Betmakers Technology Group Ltd (BET) Earnings Call Transcript & Summary

So good morning, everyone. I'm Jane Morgan, the Investor and Media Relations Manager for Betmakers Technology Group Limited. Today, the company has released the FY 2022 annual results along with an investor presentation. On the call today, I am joined by our CEO, Todd Buckingham; our CFO, Anthony Pullin; and our COO, Jake Henson. With that said, I'll hand you over to Todd Buckingham to run through the presentation, which was launched on the ASX today.

Thank you, Jane. Welcome, and thank you to everyone for joining the presentation for Betmaker's FY '22 results. This year has been a real breakout year for us at Betmakers. We've established ourselves as a global company, which now operates across more than 30 countries across the world. We've almost 500 staff now and working in 11 offices located in 8 different countries around the world. So I'd like to acknowledge the entire team across our business in the amazing effort this year. I know that when people look at businesses, they tend to look at the numbers to judge how well the company is going. And we certainly have achieved some remarkable growth on the financial metrics this year. However, I feel our biggest achievements this year has been assembling and alignment of our Betmakers team from across the world. We've been able to bring together an outstanding team of people to drive this company forward. Some of those, we've added Rebekah Giles and Anna Massion to our Board of Directors, who have a wealth of knowledge and experience across legal, governance and global gaming. We've been able to assemble an amazing talented group of young executives as well that have a wealth of experience. Over the last 12 to 18 months, we've added key members to our executive teams such as Marty Tripp, Dan McDonald, Sam Adams, Raj Sanjanwala and also Christian Stuart as our U.S. CEO, along with Chelsey Abbot, who leads our P&C team. I say young because I'm the old guy in the team. And I say experienced because this generally is all they've done. They've been around the online wagering industry since online wagering started. These guys have been an amazing addition to our team and along with the rest of the Betmakers team, they'll help capitalize on the opportunity that we have created. Beneath our execs, we have been very fortunate to assemble an extremely talented team of people that are helping to drive the business. And I'm excited to see the personal growth of these men and women in the future as they continue to deliver results for Betmakers. I mentioned that in FY '22 was a breakout year for us at Betmakers and I truly believe this. We've created foundations that will set us up for many years ahead. We're now seeing the benefits of all the hard work that we've put in over the years. And we have products that are market-leading in their own right. But now have the foundation to pull these products together and deliver solutions that we believe can change the industry, a product that will allow our customers to have a edge over their competitors. Our deal we announced previously with News Consortium is a testament to this. This was a landmark deal for the company as we appointed the exclusive technology and trading provider for the consortium in a deal that's potentially worth more than $300 billion in revenue over the initial 10-year term. And although we signed 10 years, and we expect to be working closely with better team for many more years than that. We're excited to work with them on their acquisition at [indiscernible] help them accelerate their market entry. But some other deals that we executed this year that we'd like to highlight. From Global Tote, we're selected as the tote provider in Norway on a 10-year deal, and we extended our Monmouth Park deal, tote deal for a further 10 years. And we agreed to be the tote interface for Caesars Casinos across a number of states, including Nevada, we've already launched that deal with Caesars in Iowa. Some other things, we actually launched fixed odd starbreds racing in the United States. I know this has been a long time coming, and there's -- we're excited about it, but there's lots more work to do. We've also finalized -- another key thing is we finalized the development and completed our agreement with the Managed Trading Services product. We'd like to thank the Waterhouse team for helping us get this product off the ground. It will underpin some amazing opportunities for our company and completing this deal ahead of schedule and the fact that it's outperformed our expectations means that Betmakers gets to receive the benefits much earlier than we anticipated. We've now got 22 platforms live in the Australian market and another 7 to go this year, including the [ Better Launch Show ]. It's a very successful product and with a major adoption across this market. Look, I understand that our share price performance hasn't been reflective of the success of the company, and I would like to thank our loyal shareholder base that have ridden the wave during this period. We also feel that the share price is not reflective of what we have achieved as well. And this is the reason that we have announced our share buyback. We've had some challenges around the timing of this buyback as we've been in blackout periods due to the accounts going out. But we can assure you that we think Betmakers is a good buy at the current price, and we'll be back on the Board's buying when we're in a position to do so. As I mentioned, '22 was a great year for us in development product, and we've certainly got the momentum, which is strong moving forward. But we also did a pretty good job on our numbers, and I'd like to hand over to Anthony to take you through those highlights.

Thanks, Todd. Jane, if you can click to the next slide. Perfect. Good morning, everyone, and thanks for dialing in. I'm Anthony Pullin, the CFO here at Betmakers. If you joined our 4C webinar about 4 weeks ago, I don't think there'll be too many surprises in the results we're presenting today, but I'll run through them and through some of the key takeaways. As Todd mentioned, it's been a huge year for the company, and I think that's clearly reflected in the numbers we've reported. Revenue of $91.7 million, which is up 371% on the prior year. A lot of this growth is a result of the strong domestic traction we've seen in our platform and Managed Trading Services business Todd mentioned, and also reflecting the full 12 months of owning the racing and digital assets we acquired from Sportech. The gross profit of $66.3 million is up 550% on prior year, representing a gross profit margin of 72%, which we feel is sustainable based on the current product mix. And adjusted EBITDA of positive $2.2 million. And coming to this figure, we've excluded share-based payments of $71 million, which I will cover in more detail shortly, and deal costs of $16.5 million, of which $15 million represents the advisory payments in relation to executing the NTD wagering deal. Also worth highlighting within the adjusted EBITDA figure, there's approximately $5 million of costs we've incurred relating to growth and specialist advisory fees. These are costs that we've incurred during the period, which we see is relating to accelerating the business growth. Third-party advisory fees, which we don't expect to be recurring and also investments we've made into new business where we don't have the corresponding expected revenue as yet. I think it's also worth to be completely clear with everyone. We've taken a pretty conservative approach in our staff costs, and we expense them all in the period in which they are incurred. We don't capitalize any of our staff costs. And so the amortization you're seeing going through the P&L relates to booked assets, which we acquired through various transactions such as Sportech and DynamicOdds, et cetera. If we can go to the next slide, please, Jane, and I'll quickly run through the share-based payment expenses. It is quite a material amount. We wanted to provide a little bit more context as to how we're getting to this figure under the accounting standards. Simply put, when we look at the fair value of -- sorry, we need to look at the fair value of the equity instruments as at the grant date. Then the total expense we need to recognize is simply the fair value of each equity instrument multiplied by the number of equity instruments which are expected to be issued. So we then recognize this total expense across the expected life of each tranche, which we have to reassess at each reporting date. So as you can see, the biggest contributors to the expense in FY '22 relate to the strategic deal performance rights, which vested on the NTD deal signing and the Waterhouse performance rights, which best based on the revenues we generate under the associated commercial deals. So as at 30 June 2022, we've recognized all the expense in relation to the strategic deal and the Waterhouse agreements. So looking forward, we don't expect to see any further expense in relation to these 2 charges. So the share-based payment spend should reduce significantly in the future. If you go to the -- not for you, Jane, if our listeners look at the back of the presentation, we've also got a prepared balance sheet and cash flow in the appendices. I won't go through them now, but just to highlight, we finished the year with $87.6 million cash and no debt. Jane, if we can jump forward now to the GBS slide, one more, yes, perfect. As we've noted before, we look at business and report across 3 key divisions being Global Betting Services, Global Tote and Global Racing Network. I'll just jump through each of these divisions quickly to give a bit of an overview on the financial performance of the year and where we see them heading. So firstly, we've got Global Betting Services. This division generated approximately $40 million in revenue for the year, up 117% on the prior year. This growth has primarily been driven by our domestic platforms and Managed Trading Service operations. So it's a really good traction here in Australia. Todd mentioned it at the beginning about we've seen the number of active clients more than double during the year just gone. We're continuing to invest in this division and expect strong growth into FY '23, both on the back of further domestic growth, which includes the NTD deal and also in overseas markets where we feel they could also benefit from this product. On the next slide, we've got the Global Tote Division. This is really a large portion of the racing digital assets we acquired from Sportech at the end of FY '21. Hence, we're seeing a full year of operations in FY '22, which contributed approximately $47 million in revenues. We've seen this division as a strong core of recurring revenues for the company. The contracts tend to be longer term in nature and are less volatile. In saying that, we had a really good FY '22. We've executed some key deals such as in Norway and in Caesars. So looking forward, I think our forecast for FY '23 and our focus is really around consolidating those gains we've made through FY '22 and continuing to build out our tote integrations and comingling opportunities. So I think we expect to see the results coming through in full probably more in FY '24 and beyond. Lastly, we've got Global Racing Network division. So this is the work we're doing with the racing bodies to distribute their content fixed odds wagering. Similar to Global Tote operations, this is about building up our content offering and the bookmaker integrations for fixed odds. So deals such as Penn National distribution deal, which we announced in, I think it was end of June, those types of deals figure out into this division as does a large contingent of our U.S. fixed odds model. So we did approximately $4.1 million in revenue for FY '22 in this division. And whilst off a small base, we expect to see strong growth into FY '23. I'll now hand across to Jake to run through the strategic focus for FY '23.

Thanks, Anthony, and thanks, everyone, for tuning in. General theme across the focus for the division is certainly around execution, thanks in part due to the deals that were completed throughout the last reporting period and execution of those deals and that pipeline we feel sets us up strongly for growth going forward. Speaking more specifically about a few of the divisions within the GBS division, there will be the launch of the NTD platform and also the onboarding of other contracted MTS partners. We also are really keen to expand the Betmakers new proprietary next-generation software. And we believe that this will deliver new growth opportunities and new deals that will help fill the pipeline for '24 and '25. In the Global Tote division, it will be the launch of our Global ToteHub. It will be the rollout of our BetLine terminals, which are fitted out with custom proprietary Betmakers' software that enables us to deliver products beyond just the Parimutuel solution, but also fixed odds sports and racing for our partners and basically enable them to fit out a viable solution in venue or at a race course and also the further integration of our racing network content via the hub setting up pools for that wagering. And also important to call out here the execution of the Norway Tote deal, which is a significant build that is a 10-year deal. And the focus for our team here is on getting that all wired up and into place, we can start recognizing revenues for that moving forward. And finally, on the GRN side, this has expanded quite quickly in the last 3 to 4 months as highlighted by Anthony and underpinned by the Penn National content. So our focus for us is certainly on delivering that firm-wide over the next 12 months and also acquiring more content to add to that mix. And certainly, the rollout of fixed odds within New Jersey and other states will tie into this as well as we deploy our reporting integrity and distribution services into these markets and ensure that the horseman, the regulators and all the participants can benefit from the growth of what we think is a very exciting segment. So with that, I'll hand back to Jane or Todd because I'm sure there's some questions that we'll work through.

Thank you for that, gentlemen. We have had lots of questions come through, and we do encourage webinar attendees to use the Q&A function at the bottom of the screen. But I might kick off with you, Todd. So was the buyback strategy implemented to combat the high level of sporting? And if so why has the buyback stalled only after 3 days of buying back shares? You're on mute, Todd.

Thank you. To be fair, the buyback is purely based around the value of where we see Betmakers. We've done an amazing job this year of executing on some deals. And we've got some very strong thoughts around where the company is going. Obviously we've kicked off those deals. And if we execute on those, then we're going to see some good growth in the business. We see the value of the share price at the moment as good value and we'll be on the board when we're able to. We've had -- that stalled in regards to -- we did a few days and then the market stayed ahead of us. Obviously, restrictions around what we can and can't do in terms of the share buyback. And then obviously we hit a period before accounts that we couldn't get on the -- we couldn't do any buying as we were in a blackout. So we're back out of that next week, and hopefully we'll be starting to buy again.

Thanks, Todd. Jake, one for you. So are we expecting more deals to come through that will add to the growth outlook?

Yes, certainly. I think a lot of the presentation and theme from us is around execution. That's because we have signed a lot of deals throughout the previous period. The other exciting thing for us is with those deals is the investment in growth of a lot of our new solutions. I've obviously called out the next-generation platform as well as the BetLine terminals and what we're doing there as well. So we expect that to drive more opportunities and more business. And the other thing with that, I think as you've seen throughout the period, Betmakers has been able to sign long-term partnerships with global players and serious global businesses and we believe this is a good endorsement of what we're pulling together and will help obviously drive that sales and partnership network.

Todd, I'll hand back to you for this one. So what is the update on the U.S.? And is it still part of the strategy?

Yes. Yes. Certainly, Jane, there's no doubt that the U.S. has taken us longer than we have anticipated. But we're still 100% committed to the U.S., and we still feel this is one of our greatest opportunities as well. The industry over there is working itself out and we're literally in at the ground level. So this year, our key focus for the U.S. is unlocking this opportunity. And when it does, we'll certainly be ready. I believe we're in a very early stage of the U.S. sports betting market, and it's very similar to what Australia was some 10 years ago. Our advantage or Betmakers' advantage is that we've been able to experience what unlocking a market looks like where we've lived through it. We've built products in this market, and we've competed in this market. So the team we've assembled, not only understand this, but we're preparing for it. New Jersey is a pioneer state in regards to sports betting and obviously now with the launch of fixed odds on thoroughbreds, and we've put our flag in the ground there and we're very grateful for how welcoming they are and have been to all of us here at Betmakers. I think the sports betting market and the racing market, in particular, will evolve. And when the industry understands the opportunity that lays ahead, we will see some amazing growth throughout the U.S. And obviously, we position Betmakers to be part of that story as well.

Thank you. Just staying with the U.S. now. So do we have figures on the number of downloads from the Monmouth Bets app?

Yes. So the app hasn't launched in Monmouth yet. So it's just the Monmouth bets mobile site and website. The app will launch over the next month or so. That's where we'll sort of introduce more content, so the out-of-state content onto the app. So we'll be able to give you some more updated figures towards the next quarterly.

Just one to the News Corp better app, so when do we expect the News Corp consortium to launch the better app?

Yes, I'm happy to take that. Look, we're working very hard on the app, on the application that has keen to launch as soon as possible. There's some things to tick off obviously from regulatory and compliance and also the development of the app. We expect it to launch before Spring Carnival, and we're working hard to make that happen.

Thank you. Anthony, there's a couple for you come up. So do you see further improvement of the gross margin of 72% going forward? And can you comment on the company costs? So do you think this flattening out in the future?

Yes, sure. On the gross margin, 72%, somewhere around about mid-70%s, I think it's about right for our current product mix. And then in terms of additional costs and flattening out, I guess that's speaking more to EBITDA margins today and into the future. With regards to flattening out, look, I think there will be some growth going to the future because we as a company certainly haven't finished growing. I think the more important point is the cost base we've got today is to support the business for what we think it will look like in 6 to 12 months. We think as pipeline comes through, as Jake spoke about earlier, we definitely hope to see some leverage start coming through in FY '23 at an EBITDA level.

Thank you. And just another one for you, Anthony. So do you have company guidance for this current financial year?

No, we haven't put anything out there. I think there's 4 or 5 analysts, which are covering stock at the moment. What they have put out there in terms of their projections, I think we're quite comfortable with. Yes, that's probably the best indication.

Thank you. And just another one. So roughly, what percentage of the 2022 bad debts have rolled on from 2021? What contracts do these overdue accounts relate to?