I'll now hand the conference over to Mr. Andrew Menz, Chief Executive Officer. Please go ahead.
Good morning, and thanks for joining us today for the betr Entertainment Limited quarterly business update for Q1 FY27. I'm Andrew Menz, CEO of the company, and I'm joined today by our Chief Operating Officer, Bill Richmond, and our Chief Financial Officer, Blake Matthews. As we indicated when we released our full-year results in August, we've made a fast start to FY27.
In Q1, turnover grew by 19%, with our investment in product and brand driving share gains and the right kind of customer activity. Whilst the World Cup provided a tailwind early in Q1, the exit rate from the quarter evidences that there's strong underlying growth in the business attributable to that marketing and product investment, which has created a more compelling proposition for our customers.
Wildcards is a revolutionary product that was built for and is resonating strongly with our target market of sports Same Game Multi and recreational racing punters. Rapid innovation remains a critical competitive advantage for the business, reducing the cost of promotional generosity and allowing for real and meaningful product differentiation in a cluttered market.
Q1 is always our heaviest investment quarter, as we avail ourselves of the material customer acquisition and reactivation opportunity during footy finals and the lead up to spring. This year, punter-friendly results, particularly on marquee sporting events, were a drag on Gross Win margin and therefore on cash.
While marketing CapEx and cost base landed on plan, we had a net variance to our cash forecast attributable to those results of circa AUD 4 million. In October to date, margin has rebounded strongly and Net Win is up more than 70%.
More than half the estimated Q1 results-related cash impact has already been reversed. This supports our confidence heading into the peak of the spring racing carnival. We today reaffirm our FY27 guidance. Normalised EBITDA in the range of AUD 13 million-AUD 19 million and positive operating cash flow for the year. We're going to take you through the operating progress behind that confidence in today's presentation.
Turning to slide 4. Overall, turnover of AUD 432 million was up 19.1% on PCP, with the World Cup providing an early tailwind. The quality of the active customers here matters just as much as the top-line growth, and we see our customers betting with us more often as we continue to win share of wallet from competitors, and those customers are choosing our higher contribution products. We saw that Same Game Multi penetration rose 7% and Same Race Multi penetration rose 25%.
As I've outlined, in October to date, Gross Win margin has rebounded to above historical levels and turnover continues to grow faster than the market. Our continued promotional efficiency means that Net Win conversion has been outsized, with those desirable customer characteristics running alongside more normalized sports and racing results.
In Q1, customer-friendly results took around 1.8 points off Gross Win margin for the quarter. Sports was the main driver through the World Cup and Same Game Multis on the AFL and NRL finals.
In racing, we saw a run of Saturdays where favorites and well-backed runners outperformed their historical levels. Critically, though, we continue to be more efficient in our generosity spend. Generosity of 3.5% of turnover was 30 basis points better than the PCP, a meaningful decline in circumstances where there was strong turnover growth.
Also, because cost of sales is tied to turnover, that stronger turnover at lower margin accelerated around that AUD 4.2 million of cash outflow in the quarter. As I said, half of that has already turned around in October to date. We launched Wildcards in late August as the first Same Game Multi product that enabled customers to improve their chances of their bet winning during a match.
Early take-up and results are strong. 75% of our Same Game Multi actives are taking up Wildcards, and customers are now adding an extra two legs on average and at AUD 6.50 higher odds on average. Therefore, we're better able to optimize our generosity. Promotional costs are 37% lower using Wildcards compared to more traditional Same Game Multi generosity.
Wildcards is now live across racing, AFL, NBA, and the NFL, and is a key demonstration of our innovation agenda, giving our customers products and experience that they love and creating a differentiated, more compelling customer experience. The well-publicized advertising reforms start on the 1st of January 2027, and we're ready for them.
The business already has strong controls in place for safer gambling, anti-money laundering, and advertising compliance. Our data and AI capability already supports customer-level marketing controls, monitoring, harm minimization, and reporting.
We don't therefore need to make any knee-jerk reactions to any risk and compliance settings to our offering, our marketing, or our product suite. We've always taken a long-term view, and accordingly, we don't expect the reforms to have a material impact on trading or our FY27 guidance.
We will keep working constructively with regulators as the remaining details are finalized and further reforms are implemented over the course of 2027. As we've said many times now, our model is product-led. We are winning on differentiated products and customer experience, not on advertising and inducements.
We made a conscious decision well in advance of these reforms to go that way, and we're confident that it will continue to pay dividends as those reforms take place over the course of the next 12 months. I'll now hand over to Blake to take you through the finance position for the quarter.
Thanks, Andrew. Moving to slide 8. Q1 turnover was AUD 432.3 million, up 19.1% on the PCP. Gross Win was AUD 53.5 million, up 3.2%. The growth in turnover saw Net Win grow to AUD 38.4 million, up 1%, despite softness in Net Win margin at 8.9% in the quarter. Pleasingly, October has seen a sharp margin recovery. Year to date, to the 26th of October, turnover is up 15.9% to AUD 568.5 million, and Net Win is up 14.9% to AUD 54.1 million.
Year-to-date Net Win margin has lifted to 9.5%, and October itself is tracking above 11%. Moving to slide 9. We opened the quarter with AUD 27.8 million of cash and closed with AUD 18.5 million, including AUD 11.1 million of client balances. Trading was the whole variance in Q1. The customer-friendly results accelerated our anticipated cash outflow with marketing, CapEx, and the cost base all landing net on plan.
More than half of that results impact has already reversed in October. Consistent with guidance, we expect operating cash flow to be positive in FY27, weighted to half two. At forecast turnover and margin, operating and total cash turn positive in Q3 and build through Q4, and we do not require any additional equity capital. Moving to slide 10.
Net cash from operating activities was negative AUD 6.8 million. Payments to suppliers and employees were AUD 43.9 million, including AUD 5.3 million of marketing and seasonally higher admin and corporate costs.
The underlying cost base reflects the FY26 cost actions. Payments for intangibles were AUD 2.1 million in capitalized platform development, including the build and deployment of Wildcards. There were no financing cash outflows in the quarter, with interest on our NAB facility sitting in operating cash flows.
We enter the peak racing season with AUD 7.4 million of available cash and marketing already front-loaded. Cost outflow steps down in Q2, and half two is meaningfully cash generative. I will hand back to Andrew.
Thanks, Blake. As we have already outlined, October trading supports our FY27 outlook. We are off to a much stronger start. October to date turnover is AUD 136.2 million, up circa 7%. Gross Win margin of 15.4% is up 2.7 points, and Net Win of AUD 15.7 million is up 73% year -on- year at a Net Win margin of 11.5%.
Promotional costs as a share of turnover are down around 30% against the same period last year. That continued turnover outperformance, combined with Net Win margins above our target range, have allowed us to reverse half of that cash shortfall from Q1 results already in the month of October to date.
It shows that we've generated the right activity in Q1, obtained the right customers, and we are now in a position to monetize them over the peak spring racing carnival period, as has been evident by the performance in October so far and as we expect over the Melbourne Cup Carnival. Our priorities are clear.
We need to turn the momentum that we have into sustainable shareholder returns, delivering positive operating cash flow, and being very disciplined with our cash balance. In the product space, that first to market Same Game Multi and racing products have been launched with Wildcards extended across racing from Everest Day, the NBA, and NBL.
In terms of mix and margin, changes to our tote offering as part of the move to a national tote and deeper Same Game Multi and Same Race Multi penetration continue to improve our contribution margin on our customer activity. Data and AI continue to drive down those generosity costs whilst engaging our target customers better than ever. You've already seen that we've been able to energize the base through Q1.
We're aggressive through footy finals and spring, disciplined in acquisition and reactivation, seeking only those right and more valuable customers for the business. From a capital perspective, we'll continue to deploy selectively, look for where the returns are strongest, and aimed at creating long-term shareholder value. We go into Melbourne Cup Carnival in very strong shape. Turnover is growing, margin has rebounded, Wildcards is live in racing, and our customers are more engaged than ever.
Again, we reaffirm guidance for this year. Normalized FY27 EBITDA between AUD 13 million and AUD 19 million and positive operating cash flow for FY27. We're looking forward, and we are very ready for our biggest week of the year. Thank you, and we'll open the line to questions.
Thank you. If you would like to ask a question via the phone, you'll need to press the star key followed by the number one on your telephone keypad. If you would like to cancel, please press star two. If you would like to ask a question via the webcast, please type your question into the ask a question box and click submit. Your first question today comes from Phil Chippindale from Ord Minnett. Please go ahead.
Good morning, gents. Thanks for your time. First question from me, just on customer numbers. They decreased from about 156,000 to a bit over 150,000 on an active basis. Can you tell us, you've mentioned prioritizing the right clients, so I sort of understand that. Thinking about the future, what are you expecting in terms of how that trends perhaps over the next 12 months or so?
Yeah. Look, Phil, I think the point on our active customer base is that it is entirely quality over quantity. What we're seeing is increased turnover and revenue per active, and our generosity and our product spend has been focused on engaging those right customers. We've made a conscious decision in this business to let some of those more promiscuous customers, who are very difficult to generate any Net Win from, we've let them go.
In a world where taxes and fees continue to increase, we do need to find the right clients and invest in the right clients to make sure that we're maximizing the profitability of the customer base. So active customers is an important measure, but what we're really looking for, is those more valuable actives, and we'll continue to invest in those right customers over the balance of the spring racing carnival.
Okay, thanks. Obviously, one of the best numbers I think in your results was this 19% growth in turnover. Can you maybe make a comment as to how you think that compares to others and perhaps, system/market growth?
Yeah. I think there's enough competitor reporting out there to suggest that 19% for the first quarter is a significant outperformance on the market. This market has been flat to low single-digit turnover growth over the last 12 months, and therefore, our performance in Q1, we think, is significantly outstripping the market and evidencing top-line share gains.
I'm most impressed by the turnover growth, particularly in circumstances where we have been so disciplined in the generosity spend. It shows that we are winning customers from our competitors.
We are winning share of wallet from across the board because of this differentiated product and what we think is a much more compelling customer proposition than we've been able to have out before. So it's that innovation agenda, that investment in product that we've spoken about, that is driving the turnover.
We have confidence, therefore, that that growth, not at 19% long term, given the World Cup tailwind, but turnover growth faster than the market is definitely sustainable for this business over the balance of the financial year.
Okay, thanks. Last one is for Blake. Your investing cash flow for the quarter, I think it was a little bit over AUD 2 million. That included some Wildcard investment. What does that number sort of look like on a run rate basis for the rest of the year? Is AUD 2 million about the right sort of level?
Thanks, Phil. In summary, it is. We're looking at the moment, Wildcard is out, which is obviously very exciting. We're looking at what's next on that roadmap, and we've got some exciting innovation ahead. That number, in terms of forecasting ahead, would certainly be that AUD 2 million or lower. It certainly would be increasing as we move through the balance of FY27.
Okay, great. Thanks. That's all from me.
Thank you. Once again, if you would like to ask a question from the phone, please press star one and wait for your name to be announced. Your next question comes from Leo Partridge from Morgans. Please go ahead.
Morning, gents. Appreciate you have reaffirmed the full year earnings guidance, but it would be helpful to get a sense of just how you are thinking about the Net Win kind of margin assumption sitting at the low and the top end of that range.
Yeah, Leo, it is Bill. Certainly from our Net Win margin, we very much budget across the year. It is a 12-month number. As we saw in the first quarter, some of that very much comes down to timing. There was some very punter-friendly results in the last few days of the quarter, particularly with the AFL Grand Final, the AFL Preliminary Final, both going punter-friendly ways.
Certainly, we have always budgeted and had a really strong record of producing that mid 10% range. That is certainly very much where we expect things to land across the entire year. We do not love variance during the year, but it can happen in 1 quarter on the back of some results. Certainly, our confidence remains really strong around that number.
As Andrew touched on, there has been some really strong structural improvements across the business, both in the product range, driven by the Wildcards, driven by the single tote. That has certainly been a strong structural change for margin going forward as well. All the investment we are making in product allows us to be more efficient with generosity, which gives us greater confidence in those margins going forward as well.
Thanks, Bill. Just another one, I guess, on the product that you mentioned, Wildcards seems to be going well. You have gone into other sports and you are now into racing. I appreciate that a lot of that spend is already made. If you were to extend that into, say, more sports, if it continues to go well, how much extra cost should we be factoring in, if any? Just comments on your thoughts around that.
Yeah, certainly the heavy lifting is already been done with Wildcards. The popularity of it certainly means we will be looking to put it across other sports. As Andrew touched on, it is on the AFL, NFL and NBA already. We have launched in racing as of a couple of weeks ago. The Race Scene has been incredibly popular with punters.
Certainly, that is an area we will continue to invest on and look whether it is appropriate for the other racing codes as well going forward. Certainly, our punters are responding positively to it, so we will certainly be looking to put it on NRL and other sports early into next year.
The heavy lifting with it is already done. So it will continue to be a small investment going forward. Any larger investment, which Blake touched on, will be in other areas. I think you will see some other really exciting things from us, not just this quarter, but into next year as well.
Well, thanks, Bill. Then just, I guess, obviously it is a pretty competitive period at the moment. What are you seeing from the competitive standpoint, guys?
Yeah. Leo, I think what we saw was a lot of promotional discipline from most operators up until Everest and Caulfield Cup day, and I think we saw a bit of an explosion in free bet turnover across the market at that time. We didn't play that game. With leveraging Wildcards, we're looking to be targeted with our generosity to the right customers and target with our product offering to those right customers as well.
Competition has been intense, as it always is. It had been relatively disciplined until that time. We will continue to hold our line and our discipline over the next week and continue to back in the product and experience to make sure that we've got the right customers coming through over the balance of the Melbourne Cup Carnival next week.
Awesome. Thanks, gents.
Thank you. There are no further phone questions at this time. I'll hand the conference back to Andrew Menz for any webcast questions to be addressed.
There's no webcast questions for us this morning. That does conclude today's call. We thank you all again for your time and your support, and good luck to all the punters on Tuesday. Thanks very much.
That does conclude our conference for today. Thank you for participating. You may now disconnect.