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Earnings call: Super Group reports strong Q2 2024 financials, exits U.S. sports betting

EditorAhmed Abdulazez Abdulkadir
Published 2024-08-08, 05:20 a/m
© Reuters.
SGHC
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Super Group has announced robust financial results for the second quarter of 2024, with significant growth in revenue and adjusted EBITDA, excluding the U.S. The company is exiting the U.S. sports betting market, except for its iGaming operations in New Jersey and Pennsylvania, to focus on markets with sustainable profitability. Super Group has raised its ex-U.S. adjusted EBITDA guidance and is investing in brand marketing and operational efficiencies.

Key Takeaways

  • Total revenue excluding the U.S. reached €408 million, a 9% year-over-year (YoY) growth.
  • Adjusted EBITDA excluding the U.S. hit a record €98 million, an 11% YoY growth.
  • Super Group is exiting the U.S. sports betting market but will maintain iGaming operations in New Jersey and Pennsylvania.
  • The company raised its 2023-2024 ex-U.S. adjusted EBITDA guidance to over €300 million.
  • New marketing deals were announced with Betway and Manchester City.
  • Super Group holds no debt and has unrestricted cash of €307 million.
  • Plans for iGaming expansion in the U.S. focus on New Jersey and Pennsylvania, with potential for other states as regulations change.
  • The company is considering selling sportsbook licenses in certain states and is interested in Latin American markets, specifically Mexico and Brazil.

Company Outlook

  • Super Group aims to maintain consistent EBITDA margins of over 20%.
  • The company is focused on optimizing marketing spend to achieve operational efficiencies.
  • Super Group plans to invest around €40 million in the U.S. market in 2025.

Bearish Highlights

  • The company is incurring cash costs of approximately €45 million due to the shutdown of the U.S. sportsbook business.
  • Regulatory changes in the UK, Canada, and the Netherlands have impacted operations.

Bullish Highlights

  • Super Group has a consistent EBITDA margin of over 20% month-on-month.
  • The company is confident in its revenue guidance for the second half of the year.
  • Marketing investments are expected to yield long-term benefits.

Misses

  • No specific misses were mentioned in the provided context.

Q&A Highlights

  • The company believes it can exceed a 20% marketing ratio through cost efficiencies.
  • Super Group is in contract negotiations for selling sportsbook licenses on a state-by-state basis.
  • Entry into Latin American markets is being considered, with a focus on profitability and sustainable conditions.

InvestingPro Insights

Super Group's strategic shift away from the U.S. sports betting market, as highlighted in their Q2 2024 financial results, is underscored by a strong balance sheet and profitability. This strategic pivot aligns with the company's commitment to markets offering sustainable profitability and is supported by key financial metrics and InvestingPro Tips.

InvestingPro Data for Super Group (SGHC) shows a market capitalization of $1.69 billion, with a revenue growth of 13.93% in the last twelve months as of Q1 2024. The company's P/E ratio stands at 42.71, reflecting a premium valuation in the market. Additionally, SGHC has demonstrated a solid gross profit margin of 45.96% during the same period, which is indicative of the company's ability to manage its cost of goods sold effectively.

Two InvestingPro Tips for SGHC that are particularly relevant to the article are:

1. High shareholder yield: This suggests that the company is returning value to its shareholders through dividends and share repurchases, which can be attractive to investors looking for income or capital return opportunities.

2. Profitable over the last twelve months: This tip reinforces the company's financial health and its ability to generate profits, which is crucial for sustaining operations and fueling its growth strategies.

For readers interested in a deeper analysis and more tips, InvestingPro offers additional insights on SGHC. There are currently 5 more InvestingPro Tips available, which can be accessed by visiting the dedicated page for Super Group at https://www.investing.com/pro/SGHC.

These InvestingPro Insights provide a broader context for Super Group's financial performance and strategic decisions, presenting a comprehensive view for investors and stakeholders.

Full transcript - SGHC Limited (SGHC) Q2 2024:

Operator: Good day and welcome to the Super Group Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brett Milotte, ICR. Please go ahead.

Brett Milotte: Good morning, everyone and thank you for joining us today to discuss Super Group’s results for the second 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 from 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 second quarter 2024 earnings call. Q2 was exceptional, our strongest quarter ever and one in which we set some new records. Total revenue ex the U.S. hit a quarterly record of €408 million, reflecting 9% year-on-year growth. Adjusted EBITDA ex the U.S. also set a record of €98 million, representing growth of 11% year-on-year and a very strong margin of 24%. This year, we have been prioritizing operational efficiencies, including the successful integration of the Apricot sportsbook. During quarter two, we incurred redundancy costs of €3.3 million. Adjusting for these costs and the associated salaries, our margin would have been 26%. Our strategy of being nimble and decisive is paying off and we are well on our way to consistent EBITDA margins of over 20%. We continually assess and optimize our footprint, ensuring that capital is deployed into markets that generate the highest returns and this is leading to further investments into core markets across the globe. We obsessively tailor our offerings to each local market, which includes a continued rollout of our leading casino brand, Jackpot City into new and existing markets. In markets where we don’t see a path forward, we pivot. We were happy with the status quo in the U.S. And after an extensive review, we announced last month that we plan to exit the U.S. sports betting market. We are however totally divesting from the U.S. We are maintaining our high gaming presence in New Journey and Pennsylvania, where we plan to operate two brands, including Jackpot City from our Spin portfolio. Our focus on high gaming aligns with our non-U.S. business, in which about 80% of our revenue is from iGaming. Like any other parts of the world, we are open to expanding our U.S. footprint for the right opportunities. In terms of costs, we estimate that the cash costs of shutting down our U.S. sportsbook business will not exceed €45 million, the bulk of which comprises existing contract obligations and redundancy costs. This figure is easily manageable within our existing financial resources. We are just beginning the exit process and we’ll provide an updated figure of the shutdown costs in Q3. Two days in 2024, the U.S. business has incurred an adjusted EBITDA loss of €39 million across both sports and iGaming. And looking ahead to the rest of the year, we expect to incur an adjusted EBITDA loss of €20 million by iGaming-only operations. We have recently announced two new and exciting brand marketing deals I’d like to highlight. Betway becoming the official title sponsor for South Africa’s Premier Soccer League, which is now known as the Betway Premiership and in the English Premier League teaming up with the current Champions Manchester City to become their official global betting partner. Adding this iconic team to our brand portfolio further solidifies Betway’s global recognition across the world’s most popular sport. Branding is only one part of our multi-channel marketing strategy a key driver of growth across the business. This quarter, we spent 23% of our net revenue on marketing, a figure which is higher than industry average and reflects our long-term approach to the business. However, we are also focused on this number to ensure that we are extracting the appropriate returns from every euro spent. Moving on to the balance sheet. Our financial position remains strong. We ended the quarter with unrestricted cash of €307 million and no debt. In June, we announced our first cash dividend of $0.10 per share paid in July. We intend to maintain this dividend and will consider paying a larger dividend if business conditions allow. Finally, given our strong performance for the first part of the year, we are raising our 2023-2024 ex-U.S. adjusted EBITDA guidance to greater than €300 million, representing a margin of over 19%. We feel confident about the remainder of the year and look forward to making 2024 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] The first question comes from Jed Kelly from Oppenheimer. Please go ahead.

Jed Kelly: Hey, great. Thanks for taking my question and good quarter. Couple of things. Can you just talk about where you are globally with sports betting and just interpreting some of the results, I know you exited India, but how is that trending ex-India and then just with your sport results? And then there is some chatter about Alberta potentially legalizing sports betting, can you just talk about how we should be thinking about if that market goes legal and just given your experience in Ontario? Thanks.

Neal Menashe: It’s Neal, yes. Yes. So listen, sports betting is going well across the globe. Obviously, our casino part within our business is still consistent at 80% of our business is iGaming. But we think sports results have been fair to us. So it’s really good there. In Canada, obviously, there is regulation coming in Alberta. We are super ready for it. We – everything we did in Ontario, we’ve learned, we’ve learned how to do it even better. So the teams are ready and waiting when Alberta regulates. And across the board in all these markets, we are optimizing everywhere. So Canada, Alberta would be no different same as Ontario, same business in Africa. So listen, from this quarter, we super happy of our results and how our cost efficiencies are dropping down to the bottom line.

Jed Kelly: Okay. And then just as a follow-up, you’re obviously record EBITDA ex-U.S. you’re generating a decent amount of cash flow implementing the dividend. Can you just think broadly how we should be thinking about just your capital allocation policies? Do you want to do more acquisitions like Jumpman target international markets. Just can you give us just an overall update on your capital allocation strategy? Thank you.

Richard Hasson: Hi, Jed, Richard here. So like we said previously, we are constantly looking for potential opportunities for acquisitions, and we keep doing that across potentially new markets and also within existing markets. On the broader capital allocation, as you would have seen, the dividend that was announced and paid, we mentioned there that it would be our intention to maintain at least a dividend going forward. And that’s all part of it. As we generate cash, we’ll look for the best uses of that cash. If there is nothing more advantageous, we’ll continue to look at ways of returning that to shareholders.

Jed Kelly: Okay. And then just my final question. Just as we think about the back half, anything we should be thinking about in terms of comps in terms of some markets opening, some markets closing, and I think in October last year, maybe it was September you had favorable outcomes in European football. So just anything you can talk about there and how we should be thinking about the whole comps. Thanks.

Neal Menashe: Okay. So I think for the second half, obviously, we had, as I mentioned, quite a bit of redundancy costs in quarter two and some in quarter one. So obviously, those are one-offs. So we should get good optimization in the second half again, the second half just depends on sometimes in some of the months that you had last year, you can have a bad sports margin. But we’re hoping with a bigger customer base, we should be able to even that out. But I think from our point of view, is even into July, July continued the momentum of April, May and June. And best and the very important part that I said is we have got a large marketing budget of €400 million, we are optimizing that. We are looking at that. We are turning over every campaign there to make sure that we can make that as effective as possible. And with that, with all the rest optimization we hope to even bring more to the bottom line, hence why we increased our EBITDA focus.

Alinda Van Wyk: Alinda here. Just to add to that on the question on new markets, we continuously assessing the market and investing always back into markets, which has higher margins on the long run. There is a few movements extra markets in Africa. But we’ve also looked at one or two small markets and have no profitability for us that was eliminated. But this is a continuous assessment of marketing spend like we said and where we will have the highest return on our investments.

Jed Kelly: Thank you.

Operator: The next question comes from Michael Graham from Canaccord Genuity (TSX:CF). Please go ahead.

Michael Graham: Thank you. A couple of questions, if I could. The first is on – just talk about the decision that you made to keep your iGaming presence in the U.S. and maybe just frame it out, if you could, in terms of the unit economics, how your cost of acquisition is different for iGaming compared to some of the other markets you operate in? And related to that, do you think we could see your iGaming footprint expand to more states over time if what you have currently goes well.

Richard Hasson: Michael, Richard here. As Neal mentioned, we completed a very extensive review of the full footprint and ended with the view of remaining with iGaming in New Jersey and Pennsylvania. Like we said before, and we apply to all markets, we need to obviously see appropriate returns being generated in those markets. And so far, July running according to what we were expecting in the budget in the forecast. But of course, we’ll track that on a continuous basis going forward. So no different, but it’s just a focus on iGaming. And that’s also very much aligned with the rest of the business where about 80% of the revenue is generated in iGaming. In terms of the footprint across the rest of the country, for sure, if we see appropriate opportunities to expand the footprint within iGaming within the U.S., then we will look at those as and when other states are regulated.

Michael Graham: Okay. That sounds good. And then can I just ask for a comment on the competitive environment over the recent quarters, we’ve seen some of your mature markets, some regulatory changes like UK, Canada and the Netherlands, just wondering if you can comment on generally how the competitive environment is evolving in some of those markets.

Neal Menashe: So I think the competitive environment is always there, and we have to keep – and that’s where it becomes in your marketing and your product, right? And we keep on honing in on it. I think probably in the past, we had too many countries that we were honed in and so we closed a few of them, and that allows us then to focus on the other ones. And that was the same process we took in the U.S. Sportsbook. If we do not see a path to profitability, we’ll rather than go in other markets where we are seeing returns. Again, in these markets, the regulations make a big part. And in the UK, they seem to be easing up a little bit, where obviously, the Netherlands was far worse. So the Netherlands, we decided not to go for, right? It’s just not going to build your product. I mean the one that’s probably been the worst and our results would even be better if it hadn’t been, it would be Germany. There, they’ve got this regime. We’ve done all the work, but it’s literally so onerous that the black market is just the customer just goes to the black market. So we can’t compete as we could in the past. But I think over time, the regulator will get on to that, understand that they’re using the customers to the black market and be more reasonable with the people who are regulated. And that’s always going to be a battle. And that’s going to be the – and that’s been the story of our industry for the last 25 years.

Michael Graham: Okay, sounds good. Thanks so much for the additional information.

Operator: The next question comes from Mike Hickey from the Benchmark Company. Please go ahead.

Mike Hickey: Hey, Neal, Richard, Alinda. Great quarter, guys. Thanks for taking our question. First, just on the U.S. exit, Neal, it looks like just running two states on iGaming. You’re saying you’re expecting a €20 million loss for the second half of ‘24. You compare that to last year with the Sportsbook, it looked like you lost €28 million. So you an incremental maybe €8 million here. Just, I guess, one, I thought the savings would be a bit more and two, with just the incremental €8 million. Is it worth losing the optionality, I guess, on Sportsbook side.

Neal Menashe: Okay. It’s Neal here. So a couple of things. The €20 million is only for this next 6 months, right? But that’s for iGaming and including the marketing spend in there. But of course, as I said, is we have to be getting the targets in each month. So if we do not get our net win target, then we have to reassess that those two markets. As far as we’re concerned, those two markets, New Jersey and Pennsylvania are larger than Ontario and we’re going to go there and try and compete because we think the product can complete. We did say last year that overall it would be around €80 million or €90 million for the year. So the investment is coming down. We just have the redundancy costs now for the sports book. And in the U.S., we’ve literally halved our workforce. So I think we’ve got the right number of people to give it a good shot in the next 6 months, but again, like every other country in which is each one, New Jersey and Pennsylvania by themselves as a country and is the path to profitability or not.

Mike Hickey: Thanks. Just to clarify then, so should we think an annualized investment in the U.S. of €40 million-ish here...

Neal Menashe: For 2025, yes. Yes, for 2025, yes.

Mike Hickey: Still feels like a big number. I guess, can sort of dig in on the past.

Neal Menashe: Well, you won’t actually get to that number if you are not hitting your monthly targets. So, we set monthly targets, monthly revenue, monthly EBITDA losses. And if it’s not, then we would scale back. So, €40 million would do the maximum.

Richard Hasson: So, just to add, so after 2025, when the forecast is just less than €40 million investment in 2016, it would be significantly less than that. So, that would be the mass spend over the next 3 years.

Mike Hickey: And you said that in the U.S., you are going to continue to operate two brands on the gaming side. Can you talk us through the rationale, it seems like running two brands would be more expensive than just sort of focusing on one brand in just two states?

Neal Menashe: Don’t know we have listened, and I mean we have been the casino business, our game seems business for 25 years, you need more than one brand. So – and also running the second one isn’t really expensive because of the same teams who we run them, it’s just the look and feel are slightly different. And in our spin portfolio, we have Jackpot City Spin Casino, and a few others and remember three or four of the brands make up the bulk of it. So, it’s the same strategy. So, from our point of view, that’s how we have always done it. And you always need two in the rate of effectively for to optimize your CPAs, etcetera. But I think it’s quite clear, if you look at this in the U.S. – sorry, I will just give you one other point. You said that €40 million would be the most we would invest next year. Just to put it in perspective, the month of June, we almost made that profit in our existing business. So, we are optimizing. We are clever. We are looking at the ways to bring this business to profitability and if it cannot come to profitability, then we will have to pivot away, but we obviously are optimistic that we can make it work.

Mike Hickey: I guess last question on that topic, Pennsylvania and New Jersey, these are not new states here, right, Neal? I mean they are fairly mature relative U.S. expansion, which obviously is pretty new. I mean given the maturity of these states, how do you expect to sort of take share in this environment?

Richard Hasson: So, Mike, I think a lot of the – a lot of the revenue that we were seeing from those states while live was sports and gaming was come from gaming. So, that’s obviously informed our decision and was part of our full review. The other thing is a lot about internal forecasts have assumed improvements in a number of KPIs from where we were at the beginning of this year. And we also are – we are seeing those come through at the moment. So, we are tracking in line with those forecasts, which are seeing improvements in KPIs and that’s obviously from where we stand today from the previous operations in sports and gaming now just focusing on the gaming part of that.

Neal Menashe: And it’s Neal here. As you know, we compete in all the markets. UK, we are seeing growth in all these markets are not – there is not really any market that’s new for us, right. And if it’s Canada, Ontario, everywhere we are completing everywhere. And remember, we just have to take extra revenue from other operators, which we see. And then in most of the countries we operate, that extra revenue is bringing our operating leverage. And that’s why you see such good results for April, May and June.

Mike Hickey: What is your market share in New Jersey, Pennsylvania in iGaming?

Neal Menashe: No. I mean time because we just started. So, let me have a look at the market share. All our care is all, we are not 80% to 90% of the market. So, we just go for have to get to a few million of revenue in each market to start making sure that, that market is working. But if you are not going to get to a few million revenue 5, 6, 8, 10K and eventually, your targets then we are going to get to profitability. But in other markets, if you take Spain, etcetera, you can be in a few million months, and we are making good margins.

Mike Hickey: A follow-up on the cap allocation topic. Sorry if you said this, Richard, I think you have a buyback authorized. You are obviously driving cash flow. Your business is expanding your confidence on growth. Does it make sense here to be buying back stock given where you are trading today?

Richard Hasson: So, that is something that we considered as part of the return of capital to shareholders. We leaned away from it given the relatively low float that we have in the business and ended up proceeding with the dividend route.

Mike Hickey: Yes. Okay. That makes sense. The last question or topic, the – you expanded the margin guide here to 19%. It sounds like, Neal, you have got some room here to move that higher. Can you give us a maybe more medium-term perspective on your growth opportunity and maybe your progression in margin over the next few years? Thanks guys.

Alinda Van Wyk: Hi. It’s Alinda. What we have realized in the last couple of months was everything that you referred to about the operating leverage coming into full plan now is that we are really seeing that margin consistently being the EBITDA margin been consistently over 20% month-on-month and more than 20%, so larger then. So, what we have realized is that even at 90%, our target has been almost 20%, and we are reaching that much quicker. We just – we are looking around the – as you noted, we also haven’t – we feel comfortable with the guidance for revenue. So, we are just tracking that in the remainder of H2 as well.

Neal Menashe: And now to revenue [ph] and other point is, we have still got 25%, 26% marketing ratio all of that marked into net win for the year. So – and that’s in there and ideas to make sure that that’s efficient and stuff. Of course, if we had to drop that down, then the margin would go up, which is I know lots of our competitors do, they come in at 18%, 19% marketing budgets. So, we are looking at that and just – but we feel comfortable that the investments we are making in marketing is returning long-term, and that’s how you are seeing it the same investment from last year’s marketing, you are now paying off this year. So, we are just trying to balance those two. But Alinda said we are going to get that 20% and that’s what we are pushing for. And I think that these cost efficiencies and more efficiencies come through in our business, that should be a target we can easily exceed.

Mike Hickey: Alright. Thank you, Neal. Good luck guys.

Neal Menashe: Thank you.

Operator: [Operator Instructions] The next question comes from Bernie McTernan from Needham. Please go ahead.

Stefanos Crist: Hi. This is Stefanos Crist calling in for Bernie. Thanks for taking our questions. So, recently, we have seen some other players sell their OSB licenses in certain states. Are there any opportunities for that across the U.S. business?

Richard Hasson: Thank you, Richard here. So, we are looking at the possibility of that, again, very much on a state-by-state basis depending on a number of access points, depending on who is active there, but it is something that we are considering. Part of the numbers that Neal mentioned was the sportsbook shutdown costs and that those are still in early days. And a, there is contract negotiations going on there. But b, the possibility of recouping some of those investments and we will update on that when we report on the Q3 numbers.

Stefanos Crist: Got it. Thanks. And then just wanted to ask on Latin America, can you remind us what markets you participate in and maybe your expectations there?

Richard Hasson: So, we don’t normally give country-by-country breakdown. I will give – Mexico is one example. Of course, Brazil is something which we are looking at, and we are going through the application process. But like any other parts of the world, if there is markets there that we think make commercial sense, we will look to apply for licenses and launch it. As part of the geographic – the footprint optimization that we are going through at the moment, we are considering these a lot more carefully and making sure that wherever we do go live, there is a – and a sustainable path to profitability.

Neal Menashe: No. So, like a market like [indiscernible], this just wasn’t a path to profitability and the rates which just made onerous way that the software has to work only in the one city as opposed to the province, we have decided that’s not a market for us. So, that’s another side. So, because we are opening the regulators come in that are favorable to regulated players and so we are in that process. But if they can turn up that they are not or they want it.

Stefanos Crist: Got it. Thank you.

Operator: This concludes our question – this concludes our question-and-answer session, and the conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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