Touchdown: Catapult returns to profit in second half as SaaS revenue soars

Heightened revenue generation from its Software as a Service (SaaS) platform and a focus on improving costs have helped return sports tech company Catapult Group International (ASX: CAT) to positive earnings in the half year ended 31 March 2023 - the group's first positive EBITDA result since FY21.

The group’s results can be chalked up to lower operating costs as the business leverages its SaaS platform that gives athletes data on their performance, alongside video analysis tools that can help sportspeople improve their game.

Powered by wearable technology, Melbourne-headquartered Catapult has been working alongside sports teams since 2006 and now boasts partnerships with more than 3,800 elite teams globally across 40-plus sports and in more than 100 countries.

In the second half of FY23, earnings before interest, tax, depreciation and amortisation (EBITDA) were US$2.2 million (AUD$3.3 million) - up by US$15.4 million on H1. This result was driven by a 21.8 per cent year-on-year improvement in its SaaS revenue, leading to overall revenue of US$84 million for the financial year of which 92 per cent was subscription revenue.

The company is still loss-making overall, posting a US$34.8 million (AUD$52.3 million) loss after tax for the full financial year. In the 12 months ending 31 March, the company also reported an EBITDA loss of US$11 million - a 22 per cent improvement on FY22 - and a gross profit of USD$63.8 million.

Nevertheless, the company’s CEO Will Lopes said FY23 was an "incredibly important" year for Catapult.

“It was the year that we saw the leverage that our SaaS model has created,” said Lopes in an investor and analyst briefing this morning, noting that the company was on track to be cashflow positive in FY24.

The CEO added that the gross margin rebounded to 81 per cent on the first half from 71 per cent, and that Catapult’s operating costs were lowered by more than $12 million during the period. This resulted in an operating cash flow increase of 40 per cent from FY22.

However, as Lopes notes, FY23 was "not just about the numbers". During the year, Catapult expanded its NRL and NRLW agreement, made a league-wide deal with the XFL (an American football minor league), welcomed new agreements with McLaren F1 and German football club FC St. Pauli, and expanded its deals with universities including Princeton University.

“We also had amazing product launches that are now beginning to accelerate,” Lopes said.

“Following our investment program, we introduced new devices such as our new indoor device Vector T7 aimed at basketball.

“Using the same technology we were also able to introduce a smart ball for American football.”

Lopes said the SaaS business model has created incredible leverage as a result of being laser-focused on margins. Specifically, the CEO told investors that two cost structures - variable costs and fixed costs - are the keys to Catapult’s future growth.

The CEO said the long-term target for variable costs is to be at around 45 per cent of revenue, while fixed costs will be around 25 per cent of total incomings. As of 31 March, variable costs were 56 per cent of revenue - the lowest it's been in the trailing four reporting periods - and fixed costs were 47 per cent of revenue.

“Catapult has reached a level of maturity that we no longer need to invest heavily in our fixed costs,” Lopes said.

“We’ll continue to improve our focus on our variable costs as we scale.

“The most important aspect, however, is that our absolute cost of G&A (general & administrative) and R&D (research & development) are now at that level that can support our business at scale and are expected to grow very modestly from here.”

Further, the CEO noted the company was now at an inflection point when it came to generating cash.

“This cash increase is not a singular event. We anticipate that every additional dollar of revenue we add going forward will come with approximately 30 per cent of profit margin,” Lopes said.

As for growth opportunities in the SaaS vertical, the CEO noted that its video analytics product - enhanced via the $40 million purchase of video and data analytics firm SBG in 2021 - was ripe to penetrate into more sports.

“Within video, we’ve had a large base of revenue that has been primarily driven from our business in North America for football and ice hockey, but that business has been slow growing due to our high level of penetration of that market,” Lopes said.

“So following our acquisition of SBG were are aiming to expand our video market in basketball, soccer, rugby and motorsports.

“As a matter of fact, sales growth for the products generated from the acquisition of SBG was up 27 per cent versus 7 per cent growth from our other video products.”

Annual contract value (ACV) churn is also at record low rates for Catapult, thanks to top-quality products and a dedicated customer base according to Lopes.

“We continue to deliver great products and services, which makes our customers incredibly sticky,” Lopes said.

“In FY23, we continue to see record-low ACV churn and this past year that number was 3.8 per cent.

“In spite of our growth, we continue to increase the average customer lifetime while also increasing the average contract value of our ‘pro’ customers which was 7 per cent.”

Shares in CAT are up 7.43 per cent to $0.80 per share at 11.59am AEST.