Sportradar AG(SRAD) - 2022 Q4 - Annual Report

PART I Key Information This section outlines significant risks and uncertainties facing Sportradar's business, including macroeconomic, business model, technological, legal, financial, and ownership-related factors Risk Factors This subsection details various risks that could materially affect the company's business, financial condition, and results of operations - The company identifies a material weakness in its internal control over financial reporting related to insufficient design and implementation of controls and segregation of duties, which has not been fully remediated as of December 31, 2022[163][164][167] - A significant portion of revenue is derived from jurisdictions with developing or uncertain legal frameworks for sports betting, posing regulatory and legal risks[106][113] - The dual-class share structure concentrates 81.7% of the total voting power with the Founder and CEO, Carsten Koerl, limiting other shareholders' influence on corporate matters[192][193] - The business is highly dependent on strategic relationships with sports leagues like the NBA, NHL, and MLB for data and streaming rights, and the loss of these partnerships could be detrimental[54] Information on the Company This section provides a comprehensive overview of Sportradar's business, history, and operations, detailing its position as a leading B2B technology platform for the global sports betting and media industries History and Development of the Company Founded in 2001, Sportradar Group AG is a Swiss stock corporation that underwent reorganization and an IPO in 2021, with its predecessor merging into the current holding company in 2022 - The company was founded in 2001 and its current holding company, Sportradar Group AG, was incorporated in Switzerland on June 24, 2021[226] - In September 2021, the company completed an IPO and a series of reorganization transactions, resulting in Sportradar Holding AG becoming a wholly-owned subsidiary of Sportradar Group AG[227][230] - Sportradar Holding AG was merged into Sportradar Group AG in June 2022, with Sportradar Group AG as the successor entity[230] Business Overview Sportradar is a leading B2B technology platform providing mission-critical software, data, and content to the global sports betting and media industries, serving over 900 betting operators, 350 sports leagues, and 500 media companies Key Operational Metrics (as of Dec 31, 2022) | Metric | Value | Source Chunk | | :--- | :--- | :--- | | Betting Operator Customers | >900 | [240] | | Sports League Partners | >350 | [240] | | Media Company Customers | >500 | [240] | | Total Customers (Sportradar base) | 1,790 | [246, 307] | | Net Retention Rate (Top 200 Customers) | 119% | [246] | - The global sports betting market is projected to grow from $65.0 billion in 2022 to $103.5 billion in 2027 (9.8% CAGR), with the U.S. market expected to grow from $8.0 billion in 2022 to $17.4 billion in 2027 (17.0% CAGR)[235][252][253] - The company's growth strategy focuses on capturing growth in global markets (especially the U.S.), expanding B2B product offerings, covering the entire end-user journey, investing in alternative content (e-Sports, virtual sports), and growing top-of-funnel advertising capabilities[284][286][287] - Sportradar holds key data rights partnerships, including exclusive global rights (ex-U.S./China) for the NBA, exclusive global rights (ex-U.S.) for MLB, and exclusive global rights for the NHL[242] Organizational Structure Sportradar Group AG, a Swiss stock corporation, is the publicly listed holding company that operates through 47 wholly-owned subsidiaries - Sportradar Group AG is a Swiss holding company that operates through its 47 wholly-owned subsidiaries[342][343] Property, Plant and Equipment The company's principal facility is its leased headquarters in St. Gallen, Switzerland, with additional leased offices globally to support its operations - The company's principal facility is its leased headquarters in St. Gallen, Switzerland[346] - Sportradar leases offices in multiple countries, including Australia, Austria, Germany, the UK, the US, and Uruguay, with lease expirations ranging from 2023 to 2031[346][347] Operating and Financial Review and Prospects This section provides management's discussion and analysis of the company's financial condition and results of operations, covering key performance indicators, revenue, costs, liquidity, and accounting estimates Operating Results For FY 2022, Sportradar's revenue increased by 30.1% to €730.2 million, driven by MBS and U.S. market growth, while profit for the year decreased by 18.0% to €10.5 million due to higher expenses Key Financial Performance Indicators (FY 2022 vs. FY 2021) | Metric | FY 2022 | FY 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenue | €730.2M | €561.2M | +30.1% | | Profit for the year | €10.5M | €12.8M | -18.0% | | Adjusted EBITDA | €125.8M | €102.0M | +23.3% | | Adjusted EBITDA Margin | 17.2% | 18.2% | -1.0 p.p. | | Net Retention Rate | 119% | 125% | -6.0 p.p. | Revenue by Segment (FY 2022) | Segment | Revenue (in millions) | % of Total | | :--- | :--- | :--- | | RoW Betting | €389.1 | 53.3% | | RoW AV | €160.5 | 22.0% | | United States | €127.4 | 17.5% | | Other | €53.1 | 7.3% | | Total | €730.2 | 100.0% | - Revenue growth in 2022 was primarily driven by a €55.9 million increase in MBS, a €55.7 million increase in the United States segment, and a €20.4 million increase in RoW AV[421] - Personnel expenses increased by 44.7% to €266.0 million due to workforce growth from organic and inorganic expansion, increased wages, and higher share-based payment expenses[426] Liquidity and Capital Resources As of December 31, 2022, Sportradar's cash decreased to €243.8 million from €742.8 million in 2021, primarily due to the prepayment of €420.7 million in bank debt, while net cash from operating activities increased to €168.1 million Cash Flow Summary (FY 2022 vs. FY 2021) | Cash Flow Item | FY 2022 (in millions) | FY 2021 (in millions) | | :--- | :--- | :--- | | Net cash from operating activities | €168.1 | €132.2 | | Net cash used in investing activities | (€246.6) | (€333.8) | | Net cash (used in) / from financing activities | (€459.8) | €539.8 | - Cash and cash equivalents decreased from €742.8 million at the end of 2021 to €243.8 million at the end of 2022, mainly due to the prepayment of €420.7 million in bank debt[442][458] - In 2022, the company prepaid its entire €420.0 million senior secured term loan facility (Facility B), reducing the outstanding commitment to zero[412][446] - The company increased its revolving credit facility (RCF) commitment to €220.0 million, which remained undrawn as of December 31, 2022[447] Research and Development, Patents and Licenses Sportradar invests heavily in R&D, employing approximately 1,400 engineers focused on developing new capabilities in automated data processing using AI, machine learning, and computer vision - The company employs approximately 1,400 engineers dedicated to R&D and innovation[459] - R&D focus areas include artificial intelligence, machine learning, and computer vision to automate data processing and create new products like simulated reality[460] Directors, Senior Management and Employees This section details the company's leadership, compensation practices, board structure, and employee base, including biographies for executive officers and board members Compensation The aggregate compensation for current directors and executive officers for fiscal year 2022 was CHF 6.9 million, including base salary, annual cash bonuses, and equity-based awards from programs like the 2021 Omnibus Stock Plan - Aggregate compensation for current directors and executive officers in FY2022 was CHF 6.9 million, including salary, bonuses, and equity compensation[480] - The company maintains the 2021 Omnibus Stock Plan for granting equity awards, with an initial reserve of 29,239,091 Class A ordinary shares[487][488] - Non-employee directors receive annual cash fees ($75,000) plus additional fees for committee chairmanships, and an annual RSU grant ($175,000 for directors, $350,000 for the chairman)[482] Board Practices The Board of Directors consists of eight members, seven of whom are independent, and has established an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee - The board consists of eight members, with seven deemed independent[504] - The board has established an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee, each with specific responsibilities[505] Employees As of December 31, 2022, Sportradar had 3,977 permanent employees and 467 contingent workers, reflecting growth, with the majority of full-time equivalent employees (FTEs) located in the EMEA/LATAM region Employee Headcount (as of Dec 31) | Employee Type | 2022 | 2021 | | :--- | :--- | :--- | | Permanent Employees | 3,977 | 2,959 | | Contingent Workers | 467 | 341 | FTEs by Geography (as of Dec 31, 2022) | Geography | FTEs | | :--- | :--- | | EMEA/LATAM | 3,041 | | North America | 566 | | APAC | 556 | | Total | 4,163 | Major Shareholders and Related Party Transactions This section details the company's ownership structure and transactions with related parties, highlighting founder Carsten Koerl's 81.7% voting control Major Shareholders The company's ownership is highly concentrated, with founder and CEO Carsten Koerl controlling 81.7% of the combined voting power as of March 1, 2023, through his ownership of all Class B ordinary shares Beneficial Ownership and Voting Power (as of March 1, 2023) | Shareholder | Class A Shares (%) | Class B Shares (%) | Combined Voting Power (%) | | :--- | :--- | :--- | :--- | | Carsten Koerl (Founder & CEO) | 1.7% | 100% | 81.7% | | Canada Pension Plan Investment Board | 39.1% | 0% | 7.3% | | TCV | 16.4% | 0% | 3.1% | Quantitative and Qualitative Disclosures About Market Risk The company is exposed to several market risks, including liquidity, credit, foreign currency, and interest rate risks, which are managed through various financial strategies - The company faces significant foreign currency risk, particularly against the U.S. Dollar, as license rights are often purchased in foreign currencies while over 76% of its business is invoiced in Euros[623][1009] - Credit risk is managed by analyzing the creditworthiness of significant debtors and is considered low due to a diversified customer structure, with no single customer accounting for more than 10% of revenues in 2022[622][1005] - Interest rate risk is primarily linked to borrowings, specifically the revolving credit facility, which has interest rates based on market rates plus a margin tied to a leverage ratio[625][626][1013] PART II Controls and Procedures This section addresses the company's disclosure controls and internal control over financial reporting, noting that disclosure controls were not effective as of December 31, 2022, due to an un-remediated material weakness - Management concluded that disclosure controls and procedures were not effective as of December 31, 2022, due to a material weakness in internal control over financial reporting[636] - The material weakness is related to insufficient design and implementation of controls and segregation of duties, which has not been fully remediated despite ongoing efforts[640][644][647] - Remediation efforts include establishing an in-house central financial controls team, redesigning controls, and migrating major components to a new ERP system[644][645] Corporate Governance As a foreign private issuer, Sportradar is permitted to follow Swiss corporate governance practices in lieu of certain Nasdaq listing rules, utilizing exemptions for specific board and shareholder approval requirements - As a foreign private issuer, Sportradar follows its home country (Swiss) governance practices for certain Nasdaq rules[664] - Exemptions are taken from Nasdaq rules regarding: meetings of only independent directors, quorum requirements, and shareholder approval for equity compensation arrangements[664] PART III Financial Statements This section contains the audited consolidated financial statements for Sportradar Group AG for fiscal years 2021 and 2022, prepared in accordance with IFRS, including the report of the independent registered public accounting firm Consolidated Statement of Profit or Loss (Abridged) | Line Item (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Revenue | €730,188 | €561,202 | | Purchased services and licenses | (€175,997) | (€119,426) | | Personnel expenses | (€265,984) | (€183,820) | | Depreciation and amortization | (€184,813) | (€129,375) | | Net income before tax | €17,790 | €23,824 | | Profit for the year | €10,491 | €12,787 | Consolidated Statement of Financial Position (Abridged) | Line Item (in thousands) | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | €1,389,061 | €1,771,121 | | Cash and cash equivalents | €243,757 | €742,773 | | Intangible assets and goodwill | €843,632 | €808,472 | | Total Liabilities | €631,632 | €1,035,487 | | Loans and borrowings | €22,845 | €435,350 | | Trade payables | €474,911 | €470,440 | | Total Equity | €757,429 | €735,634 | Consolidated Statement of Cash Flows (Abridged) | Line Item (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash from operating activities | €168,077 | €132,221 | | Net cash used in investing activities | (€246,567) | (€333,768) | | Net cash (used in) / from financing activities | (€459,848) | €539,766 | | Net (decrease) / increase in cash | (€538,338) | €338,219 |