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Edited Transcript of CAT.AX earnings conference call or presentation 22-Aug-19 12:30am GMT

Full Year 2019 Catapult Group International Ltd Earnings Call

Aug 28, 2019 (Thomson StreetEvents) -- Edited Transcript of Catapult Group International Ltd earnings conference call or presentation Thursday, August 22, 2019 at 12:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Adir Shiffman

Catapult Group International Limited - Executive Chairman

* James Ventura Orlando

Catapult Group International Limited - Interim CFO & Non-Executive Director

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Conference Call Participants

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* Chris Savage

Bell Potter Securities Limited, Research Division - Senior Industries Analyst

* Ivor Ries

Morgans Financial Limited, Research Division - Senior Analyst

* Owen Humphries

Canaccord Genuity Corp., Research Division - Senior Industrials Analyst

* Piers Flanagan

Baillieu Holst Ltd, Research Division - Equity Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by and welcome to the FY '19 Results Conference Call. (Operator Instructions) And please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Dr. Adir Shiffman. Thank you. Please go ahead.

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Adir Shiffman, Catapult Group International Limited - Executive Chairman [2]

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So good morning, everyone, and welcome to Catapult's 2019 Financial Results Call. I'm Adir Shiffman. I'm the Executive Chairman of Catapult, and with me is Jim Orlando, who is Catapult's Interim CFO. We'll take you through these results that I'm extremely pleased to be able to share with you today. And I'll start by speaking about some of the performance. I'll hand over to Jim, who will speak about the financial results before I'll take it back for summary and then we'll have some Q&A at the end. And I'll talk you through which page in the deck we're up, and then we're going to be going through the decks that was loaded to the ASX this morning.

So we're at the cover page, which is FY '19 results.

If we turn over to the first page and section on Page 2. So this is just a reminder that we're a business that is extremely focused on our mission, and our mission is that we exist to build and improve the performance of athletes and teams.

And if we look to Page 3, it's just an image.

If we go to Page 4. So Page 4 is an important summary to remind people of what the Catapult business is actually all about. And there are 3 hallmarks of this business. Firstly, we are a high-growth recurring revenue business with a significant revenue base now of recurring revenue, high margins and low churn, and we are growing strongly. Secondly, we are the global market leader across the segments in which we operate, and we are the clear global market leader as well. And thirdly, the business is now transitioning and passing the inflection point of scalability. Our that scalability means that we have an increasing gap between the growth of our revenue and the falling rate of growth of our expenses. And the consequence of that I'm extremely pleased to announce is that FY '19 was our first year of positive group EBITDA, and that's a tremendous achievement for the business and something we're extremely proud of. And that was driven on the back of some really strong results. So we had 24% growth of revenue across the business. 24% growth in ARR, a 73% gross margin, we're almost at 3,000 teams after growing by 1,100 teams in FY '19, and our churn rate on subscription wearable unit fell from 8.4% to 5.2%. So what we're seeing with this business is, it is growth across all parts of the business, a transition to positive EBITDA and the scalability of this business kicking in, and we are seeing accelerating growth in that key Elite Wearables segment. And I'll talk more about these things, but really across the business, we and I am extremely pleased to be able to present these FY '19 results.

If you look at Page 5, what we see is continued strong revenue growth with that positive EBITDA and pretty consistent FY '19 performance versus FY '18. You can see that 24% increase in annualized recurring revenue to more than $66 million. Revenue that is rapidly approaching $100 million at $95.4 million, again, up 24%. And you can see a $6 million improvement in that group EBITDA, and that is what's taken us so strongly into positive EBITDA. And in a few slides time, I will also show you that effect on the next slide, I'll show you the improving incremental yield we're getting with regards to EBITDA.

So let's turn over to Page 6. So on the left-hand side, you can see the improvement in EBITDA over the last 3 years. So moving from approximately minus $4 million in FY '17 to minus $2 million in FY '18, and that's a positive $4 million -- $4.1 million in FY '19. And on the right-hand side, what we want to demonstrate here is just how efficiently that scalability is kicking into the business. So those left 2 bars for FY '18 and '19 show the revenue incremental growth we had in each of those years. So we had $12.4 million of revenue growth in FY '18 and $18.6 million in FY '19. And on the right, what you can see is the incremental EBITDA yield that, that incremental revenue has delivered. So we achieved $2 million of EBITDA off the $12.4 million of revenue growth in FY '19, and that's a 16% yield. And in FY '19, that yield doubled to 33%, and that range that the $18.6 million of incremental revenue we generated in FY '19 delivered $6 million of EBITDA in this same year. And so that is the classic hallmark of a business that is passing the inflection point to scalability, and this is precisely, precisely what we were aiming for with this strategy back in 2012, frankly, of transitioning to a subscription software-dominated business. And today, subscriptions account for 70% of the group revenue of Catapult. So it's an exciting time in the history of Catapult.

And on Page 7, you'll see some of the other achievements that we reported in FY '19. So I mentioned substantial team growth, 1,100 teams to almost 3,000. The next point is that top left sector on the customer is very significant. So we talked about our strategy of owning the performance technology stack. And in FY '19, at the end of FY '19, 153 teams had more than 1 product with Catapult, and the wonderful opportunity there, and I'll talk more about that in a couple of slides time, is there's still more than 2,800 teams that are our existing clients with whom we have good relationships, but there is a tremendous opportunity because they've only purchased 1 product from Catapult. So a wonderful cross-sell opportunity in the business. And you can see that we continued to sign league-wide aggregated deals across the year. If we move over to the right-hand hitting a product. FY '19 was also a year where we brought a significant number of new product or material product enhancements to market. It was a strong R&D for us. So we launched Vector, which is the seventh generation wearable product. And it's not just a product, it's a whole platform at this ultra-premium end of the Elite Wearables market. And we had first sales of that product. And I think it's not going to be again, candid with you. We hope to release that product in the third quarter of the fiscal year, we released it in the fourth quarter of the fiscal year. It's effectively the reason why we have 18% ARR growth throughout the -- 20% ARR growth, which again due to 1 quarter of delayed release of VECTOR. We also had the first sales of the enhanced Catapult Vision product, and we had sales across all geographies with Catapult Vision. And that's an important step for us because historically, our video business has had North American clients, and this has enabled us to take the first steps in internationalizing this video product into more markets and across more global sports. We also look at PlayerTek+ and you'll see the strong performance of PlayerTek+ and what that's enabled us to do, and we launched PLAYR -- an enhanced PLAYR into the consumer market as well as the heap of software enhancements across the year.

And down the bottom, you see our results versus guidance, and that will match with our reported results. And so we guided through Elite Core revenue of $86 million to $88 million, and we achieved guidance almost smack down in the middle of that guidance range. We guided to Elite Core underlying EBITDA of $11 million to $13 million, and we have a substantial [loss] in that Elite Core underlying EBITDA, and we're almost at the top of that range with $12.7 million, and we saw ARR accelerating from 16% growth in the FY '18 to 18% in FY '19, although we did guide to 20% net. And I was candid with you about why we didn't get to that 20%. We've seen good momentum in VECTOR sales going into FY '20 to be clear about that. So that is a timing issue. And it did marries across to revenue growth of 24% at the reported level and a $6 million improvement in EBITDA and a 24% growth in ARR to $66.1 million.

If we turn across to Page 8. These are really strong results. In the next few pages, I'm going to give you some insights into how we achieved these strong results. And the first way we achieved them is we continued to cement and extend our global leadership. And this pie chart simply illustrates that we have grown in all geographies internationally, and we have grown across a very large number of sports. So we are not seeing growth in just one geography or from just one sport. We are seeing growth across the market and the sports in which we already have leadership positions. And that is a very encouraging performance results to be able to report for FY '19.

And on Page 9, the other why that we are driving these strong results is that we continue to expand and enhance our unique full step solution to teams. And that is a material long-term competitive must that we have been very deliberate around our strategy and being able to build out. And I mentioned, I won't do a huge recap of what I've already said, but we launched a couple of new wearable products through the course of the year. We enhanced our vision product, and that continues to improve, and we also enhanced the athlete management system as well and saw some good growth out of that as well. So we have geographical and sport leadership, we have product leadership, and we are focused on continuing today the global leader in innovation in the sectors in which we operate.

If you turn over to Page 10. This is a tremendous opportunity that we see going into FY '20 and beyond. So this bar graph demonstrates the number of teams we have with 1, 2 and 3 products across the Catapult stack. And what we have tried to convey crystal -- in a crystal clear manner is just the immense revenue and profitability leverage we get as teams purchase more than one product from us. And that the number that I wanted to convey is that those teams that have already purchased or subscribed to 2 or 3 products with Catapult spend on average 8x the expenditure per annum that Catapult gets from its clients with a single product. And so this cross-sell opportunity is huge for the business. And as I said, there are more than 2,800 teams that already have a relationship with Catapult. We are already supplying a great solution to them, but they are only buying one solution from the business, and we see this as a real opportunity for growth going into FY '20 and beyond.

And if you look at Slide 11. This just reinforces the comments that I've made. And I think it's easy to miss this in the results. So I want to reinforce this, which is this inflection point that we're passing through on the scalability of the business. And what this means, is it's typical of businesses that derive the majority of their revenue from subscription software. It means once they pass through this inflection point around costs, the economics of the business changes very quickly. And what we can see here is that operating expense to revenue continues to fall. That labor expense to revenue had a significant fall. And again, I want to reiterate this point so they can't be mixed. We are showing a widening gap in this accelerating growth of revenue and the falling growth rate of our expense line. And it is that opening up of that gap that has driven us to positive EBITDA and will continue to drive us through positive EBITDA, and that is driving us so high towards positive free cash flow across the group.

And the last couple of slides for me before I hand over to Jim. So just to talk to that Prosumer. So we were very clear in conveying through earlier on this fiscal year that we had resized the Prosumer business so that we would manage up the cash flow, but wouldn't imperil the way it was moving into positive cash flow. But at the same time, we retain -- we maintain our enthusiasm towards the strategy and believe that we can still unlock the potential of this market within the much tighter cash flow management that we have across this business unit. And this Prosumer business unit, it still grew 54% to $5.3 million in FY '19. It had a 47% increase in units sold to almost 21,000. We are delivering these sales predominantly through online channels, which has been fantastic for the business. The 2 key things that this business unit has brought to the wider company is that Vector has taken huge advantage of the heap of industrial design learnings we've had from the Prosumer unit. And also our go-to-market has improved because of the online channel learnings of the company's Prosumer business. And let me just put in there also, that this is a product that those who have and used this product feel extremely passionately about, and we have an NPS score of almost 66%. And you can see some of the feedback across the Internet and an encouraging one that's gotten interest in the PLAYR product, in particular. If you could just Google it online and look at the quality of feedback that we're getting from customers.

And so Slide 13 is the last slide for me before I hand it over to Jim, and he'll hand it back to me subsequently. This is -- the point that we want to make on this slide is that all of these really strong 24% sales growth, 24% ARR growth moving into -- strongly moving into positive EBITDA. All this has been achieved with some increase in sales and marketing that Jim will talk about, but fundamentally, as you can see from the technology and product staff numbers, which remains the largest single division of the company, we remain an innovation-led company with a heavy focus on R&D, and this is what continues to widen our leadership position in the market, and we are confident of being able to continue to innovate whilst at the same time, as I said, reducing the growth of our expense line. And so this is a real achievement for our business. And again, this is part of passing through that inflection point of scalability.

And then, Jim, let me hand it over to you for Slide 14.

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James Ventura Orlando, Catapult Group International Limited - Interim CFO & Non-Executive Director [3]

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Okay. Thanks, Adir. Good morning, everyone. On Slide 14, we present the summary income statement. As Adir mentioned, we continue to deliver strong revenue growth of 24% reported and 17% on a constant currency basis across all regions and product lines, in particular in the Wearables and Video. Recurring revenue was the major driver with onetime sales of Wearables and Video products also contributing, and I'll show you a waterfall in a second. Reported ARR is up 24% and 18% on a constant currency basis. Gross margin declined due to increased costs associated with our legacy wearables devices, and we've launched our new wearables product, Vector, late last fiscal year. Gross margin was also impacted by the introduction of PlayerTek+ and PLAYR products. So mix was an impact.

Regarding operating costs, FY '19 was a year of increased focus on achieving scale across the business. And as such, while we could continue to invest in our Elite and consumer initiatives, we had our overall cost growth to just 9%. Regarding employment costs, this increased 12%, driven by hiring support, continued growth across all regions in sales, customer service, marketing and new product development, and I'll talk about that a little bit more later. Travel and marketing and promotion costs grew in support of our Elite growth as well as due to consumer business, some of which will not be recurring. Other operating costs went down mainly due to share-based payments. We will continue to focus in generating scale economies across the business in FY '20 and expect to continue to deliver cost growth well below revenue growth in the future.

Finally, EBIT and NPAT was impacted by an increase in G&A of $3 million due to investment in new products, offset somewhat by a reduction in tax expense.

In summary, management and the Board were pleased with the first positive EBITDA result in the year.

Over the page on Slide 15, I provided a little bit more detail on recurring revenue growth. On a reported basis, ARR CAGR since FY '17 was just under 20% or 17.3% on a constant currency basis. We expect recurring revenue to continue to drive the majority of our growth, driven by our new products, which are mainly sold on a subscription basis, such as Vision, AMS and Vector, continued focus on subscription upsell, which in the rest of world means selling Vision to existing wearable customers, and in Americas, this means selling AMS to existing wearables and/or video customers such as the NCAA segment in the U.S.

Over to page on Slide 16, I'll provide a little more color into the breadth of our sales growth. We're growing across all regions and products in both recurring and nonrecurring sales basis. While the recurring Wearable and Video revenue represented $12 million of our $18.6 million year-on-year growth, nonrecurring sales and consumer represented the other 1/3. So while the majority of our revenue is of a recurring nature, we also sell on our capital model in the Wearables space and one of hardware sales in the Elite Video are complementary to subscription sales as well.

On Page 17, I'll provide a bit more color on our Elite Video product offerings. Our Elite Video business is made up of a majority subscription coaching solutions service. This represents about 55% of total revenue and drives high-margin recurring revenue. Coaching solutions also pulls through hardware sales where required by the customer, and this represents about 20% of the total Video revenue, but delivers a lower margin as we're reselling hardware infrastructure and on-premises equipment required for that subscription services.

In the middle, our content licensing product, which is a stand-alone offer, and while it has a low cost of delivery, we do bear high cost of sales represented by royalty fees. So in thinking about Catapult's Elite Video business, I think of 3 elements: First is a stable and growing high-margin subscription product line, mainly in Americas right now; second is a large and well-funded low churn customer base that's available to cross-sell Wearables and AMS; and third, with the expansion of our Video -- Vision product, the opportunity to grow Video globally.

On Slide 18, I provided more detail on our Elite Wearables business. Catapult has continued to deliver growth across subscription and capital sales of Wearable. This slide shows our leading market position with 38,000 total Elite units in the market, but with 21,000 around subscription. We sold 15,700 units in FY '19 or 67% last year, supported by the introduction of PlayerTek+. Excluding PlayerTek+, gross sales were up 4% to 9,800 units compared to 9,400 last year. Elite's subscription unit growth was 5,600 units, up from 5,300 last year or 5%. Churn declined, as Adir previously reported, and Elite's subscription unit ARPU was stable at $108. We believe that the addition of PlayerTek+ to our product portfolio has enabled us to address a large market segment that presents a potential upsell opportunity for Catapult in the future.

On Slide 19. The purpose of this is to show how we invested in capturing the growth opportunities that are presented to us around the world. On the left-hand side, I provided -- what I provided is FY '19 revenue growth versus growth in regional headcount. Overall, what you see is that headcount growth is lower than revenue. But the bigger point is that we grew our headcount where we saw the opportunity. So in the Americas, where we have a strong video footprint, we added 10% headcount to deliver 19% revenue growth. In EMEA, where we're relatively less penetrated, we added more headcount of 27% and delivered 44% revenue growth. Conversely in Australia, where we're well penetrated, we added fewer heads. And finally in Asia, the market's just emerging, so we're entering in a measured way and also leveraging distributors, we've grown heads by 7%, but delivered strong revenue growth off a long -- off a low base. The pie chart on the right shows the distribution of our global revenue. The main point here is our large, early and low churn customer base in Americas, which represents almost 70% total.

On Slide 20, I provided a breakdown of where we spend our capital expenditure in FY '19 just to show that we continue to focus on the development of the Elite performance stack. We expect in a few different areas. First, supporting and enhancing our existing products, such as our existing video and new products such as AMS, PLAYR and Vision. And second, on investing to achieve our sales strategy to own the Elite performance stack in the future. In addition, you can see on this slide what we've spent in the consumer hardware/software and PP&E and in capitalized cost of goods sold.

Finally, on Slide 71 -- 21 for me, I present a cash flow bridge. So here, I provided a simple waterfall showing the change in cash in the fiscal year to show which elements were one-off and which were not. We started FY '19 with $31.7 million cash in the bank and $3.5 million in debt. In FY '19, we spent just over $15 million in 3 areas, which I would describe as one-off or nonrecurring. The first was a one-off increase in hiring ahead of the curve to drive sales and product growth globally. Secondly, we spent $3.5 million to repay our debt. And thirdly, in Prosumer, we spent about $7 million to support the introduction of the consumer product, PLAYR. After these one-off cash outlays, our cash balance stood at $16.6 million. On the recurring around building side, we spent $14.88 million in -- of investing cash flows, as per previous slide. And we also generated cash inflows of greater than $10 million, mainly driven from ongoing operating parts of our business during the year. And this landed us at $11.7 million as at June 30.

As you can see on the right, our current cash balance as at 16th of August, which is last Friday, was $21.5 million, and this is as expected. This is driven by net seasonal collections of large customers across the Northern hemisphere. We have very good visibility of our seasonal cash profile during the year and our expectation going forward is that this will continue. Overall, we expect cash performance to improve as we tighten control of expenditure, in line with our goal of achieving positive cash flow. Thank you, and I'll turn it back over to Adir.

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Adir Shiffman, Catapult Group International Limited - Executive Chairman [4]

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Thanks very much, Jim. So on Slide 22, I want to provide a recap of the really strong performance that we achieved in FY '19. It would be remiss of me not to say that this performance was achieved as we continue with our global effective search for a new highly capable CEO and move to bring that to a close. And this really strong performance included, as I've said many times, not just a move into our first positive EBITDA, but a really strong move into our first positive EBITDA, and the signing of 1,100 teams. And if you look at the information that Jim has just presented, the quality of revenue that we are generating in this business is extremely strong. So we provided some deeper clarity into the Video business, which I think is a really important step to improving the understanding of the drivers of this company. And it is the recurring revenue, the software part of the business that is the part of the business that we are building on and we are driving this Catapult Vision. And we've said that we've made first sales, and those sales are not just in the U.S., which is where our traditional market is, they're to international teams as well. And in the release that we put up on the ASX, you can see that as well as with NFL teams like the Oakland Raiders and Washington Redskins, we've got teams like (inaudible) around the world that are now coming on to the Catapult Vision product and that's tremendously exciting for us. And on the Wearable side, we made a decision that given the very large growing addressable market, that we thought there was an opportunity to bring a product in, but more rapidly capture some of the lower level elite teams, and that was the purpose of PlayerTek+. And that has been extremely successful for us in FY '19, keeping in mind it was only launched in FY '19. That has driven us to record Elite's sales growth and sales numbers. And all the numbers are seeing accelerating growth. So even the sales excluding PlayerTek+ are seeing accelerating sales -- wearable sales numbers. The subscription sales are seeing accelerating growth. We have seen accelerated growth across the company. And as I said, our ARR grew 24% to $66.1 million. Our revenue was almost at $100 million at $95.4 million, that was also 24% growth, contrast it with falling OpEx growth from 14% to just 9%, falling Elite subscription wearable churn from 8.4% to 5.2%, and all of those new products and product enhancements that we've been able to put into the market at the same time as achieving these very strong results, it's just been a remarkable year FY '19 for Catapult.

And finally, if we move to Page 23. I'd like to provide some clarity around some of the outlook for FY '20. So to be crystal clear about this, the Board continues to expect strong revenue growth from this business and that scalability inflection point will continue to reduce our operating expense growth, so net gap between revenue growth and expense growth, we expect expense growth to continue falling, and that is what is driving us rapidly towards the positive free cash flow that we are aiming for.

Just to be clear, we -- and I'm sure that this is clear to everyone, we are strong believers and highly committed to subscription sales and ARR growth because this is what drives high-quality, high-margin revenue and long-term value for shareholders, and we see 3 key drivers that will continue to drive this revenue growth, Greenfield sales to a very large number of teams that are not currently using performance technology. Upselling to existing clients who are not at their full capacity within the products that they're already subscribed to or purchased, and a huge cross-sell opportunity across the shed to those 2,800 existing teams that are using only one product.

And now I'd like to finish by being really deliberate about our focus on free cash flow. So we reiterate our commitment to positive free cash flow by FY '21. And we are extremely focused as a business on bringing that number forward, and our executives are aligned to that focus as well. And with $21 million cash on hand on the 16th of August 2019, and the growing operating leverage, the inflection point that I spoke about, we are well capitalized to take the company through to being cash flow positive. So those are the end of the comments from us. And I'd now like to hand over to Rishi, who will open up for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

And we have the first question from the line of Chris Savage from Bell Potter.

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Chris Savage, Bell Potter Securities Limited, Research Division - Senior Industries Analyst [2]

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Adir, as much as I like you being acting CEO, can we get an update on the search for a new permanent appointment?

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Adir Shiffman, Catapult Group International Limited - Executive Chairman [3]

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Absolutely. Thank you for the compliment on that. So as we've said before, we've got (inaudible) running an international executive search. We've been really happy with the quality of candidates that have been enthusiastic about doing this long. It's never easy to conduct a CEO search for any company, and public company's particularly difficult. But for Catapult, we've had the added challenge which is that we are the leader in the sports performance technology space globally. And it means that we've largely exhausted the talent pool from this industry, and we need to look outside the industry for some very particular skills, such as some experience in technology, experience with scale in the business, international experience and so forth. And so that's been an engaging process, frankly, and so we continue to work to bring that to a close. It is certainly our focus and the #1 focus of me and the Board to bringing a high-quality CEO in. But to be very blunt and candid, this is a really important appointment, particularly with the relatively short tenure previously and we can't afford to get this wrong. And so that is why it's taken slightly longer than I hoped. And again, I'm all in favor of candor on this, but we're confident of bringing this to a close, and we're confident that we will put the right person in place. And that it will be a real positive to Catapult and also the market will stay as positive as well.

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Chris Savage, Bell Potter Securities Limited, Research Division - Senior Industries Analyst [4]

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So we can expect this in the coming weeks or months?

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Adir Shiffman, Catapult Group International Limited - Executive Chairman [5]

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Yes, I think it's difficult for us to put a hard time frame on this because it's a process where we work through shortlist and effectively, super focused on not being rushed in appointing the right person. But it is the #1 focus that we have in the business, and we are as focused certainly as you are and as shareholders are on making sure that we get a high-quality CEO into the ship as quickly as we possibly can without compromising on the quality of that person. And again, to be clear, that search is with both here in Australia and also particularly in North America for a potential CEO. And we're coming -- we're moving towards the end of that process.

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Chris Savage, Bell Potter Securities Limited, Research Division - Senior Industries Analyst [6]

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Okay. Can I get the Board's current thinking on the Prosumer business? So I guess the -- well, the unit sales growth fell short of the guidance. I know you talked about PlayerTek+ coming out. But is the Board fully behind the business? Or is it time to maybe look at -- well, look at moving on perhaps?

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Adir Shiffman, Catapult Group International Limited - Executive Chairman [7]

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So PlayerTek+, just to be clear, is an Elite product. And so the Board's view on approaching the business is this, we provided guidance at the end of January and in February that we were not going to reach the initial guidance that we put out, and we were really clear and open and candid again about how we were going to run this business. And effectively, we were going to run it as a smaller business because the level of maturity in that market was earlier. And that is the way we're running it. We're pleased with the performance of that business at the moment. It's being run on a very low-risk basis, particularly to cash. But we're seeing some real positives from that business, such as the level of engagements and [I think the players in the region that we're having]. And we're comfortable that it still represents a significant, strategic opportunity to the business in terms of the TAM, and we can ensure that we keep that optionality without risking cash flow and positive cash flow on a low-risk basis, but also that there is some benefit that it occurs to the goal of the businesses or affiliates. So yes, the board is completely behind it, and we're comfortable with the low-risk way that we are maintaining the optionality of that business unit.

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Chris Savage, Bell Potter Securities Limited, Research Division - Senior Industries Analyst [8]

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Okay. And last question, probably more so for Jim. Both you and Adir said a number of times, you're confident expense growth will be falling going forward. So if it grew 9% in FY '19, can we assume it's going to be growing low mid-single digits in FY '20?

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James Ventura Orlando, Catapult Group International Limited - Interim CFO & Non-Executive Director [9]

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Yes. So Chris, obviously, not -- we're not guiding specific numbers, but I think we've been pretty candid to say that, that expense growth rate might be higher than where we are today. And we've got a plan. And as Adir mentioned, the whole executive team is completely aligned to that plan, which is in place now. So we don't have a specific number, but the trend is going to be the same. And you can definitely...

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Adir Shiffman, Catapult Group International Limited - Executive Chairman [10]

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You can't -- [stalling] means lower than that [now].

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Operator [11]

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The next question we have is from the line of Piers Flanagan from Baillieu.

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Piers Flanagan, Baillieu Holst Ltd, Research Division - Equity Research Analyst [12]

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Just a couple for me, if I can. It looks like the second half -- or just on the Wearable side, the second half sales look pretty strong here. Can you just provide a bit more color on where some of those unit sales came from?

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James Ventura Orlando, Catapult Group International Limited - Interim CFO & Non-Executive Director [13]

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Yes, I'll take that question. I mean those unit sales were across the board. So really, the thing that didn't contribute significantly to extreme sales, I'm happy to say in some ways because of the intersection on FY '20, is VECTOR because it was a relatively new product. And I said, we're seeing some good momentum going into FY '20 on VECTOR. But really, we saw strong unit sales across the board, and you saw that from the results. So you saw good growth in PlayerTek+ -- a good sales in PlayerTek+, not growth because it was new this year. But you also saw that we had accelerating growth in units across the general non-PlayerTek+ Elite business as well. So I think like with geographies and like with sports, what we're seeing is growth across the whole portfolio of products that we have and with the skew towards subscription, I'm happy to say.

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Piers Flanagan, Baillieu Holst Ltd, Research Division - Equity Research Analyst [14]

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Sure. And James, right, is PlayerTek+, is that on subscription? Or is that just capital sales?

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James Ventura Orlando, Catapult Group International Limited - Interim CFO & Non-Executive Director [15]

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So at the moment, the majority, a form of capital sales because it's new, a small number was sold on subscription. But you know the business philosophy and strategy of this company, we like recurring revenue. And so we can make the assumption that, that's a typical way that we welcome bringing a new product to market. But medium term, we're a subscription-focused company.

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Piers Flanagan, Baillieu Holst Ltd, Research Division - Equity Research Analyst [16]

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Sure. And just on -- back on some of that new -- or the Prosumer segment there, sort of the segment EBITDA line for the loss of $6 million this year. I know you don't want to sort of quantify, but sort of going forward, is that sort of around the right size number in terms of sort of cost growth and units growth at the EBITDA line?

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James Ventura Orlando, Catapult Group International Limited - Interim CFO & Non-Executive Director [17]

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Yes. So the lion's share of that number is in the business that we resized, right, so that's the consumer that play a part of that business. So we're expecting to see that improve.

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Piers Flanagan, Baillieu Holst Ltd, Research Division - Equity Research Analyst [18]

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Sure. And then just on Slide 10, when you talked about that cross-sell opportunity, do you have a feel with sort of those 2,000 teams that you have, teams that already have other products, I guess, sort of vision with another provider? Or is it sort of the cross-sell opportunity of the teams that don't have the 3 products at all?

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Adir Shiffman, Catapult Group International Limited - Executive Chairman [19]

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So some of these are genuine greenfields, AMS certainly is more greenfield, but the biggest consideration to AMS is to be able to see some mix sales partly. But certainly, with some of the Video, but there are some solutions in the market the teams are using at the moment. We feel very confident that the huge advantage that we can provide in workflow by having a system that integrates with our wearable offering, but that provides a material advantage to those teams. And so, for us, that is the real opportunity of Video cross-sell, but it would be a mischaracterization to say none of those 2,800 teams have any Video product today.

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Piers Flanagan, Baillieu Holst Ltd, Research Division - Equity Research Analyst [20]

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Sure. And then finally, just on the investment, are you -- can you give us sort of a split between what's expensed and what's capitalized out of that $15 million?

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Adir Shiffman, Catapult Group International Limited - Executive Chairman [21]

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Jim?

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James Ventura Orlando, Catapult Group International Limited - Interim CFO & Non-Executive Director [22]

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That's all capitalized.

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Piers Flanagan, Baillieu Holst Ltd, Research Division - Equity Research Analyst [23]

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And you see that in line with historical years?

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James Ventura Orlando, Catapult Group International Limited - Interim CFO & Non-Executive Director [24]

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Slightly up in FY '19, driven by the new product introduction of Vision, finishing the VECTOR product and a little bit in there that you can see on AMS and consumer, but it's mainly in the Elite stack.

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Operator [25]

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The next question we have is from the line of Ivor Ries from Morgans Financial.

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Ivor Ries, Morgans Financial Limited, Research Division - Senior Analyst [26]

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Yes. Just in -- on the VECTOR, I've not been very close to that product. Sort of roughly what sort of a premium in terms of price point do you get over your -- the next rank device in your stack?

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Adir Shiffman, Catapult Group International Limited - Executive Chairman [27]

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So we haven't provided that information into the market. But certainly, we've forecast and we're seeing that as a premium device from a price point -- ARPU point of view, and it is still above what -- it's virtually an ultra-premium device. It's the only device that is proven to work indoors and outdoors. They come through the garment. That means you don't need to wear a hot right strap. So there are material benefits to that, and we feel confident that we'll be able to maintain a premium pricing over that, but we haven't released that information into the market.

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Ivor Ries, Morgans Financial Limited, Research Division - Senior Analyst [28]

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We're talking 20% above the next one? Or 50%? Or -- I just need to get some sort of feel for how it's priced.

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Adir Shiffman, Catapult Group International Limited - Executive Chairman [29]

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So certainly, it's not going to be 50% above the existing device. And you should see that there's an incremental pricing into that existing product. And for us, what's just as important is increasing the ARPU with that VECTOR device, is getting this device in to continue to grow that greenfield market that we have with the upgrade teams that are using S5, for example, onto VECTOR, and that gives us also the cross-sell opportunity once we're in those things. But certainly, it would be a mistake to anticipate that, that's going to be a 50% price premium to these [existing products].

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Ivor Ries, Morgans Financial Limited, Research Division - Senior Analyst [30]

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Right. And I see you write-off about $3 million, I think, on old devices people were trading in. So we should expect to see more of that trading costs in the balance sheet this year?

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Adir Shiffman, Catapult Group International Limited - Executive Chairman [31]

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Jim, do you want to answer that?

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James Ventura Orlando, Catapult Group International Limited - Interim CFO & Non-Executive Director [32]

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Yes. So I think there's a bit of that. I think what we're going to see and realize is that customers are going to be incentivized to trade up to VECTOR. And we did bear some of the cost of that this year, but a lot of these devices will be coming off subscription, and customers will be added to that trade up. So yes, that trend isn't going to stop as we trade out from OptimEye, which is a pretty mature product and trade up into VECTOR going forward. On an overall basis, I would just say, coming supportive with -- that you are to sit on VECTOR, and we are premium pricing that, but it's really all about discounting the value that the customer gets out of it and if there's a complete technology within a lot more use cases. But on an overall kind of gross margin basis, I'm seeing a stable gross margin profile and that's also impacted by just mix, right? So we'll have more Prosumer and more PlayerTek+ units in the mix going forward, and that's intentional. That's what we want it to be.

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Ivor Ries, Morgans Financial Limited, Research Division - Senior Analyst [33]

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Yes. In terms of your ARPU during the year being stable, there was a bit of a bump in the ARPU in the -- halfway through the year. Now we're back to the previous year. I just wondered what happened there that if we get back to your half yearly presentation, your ARPU on your lease devices rose and then end of year, it's back again. I just wondered whether there was just some calculation and things going on there. In December '18, ARPU was quoted as about $115 million, and now we're back to $108 million. So I just wondered what changes happened there? Is it just a change in methodology? Or...

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James Ventura Orlando, Catapult Group International Limited - Interim CFO & Non-Executive Director [34]

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Yes, there's been a -- it's Jim. There's been no change in methodology. I think as Adir mentioned, we had scheduled the VECTOR release for kind of early in the calendar year. We actually delivered it toward the end of May, June, end of the fiscal year. So there's a bit of a mix effect on the cost of sales drivers there, driving down mix. But now, there's been no change in methodology. And overall basis, it's been pretty stable. And nothing much happened in the second half versus the first half other than normal seasonality with greater sales in the second half versus first.

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Ivor Ries, Morgans Financial Limited, Research Division - Senior Analyst [35]

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Yes. And if I might ask another couple of questions before I move on. There's 1,100 new teams that came on. Can you provide us with the split between Elite and PlayerTek+ on that?

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Adir Shiffman, Catapult Group International Limited - Executive Chairman [36]

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So PlayerTek+ is part of the Elite stack. And so we haven't broken out those teams, but a very, very substantial number of those teams are Elite teams. And this is not a number that is kind of jacked up by 2 players [minus] (inaudible), that's not in the mix. So you should assume that there's a (inaudible).

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Ivor Ries, Morgans Financial Limited, Research Division - Senior Analyst [37]

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Yes. And over the course of FY '19, you're probably tracking how you're going in the marketplace, versus the various competitors there are out there now. Do you know roughly what percentage of contested tenders you were winning?

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Adir Shiffman, Catapult Group International Limited - Executive Chairman [38]

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So we've got some internal numbers around that. And look, the answer is just the vast majority. And in the past, we said 70% to 80% of those contested tenders end up going our way. And I make this broad comment on competitors because we're such a leader in the areas in which we operate. Everybody else in those areas says [that is our] biggest competitor. And it's going to be fixated on us from time to time. And the truth is that we are so successful in those spaces in terms of winning the lion's share of the available deals and teams that the competitive activity is not really a significant determinant of our sales growth. It's much more about our internal execution being the right product to the market and the innovation pipeline. And certainly, that's what we continue to see in FY '19. And I anticipate that will be the experience that we have going forward as long as we continue to execute well and continue to innovate.

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Ivor Ries, Morgans Financial Limited, Research Division - Senior Analyst [39]

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Great. If I might ask just one last one. Just on your CapEx assumptions for this year, sort of roughly the same as last year?

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James Ventura Orlando, Catapult Group International Limited - Interim CFO & Non-Executive Director [40]

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Yes. It is Jim. Yes. That will be pretty stable.

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Operator [41]

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And the next question we have is from the line of Owen Humphries from Canaccord.

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Owen Humphries, Canaccord Genuity Corp., Research Division - Senior Industrials Analyst [42]

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So 2 questions from me. Firstly, in the past, you guys have provided more detail or talked about the addressable market in which you operate in. Can you maybe just provide what (inaudible) here and maybe just talk about the product acceptance at the margin? You find, obviously, the second half is a very strong sales period for the Elite business. Are you finding it, in the U.S. particularly, a little bit easier to sell? I know you guys increased your head count there in the sales and marketing team during FY '19, but are you finding the option you said is getting larger as you guys become more well-known and these products more accepted?

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Adir Shiffman, Catapult Group International Limited - Executive Chairman [43]

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So certainly, we've had no change to the plan that we've put forward, 10,000 teams, 187 athletes at the Elite level. PlayerTek+ has been fantastic because it's given our teams coming to [sell] at the bottom part of that pyramid in those 10,000 Elite teams. And that's been one of the reasons that we've had this kind of record sales number for the Elite Wearables business. And we released some information a couple of weeks ago about passing 1,000 teams in North America in the FY '19 fiscal year. But at the same time, we said that despite some really impressive penetration that we've had into the NCAA college market, the total addressable market there is absolutely a normal. It's even compared to the number of teams we have. And the majority of those teams still have one product. So we absolutely don't see the business any way near touching the size of the addressable market now, and we don't think that the TAM is going to be any kind of right limited to the growth in the business in the near or medium term. In terms of the age of selling, frankly, if you develop new products and put them into market that makes it easier for salespeople to sell. We're confident about the impact of VECTOR. And I've said we've had some nice momentum going into FY '20 for VECTOR. We are confident about the ability to have a Catapult Vision product that lets us sell Video, not just to more countries, more -- but across more international sports. So what we're trying to do with that innovation pipeline is, yes, that's absolutely right, let's make it easier and easier for our teams in the field to sell because we're addressing more parts of the available market with products that are superior to competitive products.

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Owen Humphries, Canaccord Genuity Corp., Research Division - Senior Industrials Analyst [44]

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All right. Okay. And just looking at the balance sheet, I noticed the receivable balance continues to grind higher. Just maybe touch on the reason why the receivables are quite high given this is normally a recurring base business with people paying upfront -- [same pay] upfront to the product? And then second to that is I just noticed the accrued revenue building up on the balance sheet, can you just maybe just touch on the reason for that increase?

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Adir Shiffman, Catapult Group International Limited - Executive Chairman [45]

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Jim, do you want to answer those questions?

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James Ventura Orlando, Catapult Group International Limited - Interim CFO & Non-Executive Director [46]

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Yes. So receivables is just pure seasonality. So -- and this is really a northern hemisphere story, and it's done. Mirrors or -- it leads the cash story, right? So at the end of the fiscal year, June period, in particular in the NFL and the NCAA segment, that's kind of their budget cycle as they move into the football season in North America. So that is on receivables.

And on -- what's the second question on deferred revenue?

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Adir Shiffman, Catapult Group International Limited - Executive Chairman [47]

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Accrued.

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Owen Humphries, Canaccord Genuity Corp., Research Division - Senior Industrials Analyst [48]

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Accrued revenue. The (inaudible) were [$39] between FY '19 and FY '18. Just curious as to -- is that just due to the strong south period in fourth quarter? Or is -- just maybe you can touch on that.

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James Ventura Orlando, Catapult Group International Limited - Interim CFO & Non-Executive Director [49]

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Yes. And that's just driven off, Owen in what we're seeing in arrears. And again, I think that's seasonal and typical for us.

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Operator [50]

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We have the last question from the line of [Kelly Cole] from [ETP Assets Management.]

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Unidentified Analyst, [51]

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Just one question. Gross margin declines, you mentioned earlier, just a product mix shift. And then in the presentation, you talked about replacement devices, et cetera. Can we just step away from that and look at the Elite business itself? Are gross margins stable there? Are they improving?

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James Ventura Orlando, Catapult Group International Limited - Interim CFO & Non-Executive Director [52]

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Yes, stable. This is Jim. So definitely stable. In the Elite business that the mix effect that I mentioned, driven by PlayerTek+ since it's an Elite product will continue to impact, but that's going to be offset somewhat by what we think are going to be good results as the VECTOR product really starts to gain momentum. And I think as we have mentioned, that's just started to kick in at the end of the fiscal year.

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Adir Shiffman, Catapult Group International Limited - Executive Chairman [53]

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And I'd add to that, the delay in releasing VECTOR to the market meant that [it will likely expires], which are coming towards end of life. We had to do some things like reflection batteries, et cetera, and that will be a (inaudible) now that VECTOR is in the market. So that has challenged us as well.

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Unidentified Analyst, [54]

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Okay. And then next question, just lower churn rates. I'm guessing the cost of customer acquisitions coming down. Could you -- is that a fair point? And for us to try and get a sense of where that sits, would you say that, that will be proportional to sort of travel marketing promotion expenses across the group? Or is it lower than the group?

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Adir Shiffman, Catapult Group International Limited - Executive Chairman [55]

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Yes. The 2 big drivers that affected the acquisition in this Elite business is -- this Elite business has the sales characteristics, particularly towards the top end of however B2B sales process, so that predominantly leads to the cost of sales that go out in the market with some marketing around the fringes. And we have seen accelerated sales, as you correctly said. And so largely, the cost of sales is linked to the salespeople we have in market. We are -- we're lucky, as you know, with -- our cost of sales relative to the lifetime value for the customer is extremely attractive, and we would anticipate that we will continue to see some positives in terms of those cost of sales as we continue to grow.

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Unidentified Analyst, [56]

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Okay. And then just on the sales and marketing team, given the [merchant] Video and Wearables, could you -- can we assume that in the sales and marketing team as it [costs against supply] that sort of ratio to the Wearables business to kind of sort of try and work out what that cost of customer acquisitions has to look like, [the division proxy]?

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Adir Shiffman, Catapult Group International Limited - Executive Chairman [57]

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Jim, do you...

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James Ventura Orlando, Catapult Group International Limited - Interim CFO & Non-Executive Director [58]

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The way -- I think the way I think about that is, as you said, we hired ahead of the curve in FY '19 in sales, marketing, support, science, customer support. And that is still going to drive productivity -- sales productivity growth into FY '20. So that line, you think of as more stable going into the future in your modeling versus what we experienced last year.

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Operator [59]

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There are no further questions at this time. I would now like to hand the conference back to today's presenters. Please continue.

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Adir Shiffman, Catapult Group International Limited - Executive Chairman [60]

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Well, thanks, everyone, for the time, and [we touched on the presentation results, too].

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Operator [61]

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Ladies and gentlemen, this concludes the conference for today. Thank you for participating. You may all disconnect.