Catapult Sports Ltd (CAT) Earnings Call Transcript & Summary

Good morning. Hello, and welcome to Catapult's earnings conference call for the financial year ended 31 March 2023. I'm Andrew Keys, and I'm moderating the session today. Please note that the call is being recorded. Joining me in Melbourne is Catapult's CEO, Will Lopes. In a moment, Will is going to provide some opening comments, then there will be a Q&A session. If you would like to ask a question, please raise your hand in Zoom, so I can introduce you to the call or send through your questions by Q&A to myself. Good morning, Will, over to you.

Thank you, Andrew, and welcome to our conference call. Joining me today is our outgoing CFO, Hayden Stockdale; and our incoming CFO, Bob Cruickshank. Before we open up for questions, I would like to remind you that we posted our results last night, which include a video recording where Hayden and I walked through each slide in more detail. But let me take a moment to recap the 3 key points of results before we dive into questions. First, we are confident in our path to generate positive free cash in FY '24, and this confidence is coming from our ability to significantly reduce cost while maintaining a high growth SaaS business. In the second half of FY '23, we lowered operating expenses by $11.9 million, which created an improvement of $15.4 million on EBITDA, allowing us to deliver a second half EBITDA of $2.2 million. This generated a 40% improvement on operating cash flow from FY '22, and we ended FY '23 with $3.7 million of operating cash flow. Despite the reduction in expenses, we were able to maintain our SaaS business at a high growth rate. SaaS revenue was up 22%. We had record second half sales with annual contracts rising by 20.2% and record levels of low churn at 3.8%. The second key point is that Catapult has now entered a new phase of profitable growth. Exiting our growth investment phase, we anticipate that every additional dollar of revenue will come with approximately 30% or more of profit margin. This is due to our fixed cost base now being established to support the business at scale and the absolute cost of the space to rise modestly from here, take 5% to 8% annually depending on inflation. While our variable cost to grow revenue is now established at 56% of revenue, we expect that to improve. The last key point is that our SaaS growth strategy of landing with wearables and expanding with video is working as anticipated. In FY '23, our wearables business continues to show high growth rate with its annual contracts growing by 28% during the period. In video, we have 2 products: a legacy solution serving football and ice hockey; and a new solution based on the products acquired from SPG serving soccer, basketball, rugby and motor sports. Within our legacy solution, our annual contracts grew 7% from a starting base of approximately $14 million, while our new solutions grew by 27.5% from a starting base of approximately $5.3 million. This shows that our new solution is having success in penetrating new markets, and its growth rate is now similar to the high growth rate we have been experiencing with our wearables vertical. Overall, FY '23 was a pivotal year for Catapult. We've been able to reduce expenses; maintain high growth rates; gain confidence in our SaaS growth strategy; and with our SaaS leverage now, grow profitably going forward. I'll now hand it back to Andrew to start our Q&A session.

Thank you, Will. [Operator Instructions] Julian Mulcahy from Evans & Partners.

Will, perhaps you can maybe just run through where the wearables growth has come from and what kind of teams, and then also maybe touch on where the video team growth has come in the last year and what we expect over this next year?

Yes. So on wearables, so on the P&H, the growth continues to come from expanding typically in regions that we haven't had deep penetration yet. So European market, in areas in the collegiate market around the U.S. And in the second half, it particularly was really around Latin America and APAC. In terms of video, as I mentioned in the intro here, really 2 solutions to think about, Julian. There's the legacy solution. So Thunder, that grew about 7%. That growth continues to come from American football and ice hockey, primarily with some upselling there and some price increase. But then on the new solution, it's really coming from areas where we don't have high penetration of video customers today. So soccer, and primarily in Europe, a bit of motor sport, and a little bit here in APAC. So I think in the results we presented, there's a slide that you can see that in EMEA, the growth rate was about 15% in video solution and about 32% in APAC this past year. Most of that is coming from cross-sell of the existing customers that don't have video solutions from Catapult.

Right. And I see that the number of customers taking more than 2 products, 2 or more, is now up to sort of 9.5%. Would you think that would start to sort of hockey stick in this next year, or would it be the same sort of gradual build?

Yes. I don't know if we're going to be at a hockey stick in FY '24. I'm hoping that the growth rate continues to stay around this healthy pace of 30% to 50% over the coming year. The hockey stick factor for us, because we're really primarily focused on cross-selling video, I think it would -- I don't think we're going to see that in '24.

Right. And just remind us on the time line of the video product being available for NFL. I understand that you were going to do it in 2 stages to transition excess product across to the new platform.