Catapult Sports Ltd (CAT) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Dr. Adir Shiffman, and I'm the Executive Chairman of Catapult Group International Limited. In accordance with the company's constitution, as the company's Chairman, I am also Chair of this meeting. On behalf of the Board, it is my pleasure to welcome you to the 2020 Annual General Meeting. Before I go any further, I would like to acknowledge the many traditional owners of the lands on which we are joining the meeting from today. Catapult acknowledges the traditional custodians of country throughout Australia, their connections to land, sea and community. We pay our respects to the elders past, present and past and present and extend that respect to all Aboriginal and Torres Strait Islander peoples. Ladies and gentlemen, the time indicated in the notice of meeting has passed and as there is a quorum present, I declare the meeting open. Let me start by saying that I'm disappointed we cannot be together in person. But in response to government restrictions and the potential health risks arising from the COVID-19 pandemic, the Board determined to hold this year's AGM virtually. We very much appreciate your understanding at this challenging time, and thank you for joining our virtual meeting. Due to this meeting being conducted virtually, technical issues beyond our control may arise. If this occurs, I will adjourn the meeting, and it will resume at 1:00 p.m. Melbourne time. If resumption is not possible, we will issue an ASX announcement with further information. The notice of meeting was published and the covering letter mailed to shareholders on the 29th of September 2020. As is customary, with the approval of the meeting, I will take the notice of meeting as read. I would also like to remind shareholders that while this meeting is being streamed in audio and video via Zoom, shareholders may only vote or ask questions during the meeting via the Lumi system. Details of how to do this are set out in the notice of meeting, my letter to shareholders of the 29th of September and Catapult's investor website. I would now like to introduce you to the rest of the Board. Mr. Shaun Holthouse, Co-Founder and Nonexecutive Director; Mr. Igor van de Griendt, Co-Founder and Nonexecutive Director; Mr. Brent Scrimshaw, Independent Nonexecutive Director and Chair of our Nominations and Remuneration Committee, Mr. Jim Orlando, Independent Nonexecutive Director and Chair of our Audit and Risk Committee; Ms. Michelle Guthrie, Independent Nonexecutive Director. I also welcome to the meeting the company's auditor, Mr. Brock Mackenzie of Grant Thornton. Also in attendance are our CEO, Mr. Will Lopes, who is in Boston; our CFO, Mr. Hayden Stockdale; and our General Counsel and Company Secretary, Mr. Jonathan Garland. The agenda for today's meeting is as follows. First, I will provide the Chairman's address. This has been prerecorded to mitigate technical risks and difficulties with today's virtual AGM. This will be followed by our CEO, Will Lopes, providing his thoughts on Catapult's FY '20 performance and the company's unique growth opportunity. Again, this has been prerecorded. Following this, we will move to the formal business of the AGM. This year, we have a revised format for the meeting to make it more efficient and to improve the experience for attendees as a whole. I will introduce and describe all of the agenda items for consideration. Shareholders will have the opportunity to ask questions about or make comments on all agenda items rather than dealing with each item in turn. We want to allow as many shareholders as possible to ask questions. To ensure the process runs smoothly, please keep your questions succinct and relevant to this meeting. Where there are multiple questions which are the same or have a similar theme, we will group these into a single question. Further, while we will try to answer as many questions as possible, it may not be practicable to answer every question, but we will do our best. Eligible participants may submit a question at any time during the meeting via the Lumi app on their mobile device or online. To do so, participants should click or tap on the speech bubble, which will be visible on their screen if they are eligible to ask questions today. This will open a new screen where they can type in questions and send them via the arrow symbol. This is all explained in detail in the online voting guide on our investor website. We will now run my Chairman's address, and following it will be Will Lopes' CEO presentation. Catapult is the leading sports technology business in the world. Catapult's vision is to empower every athlete and team on earth with technology to perform at their best. It is often said that 2020 has been a year like no other. Although there have been challenges previously unimaginable for sport globally, we are very proud of the significant progress Catapult has made this financial year, in particular, the delivery a year earlier than expected of our maiden free cash flow positive result despite the unforeseen challenges and uncertainty due to the impact of the COVID-19 global pandemic. The customer value generated by Catapult's SaaS offerings, our entrenched position in customers' daily workflows, our innovative focus and effective management response held the company in good stead during the global lockdown of professional sports through late FY '20. The company is confident of emerging from this with its strong growth outlook fully intact. Catapult is beginning to experience the scalability, typical of a successful subscription software business, as we continue to experience revenue growth, supported by strong growth in subscriptions. Noting Will Lopes will provide more information on our FY '20 achievements in his presentation, Catapult's major FY '20 financial and operating highlights included EBITDA of $13.3 million, up 225%; positive free cash flow of $9 million, up $26.1 million; $27.5 million cash balance at 30 June 2020, with $39.8 million at the 14th of August 2020; subscription revenue of $77.6 million, up 21%; revenue of $100.7 million, up 6%; and 39% growth in customers with more than one Catapult solution. Early in the financial year, the Board was delighted to welcome Will Lopes as Catapult's CEO. As a former Chief Revenue Officer of Amazon subsidiary, Audible, Will brings world-class technology and growth experience from one of the world's most successful technology businesses. With the North American and European markets comprising the majority of Catapult's revenue, Will is well positioned to capitalize on this based out of Catapult's Boston office. With Will as CEO, the Board is confident that we have a leader with global experience, huge ambition and a proven ability to help us create the most impactful and successful technology company in world sport. The appointment of Will and his subsequent recruitment of high-caliber growth leaders, including CFO, Hayden Stockdale; COO, Chris Cooper; and SVP Product, Yana Bulva, enhances Catapult's capacity to scale globally. Board capability and independence was improved during FY '20, following the appointment of Michelle Guthrie as an Independent Nonexecutive Director and the return of Jim Orlando to an Independent Nonexecutive Director role. After 6 years with the company as an Independent Director, Brent Scrimshaw will today retire from the Board. Brent has been with Catapult since our IPO in 2014, having previously been one of Nike's most senior executives. His guidance, counsel and commitment has been a great benefit to the company, and I have personally also been deeply grateful for his support. Brent, I thank you for your support and significant contribution over many years and wish you all the best in your new role as CEO of Enero. Brent's retirement from the Board creates a vacancy for an independent nonexecutive director, and we have started a global search. Notwithstanding the current limits of COVID-19, Catapult's international footprint gives us the opportunity to undertake a global search for our next director. As a high-growth software company with a growing global customer base and market leadership, we were delighted to be included as an original constituent of the new S&P/ASX All Technology Index. We view Catapult's inclusion as a positive sign of our increasing relevance for a growing range of investors globally. In closing, I would like to say I am extremely thankful for the continued commitment of the Board, the executive team and our employees around the world in what has been a challenging but rewarding year. Finally, the Board is enormously grateful to athletes, teams and shareholders for their continued support in the past year. Catapult's continued growth would not be possible without your support and loyalty. Thank you.

Thank you, Adir, for the earlier introduction, and good morning to all of you joining us today. I'm disappointed I cannot be in Australia for this AGM. But given the current travel restrictions, I'm sure you all understand. However, I am excited to share our accomplishments for the past fiscal year in spite of the challenges that we faced during this year due to pandemic. Catapult's progress through FY '20 highlights why I was so excited to join Catapult. It demonstrates that the fundamentals of a strong recurring subscription business, coupled with a low churn customer base, creates amazing operating leverage. This operating leverage allowed us to achieve positive cash flow a year ahead of plan under the extremely challenging and stressful circumstances presented by COVID-19. Our progress to date excites me even more about the future as we continue to innovate on behalf of our customers. I'm going to cover 3 topics in my presentation today. I'm going to highlight our customer focus and innovation and how this is driving our subscription revenue, recap our strong financial '20 -- fiscal year '20 performance and provide some commentary on our FY '21 outlook and an update on how we're progressing. Before we get started, I'd like to point out that over 30 world champions were using Catapult solution in the last sport season. We are very proud to have supported so many of them across the globe, and we look forward to adding even more in the coming year. Now let's discuss some of our success and innovations and how that's translated into continued growth in subscription revenue. Catapult continued to win marquee signings, be successful with League Wide Deals, grow multiple-solution customers, secure deal renewals and extension and report low churn in fiscal year '20. Catapult's global customer base expanded to 3,246 teams with marquee signings and renewals, including Real Madrid, the Chicago Bears, Stanford University and the England and Wales Cricket Board. Prominent League Wide Deals were the signing of Dimayor, one of the largest and the top tier of Colombian football, and Major League Rugby here in the U.S. Customers with more than one solution grew 39% year-on-year and significantly contributed to continued low churn with ACV churn of fiscal year '20 at 6.7% compared to 6.3% in fiscal year '19. Catapult invested $9 million in R&D in fiscal year '20 to drive future growth and build on its industry leadership position. 96% of this investment was focused on our Pro segment. The new 26 customer-facing solutions included COVID-19 innovations and upgrades for Pro segment customers across soccer, baseball, rugby and U.S. college football. Catapult's new COVID-19 innovations are now used by over 2,000 athletes, and customer utilization of our cloud tool -- cloud solutions are now higher than a year ago and at a record pace. Our success in expanding our customer base and introducing new solutions translated into a successful fiscal year '20. Catapult was pleased to deliver EBITDA of $13.3 million in FY '20, an improvement of $9.2 million, driven by continued strong subscription revenue growth of 21% and a decline in operating expenses. All solution verticals contributed to subscription revenue growth with Performance & Health up 29%, Tactics & Coaching up 10%, Management up 26%, and Media and Engagement up 27% against last year. Despite COVID-19 impacts slowing our growth late in the year, we were able to grow subscription revenue in the most difficult period by 25% in our Performance & Health category. Catapult has now delivered 5 consecutive half years of consistent EBITDA growth, driven by our continued focus on efficient implementation of a SaaS model, resulting in a higher operating leverage and profitable growth. I was pleased we managed the prosumer customer segment more efficiently and to plan. It delivered strong EBITDA improvement with a loss of $0.7 million compared with a loss of $6.1 million in fiscal year '19. The improvement is attributed to the restructuring of the business, delivering operating cost containment and lower marketing expense. This led Catapult to be in a strong financial position. And at the end of our fiscal year, our cash position was $27.5 million, which included $7.3 million drawn from a debt facility in March '20 at the beginning of the COVID-19 lockdown restrictions. During our end-of-year fiscal year presentation, we introduced new metrics that highlights the strength of our subscription business. We can see how Catapult has matured into a strong SaaS model in the last fiscal year with these key metrics. Our ACV, that is our annual contracted value, grew 12% during the year. Our ACV churn was minimal at 6.7% despite the headwinds we faced in Q4. The average lifetime duration of our customer is incredibly high at over 6 years in spite of welcoming many new customers in the last 2, and our operating leverage continues to improve as evident in our contribution margin of 49% for fiscal year '20. These positive results position Catapult for continued success. We have been focused on scaling our solutions across regions and sports, and we are pleased that this increased focus has made the U.S. our key market with U.S. customers now contributing 65% of Catapult's revenue. In addition to myself being in the U.S., I have made some key U.S. appointments which will help Catapult scale globally and accelerate growth. Further to Adir's comments, I was delighted to welcome Chris Cooper as our new COO and Yana Bulva as our SVP of Product to the senior U.S.-based roles. The executive team was also strengthened by my appointment of Hayden Stockdale as Catapult's CFO earlier in the year. Earlier in the year, we presented a new strategy to continue to expand our products across key verticals and integrate them together to deliver a cohesive view of athletic performance in a single platform. As I finish my first year as Catapult's CEO, I couldn't be more bullish that this strategy will lead to long-term success based on what we saw in fiscal year '20. To recap, the company committed to deliver positive free cash flow into FY '21, and it is pleased to achieve this goal a year earlier than planned in spite of COVID-19. Positive free cash flow of $9 million further derisks our company. This achievement was delivered after spending $9 million of R&D investment in future growth. This positive cash flow inflection point means we are becoming and now is a great SaaS business that is well positioned to scale while delivering great service to our customers and value to our shareholders. And these strong financial results were achieved during what could be considered the most challenging period for Catapult with the impacts of COVID-19. Catapult's ability to execute during such challenging period is a great sign of our product strength, our employees' dedication to our customers and the experience of our executive team. Now looking into FY '21 and our outlook. FY '21 will be a shorter financial year comprising of 9 months as a result of Catapult changing to a 31st of March year-end. The change of year-end and the switch to U.S. dollars as a reporting currency will better reflect the company's underlying successful operations and earnings profile driven by its growth in the Northern Hemisphere market. Subject to our commitment and cash flow positivity, we will look to increase our investment in R&D in order to generate further revenue with a high contribution margin. We're making good progress in light of the COVID-19 backdrop, which is frustrating in some of our attempts to sign new business. However, since the start of FY '21, our cash balance has shrunken further, rising now to USD 24 million as of the 9th of November, and that excludes drawn loans. This is an increase of $10.1 million since the start of the fiscal year. The increase in cash flow is driven by a strong cash collection and ongoing cost savings associated with COVID-19. This position of financial strength has enabled us to pay down our loan facility, and so we are now debt-free. Catapult has been heartened by the strength and the trusted nature of its relationships with teams across all major sporting competitions globally continue to heavily utilize our solutions during their return-to-play programs and in competition. Customers -- customer usage of Catapult's cloud-based SaaS solutions are higher than the previous year across all individual regions. As previously advised, a number of new business opportunities were delayed from late FY '20 into FY '21, and many of these remain open as professional and U.S. college-level sports continue to manage the significant impacts and restrictions posed in them by the COVID-19 pandemic. Although new business opportunities remain challenged in the current environment, we are utilizing our strong cash position and positive cash flow to convert many of these new opportunities and other capital sales to full SaaS subscription deals. Going forward, we do expect a significant shift from capital to subscription for the Performance & Health category. The company's strategic focus on investment in innovation continues. We recently delivered new customer-facing solutions, and these included Catapult Form, a dedicated athlete feedback and wellness management software solution; and 2 solutions to support the American football teams as they return to play, enhancing workplace flexibility and efficiencies amidst the new restrictions they're facing. The solutions provide teams with cloud-based, full-resolution video analysis and a new seamless indoor/outdoor experience for American football that allows teams to transition between global positioning systems and local positioning systems in a single session. Finally, I want to thank the Board for their support, our staff for their dedication to our mission and our customers for their loyalty. What attracted me to Catapult is its global technology leadership position and the huge opportunity that -- the huge opportunity to keep innovating and redefining the performance of elite teams and athletes global. Catapult is a business with a strong financial fundamentals with the potential to become the sales force of the sports technology world. Thank you.

Before moving to the rest of the formal agenda of today's meeting, I will say a few words about the process for voting at the meeting. Each item of business in the notice of meeting that requires a vote will be by a poll, and I formally open the poll on all items now. This will remain open until the end of today's meeting, so please ensure that you vote prior to the end of the meeting. Eligible participants may vote at any time during the meeting via the Lumi app on their mobile device or online. To do so, participants should click or tap on the voting icon, which will be visible on their screen if they are eligible to vote today. This will bring up a list of resolutions which may be selected to cast a vote. Before the commencement of the shareholder question session, we will display the proxy votes for each item of business which calls for a vote. The voting restrictions for all items are included in the voting restrictions section of the notice of meeting. If voting on a poll, proxy holders must vote as directed, subject to any applicable voting restrictions. Any directed proxies that are not voted at the meeting will automatically default to the Chairman, and I am required to vote those proxies as directed. Except for Item 9, the Board recommends that shareholders vote in favor of each item of business which requires a vote. The Board does not consider it appropriate to give a recommendation on Item 9 as it concerns Nonexecutive Director remuneration. Further, any open proxies that have appointed me as Chairman of the meeting or any of the company's directors will be voted in favor of each item. These Board recommendations and the voting of open proxies by me are subject to any applicable voting restrictions. I will now introduce the items of business on the formal agenda of the meeting. Item 2, financial statements and reports. This item of business is to receive and consider Catapult's financial statements and reports for the financial year ended 30 June 2020 and the reports of the directors and the auditor. Item 3, election and reelection of directors. The next item of business is the election and reelection of directors. First, Michelle Guthrie retires at this meeting and, being eligible, offers herself for reelection. Second, Shaun Holthouse retires at this meeting and, being eligible, offers himself for reelection. Item 4, remuneration report. We now come to the nonbinding advisory vote on the adoption of the remuneration report. The remuneration report is included in Catapult's 2020 Annual Report, which is available on our website. It sets out Catapult's remuneration policy and arrangements for nonexecutive directors, the CEO and senior management. Item 5, approval of company's employee share plan. The next item is to approve the issue of securities under the company's employee share plan for the purposes of Listing Rule 7.2, Exception 13. Item 6, amendments to the expiry date of options issued to James Orlando. The purpose of this item is to amend the expiry date of options issued to James Orlando from the 24th of March 2022 to the 24th of March 2024. This is to give effect to the terms of an employment agreement between Catapult and James. Item 7, amendments to the constitution to permit virtual and hybrid AGMs. The next item is a special resolution. It approves amendments to the company's constitution to make it clear that Catapult may convene hybrid and virtual AGMs in the future. Item 8, renewal of proportional takeover provisions in the constitution. Item 8 is also a special resolution and concerns the renewal of the proportional takeover provisions in Catapult's constitution. Item 9, nonexecutive director remuneration. The final item is to increase the remuneration that may be paid to Catapult's nonexecutive directors in any financial year by $250,000, from $500,000 to $750,000. An important consideration for the Board in proposing this resolution was that Shaun Holthouse and Igor van de Griendt were both formerly executive directors, and therefore, their remuneration was not counted in the calculation of the NED Fee Pool. However, they are now nonexecutive directors, and so their remuneration does so. Accordingly, the Board considers that there is insufficient headroom to accommodate the potential appointment of additional nonexecutive directors. I now formally propose each of the resolutions, which are specified in the notice of meeting. Items 3a, 3b, 5, 6 and 9 are ordinary resolutions. Items 7 and 8 are special resolutions. And Item 4, which is the adoption of the remuneration report, is a nonbinding resolution. For the benefit of shareholders, the proxies received prior to the meeting on each of the items calling for a vote are now shown. These votes do not include those to be voted in the meeting today. However, on the basis of the results that we are anticipating, I would like to say thank you to shareholders for their strong support. I now move to the shareholder question session of the meeting. Shareholders will offer the opportunity to submit questions in advance. As there were no such questions, I will turn to questions from this meeting. It is my duty as Chairman to allow a reasonable opportunity for shareholders as a whole at the meeting to ask questions about or make comments on the management of the company, audit matters, the remuneration report and other items of business before the meeting today. All questions will be directed to me as Chairman. Questions to the auditor must relate to audit matters and will be directed to me in the first instance. I will now ask Mr. Andrew Keys, our Investor Relations Manager, to assist with the Q&A process by reading questions put forward by shareholders and identifying their names. Andrew?

Chairman, I have a question from Mr. [ Anthony Scott ]. Do you think COVID-19 has altered the long-term growth trajectory of Catapult?

So thank you for the question. Absolutely not is the answer to that question. Catapult has excellent prospects, has a large addressable market, is a global market leader and a global leader in sports tech overall. And we couldn't be more enthusiastic about the long-term growth prospects of the business. Fundamentally, the key factors that are going to determine how successful this business ultimately becomes is the quality of people in management and in the company and the quality of our execution as a business. And without doubt, the appointment of Will Lopes as CEO and the executive team that surrounds him are the best leadership team that we've had in this business to drive us to much greater heights than really in a really successful business that we are today. And everyone on the Board and in the company, especially in the executive team, is extremely enthusiastic about the coming years. So overwhelmingly, the answer to that question is no.

There are no other questions.

Okay. The shareholder question session is now closed. And we will now proceed to voting on all of the resolutions. To cast a vote today, participants must enter their votes via the Lumi app on their mobile device or online. As I mentioned previously, participants should click or tap on the voting icon, which may be visible on this -- which will be visible on their screen if they are eligible to vote today. This will bring up a list of resolutions which may be selected to cast a vote. I will ask the returning officer to count the votes after the poll has closed, which will be at the close of the meeting. The processing of the votes may take some time. So rather than wait for the results, I will formally close the meeting. The results will be announced on the ASX later today. Assuming that everyone has had an opportunity to vote and there being no further business, I now declare the meeting closed. I thank you for your attendance today.