Good morning, ladies and gentlemen, and thank you all for standing by. Welcome to today's Q2 2019 presentation. At this time, all participants are in a listen-only mode. There will be a presentation, followed by a question and answer session, at which time, if you wish to ask a question, you'll need to press star one on your telephone keypad and wait for your name to be announced. I must advise also that this call is being recorded today, Wednesday, the 14th of August, 2019. Without any further delay, I would now like to hand over the call to your speaker today, Jesper Søgaard. Thank you. Please go ahead.
Thank you very much. Welcome to Better Collective's webcast presentation in connection with the Q2 report, covering the period January 1st to June 30th, 2019, which we release today. My name is Jesper Søgaard, CEO and co-founder of the company. With me today are CFO Flemming Pedersen and IR Manager Christina Thomsen. Q2 has been an eventful quarter for Better Collective, to say the least. I'm excited to be sharing this report with you. We're continuing the profitable growth and expanding our position as the number one aggregator within online sports betting, now also with a strong foothold in the emerging U.S. market. Q2 also marks the conclusion of our first full year as a listed company, and wrapping up today's presentation, I will walk you through what we have delivered during the year.
Please turn to slide 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 off with a presentation of the highlights of Q2. We'll walk you through the financials for the quarter, then we'll update you on our U.S. business and recent acquisitions, and recap the framework of financial targets we decided upon in connection with the IPO. We will, as always, end the presentation with a Q&A session. Please turn to page four. On to the financial highlights of Q2. Growth in Q2 was strong compared to the same quarter last year, even with tough comparison to last year with the World Cup in football as a big revenue driver. 64% revenue growth, of which 18% was organic.
Operational earnings grew by 77%, with a reported 43% EBITA margin, and a strong cash flow with a cash conversion of 93%. For the first half of 2019, we generated more than EUR 14 million in cash flow from our operations before special items. Flemming will revert with more insights into the financial performance, and in order to give a bit more insight into the moving parts of our business, share some in-depth insights into the underlying performance of the business. We continue to deliver a high number of NDCs, adding to our bank of players and laying the foundation for continued growth. In Q2, we sent more than 111,000 new depositing customers to our partners. This is a 60% increase compared to the number of NDCs in the same period the year before, which, as mentioned, is a tough comparison due to the World Cup in football last year.
Q2 highlights this quarter was the two U.S. acquisitions and the first media partnership along with the revenue share license in New Jersey. We will comment in more detail on the U.S. business later in this presentation. We also expanded our bank credit facilities to ensure the continued funding of our acquisitive growth. Last but not least, we co-funded an affiliate trade body in the U.K., which we will also add a bit more flavor to in today's presentation. Please turn to page five, and the word over to Flemming.
Thanks, Jesper. A look at the financials for Q2, please follow me to page number seven. In Q2, total revenue was €15.8 million, which was a 64% growth compared to the same period last year. The organic revenue growth was 18%, compared to 41% in a strong Q2 2018. If you look at the revenue graph to the right, you can see that the quarterly fluctuations and average quarterly growth in revenue and NDCs. A significant part of the growth we have seen in this quarter is a result of the strong NDC intake in recent quarters, as we mostly work on revenue share, where there is a delay from NDC to revenue. The split between revenue share and CPA was 74% to 15% when we look at the revenue generated by players, whereas 11% of our total revenue came from other revenue such as advertising, et cetera.
With RotoGrinders consolidated into our accounts from June 1st, 2019, we are also beginning to recognize subscription-based revenue, which represent a high degree of recurring revenue, as is the case for revenue share income. We will comment on this in more detail next quarter when subscription revenue will have been present for the whole quarter. We saw, again, high NDC numbers this quarter with more than 111,000 new NDCs, most of which are transferred to revenue share contracts. Q1 and Q2 are normally strong on NDC performance, impacted by large U.K. horse racing events such as the Cheltenham Festival and the Grand National. In these two recent quarters, we prepared better than ever for these events that delivered a high number of NDCs. Looking at other underlying key performance indicators, we also saw all-time high performance. I'll come back to this in a few slides.
Now, please turn to page number seven. Looking at the earnings, Q2 EBITDA was EUR 6.8 million before special items, resulting in an EBITDA margin of 43%. This implies a growth in the operating profit of 77%. We have seen the expected leverage from the organic growth as well as effect from acquisitions. Looking at the cost base, we saw added cost from the acquired companies, as well as added cost to activities that will impact future growth and earnings. These activities relate in particular to the U.S. acquisitions and the organizational expansion connected to that. The launch of our new leg to the business, media partnerships, and also continued investment into product development. Overall investments have and will be made in the organizational buildup and integration of the new entities.
In the U.S., this comprise offices in Nashville, Tennessee, Fort Lauderdale, Florida from the acquisitions, and a newly opened office in New York, out of which the N.J. media partnership will be run. All these investments in the future are being expensed as cost as they come, whereas we will see the revenue and income in the future. On that note, I'm pleased to see that we have maintained strong earnings and margins. Please turn to page eight. Moving on to the cash flow and balance sheet. Operating cash flow before special items was EUR 6.6 million, resulting in a cash conversion of 93%. Cash payments related to acquisitions and other investments amounted to EUR 30 million in the quarter, related to the RotoGrinders acquisition, along with deferred payments regarding the 2018 acquisitions, in Vienna, in Greece, and also the Swedish Ribacka Group.
In Q2, Better Collective acquired 60% of the shares in the RotoGrinders network and has an obligation to acquire the remaining 40% in the years 2022 to 2024. Therefore, the total business has been consolidated at a fair value, and the fair value has been determined for the remaining 40% of the shares based upon the purchase agreement and financial forecast. This has resulted in a long-term debt of EUR 21 million that has been posted as contingent consideration. This amount is based upon the current knowledge and forecasting and may differ from what actually will have to be paid. Any future adjustments to this amount will be posted as special items in the P&L and corresponding to the various intangible assets. Cash and unused credit facilities stood at EUR 77 million end of Q2, and the equity ratio was 53%.
The strengthened balance sheet combined with higher cash flow from operations gives us significant room to further explore M&A opportunities. Please turn to page nine. Coming back to the revenue and growth, we have decided to share some of our important key performance indicators, i.e. the sports wagering, which is the underlying betting volume, where we also have added historical numbers from the acquired companies and indexed them all back to index 100 starting in the Q1 2013. The numbers are derived from accounts that represents more than 50% of group revenue and is one of our important key performance indicators. As can be seen from the graph, the underlying betting volume in these revenue share-based accounts increases significantly over time, with a steep growth in recent quarters that we mainly attribute to the many indices that we have sent throughout 2018 and 2019.
The recent steep curve is, of course, very encouraging as this is a strong indicator for a sizable increase in the value of the player databases that we have built over time. Please turn to page 10. In addition to the betting volume, we also look, of course, very closely to the average gross win margin, i.e. the percentage that is paid out on the underlying betting volume. We have used the same indexing as the graph shown before, and what can be seen is that the margins fluctuate over time, over the quarters, and in Q2 2019 was fairly average at index 93. The average index number over the quarters shown here is 94. Please turn to page 11, and the word back to Jesper.
Thanks, Flemming. Generally, we are focused on being present in markets that has a clear and transparent regulation for online betting. This offers visibility and predictability. Most of our business is focused on being strongly positioned within sports betting in the various markets. This is where we have our core competencies and where we believe our products and technology allow us to have a competitive edge. Furthermore, we can see that from a regulatory point of view, sports betting is in some countries viewed favorably compared to other online gambling, such as casino. We always follow the market developments closely and welcome regulation that typically result in significantly larger markets. For this quarter, we've decided to focus on the U.S. and not, as in previous quarters, lay out the regulatory landscape for our full scope of business.
Going forward, we will of course bring any updates that will significantly impact our business and our expectations. Please turn to page 12. The regulatory development in the U.S. is obviously something we follow very closely. Better Collective has been licensed in New Jersey since 2014, and we keep growing our market share. Pennsylvania has recently launched sports betting online, and Better Collective have started activities in this market. In West Virginia, the market has been online since December 2018, but it was recently shut down due to operators facing issues with a third-party provider. We expect this to be resolved during the next quarter. New York has gone live offline, but is not expected online betting before 2020. Similarly, Rhode Island is currently not live online, and is not expected to go live until later in the year. In Tennessee, regulation is expected during late 2019 or beginning of 2020.
We are seeing positive development in Indiana as launch is expected in September 2019, beginning with offline sports betting, after which online is expected to follow. Iowa and Illinois are expected to go live late this year or early next. However, we expect there will be a requirement for physical personal registration, while the business case in these states currently is less interesting for affiliates. The U.S. market is characterized by high player values, and we expect that the market long-term will exceed the European sports betting market. However, we also expect that it needs a different and dedicated approach in order to unlock this big potential. We view each state as an individual country with different regulation, different operators, and often with different views on individual sports. Some products can work for the entire U.S. market, whereas some needs to be tailored to the single state.
We are teaming up with relevant online operators and seeking necessary licenses. In Q2, the New Jersey Division of Gaming Enforcement deemed our application for an ancillary license complete, with that we can start working on partnerships based on the revenue share model. So far, we have been operating on the CPA. Please turn to page 13. Taking part in the consolidation of the affiliate industry is a vital part of our strategy. In Q2, we completed our first U.S. acquisition, rapidly followed by the second U.S. acquisition after the end of the quarter. While we have had U.S.-focused products up and running for some time, leading to revenue streams from online sports betting since last year, we have now started building a presence in the U.S.
Taking part in the big U.S. market opportunity was significantly boosted by the acquisition of the RotoGrinders network in Q2, adding strong products and dedicated people with insight into the U.S. market. Founded in 2009 and headquartered in Nashville, Tennessee, RotoGrinders owns a strong network of platforms for sports betting and daily fantasy sports, or DFS, in the U.S., including rotogrinders.com, pocketfives.com, sportshandle.com and usbets.com. DFS has a strong fan base while we expect this part of the business to continue, while also ensuring sports betting exposure to a sports-interested audience. The three founders in the RotoGrinders network will continue managing the daily business and comprises approximately 50 employees. After the end of Q2, we acquired two U.S. market-leading sports betting brands, vegasinsider.com and scoresandodds.com.
These two websites have since many years been the platforms preferred by millions of visitors and have the potential of becoming the largest revenue-generating assets in Better Collective in the coming years. Furthermore, they have significant synergy effects with other U.S.-facing assets, not least with the RotoGrinders network. The business model that has been applied by the website so far is based on user subscriptions, sale of picks, which is tips in European standard, and brand advertising. Following Better Collective's acquisition, the business model will be changed towards affiliate marketing within sports betting. We'll make a technical and commercial overhaul of the website in order to facilitate regulated affiliate marketing and related revenue from the states that allow online sports betting.
The two websites are expected to send traffic to licensed operators from Q3 2019, and the technical commercial overhaul is expected to be complete during the second half of 2020. During the transitional period of the websites, revenue and earnings from the websites will be temporarily reduced. Last but not least, in Q2, we entered into a media partnership with leading local news media in New Jersey, nj.com. This is the first of its kind for Better Collective, while this also marks the launch of a media partnership division within the company. Essentially, we team up with nj.com to deliver a sports betting section co-branded with our flagship bettingexpert.com. We'll deliver our innovative technology and content for sports betting and casino. This collaboration exposes us to a large group of betting-interested readers to whom we can offer entertainment, education, and transparency.
We expect to enter into more media partnerships. Currently, we're in advanced dialogue with a media group in Europe. Better Collective U.S. key points after these acquisitions include annualized revenue of more than $10 million in 2019 and an anticipated profitable business with a strong foundation in both DFS and online betting and gambling. In order to manage the total U.S. business, we are currently building a strong team in the U.S. To give you an idea of the setup, investments will be made in the organizational buildup and integration of new entities. In the U.S., these comprise offices in Nashville, Tennessee, and Fort Lauderdale, Florida from the acquisitions, and a newly opened office in New York, out of which the N.J. Media partnership will be run.
Our VP of Business Development and Sales, Marc Pedersen, will act as general manager to ensure BC alignment, building on his many years in the BC family. Currently, we have about 65 employees in the U.S., most of which have joined us through the acquisitions, but also hires for new roles. All relevant functions are aligned with our teams in Copenhagen and Paris, who are already working with the U.S.-facing products and tech. Please turn to page 14. Which brings me to a brief look at our strategy and outlook. Please turn to page 15. As you may recall, our strategy for the coming years is focused on three main themes, organic growth, M&A, and geographical expansion. These three will continue to guide our activities. Please turn to page 16.
Being a prominent affiliate in the iGaming industry, we recognize our responsibility, and we are aware of the impact we have on the global iGaming industry, the rest of society, and Better Collective's other stakeholders. We want to use our position to influence and support responsible gambling for the benefit of our users and partners. Our mission is to make online sports betting and gambling entertaining, transparent, and fair, while we strongly endorse responsible gambling. In Q2, together with two of our colleagues in the iGaming business, Oddschecker and Racing Post, we have launched a trade association, Responsible Affiliates in Gambling or RAG. We recognize the role affiliate marketing providers must play as part of wider industry initiatives in the U.K. to promote social responsibility and a safer gambling environment for consumers.
Our ambition is for RAG to be a game-changer in terms of compliance standards for affiliates, ensuring a list of the entire industry for the benefit of users. We also hope for more affiliate companies to join our initiative and help fulfill the ambition. Please turn to page 17. Our financial targets remain unchanged from the IPO and will be our current financial framework. During the four quarters since the IPO, the financial targets have been met. Please turn to page 18. As I mentioned in the introduction, Q2 also marks our first full year as a listed company. I want to share a snapshot of Better Collective pre-IPO, a successful but yet quite small private Danish company with less than 200 employees in four European offices. Please turn to page 19. During this last year, we have grown on every parameter.
Since the IPO last year, we've invested a total value of more than EUR 125 million in acquisitions, growing our market share, leading position, number of offices, and employees. The local presence is important to us as it provides valuable local insights and understanding. The exchange of knowledge and best practices offers synergistic effects and keeps us at the forefront of the industry. In total, the acquisition strategy has provided significant profitable growth to the Better Collective group, and we expect to continue this strategy. Revenue has been growing steadily with a year-to-date CAGR of 53% over the last three years. In 2018, revenue amounted to approximately EUR 40 million. Our target EBITA margin before special items was more than 40% in 2018, and the business model we apply allows for high cash conversion close to 100% before tax.
With the acquisitions this year, however, the 2018 numbers do not provide the full picture. On pro forma basis, excluding organic growth, the revenue would exceed EUR 60 million. The IPO that we completed in June was the first time we took in external financing to the company. We did so in order to continue the M&A strategy that we started in 2017 by using the company's own cash flow. Following the IPO, the ownership structure has changed. However, more than 60% of the shares are still held by founders and management. Both Christian and myself continue as part of the executive management team. Better Collective is today the leading affiliate company within online sports betting, and our strategy is focused on retaining and expanding that position. This concludes our presentation, and I will now give the word to the operator to lead us through the Q&A session. Thank you.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, you'll need to press star and one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, you may press the hash key. Once again, star one if you wish to ask a question. Okay, our first question is from the line of Christian Hellman from Nordea. Thank you. Please ask your question.
Hi, guys. Thanks. Just a question on this media partnership in New Jersey. I understand that it might be difficult, but can you elaborate a bit on how perhaps we as analysts or other external stakeholders should sort of think about this, if there's any way to sort of understand what this could mean for you guys in terms of revenues in one or two or three years out?
Hi, Christian. Flemming here. Yes, you are right. It's very difficult to answer and give specific numbers since we haven't given any guidance to that
Clearly, we see this as an important business going forward as we are teaming up with media that have significant volumes of traffic already. Some media already have betting sites up and running that have massive online traffic. The way we, you can say, contribute to this is, of course, that we have deep knowledge within affiliate marketing, and thereby get access to the traffic volume. With each media, the idea is that we agree on a certain split of the profit. We have come so close to guidance as this is, you can say, the profit split is in favor of Better Collective. Basically, we will apply the exact same business model as we do with any of our other websites, but basically tap into a whole new channel of traffic.
We believe this will be an important leg to our business, therefore also significant in future revenue and profit generation. I would defer from putting numbers to it today, this is how we see it. Of course, the impact will take some time to build up as we need to basically align the products for affiliate marketing. I would reckon that this will have a significant impact from 2020 and going forward.
Thanks for that. I understand that it's difficult. Another question on the two websites, VegasInsider and ScoresAndOdds. You're saying that those two websites combined over the next couple of years could be larger than, I guess, bettingexpert in terms of revenue generation. Is that what you're saying, or did I misinterpret it?
That's correct.
Okay. Do you have or have you said historically, how big bettingexpert has been in terms of revenue generation for you guys or as a percentage of total revenues in terms of the IPO or just to get-?
Yeah.
Some points.
We never given a specific number for any of our websites. We would refrain from comment on that. I would rather speak to the potential of VegasInsider and ScoresAndOdds. These sites are, as we have communicated, already established brands in the mind of U.S. sports consumers and punters. now with a regulated market that's going to open up state by state, these sites is already reaching the exact demographic that we want to target, that are used to sports betting. now will be looking for regulated operators in their states. that's why we see such a big opportunity with this that is really established brand, where we are now going to apply the business model we know so well. We'll need to work with the sites, but we believe the potential is very big.
Okay. Thanks. My final question, just to understand the balance sheet correctly. You have EUR 70 million in cash in the balance sheet. Have you paid for VegasInsider and ScoresAndOdds, or should one sort of adjust for that from looking at the cash position?
That's correct. We paid for VegasInsider and concluded that transaction in July.
Okay. Great. Thanks. That was it for me.
Thanks, Christian.
Our next question is from the line of Jonas Amnesten. Thank you. Please ask your question.
Hi, guys.
Hi.
Thank you for the presentation. I have three questions. The first one is, as you already mentioned, the FIFA World Cup is one of the world's largest sports event that we had last year. Could you elaborate a bit more on how this has affected your revenue and the fees in June compared to June last year?
I think we talked about that last year, that the effect of the World Cup is primarily one month in the quarter. What we of course see is a very strong intake of NDC in the World Cup. We also have some elements of the business where we monetize by partly CPA or some positions on sites. Prices for that also increased during the World Cup, simply because of the strong demand from our operators. Still, it's mainly one month where we see a big impact from the World Cup.
All right. You also mentioned that you are in a pole position to become the market leader in the U.S. market. Which are your main competitors for this market leading position in the U.S. market, would you say?
In New Jersey, we have a good colleague doing very well, Catena Media. We know there are still several of our colleagues in the industry that have all have great ambitions and aspirations for the American market. It's not like there won't be any others, but fortunately, this is a very big ocean where the fish will be swimming around.
I think there will be a good business for several companies in this market. With the two acquisitions we have now done, we really feel confident that we can achieve the full potential in the U.S. with our business.
Yeah. You would say that the Catena Media is the largest competitor for this position?
I can't say specifically, but they do a great job. They've also done some good acquisitions in the past. Surely, yes, they are a very important player in the market.
Yeah. Could you mention any other companies that you would say are large competitors to you?
I think, as I said, there are several companies in the industry. It's more about looking at which companies do we have in the iGaming affiliate space, and most of them have ambitions for the U.S. They will be competitors, but again, that's not really the concern to me. The market potentially is so big. I think if we do things well with the foundation we have now created for ourselves, I'm not really concerned about competition. I think there is room for other companies to be successful in this market. As you see in Europe, there are several successful affiliate companies. It's a very big market. Competition is not my main concern in the U.S.
All right. You also mentioned that you continue to see many acquisition opportunities. Which market are the most interesting for you? Is it still the U.S. market or is it another specific market that you're looking close at?
Well, the U.S., we feel we have now done some very good and attractive acquisitions. Obviously we also need to work with them. U.S. is not first in mind anymore. Europe, we're also in a very strong position. We are not aggressively looking for specific targets. We have a nice inflow of targets. I think we have a good position in the M&A space where we are known. If somebody is considering selling their business, I'm quite sure they will reach out to us. Then we're also looking at skill sets, so there could be some skills that we would like to add to our business. Potentially, yes, there could be markets or environments where we believe sports betting is important. Right now we have a pretty broad approach and feel that we are in a good position with our current business.
We don't feel any strong need to go and act. Fortunately, we still see a nice inflow of new opportunities.
Yeah. My last question here, what's your view on South America? Is it still a very interesting market? Are you doing anything for that market?
Yes, we believe South America represents a great opportunity. We are already working actively with South America and invest in that region. It's something which is also quite high on our agenda.
All right. Thank you. That's it for me.
Thanks.
No further questions on the phone line. Please continue. No further questions on the phone line, ma'am. Please continue.
All right. There seems to be no further questions. We'll, from the company, thank you for your participation. If you have any further questions, you are as always welcome to contact us directly. Thanks and have a nice day.
That does conclude our conference for today. Thank you all for participating. You may all disconnect.