Earnings Call: Q1 2019

May 8, 2019

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Q1 twenty nineteen presentation. Only mode. I must advise you that this conference is being recorded today, Wednesday, 05/08/2019. I would now like to hand the conference to your speaker today, Mr. Jasper Sogar. Please go ahead, sir. Thank you, and good morning. Welcome to Beta Collective's webcast presentation in connection with the Q1 report covering the period January 1 till March 3139, 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. For Better Collective, twenty nineteen is off to a strong start, so I'm excited to be sharing this report with you. We laid much of the foundation last year, and it's beginning to pay off, continuing the profitable growth and expanding our position as the number one aggregator within online sports betting. 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 will start with a short overview of how BetaGlexive is currently situated, followed by a presentation of the highlights of Q1. We will walk you through the financials for the quarter, then we will review the recent market developments, with special focus on The U. S, where we continue to see positive progress. Last but not least, we'll share our thoughts on the future strategy and recap the framework of financial targets we decided upon in connection with the IPO. We will end the presentation with a Q and A session. Please turn to Page four. Now moving on to the highlights of Q1. Overall, it was a very strong quarter with highly satisfactory performance. I'll come back to the numbers on the next slide, but I do want to highlight that revenues almost doubled in this quarter compared to Q1 last year. Our earnings tripled and for the fourth quarter in a row we saw NDCs coming in at a record level. The strong growth we are seeing allows us to invest resources in several growth areas that are currently being offered to our industry. I'm very pleased that we can do these investments while maintaining high earning margins. Q1 also saw changing regulation and changing market dynamics, most significantly in the Swedish market. I'm happy to report that our Swedish business, including recently acquired Rebacca Group, has performed highly satisfactorily and to our expectations. In The U. S, we have seen positive development in the regulatory processes in several states, which will also come back to later in the presentation, as well as updates on the European markets. While there are events after the closing of Q1, we're extremely proud to have taken home three industry awards recently. We were honored to top the prestigious EGR Power Affiliate list for the second year in a row. Topping the list again with top scores for each criteria is without a doubt a seal of approval that we are on the right track. We took home the award for best in house team at the Semros Nordic Search Awards, an award that goes across industries and is a testament to our edge in search engine optimization. Last but not least, we were awarded for our commitment to compliance at the Global Regulatory Awards. Compliance is of increasing importance and has always been important to us, so this too makes me very proud. We will not be resting on our laurels though. Our ambition is to continue to grow and be the front runner in the industry. Please turn to page five. On to the financial highlights of Q1. Overall, it was a quarter with very strong performance, 97% revenue growth, of which 41% was organic. Operational earnings tripled with a reported 44% EBITA margin and a strong cash flow with a cash conversion of 112%. As we have highlighted in previous presentations, there is a delayed effect of new depositing customers as most of them are on revenue share contracts. This quarter we are seeing the effect of NDCs delivered last year, as expected I may have, materializing in strong organic growth. Fleming will revert with more insights into the financial performance and to give a bit more insight into the moving parts of our business. Looking at our expected future performance, I was very pleased to see the fourth quarter in a row where we see a company record of NDCs. In Q1, we sent more than 116,000 NDCs to our partners. This is close to 150% increase compared to the number of NDCs in the same period the year before, a very strong performance and a result of a dedicated and focused effort following the slowdown from late twenty seventeen on the back of temporary compliance measures from some of our partners. From Q1, we consolidated our recent acquisition, Rebakke Group, in Sweden. And with regards to new acquisitions, our large pipeline of potential targets is keeping us busy. I believe we can create a lot of value by continuing our M and A strategy, and I'm looking forward to integrating more successful companies into the Better Collective group this year too. Please turn to Page six and the word over to Fleming. Thanks, Jesper. Let's look at the financials in more depth for the Q1. Please turn to Page seven. In Q1, revenue was €14,900,000 which was 97% growth compared to the same period last year. The organic revenue growth was 41% compared to an almost flat 1% in a weak Q1 of twenty eighteen. If you look at the revenue graph to the right, you can see the quarterly fluctuation and average quarterly growth in revenue and NDCs. As Jesper mentioned, a significant part of the growth we have seen in this quarter is a result of the strong NDC intake last year as we mostly work on revenue share where there is a delay from NDC to revenue. The split between revenue share and CPA was eighty-twenty when we look at the revenue generated by players, whereas 10% of the total revenue came from other revenues such as advertising, etcetera. You may note that we have had, until now, had revenue share of around 80% to 90%. This split has changed slightly, mainly due to our latest acquisition in Sweden, which brought more CPA and hybrid contracts. And I can also note that while our U. S. Business is growing but limited in size, the contracts there are also purely CPA for the time being. We saw record high indices with more than 116,000 in the quarter, again most of which is transferred to revenue share contracts. Looking at other underlying key performance indicators, we also saw all time high levels. Please turn to Page eight. Looking at the earnings, Q1 EBITA was €6,500,000 before special items, resulting in an EBITA margin of 44%. We have seen the expected leverage from the organic growth as well as the effect from acquisitions. Looking at the cost base, we saw added cost, of course, from the acquired companies as well as added cost to activities will have impact in the future growth and earnings. Currently, we see so many attractive areas to invest in. We have resources to increase PPC activities. We have invested in market development such as The U. S, South America and other markets where we see the regulatory landscape is changing. We are investing heavily in product development and other new business areas that we hope to present in the near future. All these investments in the future are being expensed as cost, whereas we will exceed the revenue and income in the future. Whilst investing in new activities, we maintain strong earnings and earning margins. Please turn to Page nine. Moving on to the cash flow and balance sheet. Operating cash flow before special items was €7,600,000 resulting in a cash conversion of 112%. Investments related to acquisitions and other investments amounted to €3,100,000 in the quarter, most of which was settlement of net working capital adjustments relating to the Rubarka acquisition. Cash and unused credit facilities stood at 54,400,000 end of Q1 and the equity ratio was 58%. The strengthened balance sheet combined with the higher cash flow from operations gives us significant room to explore further M and A opportunities. Please turn to Page 10 and a word back to Jesper. Thanks, Lemming. 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 expertise 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. We prefer to have local offices and employees with insights into local sports and betting behavior, also allowing for allowing for a close contact with our partners. Please turn to page 11. In general, we can see that many European countries are adapting regulation that allows online betting as it limits black economies, provide national tax tax revenue, and not least provide the best possible environment for sound betting behavior. In the Q one report, we have provided a short review of what we see as the most relevant market developments. In summary, Sweden became a regulated market as from 01/01/2019, which we see as very positive. We saw strong performance in Sweden in Q1, and although there have been reports on decreased activity of online gambling, which has generally affected the sector, we believe the market will continue to find a new balance. In the long run, we expect Sweden to be an important and valuable market for online sports betting. UK will implement an increase taxation on online casino as from October 2019 from 15% to 21%, but not for sports betting. In Germany, there is a continued unclear situation for online casinos with different frameworks between states. In March, the state prime ministers agreed on an interim interstate treaty, which has been notified to the European Commission and is pending signature and ratification by each state. There are still a number of controversial elements to this interim treaty, including uncertainty over the future of Gliese Holstein's casino licensing regime. As the situation seems unsustainable, we expect the German casino market to reregulate at some point and become a key market. Beta Collective's current exposure to online casino in Germany is limited, while it's holding a strong position within sports betting. We view sports betting as a regulated market as sports betting is currently operating under a temporary framework that is scheduled until mid-twenty twenty one, whilst negotiation with EU regarding a new regulation is ongoing. Last year, Slovakia implemented a new law that opens for online casino and sports betting in 2019 and 2020, respectively. In Italy, the new government has introduced a ban on online gambling advertising. It is still uncertain what this will entail in practice. In q one, the Netherlands passed a bill regulating online gambling, while definitions are still pending. The market is expected to open in late twenty twenty or mid twenty twenty one at the latest. Our view is that the most European countries are moving towards regulated markets with different speed and with some introducing adjustments to balance the different aspects. Based on these macro trends, we expect to see continued strong growth coming from the European markets. Please turn to page 12. The regulatory development in The US is obviously something we follow very closely. Beta Collective have been licensed in New Jersey since 02/2014, and we keep growing our market share. There are still only a few operators live within sports betting, but we expect more to come online during the next three to six months. Recent developments in the individual states include that 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. Rhode Island is currently not live online and is not expected to go live until late in the year. Pennsylvania has launched sports betting offline and is looking to launch launch online on July 1539. This could, however, happen as soon as May 2019, so any day now. Three states have passed legislation in the respective senate and are now pending governor approval. In Iowa, the governor is to decide on the bill no later than 05/27/2019. In Tennessee, the governor is expected to approve the bill, which includes online sports betting, no later than 05/08/2019. So hopefully, some good news there later in the day. In Indiana, legislation also includes online wagering and is currently pending governor approval. 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 regulations, different operators, and often with different views on individual sports. Some products can work for The entire US market, where some needs to be tailored to a single state. We have launched a number of products that are already driving revenue, and we're prepared for more states as they open for online sports betting. We will launch more US focused products, and we are shaping the content on US sports for our global brands such as bettingexpert.com. Throughout these efforts, our technology platform allows us big flexibility. We're teaming up with relevant online operators and seeking necessary licenses. So far, we are operating on CPA, and the revenue share license we have applied for in New Jersey is still in process. We have established a U. S. Subsidiary, Better Collective Inc, and we have started building building an organization in The U. S. In addition to the organic strategy, we're in discussions with potential partners that may provide for U. S.-focused acquisitions and or collaborations. Please turn to page 13. Moving to South America. Upcoming regulation in Brazil and in the province of Buenos Aires in Argentina make for new growth opportunities for Beta Collective. New regulatory frameworks will be implemented in the coming years. Already now, ahead of the regulation, Brazil is a top five revenue country for Beta Collective, not least due to our strong performing website, afuestasdeputivas.com, that we acquired through the Bola Bola acquisition last year. We have high expectations to the South American markets, where sport and related betting are strongly founded. This sums up the market review. Please turn to page 14 for a strategic review. During the last year, Beta Collective has changed from a successful but yet quite small private Danish based company with around 100 employees to a public company with more than 300 employees spread over seven European offices. Revenue and earnings have increased significantly, and we have a totally different financial foundation for future growth. We strongly believe that iGaming and the affiliate marketing within this vertical will continue to grow, both in mature markets, but also as we have seen in The US through changes in regulation. So far, this has mostly been a European venture, but I'm sure this will change in the future. In my expectation, we'll see fewer affiliate brands that will grow alongside the operators. Please turn to page 15. Our strategy for the coming years will stay focused on three main themes, organic growth and development by simply having the best product offering for our users. This has always been our key focus. By having that, we we will attract high volumes of valuable traffic and thereby be the preferred partner for operators. We have seen success in our first years of taking part in the industry consolidation, and we see so much value in continuing this path. We strongly believe that size matters, and therefore M and A will continue to be a cornerstone in our strategy. Last but not least, the regulatory changes in The U. S. Have created a major growth opportunity. We are already present and have launched multiple work streams to expand with the market. Please turn to page 16. Taking part in the consolidation of the affiliate industry is a vital part of our strategy. While we completed no acquisitions in the first quarter, I will briefly sum up our M and A strategy. Since we started acquiring companies in 2017, we have completed 13 acquisitions of various size and strategic purpose. Most of them share the characteristics that they hold strong market positions in regulated markets and mainly operate within sports betting. In 2018, we acquired companies for a value up to €85,000,000 expanding our presence in the German speaking markets, Denmark, Finland, Greece and Sweden. This local presence is important to us as it provides valuable local insight 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 Betacollective group and we expect to continue this strategy. Please turn to page 17. Expressed in numbers, we have set some financial targets that define how we want to grow and be profitable and how we want to finance our company. These targets remain unchanged from the IPO and will be our current financial framework. Supported by strong underlying organic growth in relevant KPIs, such as NDCs, player deposits and sports betting turnover, it is expected that the organic revenue growth will be stronger in 2019, implying that 2018 and 2019 combined will be above the financial target. Please turn to page 18. To sum up, I want to leave you with an overview of Better Collective as we stand today. Better Collective was founded in 02/2002 by Christian Kierke Glasbersen and myself and has shown revenue growth and been profitable every year since we founded the company. Up until the beginning of 2017, our approach was organic development and growth. However, we changed our strategy and decided to take part in the ongoing industry consolidation as from 2017. Since then, we have completed 13 acquisitions of various size. Today, and including our most recent acquisition, we have surpassed 300 employees working in seven offices throughout Europe and headquartered in Copenhagen, Denmark. Recently, we have also established presence in The U. S. In order to take part in the new market opportunities there. Revenue has been growing steadily with annualized pro form a revenue of more than €50,000,000 in 2018 and annualized pro form a EBITDA of approximately €25,000,000 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 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 strategy sorry, 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. Data 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. Your first question is coming from the line of Christian Hellmann from Nordea. Please go ahead. Hi, guys. Thanks for taking my questions. Just the first one, to get some idea of the revenue base here going forward and seasonality in the business, You did almost EUR 15,000,000 now in Q1, '14 point '9 million. And if you just go back and look at the historical data that's available, there was a slight decrease in revenues back in 2017 when there was no World Cup or European Cup in soccer, which I imagine has a big impact on the business. What can we expect for this year? Is it reasonable to assume that revenues will if the seasonality is normal, that revenues will decrease a bit in Q2 versus Q1? Or yes, please help us with that. Fleming here. Hi, Christian, and thanks for your question. You can say, looking at quarterly graph, which we also displayed where we look at the quarterly revenues, we do have some seasonality. I would say that our exposure to sports outcomes is, of course, very I would say, a very important factor. Q1 and Q2 are normally not the strongest quarters. You were right. Last year, we had some effect from the World Cup. You can say, again, these big events tend to be more of a strong performance on NDCs rather than, you can say, revenue other than that we see typically higher advertising fees, etcetera, during such events. I would say that the biggest effect that we will see this year and throughout the year is likely stemming from the mere volume of indices that we sent last year. Simply, the underlying betting volume is much higher than we had last year. We can, of course, not be specific on quarters as they are, as mentioned also, the outcomes of swaps that we are exposed to as we are on mostly on revenue share contracts. But you can see a slight dip from no World Cup, but a stronger underlying, can say, bank of players than last year, I will mention as the two factors you should include in your Q1 Q2 expectations. Okay. So the fact that, historically, revenues have come down in Q2 when there's been no big sporting event in that quarter, that shouldn't hold this year because you have this big bank of players, NDCs that you took in last year that will sort of support sequential growth in Q2? We basically have two opposite factors this year to take into consideration. It's difficult to point to the last digit what that will end looking one quarter ahead, but there are at least these two counteracting factors. Yes. Jesper here, you you should probably think of q two as that the first two months, they are pretty normal because the World Cup started almost mid mid June. So it's mainly the last month where where it really kicks in with that effect. And, of course, we don't have we don't have a big championship this this year. Yeah. Yeah. And then on on staff costs and and, yeah, costs in general, is this sort of the base where we should sort of, yeah, use as a as a measure of of of our estimate going forward? Or there's there's no unusual items in in for example, that's that's gone through up quite quite a lot, but I guess that's as a result of the Reebok acquisition. But, yeah, just just wondering if there's any any unusual items or something. Yes. As I mentioned in the speak, you can say what we are balancing is, of course, that we have a very firm target of average more than 40% EBITA growth or EBITA margin, Tory. And that is what we are steering towards all at all times. But at the same time, we as mentioned, we see so many investment opportunities. I call it investments even though we expense it, But we have The U. S. Market. We have South American markets. We have product development. And also, we have, as mentioned, invested in more into the paid media PBC campaigns where we typically have an upfront cost and see the revenue later. So there are so many things that we would like to continue investing in while at the same time clearing very hard on our financial targets. So we're Absolutely. Should think about it. I understand. But but the costs that you had in in q one, they're they they were normal and sort of they are the base for for whatever whatever whatever happens going forward. Yes. There's no reason to assume that they will come down in q two or q three? No. Great. And just a final question on on The US. If you can elaborate a bit more on sort of, ongoing potential collaborations or joint ventures or acquisitions or what have you. And, I mean, I I I I understand that you can't disclose everything, but just sort of give us some sort of flavor or paint us a picture of what what is going on with your your your your business in in The US? And, also, if you perhaps can quantify it a bit as you already have some business in The US, if that if that's 2% of your revenues or, yeah, whatever. Yeah. Yeah. Jesper here. Well, currently, we're not commenting on on the numbers for for for The US. And unfortunately, I can't give too much detail on what we're doing, but rest assured, we do a lot. And to put it sort of in a broad perspective, the expertise we have with sports betting affiliation in Europe is second to none, I would say. And such expertise is we have experience in demand in The US, and and and it's based on on such dialogue that that that we we talk about collaborations. We have also mentioned that we look into a pipeline with previous targets, and we're also working on that. So unfortunately, I can't be very specific, but as I rest assured, we have a lot going right now. Yeah. That's a good I understand that. That's a good enough answer for me. And M and A in Europe, what is going on in in Europe at the moment? I mean, there's yeah. It's it's a tougher market situation in in in in some markets, Sweden, for example, UK, another one. But yes, what do you think about M and A in Europe? We are still seeing a nice inflow of new targets in our pipeline. We feel that we are in a very good position with regards to M and A, that the competition isn't very strong right now. So we have, of course, a lot of dialogue going with various targets. But we're also in a position where we feel that we can be picky and really make sure that we do the right ones. When we look at the past 13 we have done, we're really pleased with how they have developed and performed. And of course, we use that as a benchmark for the pipeline that targets having similar traits as to the previous ones is interesting. But also, if there is some expertise we feel that we can add to our business, that's also interesting. So it's a healthy pipeline, still a lot of dialogue with various targets. And as said, we we feel that we're really in a in a strong position, as an acquirer without too much competition. Sounds fair enough. Thank you. That was it for me. Thanks. Thank you, Christian. Thank you. And your first question is coming from Matthias Lundberg from CFVB. Please go ahead. Good morning. Good morning, Jose. Two questions from my side. The first one goes into the details. I noticed that DPA revenues were up quite a lot sequentially. And I'm just curious to if this was driven by the Reebok acquisition or The U. S. Operation mainly. When you say the the player revenues, you can say the the underlying player revenues is has, of course, increased significantly. You can say we we commented bit in the report on the on the split, if that's what you're referring to, Matthias, on the revenue share and the CPA and others. You can say we have seen a slightly decrease in the rev share part mainly due to the Rybarka acquisition that has historically been operating on DPA and hybrid contracts than Benavillexiv historically has. And then, also, as you mentioned, The US business, even though it's doesn't fill, as much as Rebarka, is, currently purely on CPA while we are awaiting the the licenses in The U. S. That allows us to work on revenue share. Thank you. That gives some clarity. And I'm also curious to you have three months of data now from the newly regulated Swedish market. Has the performance been in line with your expectations? And how do you view that market going forward? Yes, Perhira. Yes, we're very pleased with the performance of our Swedish business. And we do see what I think is really a general thing in the Swedish market that the revenue share component is affected, but that was expected because you have a tax coming in and affecting that. There's also been some operators talking about the deposit limits affecting players. But all in all, for us, we we feel that that Sweden has really developed as as expected and and and as we hoped. Yeah. I've heard in many of the operators' statements regarding the first quarter and going forward that many of them are now diverting marketing resources away from classical TV and radio promotion back to data driven affiliation. Is is that something you have seen? Well, what we can say is that we do experience a high demand for for our services. So but it's not like there's a big change, but an ongoing strong demand. Great. And one last question. I guess you track the sports results over the different markets. And looking at Q1, do you consider that being a good quarter or a normal quarter or a weak quarter in regards of the sports results? It's it's it's probably in line with the expectations, so pretty normal. And what we also see to some degree now is that we have we have players from so many areas, and in such big volumes. So I think we experienced larger swings some years ago, because we're more dependent on single markets, whereas we gradually, will even more out. But that being said, we can definitely, like whenever big favors, they win, with a lot of goals, that will affect us negatively. And and when when you see a lot of surprises, well, that's that's good for the sports book. So so that mechanism is is still in place. Thanks. That was all for me. Thank you. Thank you. Your next question is coming from Mikhail Jamsengard from SEB. Go ahead. Guys. Mikhail Jarosko here from SEB. I have a follow-up on the competition in terms of M and A. You're saying that they're not well, you are doing very well here in The EU, where you're probably still the preferred buyer. What about The U. S? Is that the same case over there? Or what are you seeing? I think we we Data Collective has established a pretty strong name in the American sports betting market. So so people know us over there. And and I think because of that, we we see in inbound for the for the pipeline. And whether we would be then the preferred acquirer in The US, I I can't really give an answer to that. But we definitely feel we have good dialogue going. Okay. And then a question on the Rybakker acquisition, where you will pay some of the acquisition in shares. Is that to keep the management incentivized? And well, I believe that they will stay on board then following this announcement. I I cannot, of course, not say what what these guys decide, but but, you're absolutely right that that we we like to give them the the share component now because we believe that will incentivize them, for for better collective. Okay. Thank you. Thank you. We don't seem to have any further questions on the phone line. Please continue on the webcast. Fleming Petersen here. We have one written question from the audience. I will read out the question as written. How much of the increase in indices between Q4 twenty eighteen and Q1 twenty nineteen is coming from the Rybarka acquisition. And the question was placed by Jonas Amstead. We do not give a split of the indices, but I would stretch and and comment that it is, it is fairly limited, in in the in the totality. So, so we we are not really, giving the the split of indices from from different sources. But but it's in it's in in in low percentages of the total growth. I hope that that sort of gave flavor. With that reply to the written question, we do not have any more questions from the audience. So thank you for your participation, and have a nice day. That does conclude our conference for today. Thank you for participating. You may all disconnect.