Betsson AB (publ) (BETSB) Earnings Call Transcript & Summary

Betsson Q1 Report 2025. [Operator Instructions] Now I will hand the conference over to CEO, Pontus Lindwall, and CFO, Martin Ohman.

Thank you. Hello, everyone, and welcome to Betsson's presentation of the Q1 report for 2025. I'm Pontus Lindwall, the President and CEO of Betsson. With me today is also our CFO, Martin Ohman. The start of the year has been strong with continued high customer activity and profitable growth for Betsson. Despite fewer days and negative seasonal effects, some new quarterly records were set for customer deposits and gaming turnover in the first quarter. Total customer deposits across B2C and B2B increased 15% year-over-year. Total turnover was up 10% year-over-year. Sportsbook turnover increased 10%, and casino turnover was up 9% year-over-year. Group revenue increased by 18% year-over-year to EUR 294 million. Operating income or EBIT increased by 11% year-over-year to EUR 64 million. The EBIT margin was 21.8%. The somewhat lower levels of revenue and EBIT compared to the fourth quarter of last year is explained by the lower sportsbook margin, which was 8% in Q1 compared to 9.8% in Q4 last year. I'm proud of our continued commitment to sport. In Q1, the partnership with Racing Club in Argentina was strengthened through a new agreement, meaning that Betsson is now the main sponsor of the club with the logo on the front of the team's jerseys. The timing of this agreement came at a significant moment. Last autumn, Racing was crowned champions of Copa Sudamericana, which is the second most prestigious club competition in South American football after the Copa Libertadores. In February, the club managed to repeat the success by winning the prestigious club winners final for the continent, the Recopa Sudamericana. In March, we opened a new office in Buenos Aires to be able to even better capture the growth potential in Argentina. Now let's look at the 2 new market entries. In February, we obtained a local license in Brazil. And in April, we launched our offering in that newly regulated market. In addition to this, we carried out a technical launch in February in the regulated market in Paraguay after having obtained a local casino gaming license there at the end of 2024. This means that we now have operations with local gaming licenses in 25 countries around the world. Betsson's gaming sites are largely operated on a proprietary platform that makes up the core of the offering and user experience. The platform manages payments, customer information, account management, as well as the games offering. In Q1, development work to update apps for several markets continued. Technical preparations were made ahead of launches in Brazil and Paraguay in the quarter. In Argentina, a number of exclusive games were released, including jackpot games, which means that they are unique for Betsson in that market. Within the sportsbook, additional live betting opportunities were introduced for high-profile football matches. Since many years, sustainability has been an integrated part of Betsson's business strategy. Betsson holds a AAA rating by Morgan Stanley Capital International, MSCI ESG Ratings. During the first quarter, Betsson participated in the sustainable gambling zone at the ICE Gaming Trade Fair in Barcelona. Betsson sponsored the event, where all proceeds go to organizations working for safer gaming, and Betsson also participated in several panels to discuss responsible gaming and sustainability. More details about Betsson's sustainability framework and reporting can be found in the new sustainability report, which was recently published as part of the annual report for 2024. Currently, preparations are taking place to start reporting according to CSRD for 2025. And now I'll hand over to Martin for a closer look at the financials.

Thanks, Pontus, and hello, everyone. The first quarter in 2025 was another good quarter with growth and all-time highs. The Q1 result is supported by year-over-year growth of 15% in deposits, which is also the highest deposit levels ever for a single quarter, and also all-time high in gross turnover with year-over-year growth of 10% and growth of 7% in active customers. The gross turnover in sportsbook across all Betsson gaming solutions was more than EUR 1.8 billion, an increase of 10% year-over-year and another all-time high. Sportsbook margin was 8.0%, which is higher than the 6.6% margin in the first quarter last year and slightly above the 2-year rolling average margin of 7.8%, but lower than the 9.8% in the fourth quarter last year. Sportsbook revenue increased by some 22% compared to last year and amounted to EUR 80 million. The casino turnover is the second highest ever, just slightly below Q4 last year, and represents an increase by 9% year-on-year. Casino revenue increased by 18%, which is also the second highest casino revenue ever, only beaten by Q4 last year by some EUR 1.5 million. Casino revenue represented 72% of the group's total revenue in the quarter, and sportsbook some 27%. Reported revenue for the first quarter amounted to EUR 294 million, the second highest revenue ever in a single quarter and an increase of 18% year-on-year and 20% organic growth. Compared to Q4 last year, this quarter contains 2 days less of revenue. This, in combination with the higher sportsbook margin in Q4 last year, explains the slight sequential step down in revenue in this first quarter. Revenue from locally regulated markets increased by 60% compared to last year and now constitutes 59% of total revenue in the first quarter. Revenue growth is coming from both the B2C and the B2B business in the quarter, where the B2C business contributed with EUR 204 million in revenue, while some EUR 90 million came from license revenue from B2B customers. The increased license revenue in the quarter is driven by both continued growth for existing customers and the addition of new B2B customers. The acquisition of Sporting Solutions in Q4 2024 and the acquisition of KickerTech in 2022, in combination with continuous improvements and investments into the sportsbook and casino products, have strengthened the group's B2B offering. Splitting revenue by region, we see growth compared to previous year in all regions, except for the Nordics, which is down by 19% compared to last year. Sweden and Denmark reported decreased revenue in the quarter compared to corresponding period last year, driven by decreased activity in both the sportsbook and the casino products. The Nordic region represented 13% of the group's total revenue in the first quarter. Revenue from Western Europe increased by 28% year-on-year or by EUR 12 million. Revenue from Belgium increased compared with the corresponding period last year, mainly driven by the casino product. The Italian market is also contributing to the growth in the Western Europe region, driven by new records for both deposits and turnover. Italy reported all-time high revenue in the first quarter, mainly driven by the casino product. The sportsbook product reported increased activity and increased revenue, both compared with the corresponding period last year and the previous quarter, but it's relatively smaller than the casino product in Italy. The Western Europe region represented 19% of total revenue in the quarter. Revenue from Central and Eastern Europe and Central Asia region, the CEECA region, increased by 11%, driven by growth in both sportsbook and casino. Croatia and Greece reported increased revenue in the quarter, with new records for deposits, sportsbook turnover, and casino turnover in the latter. Lithuania, Estonia, and Georgia reported decreased revenue compared with the corresponding period last year. Decreased revenue in Georgia and Lithuania is mainly driven by player-friendly results in the sportsbook product. The CEECA region represented 42% of the group's total revenue. Revenue in Latin America region increased by EUR 31 million, representing an increase of 70% compared to the same period last year, mainly driven by higher activity in the casino product. The sportsbook products benefited from a higher sportsbook margin and reported increased revenue compared with the corresponding period last year. Argentina continued to show strong underlying activity in deposits, increased turnover in both the casino product and the sportsbook and reported all-time high revenue in the first quarter. Peru reported revenue growth compared to the corresponding period last year, driven by growth in both the sportsbook and the casino products. As Pontus mentioned, the group received a local license in the newly regulated Brazilian market in February, covering both online casino and sports betting, but we did not go live until April, so no revenue from Brazil was reported in this first quarter. Also at the end of 2024, the group obtained a license covering online casino in Paraguay. And in February, a technical launch took place, but no material revenue has been recorded as of yet. The Latin America region represented 25% of the group's total revenue in the first quarter. The development in operating income in this picture is broken down and explained by the different line items in the P&L. Revenue has increased by some EUR 46 million and following that increased cost of services provided as well. The increase in cost of services provided is apart from revenue growth, mainly explained by higher gaming taxes following a 60% increase in revenue from locally regulated markets. Gross profit increased by EUR 24 million compared to the same period last year and amounts to EUR 188 million, which corresponds to a gross profit margin of 64% compared to 66% last year. Marketing spend increased by EUR 5 million compared to last year and corresponds to 18% of total B2C revenue and to some 23% when including affiliate marketing costs as well. Increased marketing spend is primarily explained by enhanced marketing efforts in Western Europe and Latin America. Personnel expenses increased by some EUR 8 million in the first quarter compared to last year due to the addition of some 500 employees following geographical expansion and acquisitions. To give some more color to this, Betsson France was consolidated as from the third quarter last year following the increased ownership. Sporting Solutions was consolidated as from the fourth quarter last year following the acquisition and Bukmacherska in Poland was added as from the first quarter this year. This, in combination with organic focus on product and tech development, explains the bulk of the increased number of headcounts within the group. In addition to increased number of headcounts, yearly salary revisions and performance-related compensations explain the increased cost compared to the same period last year. Depreciation and amortization costs are more or less flat compared to last year. Other items include other external expenses, which has increased by some EUR 5 million, driven by investments in technology and product development on the sportsbook side. Other items also include capitalized development costs and other operating income and expenses, which are more or less flat compared to previous year. Operating income amounts to EUR 64 million, an increase of 11% compared to last year. The EBIT margin was 21.8% compared to 23.3% last year. Operating cash flow amounts to EUR 86.4 million compared to EUR 50 million in the same period last year. Operating cash flow is driven by increased operating income and positively impacted by changes in working capital by some EUR 15 million. The positive effect from working capital comes from decreased receivable on payment providers. Cash flow from investing activities sums up to EUR 22.9 million and relates to investments in own product and technology development and partly by the acquisition of Betclic Italy, the acquisition of Bukmacherska in Poland and a deferred payment from acquisition of the BetFIRST in Belgium. Cash flow from financing activities impacted cash flow by EUR 4 million, mainly driven by paid dividend to minority shareholders. Betsson has as end of March, a net cash position of EUR 178 million and an equity ratio of 63%. On a yearly basis, operating cash flow has increased over time, although we have seen some fluctuations between the intra-year quarters. 2025 has started well with operating cash flow of EUR 86 million, which reflects a cash conversion ratio of more than 100%. When it comes to earnings per share, we can also conclude an increasing trend over time, somewhat negatively affected in 2024 by increased taxes following the implementation of the Pillar 2 framework. However, this year has come to a good start with EPS growth of 17% compared to the same period last year, amounting to EUR 0.35 per share. Now back to you, Pontus, to present the trading update and to summarize the start of 2025.

Thank you, Martin. So let's look at how the second quarter has started. The average daily revenue in the second quarter of 2025 up to and including the 27th of April has been 17% higher than the average daily revenue of the entire second quarter of 2024. During the measurement period so far in April, the sportsbook margin has been higher than the historical average. And now let's quickly summarize the highlights of the first quarter 2025. The high customer activity continued during the quarter with new quarterly records in customer deposits and gaming turnover. Revenue was up 18% year-over-year and EBIT was up 11% as we are absorbing higher gaming taxes. The share of revenue from locally regulated markets was 59%. Our business continues to generate strong cash flows, and we have a robust balance sheet that enable us to continue to invest in future growth and return cash to our shareholders. Operating cash flow and earnings per share showed significant growth in the quarter. And so far, we have seen a strong start to Q2, up 17% as per the day before yesterday. As the official main partner of Inter, we are thrilled to follow the first leg of their Champions League semi-final tomorrow against Barcelona. And we are not the only ones getting ready for this game. Last year, the 4 Champions League semi-final games had over 330 million viewers in total. This is more than double the number of viewers of Super Bowl, for example, and of course, gives great exposure to the Betsson brand. Thanks, everyone, for listening to the presentation. Let's move on to Q&A. We welcome your questions.

[Operator Instructions] The next question comes from Oscar Ronnkvist from ABG Sundal Collier.

Just a few questions for me. So first one, just on the trading update, appeared quite strong, I would say. So just wanted to hear your thoughts about the Brazil launch, if we could see big contribution from that going into the April numbers or if we still expect quite a limited contribution from that in the beginning and then to maybe ramp up in the following few quarters?

Thank you for the question. I think we have mentioned before that we are making a slow start in Brazil, and hence, it's not impacting this opening of the second quarter much at all.

Perfect. Got it. Then just my next question would be on the B2B development. It appears also quite strong. I think it's up to 31% of the group's revenue at the moment and grew over 30%. So just wanted to hear your thoughts about the B2B customer concentration. So I know that you don't comment that a lot, but can you say something about, I mean, how many new B2B clients you have expanded with and how the development of the customer concentration has come over the last few quarters and years, please?

We can't say how many new customers we have on the B2B side. But I think we can say that now we have become bigger, as you say, and we have less concentrated revenue stream from B2B. So as we get more clients, we get more spread out and more diversified within the B2B leg as well, which we see as a positive.

All right. Got it. Then just a quick one for maybe for Martin, detailed one, but the depreciation or especially the amortization level dropped quite significantly between Q4 and Q1. Just wondered if there's any sort of nonrecurring effects or if we should extrapolate the Q1 number, please?

I think that the Q1 number is a good estimate going forward.

The next question comes from Martin Arnell from DNB.

Follow up on the LatAm discussion there. It was a great quarter there. And what were the main drivers for the improved revenue growth in the quarter?

I think we can say -- put it like this. LatAm consists of several markets, and we have been in some markets for some time. And of course, they are large contributors. And in some markets, we have been a little bit shorter like in Argentina, but still, we have a strong operation there, and that's one market where we have put a lot of efforts. So that's also a strong contributor, whereas as we mentioned before, the new markets that we have opened recently in fourth quarter and in the first quarter this year contribute less. But obviously, they give us a good possibility for the future to keep on growing in the LatAm region.

And on the Q2 trading, is it's not really boosted by Brazil, you mentioned. So what is sort of supporting and driving there? Is it Paraguay or anything else?

I would say it's a mix of all our established markets more so than Paraguay and especially Paraguay is only casino market. So I think we can say that the strong start of the second quarter is -- first of all, we have a strong position in the company, and we are on a strong growth path, but it has been strengthened further by favorable sports betting margin in the beginning of the quarter.

Okay. And on a negative point, I note that SEK, if we try to exclude the B2B system revenue, it looks a little bit weaker this quarter. Is there anything that stands out there that you can comment on?

Not really. I mean we have quite some markets on the B2C side performing well in the CEECA region, but also a few markets where the Sportsbook margin was not as good as expected, where we see kind of decreased, especially sportsbook revenue, but nothing alarming. I think many markets are performing really well in that region.

Was there a specific sport or a specific league that you can comment on why the sports margin was lower in some market there?

Not really. I think I mentioned a few markets in the presentation, and I don't think that there are any specific sports, but in general, the sportsbook margin was lower there.

Okay. And my final question is on -- we see that you are absorbing the higher gaming tax. We can see your betting duties as a percent of sales continues to go up, but you're scaling and you're increasing the earnings. You expect the betting to continue up, I guess, in percent of sales? And will you be able to continue to defend your margins and absorb that higher tax, do you think? And what are your tools here that you can work with?

We normally do not give any guidance on the margins going forward. But I mean, what we know is that part of locally regulated revenue will most likely continue increasing. That's the trend at least that we see in most markets going forward.

Yes. And I'm not asking for guidance at all. I'm just asking sort of how can you protect your margins because I guess you are doing that really well, and you can work with payments. There are other items, there are OpEx, et cetera. What are you focusing on when you're seeing and focusing on improving increasing your percent from locally licensed markets?

I think that we will be -- I mean, as we get bigger, we get some scalability in the company. And I think when you read this report for the first quarter, I think you can see that we have not stopped investing in our future growth. It's actually the other way around where we put a lot of money into staff and into marketing, which are the main kind of investments that we do for future growth, but which go all through the P&L. And we managed to do that and still maintain a good profitability. So I think we will continue to work in this way going forward as well and hopefully be able to continue with a nice profit margin, even though we are not in a position to guide anything on it.

And as you say, Martin, I mean, the dynamics of this market is that payment costs normally go down when you come to locally regulated markets and the marketing efforts normally get more efficient in locally regulated markets. So yes, there are benefits of this as well.

The next question comes from Dennis Peterson from Private Investor.

I have 3 questions. The first one, I guess, I might have been missing some kind of press release or some comments, but what has happened with the acquisition you made in the Netherlands that was presented a few quarters ago and was pending the KSA approval?

Yes, it's still pending KSA approval. So it's steady state compared to before, and we are waiting for that approval to happen.

I see. Are you having any communications with them? Or are you just in a, so to say, quiet period and waiting?

Right now, we are just waiting.

Okay. And do you see any impact in the start of Q2 in terms of customer deposits subject to the tax increase in Colombia?

Colombia is a fairly small market. But yes, of course, all tax increases and everything, all regulatory changes impact business. However, it does not have a very significant impact on our total numbers. No.

Okay. And there has been some talk about the Brazilian market, but what can we expect going forward? I mean, I guess, Betsson starts from a different level in terms of brand recognitions compared to the launch in the USA. But do you see any risk that you get the same outcome as in the USA. and in the Colorado launch that wasn't that successful, I guess, that we all hoped.

No, I don't -- there are not many similarities between the Colorado launch that we did. That was mainly for show off for the B2B product that we had there. But speaking about Brazil, it's a huge market, and we want to start off in a soft way and make sure that the product is calibrated for that market. And then we're going to start marketing and see what kind of traction we get. And given that we have really good traction in other markets in the region, we believe that we will be successful over time.

There are no more phone questions at this time. So I hand the conference back to the speakers for any written questions or closing comments.

Yes, we do have one question from the web audience. Can you elaborate on your plan for the Polish market given the acquisition communicated in the report? That's the first question. The second question, can you also comment a bit on the start in Paraguay?

Yes, I can take that one. Start in Paraguay is easy to comment because we started just recently, and there is nothing to say about it because we have more or less just opened up for customers and made no marketing efforts whatsoever. So that remains to be seen at a later stage. In regards of Poland, Poland is an interesting European market. Poland as a country is quite big, growing well. The economy is growing well. And we have been cooperating with a local partner there for some time in the sportsbook area on the local brand Bukmacherska. And now we have acquired that business fully and it's a big European market where Betsson wants to have a presence, even though it's just a sportsbook market for the time being. So no more questions. Okay. Then there are no more questions. And we want to say thank you for participating in this call, and see you next time. Bye-bye.

Bye.

The host has ended this call. Goodbye.