this call, I am joined by Neal Menashe, Chief Executive Officer. And during the Q&A session, we’ll be joined by Alinda Van Wyk, Chief Financial Officer; and Richard Hasson, President and Chief Commercial Officer. I will now turn the call over to Neal. Neal Menashe: Thank you. Good morning everyone and welcome to Super Group’s third quarter 2024 earnings call. Quarter three 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 €395 million. Adjusted EBITDA ex the U.S. was a set of third quarter record, growing 52% year-over-year to €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 confidence of Africa where we see success and significant opportunities. For the second quarter running, Africa provides the largest portion of our revenue. We have operated in Africa for more than a decade and have built a super strong competitive moat. Our footprint spans seven locally regulated markets, and we hold podium positions in five of them. And there's more to come. We have a healthy pipeline of new markets that will be viable in the next 12 months. Beyond that, the continent is expected to grow by 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 US has proven to be trickier. We've completed the shutdown of our US sportsbook operation. I'm pleased that the associated costs came in around €9 million less than our previous estimate of €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 US or any market, we must be able to see a sustainable path to profitability. We expect our quarter four investment to be less than what we invested in quarter three, and we are pleased to be seeing some green shoots. Moving on to the balance sheet. Our financial position is robust, and we finished the quarter with unrestricted cash of €297 million and no debt. This is after having paid the €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-US adjusted EBITDA guidance to exceed €345 million, representing a margin of 22%. We are seeing the operating leverage in our business kick in, and we are really pleased to be above our long-term target margin of over 20%. We look forward to capitalizing on our momentum and closing out a super year for Super Group. I'll now turn the call over to the operator to open the call up for questions. Operator? Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jed Kelly of Oppenheimer. Please go ahead. Jed Kelly: Hey. Thanks for taking my questions. 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: 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, fun enough, which was obviously the end of quarter three didn't have such good results. So we produced a really good third quarter without even having those. So for us is -- in fact, the 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: Hi 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 the same path to profitability once we go live. And as Neil mentioned earlier, we're currently focused on optimizing our existing footprint and building on our current revenues. Jed Kelly: And 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 an update there? Thank you. Alinda Van Wyk: Hi. It's Alinda. Neal mentioned now that we're definitely considering as 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 invest into our technology and finalizing that project, returning money in the way of marketing spend. That's why especially quarter 4, we ported back -- we're spending a bit more 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: Yes. Jed, nothing that's worth I mentioned on this call, but as in constantly looking at potential strategic opportunities across the markets that make sense for us. Operator: Our next question comes from Bernie McTernan from Needham. Please go ahead. Bernie McTernan: Great. Thanks for taking the questions. 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: So yes, I mean obviously, September sports wasn't as good, but October that we had great volumes in our system, our customer base, et cetera. The same is same happened in October, so 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 -- with them in 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're closing the countries we're in and the confidence we are on, and we are full on into those and becoming the best that we can in the markets in which we operate in. Bernie McTernan: Understood. And 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 as the growth guide for this year, about 10%, there's 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's some reasons why reported revenue could accelerate next year, but would love to get your thoughts. Neal Menashe: Okay. So it's Neal again. Just to remind everyone, we shut -- we closed down India last end of September last year. So you're 100% right. So ex India, we're up 24%. Bernie McTernan: Okay. Really strong number. And then just two more for me. Kind of same thing longer term, just all the cost efficiencies sees that are coming through, margins better than expected. Longer-term margins as you mentioned the longer-term target of 20% plus. But should we be thinking -- how much more of a plus should we be thinking about? And maybe how quickly can you get there? Alinda Van Wyk: Hi, Bernie, Alinda here. Like we've reported now that two 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 2025 as a standard. Bernie McTernan: Got it. Perfect. That's great. And then lastly, just one quick modeling question. Should any of the US shutdown costs bleed into the fourth quarter? And also just any color on -- in the reconciliation in the press release, there's US shutdown costs and then also just other market closures, just what that other market closure was the €5 million. Thank you. Alinda Van Wyk: Bernie, its Alinda here. The -- happy to report, there's nothing not -- no more to report in quarter four. That's obviously also why there's a impact on the overall profitability that you see in the press release, but sportsbook closure has now been accounted for in quarter three and two. So nothing in quarter four. And then the other market closures, a spillover from India that we just had to report on -- it was a processor investment that we just had to impair. But this just based on last year's closure of India. Bernie McTernan: Understood. Thanks for taking questions. Operator: Our next question comes from Michael Graham of Canaccord. Please go ahead. Michael Graham: Thank you and congrats on the improved profitability outlook. I wanted to ask about Africa. You have a podium position in five of the seven markets that you're live in. And just wondering if you could talk about the difference between those top five versus the other two? And just maybe share a little bit about how durable you think your position is in Africa? Neal Menashe: Yes, hi. It’s Neal, here. So basically, as I said, we've been going for 10 years. We have a dedicated team of over 1,000 people. The brand -- the Betway’s brand in particular resonates particularly well in Africa, maybe because in all the branding we do on the football, et cetera -- remember, football soccer is the number one sport there. So in all the podium countries, we -- I mean, in the five countries we had podium position. And South Africa, Zambia, Ghana, et cetera, we really, really quite performing well. I think the other one, we aren't as performing as well as we should, but that's we're on it, and we've got a pipeline of a few others to come. But again, we have to set each one and make sure we can get it. And very exciting for us is in most of these countries where we offer online casino, we've been rolling out Jackpot City. So we've rolled already in South Africa, and we're going to be rolling it out in Ghana, et cetera, and that's a hole. So 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 spend there. We've got big revenue there. So we are very comfortable with the growth opportunities that we see coming out of that content. Michael Graham: And then I'd love to just get a little more color on iGaming in the US. Just maybe talk about the long-term view on how you're thinking about online casino for you in the US? Neal Menashe: Okay. Hi. 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're seeing good green shoots. Again, we're not chasing revenue for revenue and ever to make a profit. So we have to make sure we can get to the revenue target that we set the business, which so far, they are meeting, and then we want to be able to turn this into a profitable business. But if we feel that it gets too far away from being able to achieve profitability, then we have to change stance. Remember, the casino business is easier for us, and this is what our present brand factor is across the world. So America will -- is no different. Michael Graham: Okay. Thank you, Neal. Operator: The next question comes from Mike Hickey of The Benchmark Company. Please go ahead. Mike Hickey: Hey, Neal, Richard, Alinda, good morning or afternoon for you guys or evening. Congrats on a great quarter, fantastic, great year to kudos to all of you. Just following-up maybe on Michael's question on the US market, Neil, I appreciate the color there. You've obviously size up your losses here considerably exiting sports betting. On iGaming front, I mean, it's early days here. Obviously, 2025's going to be interesting. Just getting a better sense of your path to profitability, said you're hitting your revenue targets into 2025, and thinking about sort of the political atmosphere and the change here, how you think that could impact potentially iGaming regulation in the US in 2025? Neal Menashe: Yes. So from our point of view for in 2025, we are not aiming to invest more money than you're seeing in them for the last two quarters, right? But what we have to see is can we grow the revenue, which has been growing and make sure we do see a path to profitability. But with the new government and comes new regulations or not changing the existing regulation, so hopefully the new Republican government see that and understand that if you over tax, 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 that for our business, hopefully that should be good. Mike Hickey: Looking at, 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 minuses of Alberta regulating here? Thanks a lot. Neal Menashe: Okay. So Canada really compared year-on-year growth overall has been very good. Ontario is better. It's not where we need it to be. But we are still in a good position there. So we still have a decent share of the market. Obviously, when we learned the lessons on Ontario from going to the regulated regime, so all the lessons we learned there will come into Alberta or better looking to move to 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 and 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 done deep, and we've really sorted out where we were losing traffic, where people with cyber spotting on our brand with 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 all end in this country and stuff, we can focus and get it right, which is what we're doing. Mike Hickey: Yes. I guess moving to Africa. You touched on it a bit. Obviously, you got a huge head start. You've got a number one share position on the continent. Can you just frame for us maybe the market opportunity you see in Africa in terms of competition. It seems like some of the more predominant online players aren't in Africa, yet curious why but obviously -- and on your market share, I know you're number one, 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: Yes. We did market shares. But what I can say on that map, we show we're podium positions. So if you take the whole continent, we definitely remember, we only open in seven of the countries, right? There's a lots of countries we're not which we're coming to. I think it's been a long time coming. We've been at for 10 years and remember, the population is exploding. And on top of that, the use of mobile phones is exploding. And we take the micro bets, we've got high-value customers, small customers. So I think it's the product, it's the brand, it's everything. And as they open up more online casino, that obviously helps us tremendously. And we know the product from Europe. We know the product from all the other markets we operate in. And I think our key here is that it's a great brand, great technology and a great unbelievable dedicated team that literally every, 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 brand in it. We can obviously help 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? 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 it has a ring-fenced business, Africa’s ring fence. It's on its own tech, obviously uses our fees and certain stuff that we give them, but it can operate and grow by itself. And that, I think, is the key. And the beautiful part is that's got the Betway brand, the Jackpot City brand, et cetera. So that's why we see good growth here. Mike Hickey: Do you have a sense of how big the TAMs 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: Yes. So we think and I think TAM is about 5 billion and it has obviously been growing and growing. So again, as they open up more of the regulation, I mean, there are countries like Rwanda, et cetera, that haven't even got the rates there. So there's Angola, there's lots of them and then there is Senegal which has already, we're not even in. So there are lots of them that we can go to, but we've got to find the one. Remember, everyone that we go to Betway 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. [indiscernible] Mike Hickey: The regulatory piece, like how do you sort of give comfort to US investors that the regulatory situation in Africa -- how do you get comfortable there, I guess, Neal, will be the question Neal Menashe: I mean we get this question all the time. We work with the regulators. We work with all the government bodies. We help draft the regulation. Actually, the question would 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 the risk we have as a business all over the world. The fun, I think, in Africa, because we're working with them, and we pay all the taxes in these markets. In some of these markets, we're one of the biggest taxpayers. And I think when you're doing that, and we're giving us CSR, our BWK is back into the local communities, we are working with them and showing that we are helping. Q – Mike Hickey: Do you have any sense of when you think you'll see some of the bigger online players like Flutter at 365, 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: And the truth is none of them are really there at all. Maybe they were focusing on Brazil. They're basically focusing on Brazil, which is why we're not up to that -- we've -- so I think we picked our battle and that's what you do. I think the only one is there is really small is 888, but there's no one else there really. Q – Mike Hickey: Okay. All local operations… Neal Menashe: That has local operators, we find ourselves up against and different ones in different countries. Q – Mike Hickey: Okay. Appreciate the color, guys. Thank you. Good luck Neal Menashe: Thank you. Operator: This concludes the question-and-answer session. The conference is adjourned. Thank you for attending today's presentation. You may now disconnect.SGHC Ratings Summary
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Super Group Reports Q4 Results, Provides Guidance
Super Group (NYSE:SGHC) reported its Q4 results on Tuesday, with revenue of €329.1 million and full-year revenue of €1.29 billion, exceeding the high end of the guidance range.
The company guided for 2023 core-Revenue/EBITDA (non-US) to 4%/7% year-over-year (8%/9% ahead of Street estimate), implying Canada returning to year-over-year growth, a stable regulatory environment, and higher OPEX/Marketing leverage.
Guidance implies gross margins decline of 270bps on higher taxes in Ontario. Additionally, management expects to invest $70 million in US operations following the DGC acquisition, with a similar level in 2024.
Analysts at Oppenheimer expect investors to question the US market strategy given that market share continues to be consolidated among the top-two players, however, management was a decade behind in the UK and is now holding up a profitable business in that market.
Super Group Reports Q4 Results, Provides Guidance
Super Group (NYSE:SGHC) reported its Q4 results on Tuesday, with revenue of €329.1 million and full-year revenue of €1.29 billion, exceeding the high end of the guidance range.
The company guided for 2023 core-Revenue/EBITDA (non-US) to 4%/7% year-over-year (8%/9% ahead of Street estimate), implying Canada returning to year-over-year growth, a stable regulatory environment, and higher OPEX/Marketing leverage.
Guidance implies gross margins decline of 270bps on higher taxes in Ontario. Additionally, management expects to invest $70 million in US operations following the DGC acquisition, with a similar level in 2024.
Analysts at Oppenheimer expect investors to question the US market strategy given that market share continues to be consolidated among the top-two players, however, management was a decade behind in the UK and is now holding up a profitable business in that market.
Super Group Reports Q3 Results, Reiterates Guidance
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The analysts believe the wide range suggests a high degree of conservatism over holds around the FIFA and Cricket World Cups. The DGC acquisition will close in early January, and the analysts will update their estimates accordingly. Management plans to break out DGC separately given the EBITDA drag from operating in the hyper-growth US market. The analysts see Canada returning to growth in H2/23 but remain on the sidelines until financial visibility improves.
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Analysts at Oppenheimer downgraded Super Group Limited (NYSE:SGHC) to perform from outperform and removed their previous $8 price target following the company’s reported Q2 results last week.
The analysts highlighted the company’s reiterated full-year guidance, which came well-below Street estimates on Macro, Europe regulatory headwinds, and Canada's legal transition.
Q2 revenue dropped 10% year-over-year to €320.8 million, 12% below the Street estimate, as a result of online casino net gaming revenue and brand license fee income decline, partially offset by a revenue increase in sports betting net gaming. Q2 monthly average customers grew 3% year-over-year to 2.7 million.
Super Group Downgraded to Perform at Oppenheimer Following Q2 Results
Analysts at Oppenheimer downgraded Super Group Limited (NYSE:SGHC) to perform from outperform and removed their previous $8 price target following the company’s reported Q2 results last week.
The analysts highlighted the company’s reiterated full-year guidance, which came well-below Street estimates on Macro, Europe regulatory headwinds, and Canada's legal transition.
Q2 revenue dropped 10% year-over-year to €320.8 million, 12% below the Street estimate, as a result of online casino net gaming revenue and brand license fee income decline, partially offset by a revenue increase in sports betting net gaming. Q2 monthly average customers grew 3% year-over-year to 2.7 million.
