Sportradar Group AG Q4 FY2021 Earnings Call

Good morning and thank you for standing by. Welcome to the Sportradar Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Rima Hyder, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Catherine, and good morning, everyone, and thank you for joining us for Sportradar’s earnings call for the fourth quarter and full-year of 2021. Before we begin, I would like to point out that the slides we will reference during this presentation can be accessed via the webcast on our website at investors.sportradar.com. The slides will be posted on our website at the conclusion of this call. A replay of today’s call will be available via phone and on our website. After our prepared remarks, we will open the call to questions from investors. To be fair to everyone, please limit yourself to one question, plus one follow-up. Please note that some of the information you will hear during our 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 in our annual report on Form 20-F and the Form 6-K furnished with the SEC today 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 the 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 are Carsten Koerl, Chief Executive Officer; and Alex Gersh, Chief Financial Officer. And now, I’d like to turn the discussion over to Carsten.

Thank you, Rima. Thank you all for joining the call today. Before I talk about the results, let me begin by sharing our thoughts, and remind those who are impacted by the heartbreaking events in Ukraine. From Day 1, this conflict has been our top priority, and we have helped to ensure the safety of our employees and their families in the region. We have created an emergency relief fund to allow the company to provide financial assistance to colleagues and their families who are facing a hard time because of the conflict. We have donated 1 million in total, half of that from the company and half of that from me, going to the Red Cross, UNICEF, and our emergency relief fund. We are complying with all sanctions and we have decided to suspend any new investments in Russia, including signing new customers. We are and will continue to monitor the ongoing situation. Having said this, let me dive into the year 2021. Looking at the financials and the slides, I have to say the past year was historic for us. It is an understatement to say historic; it was truly a landmark year in which we achieved many milestones. Our full-year revenues and adjusted EBITDA exceeded our guidance for the year and we saw robust growth across all our business segments. We surpassed for the first time the €500 million mark for annual revenues, which is a first in the company’s history. As we continue to close multi-year deals with some of the world’s largest leagues and federations, there are many achievements that we celebrated this past year. First, we acquired InteractSport and Synergy Sports, which enabled Sportradar to meet its customer support technology needs. In less than nine months, both acquisitions have been fully integrated, creating a new vertical called Sports Solutions which leverages the power of automation through cutting-edge use of computer vision and camera technologies to help sports organizations perform better on the field and increase profitability off the field. With Synergy and InteractSport, Sportradar now has a strong presence in the world of coaching and analytics, serving both professional and collegiate fields in basketball, baseball, ice hockey, as well as cricket. Second, we signed major deals with sports leagues and federations globally. With standard deals with the NBA, NHL, and ITF, we signed a new deal with UEFA and ICC, which is the International Cricket Council. This continues to strengthen our position in basketball, soccer, tennis, and cricket, which all have large betting handles. Soccer is the most popular sport in the world with a handle of €850 billion each year. For those who might not be familiar with this terminology, handle is defined as the amount of money in wagers accepted. Third, we announced a multi-year extension with the ITF to serve as the official data provider partner. Tennis is the second most popular sport in the world with a handle of €140 billion. We are proud to continue our 10-year close partnership with the ITF. These are just a few examples of how we are disrupting the market and applying our data-driven approach to the global sports universe. In the U.S., we announced a 10-year deal extension with the NHL and an 8-year extension with the NBA, which is effectively a 10-year deal since we have 2 years left on the current agreement. Both leagues look to us not only as their exclusive data provider but also as their partner to develop technologies that will help them engage sports fans in the future. Transforming and personalizing the experience of the legions of fans in the U.S. and globally is crucial. Both leagues have enormous fan bases. We partner with the NBA and NHL on existing and future solutions across three business verticals: betting, sports entertainment, and Sports Solutions. These deal extensions and expansions significantly validate our partnerships and their confidence in Sportradar. Fourth, we made our UFDS match-fixing monitor service free to leagues across the world. In 2021, our UFDS detected over 900 suspicious matches globally. We are running integrity as a breakeven business and providing UFDS for free due to our strong belief that a fair playing field is an essential foundation for the sport ecosystem and for sports betting. This shows our commitment to sports integrity, as we believe that sports betting requires clear rules and monitoring, and our integrity service with UFDS provides this. Before I delve further, we may have some new listeners on the call. So, I wanted to take a moment to give you a brief overview of who we are and our value proposition in the sports ecosystem. Sportradar offers one of the most robust fully integrated sports data and technology platforms. We serve as a critical data infrastructure and content layer to the sports betting and media industries. We have well-established, profitable businesses in Europe and other parts of the world. For over 20 years, we have demonstrated operational excellence in creating one of the largest sports technology businesses in the world. As we expand our business in the U.S., we see a critical growth opportunity. We provide sports data in many cases as a sole provider for about 70% of the total in-play market in the United States, managing nearly every legal sports bet placed in the U.S. by sports bettors. Our data and technology is used by betting operators, media companies, and leagues and teams. We have four main pillars of our business: First, we fuel the sports betting industry, providing data insights that enable operators to do everything from managing bets to attracting customers and managing the platform. Our betting customers number more than 900, covering close to 900,000 live events in over 90 sports. Second, our data feeds serve as the source for live scores and statistics to all the top traditional and digital media leaders. Third, we provide teams and leagues with real-time analytics and video breakdowns to help improve coaching and performance. Finally, we monitor the data to detect critical patterns that indicate everything from potential match-fixing to problem gambling. Looking at the U.S. market, we believe we have massive secular tailwinds propelling our growth, particularly as the sports betting market is expected to grow significantly as media, sports, and betting converge. Betting operators and sports teams are increasingly becoming media companies. We also expect to see a shift in the U.S. market from pre-match betting to more in-game betting, which will allow us to upsell and cross-sell more of our live data products. This shift has already been experienced in established markets and represents a win for us in Europe. We believe we can achieve profitable and fast growth in the U.S. as more states legalize sports betting and launch mobile platforms. Our ability to achieve this growth is rooted in our deep relationships and understanding of this market, as well as the unique strengths of our product offerings. For example, the market here is clearly focused and is driven by the legacy of fantasy sports, and fans are very sophisticated in their demand for data. We predict that sports betting will increasingly become part of entertainment activities, and placing bets will become as much a part of social engagement as watching games. Our vast amount of data and the ability to provide real-time insights position us very well in this field. Now, let me discuss the growth drivers and our products. Our success in 2021 was the result of strong growth in our core and new businesses, enabling us to exceed expectations for the year, and we are excited about the strong momentum heading into 2022. We saw significant growth in our international markets, particularly from our MTS products, which grew almost 80% for fiscal 2021 compared to 2020. We also recorded a turnover growth of 81% in that same timeframe. Our MTS offering provides sophisticated, turnkey trading, risk management, live odds, and liability management solutions that help betting operators increase their margins and profits while enhancing their efficiency in risk management. Our Live Odds product also had a fantastic year, increasing the number of matches covered by 22%, resulting in a year-over-year growth of nearly 30%. We are delighted to see strong momentum in our audio-visual and ads businesses. The AV is the visual content we produce to engage sports fans during sporting events and to create betting opportunities. Our technology also helps betting operators identify prospective bettors. As you can see on this slide, both AV and ads saw tremendous growth in their key metrics. In the U.S. we are very pleased by the strong uptake of AV and ads. Our U.S. AV business nearly doubled in 2021, and our ads business grew significantly year-over-year from just a few hundred thousand to over $6 million, with remarkable potential and momentum ahead. Given the high acquisition costs faced by betting operators in the U.S., it’s safe to say that these products will continue to be in high demand, and further leveraging them is a priority for us this year. Looking ahead to exciting technologies and data collection for the future. Fully leveraging the integrated sports solutions vertical is another major focus for us. We aim to serve our largest partners like the NBA, NHL, and MLB holistically, thus continuing to evolve our coaching and analytics platforms for player and team performance through our Synergy suite of products. We plan to grow our team of computer vision experts both organically and through M&A, likely through the additional synergy from the computer vision experts we acquire. With over 20 years of experience in sport, we understand what our market needs and will meet those needs by providing super fast, in-depth, and contextual data. This is key to unlocking future commercial benefits, whether that be from partners seeking competitive advantages, media companies aiming to deliver in-depth analysis around game outcomes, or sports fans wanting to understand both what they’ve seen and more importantly, why it happened. We believe computer vision is the enabling technology for this future success. Our vision is to harness technology to understand sports at a much deeper, player-related level. Computer vision enables ingestion of multiple data sets simultaneously. This allows the collected data to be contextualized, whether to create a shared team pressure index for generating fan engagement or prompting viewers to return and watch a match, ultimately driving further engagement and interaction within the creation of the metaverse. By bringing together the offline and online worlds, we aim to create a virtual reality environment where fans can engage with one another. To unlock the future of fan engagement, we have identified strategic partnerships with top leagues. There are eight key sports driving the highest returns for us, and we can use our already scalable solutions, developed for 90+ sports globally, to create even more fan-focused solutions. We have a strong in-house team consisting of outstanding AI experts and data scientists and will look to increase this team through focused recruitment as well as M&A. Computer vision will be complemented by new innovative ways to automate data collection. With the acquisition of Synergy Sports and Interact, we now possess best-in-class camera technology applied throughout basketball and cricket globally. Moving forward, we aim to expand these capabilities both organically and inorganically. With computer vision, we can harvest more data points compared to live human operators. In any business, the more data you have, the better you understand the market; continuously gathering more data, harnessing insights, and applying them across our business is foundational to our 2022 strategy. Closing remarks before I hand it over to my colleague Alex, our CFO. We provided annual guidance for today’s call, which reflects the momentum of growth in our high-value products and expected performance from the first quarter of 2022. We are also evaluating any potential impact from the Russia-Ukraine conflict. To date in 2022, we have not seen a meaningful impact on our financials from this conflict. It is important to understand that any potential financial impact is limited to the affected regions at this time. We do not believe it will have downstream effects on other parts of our business. We have a resilient business model and years of experience in innovating and pivoting our products and services when faced with challenges. In fact, even with the ongoing Russia-Ukraine conflict, we were able to shift our content collection from Ukraine to other countries, ensuring minimal operational disruption. Our 2022 revenue guidance ranges from €665 million to €700 million, based on our global scale and growth, and we believe we can absorb potential revenue losses from our business in Russia and Ukraine within that range. For our adjusted EBITDA guidance, we provided a range from €123 million to €133 million. Based on our knowledge as of today and our current mitigation plans, we believe that in the worst-case scenario, adjusted EBITDA for 2022 could reach €110 million. As I mentioned earlier, we continue to monitor the conflict and its related impact on our business, and we will take necessary actions to preserve growth margins. Before I turn it over to Alex, I want to remind investors that our investment thesis is fully intact. We are the leading B2B provider of technology solutions to the sports betting market. We have a proven track record of consistent long-term growth and strong cash generation, as well as an impressive customer retention rate. We are poised to continue taking market share in a globally growing market. We possess the data and proprietary technology to deliver best-in-class AI and machine learning capabilities powered by our solutions. Lastly, we have ample liquidity on our balance sheet. We are disciplined in how we deploy our capital and are focused on maximizing our growth potential. With that, I'll turn it over to Alex to discuss the numbers.

Thanks, Carsten. And good morning, everyone. It’s great to speak with you again for the second time since Sportradar became a public company. As Carsten mentioned, we had a very strong fourth quarter and full-year of 2021. I’m very pleased with the results and what the team has achieved. For the full-year, we reported a 39% increase in revenue to €561 million and a 33% increase in adjusted EBITDA to €102 million. Both metrics exceeded the top end of our guidance ranges provided last quarter. We saw growth across all our segments, and we believe we are well-positioned to continue this growth in 2022. Just as importantly, we saw adjusted EBITDA improvement across all our major segments. Additionally, our dollar-based net revenue retention rate of 125% improved from 113% last year, as we continue to cross-sell to our customers globally. Let me now take you through our quarterly results in detail and then I’ll provide full-year guidance, some of which Carsten has already shared. Revenue in the fourth quarter of 2021 increased by 41% to €152 million versus the fourth quarter of 2020. This growth was driven by significant gains across all business segments, with the highest growth coming from the U.S. Looking at the segment revenue in detail, our rest of the world betting revenue, our largest segment, grew by 30% in the quarter to €82 million. This growth was primarily driven by an uptick in our higher value-added offerings, including managed betting services, which includes managed trading services that Carsten already mentioned and live odds services. In managed betting services, we experienced record turnover largely with our existing betting operator customers, resulting in revenue growth of 74% for the quarter. Within live odds, higher volumes of matches covered led to a revenue increase of 26%. The rest of the world audio-visual segment grew by 52% to €36 million versus the prior quarter. As COVID restrictions eased, we saw an increased volume of streaming content across all major sports, contributing to this segment's growth. In particular, we noted an increase in volume from the NHL and NBA, along with additional content we had introduced during the COVID pandemic. Turning to the United States, our highest growth segment, we grew by 92% in the quarter to €23.2 million. This was driven by growth in our betting services as underlying markets continued to grow, evidenced by the legalization of gambling in more states, as well as turnover growth. We also saw strong adoption of our ads products, growth in sales to two U.S. media companies, and a positive effect from the acquisition of Synergy Sports, which strengthened our audio-visual streaming capabilities. Regarding costs, during the fourth quarter, personnel costs increased by €13 million to €47 million, in-line with our expectations. The major driver of this increase was approximately 600 new employees, primarily in product and technology, added through acquisitions and organic hiring, as we continue to invest in growing our business. Other operating expenses amounted to €27 million, an increase of €13 million over the prior year, driven primarily by the reversal of temporary COVID-related savings in 2020. For example, normal levels of marketing and travel expenses, which we had avoided during 2020, returned. Additionally, we incurred costs for implementation of a new accounting system and higher legal and M&A costs. Total sports rights costs increased by €9 million to €39 million in the fourth quarter of 2021 as sporting events returned to a normal schedule following the easing of COVID restrictions. A few words on adjusted EBITDA: we reported adjusted EBITDA of €21 million for the fourth quarter, representing a 14% increase over the fourth quarter of 2020, primarily driven by higher revenues. The adjusted EBITDA margin decreased to 14% compared to 17%. However, for the full year, the adjusted EBITDA margin, excluding IPO costs, was 20%. Two key factors to note are that we are comparing a private company in 2020 with a publicly listed company in 2021, and there was a reversal of temporary 2020 COVID-related savings in 2021. For our segment adjusted EBITDA, the rest of the world betting segment’s adjusted EBITDA increased by 58% to €46 million, and its adjusted EBITDA margin improved to 56%, up from 46% in the prior year, driven by growth in our higher-margin products such as managed betting services and live odds. Full-year EBITDA margin improved from 51% to 57%. The rest of the world audio-visual adjusted EBITDA increased by 77% to €10 million, with its adjusted EBITDA margin improving to 28% versus 24% in the prior year. For the full-year, the EBITDA margin increased from 25% to 28%. However, the U.S. adjusted EBITDA decreased to a negative €8 million, and its adjusted EBITDA margin also declined to negative 33% in the fourth quarter of 2021. The margin degradation in the quarter primarily arose from our investments in content and technology, particularly within our leagues and teams-focused business. For the full-year, however, the EBITDA margin has improved from negative 48% to negative 32%. It's essential to note that for the full-year, all three major segments showed improved adjusted EBITDA margins. In addition, while our unallocated corporate overhead increased significantly during the year, it included substantial IPO costs, costs associated with being a public company, and a reversal of temporary COVID savings incurred in 2020, along with acquisition costs. We believe that going forward, these unallocated corporate overhead costs should not increase, and should in fact decrease in 2022 and beyond. This will allow us to achieve greater operating leverage and strong cash flow generation moving forward. Regarding our liquidity, as Carsten mentioned, our liquidity stood strong at the end of December 31, 2021, with cash and cash equivalents plus an undrawn credit facility totaling €853 million. During the fourth quarter of 2021, adjusted free cash flow decreased to negative €22 million. This was primarily due to additional interest from our senior secured term loan facility obtained in November 2020, prepayment of some sports league fees, catching up on delayed payments from 2020, and one-off IPO costs, which accounted for about €10 million, alongside higher costs related to being a public company. Now, let’s discuss guidance: for the full-year 2022, we currently expect revenue to be in the range of €665 million to €700 million, reflecting an annual growth rate of 18% to 25%. For adjusted EBITDA, we are guiding to a range of €123 million to €133 million, representing a year-on-year increase of between 21% to 30%. The adjusted EBITDA margin for 2022 is expected to be between 18.5% and 19%. As already mentioned, we believe our revenue guidance range can withstand the potential impact of revenue losses stemming from the Russia-Ukraine conflict, given that we do not rely on any single region for our annual growth. Our adjusted EBITDA guidance, even in our worst-case scenario, implies an 8% growth over the prior year. I would like to reiterate what Carsten previously stated: to date, we have not experienced a meaningful adverse impact on our business. However, we continue to monitor and evaluate any potential impact for the rest of the year. I also want to highlight that we are nearing the end of the first quarter of 2022, which is aligning with our expectations, and the anticipated results of this first quarter are already factored into our 2022 guidance.

Catherine, we can open the line for Q&A now. Thank you.

Thank you. Our first question comes from Robin Farley with UBS. Your line is open.

Great. Just a couple of questions related to the guidance. One is, could you give us some color around whether the guidance relies on anything in terms of acquisitions, or is it completely without any additional acquisitions? Also, I might have misheard a comment; it sounded like there was a comment about €110 million as kind of a worst-case scenario. I didn't catch what that was in relation to, in respect to the bottom-end of the EBITDA guidance range. Is the €123 million related to what was the €110 million?

Carsten here, great to hear from you again, Robin. No, the guidance does not include any acquisitions or potential acquisitions, so the numbers and guidance which we provided are without this. Regarding the €110 million or the 8% referred to by Alex, that's the worst-case scenario for EBITDA. It implies we don't expect to reach a worst-case scenario, as we don’t see any material impact at this time. We are pleased with our first quarter performance as it aligns with our expectations. However, we should assess potential worst-case scenarios, including situations where we might need to halt business operations in affected regions due to sanctions. We are confident with the range of revenues we provided and believe we can absorb any regional losses through our global operations. Thus, our revenue range remains intact, including considerations for negative impacts from both Russia and Ukraine.

So, just to clarify, is the €13 million difference between the bottom end of your range, €123 million, and the worst-case of €110 million, indicating that €13 million represents annual EBITDA from the Russia and Ukraine regions? Are you saying if that dropped from €13 million to zero, that’s what is impacting this margin?

No, it's not. The Russian impact is divided into two components. One concerns content production, which also applies to Ukraine. The second pertains to our business primarily with bookmakers. Regarding content production in Ukraine, we produced table tennis matches and e-sport matches at scale. We've already mitigated this loss, as unfortunately, the country can't deliver this content anymore, shifting production to countries such as the Czech Republic, Brazil, or Hungary. If you need me to clarify further, I can provide more details, but we have addressed the content impact. Now concerning bookmakers, businesses in both Ukraine and Russia have halted or reduced operations. These factors lead us to conclude that our revenue estimates of €665 million to €700 million can sustain a worst-case scenario should Russia cease functioning as a market for us. Regarding EBITDA, we believe we can mitigate issues, but the maximum exposure scenario might cost us €13 million. As you know, our business model depends on leveraging data and services, and while we cannot fully absorb losses, we are confident in our ability to maintain our guidance, given our current knowledge and the prevailing situation.

Thank you.

Thank you. Our next question comes from Bernie McTernan with Needham & Company. Your line is open.

Great. Thanks for taking the questions. Managed Betting Services had record turnover in Q4. I was wondering how much of that growth in record turnover was driven by industry growth or signing up new clients for services, as well as any changes in the services that clients are taking?

Yes. The good thing with our Managed Betting Services is that we invented this service. We are the only company providing this at scale. What you see here in growth is a pure increase from a good idea we launched six years ago that has now scaled.

Understood. The dollar-based net revenue retention rate increased to 125% for the year—was this primarily driven by increased managed betting services, or were there other data factors? Just trying to gauge what this entails within your 2022 guidance.

Alex, can you take that one?

Yes, it's driven by all of that. It encompasses the growth of managed betting services, live odds, audio-visual content, and ads—all of which contributed to that 125% improvement.

Thank you for answering my questions.

Thank you. Our next question comes from David Karnovsky with JP Morgan. Your line is open.

Hi, thank you. Carsten, you highlighted strong uptake for your ads product. I was hoping you could expand on how much of this is coming from new customers versus greater spending from existing ones. Additionally, we’ve seen U.S. operators discuss a need for more rational spending in customer acquisition. What are your thoughts on how this shift could affect long-term demand for your ads business?

My advice to all operators is that we should aim for less spending coordinated with what we see internationally regarding customer acquisition. There are present discussions on this among U.S. bookmakers, which is completely reasonable. From this standpoint, our ads product is perfectly suited for this need. Programmatic advertising allows for targeted engagement, effectively reducing costs. Therefore, we are optimistic about expansion into this area due to the pressing necessity for companies to find more efficient customer acquisition strategies. Additionally, we have a significant client in the sports betting space, which provides us with leverage to engage more midsize and smaller clients, helping them to be more efficient in acquiring new customers.

To add to that, it’s interesting to note that we have now exceeded €6 million in revenue from our U.S. ads product. Meanwhile, our ads business in the rest of the world has also increased by 70% for the full year. This demonstrates broad adoption with very large customers, as well as growth in both the U.S. and international markets.

Understood. Carsten, I want to follow up on your comments regarding U.S. operators integrating more media and vice versa. How do you anticipate this will unfold in the coming years? Do you foresee real M&A activity in this space leading to vertically integrated offerings, or will this transition be more of an incremental change through ongoing partnerships?

Looking to the future, fan engagement is a central driver. Understanding player-related data deeply, and how to convert that into an audio-visual experience that leads to a betting experience, will undoubtedly merge in the future. This convergence enables new entrants in the market, which we will certainly witness. The second key driver is live betting; we already observe a strong increase in live matches. Given that 80% of our revenues stem from live products, this trend is advantageous for us. Currently, the U.S. market displays unique dynamics whereby 70% of bets are pre-match and only 30% live—exactly the opposite of what we observe in established markets. We will see the U.S. market transition to international trends because live betting is far more exciting for fans who watch the match in real-time. For Sportradar, this shift improves our offering from merely selling data to providing comprehensive solutions. This has significant implications for our offerings: Live Odds and managed trading services yield considerably higher revenue than pure data distribution. Thus, these two trends are crucial for us.

Thank you very much.

Thank you. Our next question comes from Ryan Sigdahl with Craig-Hallum. Your line is open.

Good morning, guys. Thanks for taking our questions. I am curious about, actually, win rates for your sports book customers this past quarter—were they unusually low in Q4? Could you remind us how impactful this is on results for both the quarter and moving forward?

We operate a global business. From a global perspective, there is no impact from this. There are variable periods for operators focusing on soccer, which represent around 50% of the global market share. Tennis accounts for about 20%, followed by sports like basketball, ice hockey, and American football. Given our global footprint, we have numerous clients across diverse regions and sports; thus we are not solely reliant on outcomes from specific sports with unfavorable results for bookmakers. Our exposure essentially averages out over the season.

That's helpful.

Therefore, there is no seasonality affecting the profitability of bookmakers.

Yes, good. One last point: a significant bear thesis states that sports data providers struggle to achieve scalability, a claim that many feel is especially relevant considering your past and present results. I’d love to hear your thoughts on operating leverage and profitability following the public transition, especially in light of accelerated spending from one competitor.

I'm pleased you raised this question. We have proven that our business can grow on a large scale and can be highly profitable. We intend to make this clear in the coming years. It's our responsibility to demonstrate to the market that Sportradar excels at managing this business and can either meet or surpass expectations. My confidence is based on successfully exceeding all Q4 2021 figures. Going forward, we must continuously explore new markets and regions, which will require investment. As seen in the U.S., we are incurring overhead costs and licensing expenses, but as Alex pointed out, we are already reducing costs while getting closer to profitability. Whether we consider markets in India or Brazil, the overarching statement is that we can manage the business proficiently, ensuring stable profit margins. Our long-term forecast remains encouraging, as we previously indicated six months ago, that we will improve our margins in time, currently standing beneath 19% with expectations for gradual increases as our business scales.

Thanks. Nice job, guys, and good luck.

Thank you.

Thank you. Our next question comes from Shaun Kelley with Bank of America. Your line is open.

Hi, good morning or afternoon, everyone. I was wondering if you could comment on the outlook for potential UK regulations, as well as any insights on Canadian legalization. I understand they are somewhat separate topics, but regarding the UK, what potential impacts might we anticipate from proposed legislation? I know this topic has fluctuated, but what have you observed in other regulated markets?

Let me start with Canada because it’s quite recent. We have now received permission to operate in Ontario. I had a conversation with them last week, and we are very excited about the Canadian market opportunity—it’s an enthusiastic hockey nation. We view this as a strong opportunity. Any market that opens up for legalized sports betting with clear rules benefits our business model. As for the UK, there have been numerous legislative movements aimed at player protection, which we strongly support. Strict limitations on betting stakes and advertising could impact UK bookmakers. While we currently have no significant ads business in the UK, it will not affect us too heavily, but it may have implications for our clients as they will experience some revenue losses, and we might need to renegotiate some revenue-sharing agreements. Presently, we assess the overall impact as marginal in context with our UK client base.

Thank you. Could you also share your thoughts on Brazil and India as emerging markets?

Globally, we see exciting market prospects. Brazil is a market of interest, and we are keenly observing ongoing regulatory developments. We see progress in two Brazilian states moving towards a regulatory framework that will permit sports betting in the coming weeks. In India, our company has prepared itself as a best-in-class cricket provider while enhancing our understanding of other sports important in that region, such as kabaddi. So overall, we’re observing increased legalization and regulatory developments that present exciting growth opportunities for us.

Great. I’d like to follow up on your previous comments about Russia regarding sanction applications. Could you clarify? Do the sanctions affect your offerings in Russia at this stage? What are your interpretations of those rules, and what would need to change for sanctions to have a more pronounced effect?

Sanctions generally apply to us from the EU, the U.S., and the UK, in all jurisdictions where we operate. We continuously monitor all applicable sanctions. When I say we are in compliance, I mean we rigorously review who is operating within our business network. My concern is that should restrictions be imposed prohibiting U.S. or UK companies from cooperating with Russian businesses, it would significantly impact us. I hope this clarifies my earlier comments about sanctions.

Thank you.

Thank you. Our next question comes from Michael Graham with Canaccord. Your line is open.

Thanks a lot. Could you update us on any trends you've observed in rights costs? Also, could we get your thoughts on how your customers are engaging with your NFL product, given market changes?

We have not observed any significant changes regarding the NFL, as we previously conveyed in the last quarter. We have a few smaller clients, which make up a modest stake in the overall NFL betting market, while the majority remains with official data providers. Similarly, the media business continues to operate normally without major losses when compared to previous quarters. That’s a point on the NFL. Now, with respect to rights costs: overall, they will vary depending on our strategy, which focuses on eight key sports. Soccer and tennis are very important, while we see opportunities in baseball and basketball. Over the coming months, we anticipate being able to expand our footprint, which is integral to our strategy of gaining more player-related and match data. In turn, this enhances our ability to connect with sports fans more effectively.

Thank you, Carsten.

Thank you.

Thank you. Our final question comes from David Katz with Jefferies. Your line is open.

Hi, good morning to the team, and thank you for taking my question. You’ve already covered a great deal of information. Carsten, I'm very interested in your team's perspective gathered over years of operation globally. How do you perceive the U.S. market’s evolution thus far compared to the more mature European markets? Profitability, growth, and engagement are considerations. How do these metrics align with what you have experienced?

We are just at the beginning of this process. Our excitement is primarily rooted in the operational leverage we're seeing, which significantly decreases our losses. Notably, the U.S. market appears set on a path where revenue doubles annually—not at 92% growth but impressive nonetheless to what I’ve seen elsewhere in Europe. This remarkable situation in the U.S. is distinctly due to the fast-paced regulatory framework. Notably, while it doesn’t arrive all at once, it unfolds state-by-state, which creates a slight delay in its full realization. Our optimism is robust as we note that this market is on track for doubling its revenue every year. Although we do face some overhead costs, the improving scalability signals an eventual return to profitability in due time. My primary focus will remain on harnessing player-related data while ensuring an engaging audio-visual experience, which ultimately leads us into betting experiences. These elements will become significantly more integrated over time.

This is incredibly helpful. Thank you. Lastly, if I may, could you elaborate on how the overall market profit opportunities compare to your expectations and how they align with other global markets? I understand your hesitance to generalize but do share your insights if you can.

Absolutely; it has met our expectations. We recognize that profitability in the U.S. is slightly lower than in European markets, primarily due to relatively high fees from sports leagues. We have an interesting combination in the U.S. with four strongly positioned leagues, which utilize their market power to negotiate their terms favorably. This results in a proportional share of revenue paid to leagues, which tends to diminish the earning potential for operators and for us. However, it aligns perfectly with our expectations and is consistent with what we communicated during our IPO.

Thank you for that clarity.

Thank you. Our next question comes from Steve Pizzella with Deutsche Bank. Your line is open.

Hey, good morning, guys. Thanks for taking the question. Following up on the previous line of questioning, could you discuss the current revenue mix among betting and other business lines in the U.S., and how do you expect that mix to change over time?

That’s a relevant question for Alex, who can provide insights on U.S. revenue and the mix.

Certainly. It's difficult to quantify specifically as COVID has introduced variances year-on-year when sports events are occurring, which can muddle some comparisons. However, betting, by far, remains our fastest-growing sector, with growth rates between 50% and 60%. Audio-visual products are also witnessing rapid growth.

Thank you.

Thank you, and our last question comes from Mike Hickey with Benchmark. Your line is open.

Hey Carsten, Alex. Good morning, guys. I’m curious regarding your first quarter. I think you mentioned that it's essentially reflected in your guidance for the year. Can you share some preliminary insights on the first quarter revenues and EBITDA? The Street is expecting around €160 million in revenue with €31 million in EBITDA. Regarding Ontario, I know you mentioned licensing for sports betting by April 4th; with your operator partners, do you anticipate a smooth transition from the grey to the legal market or are there any contingencies?

Let me take the Canada question and defer the Q1 details to Alex. For Canada, we have now received the green light to operate in Ontario, which is momentous news for us. We are genuinely thrilled about this market opportunity; there are immense possibilities for platform operations. We can furnish our complete platform, including data management, to facilitate our larger partners participating in sports betting in Canada. Regarding Q1, as we are still navigating through it, I believe your revenue estimates are correct, landing around €160 million, and I’ve previously mentioned our auspicious start this year.

Right, obviously Q1 is still ongoing, and I cannot comment on it definitively. I would advise some caution in drawing conclusions about the first quarter as we experienced one-off COVID-related savings that positively affected last year’s Q1 results. Temporary COVID savings in the prior year quarter won’t be present this time around. Additionally, last year we had no costs associated with being a public company, while this year we do.

To add on Q1, while it's difficult to be precise, the estimate of around €156 to €160 million appears accurate. Overall sentiment towards the start of the year has been extremely positive, which is encouraging.

Thanks, guys. Just to follow up on Canada, do all your existing sportsbook operators in Ontario have their licenses, or are some still pending?

I’ll share a secret: the chief who approved the licenses is a former police officer and is finding his footing in this new role. In their initial stages, they encountered several issues concerning growth, and they need to build up their operational capacity to conduct proper due diligence. They have taken this process seriously, but it does require time to ramp up adequately in comparison to the U.S., where such processes are better institutionalized. Hence, they need to bolster the capacity to approve more operator licenses at a quicker rate. We are grateful to have received our approval promptly, which speaks to our organizational planning.

Thanks again, guys.

Thank you, and that concludes today's conference call. You may now disconnect. Everyone, have a great day.