Neal Menashe - Chief Executive Officer Alinda Van Wyk - Chief Financial Officer Richard Hasson - President, Chief Operating Officer Lisa Kampf - Vice President of Investor Relations

Good morning and welcome to Super Group's Second Quarter of 2022 Earnings Conference Call. Following managements prepared remarks; we will open the call for Q&A. I would now like to turn the conference over to Lisa Kampf, Vice President of Investor Relations Outlook for the Year.

Good morning everyone and thank you for joining our call today to discuss Super Group's results for the Second Quarter of 2022 and outlook for the year. During this call we may make comments of a forward-looking nature that are subject to risks, uncertainties and other factors discussed further in our SEC filings that could cause our actual results to differ materially from our historical results or from our forecast. We assume no responsibility to update forward-looking statements other than as required by law. Additionally on today's call, we may refer to certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and on a substitute for measures of financial performance prepared in accordance with GAAP. The reconciliation of historical non-GAAP financial measures to the most comparable GAAP figures are included in the press release issued earlier today and available on the Investor Relation page of Super Group's website. Also, please note that we have posted a supplemental presentation to the Investor Relations section of our company website, along with the press release, the link to the replay of this webcast and filings with the SEC. The presentation includes the financial information that will be referred to during this call. Today I'm joined with Neal Menashe, Chief Executive Officer and Alinda Van Wyk, Chief Financial Officer. After our prepared remarks we will open the call up for questions, and we will also be joined by Richard Hasson President and Chief Operating Officer. And now I would like to turn the call over to Neal.

Thank you, Lisa. Good morning everyone and thank you for joining us today. Super Group is and continues to be uniquely positioned to take full advantage of the particular growth in the global online betting and gaming market; a sector expected to exceed $145 billion by 2025. Our Betway and Spin brands enjoyed worldwide reach and recognition, and we are actively working on a number of geographic opportunities that will allow us to deliver future growth, and most importantly, our business is [inaudible] profitable and highly cash generative. This quarter we gain demonstrated the benefits of our global model and recently formed holding company structure, which was good progress made in a number of areas. We grew average monthly active customers to $2.7 million, up 3% from the second quarter of 2021. We saw good growth in key markets such as Africa and Asia Pacific. Our sports betting continued to deliver positive growth. We kept a smooth anterior license process, with the transition of Betway into the regulated regime, with Spin to follow next week. And we have progressed the U.S. state-by-state licensing of Super Group that is a prerequisite for the acquisition of Digital Gaming Corporation, DGC. Our result for this quarter of net gaming revenue of €316 million and adjusted EBITDA of €54 million, and for the half year of net gaming revenue of €631 million and adjusted EBITDA of €117 million remain resilient despite the impact of the normalization of entertainment spending patterns post COVID and the current headwind effects of general economic uncertainty on discretionary spending. We expect that these effects will continue to be felt for the remainder of the year, and have updated our guidance according. Alinda will discuss both our results and our guidance in more detail shortly, but I want to emphasize…

Thank you, Neal. As we are well aware, 2022 has been a difficult year for many industries, including the global digital gaming industry. With changes in consumer behavior driven by economic uncertainty, revenue growth has slowed down. In the second quarter Super Group’s net gaming revenue was €316 million down 7% versus the prior year quarter. However, on a consistent basis, excluding European market that will close for us this year due to regulatory changes, net gaming revenue in the second quarter have decreased by 5%. Looking at the first half of this year, Super Group’s net gaming revenue is down by only 1% from 2021 to €631 million. Back to the focus results, we also experienced a shift in revenue mix. In quarter two 2021, our net gaming revenue was 50/50 between Betway and Spin. This year during the second quarter Betway grew to 55% against Spin’s 45%, as sports betting grew, while casino gaming declined. The shift in revenue mix negatively impacts our EBITDA margin, owing to Betway’s lower operating margin as compared to Spin. Starting with our sports book revenue. Compared to Q2 last year, sports book revenue increased by $6 million or 6%, mainly due to good growth in key markets in Africa and APAC regions, despite being partially offset by declines in Europe and Canada. Growth in sports betting, net gaming revenue from Africa and APAC markets represent positive momentum, resulting from continued good growth on the customer base and retention rates. In some of the few markets were it does appear that the COVID lockdowns had relatively limited impact. The growth in APAC was also due to the full IPL season during 2022 after the cancellation of the IPL season in 2021 due to the COVID. The decline in Europe was mostly due to…

Thank you, Alinda. In summary, we generated a healthy level of revenue and EBITDA for the quarter and we remain uniquely positioned in the global online gaming universe. We are digital only. We have a diverse global footprint across sports betting and I-Gaming. We are in control of tech stack, our data and our algorithms. We are profitable, debt free and highly cash generative, and we have a team that’s been weathering these types of challenges for over two decades. Some of the challenges may be around for a few quarters, but Super Group is a strong company with a healthy balance sheet and we will continue to go off the profitable growth. Thank you. I will now turn the call over to the operator to open the call up for questions.

Yeah, good morning, thanks for taking the questions. I just wanted to focus on Canada a bit. You mentioned both inflationary pressures and sort of normalizing behavior compared to the COVID impact from last year for the declines there. I'm just wondering if the read through there is that competition from sort of more operators in the market, but not a factor there or just less of a factor. Then maybe you can just as a follow-up also touch on the delay in the licensing for Spin and whether last quarter you talked about you’re still able to operate as you were previously with regulator knowledge. I’m wondering if that took place throughout the entire period from last quarter through now or if there is any change to that. Thanks a lot.

Okay, so I'll take that. So yes, with Canada and with all other markets we operate in, there is competition, competition in all our markets. So for us its – Canada is – we’re the same company as we were a year ago. Canada is all about obviously going now regulated in Ontario with Betway went last week and Spins going next week. So up to now they've been operating on the old software and that’s now moved over. And Betway in the last seven to eight days is in line with our expectations, so Spins going next week. So we've learned a lot from Betway and then we can implement that into Spin.

Thank you. Our next question comes from the line of Bernie McTernan with Needham & Company. Please go ahead.

Great! Thank you for taking the questions. Maybe to start, we talk about the $20 million to $25 million of cost reductions. Just to be clear on the timing, are those all happening in ‘22 so you'll receive the full benefit in ’23, and then given the cost reductions is 25% EBITDA margin, something that's achievable in ‘23.

Thanks Bernie, Alinda here. We started the process and we – this was a continuous process anyway since our listing to look at our cost base. In my presentation I make reference to 2022 is where you know we really started to focus. We will see it in the last quarter coming to fruition, but the impact of the $20 million to $25 million is in 2023 and that will obviously be visible on the margin. And to your question regarding the 25% margin, I mean obviously like I say, the 17% to 19% margin is not where we would like to be. We are aiming for 20% in continues growth in that margin by getting all our ratios back intact with a focus on our top line growth.

Understood. And then would just love some commentary in terms of what you're seeing from the customer LTVs and because of the macro and in the COVID comparisons, whether it's players turning off altogether, whether people are playing less and engaging less. If it's smaller bet size, less handle, we just like to see what's actually happening you know underneath the hood.

First of all listen, it's across the globe. Because we are global, it’s not just one country, it’s across the globe. So you see different specs in different markets. But definitely from our point of view it’s just that the discretionary spend of our customer has come down, but in other markets you know there we've got more customers, so maybe their spend is slightly down, but then we are – they are spending more of the time you know with us, because we got more customers. So it's definite a macroeconomic headwind, but you know that's as I said, it’s – as this levels out and post COVID we are – they even got that and we still got 2.7 million users using our software and that’s going up.

Thank you.

Thank you. Our next question comes from the line off Mike Hickey with The Benchmark Company. Please go ahead.

Hey Neal, Richard, Alinda! Thanks guys. Good morning or afternoon, wherever you guys are, thanks for taking the questions. I guess just to double click on the macro again, it seemed like the online casino player was historically been fairly resilient in times of sort of economic distress, and while we have inflation, we also have strong employment and of course your global and I'm looking from a U.S. lens. So I guess if we could again, I guess sort of understand why it's different this time, and I think you mentioned that perhaps your sports betting client is doing better than your gaming, I think I heard that. I'm just curious if that's true and why that is?

So first of all you know, gaming's not immune, right. It’s resilient, but again we've never seen inflation like this in 40 to 50 years. In the last 20 years we haven’t seen a hit. We’ve seen downturns in 2008 with financial crisis, but not something that’s affected our customers discretionary spend, so – but because we’re global, in different market and including sports, have different customer values, etc. But from our point of view, again, it's about what's happening in each of these countries, each of these markets and how the customers are engaging on our platform.

Fair enough. Inflation is brutal, I agree with you. I guess so when your players are strained, I mean how do you adjust your playbook or your app to sort of account for that weakness. I mean, how does that sort of change your whole target? How does that change your promotional activity? What adjustments have you made or do you plan to make for a player that is dealing with macro issues that could extend for you know another six to 18 months.

Listen, I guess that becomes to your customer account again and you know it's having more customers spending slightly less, but in different markets you know there are different players baskets etc. for that. So from our point of view, remember this business is a mass market business. This is not a business of high value customers. This is a business across the spectrum, so it’s about the numbers of customers and your software being able to be superior in those markets and giving them the customer entertainment experience that they want and offering them the right casino games that they like it, but it's lower bet sized games, and remember, algorithms and everything that we do is based on the – is individualized to the customers. And the same with sports betting. Its offerings them all the different sports events that they would like to bet on and that’s why we’re saying, when you've got lots of these competitions, for example last years this – in June last year we had the Europe and now we didn't have the World Cup this year, but the World Cup’s coming in November and December. So when you compare this June to last June it isn’t a fair comparison. So all of this helps with bringing the customers into the software and to know what they did last.

Okay, fair enough. The last question from me is on the U.S. market. I'm sorry if I missed this. Are you – just sort of the timeline I guess on DGC. It seems like it’s been hanging out there for a while. Just curious – sorry again Neal if you mentioned this, but just where you are in closing that transaction and then maybe just re-examine – given everything that's changed so fast in terms of the macro conditions, how are you thinking about in hearing the U.S. market today you know versus six months or a year ago and how you think about the impact to your ‘23 numbers? I think Alinda originally, you know you were saying it was sort of a – these are my numbers, maybe it was $8 million to $13 million in annual negative adjusted EBITDA impact. Just curious if that's still the same range your thinking and if you're intent or your playbook or design of going to the U.S. market is the same given our volatility. Thanks guys.

Hi there! Richard here. So the closing of the DGC acquisition is still on track for our target goal of having that done by the end of the year. As we mentioned before, a number of licenses at Super Group needs to be granted before that time. So we are obviously working to the timelines of the regulators in those various states, so that remains our goal. In terms of the U.S., our plan remains very much the same. In terms of the 2023 targets – in terms of the 2023 numbers, we expect the range of impact to EBITDA assuming that DGC was in the Super Group for the whole year to be between €50 million and €70 million, with our target breakeven for the end of 2024 beginning of 2025.

Thank you guys.

Thank you. Our next question comes from the line of Jed Kelly with Oppenheimer. Please go ahead.

Hey! Great! Thanks for talking my question. Just two if I may. Circling back to the macro, can you talk about what regions your sort of seeing an impact and is that due to the higher dollar. Because just trying to reconcile with what you are seeing and I know you are global, versus what we heard last week from some of the North American operators, where they are not seeing an impact and we also heard that in travel as well. Particularly Europe and traveling Europe is strong. So are you seeing more of an impact in APAC and Africa. And then just on the change in the revenue, can you talk about like, is that a benefit or can you talk about how that impacts the financials and the growth rates. Thank you.

Okay, so I’ll just add. Because we – you know we are the same company as we always have been. So because we’re in the global marketplace across the world, of course we had currency fluctuation that’s coming out of Africa, APAC, etc., right. So those currencies are always swinging again for dollars or for euros right, so that we’ve had anyway and we continued to grow the revenues in those markets, despite even if its offset slightly by some currency losses in those markets, but that’s the global nature of Super Group from that point of view. So for us, yes, we can’t comment on how competitive, but remember, we are not in the U.S., we are across the world. So we have global factors across the world in the market that we operate.

Yes, and then just on your question regarding the guidance or revenue. The guidance is high quality revenue. I’m being very precise in the repo costs, because to make sure that it’s a strong achievable target for all our businesses and to make sure that it’s the high quality revenue that comes through, and that our teams are very focused on now achieving for the remainder of the year.

And then it seems as your going – you are getting live in Ontario this week. Is there a margin drag or anything we should be thinking about from paying like a higher tax rate or anything, now that you're going to be I guess on the legalized, not legalized, but regulated – you’ll be a regulated operator in Ontario. How should think about that in the back half of the margins?

Yeah, so I mean like previously stated as well, the initial introduction into the regulatory environment is always a bit of an impact on the margin. But we've got all sorts in place to make sure that margin has recovered towards the end of the year, with the most important impact is that even though you've got, I refer to it as agency fee, which is the tax that your implying about. The most important thing is that we – that the cost associated has theoretically come down as well, like better processing capabilities. So your variable cost is in line then. It will be reduced, but also our cost base is intact for that Ontario transfer and to make sure that our margins for Ontario is as per expectation of our guidance.

Got it! And then just one more from me. Just as we look out to next year, sort of the countries, the Netherlands, Germany where you're having the regulatory headwinds, I mean do you expect to be operating in those countries next year and can that actually become a tailwind. How should we think about that? Thank you.

No. Well Germany, we are still operating in Germany, so it’s just there is no casino in Germany. But Netherlands, we are still working with the regular, but it's not in any of our guidance for 2022.

What about ’23? Would you be expected to be operating there?

Yeah, yeah for Germany, yes. And then Netherlands we have said it all depends on the regulator in that market.

Okay, so that would be an additional market you are live into next year.

Yeah, yes, yes. Germany we are currency live with now. We just don’t have a high casino. So it depends on the high casino and the text is that they want in Germany, well it depends if it’s feasible for us to do a high casino gaming in Germany.

Thank you.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session and thus concludes our call today. We thank you for your interest and participation. You may now disconnect your lines.