Sportradar Group AG (NASDAQ:SRAD) Q4 2023 Earnings Call Transcript

Sportradar Group AG (NASDAQ:SRAD) Q4 2023 Earnings Call Transcript March 20, 2024

Sportradar Group AG beats earnings expectations. Reported EPS is $0.08, expectations were $0.06.
SRAD isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and welcome to Sportradar’s Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to hand the conference over to Jim Bombassei, Head of Investor Relations and Corporate Finance. You may begin.

Jim Bombassei: Thank you, operator. Hello everyone, and thank you for joining us for Sportradar’s earnings call for the fourth quarter of 2023. Please note that the slides we will reference during this presentation can be accessed via the webcast on our website at investors.sportradar.com and will be posted on our website at the conclusion of this call. A replay of today’s call will also be available on our website. After our prepared remarks, we will open up 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 this 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 on our Annual Report on Form 20-F and Form 6-K filed today with the SEC, 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 IFRS and non-IFRS financial measures. Additional disclosures regarding these non-IFRS measures, including a reconciliation of IFRS to non-IFRS measures, are included in the earnings release, supplemental slides, and our filings with the SEC, each of which is posted to our Investor Relations website.

Joining me today’s call are Carsten Koerl, our Chief Executive Officer, and Gerard Griffin, Chief Financial Officer. And now, let me turn the discussion over to Carsten.

Carsten Koerl: Thanks, Jim. Good morning. We are excited to speak with you today to provide an overview of our performance in 2023 and our strategic outlook in 2024. As a global leader in sports technology, we continue to consistently deliver above market growth at scale. This reflects the depth of our content and the high value proposition of our product offering, supported by the breadth of our client and partnership relationships. In 2023, we continue to scale and refine our business strategically, delivering strong growth in revenues, profitability and cash flow. We also drove stronger operating leverage, while continuing to invest in our content and technology capabilities. We plan to maintain this growth momentum in 2024 with a more agile and focused organization.

In 2023, we delivered revenues and adjusted EBITDA at the high end of our guidance range, with revenues up 20% and adjusted EBITDA increasing 33%. This marks the third consecutive year we delivered at least 20% revenue growth. We also improved our adjusted EBITDA margins by 1.8 percentage points and grew net cash flow from operating activities by 54%, highlighting the operational leverage in our model. Now I will touch upon several operating highlights in 2023, illustrating our exceptional performance. First, we are thrilled to be selected as the successful bidder for the global ATP data, betting and streaming rights for the next six years. We are truly excited about that this will bring the tennis fans around the world. Both Sportradar and ATP have great ambitions to plan and to revolutionize sports betting in tennis, bringing to market innovative products on services, some of which I will discuss shortly.

In addition to ATP, we strengthened our content portfolio with other long-term partnerships, including with NASCAR, CONMEBOL, the South American Football Confederation and Bundesliga, the premier German Soccer Federation. Collectively, these partnerships fuel our ambitious product roadmaps to transform the sports betting experience, foster more in play betting, while drive more value to our clients and Sportradar. With our NBA partnership, we expanded several of our commercial deals, including Caesars Sportsbook and BetMGM for official NBA data. With these, we now have agreements with all the major operators in North America, which represents nearly 100% of the U.S. market, signing on for official NBA data. We were also selected to power Taiwan Sports Lottery, the 6th largest sports lottery globally.

We have fully integrated Sportradar’s Sportsbook solution across more than 2,600 retail outlets as well as web and mobile channels. This is another great win and we now work with nearly 50 lotteries around the globe and intend to sign additional partnerships in the near future. These achievements and the results this past year speak to the tremendous progress we are making to cement our position as the partner of choice in the industry. Given the strength of our business, fundamentals and the confidence in the positive outlook for the future, our Board of Directors have approved a $200 million share buyback, underscoring our confidence in the long-term value proposition. I also want to take a moment to update you on our CFO search. We have been conducting our search progress and have some strong candidates under consideration.

We are confident we will select a strong individual to take on this role. I’m excited about the strong foundation we established and the momentum we have against opportunities that await us in 2024. Core to this is the depth and breadth of our real time sports content, data and technology, which are the key competitive advantages and serve as a foundation to our growth engine. We cover approximately 1 million events annually across approximately 70 sports and partners with approximately 400 sports leagues and federations. We are the leading solution provider of unparalleled insights into sports. The continued enhancing and scaling of the real time content and data fuels our innovative product development, helping to drive the future growth and leverage in our business.

In 2023, we further strengthened these assets, most notably through our partnership with NBA and ATP. These global partnerships bring incredible reach and value to our overall content portfolio and product offering. As I have mentioned on previous calls, Tennis boosts a global fan base of 1.6 billion eyeballs, making it the second most-balanced sport, underscoring its enormous reach and appeal. Similarly, basketball is a huge followed global sports with 2.2 billion fans worldwide, ranked as the third most battle-on sport. Our approach to our portfolio of rides is both strategic and deliberate, focusing on the rights that deliver the highest ROI and allow us to continue to invest, innovate and deliver the best value for our clients, partners and shareholders.

We believe we have the right mix and scale of content, while we have an ability to acquire more rights, if the ROI makes sense. We do not need additional rights in order to deliver on our growth targets. Now turning to our product roadmap. It is packed with exciting innovations, leveraging our proprietary tech and deliver further value to our clients. From expanding Live Ops markets to enhanced streaming betting products to creating next level betting engagement tools, we continue to define the sports betting experience. As I mentioned, at the core of our strategy lies the product authorization and deep data and how it enables us to launch new end value add products to the market that create a more immersive betting experience. Our partnerships with NBA and dApp are great examples of this.

We are creating deeper insights from games and matches, driving innovation, enriching the fan experience, and simulating in-play betting. Let’s talk about some of these innovations and new products. First, I’m excited to discuss our new Sportradar Foresight Streaming Technology, which we launched initially with the ATP and went live earlier this month in Indian Wells. ForeSight enhances our core audiovisual offering by seamlessly integrating animated overlays such as live broadcast graphics, statistics, and visualizations directly into the video stream of games for sports books. This leads to an enhanced viewing experience and excites betters about new in-play betting markets, as we gear up to introduce micro betting later this month. Where we will provide sports fans with the opportunity to bet on key moments in the match.

We are also very pleased to roll out our emBET product to the NBA’s league Pass OTT platform. emBET another industry first product integrates live betting content in real time into an OTT platform, offering a wide range of real-time data, including point spread over under inside and player props. emBET creates the ultimate integrated bet and watch experience during live stream broadcast of a game and reduces friction when OTT viewers want to place bets. It is great to see that emBET has already been significant uptake with unique users growing tenfold since it launched at the beginning of this year on pus. As we add additional batting functionality over the coming months, we anticipate usage to continue to climb. We are also very excited about our game changing our thoughts offering, which builds on our market leading core art solution by generating arts tailored for individual sports books based on their real time liquidity.

We are very excited how this has already proven itself in the marketplace, generating an approximately 10% higher margin for sports books on their betting tickets. These are a few examples of products that have either launched or will launch in 2024. I feel great about our robust product roadmap and the opportunities it’ll unlock. Moving to our 2024 financial growth, we see a clear path to delivering robust growth. We expect another year of at least 20% revenue and adjusted EBITDA growth. Execution of our game plan in 2024 should position us for continued growth and meaningful operational leverage over the coming years, as well as strong free cash flow generation. Our growth in 2024 will be underpinned by our recurring business, which will benefit from underlying market growth and contractual increases in addition to unlock further value leveraging our best-in-class product and content portfolio.

Furthermore, we will see a meaningful step-up driver by our newly acquired NBA and ATP rights. In conclusion, we are indispensable, trusted partner of the sports industry, delivering solutions at scale. Our exceptional leadership is laser-focused on driving efficiency, excellence and quality across the board. Underpinning this is our unwavering focus on client and shareholder value, as we execute against our strategic priorities and 2024 growth plan. Now, I will turn over to Gerard to review the financial highlights. Thank you.

Gerard Griffin: Thank you, Carsten. We delivered strong revenue and EBITDA growth in 2023, closing out the year with our financial results at the high end of our guidance range. Our business fundamentals are strong and we are well-positioned for continued growth and success in 2024 and beyond. Our fiscal 2023 financial results reinforce the durability and scalability of our growth profile, as well as our focus on profitability. Revenues were EUR878 million, up EUR147 million or 20% year-over-year. Profit for the year from continuing operations was EUR35 million, up EUR24 million or 230% year-over-year. Adjusted EBITDA was EUR167 million, up EUR41 million or 33% year-over-year. Adjusted EBITDA margins were 19%, an improvement of 1.8 percentage points year-over-year.

Net cash flow from operating activities were EUR259 million, up EUR91 million or 54% year-over-year. Our revenue growth was well ahead of our market growth rates, enabled by focused execution and the scale of our business. This was driven by strong growth from our recurring client base, including strong expansion in fast developing markets like the U.S. and new global client wins such as the Taiwan Lottery. We have made significant progress in driving profitability, improving operating leverage by 1.8 percentage points, due primarily from leverage in our sports rights and personnel expenses as well as a stronger revenue mix. We continue to maintain a strong balance sheet, closing the year with liquidity of EUR497 million, comprised of EUR277 million of cash and cash equivalents and a EUR220 million revolving credit facility with no amounts outstanding.

Today, we are pleased to announce that our Board of Directors has approved a $200 million share buyback program, justified by our strong business fundamentals and our confidence in the long-term profitability and cash flow outlook for the company. Now turning to the fourth quarter. We delivered revenues of EUR253 million, up EUR46 million or 22% year-over-year. We are very happy with the market performance of all major product lines, with each generating at least 20% growth. Recivore betting was up EUR26 million or 25% year-over-year with strong performances across all the main product lines. In particular, Live Odds and Data was up 15% year over year, MBS was up 48% year over year, driven by the initial set of revenues for the Taiwan Lottery and a rebound in our MTS business in the latter part of the quarter.

Rest of World AV was up 8 million or 20% year-over-year, supported by the addition of our new CONMEBOL and NBA rights and an uplift in services to existing and new clients. The United States was up EUR12 million or 28% year-over-year, driven by strong market performance, including the initial contributions from our NBA deal and an uplift from selling additional services to existing and new clients. In U.S. dollar terms, our U.S. business grew 37% year-over-year. All other revenues were broadly flat year-over-year. Profit for the quarter from continuing operations was EUR23 million compared to a loss of EUR33 million in the per year quarter. This improvement was driven primarily by a EUR40 million positive year-over-year impact from foreign currency and a stronger revenue contribution in the current year.

Looking at our adjusted EBITDA, adjusted EBITDA was EUR40 million, up EUR4 million or 13% year-over-year. Adjusted EBITDA margins were 15.7% down 1.3 percentage points and deleveraged from higher sports rights, partially offset by operating leverage primarily in personnel expenses. Personnel expenses were EUR89 million, up EUR8 million or 10% year-over-year. Sports rights were EUR75 million, up EUR25 million or 51% year-over-year, driven by the new rights, in particular, the kickoff of our NBA partnership in the current quarter. In summary, we delivered a strong Q4 financial performance to cap off a strong growth year in 2023, where we have delivered at the high end of our guidance ranges. But these strong business fundamentals, we are well positioned for continued growth and success in 2024.

With that, let’s turn to our 2024 outlook. For fiscal 2024, we expect to continue to scale our business globally, delivering at least 20% growth in revenue and EBITDA, which will equate to a base case of revenues of EUR1.050 billion adjusted EBITDA of EUR200 million and adjusted EBITDA margins of 19%. In fact, just to consider when assessing our outlook for 2024 include. Our outlook assumes a Euro to U.S. dollar exchange rate of 1.07. Revenue growth will be driven primarily from our strong recurring client revenue streams, leveraging our best-in-class content and product portfolio amplified this year by the addition of our ATP and NBA partnerships. As we’ve noted in the past, we will continue to challenge all aspects of our business to ensure we are focusing our talent and resources on the most profitable growth opportunities and unlocking operating leverage.

We expect the strategic actions we have taken today, as well as our continued focus on sustainable profitability in 2024 will unlock approximately 5 percentage points of operating leverage collectively in personnel cost of sales and other operating expenses. This should offset the impact on operating leverage resulting from the one-time step up in sports rights costs, primarily from the first full year of our NBA and ATP partnership deals. Accordingly, for the full year, we expect our adjusted EBITDA margins to be similar to 2023, progressing from the mid-teens in the first half of the year into the low-20s, and the second half of the year. This seasonality is primarily a function of the facing of sports rights costs and the realization of the full year run rate benefits from our cost section.

We are very much focused on enhancing margins and free cash flow generation, and as we look out beyond 2024, we expect to unlock operating leverage from all major expense line items as we continue to scale our business, actively manage our operating cost run rates, and benefit from a more stable sports rights portfolio cost space. As we reflect on our performance in 2023 and our outlook for 2024, we are well on-track to deliver on the long-term financial targets we outlined at the time of our IPO. Namely, revenue growth of at least 20% and adjusted EBITDA margins in the 25% to 30% range. Before we open the call for questions, I want to note that, we expect to enhance and simplify our financial reporting in 2024, better aligned with the changes we’ve made to our business organization.

We will have more to communicate on this in advance of our Q1 earnings call. With that, we would like to open the call for questions. Operator, will you open the line for questions?

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from Michael Graham with Canaccord.

Michael Graham: Hey, good morning. Thank you and thanks for all the detail. I wanted to ask about two things. One, in the press release, you talked about some nice initial contributions from the new NBA deal. I just wanted to dig into that a bit and maybe see if there was anything incremental you could share about, some of the customer conversations and what were they really excited about? And then I just wanted to ask more broadly, can you just make a comment on your product roadmap for the year? Should we expect this to be a relatively innovative year relative to 2023? Thank you.

Gerard Griffin: Hi. This is Gerard. Thanks for the question. In terms of the NBA, as we said in our prior earnings call, this is a premium partnership we have that’s worth over $1 billion in revenue to us over the lifetime. It’s off to a very strong start. We have locked in all of the major operators here in the States and we’ve got really strong engagement internationally as well, given it is a global deal. It’s performing, as we said, ahead of our original expectations and it’s obviously implied in our guidance.

Carsten Koerl: And on the product roadmap, as you saw, we launched now Foresight, we launched Alpha and Ambev, all has that year, how can we convert quicker into life and how can we collect more data. Yes, you’re right. We can expect more of those products. We have a full ramp-up engine here and we are focusing laser sharply on those two topics, live conversion and collecting more data to put it into innovative products.

Operator: Our next question comes from Ryan Sigdahl with Craig-Hallum Capital Group.

Ryan Sigdahl: Good morning, Carsten and Gerard. Want to start with sports rights. Looking at Slide 22, very helpful. Appreciate that. But based on the existing contracts you have, any more specifics you can give on sports rights leverage in 2025 and then the next several years, as you season and get out your into year two, three of the NBA and ATP, but also considering you have a renewal with Major League Baseball and others coming, so?

Carsten Koerl: Hi, Ryan. Carsten here. For the sport drives, like we said, we are focusing on return of investment looking into that. We are sitting on a strong cash position. We are perfectly placed from our scale and the distribution power, which we have. But we carefully evaluate for every right, what is the return of investment. If that fits into our long-term preposition, of course, we are ready to acquire new rights. For the moment, the numbers which we present our numbers, are numbers which we can fulfill and deliver with the rights which we have. We feel pretty strong and confident about where we are sitting, but we are monitoring the market actively.

Gerard Griffin : Ryan, just to build on Carsten’s comment, when you think about ‘25 and ‘26, as we stated in our prepared remarks, we have the ability to deliver operating leverage across all line items including sports rights. And this year it’s a meaningful step up because we’re adding two very important premium rights in ATP and NBA. But as the amortization of those rights is fixed over the lifetime. So as we go into outer years, that’s a definitive, we know over the life of these deals what that sports rights number is. We also know that as these deals evolve, we see an evolution of the revenue, which means the contribution from these deals is more beneficial to the company in the latter half of these deals as it would be at the early years. So, that in itself will enable us to have more confidence and operating leverages, we look out beyond ‘24.

Ryan Sigdahl : Then just for my follow-up question, Chris, anything you have to say on Brazil, I think you guys do some business currently with your large customers like Bet365 there. But I guess how does regulating that market change those deals, and any potential opportunities there? Thanks. Good luck guys.

Carsten Koerl : Thank you, Ryan. I’m flying to Brazil in four weeks’ time. There is a big conference there. It is a very exciting market. It is a priority for us and for me, the market, how we see that the moment is still in the gray zone. So we still see adaptations. There is a piece of law which was introduced in December last year. Still, there are no licenses given. We expect that this will happen quarter two, beginning of quarter three. So the market is ramping up here. From a size perspective, the online gray market with the big players, which you mentioned is maybe a EUR2 billion GGR. We expect with regulation that market is growing on a EUR5 billion GGR per year. To put that into a comparison, the U.S. is around about a EUR10 billion.

So that shows you it’s a very scalable in sizeable opportunity and it’s an opportunity which is driven on soccer. Our comparable deal here is very supportive. We are looking into strengthening this portfolio to attack Brazil for years, but it’s a focus area for us.

Gerard Griffin: Operator will take our next question. Operator?

Operator: Our next question comes from Bernie McTernan with Needham & Company.

Bernie McTernan : To start, the 20% plus revenue growth expected this year would love just to get a sense in terms of how much of that is driven by rate versus volume. Trying to get a sense in terms of the new rights deals, how much that’s contributing to the top line. And then as a follow up, just if you could talk about the visibility into future revenue of the business, the 20% plus revenue growth, how sustainable is that into future years? I guess given the context of the $200 million buyback authorization as well too.