Earnings Call: Q2 2019

Aug 14, 2019

Good morning, ladies and gentlemen, and thank you all for standing by. Welcome to today's q two two thousand and nineteen 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, August 2019. Without any further delay, I would now like to hand over the call to your speaker today, Jesper Sogaard. 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 1 to June 3039, which we released today. My name is Jesper Sugel, CEO and Co Founder of the company. And with me today are CFO, Fleming Petersen and IR Manager, Kristina Thompson. Q2 has been an eventful quarter for Beta Collective, to say the least, so 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 US 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 decide upon in connection with the IPO. We will, as always, end the presentation with a Q and 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 World Cup and 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 twenty nineteen, we generated more than €14,000,000 in cash flow from our operations before special items. Fleming 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 MVCs, adding to our bank of players and laying the foundation for continued growth. In Q2, we sent more than 111,000 unit posting customers to our partners. This is a 60% increase compared to the number of MVCs in the same period the year before, which, as mentioned, a tough comparison due to the World Cup and football last year. Q2 Q2 highlights this quarter was the two U. S. Acquisitions and the first media partnership along with a 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 founded an affiliate trade body in The UK, which we will also add a bit more flavor to in today's presentation. Please turn to Page five and the word over to Fleming. Thanks, Jesper. Now I look at the financials for Q2, so please follow me to Page seven. In Q2, total revenue was €15,800,000 which was 64% growth compared to the same period last year. The organic revenue growth was 18% compared to 41% in a strong Q2 twenty eighteen. 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 strong 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 revenues such as advertising, etcetera. With rotor grinders consolidated into our accounts from 06/01/2019, 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. And in these two recent quarters, we prepared better than ever for these events that delivered a high number of indices. Looking at other underlying key performance indicators, we also saw high 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 €6,800,000,000 before special items, resulting in an EBITA 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 costs from the acquired companies as well as added costs 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 investments 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 NGA 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 €6,600,000 resulting in a cash conversion of 93%. Cash payments related to acquisitions and other investments amounted to €30,000,000 in the quarter related to the Rotogrinders acquisition along with deferred payments regarding the 2018 acquisitions in Vienna, in Greece and also the Swedish Rebaca Group. In Q2, Better Collective acquired 60% of the shares in the rotabrinders 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 €21,000,000 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 and L and corresponding to the various intangible assets. Cash in our unused credit facilities stood at €77,000,000 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 and 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, sports ragering, 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 Q1 twenty thirteen. The numbers are derived from accounts that represent 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 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 volume underlying betting volume. 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 twenty nineteen, it 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, Fleming. 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, 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 regulations that typically result in significantly larger markets. For this quarter, we have 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 US is obviously something we follow very closely. Beta Beta Collective has 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 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 late in the year. In Tennessee, regulation is expected during late twenty nineteen or beginning of twenty twenty. We have seen 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 days currently is less interesting for affiliates. The US 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 US market, whereas some needs to be tailored to the single state. We are teaming up with relevant online operators and seeking necessary licenses. In q two, the New Jersey division of gaming enforcement deemed our application for an ancillary license complete. And 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. And 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 US, including rotogrinders.com, pocket fives Com, spotshandle 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 q two, we acquired two US market leading sports betting brands, Vegasinsider.com and scoresandarts.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 BetaGalactic in the coming years. Furthermore, they have significant synergy effects with other US facing assets, not least with the rotogriners 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 Betaflective's acquisition, the business model will be changed towards affiliate marketing within sports betting. '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 license operators from Q3 twenty nineteen and the technical commercial overhaul is expected to be complete during the second half of twenty twenty. During the transitional period of the websites, revenue and earnings from the website 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 dot com. This is the first of its kind for Beta 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 session 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 and currently we're in advanced dialogue with a media group in Europe. Netaflective U. S. Key points after these acquisitions include annualized revenue of more than $10,000,000 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 NJ Media partnership will be run. Our VP of Business Development and Sales, Mark Peterson, will act as general manager to ensure BC alignment, building on his many years in the BC family. Currently, have about 65 employees in The US, most of which join us through the acquisitions, but also hire us for new roles. All relevant functions are aligned with our teams in Copenhagen and Paris who are already working with The U. S.-based in 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 and 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, Odds, Checker and RacingPost, we have launched a trade association Responsible Affiliates in Gambling, or RAIG. We recognize the role of affiliate marketing providers must play as part of wider industry initiatives in The UK to promote social responsibility and a safer gambling environment for consumers. Our ambition is for REG to be a game changer in terms of compliance standards for affiliates, ensuring a lift 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 Betaflex 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 have invested a total value of more than €125,000,000 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 Teleflexic 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 €40,000,000 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 form a basis, excluding organic growth, the revenue would exceed EUR60 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 and 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. Beta 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 and A session. Thank you. Thank you. Ladies and gentlemen, we will now begin the question and answer session. 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 stakeholders external stakeholders should just 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. Fleming 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 medias that have significant volumes of traffic already. Some media already have betting sites up and running that has massive online traffic. The way we, let's say, contribute to this is, of course, that we have deep knowledge within affiliate marketing and thereby get access to the volume and to the traffic volume. And 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. So basically, we will apply the exact same business model as we do of any of our other websites, basically tap into a whole new channel of traffic. We believe this will be an important leg to our business and and, therefore, also significant in in future revenue and and profit generation. I would defer from putting numbers to it today, but this is how we see it. And of course, the impact will take some time to build up as we need to basically align the products of affiliate marketing. So I would reckon that this will have a significant impact from 2020 and going forward. Thanks for that. I understand that it's difficult. And then another question on on the two websites, Vegas Insider and, of course, the Mobs. You're saying that those two websites combined over the next couple of years could be larger than, I guess, betting experts in terms of revenue generation. Is that what you're saying, or did I misinterpret it? That that's correct. Okay. And, do you have, or have you said historically, how how big betting expert, has been in terms of revenue generation for you guys or as a percentage of total revenues in terms of IPO or just to get Yeah. We we have we have never really we never given a specific number for for any of our websites. So we would refrain from from from comment on on that. I would rather speak to the potential of Vegas Insider and and scores and ours. And these sites are, as we have communicated, already established brands in the mind of American sports consumers and and punts. And now with the regulated market that's gonna open up state by state, these sites is already reaching the exact demographic that we wanna target that are used to to sports betting. And so but now we'll be looking for for regulated operators in their states. And that's why we see such a big opportunity with this that is really established brand where we are now gonna apply the business model we know so well. So need to work with the sites, but we believe the potential is very big. Okay. Thanks. And then just my final question. Just to understand the balance sheet correctly, you have EUR17 million in cash in the balance sheet. Is that have you paid for Vegas Insider and Scores and Ops? Or should should one sort of adjust for that from looking at the the cash position? That's correct. We we paid for for Vegas Insider and concluded that transaction in in July. Okay. Okay. Okay. Great. Thanks. That was it for me. Thanks, Christian. Our next question is from the line of Jonas Amniston. Thank you. Please ask your question. Hi, guys. Thanks for the presentation. So I have three questions. And the first one is, as you already mentioned, the FIFA World Cup, it's 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 year? Yeah. I think we talked about that, Laje, that the effect of the World Cup is primarily one month in the quarter. But 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 or some positions on-site, and and prices for that also increased during the the World Cup simply because of the strong demand from from our operators. But still, it's mainly one month where we see a big impact from the World Cup. All right. And you also mentioned that you are in a full 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? Well, in New Jersey, we have good colleague doing very well, Katsina Media. And then we know there are several of of our colleagues in the industry that have all have great ambitions and aspirations for the American market. So it's not like there won't be any others. But fortunately, this is a very big ocean that where the fish will be swimming around. So I think there will be a good business for several companies in this market. But with the two acquisitions we have now done, we really feel confident about that we can achieve the full potential in The U. S. With our business. Yeah. But you would say that the the Ketilimedia is the largest competitor for this this position? I can't say specifically, but but but they are surely they they they do a great job. They've also done some some good acquisitions in the past. So so surely, yes, they they are a very important player in the market. Yeah. And could you mention any other companies that you would say are large competitors to? I I think, as I said, there there there are several, companies in the industry. So so 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. So I think, if if we do things well well with the foundation we have now created for ourselves, I'm not really concerned about competition. And 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. So it's a very big market. So competition is is not my my main concern in The US. Alright. Alright. You also mentioned that you continue to see many acquisition opportunities. Which market are the most interesting to you? Is it still The US market, or is it another specific market that you're looking closely at? Well well, The US, we feel we have now done some very good and attractive acquisitions. So, obviously, we also need to work with them. So so US is not first in mind any anymore. Europe, we're also in a very strong position. So 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 and A space where we are known. So if somebody is considering selling their business, I'm quite sure they will reach out to us. And then we're also looking at skill sets, there could be some skills that we would like to add to our business. And potentially, yes, there could be the markets or environments where we believe sports betting is important. So so right now, we have a pretty broad approach, and feel that we're in a good position with our current business. So so we don't feel any strong need to go and and act, but but, fortunately, we still see a nice inflow of new opportunities. Yeah. And my last question here, what's your view on South America? Is it still a very interesting market? Are you, you know, doing anything for us, Dartmouth? Yes. We we believe South America represents a a great great opportunity. We we are already working actively with South America and then invest in in that region. So it's something which is also quite high on our our agenda. Alright. Alright. 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. Alright. There seems to be no further questions. Then we'll, from the company, thank you for your participation. And if you have any further questions, you are as always welcome to to contact us directly. Thanks, and have a nice day. So that does conclude our conference for today. Thank you all for participating. You may all disconnect.