Sportradar Group AG (SRAD) Q1 2022 Earnings Report, Transcript and Summary

Good morning and thank you for standing by. Welcome to the Sportradar's First Quarter Earnings Conference Call. All participants are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions] 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. Good morning and good afternoon, everyone, and thank you for joining us today for Sportradar’s first quarter 2022 earnings call. Before we begin, I would like to point out that the slides we will reference during this presentation can be accessed via the webcast, or on our website at investors.sportradar.com. 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 involves risks and uncertainties that may cause actual results or trends to defer 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. I’d like to turn the discussion over to Carsten Koerl.

Thank you, Rima and thank you all for joining today. I'm pleased to share that our fiscal 2022 is off to a very strong start. Coming now to slide 4. Our revenue in the first quarter in 2022 increased 31%, compared with the first quarter of 2021 driven by the US and our growth in core betting products across all businesses. Our strong customer retention continued at 121%. And we have achieved many other successes such as multiple partnerships for our Integrity business, completion of a new acquisition, as well as increasing our licenses in the North American region. Slide number 5. Our US business delivered a revenue increase of 124% as we continued to increase revenues with our key betting customers as well as media companies. We also saw growth in the US ads business at a rate of almost three times higher than our Rest of the world's ads business. Globally our ad revenues have grown over 70% year-over-year in the first quarter of 2022. In the Rest of the World, we once again saw an increase in sales from our higher value product such as MTS or the Live Data and Odds services. Our MBS revenue, which is a combination of the MTS and the MPS products increased 51% year-over-year. Our Live Odds, Live Data services increased 16% as a result of selling more content to our existing clients. Our strategic priorities for 2022, I'd like to turn now into a brief discussion of the priorities for 2022. Before I get more specific, I want to stress that our overarching priorities continue to be accelerating our technology leadership and powerful data-driven networks with AI to process and analyze this data. For the first time in human history, we are living in a Big Data world. Every interaction any company, government, charity or academic institute has an individual or entity it can generate many recorded data points. At Sportradar, we have an especially deep understanding of this new data opportunity. We are source code of sport with the experience and expertise in transforming 790,000 sporting events every year into granular numerical data that serves our B2B client base with deeper insights than any eye can see. Today accelerating change more than ever is artificial intelligence. It is the mega-trend of our times. It's crystal clear that, one who has the most data delivered by powerful networks in sports, media and betting has the most potential to generate alpha. Everything we are doing at Sportradar is aimed at maximizing this AI opportunity, ensuring that our clients can generate maximum alpha with our products. We have systems in place to analyze all the data in sport events all over the world, which we acquire across our verticals to expand our product offering. For Sportradar, this adaptive approach has led us to develop commercial-reliable synthetic data to serve our simulated reality program's proprietary, computer visionalization technology for our sports tracking and audiovisual product processes; and data-driven deep knowledge analytics of consumer behavior for targeting marketing purposes. In a nutshell, continuing and accelerating our technology leadership harnessing data and maximizing insights is the objective that extends across all our priorities, which I group in four categories. First is to grow core betting products. As our results indicated, our high-value add offering products such MBS and Live Data and Odds are driving significant growth. MBS provides existing bookmakers and operators wishing to start a sportbook with highly sophisticated and effective services for just trading or the full turnkey solutions. I will talk about our Managed Trading Services in more detail in a few minutes. Our Live Odds service is one of the most popular in-play trading services in the world. We anticipate continuing growth for this service, especially in markets like the US, where in-play betting still accounts for a minority of the betting unlike in other parts of the world where sports betting is more mature. And if you ever bet during a match versus before it, you understand why. It's so much more exciting and it tends to bet on your favorite team or player while the match is in progress. Our second objective is to grow our US business with targeted products and move up the value chain. I'll use our ad:s product as an example. With ad:s, Sportradar has built an omnichannel, digital marketing agency, focused on sports fan engagement and helps sportsbooks as well as leagues and teams to be more efficient and precise in their marketing spend and deliver ROI. ad:s' industry-specific multi-channel marketing performance platforms helps sportsbook to more effectively and efficiently engage, acquire, retain and grow customer across paid social connected TV, digital out-of-the-home and native publisher products. Another recent significant development is the opening up of the college landscape in the US. As many of you know just last month the NCAA gave guidance that their membership can provide competition data to support sports betting. As we began talking to conferences, we encouraged to -- not only that they want to have best technology. But also the best integrity services are paramount for them. Founded in 2005, our Integrity offering is deep and broad with more than 150 leagues, anti-doping and law enforcement organizations including stakeholders in the college landscapes our customers. Based on our years of experience, we want to ensure our sports betting, partners', athletes are educated about the issue around match fixing and have information on healthy sports wagering behaviors. Now, turning to our third priority. It is the fully integration of the sport solution vertical ensuring that the technology broadens the products that we can offer to our betting, media and league partners. As a reminder this is the business that we formed through the acquisition of Synergy Sports and InteractSport and gives us incredible penetration in Division one and two college basketball and baseball, as well as cricket, one of the most popular sports worldwide. Computer vision and camera technologies are at the core of the technology that sport solutions uses to provide performance analytics, such as helping a player or team, looking for competitive advantage. It goes without saying that the more information we have on teams and players, feeds our betting and media and league partners with deep insights on everything for reasoning the team has run to fence or who can now experience what the coaches see. This is especially relevant in US college space. Sports solutions, also enhances our AV solution which is the visual content products to interest sport fans in sports betting events and give them a betting opportunity. We combine audiovisual content, which is to a great extent non-televised; and comprehensive content from our highly attractive media rights portfolio. We already have a diversified portfolio to close of 400,000 live events per year and the addition of more content from sports solution further enhances the attractiveness of our AV solutions as seen in our first quarter AV segment results. It is an important content set for our top 20 betting operator customers. AV betting revenues make up to more than 50% of the revenues from these top 20 customers. Last, but certainly not least, fourth priority is to invest in our people values and technology. As we scale rapidly, we are hiring in key areas of content and technology and investing in current talent, prioritizing our people and giving them the tools they need to compete will always be one of our strategic priorities. We have also begun identifying environmental, social governance topics that have a significant impact to our business. Our approach is underpinned by our conviction that ethics and good governance matter to our future success. This is not a new approach, it's one that is integral to how Sportradar operates our business and as a central player in the sports ecosystem guiding it. Through our Integrity business, we monitor over 800,000 matches across more than 70 sports annually. Since 2008, our UFDS the Universal Fraud Detection System has been instrumental in reporting over 7,000 matches as suspicious and in helping authorities securing 514 sports sanctions and 50 criminal convictions. We believe so strongly in sport and we want to win in whatever we do. But we know that in order to have good competition, it must be fair competition and a level playing field. Our commitment to integrity and supporting the sustainability in sport around the globe is something that we will never change. Moving to 7, in our next section, I'd like to spend some time doing a deep dive into an area of our business that is a key growth driver for us. Today, I want to talk about MTS the Managed Trading Service product, which is sold as part of our Managed Betting Services. MTS is a sophisticated turnkey trading risk odds and liability management solution. Our rich set of tools allows our customer to manage betting activity, risk liability, trading margin performance across sports and markets. This is all executed in real time according to rules and thresholds that in collaboration with our customers, underpinned by our machine learning technology. It's no surprise to us that over 200 organizations globally use MTS. As of the first quarter of 2022, we have processed close to €4 billion in turnover, which is a revenue over year growth rate of 55%. At this current run rate, we expect MTS turnover to be in the range of €17 billion to €20 billion in 2022. This is making us larger than any betting operator in the United States and is in the top five of the largest globally bookmakers compared by the handle. The MTS service is highly modular enabling operators to access a range of specialized trading services to suite their business needs. For example, they can ask us to trade all sports on their behalf or they can elect to trade certain sports themselves, while we trade the remainder. Or they can trade everything themselves, but access our AI-driven customer managed services to give them a better understanding and insights of their consumer betting activities. For us, this modularity is critical in order to cater to all betting operators, as they continue on their respective journey to modernize right-size improve their trading by integrating MTS' superior trading capabilities and services, ensuring that we are able to support them every step on the way, to a fully donkey offering. MTS partners also have the option to access the entire Sportradar product portfolio which includes products such as engagement tools, AV and the turnkey sportsbook service. In addition to recruitment and retention marketing services, through our ad:s product, our AI-driven behavior and marketing services through our recent acquisition of Vaix, we are essentially able to use MTS as up-sell and cross-sell vehicle for the entire Sportradar product portfolio. Commercially, overall service provisions, is underpinned by a revenue-share model. This is based upon the share of the Gross Gaming Revenue or GGR, generated through the MTS service typically with a monthly minimum fee. Our current take rate on MTS is between, 5% to 7% versus the pure data products, which have a 2% take rate, making MTS a highly valuable product for us and one that is fueling our growth. MTS can be deployed quickly, allowing new market entrants to increase speed to market and drive turnover. We reduce operational risk for customers by leveraging our scalability, expertise and trading liquidity and financial risk by generating superior trading margins or even offering a margin guarantee. Perhaps most importantly, our content and technology help operators engage end users and sports fans. Next I'd like to turn to the discussion about the capital allocation and the priorities. Last month, Sportradar acquired Vaix the Pioneer in developing solutions for the iGaming industry. Vaix's innovative AI engine allows us to understand the likely profitability of players, past conversion, inferred through their behavior over the last three days versus traditional business intelligence which might give us the same data over two to three weeks. In turn, this helps us optimizing acquisition strategies with our ad:s advertising platform and much more quickly and accurate measure the efficiency of campaigns. The key with Vaix's personalization service, is that the fans receive a more targeted player-friendly experience which in turn gives us the foundation data to build a player, personalized offer and front-end for our future products. The Vaix acquisition shows the type of acquisition, we might look into the future to accelerate our technology transformation. We already had a strong existing partnership with the team and they have a highly entrepreneurial culture and are technology innovators with products that bolt into our existing product set and map to our strategic priorities. For the past two years, Sportradar has incorporated Vaix's technology into its Managed Training Services offering. But all the Vaix products the Vaix artificial intelligence and algorithms enhance the data analytics promotion systems and player personalization in our Sportradar, sportsbook platform. I'm coming to the closing, where I want to remind everyone that Sportradar is well positioned to continue its proven record of consistent long-term growth, strong cash generation as well as very strong customer retention. We have the experience and the insight and the technology leadership around sports betting and entertainment industry, and we are investing in our business with an eye toward technology transformation and continued growth. The strong first quarter sets us well for our fiscal year 2022. I'd like to end by reiterating our guidance that we gave in our fourth quarter call for both revenue growth of 18% to 25% and adjusted EBITDA growth of 21% to 30%. With that, I'll turn it over to Alex to discuss our numbers in more depth. Alex.

Thanks, Carsten. Hi, everybody. I'm going to repeat a few things that Carsten just told you, but I'm a great believer that great news deserves to be repeated. So you'll hear some of the great news one more time. As Carsten already stated, we had a very strong first quarter with growth across all segments of our business. Revenue in the first quarter of 2022 increased 31% to €168 million versus the first quarter of 2021. This was driven by strong growth across all of our segments with once again the highest growth coming from the US, where we grew 124%. We reported adjusted EBITDA of €27 million for the first quarter. And while it's down 5% year-over-year but in line with our expectations this decrease was primarily due to higher costs associated with being a public company which were approximately €3 million for the quarter of 2022 and one-time temporary savings in Q1 of 2021 related to the COVID pandemic. As a reminder, we're still forecasting adjusted EBITDA growth for the full year in a range of 20% to 30%. Importantly, our liquidity remained strong with cash and cash equivalents of €716 million at the end of the first quarter. Let me now give you some details on our Q1 performance. Our Rest of the World betting revenue is our largest segment. It represents 52% of our total revenue. The segment grew 25% in the quarter to €87 million. Growth was primarily driven by an uptick in our higher value-added offerings as Carsten just mentioned included Managed Betting Services; again as Carsten said including both our Managed Trading Services and our Managed Platform Services and Live Data and Live Odds services. More specifically, Managed Betting Services revenue grew 51% year-over-year to €26 million due to increased turnover while Live Data and Odds grew 16% to €47 million due to higher sales to our existing clients. In addition we have successfully begun cross-selling newly acquired Synergy content to our customers. Rest of the World betting adjusted EBITDA increased 13% to €45 million. The associated adjusted EBITDA margin declined to 51% versus 57%, again exactly as we expected in the prior period. And as I have mentioned previously, in the first quarter of 2021 we experienced some temporary savings on sports rights and scouting costs, which drove adjusted – the adjusted EBITDA margin higher to 57%. In the first quarter of 2022 the sporting calendar has normalized. Rest of the World Audiovisual segment grew 17% year-over-year to €46 million. This growth was primarily due to increased content from Tennis Australia and the National Hockey League as well as upselling content from our Synergy acquisition. This segment was impacted by a loss of revenue associated with the war in Ukraine which was offset by higher sales to customers in other countries. Rest of the World Audiovisual adjusted EBITDA was essentially flat at €9 million and its adjusted EBITDA margin declined to 19% from 23%, primarily due to higher sports cost right as sports schedule will returned to normal levels with the COVID pandemic easing. Turning to the United States, our highest growth segment. Revenue grew 124% year-over-year to €26 million. This growth was primarily driven by three factors: First, increased sales of betting services as more states legalized betting; second increased sales to media clients; and third a positive impact from Synergy. We increased revenue with all our major customers in the US and continue to see strong growth in our ads and our audiovisual products which grew over 300% and over 100% respectively. First quarter US adjusted EBITDA was a negative €6 million, a larger loss versus prior quarter due to our continued investment in the segment to drive growth. In line with past trends, however, we did see continued improvement in the adjusted EBITDA margin as a result of increased operating leverage. A few things on cost. Personnel costs for the quarter increased by €14 million to €52 million. New employees were added both organically and through our acquisitions primarily in technology and product area. Other expenses were €20 million an increase of €5 million over the prior year, mainly driven by higher costs associated with being a public company. And I mentioned them before and temporary COVID-related savings in the prior year. Total sports rights costs increased €13 million to €54 million in the first quarter of 2022. Growth was driven by new 2022 rights for ICC which is cricket; UEFA; and ATP and a return to normalized schedule for the NBA, NHL and MLB. It's important to note that 11 major sports rights comprise approximately 70% of our sports rights expense. While we expect sports rights cost to continue increasing over the next few years, we are very confident in Sportradar's ability to achieve growth in EBITDA and cash flow conversion over that same period. Our liquidity remained strong at the end of the first quarter. Cash and cash equivalents plus our undrawn credit facility was €826 million, a decrease from December 31, 2021 balance of €853 million. This decrease in our cash balance was due to non-recurring payments of €35 million related to a purchase of non-controlling interest in the Sportradar U.S. LLC subsidiary as well as the final earn-out payment for an acquisition made in fiscal 2019. Versus the prior quarter, adjusted free cash flow approximately doubled to €13 million. Our cash flow conversion increased to 48% from 23% last year. We believe that our free cash flow conversion will continue to improve. Over the next few years, we expect our unlevered free cash flow conversion to be in the range of 55% to 60%. A key change in our cash conversion is a move from a subscription model to a revenue-share model. The fastest-growing areas for Sportradar, namely, Managed Betting Services and a significant portion of our US business are based on the revenue-share model. While this offers us fantastic opportunity for growth, it also has a timing effect on our working capital and cash collection. Back to annual guidance. And finally let me reiterate our annual guidance for fiscal 2022 as Carsten already did. For the full year of 2022, we are maintaining our previously issued guidance. We expect the revenue to be in the range of €665 million to €700 million reflecting annual growth of between 18% to 25%. For adjusted EBITDA, we expect to be in the range of €123 million to €133 million representing a year-on-year increase between 21% and 30%. As we told you last quarter, we believe our revenue guidance range can withstand the impact from potential revenue losses as a result of the Russia-Ukraine conflict as we do not rely on any one region for our growth. We also told you that we were not expecting a meaningful adverse impact on our business for the first quarter of 2022. This is certainly the case this quarter. However in Q2, we are seeing increased impact of this crisis. We continue to monitor these developments very, very closely. With that we are now happy to open the call to questions. Operator, would you please open up the line for questions?

Thank you. [Operator Instructions] Our first question comes from Bernie McTernan with Needham & Company. Your line is open.

Great. Thank you for taking the question. And Carsten thank you for all the detail and going in deep on MTS. Follow-up question though. I'm assuming there are large operators who outsource a low percentage of their MTS services, while smaller operators outsource a much larger percentage. Is that the right way to think about it? And if so which one is contributing more to revenue now and which one is the larger opportunity to contribute to revenue growth over the next 12 months to 24 months?

Hi, Bernie. Thanks for the question. At the moment, it's very clear Tier 3 operators, which are powering the growth of the MTS service, Tier 1 operators to a small degree because this is for them relative small sports from a liquidity perspective, which they trade with us, might be table tennis or cricket or something in this way. We are as you know heavy in the development here for liquidity trading. We see three different categories in the future, and we are working on this future saying, for the Tier 1 operators, it's high liquidity trading with ultra low margins, which needs innovation in the product which we have now. And we are as we speak, putting all our process into this to innovate here. And then you might see a mix into, Tier 2 and Tier 3 trading systems. For Tier 3, I think we are perfect. We can very well trade also smaller sports with big bookmakers. But for trading the full liquidity of a big bookmaker, a big operator, it needs improvement in the liquidity trading algorithms. A very fascinating area, high-speed trading. If you control on one side, the latency which we do and deep data; and on the other side aggregates the highest liquidity that will lead then into trading alpha and that is the future for the big liquidity trading.

Understood. And then, I was hoping if you could just talk about the Vaix acquisition, a little bit. How differentiated that technology is and what the cross-sell opportunities with your sportsbook customers. And if there is a, -- if this is kind of like the first step in a larger iGaming opportunity.

Yes, it's a step into it. Look as you know, a traditional BI system, helps you probably to understand the impact of a marketing campaign in two to three weeks, depending on how much data and how big the campaign is. The AI from Vaix, can do this within two to three days. I don't need to tell you that shortening this for more than two weeks, that's a massive, massive impact, because you can optimize your cost significantly. That is one of the things, where we see directly impact now. Looking to the sports book. Of course, understanding the player and the player performance on what campaign he reacts is, key here. Vaix has all the products here and the cross-selling them into the gaming space is, very natural. So once you know the behavior of a sports better, cross-sell him into the gaming is in our plan and Vaix is an enabler for this. So easy you have a live bet. And if there is no live betting activity, you're going to find quickly a stimulation that you shift the channel into the gaming and Vaix has a perfect tool set for this and perfect knowledge.

Great. Thank you for taking the questions.

Thank you.

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

This is Jason, on for Mike. On the Rest of World Betting segment, you talked about higher turnover and upselling driving the really strong growth there. I'm just wondering, are there any specific regions of the world or countries or operators that are notably strong and driving that performance? Anything, to call out there?

Well, the strong growth comes from the Managed Betting Services and here mainly the MTS services. The regions for this is in EMEA, but that's quite big. So there are a couple of European countries, which -- where we see some stronger growth in here. There is Africa, there is Latin America, which we see with a very strong growth. For the odds and data services, which is growing 16%, as you see in the quarterlies that is all over the place. That is a growth, which we achieved was mainly upselling but also serving some of the new clients in those markets.

Great. That's helpful. And then just you mentioned, the impact from Ukraine on Q2 being a little more notable. Can you just drill down on that a bit and share a little more detail there?

Yes. We gave you in the last quarter, the worst-case scenario with €110 million EBITDA. If I'm looking now in the back mirror of the car, this number gets smaller. So we get a distance from the worst case. But we definitely see that a couple of bookmakers, stop to order some of the services or some of them have payment problems. That is why, Alex hinted to you, we will see some impact in quarter two. We keep the guidance and we are working very actively on mitigation. We see good opportunities popping up in Asia. And as we speak, and as we guided we are looking to mitigate this as best we can.

Great. Thanks a lot.

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

Hi. Thank you. Carsten, you noted the percentage of live betting in the US being still much lower than Rest of World. Do you see anything within this that's structural and related to the way people consume the four major US sports relative to soccer which obviously drives a lot more betting internationally? And then what underlines your confidence the US market will continue to shift towards live wagering? And where do you think that push needs to come from in terms of the leagues or the media companies you partner with?

So as you know, I'm doing this already since a couple of years, and I saw many markets, there are many countries and regions, having this kind of shift from a betting behavior from pre-match into live. Without any doubt, the United States was a pre-match betting market very much driven by Vegas and Atlantic City, and the way how people betting. So I think with a younger population with more digital channels here, that's very natural that you bet during the match. And it's simply so much more exciting. And we see these trends. We are coming from a zero live betting now into a range over 20% to 30%. And no doubt from all analysts everybody is saying, there will be a predominant piece in live betting. The question is only the timing. And what we can do to accelerate this is, of course, we are giving the stimulation tools for those things. Whatever we do with audiovisual is targeting into making live betting more appealing. So the more penetration which we can achieve with the AV products, the better are the results in live betting. And of course, we are trying to push this with all our match centers and the scores we are trying to accelerate and stimulate this best we can. And of course, if we can we would love to offer more and more audiovisual live streaming content to the US marketplace that is definitely an accelerator to shift this growth. And the last word from a sports perspective, the fast-moving sports and soccer is the most interesting for live betting. We see a trend that soccer picks up more and more in the US, which hopefully also accelerates here.

Okay. And then maybe related, I know, there's some negotiation right now in terms of the data that you could source from wearables. Assuming you're able to get buy-in from the player associations, what are the sort of key commercial applications? What can you – what data can you share with the teams versus the betting operators and media?

Look for us, that's – we are in this perspective a technology company and we are aggregating whatever data points we can get. And that can be from computer vision and low latency video stream from an arena with fiber optics for example. Or that can be from RFD chips. For the chips, there is a commitment necessary from the players and from the unions, and there must be agreements between the league and the unions to make that possible. And then the teams need to decide, what kind of data do they really want to have in the public domain? What do they want to use for betting? And that's a constant area of discussion. So without any doubt, we will see RFD sensory chip data also going into the betting market probably always in a way that, it is less intrusive for the player not to personalize the information coming into the public from those systems. But there must be an agreement between the leagues and the unions how such data can be used. And I see in some leagues, there is a huge progress there. One commissioner told me, look, we always share, with the unions and there is no difference in this case. In some other leagues around the globe, there are still discussions ongoing. But without any doubt RFD chips is a valuable source for the deep data, which we can put into our media and betting products.

Okay.

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

Great. Thanks. I just wanted to get clarification on you reiterated the adjusted EBITDA range of the €123 million to €133 million. But a quarter ago, you had mentioned that potential €13 million impact in the worst-case scenario. You don't mention that, in the slides are released today. So should we understand from that that the downside case is now back to being the €123 million of that range? And that that sort of other €13 million is not the worst-case scenario anymore?

Hi, Robin. We expected this question from you. And it is in a way like I said before. So if I'm looking into the back mirror of my car, I see that number of €110 million, which is the worst case scenario getting smaller. That means, hopefully, you agree we are having a distance to this number. The guidance is €123 million to €133 million and we keep that guidance, but we see in quarter two, we are already in the quarter two impact from this fall, and we are actively mitigating it with new markets. And we are working as we speak high speed on those kind of things. So the guidance stays with the €123 million to €133 million. The distance to the worst case is getting bigger. Now it's up to the mitigation, because unfortunately this terrible war situation might continue for a longer time. And that's the indication which I can give you.

And Robin just a quick one. We will continue to look at this, and every quarter when we discuss it with you, if we have something new to say, we will.

Okay. I thought that since it wasn't mentioned in the release that that meant that it was kind of off the table. That sounds like it's the odds are getting lower, but maybe still potentially the situation. Okay. Great. And then just in terms of a follow-up. I'm curious some of the sports books in the US have talked about that they overspent too much in Q1 for customer acquisition that they have cut back on some of the promotional activity. Have you seen that in your ad:s business here so far in Q2 that there's been a change in what they're spending in the ad:s business given that they feel like they may have overspent? Not specifically on ad:s in Q1, but just on commercial and customer acquisition cost overall. Thanks.

Yes. So of course, we see that there is, I would not call it, overspend, Robin. It is a significantly higher spend for customer acquisition in the United States than we observed in any other market in the Rest of the World. And there is the -- this is a continuing trend. I think it is lengthy and broadly discussed in the industry, and all the statements which I see here and read are pointing in the direction that the industry is well aware that this is not a sustainable trend, and we will see that some of those spendings are going down. It's mainly the bonuses the TV campaigns. And that will lead of course into a better penetration and acceptance of programmatic advertising, and we see that with -- in our ad:s. Alex mentioned, we had a growth quarter-to-quarter by 300%. I think that speaks for itself that those channels will be used for customer acquisition in a preferred way by the industry to reduce the costs in the US.

So you're actually seeing so far in Q2 an increase in the programmatic that it's actually benefiting from that shift?

Yes.

Okay. Great. Thank you.

You’re welcome.

Thanks.

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

Thanks for taking our question. I just want to turn Robin's statement, I guess, into a question. But given Ukraine and Russia, is it now safe to say the odds are lower given guidance reaffirmation and the Q1 you just reported, but the magnitude is potentially bigger? Do you agree with that, yes or no?

Alex that is a typical question for the CFO, and I hand over to you.

Okay. And so the answer is, no. The magnitude is -- and the magnitude of -- what Carsten just said is that the magnitude of the impact on us is now smaller. So we don't think we're going to get to €110 million. We think we do better than €110 million without a doubt. Our guidance tells you that we are trying to stay with our guidance and we are going to mitigate and we're working on mitigations in Q3 and Q4 as quickly as possible. However, I wanted to make sure that people understood that Q2, which is almost half through will be impacted. However, we are working on the mitigation going forward.

I guess maybe just a follow-up just to be crystal clear and maybe I misunderstood it earlier. I thought you said the gap between the base case and the worst case has widened that potentially the magnitude is worse. And now Alex I think you just said the gap has shrunk and that €110 million is actually probably a higher worst case.

Correct. That is correct. The second statement is correct. The €110 million gap has shrunk. We didn't see a lot of impact in Q1. We are working on mitigating impact in Q2, Q3, and Q4, but there is going to be an impact in Q2.

Got it, helpful. One more for me. Just with the big four US sports leagues and the two largest soccer leagues locked up in the multiyear exclusive contracts. Notably you do -- you guys have four of those. How much opportunity do you see in the pipeline for new sports rights business going forward versus optimizing the existing portfolio?

You know that our business growth does not only depend on sports right deals. Our growth in the US, there is a huge opportunity with the shift from pre-match into live. I hope I highlighted this. For us, it means we can optimize order take rate from 2% in average to 5% to 7% if it is the MPS product. If it is the Odds product, it also goes significantly higher. So, with the existing rights, which we have we see already a huge growth potential. We see many, many states are opening up. We see some movements in California here. Growth will be also fueled from this not only from a sport rights perspective. Sport rights are split it into two pieces. It's audiovisual which is very important for our top 20 clients as you see in the report and the data piece. If I'm looking now to opportunities in the US that will be college. The best guess from my side here is that you will see a very mixed environment and college is very much focused in the talks which we have around the integrity and a more holistic approach in tools for the players and for the coaches to optimize this. In all of these directions, we feel ourselves being perfectly placed but we will not do any deals which are going away from our general strategy of saying this is a high-growth company but very profitable and high cash converting. So, this is the deals which you will see from us in this space, but there is a college opportunity.

Thanks guys. Good luck.

Thank you.

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

Hey. Just wanted to follow-up on the college. Can you talk about your existing NCAA product you have currently? And the benefits you could potentially foresee from having the data rights from the conferences?

Look we think that college is significantly different from a rights perspective than the big four sports, which we have in the US. What is established there with the official data is the part of the strategy from those big players which have an enormous media power, which can limit the access of bookmakers in data acquisition channel. We don't do think that college has not that kind of power which we see from the big leagues and here namely two of them which are popping out. So, we think for college it's more important to have a partner who can satisfy all needs status and integrity. College doesn't want to have any problems with the young players. They need guidance here. They need the monitoring on this. It is very essential that every college which we have talks now that is key to center in their opinion. Then the training of the athletes is very important. So, the tools for this is not only the data collection, it's the tools, it's the video coaching, it's the sport analytics systems which are important. Then OTT transmission, how to do this, how to enable that the moms and the dads can see performance or their friends can see is a part of it. The experience in the entertainment, and then of course the revenues from sports betting. It's more a holistic picture which we see on college if we compare to the big leagues.

Okay. And then you mentioned you're now cross and upselling the Synergy Sports product to customers. Can you talk about how much that is contributing now and your outlook for the business?

Alex, can you give us the numbers on it?

Yes, in Q3 between the two segments and I'm not going to break it out between audiovisual betting and sports betting outside of the US for the worldwide, it's contributed about €3 million of revenue. And we are expecting that to continue to grow obviously over this year and over the following years.

Okay, great. Thank you.

Thank you. Our next question comes from Jason Bazinet with Citi. Your line is open.

Thanks. I just had a question for Alex. Thank you for giving us the long-term targets for EBITDA to free cash conversion. My question is what do you think a reasonable range is this year? And the reason I ask is your headline free cash conversion looked good at 48%. But if I back out the FX impact, it was closer to 12% or 13%, if I'm doing the math right this quarter. And maybe that points to the working capital dynamics that you talked about as you move to a rev share model that could sort of delay or tamper -- go ahead.

That's exactly the case. It's definitely pointing and that's why I wanted to highlight the model because those are our fastest-growing revenues and they are -- they do -- there is a delay in working capital and conversion to cash. We will continue to improve. I don't want to give targets for the year -- for this year. But certainly, over the next two to three years, this is the target. And we're going to start marching towards that target this year.

And can you just in rough terms the sort of timing of the working capital impact? Is that like a quarter or two, or is it longer than that? Like...

I mean if you think about our subscription model, if you think about our subscription model, it worked on a prepayment basis, right? We got the money first effectively, right? This is us getting the revenue share. So first, the customers have to figure out the revenue then they tell us, then we bill them, then they pay. So you've got a couple of months delayed?

Understood. Okay. Thank you.

Thank you. And our last question comes from Mike Hickey with The Benchmark Company. Your line is open.

Hey, Carsten, Alex good morning, guys. Nice quarter, congratulations. Just two questions from me. Carsten, obviously you are a global business here and you've run it for decades so you're sort of a beacon of knowledge. I'm just sort of curious your view on sort of the economic slowdown globally, I think we're sort of experiencing and we're obviously seeing some pressure on consumer spend which maybe eventually trickles through operators and to you. But sort of just how your business has behaved historically in periods of stress within particular regions where you operate. And if that's a consideration that you originally baked into your guidance? And I have a follow-up.

Thank you for that question, Mike. It's refreshing that you see, it's a strong first quarter that is indeed the case. And only to make it clear, we intend to perform exactly in what we forecasted. And we always manage to keep our guidance and lay within the guidance, only as a small side remark. Yes, I'm working since 25 years in that industry. I'm just on a conference where I had the pleasure to listen to the 34th President of the United States also on this topic. We see no impact from the current downturn and recession and we expect no impact. In all the 25 years where I operated, I see one thing: Sports betting and sports is resilient on this crisis and recessions. We see exactly the same thing now. We think we might even see some acceleration in some markets. But from our business perspective, it has no impact. It probably unfortunately for the consolation has probably more a positive impact for us, because if the crisis is getting bigger, people have the mentality to small money into winning big prizes. That's what you see in lotteries. You see the same in sports betting. Sport consumption generally in that period goes higher. So that is what we see in the future and how we think we are able to hit our forecast and numbers. We see no impact from this downturn.

Nice. Thank you. Second question for me. You highlighted the strength of your balance sheet. And obviously you're driving profit here. Just sort of curious in this environment, if you are sort of wanting to lean forward here, Carsten and be opportunistic leveraging that capital portfolio growth and acquisitions or a buyback? But sort of I guess, what do you do with that cash? And how do you leverage it to drive growth? Thanks.

First of all, we are super happy to have cash on our balance sheet and we are super happy to generate cash. In such a situation, I think that's key to center. So, being cash-strong and generating is very, very important in such a situation. Looking to opportunities, we are constantly monitoring the market around the technology space for our key paid sports, Vaix, it such an acquisition which we monitored since a long time and came then to a conclusion that it's improving our technology stack and can be implemented directly into our revenue-driving products. So, this is something which we continue to monitor and discuss very actively as we speak. And the trouble here is that, the private and the public market valuations are currently, let's say a little bit detached. And there is very soon I guess coming an opportunity for doing acquisitions on a different valuation level. And we will use these opportunities, if this fits into our core technology stack and into the sports where we want to accelerate. And we monitor this actively. But at the moment it's a valuation question.

Nice. Thanks for the color. Good luck guys.

Thank you.

Thank you. And this concludes our Q&A session. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.