Betr Entertainment Limited (BBT) Earnings Call Transcript & Summary

Hi, everyone. Apologies for the delay, and thanks for joining us today to discuss betr Entertainment Limited's proposal to acquire PointsBet Holdings Limited along with our Q3 results. My name is Matthew Tripp, Chairman of betr, and I'm joined today by our CEO, Andrew Menz. This morning, we'll run through some select slides from the presentation that has been lodged on the ASX platform, which provides further detail of our revised proposal to the Board of PointsBet. Beginning on Slide 6 of the presentation with a summary of our proposal, that, once implemented, would create a leader in the Australian wagering market, leveraging the unrivaled sector experience and demonstrated M&A capabilities of the betr team. Our proposal clearly demonstrates that betr and PointsBet will be stronger together, with the potential to realize $40 million in cost synergies in addition to the $26 million of synergies already realized through the BlueBet and TopSport transactions. We are highly confident that our proposal offers superior value for both betr and PointsBet shareholders. It is highly accretive for the betr shareholders and the innovative mix and match structure offers PointsBet shareholders flexibility, access to synergies, growth and future market consolidation. Today, we'll detail the $260 million of cash funding we have secured comprising of a credit-approved term sheet for $120 million of debt from the National Australia Bank on favorable terms, a fully underwritten equity raising of $130 million and a $45 million nonbinding proposal for the sale of PointsBet Canada to realize the value of that business while increasing our laser focus on success here in Australia. As we announced last night, we are now the largest shareholder in PointsBet with a 19.9% relevant interest acquired from PointsBet's largest shareholders and intend to vote that stake against the current Mixi proposal. In summary, there is strong and accelerating momentum in our betr business. We have outlined a compelling vision for a combination with PointsBet, and we believe betr is the right team with the right M&A experience and repeatable integration model to deliver value from this transaction. All of the concerns outlined by the PointsBet Board about our bid are fully addressed and we're ready to go and we'll throw everything at making this combination a great success. I'll now hand over to Andrew to talk through the proposal in more detail.

Thanks, Matt, and good morning, everybody. Turning to Slide 8 of the presentation, which shows that our revised proposal confirms a single offer price of $360 million, which is the top of the range we outlined in our previous correspondence to PointsBet. We've enhanced the certainty of the $260 million cash component, as you can see on the slide, through a credit-approved term sheet from National Australia Bank for $120 million of acquisition debt funding, a nonbinding proposal to realize the value of PointsBet Canada and a fully underwritten equity raise of $130 million. The funding of this transaction has been carefully constructed to maximize certainty and ultimately drive returns for shareholders where we realize the value in the combined business. Further information about each funding stream is available in the full presentation. As Matt said, as PointsBet's largest shareholder, we intend to vote our holding against the current Mixi proposal, which we consider least significant value on the table. Turning to Slide 9, which demonstrates how betr's proposal for PointsBet is superior to the current Mixi proposal, both in terms of value and its ability to be actioned. The revised proposal confirms a single offer price of $360 million and a reduced due diligence period of only 15 days. On Slide 10, the betr proposal offers greater flexibility for PointsBet's shareholders, giving them the ability to elect their preferred combination of cash and betr shares, and with the combined business to remain ASX-listed, represents the only listed pure-play digital wagering operator in the attractive Australian market. As is demonstrated on Slide 10, betr's proposal is superior to the Mixi proposal, whether shareholders elect to receive cash, scrip or a combination of the 2. Moving ahead to Slide 15. You can see that betr has become PointsBet's largest shareholder, having acquired a relevant interest in 19.9% of the company at approximately $1.10 per share. This reflects our strong commitment and unwavering confidence in this opportunity. As we've said, we intend to vote against the current Mixi proposal, which materially decreases its actionability, and our ongoing engagement with other key shareholders of PointsBet indicates that there is strong support for betr's superior proposal. On Slide 17, critically, we detail the compelling synergy price which is on offer in this combination. By moving to a single brand, app and technology platform, we expect to deliver cost synergies of over $40 million annually, together with a deeper investment in brand, product and customer intelligence, which will drive sustainable and profitable growth. Matt and the rest of our team have a tried and tested playbook for doing this, which has been demonstrated by the $26 million of combined synergies that we've successfully already realized from the recent BlueBet and TopSport transactions. The synergies in the PointsBet transaction have already been outside-in validated by an independent Big 4 accounting firm. Slide 20 shows why we have such conviction in this synergy opportunity, with the betr team's track record of swift decision-making and rapid execution already having realized that synergy pool of $26 million in the BlueBet and TopSport transactions. The proposed combination with PointsBet offers a materially larger scale and a materially larger synergy price. I'll now hand back to Matt to run you through the equity raising.

Thanks, Andrew. And turning to Slide 23. As mentioned earlier today, we are launching a fully underwritten $130 million equity raising as part of the funding for our proposal, the components of which are listed on your screen. We are very pleased with the support from investors, with new shares under the offering representing a premium of 6.7% to betr's last closing price and a 13.7% premium to the 10-day VWAP. We see the strong institutional demand as an endorsement for betr's strategy of pursuing profitable growth via organic and inorganic means and the attractive opportunity that remains as the Australian wagering market continues to consolidate. Moving to Slide 25. It shows the timetable for the equity raise, with the retail entitlement offer to open at 9:00 a.m. on Tuesday, the 6th of May and close at 5:00 p.m. on Tuesday, the 20th of May, with new shares issued under the retail entitlement offer to commence trading on Wednesday, the 28th of May. I'll now hand back to Andrew to run you through our Q3 results.

Turning now to Slide 27. While the PointsBet's proposal represents an exciting opportunity for betr shareholders, the core betr business continues to experience strong and accelerating operating momentum, which is delivering continued improvement in our key operating metrics, as you can see on the screen. Post the migration of betr customers onto the platform, we are now a much larger business with more than 152,000 cash active customers in the quarter, and with the ongoing strategic reactivation of the betr database, maintaining robust net win margins that enabled us to deliver north of $3 million of operating cash flow during the quarter. Importantly, we successfully completed the migration of TopSport's customers after the period end and with activity from those customers to be included in our Q4 numbers. Overall, we're extremely happy with the performance of the business during the quarter and excited as we look ahead. Matt will now wrap up before we turn to Q&A.

Thanks, Andrew. And before opening to questions, I would just like to reiterate that we are highly confident that our proposal will provide superior value to betr and PointsBet shareholders, creating a leader in the Australian wagering market and leveraging the unrivaled sector experience and demonstrated M&A capability of the betr team. Myself, Andrew and the betr Board are excited by the potential of a combination between betr and PointsBet. And having fully addressed the concerns previously raised by the PointsBet's Board, we encourage shareholders to support betr's superior proposal. We'll now open the lines for questions.

[Operator Instructions] Your first question comes from Andrew Orbach from Taylor Collison.

A fair bit to digest here. Just on the potential sale of the Canadian business to Hard Rock, just interested in what's included there. Is it the platform tech iGaming as in would betr retain iGaming capabilities?

Yes, in terms of Canada, we obviously have a nonbinding indication from Hard Rock as to their willingness to purchase the Canadian business, interested primarily in the customer base. And we would be retaining the PointsBet's technology in such a transaction with the opportunity to continue to redeploy that throughout North America. So retaining value there whilst ensuring that we're divesting off of the operating costs associated with the PointsBet's Canada business.

Terrific. That's good news. All right. And just one other follow up on, if the transaction is successful, it's going to get betr to roughly 10% market share domestically. That's a figure you've sort of quoted quite a bit in terms of being a critical number. Just your thoughts on whether that's sufficient moving forward and whether there's further plans to bolster that percentage up given the consolidation that's expected in this mid-tier continuation.

Andy, Matthew here. We do believe there are further M&A opportunities in this market. We do think, though, that getting to 10% allows us to grow profitably at scale. And so whilst we have a very strong organic growth strategy, the inorganic -- we've made no secret of the inorganic story and the fact that we'll continue to pursue further M&A.

Your next question comes from Leo Partridge from Morgans.

Just on synergies and potential upside from that. You've outlined $40 million synergies there, which is a sizable number. Can you speak to any areas in which you see potential upside beyond that number based on your experience with the previous transaction?

Look, the synergy price on offer here is really material and a number well north of $40 million we think is highly attractive. Obviously, these are outside-in diligence at the moment. Working with the PointsBet's team, hopefully, in a due diligence period would allow us to firm up some of these numbers. And I do believe that there's potential for upsizing in a number of the buckets. What's really important about a synergy play here, though, is that we're not looking at a slash and burn. We're not trying to get a synergy number that is going to preclude growth. And it's really important that once we've realized these synergies, and to the earlier point, getting to that 10% market share that we're investing for that continued growth from that position and positioning the business to grow faster than the market. So there's always a trade-off, I think, between grabbing the synergies and making sure that you're set up for success in the future. But certainly, to your point, once we've diligence this, we'll be able to firm up our exact synergy estimate.

And one more, if I may, just on the funding and balance sheet position. So following the capital raise and funding commitments, how comfortable are you with the balance sheet position post acquisition, especially in terms of providing flexibility and marketing investment to support growth?

Yes, absolutely. The funding pool that we've been able to put together allows us not only to complete on the transaction, but also to invest for growth, invest during that key customer migration period that we always speak of. And our experience in integrating these businesses and undertaking customer migrations dictates that you do need to have some cash on hand to be able to do that. As you can see, despite the business taking on some debt, there's a very strong deleveraging profile here, and we're very confident that the operating cash flows of the business after that full first year of ownership get us well under 1x net debt to EBITDA and put us in a really strong position to grow the business and invest going forward.

[Operator Instructions] Your next question comes from Phil Chippindale from Ord.

Just a couple of questions. Firstly, just on the debt facility. Andrew, can you just talk to maybe the terms around that, especially just on the pricing side of things? I know it's with NAB, so I imagine the pricing is reasonably competitive. But maybe you could just give us a little bit more detail on that, please.

Yes, of course. We're very pleased to be able to put together what we've received from NAB, a credit-approved term sheet for $120 million of debt. Importantly of that -- and I think underlying NAB's commitment to working with us to try and get this deal done is the $35 million facility that's already been advanced to support the current pre-bid stake that we've built in the business. We see these terms as very commercial and in line with what Big 4 financing would be expected. You can see the interest rate that we've published there at BBSY plus 4% and covenants in line with what you'd expect from a Big 4 lender. So we're very comfortable with the interest and covenant obligations that will be on the business. And as I said before to Leo's question, really important that we're deleveraging quickly as we're generating that operating cash flow post the migration.

Yes. Understood. And just -- my final question was just one for Matt. I mean you put this revised offer to the PointsBet's Board. Can you just talk to any response or discussion that you've had with them to this point?

It's only just gone to them, Phil. So we haven't had any engagement as yet, but we're hoping to have some engagement later today. There'll be some calls made and hopefully some positive outcomes off the back of that.

Your next question comes from Andrew Orbach from Taylor Collison.

Just a couple of more follow-up ones. One, just can you talk to us please on the combined platform as it might look with the PointsBet-betr and any advantages that that might provide, please?

Yes, absolutely, Andy. We are blessed with the fact that there are wonderful technologists in both businesses and the technology platform by PointsBet and betr is actually built off the same code base, the TBS code base, and therefore, familiar to us and our platform is familiar to the PointsBet team. So we'll look to go and confirm in due diligence where those technology platforms are sitting and make some decisions around that. But hopefully, we see that there are components of each that would make the whole go faster. And so whilst we're looking at a technology platform rationalization, we see that there are bits and pieces from each of the teams brilliant work over an incredibly long period of time that are going to make the business go faster. So we're really excited about the opportunity to provide a more scalable, reliable platform and faster product development together than either business is currently by itself.

Excellent. All right. And one final one from me. Just on Slide 17 of the deck, it says -- it relates to moving to a single brand and app. Any -- I know it's early and it's probably a little cheeky. Any sort of early indications of which brand or what brand you're going to go with, please?

Not as yet, Andy. We'll be data-led as we are in everything that we do. So we'll run focus groups. We'll do some analysis. We're not wedded to any brand either way, but we'll be guided by what we hear over the course of the coming weeks, and we'll action that pretty quickly. As long as we position the brand in what we want to stand for as opposed to what the brand actually is itself, we think it will be fine.

There are no further questions at this time. I'll now hand the conference back for closing remarks.

Well, thank you, everyone, for joining us. We hope you're as excited as we are about this opportunity. We look forward to keeping you abreast as we progress through conversations with PointsBet. Thank you for your time today. And again, apologies for the delay.

Thank you.

Thanks.