Betr Entertainment Limited (BBT) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the BlueBet Holdings Limited FY '25 Interim Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Andrew Menz, CEO. Please go ahead.

Good morning, and thanks for joining us today for the BlueBet Holdings Limited 2025 First Half Results. I'm Andrew Menz, CEO of the company. And today, I'm joined by our Chairman, Matt Tripp; Chief Operating Officer, Bill Richmond; and Chief Financial Officer, Darren Holley. This morning, I'd like to take you through our trading performance for the 6 months to 31 December 2024, which marks the first half on the new technology platform since we completed the betr customer migration and rebrand in August. I will start with the announcement that we made yesterday and confirm that we have made a nonbinding indicative offer to acquire PointsBet by way of scheme of arrangement, an offer that is highly compelling for PointsBet shareholders, particularly when lined up against the alternative proposal that has been recommended by the PointsBet Board. Our transaction would create a leading Australian-owned profitable scale player with an expected synergy value of $40 million based on anticipated FY '26 figures, driving substantial value creation and under the management of a team with a proven track record in realizing synergies in this category. The offer is highly attractive to PointsBet shareholders, particularly when compared to the offer announced yesterday. Our proposal offers the certainty of cash consideration through a cash pool of $240 million to $260 million and scrip consideration of $100 million to $120 million. The offer allows heightened flexibility for PointsBet shareholders to take cash, scrip or a combination up to maximum amounts as determined by the relevant cash or scrip pool. For PointsBet shareholders that elect and receive their full take-up of cash, the per share value outcome is between $1.11 and $1.20 per share. For those PointsBet shareholders that elect to take scrip element and access the $40 million of anticipated cost synergies, the per share value outcome for those PointsBet shareholders could have an indicative value in excess of $1.50 per share. This assumes that they receive all scrip, the $40 million in cost synergies are realized and is calculated by applying the current blended EV to EBITDA multiple of the 2 groups to consensus of the FY '26 EBITDA for the merged group, including those synergies. This isn't a forecast or a guarantee on the value of the proposed scrip consideration, and that depends on a number of factors outside control of the Board and management. But we provide this to give an indication of the potential value of what we believe this transaction can unlock for PointsBet shareholders. We continue to be overwhelmed with support for our proposal by shareholders of both BlueBet and PointsBet, who recognize the compelling industrial logic in the combination of these 2 growing operators. We will release further details of our proposal to the market in coming days. I'll now turn to Slide 4. The first half has been a record of delivery on strategic goals since the merger of BlueBet and betr, headlined by a successful migration and sustainable profitability. As we said at our Q2 quarterly, having set ourselves the target of reaching monthly EBITDA profitability by the end of the first half, we achieved that goal ahead of schedule. We have been profitable on a normalized basis each month since November and today announced that our strong performance at the back end of the year enabled us to deliver a normalized EBITDA positive half in the first half of '25. This was driven by a rapid rebrand and migration, which has established a repeatable model for further inorganic growth as seen through our recently announced acquisition of TopSport and will be the same model employed in relation to PointsBet. Cost synergies, which were more than 20% higher and realized on a more aggressive timetable than initially anticipated. Our market-leading proprietary technology platform, delivering significantly improved net win from migrated betr customers and a strong first half and Spring Racing Carnival trading performance, where we significantly outperformed the industry, recording a record quarterly gross win margin of 14.2% and a 10.4% net win margin for the half. Importantly, our strong momentum, both from an activity and margin perspective, has continued into the second half, and we remain focused on scaling the business further, both organically and inorganically, with our market-leading products, experienced team and ready-to-go M&A playbook, all key strategic differentiators for us. Moving to Slide 5. Looking back at the half, we are pleased to have delivered on all of our founding commitments with emerging profitability at greater scale and the rationale for our merger playing out ahead of our own expectations. Our disciplined approach to limit spending prior to customer migration proved successful as we were able to subsequently deploy a targeted investment into retention and reactivation during the football finals and Spring Racing Carnival. Moving forward, our focus will remain on the ongoing strategic reactivation of the betr customer base around key events like the NRL season, which is set to commence this weekend, and the AFL season to follow shortly. Half 2 will see us aggressively innovate with new products our customers love, and that will assist us increase retention and drive top line growth. I'll now hand over to our Chief Operating Officer, Bill Richmond, to provide more detail on the key trading metrics for the half.

Thanks, Andrew. Turning to Slide 7, where you can see the performance of the business for half 1 FY '25. So the company delivered an EBITDA positive half driven by strong gross win margin and efficient conversion to net win. The performance was as follows: turnover for the half was $645.1 million, an increase of 116% on the PCP. Gross win was $91.3 million, up 128% on the PCP. Gross win margin expanded 0.8 percentage points to 14.2% from the prior corresponding period, with favorable racing results complementing the company's product mix and trading capability, which are both seen as structural margin advantages. Net win was $67.4 million, up 120% on the PCP. Net win margin increased slightly as the strategic reactivation of the betr database and personalized promotions contributed to an attractive normalized net win margin of 10.8%. While there was benefit from favorable racing results in the period, we are confident that these levels are sustainable given the structural margin advantages. Our strategic approach to product diversification and efficient trading practices has enabled us to maximize these gains. We finished the half with 144,697 cash active clients, a 20% jump on the end of Q1 and affirms the continued opportunity from ongoing actives growth. Please note, this is a trailing 12-month number. It will take until Q4 FY '25 for this metric to fully reflect the activity of the migrated betr customers. The business is well placed for continued market share gains in half 2 FY '25, with our positive momentum continuing through preservation of net win margin as we look to bring customers onto the platform via the TopSport acquisition. I will now hand over to Darren to discuss the results in more detail.

Thanks, Bill. Please note, the group's statutory results as well as the reconciliation to normalized results are contained in the appendix. As we discussed at our Q2 results announcement, the business delivered EBITDA positivity ahead of schedule, driven by an accelerated migration and margin uplift of betr customers and over delivery of synergies. Normalized EBITDA for the half was $1.7 million. Turnover was up 116% versus the PCP and net wagering revenue increased 128% to $63.6 million, reflective of the strong net win margins of 10.4%. Australian marketing expense increased 48% and employee benefits expense increased 117% versus the PCP, which are both reflective of the larger business. All other costs were in line with our expectations. Turning to Slide 9. As of the 31st of December 2024, the company's corporate cash balance was $4.2 million with net assets of $54.7 million. Post reporting, the company announced the acquisition of TopSport with an associated capital raise. The company is well capitalized as we enter our new phase of profitability and cash flow positivity. Turning to Slide 10. As at the 31st of December 2024 -- sorry. Now we're at Slide 10. At 31st of December 2024, the company's cash balance was $16 million, including client balances of $11.8 million. Net win for the half came to $67.4 million. Net cash used from operating activities for the Australian business was $0.3 million with cash outflows in the discontinued U.S. business of $5 million. Cash outflows also included one-off creditor payments of $8.8 million from NTD Limited as contemplated as part of the asset sale agreement in acquiring betr. Cash inflows from investing activities of $5 million were primarily driven by client balances of $9.9 million transferred from NTD, offset by capitalization of technology costs of $2 million and transaction costs of $2.9 million in relation to the betr acquisition. Cash inflow from financing activities were $0.3 million, made up of the receipt of guaranteed deposits of $0.9 million, offset by lease payments of $0.6 million. The company's cash position is in line with expectations. And given the accelerated EBITDA delivery, we are on track to be cash flow positive in half 2 as we continue to be a sustainably profitable business with accelerating momentum. I will now hand over to Andrew to outline the recent announcement regarding our TopSport acquisition.

Thanks, Darren. And turning to Slide 12. In the second half, we announced the acquisition of TopSport, which will provide enhanced scale and is expected to deliver greater than 30% earnings per share accretion in FY '26 and FY '27. The acquisition of TopSport is another milestone for BlueBet and brings us immediately closer to our strategic target of a 10% market share in Australia, as we said, a sweet spot for operators in this market. The accompanying equity raising was 5x oversubscribed with shareholders highly supportive of our repeatable M&A model. We see a compelling revenue synergy opportunity to improve TopSport's net win margin of 5.9% to above 10% once the customers are brought onto our platform. TopSport's customer base has highly attractive characteristics for the company with only 33% of TopSport's last 12-month net win derived from customers who are active with betr. This gives us confidence that there's low risk of cannibalization and opportunity for significant margin uplift through activation of this space. With Tristan Merlehan joining our team, we will have the added benefit of a further strengthening of our market-leading risk and trading capability, providing us with confidence we can capture further margin improvement and sustainable profitability for our shareholders. Having successfully completed the customer migration and the rebrand of BlueBet to betr in only 59 days, we are highly confident in rapidly integrating TopSport's customer base, which, combined with our advanced technology platform, will drive those margin advantages, share of wallet and customer engagement and allowing us to leverage our personalized promotions engine. Moving to the next slide. TopSport customers will receive a superior customer service experience and greater access to attractive racing and sports products. The transaction has also been structured to minimize risk to BlueBet shareholders such that we will not be assuming material existing TopSport operating expenses. We've only acquired the assets required to maintain and grow net win. All other costs have not been taken on. In the first half of FY '25, TopSport incurred $7.1 million of operating expenses. Going forward, betr will incur only an incremental $1.7 million to generate the same level of net win from TopSport customers. Based on those figures, TopSport customers will deliver highly attractive incremental EBITDA margin even before further upside from the expected uplift in net win margin from moving on to our tech platform. In conclusion, as we move through the second half, we remain on track to migrate TopSport customers and close as many as our primary differentiators will see us further accelerate our profitable growth. Our product is resonating with our target customers with an accelerated product innovation agenda front of mind for our team. We have retained and expanded our net win margin advantage on a larger base of customers through market-leading data models, personalization, CRM and account management. This allows us to maximize promotional efficiency and optimize our product mix. We know what works and understand the importance of strategically reactivating our base to ensure that we're scaling for profitable growth and efficient unit economics. The successful execution of combining BlueBet and betr demonstrates our strong capability to continue to deliver value as we grow. We have a repeatable M&A model built by a management team with years of experience to understand this fragmented wagering market, which can move fast. The success of our repeatable M&A model and deep sector experience in the Australian wagering market means that we have high confidence in our ability to execute on the acquisition of PointsBet, creating material value for shareholders of both companies. I do lastly want to reiterate how proud I am of the efforts of our team to get us into the position that we're in today, having achieved profitability ahead of schedule in our first half year as a combined business. Thanks again for joining us this morning. I'll now open to questions.

[Operator Instructions] Your first question comes from Phil Chippindale with Ord Minnett.

Just my first question, I want to touch on the PointsBet. You have mentioned in your announcement $40 million at least of cost synergies. Are you in a position to provide us with some more details at this point? I note in relation to the betr deal that you did, you identified and have started to realize $17 million of cost synergies from the acquisition of that business. In regards to that, I think you spoke to sort of 4 key areas, the tech platform, labor savings, sourcing and procurement and then savings from like regulation and compliance costs. Just wondering if you're able to sort of walk us through any of that $40 million in terms of its constituent parts or perhaps where the bulk of it might come from?

Matt Tripp here, Phil. The obvious buckets are labor, marketing and technology. And we propose to put out some further details in the coming days, as Andrew said in his opening. We think that the $40 million is a conservative number based upon what we know thus far. But without gaining diligence, which we were disappointed not to get when submitting our NBO, EOI last week, we're not in a position right now, but we'll be in a couple of days to detail those synergies and that $40 million.

Okay. Just in relation to the Canadian business that PointsBet has, if you were successful with an acquisition of PointsBet, could you tell us what your plans would be for the Canadian operation?

Again, a lot of that comes down to diligence, Phil. But as we stated in the past, we are laser-focused on executing and capitalizing on the opportunity here in Australia. We think we have the capacity to continue to outgrow the market. And we think with our inorganic and organic strategy over the course of the next 12 to 18 months, that, that opportunity is here in Australia. So we will look at all avenues when it comes to Canada, and we'll finalize that off the back of a very limited diligence period.

Okay. Just the last one on PointsBet, if I can. Obviously, PointsBet has come out with a response this morning on the ASX. Do you have a comment that you could make in response to that?

Yes. I mean, yes, disappointing, I guess, is the word that comes to mind. We felt we put our best foot forward with the mix and match type offer through listening to not only our own shareholders, but shareholders that sit on both registers. These shareholders are not looking for an all-cash offer. Therefore, we thought that the ability to afford PointsBet shareholders the opportunity to either, a, choose cash at a much higher number than that, that has been tabled by our competitor in this mix; or, b, come on the ride and realize some of those $40 million in synergies and ideally receive a materially higher number than the cash offer by choosing a scrip with the maximum flexibility that we thought would get us at the seat of the table that we needed to, as I said, complete a very narrow window of diligence and then firm up the offer as opposed to the range we've got on the table at the moment.

Okay. Just want to move the conversation to TopSport. Clearly, a very accretive deal that you've recently announced. And if you look at the last 9 months, this is the second one that you've undertaken. Your appetite for -- let's put PointsBet aside. But your appetite for further consolidation, I guess -- given we're talking about TopSport and the smaller end of the market, do you still view that as being quite an attractive hunting ground potentially for you guys to pick up some more market share?

Yes, absolutely, Phil. TopSport is a terrific business run by some incredible people over a very long period of time. And they've amassed a very, very loyal customer base. And I think they're clearly the peak of the operators further down. That doesn't mean though that there's not other operators that are well within our sights at the moment. You only have to look at the difference in operating expenses between those smaller businesses and a scale player, an emerging player of scale like us just to see how much more profitable customers can be in our ecosystem. We have a really simple playbook to go and do this. We have terms that we think are attractive for vendors, like we've been able to align with the TopSport guys in the earn-out structure. So no, absolutely, there are further operators other than TopSport in that Tier 3 space that we, at a point, may consider. But at the moment, we are incredibly focused on making a play for PointsBet, which does get us to that 10% plus market share, which, as you know, Phil, and everyone else knows because we talk about it all the time, is our strategic ambition. Because at that point, we feel like we play a really important part in the next wave of consolidation at the top end. So PointsBet is the focus for now, but there are alternative parts to 10% plus.

[Operator Instructions] Your next question on the phone is with Leo Partridge from Morgan.

Well done on the result. Just a similar follow-up from Phil's question on PointsBet. Given the announcement this morning, how does that change your strategy over the next 12 months or so in terms of M&A pipeline? And just a follow-on from that. Can you provide us some more colors on the potential revenue synergies there and the crossover between your customer base and that of PointsBet?

So in terms of our strategy, our strategy doesn't change. As Phil has touched on, the bottom end of the market is still very interested in participating in our M&A strategy. So whilst PointsBet is still on our radar and we are still very interested in that business and hope off the back of the enormous shareholder support that we've had in the last 24 hours, we will, at some point in time, gain a seat at the table to put our best foot forward and finalize that offer and create value for all shareholders.

Just on the complementary revenue synergies and what have you, Leo. The $40 million that we've identified is purely cost synergies. And I think if you look at our track record in the most recent BlueBet-betr example of revenue synergies in terms of being able to grow gross and net win to historical BlueBet levels, there is an opportunity to do that in the PointsBet business as well. They've consistently had net win margins lower than where BlueBet has been. So there are opportunities there. And there's also opportunities to use enhanced customer intelligence and profiling across the 2 customer bases using the data smarts that exist in both businesses as well as some of the models and what have you that PointsBet have that we see as attractive. I think it's one of the reasons that we see the businesses are so highly complementary because we can extract more margin out of our combined customer base together than we can alone. And I think that's a really key part of it.

And just in terms -- just to your last point, Leo, in terms of customer crossover. Again, I don't want to sound like a broken record, but diligence would flush that out very quickly. But to our knowledge, we believe customer crossover to be below 50%. And to put that in perspective, when handling migrations of William Hill into BetEasy and then the enlarged BetEasy into Sportsbet, we saw customer crossover well into the 60s and pushing 70%. And it's important to note that under both of those migrations, we managed to grow revenue in the preceding 12 months -- in the following 12 months off the back of that combination and a lot of cases where 2 became 1. So as Andrew touched on, very complementary in terms of low customer crossover. And whilst the $40 million is purely our assessment on cost synergies and we think it's conservative, we haven't gone near revenue synergies as yet in terms of assumptions.

And just one more from me. I guess you made a brief mention, Andrew, just on current performance. But I guess how are you seeing the market dynamics at the moment in the second half given some of the larger operators have flagged mixed conditions?

Yes, look -- and again, it's a little bit tricky because we don't have the last 12 months of this business to be able to give a real clear comparison. I think we're seeing a lot of green shoots in the market, particularly in racing. I've said this in the last month or so, I believe that racing is bottoming out and I think there's growth ahead. So I think there's some optimism there. Recent interest rate cut helps, and customer activity numbers remain strong. So we're really confident that getting into the hoodie season launching is going to be a time that the market is going to continue to grow as betr and more local sport comes back on.

[Operator Instructions] I'll just hand over for any questions on the webcast.

Thanks, Kylie. There are no questions on the webcast. So I'll just hand back to Andrew just for a closing comment.

Thanks, Darren, and thanks, everyone, for joining us today. We're incredibly proud of the first half that we've been able to put on the board as a combined business. We're genuinely excited about adding TopSports to the ranks, proving out those M&A capabilities further. And we reiterate that we're committed to taking steps to aggressively grow inorganically in this market to that 10% to 15% sweet spot. And we look forward to putting out more details of our offer for PointsBet in the coming days and continuing to engage with the inbound interest we're having from shareholders on putting these highly complementary businesses together. So thanks again, everyone, for joining us. Appreciate your support.

That does conclude our conference for today. Thank you for participating. You may now disconnect.