Catapult Sports Ltd (CAT) Earnings Call Transcript & Summary

Waiting for everyone to come into the webinar for those who already in, takes a moment for everyone to come in. Hello, and welcome to Catapult's FY '22 results earnings call. I'm Andrew Keys, and I am facilitating today's call. In a moment, I'll be handing over to Catapult's CEO, Will Lopes, who is in Boston. After Will's commentary. We will be joined by Catapult's CFO, Hayden Stockdale for -- to answer your questions. Good evening, Will, over to you.

Fantastic. Thank you, Andrew. Good morning to all of you in Australia, and good evening to all of you here in the U.S. I thought I'd do a little bit of a digest of our presentation. And before I get started, as a reminder, we have closed this presentation as well as a prerecording of the results on our website as well as it's been lodged with the ASX. So I know we also have quite a bit of new interest in the Catapult story, and so I'm going to do a quick brief intro on what we're doing here. So our vision here at Catapult is that we believe will be the technology company that unleashes the potential of every league, athlete and team on earth. And we see us doing this by building the leading data and analytics platform for sports performance. Now when we think of our platform, we think of our platform being driven by cutting-edge technology that is already in market. And so we started the core of that being our athlete monitoring system, so our Elite Wearables Solution. And what this is, is a wearable solution that allows teams to track athlete performance and allows them then to optimize development, manage injury risk and expedite return to play. Now that solution, coupled with software and analytics, and at the core of that software and analytics is our video analysis tool or what we call internally here as tactics and coaching and our athlete management tool. And the best way to imagine that is that it's an end-to-end platform design for teams to officially analyze and communicate the key insights of what they see live in game and post-match. And by combining these 2 amazing set of solutions, we believe we will be able to build predictive and prescriptive analytics in the future that will change the way the game is played. Now -- we also have a side arm of our business, which is focused on media and services to our clients. That includes content licensing, asset management and broadcast enhancement services. And I think it's important to note for all of you who are new to the Catapult story, that this solution out there is already being utilized by the very best team and leagues across the globe. Over 3,400 Elite teams over 40 sports in over 100 countries are using Catapult's technology today. This includes basketball champion and NFL Champions, AFL Champions including Formula One most recently. And we're also working with some of the most demanding leagues across the world from the NFL all the way down to the Formula One racing body. Well, let's talk about the results, and I'll cover a few more slides before I open it up for Q&A. And so first, I want to say that after 2 years of leading the company, I couldn't be more excited by the point that we've reached. We are at a major inflection point here at Catapult. In 2 years ago, we set out to turn this company into a full SaaS business. And I am excited to say that today, we've completed that shift. 92% of our revenue stay is contracted and 98% of our revenue in our core business is now contracted. And we'll cover that in a bit more details in a minute. Second, I came in to turn this company back into a high growth business. And our core business, which our Elite Wearables Solution, was growing somewhere between 15% and 20% before I arrived, and I and my team have been able now to turn this business back into high-growth year, delivering 32% growth in the past fiscal year with the Americas, our core region, growing at 51% this past year. And that means that our subscription revenue finally has aligned with our ACV growth, delivering 31% growth this year, coupled with a churn of 3.5%, just an absolute stellar set of results. Now probably the third bit of inflection point that I am most excited about here a Catapult is that since the acquisition of Exos back in 2016, Catapult has been promising the ability to integrate video and wearable data together. Now we've done quite a bit of start and stops here. But in just 7 months of acquiring the SBG Solution, we've been able to actually integrate their core technology of mass tracker and vector well ahead of time. And in a single region where it was benefit that -- benefited from this integration, which was APAC, we saw our ACV growth of video analysis by 29.7%. So we're incredibly excited by the fact that we have completed our shift into our full subscription business. We got our core business on high growth year again. And now we have a new growth engine worthy of our market and our clients. I'm going to cover this a little bit in more details. So as I mentioned, 92% of our revenue now is contracted and recurring. Now what's incredible though is that we have moved that from just -- from 72% of contracted revenue in FY '20 to 92%, but even more remarkable is that in our core business, we only had 65% of our revenue contracted in FY '20, and we're now at 98%. And what this means, by the way, is that the drag that we've had in total revenue growth by switching away from subscription -- sorry, switching subscription away from capital deals is now completely behind us. And we saw that in this year, where our total revenue went from a declining 7.2% in FY '21, so growing at 14.5% in FY '22. So really, really an amazing set of change. And this shift has actually had a really positive impact in our customer base. In the past year, our Pro customers that contribute to ACV, that means they're under contract has grown by 16.3%. And we -- one of the core reasons for us to want to be a subscription business was that it was going to allow us to bring new solutions to market and give us the potential of increasing the share of wallet that we got for team. And in the past year, the average ACV of our Pro customer has grown by 4.2%, incredible feat in just a short amount of time and that we had in those 2 years, a pandemic going on. So I think we're incredibly proud of what we're seeing here. Now I talked about the core business getting back to high growth. And so in the last year, we're up at 32%. And what you can see in that chart on the right there, is that our subscription revenue growth has now aligned with our ACV, which is a leading indicator and we anticipate this now to mimic each other going forward, and we expect our total revenue to start to catch up to subscription revenue growth as well. But what gets me more excited about getting our core business back into high growth is the numbers you see there on the left. We have a very attractive market. We presented this during our Investor Day. We have about 20,000 professional teams across the globe. Catapult, while the leader in the space still have under 10% of market penetration. And we know this market is an established subscription market. We've just created it. We know it's available for high growth, we've just delivered it. But more important is that those customers are high value with low churn. The average customer ACV in our wearables business gives us about $20,000 a year and they have a low average churn of 3.5%. And so given our global footprint and 40 sports in 100 countries, we anticipate our ability to accelerate in penetrating the remainder of this market really, really bright. Now as I mentioned, we now have a new catalyst for growth, and we see our leadership position in wearables or P&H vertical providing ourselves the perfect launch pad to grow and expand the ACV of our video analysis business. We know this integration that we've brought to market most recently is unique and is poised to achieve success. And as I mentioned, you can see the growth rates on the right chart there, video for us outside of North America has been mainly flat since the acquisition of XOS. And in just a short period of time of bringing that integrated product into APAC, we are able to see growth of nearly 30%. And similarly to the market that we see in our wearables business in P&C, it's even more attractive, still 20,000 professional teams, but here, our market penetration is under 2.5%. And we have over 1,800 customers that we could cross-sell our integrated products to today. We know it's an established subscription market. But even more impressive is that it has improved unit economics. Gross margins tend to be over 90%, the value of per customers tends to 2x that value of our wearable business and the churn of those customers is an incredibly low number of 1.5%. So given the fact that we are now a full subscription business, given the fact that we have a platform that allows us to launch and continue to grow. And now we have a solution that allows us to expand ACV leads me to this. We shared in Investor Day that we had a strategy to get to $400 million of ACV. And what I see here today is that in the past fiscal year, we're starting to see that strategy deliver. We got our core business back and growing. We have a solution now that allows us to expand our ACV. We have seen the expansion of ACV per customer come naturally as we brought new solutions into market. And our ability to integrate SBG as quickly as we have. And some of the early signs we're seeing in mass market makes us incredibly confident that the strategy to get us to $400 million of ACV is the right one. So I'm going to stop after this slide and open up for Q&A. But from a company-wide SaaS metrics, all of these metrics are starting to converge incredibly well. Across the organization, we were able to grow our ACV by 23% on a constant currency basis. Again, core business, up 32%. Our video business up 6.5%, but this excluded the key selling season in the northern hemisphere. And our consumer ACV was actually up over 300% this past year. Now starting from a smaller base, but still the indication here is quite incredible. Coupled with the growth is the fact that our customers are staying with our solutions longer than before and leaving us slower than ever. The average customer duration increased from 5.7 years to 5.8 years, and the ACV churn dropped by 38%. I've been doing again subscription business for 20 years. I don't think I've ever seen an annual churn of 3.4%. As a matter of fact, what you will see and the remainder of our presentation is that if you account for runoff products, our ACV churn was actually live Zoom calls. Our ACV churn actually was 2.7%. And when we look at North America alone, our ACV churn was under 2%. So absolutely an incredible number. And what this means, by the way, is for every $10 million of ACV we acquired today, against those duration metrics and against the churn metrics, you're typically looking at a lifetime revenue that's worthy of $45 million to $50 million in the coming years. The second -- I'm sorry, the last point I'll make is that our ability to become a strong cross-sell organization is really starting to prove itself out. Our ability to get cross-selling into multi-vertical customers grew by 27% this past year. And again, if you normalize that number for runoff products, products like vision, which we are no longer selling that number is actually over 50%. And we anticipate this is only going to start to accelerate over the coming year with the integration now of wearables and video together. So we couldn't be more proud of the results that I think we've achieved. We look at what we've done in the past 2 years, and we really have turned this company around. We got our company now into a full SaaS business. The core product growing at over 30%. And now we have a video-integrated product that allows us to expand our ACV to cross-sell. With that, I'm going to hand it back to Andrew, who is going to open it up for Q&A, and we'll answer questions. Again, I will remind everyone that the remainder of the slides as well as the remainder of our presentation is available on our Investor Relations section of the website as well as being lodged with the ASX. Andrew?

Thank you, Will. [Operator Instructions] We do have a couple of raised hands. Michael Aspinall from Jefferies. Michael, you need to unmute your line, but coming.

A few from me. I'll start on your growth guidance for 20% to 25% ACV growth. I'm just wondering if you can give us some context on how that looks in terms of new performance and health customers and the rollout of tactics and coaching products to existing performance and health customers.

Yes. Yes, I think we see the growth in P&H probably skewing higher than that rate. So I think we're seeing a growth of around 30 plus this past fiscal year. That growth engine looks like it's here to stay. I think we're feeling actually all of the investments we've made this past year has allowed us to feel even more confident that we're able to deliver on that. And then we anticipate the growth on the T&C to start to catch up. I don't know if it will be 30% next year. I think there's still quite a bit of elements that I think we want to bring to the market. So a quick note on that, Michael. Our integration that we launched this year was designed for soccer and Rugby. We anticipate that the platform will allow for the integration of basketball, American football and ice hockey in quick succession. So it will be throughout this year as well as Aussie football and then finally, with baseball. So I think when we get all of those out there, I think then I think we anticipate that our growth rate will probably be the 30 plus. But so I think less than 20% on the video side, probably greater than 30% on the wearable side.

Okay. I guess is that sort of a function of, I mean, in Tactics and Coaching you've got the legacy products as well as SBG. If you just looked at the SBG products, I'm guessing that growing much faster than that 20%.

Yes. I mean they are actually growing at much faster than 20%. I think what you have to account for is that we have a fantastic base of customers in North America in video already. We're dominant in American football with our Thunder solution dominant with ice hockey as well. And so I think we're growing that number from a pretty large base. And the SBG solution was growing from a pretty small base, I think, when we acquire them. I think it's now the combination of the products that I think will unleash even faster growth.

Yes. That's great. That makes sense. And then just interested in what success you've seen in selling the integrated product in the 2 months kind of beyond the end of FY '22?

Well, I mean, I think the numbers tell the story, right? I think in APAC, we brought the product out. I want to say, I think it was at end of February was launch date. We had started to demo that product around December. And in a short amount of time, I think in APAC, we saw a growth of 30%. So we only had a couple of months really of the product in market. So I think we're delighted by that result to begin with. I will also add that I think what we've seen from a momentum basis outside of APAC has been pretty incredible. Our ability to sign the German FA really came down to this integration. And I think -- and you can imagine that there's different technologies that I think were up for competition, and we won that tender immediately after showing this integration. The same thing happened with I think we saw similar results with our basketball solution. And so what we're seeing in market right now is that as we bring and show what contextualize wearable data mean to a coach in video, it's clicking. It's like, wow, I could understand what it looks like when an athlete desired and the impact it has in their accuracy in game. And so I could make a tactical decision in a moment, whether live or even post match. And that, I think it opens up so much opportunities for discussion and then obviously open up immense opportunities in terms of the data analytics that we could bring downstream.

Okay. Great. Last 1 from me. On -- quick 1 on prosumer, very strong growth in ACV. Should we expect that to translate into year-on-year growth in the prosumer revenue or prosumer revenue in FY '23?

You definitely should expect that to translate into subscription revenue growth, right? I think what we're going to in the prosumer business is a similar shift as we've done with our Pro business, where it's going to take a year to 1.5 years for the capital sales to flow out of our revenue line and for the subscription revenue to catch up to the subscription line that we've moved in. But I think what we've seen particularly with selling to prosumer teams directly. It's been incredibly strong this past year. The change in the product that we've made is really resonating with what we're seeing in youth academies and high schools. We're just getting very positive feedback, both in soccer teams and American football teams. And I think we're -- while it's early days, being able to grow a subscription business, 300% year-over-year that's pretty good. I couldn't have asked them more. I think if we have 300% year plus every year, I think we're going to be delighted.

Next question coming in with raised hand Julian and from Evans & Partners. Julian you'll need to unmute as well, please.

Can you hear me now?

Yes.

Okay. Well, just a couple of questions for me. Firstly, with that rollout of video wearables product, timely, the teams you're targeting already have an incumbent product, and it's probably a lot cheaper. So at this stage, you see that they see the benefits of taking it to even potentially in contracts early or take on 2 contracts at the same time?

Yes. So Yes. So actually, just I want to make 1 correction of the statement you made that what they have in contract is cheaper than what we have. That's not the case at all. I think we're actually highly competitive and teams are willing to spend quite a bit when it comes to video analysis. When I say it's an average of $40,000 per team. That's what they're spending today, not just with us but with others as well. What we are finding is that teams are -- because the integration of the data is so powerful, they're willing to actually have 2 systems running side by side. As a matter of fact, one of the very attractive things about the SBG solution when we actually looked into it was that the way they've made their entrance into the EPL and into the Bundesliga was that they would come in with their mass tracker solution, which combined all of this amazing data and allowed for quick discovery of insights and they would have that work side-by-side with a video editing solution that was dominant and the team already. And then over time, what they discovered was the team would stop using the incumbent video editing solution because everybody was using their solution. And so we see the same thing happening here on sort of as we expand into video.

Okay, cool. And a question probably for Hayden. In the step chart in the cash flow, can you talk about the inventory-related investment of $4.8 million. What's that in relation to?

This is on the Slide 31, please. The capitalized calls.

Yes.

Yes. So there's a couple of things there. One, we have seen with the pandemic and some supply chain issues a desire, I think, just prudent wise internally to hold a little bit more in terms of inventory just to manage supply chain. So we're holding more months lower, more components that type of thing. But there is also a shift here with the subscription model to where the hardware component for a subscription device is not in COGS anymore. It gets capitalized to the balance sheet and amortized through the P&L. So there's a little bit of a shift there to Julian.

Okay. A couple of questions in Q&A. Firstly, Owen Humphries from Canaccord asking about multi-product solutions, saying that in an absolute sense from our last reporting date to March there's an increase of 7 teams. Do you expect that number to be -- what you expect it to be going forward now that you've got an integrated solution?

Yes. I actually think if you normalize for the runoff products, that number is actually significantly higher than what you just pointed out -- and I think we had a lot of customers who are using vision and wearables. And as we move that product out, we anticipate of losing them and now we're bringing them back into the pipeline. Looking ahead, I think we anticipate the growth in this area to ideally be somewhere between 30% to 50% on an annual basis, if not higher. And I think the fact that even before the products were fully integrated, we were able to hit that 50% when you normalize for runoff products, I think, has been incredible. I think the other thing to point out is that in this past year, 24% of new multi-vertical customers were coming in already with 2 solutions. So I think that really bodes well for our ability to really start to welcome customers, not just with 1 product but with 2 products on hand.

Yes. And I'll add to that, too, Owen, if you're doing your equations here. On Slide 9, which has the breakdown of various customers, you'll see that there are some non ACV customers. So you can think of some old legacy capital customers on the P&H side that we have effectively switched off, and that has had sort of a decline effect on that cross-sell too. So when you actually have a look at the raw number of customers who are -- have been like an addition to that multi-vertical customer number, it's a lot higher than 7%.

Okay. Next question typed in from Raymond Jang. How have you found recruiting software engineers. Do you need to offer more share-based compensation and how close is Catapult to the required number of engineers for completion of the current R&D cycle?

Yes. So I think as every other company on the planet, we're finding that engineering resources are probably as competitive as they've ever been. We're also finding that those engineering resources are being competed for no longer in a local basis but they're being competed for on a global basis. So we are seeing pressures on wages. I think we are seeing pressures on obviously equity. I think if you're hiring engineers in North America, to higher engineers in Europe, it's expected that there is an equity component to their total compensation package. So I think we're seeing all of that. None of that I would say, is not in our design and planned for this past year as well as into next year. So I think what we saw from a cost perspective was much in line with what we planned. And I think what we still have to add to our arsenal of team is also pretty much planned. In terms of where are we in terms of hiring? I don't have a specific number. I would say that in FY '22, from an engineering perspective, we probably hired about 60% to 65% of what we needed to hire from an engineering product technology side. I think we still have a few more to go in this coming year. But I think as we mentioned in our presentation, we are fully capitalized for what we're doing next year, and we have no anticipation that we need to raise capital to deliver on what we are focused on.

Yes. And maybe 1 just additional thing to add there too is as our product set improves, you'll tend to find the level of tech debt that we've got around some old legacy technology starts to dissipate. So there are some engineering resources there that we get some efficiencies out of as well. And that will only sort of tend to grow over time, too.

Okay. Thank you. There are no more open questions. So I'm going to hand back to you, Will, for closing remarks.

I appreciate it. So first, I want to thank everyone for joining and dialing into the conference call. Again, I will recommend, if you haven't listened to the presentation or on through the entire deck, I highly recommend it. I'll end it by saying in the 2 years I've been here at Catapult. It's been a -- it's been an incredibly interesting ride with year 1, but I would say an incredibly rewarding year in year 2. I think we came in to set out this company to really shift into a full modern SaaS business. We've done that. The lag in total revenue is now behind us. We came in to turn our core part of the business back into high growth. That's done, and we're now accelerating at 30-plus percent year-on-year. We came to create a platform that allowed us to expand our ACV. And I think what we've launched now is the beginning of something that's going to be incredibly special and allow us to accelerate overall growth in the company even further. And I would even venture to say that even early indications of our ability to start to make some very positive headway in the mass market side of the house, is starting to show fairly well. So with that, I think we are in an amazing inflection point. I appreciate all the support for the long-time shareholders who continue to believe. And I think for those of you who will be seen and talking to -- I look forward to giving you more details over the coming weeks. With that, I appreciate it, and enjoy the rest of your day.

Thanks all.

Thank you.