Super Group (SGHC) Ltd Q2 FY2025 Earnings Call

Good morning. Welcome to Super Group's Second Quarter 2025 Earnings Webcast and Conference Call. My name is Lori, and I will be your moderator today. I would now like to pass the conference over to our host, Nkem Ojougboh. Please go ahead.

Good morning, everyone, and thank you for joining us today to discuss Super Group's results for the second quarter 2025. During this call, Super Group may make comments of the forward-looking nature that are subject to risks, uncertainties, and other factors discussed further in its SEC filings that could cause the actual results to differ materially from the historical results of the company's forecast. Super Group assumes no responsibility to update forward-looking statements other than as required by law. On today's call, Super Group may refer to certain non-GAAP financial measures. These non-GAAP financial measures are in addition to, not a substitute for measures of financial performance prepared in accordance with GAAP. Super Group has provided reconciliation of non-GAAP financial measures to the most comparable GAAP figures in the press release issued yesterday and available on the Investor Relations page of Super Group's website. Super Group recommends that investors refer to its supplementary presentation posted to the company's website. Today, I'm joined by Neal Menashe, Chief Executive Officer; and Alinda Van Wyk, Chief Financial Officer. After prepared remarks, we will open the call for questions. And now I'd like to turn the call over to Neal.

Thank you, Nkem. Good morning, everyone, and welcome to Super Group's Second Quarter 2025 Earnings Call. Today, we are thrilled to report another landmark quarter. As I said, this stemmed from our continued focus on product and cost as well as momentum in key regions. We are reshaping our global presence by entering the U.S. while growing in our core markets. In addition, we are scaling our tech platform and delivering top-tier products. Before we jump into the financial results, we'd like to share some important updates. First, we are excited to hire Super Group's first Group Chief Technology Officer. This appointment reflects our commitment to innovation, operating efficiency, and synergies across all platforms. Second, on May 13, we announced the appointment of Deloitte as external auditor, a big 4 audit firm that we expect will assist Super Group through continued growth. Third, on July 8, we announced our intention to exit the U.S. iGaming market. This move supports our ongoing focus on capital discipline and long-term profitability. We thank all Digital Gaming Corporation employees for their contributions over the past few years and for their professionalism throughout this transition. Turning now to our numbers for Q2. We exceeded our own expectations for both total revenue and adjusted EBITDA for Q2 2025, setting new quarterly records for Super Group. The group generated a record total revenue of $579 million, up 30% year-over-year. Group adjusted EBITDA also reached an all-time high of $157 million, representing 78% year-over-year growth and a robust margin of approximately 27%. This demonstrates our significant operating leverage at scale. The exceptional quarter was driven by strong sports outcomes, smarter pricing, and continued traction of Bet Builder, our innovative parlay product, and robust casino acquisition and retention. Growth was further supported by strong wagering activity with sports betting wagers up 15% and casino wagers up 24% year-over-year, largely due to prioritizing more profitable markets. Let's now explore our territories. Europe's revenue surged 53% year-over-year, with the U.K. leading the charge, up 83%. This incredible growth was supported by regulatory clarity, enhanced product and marketing experience, and solid contribution from both Betway and Spin brands. Spain and Ireland also saw solid growth. In Spain, we expect the momentum to continue with the implementation of our new loyalty program, Super Club. Germany was the primary headwind with revenue down due to tighter regulatory restrictions and our strategic pullback in marketing spend. Despite this, we successfully grew Germany EBITDA year-over-year, reflecting our rigorous cost management and operating resilience. Moving on to Africa. We saw growth of 59% year-over-year with broad-based strength across all markets except for Nigeria. Ghana stood out, growing a massive 63% year-over-year, thanks in part to our best influencer product and currency tailwind. South Africa grew 31% year-over-year. Botswana, which only launched in February, also delivered remarkable growth. Its contribution to Africa's revenue rose tenfold to 4.5% in the current quarter. Super Group maintained podium position in 7 of the 8 African markets that we are in. North America grew 23% year-over-year. Canada, not including Ontario, increased 22%. Growth was supported by an increase in deposits and strong customer retention, but performance in June was negatively affected by gaming server consolidation. Ontario delivered 5% year-over-year growth despite ongoing elevated marketing spend from competitors. Growth in the province, while still below our expectations, was a result of better digital marketing and continued customer engagement. In the U.S., revenue was up 112% year-over-year. We will address our U.S. exit in a moment. APAC faced a challenging quarter with revenue down 6% year-over-year, but this was still an improvement from last quarter's 13% year-over-year decline. New Zealand was down 13% due to currency and broader macroeconomic headwinds. We also consolidated technology in May, which contributed negatively, but we believe we will ultimately save costs here. We are working to mitigate the impact of various marketing restrictions to position this business for long-term success. Zooming back out, we achieved the highest quarterly EBITDA in Super Group's history, underscoring our powerful operating leverage. As we scale in more markets, we are capturing greater margin on every bit of revenue, hence, the record margin of 27%. This margin expansion is a direct result of our gameplay, aggressively reinvesting in high-performing markets, maintaining a disciplined cost base, improving our product and process efficiencies, including the strategic implementation of AI, and driving marketing effectiveness. You can see this in our lower marketing ratio in the quarter despite higher wagering activity and customer growth. We expect these dynamics to continue into the second half of the year, reinforcing our ability to deliver super growth at scale. As part of our high-return investment philosophy, we have made the difficult but necessary decision to proactively exit the U.S. iGaming market. We are doing this despite delivering a record quarter with EBITDA improving to a $5 million loss in Q2 2025 compared to nearly twice that in Q1 2025. Changing dynamics in the U.S. market, including recent tax increases in New Jersey, led us to this decision. As part of this exit, we anticipate a one-time restructuring cash cost of approximately $50 million, and we're actively working to reduce this cash. We are incredibly pleased with our operating metrics performance this quarter. We hit a record 5.5 million average unique monthly active customers, representing 21% year-over-year growth. Total sports wagering was also exceptional, hitting $958 million for the quarter, up 15% year-over-year. Our Sportsbook margin also improved from 12.6% in Q2 2024 to 13.9% in Q2 2025. Even more impressive, wagers grew even though the Football Club World Cup was not expected to be as big of a draw as last year's Europe and Copa América events. Our balance sheet remains strong. We ended the quarter with $393 million in unrestricted cash and no debt. As a reminder, we declared a regular cash dividend of $0.04 per share in June, bringing our total shareholder dividend for the first half of 2025 to $0.08 per share. In the last 12 months, we have returned $166 million to shareholders, including $20 million paid out in the past quarter, once again demonstrating our robust free cash flow generation and stringent capital allocation. Today, we are raising the full year 2025 ex U.S. adjusted EBITDA guidance to between $500 million to $510 million from our previous expectations of greater than $480 million. This $25 million midpoint uplift reflects focused cultivation of our markets. Subject to the final phase of U.S. closure, we expect group adjusted EBITDA of between $470 million and $480 million, inclusive of the U.S. adjusted EBITDA loss of $30 million. Looking ahead, we see several compelling drivers for future upside, including a full calendar of global sporting events and a focus on enhanced trading and pricing, increased traction from our best order product, calculated marketing efficiencies, further strength in casino, and a revenue mix designed to support long-term margin expansion. We're also investing in our technology platform, particularly in South Africa and Nigeria, and we are preparing to roll out Jackpot City in several markets. We are also actively implementing and seeking new opportunities in the crypto space. These initiatives aim to position us for long-term success as alternative payment methods and digital asset frameworks become more integrated into the regulated gaming ecosystem. With a strong balance sheet, consistent free cash flow, and the addition of a group CTO role to spearhead our technology initiatives, we remain confident that we are well positioned to reinvest in growth and pursue strategic opportunities across key areas of the business. In closing, Super Group is powered by disciplined execution, scalable infrastructure, and a data-driven customer-centric strategy. With strong financials, a clear plan, and an exciting second half ahead, we believe that Super Group will be able to generate further profitable growth and deliver long-term value for our shareholders. All of this is made possible by our amazing employees. I want to thank everyone for a superb Q2 achievement. I will now turn the call over to the operator to open the call up for questions.

Our first question comes from Ryan Sigdahl with Craig-Hallum Capital Group.

Really nice results. Good to see the guidance raised again a month after you just raised it. So I want to stay kind of on that topic. If I just flow through kind of the awesome results in Q2 with the new guidance, it implies revenue and EBITDA are lower year-over-year in the second half of this year. I guess, given the momentum in the business, is there anything that besides conservatism that would cause for unusual compares? Anything else you're seeing in the business subsequent quarter end, kind of how was July? But just, I guess, anything to be concerned about within the business as you look and work your way through Q3 thus far?

It's Neal here. No, we definitely don't see it as a deceleration. We obviously continue to maintain a disciplined approach to our forecast. July was off to a great start and it did really nicely. But remember in our business, what happens, our new football season starts in August. And that's the biggest driver of our sports calendar, one of the biggest drivers. In that, you've got all the new teams serving their new play. So now what has to happen is we have to see how the rest of August goes in September with how the favorites perform. Because as you know, our business is all about when the favorites don't do so well, the sports results go our way. So from my point of view, that's it. And we're super proud in our business retention, all the rates we've got, and I think you can see that in the growth.

Very good. Then U.S. exit, from my standpoint, smart move, reallocate resources where you have better structural advantages. But curious what made you make that decision now? I mean, I think you said 112% revenue growth in Q2. But why now? And then I understand the write-off of assets, but is there anything of value that can be sold here, thinking your player databases, possibly your market access licenses, et cetera? And then kind of last question, the cash costs are expected $50 million, I think, if I caught that right. You said $30 million to $40 million previously. So just kind of bridge what's changed in those expectations.

So I think on the U.S., obviously, it's always about the cost of revenue, the cost of doing business. It's not about just chasing the revenue; can you make the profit on that revenue? So we've always said there's been high cost in the U.S. to make an operating profit, right? So obviously, with some of the tax policy, the regulation in those two states, New Jersey and Pennsylvania, we looked at it and said, actually, the opportunity cost of trying to support our product in that market to try to get to breakeven is actually much better to go into our other markets. And that's why you see we can take the whole dedicated team and offering on the Canadian product, the U.K. product, the New Zealand product. So I think from our point of view, there's huge upside there. We just couldn't see a path to profitability able to fill it up. Alinda will comment on the cost. Obviously, when it comes to the databases, we are all over that trying to sell it, et cetera, and work out on our onerous contracts we've got there what we do with those skills.

Thank you, Neal. The important thing also to note is that obviously, post-2026, we will see some cost savings, which is also into our profile of making sure our margin lift where we don't see the path to profitability, as Neal just referred to. So we do foresee that we can deploy our resources of development costs into more profitable jurisdictions. We foresee a saving in the second half of 2025 of around $60 million and ongoing in 2026, which we've forecast already. And our general and administrative costs will also have a moment impact on the cost savings. So just to recap what we've reported on in quarter 2, even though the financial impact is at this point well contained, it did have an impact on quarter 2. We had a noncash impairment adjustment of $63.9 million on impairment of the investment and then also some provisions on onerous contracts of around $22.6 million, which is mostly related to our market access agreements. And we do foresee that there would be a small leak into quarter 3 of around $6 million just to close the market out.

Our next question comes from Jason Tilchen with Canaccord Genuity.

Congrats on the strong results. One thing I'm curious about as it relates to marketing. Can you share a bit more about some of the new channels that are driving strong returns? And how much you would attribute that just to the reacceleration of customer growth you've seen over the past few quarters? And maybe a little bit about what type of impact you're seeing from that Williams F1 deal specifically so far this year?

Okay. So as you know, we always looked at our marketing ratio between 23%, 24%. So again, it's not that we fixed on that. It's now becoming what is the dollar amount of how we're deploying it. So of course, we've gone into efficiency mode there to say which elements are we under where are we over, and we are redeploying some of the budget into different areas of content, et cetera, different marketing channels. And I think that's making a great impact. On top of that, F1 was just one of our sponsorships. But the F1 is only about the sponsorship; it's about the content. It's about driving all this new traffic to us. So I think we are spearheaded across the globe trying to deliver all of this. So going forward, it's not that we want to stick to it. I always say to people when it comes to our marketing, as long as we are seeing the returns of our marketing paying back and reinvesting into these core markets. So I think with that marketing, we get even better and more effective at it with the operating leverage that we get in all these countries that every extra million of revenue we bring in, we bring down 50% to 60% to the bottom line. This is why you see this operating leverage coming into effect.

Very helpful. And one follow-up. The 14% gross hold for sportsbook, curious how much of the year-over-year improvement you would attribute to sort of sports outcomes being favorable in the quarter versus sort of structural improvements in parlay mix? And how much more opportunity do you see for improvement in that area going forward?

We are basically across the world all over the sports margin, right? And again, if you've got a better parlay mix with parlay bets, that helps the sports margin, right? We've obviously got now a full calendar of sporting events. We have improved the product, and that helps. And we are keeping working. So I think, yes, in the past few months, there obviously were some better sports results, but you again see that coming into the mix. But our new Bet Builder product, all of that is starting to take effect. So we are constantly trying to improve this margin. But yes, when they all come together, when the favorites aren't winning and really get our sportsbook, this is where we see the uplift.

Our next question comes from Jordan Bender with Citizens.

Maybe to just follow up on that prior question. It's a topic of discussion we have a lot here in the U.S. with some of the books of how high your gaming margins can get to over time. I guess, do you have any sense of like where that level might be, where the ceiling might be in terms of where you can get gaming margins, just given some of the parlay penetration you have across some of your markets?

When it comes to the parlay products, you can definitely get closer to the 20% level, right? But again, it all depends on how many bets are in that. So between our Bet Builder, our Bet Influencer, our risk management software, we implement across the board, we are hoping to increase it and offer more of the type of bets in our systems, right? We're going to be smart here. You can't just go all of that. You've got to balance between the single bets and the parlay bets, et cetera. But that's what we're working on in the casino business; it's a much more constant model. So we've learned how to do that really well. So now we add some other color into the sports side.

Great. And I want to follow up on the crypto comment and implementation in some of your markets. Outside of bringing in just incremental customers who want to leverage that, how should we be thinking about that from a cost structure benefit? I'm thinking in terms of what does that help you with your payment processing costs?

So I think, especially in the African side of our business, we sort of have a banking issue there. I think crypto and coins can make a huge difference there because remember, banking is a really big cost in Africa, especially for us onboarding our customers and then the payments across the continent. So for us, I think crypto then also brings a different customer. As more regulation has come into the regulated market we operate in that allows crypto. It's a different kind of customer, again, a different genre, at the same way in the casinos, we have different genres of casino. Crypto is a different kind of customer. So obviously, that I think helps us. And that's what we are actively looking at. And that's our great long-term play, I think aligns with our strategy and especially on the processing side if we can do something clever there, which we've got some ideas on that effectively that will bring pure profit to the bottom line.

Our next question comes from Bernie McTernan with Needham.

Maybe just to start, could you explain the competitive pressures in Ontario that you mentioned in your prepared remarks? Can you describe what those pressures are and who they are coming from? Do you think they are related to the upcoming launches in Alberta or not?

No, I think, again, it's all about the marketing returns we see and the cost of acquisition in that market. But again, is we have now got the extra resource because of the U.S. closure to focus on the product in that region. You can see the rest of Canada is doing really well. And again, we don't want to overspend and just overspend on the customers, but I think with the gamification stuff we've got coming, et cetera, that we'll start seeing good growth there. But again, the rest of Canada, we can now start implementing in Ontario.

Understood. And you also mentioned hiring a new group CTO. Can you just talk about some of the benefits? And is this more about bringing products and capabilities? Or is this signaling another replatforming of the tech architecture? Just how should we think about it?

I think it's a disciplined approach that's looking across the board, what we do. Remember, our big thing is all about cost efficiencies. Cost efficiencies come out of the process efficiencies, some come out of the tech stack, some out of our hosting costs. And all of these are what we view as cost centers that are how do we get the best value bang for our buck in those. And that's what we have to do and help integrate all our platforms, et cetera, and understanding how we can scale. And as we scale, not scaling, but scaling profitably and tie our long-term margin leverage on these platforms, working on the platform and getting it done. So I think on our side, it's taken us a long time to get this role, but I think it's super important for where we are heading.

Our next question comes from Jed Kelly with Oppenheimer.

I think recently, you did a platform upgrade or iGaming upgrade in South Africa and a couple of other countries. Can you give us a progress on how that's going? And then circling back to your cash balance, how do you plan to deploy that capital? Is it still maybe special dividends? Or is there any areas of M&A that might look attractive given some surrounding areas where you're making nice progress?

On the product front in Africa, we've conducted a revamp of our existing systems. One of our advantages in Africa is our end-to-end software, which covers the entire ecosystem. We have transitioned to a new version of that software, and we're keeping up with enhancements such as bet influencer, which enables faster implementation in other African countries and is a significant advantage for our business. Regarding our cash position, we have a strong balance sheet with $393 million in unrestricted cash, allowing us to act swiftly when needed. Our strategy remains unchanged: we reinvest in high-return opportunities and return capital through dividends. We plan to maintain this approach throughout the year, with a current dividend of $0.04 per quarter, and we will ensure we remain flexible to seize opportunities as they arise.

And I'll just add on the product in Africa, you have the product across every jurisdiction. And remember, we've launched our product in South Africa is now launching in other markets. So that's another whole growth opportunity. So it's all about the scale and having the best product on the continent. That's what we have to keep doing. And in the rest of the world, we've got to keep building our product to be the best it can be. And that's why, over the past year, as we keep selling these out, we have over the past year, stopped certain markets across the world and now the U.S. So the ones we are in, we are all in on and can deliver a great product, great marketing, and obviously, great profit.

Our next question comes from Mike Hickey with Benchmark Company.

Great quarter. Nice to see another bump in your '25 guide as well. Neal, just on the EBITDA, extremely impressive. Obviously, you mentioned 27%. You look at your ex U.S. business, it's 29% in Q2. Maybe there are some onetime tailwinds, but doesn't seem to be anything maybe outside of a better hold really driving sort of a one-off here. So I guess as your business continues this rapid growth, yield even reflecting back on the second half of last year, you had sort of 25% average plus adjusted EBITDA margins. How should we think about your margins growth over time? I think your last guide long term was plus 24%, now it's 25%. Can we see 30% margins sort of over the long term?

Yes, of course, we can try and get to 30% margins. Again, it's all about the scale. It's the extra revenue. Remember, every bit of extra revenue is dropping at 50%, 60%. So that's bringing this margin up. But again, it's about the sports results; obviously, they make up 20% of our business with 80% is and we get more gamification into the product. things are helping. And I think you're seeing the margins being 27%, all the cost savings, the cost efficiencies are all starting to come through, right? We still have some redundancy costs in H1. But as we get through that and get the right people in the right seats in our organization and it's all about the growth and it's customer-centric. So I think over time, listen, we would love to get to 30%. It's possible depending on the revenue yes. But again, 25%, 26% where things we got. And before the sports results go our way, we're fifth casino and we get Q2 looking up.

And then obviously, Africa is a really important country continent for you guys and you had put in position in a lot of markets there, but one is sort of new-ish. Can you talk about your success there? It seems like you guys right from the start have been doing incredibly well. And then I guess, on the flip side, you're doing, rolling up your sleeves in Nigeria, I guess, and trying to recalibrate and build share there. So I guess if you could kind of compare and contrast those two markets for us as best.

I believe Botswana serves as an excellent example of our successful market entry when we have the right products, favorable regulations, and a focused operational approach. It's a market with a high return on investment. However, it's not just about one aspect; it’s about all those factors coming together through the smart execution of our strategy. Botswana benefits from its closeness to South Africa, with brand recognition in one country enhancing our presence in the other, which is essential to our global and local branding efforts. Unfortunately, Nigeria remains our only underperformer, but we have plans in place to address that and ensure our product implementation is on point. Other markets are showing growth. It's crucial to note that our Jackpot City casino is now expanding into many of these markets, although it takes time to establish our content. This expansion will contribute significantly to our revenue. We are also focused on enhancing our overall efficiency and are exploring every aspect of our business globally, particularly how to leverage AI to manage the increasing number of customers and deliver them excellent service. It's essential to integrate these customers into our ecosystem; failing to do so diminishes their value. By utilizing AI effectively, we aim to connect with more customers and improve our risk management and call center operations. Ultimately, it’s a volume-driven approach where we strive to treat every customer as if they were our own investors.

Neal, last one from us. Nigeria, staying on the country. Obviously, a tremendous amount of citizens there. I would imagine the TAM is significant as you continue to sort of rewrite your script there and product; do you think you would be in a position for that to be an area of growth, maybe outlier growth for you in '26?

We hope so. Our main focus is on our product and offering, including various payment methods. It's essential for us to improve in those areas. I believe if we look at other countries, especially Nigeria, we would like it to develop at a pace similar to Botswana, considering the similarities in their populations.

Our next question comes from the line of Clark Lampen with BTIG.

I have a follow-up question regarding the iGaming exit. In terms of resource allocation, does this significantly affect your plans for Europe or the U.K., or does it influence your expansion in Africa? Additionally, regarding your retention dynamics, have you noticed any decrease in sessions or engagement during the transition between the football season and the Club World Cup? Or have your results been aligned with your expectations for July and early August?

Okay. So I'll get to pass on the polar then we'll answer pulled. Basically, in the U.S., when we've got for now, we've got the team who can work on our products. So that's real what happened in our business. The Africa product is by itself. So it is separate. What the U.S. allows us to do is to work on the rest of or this is Canada, U.K., Germany, Spain, Ireland, et cetera, a new deal in Mexico. It's those markets that where we've now booked the resource that to now add in the product. And remember, in those markets, we are profitable. So all the extra revenue that our product to revenue we get in, we are super profitable on. So that's really what the key is, right? So it doesn't affect the asset model as they're totally separate. The case is they can't open up in every asset and market straight away be good; you have to get to your product right for each market. But again, when it comes to the data that you're referring to and what we're seeing is, obviously, I think we were pleasantly surprised by the club world cup. And again, the club world cup wasn't expected to be a big betting sport, but it happens to be. And I think that just shows because there was nothing else on and this is probably a piece that pulls it in here. So the good news is you have the club world cup. Then you've got the Europe, then you've got the World Cup next year. We are seeing more and more of these competitions in our down season which is effectively when we facing results. I think it's helping there and it definitely helped in July. But remember, the goal happen has also started kicking in. But depending on which currencies you are, there's also the holiday season. So all of these things add up. So the most sports events are; the more engagement we land up getting. So across the board, I think that's helped. And I think the more events, some even have one now, the more and more people are engaging in net across the world with all the sports, and then, of course, that will be our provision.

There are currently no questions. So I'll pass the conference back over to Neal for closing remarks.

Thanks, everyone, for joining today's call. Looking forward to meeting everyone on our Investor Day on September 18 in London, and by webcast to present Super Group's ongoing strategic initiatives as well as key growth opportunities. Thanks again to all our staff at Super Group for a fantastic quarter 2 and we always strive for excellence.

Thank you, ladies and gentlemen. That concludes the Super Group's Second Quarter 2025 Earnings Webcast and Conference Call. Thank you for your participation. You may now disconnect your lines.