Great. Good morning, everyone. Welcome to the Needham Growth Conference. My name is Bernie McTernan, the internet and consumer tech analyst here at Needham & Company. My pleasure, first fireside of the conference for me to introduce the team at Super Group. We have Neal Menashe, CEO, Alinda Van Wyk, CFO, and Richard Hasson, president. Thank you all for joining us.
Thank you. Thanks for having us.
Thanks, Bernie.
Great. Maybe just to start, we'd love, you know, as we're entering the new year, we'd love to get your thoughts on what's the top of the priority, priority list for the year?
Okay, so quite simple, and can't believe 2024's here already, but continued investment into our new and existing markets, streamlining our overheads, driving cost efficiencies, and looking at our customer journeys. Again, we have to remember this business is all about the customers in the ecosystem. We've got lots of rollouts in Africa to come, some new African markets. The U.S., obviously, which we'll talk about later with you, is a key focus. And, also for us, as you know, we had long, long conversations with Apricot, our sportsbook software provider, so we're hoping to bring that to a close relatively soon. We've got our. You know, our biggest casino across the world is JackpotCity, so we wanna open that across numerous markets. We've already started in some.
And then we've got, obviously, keep Richard and then his team busy, and myself busy, looking, always looking at M&A, tuck-in acquisitions, other deals as well, and we're always looking at them to try to create strategic growth and shareholder value for all our shareholders.
Great. Then you guys issued a press release on Friday of last week, reiterating guidance for 2023, so ex U.S., and then U.S. losses came in narrower than expected, that $70 million. Some positive commentary on Africa and Canada, offsetting India, but just would love, you know, if there's any more details to dive into, or, you know, any additional commentary about how the quarter shaped up.
Yeah. So I'll start, and then maybe Rich and Linda can delve in. One of the key things for us is, again, to iterate, is 80% of our business is still online casino, and then 20% is sports. We-- obviously, the online casino has a much more stable margin, and, obviously, sports is more volatile. We saw that in September and then in October, but we're good to say that November and December did really well, which is why we came out with our guidance. And, we've had solid customer numbers, solid deposit, record deposits for the year.
So for us, it's all about the customers in the ecosystem and how that is translating into net gaming revenue, which then allows us to be able to have our EBITDA margins going, in some months, greater than 20%, but then overall for the year being around 18%. So for us, it's about the engagement in the ecosystem across the world, and that's what and then monitoring each country as an individual income statement, knowing what we're spending, how we're spending. And I think also importantly that we always say is we spend around 25%, 26% on marketing of our NGR.
We could drop that to 20% and then bring another EUR 60 million to the bottom line, but we've gotta always, we always say we're still investing in these markets for the long term and still making money at the same time. And of course, we're debt-free, so for us, it's very important. We've got a good way to allocate our money.
I think, Neal, I'll just add one thing there. I think, Bernie, as you pointed out, in some of the markets from the press release, what that also highlights is the benefit of having such a globally diversified business, where despite a market closure last year, we were able to withstand that given the growth that we saw in other markets. And that's, like I say, the benefit of having the availability of our product across so many markets around the world.
Yeah, and maybe just as a follow-up to that, 'cause you had the constant currency growth, I believe it was 27% in 2Q, 28% in 3Q, and then 4Q implied quite a bit of deceleration, I believe, based on the guidance. So I would love just to get some puts and takes in terms of, you know, what's impacting that 4Q relative to 2Q and 3Q. And any thoughts you're willing to share in terms of what's the best way to think about 2024 with that, in that context?
Bernie, let me take that one. Thank you very much. The important thing just to note is that Q4 2022 still had India in, so that is the big comparative downgrade to Q4 2023. And as Neal has mentioned a bit earlier as well, we did see very unprecedented low sport margins during quarter four in 2023. But despite that, we still remain confident that we will see a meet of both the revenue guidance, as well as the restated EBITDA guidance of EUR 240 million. Also note that the EUR 1.35 billion revenue guidance is something, is a guideline for us, and we will beat that.
Also, we've seen November 2023 and December of year-on-year growth from 2022 to 2023, so definitely ended up in a good high note. And then just relatively to 2024 guidance, we plan to communicate our annual outlook when we announce our fourth quarter 2023 financial results in March. So it's early days, we don't wanna give too much away now, but we are hoping to achieve double-digit growth in both revenue and in EBITDA in those forecasts for 2024. That still excludes the strategy around the USA. So we are really adamant to return back to that over 20% EBITDA margin. And we have definitely seen some really outlier months already in 2023, where we exceeded that 20% margin. And we feel comfortable that we would get there in the near future.
On currency, it's always a difficult one. We're a global business, and we cannot, cannot control the currency. The biggest impact of currency we've experienced in 2023 was around the Canadian dollar to the euro, as well as some African markets. But with the FX headwinds we face, we must also just always keep in mind that we also pay a lot of our overheads in a foreign currency. So that is a natural hedge against all these swings. And we've, and it kind of equalized over 2023 anyway. So, on a constant currency basis, we project quite good growth in all markets.
That's great. There's a lot in there. Thank you very much. That, that's, a great framework how to think about 2024. Okay, and then so just to make sure I have it right, so this negative sport outcome that you guys saw kind of starting the fourth quarter and end of the third quarter, did that continue for the rest of 4Q or not?
No. No, it-
No. Okay, so that was really-
It was really-
really transitory. And then just to make sure I have it right, so you saw acceleration then from November to December. So that's okay, it's a great way to think about how to start 2024, to start 2024 as well.
Yeah.
Okay. Great. And then so just a lot of questions that we get is just, you know, thoughts on, you know, given the swirling macroeconomic environment, just like how the consumer feels. We'd love just to get your sense in terms- and I know you guys are global-
Yeah
... so it's different than just focusing on the U.S. consumer. But anything to call out, just in terms of what you're seeing from the consumer on a relative basis?
No. Listen, we've always been worried about that, especially coming out of COVID, and I know we've discussed this quite a bit for the last two years. We haven't seen anything, and I think gaming is quite resilient, and it'll be. So for us, it's been, you know, over the last two years, we've had record customers, record deposits, so we aren't seeing that. And so going into 2024, we don't see any issues there, unless there's severe macroeconomic other factors. I think interest rates are coming down over time, so you know, it's all about the share of the customer wallet. And I think gaming is where, as an entertainment space, where they're still spending their money.
Great. And then sticking on the consumer, maybe going back in time a little bit, but we'd love to just get, you know, your thoughts on what was going on with. So MAUs were really, you know, almost flat for two years there in 2021 and 2022, and then they really started to grow in 4Q 2022. And then, you know, it has grown nicely since then. So kind of what drove that acceleration, and how sustainable is it?
Well, listen, obviously, COVID was COVID. And listen, our volumes are now even more than COVID in terms of deposit customers, and that's driven through Africa, Canada, other markets, et cetera, across the world. So it's all about the daily active customers in your system, and are your retention policies keeping them in, and are you acquiring at the right rates? And this, so for us, we've definitely seen that over time. We've got strong paybacks in our marketing, and it's about how much more we invest in marketing relative to our NGR. And I think our volumes are there, and they always have been there, and I think that, for us, is key. And as we open more markets, and remember, you get this operating leverage in certain markets.
As you reach your critical mass in those markets, that extra revenue is all, at like, can be 50, 60, 70% coming down to the bottom line, and that's as business. So when you've got months that are good NGRs, you're making lots of money, and that's where your EBITDA margin goes well above 20%. And it's all about that. Even with the setback we had with India, we've recovered all of that already in our other markets.
May I just add one more thing there, Neal?
Yeah.
Again, back to the point on diversification, what that means in terms of the customer numbers is ultimately you've got a larger number of customers of lower value, which is how we've always wanted the revenue to look, as opposed to a small number of very high-value customers.
Got it. Okay, so the consumer base, even within the globally diversified footprint, is still diversified as well, too. That's great.
Yeah.
Um-
Keep them engaged. I mean, that is, you know, just keeping them coming back, and that's all about, that's what we see, because casino, so 80% casino now in our product offerings, it does have a big impact on bringing that customers back and giving them the best possible experience.
Got it. Terrific. Maybe just to zero in on some of the country specifics, first, in the UK, I know going through some regulatory changes. Is that, y ou know, I know you guys had the Jumpman acquisition.
Yeah.
Is that impacting Super Group at all?
No. Remember, we were one of the first operators years ago to put stringent controls in place. So now we're happy to say that the rest of the industry is also doing that, so it's a much even playing field. So we're seeing good growth in the UK. We've also, Betway went through its UKGC compliance assessment, and pleased to say that they came out and said that the safer gambling controls that Betway had is of notable practice. So that's good, and I think there was a fair playing field for everyone, but we're still waiting for the white paper. So we all have to kind of self-regulate in our own way, which is okay, but we would prefer the white paper to come out and tell us exactly what they expect of us.
Yeah.
Yeah.
But the UK's good for us. Because we took so much pain, we have in the last two years seen really good growth there.
Okay, that's great. And then India, maybe just talk about the decision to exit. I believe it was because of the changing of the tax regime, but. A nd then just any way to frame kind of like how big the business was as we think about that exit and when the exit occurred, just to remind us?
Yea so as you say, the GST that came in there, in October, that was a GST on deposits, which limited the amount of returns we could generate there. So that, that's what drove the decision. Again, highlighting there how that kind of market closure was more than offset from growth, growth in other markets. In terms of the impact, to us it was a single-digit revenue impact, with a, let's call it, lower than what you may expect impact on margin because of the high cost of operating there when we were live.
Okay, that's great. Thank you. Okay, and then just Canada, so the press release on Friday said Canada returned to growth. We'd love just to, you know, if you could just touch on the trends that you're seeing in Canada, and maybe focusing on Ontario and ex Ontario.
So obviously, Ontario, so we split Canada in our view into Ontario and then the rest of Canada. So in Ontario, we've seen promising signs of growth since we went onto the new platform there last year. So that's year-on-year growth starting to kick in. Jumpman recently launched in Ontario, and that's exciting. And I think we keep on working on the product, working on the processing, et cetera, in Ontario to get it right. The rest of Canada is really doing nicely, performing well, good year-on-year growth. It's all about the customer journeys, the customer funnel, obsessing about when we offering, what we offering the customers at what point.
Again, we're a tech business, and it's all about the platform and the product, and your marketing then working with that to be able to deliver the best experience. For us, Canada's looking good.
Great. And can you just dive into that a little bit more in terms of changing over the tech stack in Ontario? Kind of like, what's the difference in what you're seeing?
The difference is that obviously there's, we had to move them over onto the regulated tech stack-
Okay
called [Inaudible] dot com. And that takes time, and we've done that, and now it's about marketing in that province and then getting the returns right per the campaigns that we're doing there. So for us, it's good. Listen, we want to get back to the pre-regulated market volumes, so we're on track, and we are working every angle to get there. But then it becomes like the UK market, we've got to keep working everything. But that's how it is in all markets across the world. Yeah.
Any, any guess in terms of, you know, getting back to those levels, when it could happen?
We haven't said yet, but it's getting better. This year, I think 2024, by the end, we can start getting there.
Okay, great. And then Brazil, you know, it seems like they're or they're gonna be launching regulated online sports betting at some point this year, we think. Could that be an interesting opportunity for Super Group?
No, it's actually sports and casino.
Yeah.
Again, we have to see what the regs say, and then what the. Yes. I mean, Brazil's a good market. It's now about, you know, when it regulates, how it regulates, what do you need to do to comply there, et cetera. So of course, that's a market we would always look at.
Okay, great. Then maybe moving over to margins, you know, the, you know, I thought it was an interesting comment that, you know, the kind of getting back to 20% in a lot of these markets. Can you just talk about, you know, the markets that are below 20%, you know, excluding the U.S., but, like, is that just kind of like early days and you're spending more on customer acquisition? Or, or what's the kind of like the delta that or, like, the unlock to get the, those, you know, individual income statements in each country to, to 20% EBITDA margins?
Yeah, unfortunately, it's not a sum total of, you know, it's equal and average of 20%. And that's how, because of the diversity of our business in, in so many markets, you have the ability to then equalize that margin at 20%. There will always be markets that's more profitable, and, and that is, you know, what we've seen exactly like when Ontario regulated with a additional 20% kind of, tax, for lack of a better word, agency fee. It obviously put pressure on that 20% margin. But our operating leverage, that's where it works.
You know, we've got the right people in the right jurisdiction, and the more we grow and scale our business, the cheaper it becomes to run it, because we have the right people in the right jurisdictions. We do try to look at the aim is to get every market profitable. I mean, that is through the bank. But is everyone gonna be 20%? Now, there's gonna be some that's gonna be way over 20% and maybe some slightly less. So, just to also say that, it's always a combination of top-line growth, and then getting that efficiencies on your costs.
It's a marketing function of marketing. Do we want to spend 30% in a market if we're seeing good returns? So, you know, if you're paying back three or four months, then so why wouldn't you increase your marketing in that? So, you know, there's different, it's always looking at all the different levers. As far as we're concerned is, if we can spend and get a good return, that's all we, we wanna do, and that's why on average, you'll get 25%-20% marketing ratios. But some countries might be at 30%, which means, which means their overall EBITDA would be lower percentage.
And, yeah, and then just on cost, remember, we're nearly celebrating our second year of being a listed entity, and we're really becoming more efficient on that over it, during the... You know, especially around audits and SOX compliance and, insurance, et cetera, and that also have a positive impact on the overall EBITDA margin.
Basically, clearly, then there's that plan automating all our finance functions.
Right. Okay, and then so, yeah, you mentioned operating leverage, and we talked about some of the revenue headwinds. So the, I mean, the guidance implying a step down in margins in the Q4 anything to call on the cost side, or is that really just the, you know, kind of like negative operating leverage from revenue being from slower revenue growth year over year relative to Q3?
Yes, just consider also that we don't project our guidance in quarters, so it's annualized guidance. So that's an important point. And ironically, in September, towards the end of quarter three, we actually stood very well against our original guidance, hence the you know, the restatement of guidance, and then India happened. So it's a kind of a combination of those factors that brought the pressure on Q4. But we don't set pockets of quarterly guidance. No, it's one.
Right
Target for me.
Okay. Maybe moving over to the U.S., and just before we get there, just remind the audience, I didn't do it in the onset, but if you have any questions, either type them into the portal or just email them to me, we'll be sure to get to them. But U.S., maybe just for the audience to level set, can you just talk about your strategy and what the opportunity for Super Group is?
Sure. So like we've told you before, Bernie, we see the U.S. as a very attractive opportunity. It's obviously a massive market. We've got, as you know, over 20 years track record in building, you know, launching and building successful, profitable businesses around the world. And, you know, that is the same toolkit and same recipe that we're going to apply to the U.S. As you know, we have a multi-year plan, and that's not necessarily a multi-year commitment, it's a matter of once we are migrated onto the Betway global technology, which we're in the process of doing, and the aim there is to have that completed by the end of quarter one, it may move into quarter two. It's all always subject to regulatory approvals.
But once that's done, then it's a matter of investing into each of those states, making sure that we're seeing the returns that we should be seeing and generating in those markets. And we'll continue assessing those on a state-by-state basis, and as we see them, we'll continue growing those states and take a view once we see what that looks like.
Got it. Understood. And, well, how are you thinking about competition? That certainly has turned back to a front burner issue for most of the investors that we speak with on U.S. online sports betting, with, you know, the launch of ESPN Bet, BetMGM talking about getting more aggressive on customer acquisition this year. Just, you know, how you're thinking about that. And then also, too, would love to get your thoughts on just, you know, market share within competition, market share or market structure has become a big debate in terms of, you know, what's it gonna be? And so would love to get your thoughts in terms of, you know, how you think the overall market structure of the U.S. could evolve in the coming years.
Yeah. So look, we're very aware, obviously, of the competition and of what I'll call the current market structure. You know, what we're seeing there today is pretty unique. We haven't seen it in any other market around the world. But it also, you know, we take a long-term view, and it doesn't necessarily mean that what the market structure looks like today is what it's gonna look like in the future. Vegas is a case in point how that developed over time, and we expect some change in the market structure in the online space, too. In terms of competition, we've got competition in all markets around the world. It doesn't distract us from focusing on our plan and executing on our plan.
Ultimately, those are, say, two components along with others, that are going to impact in some way what we see in our returns. That will just all feed into the same analysis where, say, once we complete the migration and start investing more seriously into these states, we'll assess what those returns are. Obviously, if the plan doesn't go as we expect, we will reevaluate our options, but for now, we're very much sticking to our plan, complete the migration, begin investing into those states into marketing, and seeing what those returns look like.
What are some of the different capabilities you think you'll be able to offer from a, you know, tech stack perspective, once the migration is complete?
So that's bringing the Betway global sportsbook into the U.S. Of course, we use that in a number of sophisticated, regulated, competitive markets around the world. And ultimately, we hope that, you know, it's a combination of brand, it's a combination of technology, it's a combination of how we look after our customers, and ultimately, the intention and the hope there is that when you put all that together, applying the same toolkit, that we see the returns that we hope to be seeing within these markets.
Got it. Maybe just, you know, it's a simple question, but I think it's a, it's a tough one, too, but what's the, what's the pitch to get a bettor to, to use Betway instead of a DraftKings or instead of a FanDuel? Because I think that's the... you know, especially, you know, that, that'll be the focus, I think, you know, near term from investors when, you know, gauging anyone, it's, the bar is, you know, how can you, you really take share from those two behemoths.
Well, I mean, that's the same as all over the world, right? The product and does your product work? Is your customer service right? How are you treating the customers in the ecosystem? That's the same answer we get in every country, right? Remember, we've got Betway, we've got our casinos as well, JackpotCity. We're competing with everyone all over the world, and it's about product, about how the customer journeys and how you engage with the customer, and are you not overly bonusing them, and have you got your ratios right, right, and treating them as the best you can? Like, whether you've got one customer or 4 million a month or 5 million, can you treat them all, giving them what they want, depending on their sports customers, casino customers, et cetera.
And that's what we have to obsess about, and that's what the business has been. Remember, this business isn't a corporate finance building, putting business together. This business has been built by return on marketing investment from day one, which was over two decades ago, and that is how we built it. If you don't have a proper product, then you're not going to be able to compete, and that's why we've got to bring this Betway global tech stack, and that's what we're doing, and we're doing that across the globe. Then we can use the same sports traders, the feeds, everything that we've got in the rest of the world, we can feed into the U.S., same way we can feed it into Africa and our other markets, and that's exactly what we do.
Great. And maybe just touch on how you gauge success in the U.S. and, you know, maybe break it down to two pieces, kind of like near term, what's success, what's not, and then the longer term kind of path to break even, you know, in the pathway there.
I think we'll look at that more on a state-by-state basis.
Okay.
So, you know, we'll look at the unit economics and the returns in each state as opposed to as a portfolio of states, and we'll assess that level of success in each of those individual markets. Obviously, where we are now, it's relatively early days in terms of the migration and then starting that investment. And, you know, success will be a number of months. The ability to measure that success will be a number of months post starting that investment in each of those states.
Okay, got it. Maybe if we go back to, you know, shift back out to global and think about, you know, the global tech stack. We're talking about, you know, investments in a unified platform. But can you just talk about where you are in terms of, like, how many different technology stacks you're running right now and the path to that unified platform?
Okay, so in Africa and in Jumpman, we own our own PAM. And in the rest of the business, we use the PAM we've always had from Apricot, so that's good. And then obviously the sportsbook is the Betway global sportsbook, and that's what we're in final negotiations with Apricot to take over. And that means with that, we then control it more, the full investment is ours, and then we can deploy that across the globe, into the U.S., into Africa, and into all the other markets. And that's where we get the economies of scale, of the pricing, the traders, etc. And remember, then we've got our proprietary systems on top of all of these, that are all our marketing, our retention, and all that, which is all embedded on top.
Got it. And then, so the Apricot sportsbook, is that the same thing as the Betway global sportsbook?
Yeah, exactly the same.
Okay, so we talked about that. Okay. And so you mentioned in the beginning-
If you do a feature in one country, you get it in others, right?
Right.
If you do special sports trading in one country, you can get it in others. That's basically it.
Is there anything that, like, you need ownership of that asset to do the U.S. migration, or is that?
No, no, so that will come with the U.S. migration because of the other software that we're using there. That then comes with this Apricot deal.
Okay. And so you mentioned in the beginning, you know, that it seems like you're getting closer to finalizing the purchase, but just where does it stand in terms of, yeah, like-
We're in the final legs. It's obviously complicated. Obviously, the IP and all that stuff, we've sorted, so that they're happy, we're happy, and it's just now the—but it's taken a long time, but we are almost there. We're in the final stretch now, and then—
Okay
... we hope to close that out. We want to close it out for all of us now.
Got it. And then just capital allocation, free cash flow positive while investing in the U.S., which is, you know, pretty impressive. Can you just talk about how you guys are thinking about allocating capital and, you know, whether that's M&A, whether that's, you know, investing deeper in some of these countries organically, just, you know, how investors should think about how you guys think about it?
We have various usages of cash, and we're constantly comparing alternatives. Of course, the most important overlay here is what is in the best interest of the shareholders on the long term. So that's what we always keep on the front of our minds if we make decisions. But most importantly, on a day-to-day basis, we obviously invest significant amounts of our cash directly into marketing to generate organic growth, as we've seen in our business, probably more so than our competitors. What we mean by that is if we see opportunities in certain jurisdictions, we will weigh that up, look at the return on investment, and maybe even put some more cash towards those incentives. And that is obviously a key drive factor for us to grow our revenue top line.
We also then invest in the U.S., as everybody knows. Quite a bit of cash goes to the U.S. at this point. As Neal just mentioned, investment in technology. We have bespoke pieces of work that we work on continuously, and we invest in that internally and then through Apricot. We evaluate tuck-in or bolt-on M&A opportunities to expand our geographic footprint. Just note there that in any of our guidance, we don't keep that as part of our assumptions, so that's all on top of, so the guidance is just the business as usual. And then we also look at, like we've done in 2023, some returning of cash to shareholders by various means, and last year we did some share buybacks, and potential dividends in future. So basically that's our combination of the uses of cash.
Great. Just a reminder to the audience, if there's any questions, please type them in. One question we did get, just a clarification, Alinda, when you were talking about the double-digit growth next year, was that on a reported basis or a constant currency basis?
Reported basis.
Okay, great. And then a follow-up to that, just, you know, currency headwinds, like, is there any way to think about rates are the same right now, even for the rest of the year? You know, how big could that headwind be on the reported results?
Yeah. It's an interesting question because you would think that we're in a gaming industry, and we should have some understanding of outcomes, but with currency, you never know. We just know that in markets such as Africa, the currency is usually under pressure with the main currencies such as the Euro and U.S. dollar. So, it kind of, e ven with this 2023 year's actual results, where we saw quite a significant impact on both Canadian and African countries, you know, we were comfortable with our growth. So I think it kind of worked out over the long term. You know, it kind of swings backwards for us.
It is important to note that we are trading our expenses in jurisdictions where it's also currency restricted, so it does help to hedge the currency on a very informal way.
Great. All right, well, great, guys. Thank you so much for your time. Thanks everyone who is viewing live. Appreciate it, and hope you have a great conference. And thanks again to the Super Group team for presenting today.
Thank you. Thanks very much.
Thank you.
Good luck for the rest of the week.
Thanks.
Thank you.