Catapult Sports Ltd (CAT) Earnings Call Transcript & Summary

Good morning, everyone. Hello and welcome to Catapult's full year results presentation for 2020. And my apologies about the technical difficulties there in the background. I'm Andrew Keys, and I'll be facilitating the call today. Please note the call is being recorded. At the conclusion of the discussion from Catapult's CEO, Will Lopes; and CFO, Hayden Stockdale, there will be an opportunity for participants to ask questions. [Operator Instructions] Now I will hand over to Will Lopes.

Great. Andrew, can you hear me?

Yes, loud and clear, Will.

Fantastic. Well, thank you, everybody, for joining our presentation today. I think we're having a bit of a slight difficulty in this sort of COVID world. And I'm sure the camera will come up fairly soon and you can see my face here. Now before we get going, I think Andrew mentioned Hayden Stockdale, our CFO, is here and I think will participate in this discussion. Last night, we put out our results as well as putting out a video that actually described and kind of created some narrative around these results. We're going to make the [Audio Gap] Am I back?

Yes, you are, Will.

We're going to make the assumption that many of you have seen that along the way. And so we're just going to do a little bit of a highlight at this stage, and then we're going to open up for Q&A. So I think as I mentioned in the video yesterday, we're very pleased with the set of results that I think we were able to achieve in this fiscal year, particularly given the difficult situation that I think COVID-19 has presented. I think it really spoke very highly of our product. I think that it really spoke very highly of the staff here at Catapult and the dedication to our customers. And then I think more importantly, I think it spoke very highly to the fundamentals of the economics of the business. So we're feeling very pleased. A couple of key things to note along the way with the presentation from yesterday. One is that we set out a goal to be free cash flow positive into FY '21. And the fact that we were able to bring that along a year ahead of time with $9 million of free cash flow, which is a $25 million swing, was a very impressive moment for us, I think, a major milestone for our organization at the end of day. This result marked our fifth consecutive half where we have EBITDA-positive momentum and growth. I think the other component that I think was a real highlight for us was that, despite the disruption that we had in Q4, we were able to deliver 26 customer-facing solutions through the year for our customers. And so it really spoke to the level of industry leadership and the technology that we're building. And of course, I think -- we'll talk about it just a little bit more in a second. I think our management through this COVID crisis, I think, really spoke highly of the experience of the executive team here as well as the staff, I think, that supported it behind. From a financial perspective, a number of things, I think, stood out to us that I think were quite pleasing. Obviously, the growth in subscription revenue at 21% over the year, but more importantly was that even in Q4, where we had a lot of disruption, particularly in the capital sales, we still saw strength in that subscription revenue number growing at 20% plus on wearables and still having positive growth in the video front of it. Our ARR continues to be a number that continues to grow at 10%. We did present a series of new metrics. And so ACV, which is a metric that I think we utilize more so internally in how we operate the business, was up as well at 12%. And obviously, our revenue grew 6% in spite of the COVID-19 headwinds, I think, that we saw during our biggest selling season. A couple of other components and particularly on the operational front that I think stood out to us on it. During the fiscal year, I think we were very pleased with the amount of marquee deals that we were able to win and re-sign during the year. And it included some big names in there, including Real Madrid; a number of NFL teams, like the Bears and the Chiefs; as well as some major universities in the NCAA space, like UNC and Stanford University. As I mentioned, I think our R&D really delivered this year. Beyond the 26 innovations that we announced, we also saw really great penetration of our new device, Vector, reaching about 17% of our base at this stage. And I think we've put out a couple of releases around this, but when it came to COVID-19, our ability to actually pivot as quickly as we have and deliver a number of solutions that are now being used by thousands of athletes across the globe and with leagues that span different regions and different continents, I think really spoke to the level of our ability to kind of change R&D on the fly and deliver things that are a great value to our customers. And then I think another operational highlight for us is that I think the bench strength of the team here at Catapult continues to improve. We made some major announcements of some new leaders, including Chris Cooper, our new COO; Yana Bulva, our new SVP of Product. But there's also a number of people that got hired in the last 6 months that I think have really made a change, a positive change, internally in terms of the quality of, level of thinking, intellect and their ability and experience at scale, which I think is something that we're really looking forward them bringing into the business into fiscal year '21. And I think not to be forgotten, I think we've also made some -- a number of improvements in the Board capability, I think, with bringing in Michelle Guthrie, who has been an absolutely fantastic adviser to me and the team; as well as having Jim Orlando, who was a great adviser early on as an interim CFO and has now returned back to this world as a Nonexecutive Director. I think lastly, just a couple of notes on COVID-19. I think beyond the innovations that I think we talked about, I think we've been really impressed with the year, particularly in how we were able to manage the sort of Q4 component around our cash balance and I think we anticipated perhaps a bit more harsh of what the reality of a global shutdown looks like, and I think what we were very pleased with was the fact that our existing customers stayed with us and, I think, as we presented sort of low churn numbers. And we were very pleased that cash collections stayed as strong as they did during this period. We obviously saw some headwinds in new sales that have shifted into H1, but I think the fundamental of our SaaS model really stood as sort of strong anchors to keeping us in good stead at the end of the day. Just lastly before I kind of hand it back to Andrew and just kind of open up for questions, just a few notes on looking ahead into fiscal year '21. Fiscal year '21 will be a shorter financial year for us. I think we're going to be looking at a 9-month window, which I think will better align ourselves with the true sales seasons of our industry. We're also going to be making a shift in the currency that we report on in moving to the U.S. dollar, and I think we announced that a couple of weeks ago. I think it really speaks of the underlying success that we've seen in North America. I think one element to keep in mind is that we remain committed to maintaining free cash flow positive going into fiscal year '21. It was a commitment that we had in the past. We delivered on that a year ahead of time, and we plan on continuing that commitment into the next fiscal year. In terms of COVID impact into the business, I think there's -- what I would say at this stage going into fiscal year '21 is that it's still a bit too early to kind of gauge what the short-term impacts it will be on sales. We definitely saw a shift of our pipeline going from Q4 into this year. And the pandemic hasn't ended, and so we're being sort of cautiously optimistic in how we look into fiscal year '21. So it's a bit too early to kind of gauge that. However, I will say that the short-term effect we're seeing has now played out, I think, and the long-term potential of growth that Catapult faces is ahead of us. In particular, I think, recently, we've announced a deal with Hungarian sports academies that really actually is a positive indicator for us, that as things start to turn back into some sense of regularity, that's a deal that was sitting with us all the way from the start of the calendar year. It got put on hold, and then it came back as that area and that sport started to play back again. So we're feeling cautiously optimistic. We're sort of continuing to see some short-term headwinds. But hopefully, as things progress, I think we'll feel better about it. With that, I'm going to pause here. Let me turn it back to Andrew and let Andrew try some questions.

Right. Thanks, Will. [Operator Instructions] We do have a question from Anthony Porto at Morgans.

I have a few questions, actually. Just firstly on the cross-sell, teams with 2-plus solutions, it seems like you've only gone up [ 23 ] based on -- in the half based on what you showed in the first half. [ So it's like getting 23 new teams. ] So just a bit of commentary around that. And just a sense of the opportunity here. It represents 7% of your teams at the moment. What proportion can this get to? How many other competitors are already providing their alternate solution? And then just a sense of kind of the revenue opportunity. Like, if wearables is 100 , is wearables plus video 180 and AMS takes [ 100 ] -- just a bit of a sense of the opportunity there. That's the first question. Just second question within video, internationally. From the account, it looks like you're still only getting about $230,000 revenue internationally from video outside of the U.S. We're just wondering if Vision is not really getting much traction outside of the U.S. And then recently, looking at kind of Hudl's announcements, they're talking about circa 50% discounts to high schools and college teams unable to take the field this year. Are you guys thinking of putting a program like this in place? And if so, what's the expected impact there?

So I'll take a couple of those. So just on the cross-sell, I think we're quite pleased with the level of cross-selling that we did through the fiscal year. I think obviously some of the headwinds that I think we would have anticipated in going into COVID crisis obviously impacted our ability to increase that rate at the end of the day. In terms of how big the opportunity is, I think -- we think it's a massive opportunity. I think part of our strategy in terms of looking at a cohesive platform is that we believe the more integration across solutions, the more opportunity that it allows us to increase lifetime duration, increase ACV and obviously increase sort of the stickiness and the utilization of our products. I would say that there are different regions where the opportunities present itself in different ways. So in North America, where we have strength in video at this stage, combining that with wearable we believe is a very strong opportunity. And we've done, I think, a very good job in kind of driving that forward. On the reverse of that where we have wearable solution and no video solution at this point -- or rather, where we have a nascent video solution with Vision, I think that's exactly where we're trying to get Vision to, is how do we make sure that it's equivalent of a product as we have with Thunder and make those connections. But we see that the opportunity is very -- still very high, as you can see from that chart, where still the bulk of our clients are only utilizing one solution. In terms of sort of the way to think about revenue in that, it's not a 1:1. So it's not if we make $100 from a video solution and $100 from a wearable solution, if you had both of those, it's $200. I think it's -- obviously, I think we want to utilize the power that we have by actually being able to bundle things in a certain way. But we're not announcing what we think those ratios are because that would just be telling competitors here is how to compete with us on it. But you kind of get a sense of where the ACVs are against the verticals and kind of play some component of that. To your question on Vision, I think Vision, I think we've been in some ways impressed with its growth rate in certain places. But it hasn't scaled to the level that I think we anticipated. And primarily, that's been driven, I think, by 2 issues: The first is that when Vision went into market last year, it was just slightly past the big sales season in sort of a [ flow ] sports market. Looking at this year, we got a lot of headwind obviously with COVID-19 where this would have been the year where we added a number of new features, including multiangle capture, which was a deficiency of the product. But we're now facing sort of some headwinds in new sales. We continue to believe it's the right thing to do. We think the product continues to improve at a very rapid pace. And I think the integration with wearables will actually give us discussions where they haven't been opened up in the past. And then just to your last question around a 50% discount, we are -- there's nothing that we're in this stage creating from a blanket discount perspective. I think it's -- we're not dealing with tiny little ACVs that you would see in high schools, right? So this is not a -- we're not a business that is after a couple of thousand dollars from a team. We're typically dealing with much larger ACVs. We're being very smart about the places that we think may need some form of relief. We've done that throughout this pandemic. And where we did give some relief, typically what we found was increase in duration in terms of our contracts.

Anthony, I may just sort of add a couple of points to what Will said there, too. On the penetration of the cross-sell, upsell stuff, one thing to really note there is that our leading product on the wearables side, the Vector S7, only 1/6 of our customer base, our entire customer base, actually has that. Now that doesn't necessarily mean that only 1/6 has our wearable products. Obviously, a number of the customers have either the S5 or PlayerTek or something of the like. But that just gives you a sense of not only the cross-sell from video into the S7 but also the upsell from the sort of the junior, so to speak, wearable products there. So being 1/6 thereabouts or that 17%, that just gives you a sense of the additional penetration into the market that we can achieve just from our existing customer universe without adding a single additional customer on. So that's one thing. On Vision -- and on your second question about Vision, I'd also point out -- I mean Will mentioned about growing sales and the like there. The shortfall that we experienced in the fourth quarter, effectively, none of that was from Vision, okay? So I think the opportunity there and the growth there that we achieved actually was quite impressive, and we're looking forward to further success with that. And the last point I'd make in relation to Hudl and the discounting is that our customer base is very, very different to that of Hudl's. We are very much at the elite end of the sport. We're not in that high school market. And our customer base is nowhere near as challenged financially than what you would expect Hudl customers would be. So we don't find that we have the same pressures around discounting at all. Handing back to Andrew.

Thanks, Will. Thanks, Hayden. We got a question from Jared Pohl at ECP. [Operator Instructions] You there, Jared? Jared? I'll come back to Jared. I do have a question that has been sent through from Owen Humphries at Canaccord. And his relates to the quantum of sales believed to have been deferred at the end of the year in Q4 in relation to COVID that would have been pushed into the first half of FY '21.

Yes. I think we've put something in the slide there. I think we've had management...

[indiscernible] second half run rate.

I think we had management estimate that it was probably about $14.5 million that I think was probably delayed from Q4.

Thanks. I'm going to go back to Jared now, and he did say he had technical difficulties. We'll try him one more time.

Can you hear me now?

Yes.

Great. Okay. Can we just jump away from financials and just more to the hires that we -- you spoke to earlier, please, just with SVP of Product. I'm just interested to dive into that a little bit more. Like, the success of Vector was done prior to an SVP of Product. So I was just want to understand the rationale for building that out and where you see the opportunities from.

So I think a couple of components that I think we're looking ahead into the year. I think when we look at our sort of idea of a cohesive platform, I think where we find ourselves really wanting to continue to invest intellectually as well as in an R&D perspective is on the integration of the solutions that we have and also making sure that we're integrating those solutions with a vision of scale. And so I think we've done a fantastic job here building a great wearable product. I think we've done a fantastic job building a great video product. But where I think we haven't quite executed as well as we wanted to was creating a platform that allow these different solutions to begin to talk to each other in a way that, particularly from a cloud processing standpoint, we're thinking about what it looks like 3, 4, 10 years down the line. Yana, who I had the pleasure of working with in the past, is not only somebody who thinks very well about product marketing and how it fits with our customers but is also somebody who has experience of building scalable products in an organization like Audible in Amazon and American Express in the past. The other senior hire we brought into the organization is Chris Cooper, who is now our newly appointed COO. And I think in a very similar fashion, what we're trying to get to in the next stage as an organization is actually scale. And so one of the challenges that I think we're seeing -- or maybe not seeing, but I think I recognized when I came here that there's a lot of growing pains that an organization like Catapult is expected to go through. And so if you could bring someone who has had the experience of actually taking an organization from a few hundred million of dollars into billions of dollars, there's a process that requires us to change, there's a way we communicate, the way we actually look at status, the way we design sort of multiyear views at the end of the day. And I think what we were trying to -- what we have brought in with Chris is the opportunity to actually have somebody that helps us scale on that front at the end of the day.

[Operator Instructions] I do have a question -- or 2 questions that have come through from Kieran Harris at Evans & Partners. Of the $14.5 million approximate shortfall in sales to your pre-COVID expectations, can you provide an estimate of that shortfall across wearable and video? And the second aspect is for the segments wearables at $48.1 million and video at $47.7 million, can you provide an approximate breakdown between capital sales and subscriptions for those verticals?

Yes. I think that's probably virtually the same questions, so great. I'm going to answer it, and I think I'll hand it onto Hayden just to kind of add some more color. But I think the way to think about it is video and wearables, for the most part, are very similar to each other in terms of profile. So they typically have been about 50-50 of the bulk of the revenue that we bring in. In those 50-50, if you split them up, subscription is the same percentage or SaaS is the same percentage that we normally see in wearables and video. And so I'd say that I don't have a breakdown exactly in front of me of the $14.5 million, but it's probably similar to what you would have expected through the year, which is typically 75% of our revenue is subscription-based.

Yes. So maybe what I'll add to that is if you have a look at Slide 25 in the presentation, then you'll see the growth year-on-year in our revenue. Obviously, subscription revenue has risen. Capital revenue has tapered off because of the fourth quarter. The negative impact was more in Performance and Health than in Tactics and Coaching. But I think we had higher aspirations of growth in the fourth quarter in Tactics and Coaching. So as Will said, they're roughly about 50-50. And I think were the world to have played FY '20 without COVID-19, we would have seen it being roughly 50-50 in the end. As it pertains to the split between subscription revenue and capital revenue between those 2 divisions, we actually do have a higher percentage of subscription revenue in the video business than we do in the wearables business. I wouldn't say it's necessarily meaningful, but if you're thinking about opportunities in the future from switching from capital to subscription, that's probably slightly in favor of the wearables business.

Okay. I have another question through the webinar chat from Mitch Fogarty at 3rdWave Capital, which is referring to the strategy segment slide towards the end of the presentation, which has the verticals. Can you please provide more detail around the opportunities in your platform strategy, especially Media and Engagement? And also the recently announced NCAA deal, does that fall under that category? And what's the medium-term opportunity outside of video exchange services?

Yes. So I think when we think about white space, I think our primary focus has been in Performance and Health, Tactics and Coaching and Athlete Management. In Media and Engagement, I think we've been quite impressed with our content licensing business. Particularly in the past fiscal year, it's actually kind of overdelivered above and beyond expectations. And just so for those of you who don't understand what we do there is that we take a lot of the content from the NCAA universities, particularly around a handful of key conferences in American football. And then we help them license that content out into whether it's usage for media, usage for TV or even usage for the NFL, for example, during draft season. And then we take a royalty and share that back with the conference. Other things that are included in Media and Engagement are also the utilization of our data in game day to improve broadcasting rights or broadcasting mediums. So what we do in Australia, for example, with utilizing our data with the AFL is a utilization of that. I think when we look at it, I think we see a number of opportunities down the line, but I don't think that these are major opportunities in the next 12 to 18 months. I think we continue to see opportunities in the utilization of our data, particularly as we start to integrate the platform in helping actually improve either leads monetizing their assets, whether that's through broadcast, social and the like. And then we do see opportunities to helping utilizing this licensing business that we have, so actually thinking a bit more broadly beyond NCAA and how do we actually help other leagues that are -- perhaps don't have their own media licensing arm and thinking about how do I actually monetize my assets. So I think there's quite a bit there, but it's not a major runway for us in the next 12 months. In terms of your second question on the NCAA, what we're doing in the NCAA exchange is actually pulling all of the game-day audios and allowing for basically the top 100 -- 130 teams in the NCAA for football to actually exchange game-day video. I think where we see opportunities there is that the integration of that exchange of video is actually almost seamless, if not -- I mean I call it seamless -- within our video solution. And then it does support other video solutions, but it's not the same seamless design within our system. And so we think it just highlights our video solution in that space at the end of the day.

Yes. And I think that there was a specific question about whether or not that was in our Media and Engagement business or in the Tactics and Coaching, and we record that in Tactics and Coaching. It's a customer base that is sort of self-contained within the universities. It's not actually the sale of content to an external media buyer. So it's really an additional feature we have to our core sort of sports team customer base with additional stickiness added and the like.

Okay. I have a question from Tim Binsted. Can you please provide some detail around the sales pipeline and further color on the R&D strategy?

Yes. I think beyond what we said on sort of the pipeline, I think we're feeling positive that the pipeline -- we're not seeing major losses in the pipeline. I think the shift that we saw from Q4 into this year feels like those opportunities haven't gone away. We're still seeing some headwinds on that sales pipeline, while -- particularly in regional, design -- very different. What I would say is the sales pipeline today is very different than it was, let's say, in mid-March when the global pandemic hit and every sport closed. And I think during that period, it was hard to see how long things that were delayed were going to come back. I don't think we're in a position to say we have a clear picture across the globe. But what we have seen is that, in places where they have started to come back to play, that pipeline is actually kicking back on. And so we're feeling more positive in places like EMEA, most recently in places like LatAm and, obviously, APAC. But in the U.S., I think we continue to see real positive movement from professional sports and some regional delay, particularly with the NCAA as there's still not clarity on when they're going to come back to play. But I think I'll reiterate what I said before is that we don't see those changes in the pipeline having long-term structural issues in the business.

Okay. A question from Rob Pizzichetta at Morgans. Can you please provide some clarity on the TAM? Should we be focused on the dollar amount or the amount -- the number of league teams? If the latter, how many could have 1, 2 or 3 products?

Yes. It's a good question. Actually, I think we are getting closer and closer to honing the TAM to the point where I think we may want to do a follow-up on it to the market. What I would say is that the way we've been approaching it from an analyst perspective, what we've seen so far is if you take the entire sports tech industry, what you see is a TAM of about $31 billion, which includes everything, including media. And that is at a pace of -- actually, I should have said it's at a pace to get there within about 5 to 7 years, is kind of how the industry is looking at it. I think when we look at what we're trying to build from a platform perspective, what we want to service, we're probably in that 8 to -- I would say -- no, $7 billion to $8 billion addressable market within that TAM. And obviously, I think that includes segments that are professional and also segments that are part of the prosumer. And so I think we're holding that a little bit down. I think we spent a good amount of thinking cycle in the last few months actually trying to figure out what -- how do we actually size the TAM overall. So I'd say that's sort of on the dollar side. Take a step back for a second. On the professional side, I think we look at -- there's probably about 15,000 professional teams across the globe. And in those teams, we don't include things that are on the prosumer side, so the high schools, the youth academies. And if we started to include those teams into this, we're probably talking about 150,000 plus at the end of the day if you look at it just from a count perspective. And then to your final question, which is how do I look at multiple solutions, I think it's going to vary depending on the level of sophistication of the team that we're talking to. But our strategy and vision is that as we start to build this very clear, cohesive view of athletic performance, that the solutions will not only be persona-based, meaning there's a solution that's part of the front office that's different for the coach, that's probably different for the athlete, but they also have layers of sophistication depending on the consumer -- the customer segment. And so I actually believe that probably as we get all the way to the very professional side, you're going to have ideally 5-plus types of solution at first if we execute correctly. And when you get to the very sort of entry-level teams, you're probably talking about 1 to 3.

Okay. I think we've answered all the questions. I'll hand over to Will -- to you, Will, for some closing remarks.

Okay. I think there was a little bit of a technical background noise there. Sorry. Yes. Look, I think I'll end by first, I think, thanking everybody for dialing in. I know this fiscal year presentation, I think, has been a bit unorthodox. I actually, believe it or not, I would have loved to be in Australia right now and actually be seeing human beings in front of me and shaking some hands. But here we are. I think I'll end it with saying that there's a sheet -- sorry, there's a slide in our presentation that I think really stood out for me and I think -- and I know made the entire staff and the Board here quite proud. And that was one of the first slides. I think it was Slide 3. And the fact that we have 30 teams that were using Catapult this past season during their championship year, I think it really spoke highly of the quality of the product that we deliver, the type of service and the type of clients we're dealing with. And the fact that we were not only working with them but managed to kind of walk at the end of this COVID-19 pandemic with a very strong balance sheet, really strong customer base and a SaaS model that I think that's delivering on a whole set of expectations makes me very, very excited about our future. So with that, I want to thank all of you and wish you a very good day.

Thank you.

All the best.

Goodbye.