Sportradar Group Ag (SRAD) Q3 2023 Earnings Call Transcript

Sportradar Group Ag (SRAD -0.62%)
Q3 2023 Earnings Call
Nov 01, 2023, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and thank you for standing by. Welcome to Sportradar's third-quarter 2023 earnings conference call. At this time, 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, Christin Armacost, manager of investor relations. Please go ahead.

Christin Armacost -- Senior Vice President, Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us for Sportradar earnings call for the third quarter of 2023. Please note that the slides we will reference during this presentation can be accessed via the webcast on our website at investors.sportradar.com, and will be posted on our website at the conclusion of this call. A replay of today's call will also be available on our website.

After our prepared remarks, we will open the call to questions from investors. In the interest of time, please limit yourself to one question plus one follow-up. Please note that some of the information you will hear during this discussion today will consist of forward-looking statements, including, without limitation, those regarding revenue and future business outlook. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast.

For more information, please refer to the risk factors discussed in our annual report on Form 20-F filed with the SEC in March 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 a 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, our chief executive officer; and Ger Griffin, our chief financial officer. And now, let me turn the discussion over to Carsten.

Carsten Koerl -- Chief Executive Officer

Thank you, Christin, and good morning and good afternoon to everyone. We have a lot to share with you today on our performance for 2023, strategic actions we are taking to improve profitability, as well as our growth expectations for 2024 and beyond. In a dynamic time of our organization, I'm impressed by the focus and execution exhibited across our teams, in particular, our ability to unlock -- unlock greater profitability from our growing revenue base. This collective effort is laying a durable foundation for our continued growth and success in 2024 and beyond. While we remain on track to deliver strong year-over-year growth in 2023, we are updating our outlook to reflect the financial performance to date and address some recent market headwinds.

While we expect to deliver adjusted EBITDA at high end of our previous guidance and stronger adjusted EBITDA margin, we are reducing our revenue outlook to reflect some of these short-term challenges. Now, we expect to deliver revenue in the range of 870 million to 880 million euros, representing year-over-year growth between 19% and 21%; adjusted EBITDA in the range of 162 million euros to 167 million euros, representing year over year growth between 29 and 33; and improved EBITDA margin in the range of 18.4% and 19.2%. We have lowered our full-year revenue outlook mainly to reflect two factors: First, the euro has further strengthened, creating pressure on our U.S. dollar-denominated revenue relative to our initial expectations. Second and more recently in Q3, betting operators, especially those outside of the U.S.

have experienced margin pressure primarily to live betting and soccer due to winning streak of bettors, with more favorites winning and goal-rich games during the start of the European football season. This contributed to softness in our Q3 MTS results and our outlook for the rest of the year, where we participate in our sports betting clients' revenues. Our strong outlook for adjusted EBITDA and adjusted EBITDA margin reflects improving operating leverage through both cost management and ongoing strategic initiatives to streamline our business operations, which we will walk you through shortly. Turning to the third quarter. We deliver revenues of 201 million euros, up 12% year over year. This was lower than our expectations primarily due to the noted softness in MTS revenues.

Outside of this, our portfolio results were broadly in line with our expectations. We delivered record quarter profitability with adjusted EBITDA of 50 million euros, up 38% year over year; and adjusted EBITDA margin of 25, an improvement of 471 basis points year over year. We also generated cash from operating activities of 76 million euros, up 19% year over year. And we ended the quarter with 290 million cash and cash equivalents, up 26 million, or 10% quarter on quarter.

As a leader in our industry, we work to ensure that we consistently deliver value to our clients and shareholders. This week, we initiated a reduction in our global workforce. This action is part of a broader set of strategic initiatives to better position the company for growth, which we aim to simplify and streamlining the company's operating structure, improving product ROI and portfolio optimization. When completed, this reduction in workforce should result in an approximate 10% reduction of the company's 2023 labor costs run rate and contributes positively to future operating leverage. It will also enable us to be more agile, intently focused on our strategic priorities and to capture the market opportunities ahead of us. Now, I'd like to update you on a few new and expanded deals that will help drive our growth and profitability into 2024.

First, our teams are well underway way with realizing the value of our strategic partnerships with the NBA with our latest lifetime revenue and profitability estimates ahead of our original expectations when we announced this deal in 2021. With the knowledge of the current trading and newly closed long-term client agreements, we can confirm that this investment remains on track to be a strong revenue contributor and highly accretive to our EBITA margin goals over the lifetime of the deal. To remind you, the NBA deal begins with 2023-2024 season and runs through 2031. With last week's tipoff of the season, we have now signed up our U.S.

client base to the premium content for the next eight years, including DraftKings, BetMGM, Bet365, FanDuel, and Caesars. We are also incredibly pleased with the positive engagement for this premium content offering across our international client base that accounts for approximately 40% of the total NBA deal value. We are just at the beginning of our journey with this great franchise that will be an important innovation and growth catalyst for the company. I look forward to unlock the additional value, which we will deliver to our clients and our company over the term of the deal. In addition, I'm thrilled about the partnership with the Taiwan Sports Lottery. We're selected as their official technology and service solution provider through 2033.

This is our 14th government-approved lottery. We will be providing the Taiwan Sports Lottery with a platform combining a multitude of services like MTS, pre-match, live watch, and end-to-end sportsbook and player account management solution. This rollout, which commenced in Quarter 3, will ultimately extend to over 2,600 retail outlets in Taiwan. Last, our value continues to be recognized in the industry, winning several awards, including Sports Betting Provider of the Year, Marketing Service Provider of the Year, and top Leaders in AI 100. Before I turn over to Ger, I would like to reflect a little more on where we are in our journey.

I'm excited about the market prospects ahead of us, driving sustained profitability growth on scale by using the power of a worldwide network, together with the growing data opportunity is more than ever fascinating and motivating. We are the industry leader and trusted partner because we have developed enduring and valued relationships with our clients and partners that only deepen with our innovative capabilities. Our best-in-class content portfolio is the fuel which powers our existing products and robust recurring revenues. It's also the catalyst for further core revenue growth, product innovation, deeper monetization, and value creation. Our content portfolio today is as a critical -- is at a critical mass and stable level to drive our revenue growth and profitability ambitions for the years ahead. Put it in another way, while we can acquire more rights, if that right makes sense, we do not need more rights to deliver on our growth targets.

Last, we are operating at scale with an agile organization to drive strong profitability growth in the years ahead. We also have the financial capabilities to enhance our position further should the right opportunities arise. To put this into a context, let me walk you through how this translate into revenue growth and higher margin for the company. Using the U.S. as a sample, we offer the broadest sports coverage delivering official analytics and intelligence to 95% of the core U.S.

professional sports, or over 5,000 games annually, based on our partnerships with NBA, MLB, and NHL. We leverage this foundation of assets across our media, league, and sport partners to move up the value chain with our products and capture a higher share of U.S. gross gaming revenues, or GGR. In-play adaptation is the key driver for that in the U.S., whereas -- whereas in more advanced European markets, in-play adaptation accounts for approximately 80% of the betting revenues. In the U.S., it accounts for approximately 35% of the U.S.

GGR. According to our estimates, closing the in-play gap would result in a 25% to 35% increase in our current U.S. revenue base with a strong margin profile. Last is the strength of our product roadmap throughout 2024.

Highlighting our partnership with the NBA, we intend to drive deeper value within the live betting markets and to bring live and immersive fan experience, next-generation telecasting, and AI-driven and 3D analytics for coaching solution. You will see us introducing products like microbetting, virtual stadium, mixed reality, augmented AV, and real-time states and insights. In summary, we are well positioned to capture the significant growth opportunities ahead by expanding monetization with our existing clients, acquiring new clients, leveraging the power of data and drive insights and innovation, and broadening and deepening our partner ecosystem. With that, I'll turn over the call to Ger to discuss the financial results and outlook in more detail.

Ger Griffin -- Chief Financial Officer

Thank you, Carsten. Turning to the third quarter, we delivered revenues of 201 million, up 22 million, or 12% year over year. While most of our revenue lines were broadly in line with our expectations, we had a lower-than-expected revenue from our MTS platform due to the weaker client revenues in which we participate via revenue share. In Q3, betting operators internationally experienced margin pressures primarily in their live betting in their soccer segments due to a winning streak for sports bettors with more favorites winning and goal-rich games during the start of the European football season. This adversely affected our Q3 MTS results. From a portfolio perspective, rest of world betting was up 11 million, or 11% year over year, with solid performances across the main product lines.

In particular, live odds and data were up 18% year over year. MBS, despite the softness in MTS, was up 7% year over year. Rest of world AV was up 5 million, or 15% year over year, supported by the addition of the new CONMEBOL rights and an uplift in services to existing and new clients. The United States segment was up 3 million, or 11% year over year, as we continue to see growth in this developing market. In U.S.

dollars, the U.S. grew 18% in the quarter. All other revenues were up 2 million, or 19% year over year, primarily driven by growth in our ads business. Net profit for the quarter was 5 million, including $15.5 million in impairment charges resulting from the streamlining of our business operations and product portfolio. This compares to 13 million net profit in the prior year, which benefited from stronger foreign currency gains.

Looking at our adjusted EBITDA, we delivered a strong result. Adjusted EBITDA was $50 million, up 14 million, or 38% year over year. Adjusted EBITDA margins improved almost 471 basis points to 25.1%. This improvement was driven by more profitable revenue mix and operating leverage across all major expense lines, in particular, personnel expenses driven by lower run rates as we actively manage our expense base. Personnel expenses were 75 million, up 7 million, or 10% year over year.

Personal expenses, excluding stock-based compensation, were 64 million, up 3 million, or 5% year over year. Sports rights were 36 million euros, up 1 million euros, or 3% year over year. Turning to liquidity. We ended the quarter with liquidity of 510 million euros. This was comprised of 290 million in cash and cash equivalents, up 29 million, or 10% quarter on quarter, and a 220 million revolving credit facility with no amounts outstanding.

Given our solid liquidity position and our focus on delivering long-term value to our shareholders, we are reviewing several options to enhance our capital allocation. Before I turn to our revised 2023 outlook and initial views for growth in 2024, I would like to take a moment to expand on Carsten's remarks related to the actions we are taking to better position the company for top-line growth and operating leverage in the future. As we've noted in the past, we are continuously challenging all aspects of our business to ensure we are focusing our talent and resources on the most profitable growth opportunities. Due to this focus, this week, we initiated a reduction in our global workforce. This action is part of a broader set of initiative -- of strategic initiatives to better position the company for growth, which are aimed at simplifying and streamlining the company's operating structure, improving product ROI, and portfolio optimization. When completed, this action should result in an approximate 10% reduction in the company's 2023 labor cost run rates and contribute positively to future operating leverage. We expect this -- this action to be materially complete by the first quarter of fiscal 2024.

In 2024, we expect the operating leverage our strategic initiatives will unlock, and personnel, cost of sales, and other operating costs will be offset by the pressure in operating leverage resulting from the one-time step up and our sports rights costs expected from the first full year of our NBA and ATP partnership deals. As we look beyond 2024, there is the potential for all major expense line items to contribute to improved operating leverage as we continue to actively manage our operating costs, run rates, and a more stable sports rights portfolio cost base. Turning to our revised 2023 outlook. While we remain on track to deliver strong year-over-year growth in 2023, we are updating our outlook to reflect our financial performance to date and address some market headwinds.

Our updated outlook for fiscal '23 is as follows: revenue in the range of 870 million to 880 million, representing year-over-year growth between 19% and 21%; adjusted EBITDA in the range of 162 million to 167 million, representing year-over-year growth between 29% and 33%; adjusted EBITDA margins in the range of 18.4% to 19.2%. Our revised full-year revenue outlook primarily reflects greater FX pressure on our U.S. revenues than previously indicated given the strength of the euro versus the U.S. dollar, lower MTS revenues for the year given the softness experienced in Q3, and a more cautious estimate for Q4.

Our stronger adjusted EBITDA outlook primarily reflects improving operating leverage through the continued active cost management and initial benefits from the ongoing strategic actions to streamline our business operations and product portfolio. Turning to 2024. As we look forward into 2024, we expect to deliver at least 20% revenue growth from our enhanced content portfolio, which will include the NBA and ATP rights and improved monetization across the product portfolio. We also expect to deliver at least 20% adjusted EBITDA growth with the improvement in operating leverage in personnel, costs of sales, and other operating costs, offsetting the one-time impact from the step-up in sports rights costs for the new NBA and ATP partnerships. In summary, we remain on track to deliver robust growth in 2023 and are well positioned for continued profitable growth in 2024 and beyond. With that, we would like to open up the call for your questions.

Operator, will you open up the line for questions?

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Ryan Sigdahl with Craig-Hallum Capital Group. Your line is now open.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Good day, Carsten, Ger. Thanks for taking our questions.

Carsten Koerl -- Chief Executive Officer

Good day, Ryan

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Curious on the U.S. So, deceleration in growth, I know a little bit of a headwind, but even considering constant currency deceleration and growth there and even relative to the rest of the business, I guess you commented 19% growth in betting and AV implies there was, you know, weaker somewhere else to offset that to get to 11% overall. So, what -- what specifically isn't going as well there?

Carsten Koerl -- Chief Executive Officer

Ger, do you want to take this question as the CFO?

Ger Griffin -- Chief Financial Officer

Yeah, no, in terms of terms of the U.S., we actually -- if you take off the -- the FX impact, we feel we actually had a strong growth in the quarter. I would remind you, it's -- this is our quietest quarter when you look at -- in terms of the fiscal year. Outside of our explanation, there was nothing else material to call out in terms of the AV side of the business.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Then just on guidance for the year lowering in part -- smaller part due to the euro strengthening, as I look at it, the euro is trading at the lowest USD conversion this year, and it's actually depreciated versus U.S. dollar since you last gave guidance. So, am I missing something there?

Ger Griffin -- Chief Financial Officer

No, most of the impact was what we flagged back in the last quarter, where you saw that we flagged that versus our original guidance, we felt it was a pressure of around 10 million. All we're saying is that that pressure, which is now reflected in this revised guidance range, did increase. The actual blended rate in Q3 did contribute to more pressure. I think, as you look into Q4, it shouldn't -- it shouldn't be an impact.

Operator

Thank you. One moment for our next question, please. Our next question comes from the line of Robin Farley with the UBS. Your line is now open.

Robin Farley -- UBS -- Analyst

Great. Thanks. Two questions and I apologize if you've covered this, we have had some trouble getting onto this call. But for -- for -- on the AV business for rest of the world, I don't know if you addressed the margin being down a couple hundred basis points there even with the 15% revenue increase, so I don't know if there's any color to add on the rest of world AV.

I know you just mentioned something about the U.S. business, but on the rest of world AV. And then, the other question is on the NBA deal, can you give us a sense of kind of the profitability between your arrangements with them on the sports data side versus tracking technology? It seems like there are a lot of companies that have some piece of a deal with the NBA in different -- tracking. And so, I wonder if you could just help us understand the profitability of the different pieces of your arrangement with the NBA if there's -- you know, in general terms? Thanks.

Carsten Koerl -- Chief Executive Officer

Hmm. Hi, Robin, this is Carsten. So, looking to the AV revenue, that's a seasonal effect. So, it's a -- it's Quarter 3, is -- is not a high-traffic order from AV perspective.

You know that we have a portfolio which we bring to the market. So, there are always premium rights, and behind this, we lined up a couple of cheaper rights, for example, table tennis. And that is the effect which you see here. The growth comes, like Ger stated, from CONMEBOL and MLB there. So, nothing special to state.

You will see a readjustment in Quarter 4 here, which goes from a profitability most likely but in the other direction. But that's seasonal effects and -- and very small. Looking to the NBA, and I'm glad that you asked, I'd like to remind everybody that those deals are accounted from an accounting perspective, treated in a way there was the lump sum, and in this case, it's split in equal proportions over eight years. We all, I think, can follow that during the term of a deal.

It gets more profitable for us to distribute it because we can line up more products and more clients behind it. So, this deal gets only more margin accretive for us during the term. The second half of such deals are significantly more profitable. Combining this with our strong outlook which we gave for 2024 shows you how good we leverage our business and how good we leverage our worldwide operation and the client base. Looking specifically to the data piece, in the United States, which we mentioned accounts for 60%, it's on the data; it's not AV. Worldwide, there is an AV component in there, and there is a blended mix between the data and the AV deal on a worldwide basis.

Worldwide, we are very satisfied with how we are tracking. From the U.S., we signed every operator for the next eight years on the extended deal, which includes deep data and innovative solutions where we highlighted a few of them. There are not two tracking providers for the NBA. There is one tracking provider, one official tracking provider, nothing else. There is a small side deal in place with some teams which prefer to get also a solution from another tracking provider, that's on discretion of the NBA teams.

It doesn't extend to the women NBA, and that is a team-by-team-based deal. We have a deal with the league with the NBA on this, and we are providing those solutions which we highlighted. I hope that answers the question, Robin.

Robin Farley -- UBS -- Analyst

Yes, great. Thank you very much. Thanks.

Operator

Thank you. One moment for our next question, please. Our next question comes from the line of David Karnovsky with J.P. Morgan.

Your line is now open.

David Karnovsky -- JPMorgan Chase and Company -- Analyst

Thank you. Ger, maybe just following up on the 2024, the 20% revenue growth, and I think you had said EBITDA as well. Just while we have you on the call, wanted to see if you could break that down a bit in terms of where you think that growth will come from by segment. And then, Carsten, you noted the importance of in-play betting for future growth. Just curious what the start of the NFL, NBA, and NHL seasons, how the uptake looks there relative to -- to early last year.

Ger Griffin -- Chief Financial Officer

Carsten, do you want me to start?

Carsten Koerl -- Chief Executive Officer

Yes, please start, Ger.

Ger Griffin -- Chief Financial Officer

So, David, in terms of the actual growth next year, you know, we believe that the growth is going to be broad based in the sense that we obviously will see, you know, the contributions from our enhanced content portfolio. So, both directly and indirectly through obviously cross-selling and packaging. That's going to obviously help our U.S. growth. But obviously, if you -- as you saw in our notes, you know, 40% of the NBA business is outside of the United States, so we expect it to be a major contributor internationally, similarly with the ATP.

Beyond that, you know, we've been investing, as you know, in enhancing the overall potential of our portfolio. So, we do believe that there's opportunities to introduce new products next year but also enhance our existing portfolio to enable us to upsell and continue to drive on what is already a very strong and recurring revenue base. So, broadly speaking, it's going to come across the board in terms of the existing portfolio, but obviously, the addition of new products and new content is going to help amplify our growth in 2024.

Carsten Koerl -- Chief Executive Officer

And for the second part with the in-play, we see a pickup, 10, sometimes 15% on the operator base, a shift into live betting from a 30 in average to a 35, or a little bit more. These are some numbers which we get from the operators. I think more important is that we are supporting this trend with our products. The AV products are stimulating.

We have that for baseball and for NHL now. And what is also stimulating is all the visualizations based on deep data, which you saw in the slides, which we do, and where we launch a couple of new products for the NBA. What we want to do here is we want to create that experience for the bettors to follow the match in running and, of course, stimulate them for place some bets. A testament that we are right on track is the interview which Amy and Jason from FanDuel and DraftKings as the CEOs did on G2E. And they stated there, and we moderated that panel, that -- that live betting is high on their agenda and the products around this are products which they are looking into.

So, I think all this together shows you we are all working very solidly that we move into the live betting. And the last piece maybe is the leagues. They are supporting this a lot. They see the opportunities with that live experience. So, we think the trend will continue.

We have nothing to think against it. If it reaches the 80%, which we see in Europe, that's -- that's still open, but we see a solid trend from pre-match into live betting.

David Karnovsky -- JPMorgan Chase and Company -- Analyst

Thank you.

Operator

Thank you. One moment for our next question. One moment for our next question. Our next question comes from the line of Michael Graham with Canaccord Genuity.

Your line is now open.

Michael Graham -- Canaccord Genuity -- Analyst

Hi, thank you. I wanted to ask two. The first one is on the sort of cadence of the negative sports outcomes that that you mentioned. I know you reaffirmed guidance at the end of August and just wondering if maybe some of that stuff happened, you know, pretty late in the quarter, or just maybe talk about specifically the month of September.

And then, I just wanted to ask if you had any updated thoughts on the long-term profitability roadmap in the U.S. You're solidly profitable. Just wondering if you have any updated thinking around how long it takes the U.S. to get closer to your corporate average.

Thanks.

Carsten Koerl -- Chief Executive Officer

Very good. So, I take the first part and then I leave the U.S. piece to Ger if you allow. I'm looking now into the correction and MTS.

The mechanism here is that we have a revenue share from the gross gaming revenues of the operator. So, when the operator has more profitability, because we manage the risk better for them, we have a higher proportion on this share. Now, it is -- from a risk management perspective, you're looking to the biggest pools from a liquidity perspective. So, we said this has happened in Europe or the rest of the world, not in the U.S. because we are speaking about favorable soccer results.

Favorable soccer results means favorites are winning, so we had that effect. And we are not the only one, or the companies reporting public had the same effect. Think of it as if you're giving a loan to the bettor. So, the bettor will win this, but sooner or later, the operator will win it back if they offer consistently the risk management which we provide to them. And -- and yeah, favorites, winning is something nobody can avoid.

It happens. It happens quite frequently in this business. It's nothing to be worried about. It's simply a winning streak which we are facing, and it comes together with goals in the last minutes, which is not good from a risk management perspective, and the number of high goals.

We adjusted our algorithms. We think we have taken well care of this effect. But as I said, it's a revenue share base, so that has an effect on our MTS results. And we faced this with the beginning of the soccer season, which is in Quarter 3. And maybe the very last piece of this is if you compare this quarter, soccer, to the quarter in the last year, you will see that in the last year, we had the World Cup, a lot of matches have been shifted. So, proportionally, we had significantly more soccer matches in Quarter 3 last year than we have in this year.

So, the year-by-year comparison is also affected partly because of this. I hand over to you, Ger, for the second part.

Ger Griffin -- Chief Financial Officer

Yeah, when you think about the U.S. -- and some of what I'm going to say actually applies to -- to our broader business. If you think about some of the major content deals we have in place like Carsten talked about, you know, the NBA, in his prepared remarks, you know, that deal evolves over -- over its lifetime. You know, the back half of that deal is significantly more accretive from an EBITDA point of view than the earlier years when we're dealing with, you know, straight line of the amortization costs but, obviously, a growing revenue base. So, when you think about the U.S.

given the size of the U.S., that -- that -- that will have a meaningful impact on -- on that business over the coming years as we think about more long term. The other -- the other aspects of the business, you know, we have the content portfolio today to serve that business and grow that business. We talked about that in our -- in our prepared remarks. But as -- as more states open up, and as you know, live -- live betting evolves, that's obviously going to deliver a stronger revenue contribution off what is essentially a fixed base of business from a cost point of view. So, there's going to be operating leverage that will be triggered. So, from a U.S.

perspective, we feel confident that, you know, the growth opportunities there, what structurally and what we're doing to enhance our product portfolio, and that will lead to an expanded margin profile. And we'll definitely bring the U.S. up over -- over the coming years. And more broadly, it's the same concept if you think about rest of world, whether it's the ATP deal or whether it's the NBA deal.

You know, the structure of these deals are such that they are going to be very nice contributors to margin expansion as we think through the lifetime of the deal. A little bit of a weight at the start, but they -- they're -- they're obviously going to enable us to drive better margins outside of what we've said already, which is keeping a close eye on our operating structure and making sure we're driving the right kind of product innovation to deliver more value-add to our client base.

Michael Graham -- Canaccord Genuity -- Analyst

OK, that's helpful. Thank you so much.

Operator

Thank you. One moment for our next question, please. Our next question comes from the line of Jason Bazinet with Citi. Your line is now open.

Jason Bazinet -- Citi -- Analyst

I just had a quick question on that faster than 20% rev growth, greater than 20% EBITDA growth next year. I think that means consensus estimates have to move up. And so, I was just wondering if you could maybe highlight what are the two or three most notable risks to achieving those sort of growth rates.

Carsten Koerl -- Chief Executive Officer

Ger, would you take up that question from Jason?

Ger Griffin -- Chief Financial Officer

Yeah, you know, obviously, I'll start with profitability. And I'm going to give you an Irish answer, so apology. But if we -- if we decide to not focus on managing our operating costs and -- and we see, you know, a gradual creep-back in our -- in our employee base in terms of our labor costs, you know, that -- that -- that would obviously impact the level of operating leverage that we believe we can deliver in 2024 and beyond. You know, the actions we're taking this week, while difficult, do -- do position us for -- for -- for strong operating leverage over the coming years. From -- from a revenue perspective, you know, again, the content portfolio is in place and the product offering is in place.

So, it would have to be, you know, more macro factors, does -- does the U.S. open up at a slower pace, is there -- is there any -- is there anything else structurally wrong, which we don't believe, in any of our markets. I don't -- I don't see any, you know, material issues. Obviously, if -- if the world changes and it's -- you know, the bettor is continually on a -- on a stronger winning streak, which is not historically been the case, that could -- could impact some of our revenue shares. But as I stand here today looking at our assumptions for 2024, we feel good about delivering at least 20% given -- given the strength of our content and what we're doing to enhance the monetization of the product portfolio.

Jason Bazinet -- Citi -- Analyst

That's great. And if I could just ask one follow-up, you guys mentioned that you don't need any more rights. You may buy more rights but you don't need them. Would you say that's a new chapter in the evolution of your company, or could you have said that a year ago or three years ago?

Ger Griffin -- Chief Financial Officer

What I -- sorry, Carsten.

Carsten Koerl -- Chief Executive Officer

Go ahead, Ger. No, no, go ahead. So, I think you can do this perfectly.

Ger Griffin -- Chief Financial Officer

Yeah. What we've said, at least during my tenure, and I know it's been said in the past, we've -- we -- we take a very strong ROI approach to sports rights. And it's one of the reasons that we -- we walked away from -- from certain rights that, you know, in a -- in a world where you're not worried about profitability, you'd probably say, "Let's add them to the portfolio." What -- what we see right now with the addition of -- of the NBA and ATP is that we have the portfolio that is basically the foundation for our -- our long-range planning right now. It's not to say that if we found another right that would actually amplify our revenue growth at the right profitability we wouldn't execute against it.

But I think there's been a perception in the past that it's always up -- up and on to the right, we have to keep buying more rights to -- to drive revenue growth. The answer is it's not that case, at least not from our perspective. If you look at the breadth and depth of our portfolio, it can more than serve the needs of our -- our client base in the U.S. and our client base internationally. So, from our point of view, it's not necessarily a change, but it's something I think we have to say very clearly because I think there's a concern, which if you -- if you want to take the -- the bear case that sports rights are always going to go up.

Our sports rights right now, when you look at the larger rights, their long-term rights are locked in. And as we said, as it relates to the NBA, it's also a commitment from our client base to engage in that deal. So, from our point of view, the -- the structure of sports rights, the only way that your sports rights will materially grow from -- from -- from where I stand here today is if you do add another major right or you have a major adjustment to your right. But right now, we feel good about the portfolio of rights, and that -- that portfolio, we believe, can -- can -- can sustain us. So, from our point of view, we have stability in sports rights. And that's an important factor because it allows us to focus on the rest of our P&L from the point of view of managing, you know, obviously, our run rate in terms of our personnel costs and our other -- our other external costs.

Jason Bazinet -- Citi -- Analyst

That's great. Thank you.

Operator

Thank you. One moment for our next question, please. Our next question comes from the line of Stephen Grambling with Morgan Stanley. Your line is now open.

Stephen Grambling -- Morgan Stanley -- Analyst

Hi, thanks. This is maybe a clarification on some comments at the beginning. But it's not that often that you see a company talking about 20% plus top-line growth that's above consensus, but then also announcing a global workforce reduction of this size. I mean, basically, you've got some temporary top-line hits but still talking about strong -- strength in the future. So, maybe you can just clarify again what the impetus for the workforce reduction was and also just any other details you could give on what the new structure might look like.

Thank you.

Carsten Koerl -- Chief Executive Officer

Stephen, yeah, I'll take that one quickly. I can't give you an update about new work structures. We are constantly reviewing the process that we are more efficiently, that we are more client-centric. And -- and that is -- that is a constant process, which I think every company needs to do.

Looking to why we did the reduction in the workforce, which is -- which is -- which is a tough step, which we did in the last days, we believe that it's the right thing to do to prepare our business to be fit for the future growth. And it's a plan which we're executing now since a couple of months. So, those things have to be well planned. We know and we announced this that we have two major big deals with the NBA and with the ATP with amazing opportunities for us, but we're going to need to handle also the cost aspect for this.

And that's what we are doing. So, we are focusing on client-centricity. We are streamlining the processes. We are looking that we allocate our resources on the right products. We took a couple of products out, and we took a couple of our products into a maintenance mode to focus on those which are driving our growth.

And – and -- and as a last sentence, the team follows this amazingly. Even if these are more difficult decisions, we all understand it's necessary for the future acceleration of our growth. That's the reason why we did it. And we want to deliver this return to our shareholders and to all the stakeholders in the company.

Stephen Grambling -- Morgan Stanley -- Analyst

Thank you.

Operator

Thank you. One moment for our next question, please. Our next question comes from the line of Jordan Bender from JMP Securities. Your line is now open.

Jordan Bender -- JMP Securities -- Analyst

Great, thanks for taking my question. Two for me. Several operators called out in the U.K. just some of the friction relating to the regulatory environment.

During the quarter, I was wondering if that had any impact on the results during the third quarter, and could that be a potential risk into the fourth quarter with just some of those changes ongoing. And then, second, you know, flow-through for next year, plus or minus 20% as well. I mean, you kind of talked about rightsizing the cost structure. So, you know, how should we think about that flow-through, you know, past '24? I guess what's the -- what's the right way to think about that on a mature business? Thank you.

Carsten Koerl -- Chief Executive Officer

Hi, Jordan. So, I take the first question and then I leave the outlook into 2025 plus to Ger. The U.K. regulators, yes, they tightened the regime, which we welcome a lot because it's -- it's the aspect of player protection.

It's responsible gaming, and we believe that's the only way to really grow and to be accountable with this. So, that's a measurement which some of the operators might suffer, some of them might not. It's very much depending on how you're integrating this and how you're using it also as an opportunity. From our base, we have -- we have the recurring revenue model with all the U.K. operators.

So, there is a little component in with the revenue share. But usually, we're running a SaaS business there. We don't see any weakness here. And thanks to our worldwide distribution base, we have not a significant risk in the U.K. that we have too many client accounts there.

We are well spread and well distributed around the world. Now, to the second piece, outlook, 2025, Ger, please.

Ger Griffin -- Chief Financial Officer

Yeah, I'm going to talk more broadly than '25. I think it's '25, '26, '27. You know, the way -- Jordan, the way to think about it is if you look at 20% growth -- at least 20% growth in '24 top and bottom, that implies that, you know, the -- we're holding EBITDA margins broadly flat. And, you know, the reason for that is we -- we -- we believe that we're going to deliver meaningful -- we will unlock meaningful operating leverage from personnel, cost of sales, and all other operating costs. And that's true, a variety of initiatives around our product portfolio, the actions we've announced today and continually challenging every aspect of the business.

But in '24, it's covering a step-up -- a one-time step up in sports rights. When you look out into -- into '25 and '26 and '27, on the assumption of continued strong revenue growth, all of those line items in a stable environment should be growing at a lesser pace than -- than your revenue. And that's -- that's -- that is absolutely the objective we have in mind. So, you will see -- you will see margin expansion and stronger operating leverage across, most likely, all of those line items as -- as we evolve '25, '26, '27. So, from -- from our point of view, the business is structurally set up in a way that if we can continue to do what we've been doing for -- for the last years, in other words, continuing to drive value for our client base, drive revenue growth, you're going to see a change in dynamic where, you know, whether it's your personnel costs, whether it's improved premium flow-through from our revenue base or from a stable sports rights portfolio, you're going to see operating leverage. And, you know, that's essentially what we've been saying up until now.

We just tried to make it a little bit crisper and clearer this time because, essentially, '24 is a transition year when you bring in two material premium rights like ATP and NBA. But given the actions we're taking, you will clearly see in the P&L a different profile from an operating expense point of view that is set up for unlocking further operating leverage as we grow the company over the coming years.

Jordan Bender -- JMP Securities -- Analyst

Thank you very much.

Operator

Thank you. Our next question comes from the line of Stefanos Crist with Needham and Company. Your line is now open.

Stefanos Crist -- Needham and Company -- Analyst

Hey, thanks for taking our questions. This is Stef calling in for Bernie. Just wanted to ask, on the NBA, any extra products or capabilities that you're bringing to the NBA in the new season? And then, have you been able to sign up any other sportsbooks to reflect the new deal in addition to MGM last week?

Carsten Koerl -- Chief Executive Officer

Hmm, we signed up all of them. So, it's on our account, at the moment, 40 operators in the U.S. There might be one or the other tribe which we do not count here, but all of them are signed up for the additional content package and for the new deal for the next eight years. So, that's the whole United States and all operators there. The interesting piece here is we are moving up with this deal from a data provider into a solution partner with the NBA and with our clients.

And that unlocks, in the future, much more potential around this immersive gaming experience, live betting experience, the things which we highlighted there. But the deal is consistently deployed over all operators in the U.S.

Stefanos Crist -- Needham and Company -- Analyst

Thank you.

Operator

Thank you. One moment for our next question, please. The next question comes from the line of Shaun Kelley with Bank of America. Your line is now open.

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Hi, everyone. Thank you for taking my questions. So, two for me. First would be on just as we look out to the fourth quarter and we kind of move past some of these whole -- or sports outcome-related issues, you know, just trying to kind of think through, you know, the guidance as laid out still implies, you know, revenue to accelerate. So, if we didn't have the sporting outcome-related issues, would that be enough to hit, you know, sort of what you're -- the roughly 20% growth rate that your 4Q outlook implies? Or are you also expecting to see some seasonality and some uplift from the start of the NBA season? I know, seasonally, you know, some of these contracts kick in.

So, is that part of why revenue should accelerate in the fourth quarter? So, that's my first question.

Carsten Koerl -- Chief Executive Officer

So, on the guide -- go ahead, Ger. Go ahead. 

Ger Griffin -- Chief Financial Officer

Sorry, Carsten. Yeah from -- from a -- from a -- we do expect seasonality will kick in, in Q4. And also, as Carsten indicated in his remarks, we do have the rollout of the Taiwan lottery, which will be more of a benefit in -- in Q4 than it was in Q3. So, while we still expect some pressure against the -- the business as it relates to MTS and we've taken a more cautious view as we look at Q4, we -- we do -- we do expect to see a real acceleration of -- of growth. So, when you look at it from a year-over-year perspective, you're back into the 20s.

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Great. So, maybe, Carsten --

Carsten Koerl -- Chief Executive Officer

Well, maybe I'll just add one thing because I think it's very important. The guidance says we are, midpoint, 20% top-line growth for 2023, and we will deliver this. The guidance says we are midpoint on a 31% year over year from an EBITDA perspective, and we will deliver this. So, I think it's -- it's -- it's a strong growth business. And we -- we managed and showed that we have leverage from a profitability perspective.

With that, please, your second question, Shaun?

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Thanks. You know, my second question is really just on free cash flow conversion. I know this is an area you've been working on a little bit with payment terms and some other things with vendors. But can you just remind us, maybe medium or long term, what's the right, you know, kind of way to think about your EBITDA to free cash flow conversion for the business broadly?

Carsten Koerl -- Chief Executive Officer

Ger, please.

Ger Griffin -- Chief Financial Officer

We're -- as we've said in the past, we're targeting to drive to at least a 50% conversion. And while we don't disclose that metric, you have the -- you have the details to help you figure it out for both year to date, which it's around 43%. And actually, for -- for Q3, it was above 50% because it was a very good cash quarter. Q4, we expect to be a bit more compressed, but overall, we're -- we're progressing through the year to a stronger cash conversion.

Operator

Thank you. One moment for our next question, please. Our next question comes from the line of David Katz with Jefferies. Your line is now open.

David Katz -- Jefferies -- Analyst

Hi, good morning, everyone. Thanks for squeezing me in. This has been asked a few different ways because it is unique, or it's not -- it's not all that common that we would get, you know, a high-growth outlook coupled with, you know, a kind of a cost cutting or, you know, call it, cost cutting or restructuring or however you want to characterize it. The way that these two -- should we look at those two in a discrete fashion, or does the restructuring, you know, enable for better growth? Or does it, you know, in some way, dial back the growth opportunities? Or are these just completely separate issues, and, you know, the cost side is just symptomatic of how the business has evolved?

Carsten Koerl -- Chief Executive Officer

David, this is always connected with each other, the revenue and the costs. Restructuring is not a restructuring. So, a company like Microsoft is taking out 10% of the workforce every year, and I can give you many more samples of this. I think what we are doing here is we are getting a more mature business. We are focusing on delivering returns for our stakeholders.

We are focusing to prepare us for the next level of growth. We are strengthening our cash abilities, which we have. So, we are growing this, we are converting cash. And for -- for me, that belongs to how you operate and run a business in a responsible way. I would not call it restructuring, but we are reviewing our products and our processes and organization structure.

And we came to the conclusion that we can deliver what we just announced with this workforce. And then, I think it is responsible, from us, for the workforce but also for our stakeholders, to install these measurements. So, that's how we see it. I think a 10% is not something totally out of the line if I'm looking to many other businesses in the tech space.

David Katz -- Jefferies -- Analyst

I apologize for the word choice.

Carsten Koerl -- Chief Executive Officer

No problem.

David Katz -- Jefferies -- Analyst

Refinement is probably a better choice. For my follow-up, what I wanted to ask about is, all of us, just industrywide, are so focused on product because, you know, at least at the operator level, product is what's winning. If you could just share some insights in terms of how you might be positioning yourselves to enable operators for that next big thing, right? The past year, it's been so much of same game parlays and -- and the like. Talk about what's next, to the degree that you can, and -- and how you're positioned there.

Carsten Koerl -- Chief Executive Officer

If you look now to our cash cow, which I think we all agree that that's the global betting business, that's 112 million revenues and it delivers a 50% profitability in this quarter. That's done by upselling and cross-selling, lifting the clients up the value chain. So, meaning we are going from a data into a product stage with the live -- or the trading services, or finally then the platform services which you see now with the Taiwanese lottery deal. And, yes, partly also a little bit with some overbookings on data content, but that's not the biggest proportion.

Where is that going? It's going very clearly into the products. It's going very clearly into the platform direction. So, directionally, you will see now after the risk management that it goes more into the platform. We acquired a company called VAIX around a year ago, which is working with the users, and trying to add -- optimize the user journey, trying to optimize the churn of the users, trying to understand what can you push on a platform to a user to motivate them to cross-sell this into different channels but also to optimize the growth in the sports betting performance. And that gives a variety of options in the platforms, look to the U.S.

tribes in the future, what kind of solutions might they want to have. Is it more a solution which is managed by a provider with the platform and with all the elements which is in there, or is it more a big platform business, what they want to do, knowing that it's 350 tribes? I think it is more the thing which I mentioned first. So, that's a good opportunity. There are good opportunities with major broadcast businesses around the world going into this direction.

So, it's consistently what we're telling from the beginning. We start with the content, but we're putting it into products. And that's the clear journey, and that's a clear mission and vision that we have.

Operator

Thank you. And our final question comes from the line of Ryan Sigdahl with Craig-Hallum Capital Group. The line is now open.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Hey guys, just one quick follow-up that I think might help us sum up kind of next year and the years forward. But can you quantify how much rights costs will be up year over year next year with those two new deals that you know the cost to and how they'll be accounted for? And then, kind of what -- assuming the similar offset from the operational efficiencies?

Ger Griffin -- Chief Financial Officer

Yeah, Ryan, I'll characterize it in operating leverage. You know, we look at -- we believe that we're going to unlock somewhere between four and five points of operating leverage in -- in -- in 2024, and that will be offsetting the -- the -- the growth in the sports rights. So, if you -- you can work into the back -- if you work into -- reverse into that, you're talking about somewhere between 37% and 42% growth in sports rights.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Excellent. Thank you.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Christin Armacost -- Senior Vice President, Investor Relations

Carsten Koerl -- Chief Executive Officer

Ger Griffin -- Chief Financial Officer

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Robin Farley -- UBS -- Analyst

David Karnovsky -- JPMorgan Chase and Company -- Analyst

Michael Graham -- Canaccord Genuity -- Analyst

Jason Bazinet -- Citi -- Analyst

Stephen Grambling -- Morgan Stanley -- Analyst

Jordan Bender -- JMP Securities -- Analyst

Stefanos Crist -- Needham and Company -- Analyst

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

David Katz -- Jefferies -- Analyst

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