Thank you very much, and welcome to Better Collective webcast presentation in connection with the Q2 report, covering the period January 1st to June 30th, 2020, which we release today. My name is Jesper Søgaard, co-founder and CEO of the company, and with me today are CFO Flemming Pedersen and Head of IR, Christina Bastius Thomsen . I'm happy to share our Q2 report 2020 with you, although this has in many ways been an unusual quarter. As expected, online sports betting has been challenged as the pandemic set a halt on all major sports events. As a company, we have demonstrated the resilience of our business model and our ability to withstand a period of low sports activity. We will revert to these special business circumstances during the presentation. Please turn to page two, where we display our disclaimer regarding any forward-looking statements in the presentation.
I ask you to please pay attention to this. Please turn to page three. The agenda of the presentation is structured so that we'll start with a presentation of the business highlights for Q2 and a walkthrough of the financials for the quarter. We'll recap of the framework of our financial targets, which we have confirmed in the Q2 report and shed some light on the COVID-19 impact and the business prospects moving forward. We will continue with the business update and as always, end the presentation with the Q&A session. Please turn to page four. Put shortly, Q2 performance became the exception in an otherwise strong Better Collective growth story, it has also proven the resilience of our business model and the strong team spirit in Better Collective in difficult times. Let me give a snapshot overview of the business performance and highlights of Q2.
Please turn to page five. As expected, Q2 was a challenging quarter for online sports betting. Coming off a strong Q1, which was only affected by the pandemic from mid-March, Q2 was significantly impacted. April was the low point, impact continuing through most of May. In June, some of the major sports in Europe resumed with accelerated playoffs. Given these circumstances, a quarterly revenue decline of 4% compared to last year is satisfactory and in line with our expectations. Operational earnings declined by 7% and the EBITDA margin at 41% remained in line with the financial target as the cost base was lowered significantly. Operational cash flow increased by 55%. New depositing customers naturally declined in the quarter, correlated with the lower level of sports activities. We delivered 71,000 new depositing customers this quarter, which in our estimate is a loss of approximately 90,000 NDCs.
Please turn to page six. Even though the pandemic impacted Q2 in every way and will perhaps continue to do so for some time to come, our digital business model has proven strong under these difficult circumstances. As a business, we have demonstrated the flexibility to withstand a period of low sports activity. Various measures have been implemented at our offices in alignment with local guidelines to keep employees safe. We have seamlessly transitioned to remote work to the extent necessary, and we experienced no loss of efficiency. Our resources have been redistributed internally to focus on the business areas that have remained active throughout and to prepare for sports returning to the arenas. In the absence of major sports events, bettors turned to other sports that are not usually large betting events.
We saw growth in online casino games. More predominantly, we noted a strong and continuous growth in esports that benefited our recently acquired business, HLTV.org. Whereas casino growth is most likely momentary, esports seems to be more sticky. esports was already in a growing trend before the pandemic. Judging by the numbers, this growth has accelerated during lockdown. In the U.S., we have made progress in regulatory matters, meaning that we are now live in eight states. Here I'm excited about the recent news that the first of five states, Illinois, has decided on an online regulation that initially required a physical registration of online registrations, which now have been waived and expectedly will be the permanent framework. We will comment on the U.S. in more detail in this presentation. By the end of June, we completed the share buyback program initiated on March 19, 2020.
Please turn to page seven, and the word over to Flemming for more details on the financial performance.
Thank you, Jesper. Let's look at the financials for Q2. Please follow me to page eight. Zooming in on Q2 revenue, we saw total revenue was EUR 15.3 million, which was a decline of 4% compared to the same period last year. The organic revenue decline was 24%. The total year-on-year decline in the quarter was significantly affected by the major sports events being canceled or postponed, as Jesper mentioned. The revenue drivers this quarter were some of the sports still ongoing, a momentary increase in casino and significant growth in esports. Revenues here accounted for 66% of total revenue and 76% of player-related revenue, with 16% coming from CPA, 5% from subscription sales in the U.S. and 13% from other income. We decided to pause subscriptions in the U.S. during the lockdown. After sports coming back, they have gradually been reinstalled again.
July 2020 revenue ended with a total of EUR 6.1 million, with a total growth of 16%, of which 4% was organic growth. Additionally, NDCs growth was 25% in July compared to last year. Based on the betting activity in our major European revenue share accounts, European sports wagering showed the second highest month ever recorded. Please turn to page nine. Looking at the operational earnings, Q2 EBITDA was EUR 6.3 million before special items, resulting in an EBITDA margin of 41%. The EBITDA margin remained in line with our financial targets, aided by the cost-saving program that we implemented in Q2 to counteract the effect of the lost revenue. The program included both a reduction of the organization, no salary to founders and board of directors, and a temporary salary reduction for the remaining organization in Q2, as well as a reduction of both variable and fixed costs.
The total cost for Q2 2020, including depreciation and amortization, decreased by EUR 3.3 million or 28% when compared to Q1 2020. The cost base will expectedly increase somewhat from July 1st with the lapse of intermediate measures and with the return to more normal activity level. Moving on. Sorry, please follow me to page 10. Moving on to cash flow and balance sheet. In Q2, operating cash flow before special items was EUR 10.4 million , resulting in a cash conversion of 154%. The high cash conversion was a result of lower revenue in the quarter compared to Q1, affecting working capital positively, and changed payment terms for certain payments of employee taxes, etc , during the COVID-19 lockdown. Cash and unused credit facilities were EUR 65 million at the end of Q2, with a net debt EBITDA ratio of 1.2. Please turn to page 11.
Coming back to the revenue growth, let's take a look at some of our internal key performance indicators, starting with the sports wagering, which is the growth in the underlying betting volume in our revenue share accounts. In this graph, we have also added historical numbers from the acquired companies and invested them all back during the expansion starting Q1 2013. The numbers are derived from accounts that represent more than 50% of the group revenue. As can be seen from the graph, the underlying betting volume in these revenue share base accounts has increased significantly over time, attributable to the many NDCs that we have been sending in 2018 and throughout 2019. In Q1, we saw a decline compared to Q4 due to the COVID-19 impact, which was further enhanced in Q2. The month of April and May were severely affected, whereas June picked back up.
July, which is not included in this graph, turned out to be the second-highest month ever in terms of sports wagering in our revenue share accounts in Europe. Please turn to page 12. In addition to the betting volume, we are looking at the average sports win margin on revenue share accounts, i.e., the percentage that is paid out on the volume. We have used the same indexing in the graphs shown before, and what can be seen is that the margins fluctuate over the quarters and that Q2 2020 was below average at index 83. The average index number in the quarter shown is 93. The volatility in sports win margin is something we view as being transient, but it can of course affect short-term performance up or downwards. Now, please turn to page 13, and then we're back to Jesper.
Thank you. In connection with the IPO, the board of directors decided a part of financial targets for the short medium-term. As 2020 is the last year in the range of the financial targets, which are average targets over the three-year period, we have provided additional information for 2020 in isolation. For 2020, we expect double-digit organic growth and total growth of more than 30%. The operating margin EBITDA for 2020 is expected to be more than 40% and net interest-bearing debt to EBITDA below 2.5x. In our trading update dated March 17, and again today in our Q2 report, we reiterate these financial targets. In this unprecedented situation, visibility is limited as I'll go over in the next slide. Please turn to page 14. The cancellation and postponement of major sports events have created less visibility and thereby greater uncertainty than before the COVID-19 pandemic.
As mentioned in the Q1 report, there's increased uncertainty regarding the revenue growth for the full year 2020 compared to previous periods. The revenue growth for the full year of 2020 is expected to be 15%-25% without any additional revenue contribution from new acquisitions. The M&A pipeline is progressing well, and we expect to complete one or more acquisitions
Before year end, which expectedly bring the total revenue growth, including M&A, above the financial target more than 30% for the full year. Earnings margin for the full year maintain more than 40%, independent of any new M&As, meaning that we are still running a tight cost control until we are certain that things have normalized. For 2021, we expect a normalized situation for major sports. In addition, several major events that have been postponed from 2020, including the Euro 2020, now Euro 2021, are planned to take place. Financial targets for 2021 will be provided in connection with the full-year report for 2020. Please turn to page 15. Let's look at the business update other than the COVID-related issues. Please turn to page 16.
Dear participants, please accept our apologies. For the technical issue, please stand by and we will resume our conference shortly. Thank you.
All right. I think we are back on and apologies for the technical issues. I hope you all can hear me, and I'll continue from page 14. The cancellation and postponement of major sports events have created less visibility and thereby greater uncertainty than before the COVID-19 pandemic. Therefore, as mentioned in the Q1 report, there's increased uncertainty regarding revenue growth for the full year 2020 compared to previous periods. The revenue growth for the full year of 2020 is expected to be 15%-25% without any additional revenue contribution from new acquisitions. The M&A pipeline is progressing well, and we expect to complete one or more acquisitions before year-end, which expectedly bring the total growth, including M&A, above the financial target of more than 30% for the full year.
Earning margins for the full year is maintained at more than 40%, independent of any new M&As, meaning that we are still running a tight cost control until we are certain that things have normalized. For 2021, we expect a normalized situation for major sports. In addition, several major events that have been postponed from 2020, including the Euro 2020, now Euro 2021, are planned to take place. Financial targets for 2021 will be provided in connection with the full-year report for 2020. Please turn to page 15. Let's look at the business update other than the COVID-related issues. Please turn to page 16. While European sports picked up before the summer, the U.S. is just beginning to start up, which is partly due to normal seasonality. Meanwhile, Better Collective has been making progress in regulatory processes, meaning that we are currently live in eight states.
The type of licensing agreement and legislation differ between states and correspondingly, so do our activities. One example is Illinois, where for a short while, online registration with bookmakers was allowed earlier this year. It was then shut down to offline registration only, and just last week, online registration was back on. Being a top five state based on GDP, we see great potential in Illinois. Our overall reach is increasing and more states are in the pipeline, including Michigan and Tennessee. In Tennessee, our licensing is already in place as we await sports betting to go live. In parallel, we're completing the transformation of our portfolio of leading U.S. sports betting brands acquired last year. This includes the rebuilding of vegasinsider.com, which we now are in process of relaunching in time for the NFL kickoff in September. We are excited to bring new design and features to our users.
Please turn to page 17. Before I sum up, I just want to speak to the fact that we have signed a letter of intent for a new acquisition that expectedly will come to final closing in the second half of 2020. The letter of intent concerns the acquisition of an iGaming company for up to approximately EUR 45 million. The target company has a global presence and is specialized within lead generation towards online gambling. The target company has disclosed its current expectations for financial performance for 2020, with revenue of more than EUR 40 million and operational earnings of more than EUR 8 million. The acquisition is pending due diligence and final contract negotiations and will, if completed, be an important strategic move for Better Collective.
In general, our ambition is still to seek more value-adding acquisitions to the Better Collective group, and we continue to see a very interesting M&A pipeline. Please turn to page 18. I'll finalize this presentation with a snapshot of Better Collective. I would like to express my sincere thanks to all Better Collective stakeholders, our employees and management team, our board of directors, and all our business partners for their continued astonishing performance and flexibility in this extraordinary environment. The past quarter has really demonstrated a strong team spirit in Better Collective. We expect 2021 to be a year packed with major sports events, hopefully with the participation of spectators, so everybody can enjoy the maximum entertainment of sports, and that our business can continue the strong growth we've seen in the past. This concludes our webcast presentation for Q2 2020, and we'll now open for questions from the audience.
Thanks for listening in. Please turn to page 20, 22.
Thank you, ladies and gentlemen, we'll now begin the question and answer session. If you wish to ask a question over the phone, please press star and one on your telephone keypad. Alternatively, you are welcome to submit questions via the webcast. The first question comes from line of Erik Mobekk from ABG. Please ask your question. Erik, your line is open.
Okey great. Thank you guys. First question, could you please help us understand the dynamics of the start of Q3 better? Organic growth was much weaker than I would have expected, especially given that you, in theory, should have easy comparables. Does this solely pertain to weak NDCs in Q2, so you had less customers at the start of Q3, and hence we should expect a slower recovery, or is there anything else that I'm missing?
There are a few factors to that, Erik. One, which we also mentioned, is sort of the NDC momentum, which obviously has been affected by the numbers during the lockdown, meaning that we've been sending fewer NDCs, which is dampening activity levels. When we talk about what we see in the accounts with sports activity, that relates mainly to the core European market, whereas we do see globally that we are still affected to some degree by lower activity levels, also with sports that are not still active. They would be the main reason for that.
Got it. Also on your recent acquisition, could you perhaps give us some more color? You mentioned it has a global reach. Could you perhaps elaborate a bit more on the geographic exposure and also a bit on the margin? It appears to be on the lower side. There should be some room to expand this quite materially, or what is your take on that?
Unfortunately, we can't comment more than what you see in the report yet. It is just an LOI and still it's pending due diligence and final contract negotiation. Hopefully we'll be able to close this target and then we would, of course, tell much more.
Got it. Is it fair to assume that it could, in theory, boost this margin quite substantially over time?
Again, sorry, we cannot comment on that for now. We'll come back to that shortly.
Okay. Fair enough. In terms of Latin America, and specifically Brazil, could you give us some more color on how you're positioned for that market once it regulates, and what sort of your expectations are there?
We're in a good position. We have some strong assets there. It's a market that we monitor closely and have been working with for quite a while. Coming back to sort of the effect of sports, Brazil is actually a country where we have seen games being postponed and canceled just prior to kickoff. It's a market which is affected by the COVID-19. Long term, it's a very exciting market, and we are close and will stay close to that market.
Got it. If we turn our attention to the European side of things, could you perhaps just elaborate on the outlook of demand for the second half versus one year ago?
Sorry, did you say the demand?
Yeah, like overall demand for affiliates in the European business.
I think the talks and reactions we have from our business partners is pretty much in line with what we have experienced in the past. There is no doubt that during the lockdown, we did see Better Collective wasn't the only company that made cost initiatives. We saw that across. I would say in terms of the relationships, it's now coming back to a normal level, and I think so since sports have picked up again.
Got it. If we look into 2021 and 2022 for Europe, you will have tailwinds from the Dutch regulation, but you will also have some headwind from Germany, I suppose. Could you perhaps elaborate a bit on the net effect from this?
It is very hard to say right now. As you rightly point out, currently we have no exposure towards the Dutch market. When that hopefully goes live at some point in time, that would be a growth opportunity to us. Where the German regulation will land, we'll have to see. It's a big market for us, so it's of course important where this lands.
Got it.
Yeah, exactly.
In terms of the U.S., you previously mentioned that we should see it more as a gradual ramp up over time. Is there anything that has changed there? Yeah, for the outlook for the second half there?
No, I would restate that comment. That is what we expect. Again, we of course, watching the development of COVID-19 and the effect that may have on sports in the U.S. which is, as we all know, a country that has been heavily affected by the COVID-19 situation. For now, a gradual ramp up is what we expect.
Okay. It would also be helpful just to get an update on your expectations for Illinois as a market. Do you expect to see a similar ramp-up for sports betting there as in New Jersey?
We have limited data, but while there was the online registration available, we saw pretty good traction. That's what we expect to see again. Yeah, guessing more is difficult. We saw a good effect and decent traction when it was open, and that is obviously what we hope to be able to achieve again.
Fair enough. Just lastly on the U.S., could you perhaps just give us also a general update in regards of where you see overall demand versus one year ago, both in terms of the, yeah, in terms of CPA levels, et cetera, and also in regards of how the competitive landscape trends is looking. Is there anything that you've seen that has changed versus one year ago? If we look at the outlook for the second half.
I would say that compared to a year ago, where the U.S. was pretty new to us, our overall relationships with the different operators have improved. We now have more product on the shelf and dialogue develops. Developing according to plan and positively. The entire landscape, I would say is also, it has developed as we expected and there's competition, that's no surprise. All in all, no surprises, I would really say.
All right. Got it. Thank you very much, guys. That's all from me.
Thank you.
Thank you.
The next question comes from line of Hans-Erik Lind from Nordea. Please ask your question.
Yes. Hi, guys. Can you hear me?
Yes. Hi.
Yeah. Thank you for taking my questions. Just a comment or a question on how we should look at the comments of higher uncertainty to your revenue targets, and how we should couple this with the strong sports wagering in July in Europe. Is the uncertainty mainly on the U.S. coming back, or how should we think about this?
Flemming here. Hi, Erik. Thanks for the question. I think in general, what we see and what we try to reflect in our report is that, what we see in our European revenue share accounts is that when the sports are returning, the European bettors are returning with the normal behavior or even higher than before. I think we all have to recognize that of course the sports calendars have been shifted, and we have playoffs in the middle of July. It is not a normal situation, and that's also why we take a cautious approach to the second half of 2020. As Jesper mentioned and what we also have in our report, one thing is Europe, where we have seen the major football leagues coming to playoffs, and thereby also the betting activity.
Countries like U.S., LATAM, and other places are still in, or have been in a lockdown period and now gradually are reopening. That's why we basically have not just a European situation, but also a quite different global situation, at least right now. We have seen that sports are coming back on these soccer football leagues in Brazil are starting up. We see U.S. sports starting up. It is, of course, with a bit of difference to what we normally see. That's what we're trying to reflect in the bit higher uncertainty than normal.
All right. Yeah. Thank you. That's clear. Just on the launch of Vegas Insider, which is very exciting, how rapidly do you see this start contributing in a meaningful way to revenues? Is it already in September or when should we expect meaningful revenues from Vegas Insider?
We have now rolled out sort of the first new design, and there will be constant tests and improvements done to the site. The overall idea with that relaunch is to bring Vegas Insider up to modern day. It looked like something it was, built in the end of the 1990s. Thereby we believe we can grow over time traffic, we can make the site more sticky, and we'll be able to convert better. That is a process, meaning that we are not going to get that right from day one. I do expect that Vegas Insider should perform better this year compared to last year.
How much better and how fast we will be able to get this right and grow revenues is also something with uncertainty and where we have to wait and see, because it's simply based on us improving site, testing the site. I'm very happy with what we have launched now. I think it's a very good starting point for the site, and the focus will now be to both grow the monetization on the site by being able to charge users and grow revenue by that, but also obviously by affiliation. Still we must remember that on Vegas Insider, we have traffic prorated by states. Most of the traffic on that site we can't monetize yet through affiliate marketing. It would be also monetization being done by CPM sales.
It will take time, but again, the long-term of this, when we have more states regulated and sort of see the full potential of the U.S., Vegas Insider will just be a prime position to be a leading site in such a market.
Right. Thank you. You're currently live in eight U.S. states. By the end of 2020 or perhaps even 2021, what is this number? Is it 10, 20, or what is it?
We mentioned just to choose other states. We mentioned Tennessee and Michigan. Again, we would like to be a bit cautious about this because we simply can't predict when the states will go live. One thing is that they may adopt some legislation, but for them to actually go live and us being able to target the market is a bit differently in terms of timing. Yeah, we'll be cautious there. Again, for the long term, we're very optimistic on this.
Right. Thank you. Just a final one from me here. You mentioned that HLTV grew really quickly in the quarter and a strong uptick in esports. Is it possible to say approximately what percentage of total revenues came from esports in the quarter and what you see going forward here?
We're not disclosing that. What we said just after we acquired the company was that we would start working with the affiliate model and try to drive more depositors from the traffic. That is going well. Overall, we believe that we'll be able to increase monetization and thereby total revenue from the site going forward. Again, it will happen gradually, but things have gone well, and we expect them to continue to go well. We're not disclosing the revenue of the site.
Okay. That's it from me. Thank you for taking my questions.
Thank you.
Dear participants, if you wish to ask a question over the phone, please press star and one on the telephone keypad. Alternatively, you're welcome to submit questions on the webcast. Please go ahead with the questions on the webcast.
Yeah, I think we have one question from the webcast. I will just read the question. Do you have any new information on legislation in Germany and how it can affect your business there? I'll try to answer as best as I can. There is a regulatory process going on in Germany for a different framework. It is now, as we understand it, with the European Union for review and for commenting from other member states. That's where the process is right now. From what we can understand, there are significant comments and debate about this. It's something that we'll have to monitor and see where it goes. Most of our revenue is for sports betting, where we believe that there will be a framework going forward.
We also believe that we can find our ways in that market also under the new framework. We'll have to see what comes out of it, but we don't have any material news from the process. All right. I think that was it for questions. Thanks a lot for dialing in. Again, we apologize for the technical issues. Have a great day, everybody. Bye.