Better Collective A/S (BETCO.ST) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Better Collective Second Quarter 2025 Presentation. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Better Collective VP, Investor Relations and Communications, Mikkel Munch Jacobsgaard. Please go ahead.

Thank you very much, and good morning, and welcome to Better Collective's Q2 2025 Webcast. As just said, my name is Mikkel Munch Jacobsgaard, Vice President of Investor Relations and Corporate Communications here at Better Collective. And I'm today joined by our Co-Founder and Co-CEO, Jesper Sogaard; and CFO, Flemming Pedersen, who will provide today's business update in connection with our Q2 report that was disclosed yesterday. Please follow me to the next page. We ask you to pay attention to this slide where we display our disclaimer regarding any forward-looking statements in today's webcast. Please turn to the next slide as I hand over the word to Jesper for the second quarter highlights.

Thank you, Mikkel. Good morning, all, and thank you for joining today's webcast. Let's dive into the Q2 highlights, and please follow me to the next slide. Q2 played out as anticipated with results in line with our expectations. Revenue reached EUR 82 million and operational earnings EUR 23 million. The results and comparisons to last year reflect the major market transition in Brazil and last year's exceptional event calendar, including UEFA Euro 2024 and Copa America in soccer as well as the North Carolina launch. We have completed our EUR 50 million cost efficiency program that we launched in October last year and thereafter completed a major organizational change where we have increased our focus on our strongest markets and brands and streamlined the organization accordingly. Reporting-wise, we have, from this quarter established Esports as its own business segment and launched a new value of deposit KPI to underline our quality of revenue and earnings. We are now entering the second half of the year where we anticipate increased activity around the beginning of major sports seasons, and we are, in my view, well positioned to getting back to growth again next year. Looking at the second quarter and the first half in general, Better Collective is in a place where we wish to be when we started the year. And we, therefore, maintain our full year financial guidance, and the Board has decided to initiate a new share buyback program of up to EUR 20 million after completion of the currently running buyback. Please turn to the next page. Following this overall introduction, I'll focus on Brazil right away. Brazil has been the most significant market development for our business over the past year. Brazil has transformed into a fully regulated and taxed market after many years of being a big international market. It is the largest market ever to have undergone such a transition. As all other stakeholders in the market, we've had to adapt to this market change. Better Collective has established local presence, completed major acquisitions and established relationships with all important stakeholders in the market. As such, Better Collective is now positioned as the largest digital sports media in Brazil and more broadly in South America. We expect Brazil and the broader region to become a very attractive growth market in the future, of course, pending that regulation is attractive. When we entered this year, the outlook for the Brazilian market was highly uncertain. However, we delivered a slightly better-than-expected performance in the first 6 months, supported by swift adaptation by our local teams and solid work from our major partners. Player migration and wagering activity remain ahead of expectations. The absence of welcome bonuses continues to limit NDC volumes and unfortunately benefits nonlicensed sportsbooks. However, we remain confident that the market will seek to remain competitive longer term. Please turn to the next slide. As previously announced from this quarter, Esports is reported as a stand-alone business segment, underscoring its scale, profitability and growth potential. We are doing this now not only because accounting standards requires it given it operates as a stand-alone business with its own management and the mere scale, but more importantly, because it is a strategically important part of Better Collective, where we see significant future growth potential. We see Esports as a powerful growth engine for Better Collective going forward. With HLTV and FUTBIN, we own 2 of the most respected and influential community platforms in global Esports, giving us a rare opportunity to serve millions of passionate fans and grow alongside the scene. By establishing Esports as its own segment, we sharpen our strategic focus, increase transparency and create room to invest even faster in new features, content and partnerships so we can continue to provide the best fan engagement and unlock the full potential of these communities. Platforms that are deeply embedded in the fabric of Esports are hard to replicate, and we are committed to nurturing them for the long-term benefit of fans, partners and shareholders alike. The Esports business segment represented 11% of group EBITDA in the first half and delivered an EBITDA margin of 56% in Q2. The revenue is almost solely generated from advertising and sponsorships with unmatched audience loyalty and monetization opportunities, Esports is a strategic growth pillar in our brand portfolio, allowing us to provide free high-quality content to our users and fans. Please turn to the next slide. On this slide, you can see the revenue and EBITDA bridge outlining the key building blocks from Q2 last year to Q2 this year. First, the Brazilian market dynamics had a net negative impact of EUR 8 million on revenue. Secondly, in North America, activity levels were lower and the North Carolina state launch last year created a tough comparison, resulting in a EUR 6 million headwind this quarter. Thirdly, this quarter compares to Q2 2024 when we benefited from the UEFA Euro and Copa America tournaments. In Q2 2025, the football calendar was lighter with the Club World Cup in June and July being the main tournament of the quarter. The estimated effect is EUR 5 million. Fourth, the weaker U.S. dollar affected negatively with EUR 2 million. And finally, we saw positive contributions from underlying growth in Paid Media and Esports as well as the full quarter effect of the acquisition of AceOdds, combined adding EUR 4 million. Altogether, this brought us to a Q2 revenue of EUR 82 million. EBITDA decreased by EUR 6 million in the quarter. The revenue-related effects just discussed accounted for an EUR 18 million negative effect. On the positive side, our cost efficiency program launched in October last year delivered EUR 12 million in savings during the quarter. Altogether, this has resulted in a Q2 EBITDA of EUR 23 million. Please turn to the next slide. Following Q2, our 2025 and 2027 guidances remain unchanged and can be seen here. Please turn to the next page as I hand the word to Flemming for a dive into the financial performance.

Thank you, Jesper, and good morning to you all. Please follow me to the next slide, and we can dive a bit more into the financial performance. As Jesper mentioned earlier, year-on-year comparisons remain challenging in Q2, just as they were in Q1. However, performance is in line with our plans. As seen here, revenue was flat versus Q1 this year and down 18% year-over-year. As previously mentioned, we have, to a large extent, counteracted this with our cost efficiency program, which has delivered the expected results as costs were down EUR 12 million in the quarter or annualized close to the EUR 50 million set out in October last year. I'll come back to this later in the presentation. Let's turn to the next slide. A key strategic focus of us remains the continued expansion of our recurring revenue base, which provides a solid and predictable foundation for the business and a big unrealized value. Compared to Q1, we increased recurring revenue by EUR 3 million in Q2. Importantly, we are sending a steady flow of new customers on revenue share agreements as 86% of NDCs were sent on revenue share contracts. A significant portion of this revenue is still unrecognized and will materialize over time, further strengthening our long-term earnings potential. Please turn to the next slide where we'll take a closer look at the revenue share development per year. Revenue share has been and continues to be a central focus for us as it is a key driver for our long-term growth strategy as we create more value long term compared to upfront payments and we share the upfront investments with our partners, allowing for them to capture more customers faster. Revenue share income reached EUR 180 million last year, continuing its long-term growth trend. While the Brazilian regulation has impacted the last 12 months, we remain very confident in our investments into revenue share and view this as a strong foundation for long-lasting partnerships. Please turn to the next slide where we look at the cost development. Our cost base reached its peak mid-2024, growing into Q3. In light of last year's market shift and after completing more than 35 acquisitions, we recognize the need to reduce our cost base and reassess the organization we have built while driving rapid growth in the past 7 years. In Q2 2025, costs were 16% lower year-over-year or in absolute numbers, a decrease of EUR 12 million. On an annualized basis and with further cost increases into Q3 last year brings us to the EUR 50 million cost efficiencies that we announced in October last year. These efforts mean Better Collective now operates on a leaner and more efficient foundation, which positions us well for the future growth. Please turn to the next slide, where we look at the NDC development and introduce our new KPI, the value of deposits. Over the past year, we have seen a decline in our NDC -- in our group level NDCs, largely driven by the slowdown in Brazil ahead of the regulation. As seen on the graph on the left, we have split out Brazilian NDCs from the group to show how big an effect it has had on the growth development in recent years. As we have mentioned in the past, Brazil has, within a very short time, grown from being nonexisting to better collective to more than EUR 70 million revenue in 2024. And this growth comes from these indices that you see here. If we exclude Brazil, the underlying NDC development looks more stable over the years. While NDCs remain an important metric, it is important to reflect on how the relevance has evolved with the complexity of our business. When we IPO-ed Better Collective back in 2018, NDCs were a straightforward and usual KPI as our business operated in much fewer markets and with fewer partners. Today, however, the NDC metric tells a much more nuanced story as the value of players differ significantly across markets. As a result, comparing NDCs across markets at group level can be misleading and less reflective of the value that we are actually creating and our main focus is on the value per NDC rather than the mere number of NDCs. That said, to provide stakeholders with more meaningful insight into the underlying activity and quality from our revenue share accounts, we are introducing an additional metric, value of deposits from our revenue share accounts. As shown on the slide at the table to the right, value of deposits has shown consistent growth in the past. underlining the health and quality in our recurring revenue base despite the decrease in NDCs. A substantial part of this development is the addition of the U.S. market, where we have seen more and more states go live from 2019 and onwards. The U.S. market is characterized by significant higher player values compared to other markets, and we have been seeking to work more and more on terms that include revenue share. While there was a temporary impact in Q1 due to the market regulation in Brazil, we have already seen an uplift in Q2. Going forward, we will provide information on NDCs alongside value of deposits to better illustrate the underlying activity and the health of our revenue share accounts over time. Please turn to the next slide as I hand the word back to Jesper for some highlights.

Thank you, Flemming, and please turn to the next page. To summarize, Q2 performance was fully in line with expectations. We advanced our strategic priorities, reduced costs by 16% year-on-year and established Esport as a dedicated business segment to sharpen focus on this segment's significant growth opportunity. Our EUR 50 million cost efficiency program is now completed, leaving us with a leaner structure and a strong team of highly skilled colleagues. Brazil maintained good activity from Q1 and continues to hold strong long-term potential. We have also introduced a new KPI, the value of deposit, which clearly underlines the health of our revenue share accounts. Looking ahead, we enter a busy second half with major sports seasons and remain confident in delivering on both our 2025 financial targets and our long-term ambitions. Finally, I want to thank the organization for showing great adaptability through this transition. We are well positioned for the future, and I'm excited about what lies ahead. Thank you for your attention, and let's move to the Q&A.

[Operator Instructions]. We will now take our first question from the line of Sebastian Grave from Nordea.

First, I want to touch upon the FanDuel news yesterday evening, so FanDuel committing to push into prediction markets. I'm sure you saw that. Can you remind us how do you see Better Collective playing part in this development? And also noting that you're already partnering with Kalshi. So I mean, on balance, what I'm asking is, is this a net positive or neutral? Or how do you view this development?

Thanks for the question. It is, in our view, a pretty significant step that FanDuel is taking here. As you're probably familiar with, the prediction market is under a federal regime, meaning that it's actually allowing for states where there is no sports betting regulation to drive business there. And the audience we have across our platforms is obviously the target group for such a product as well and we naturally -- it's basically just a pro rata of the state's size in the U.S., it's equal to the audience we have. So it's a very exciting development. And as you rightly speak to, we will work with Kalshi. So it's something that is natural to us. It's, of course, very early days, but for me, it is quite significant that FanDuel is now embracing this.

Second question, I would like to revert to Brazil. As to it's a still uncertain environment with bonus restrictions and as we also saw from your new NDC split, I mean, a significant slowdown in NDC momentum in the market now. I was just wondering, in your discussion with operators, do you sense any sort of fatigue or skepticism about the sort of the actual prospects of this or the potential of this Brazilian market going forward? Or I mean, is it the market simply so big that even with the current sort of uncertain regulatory environment, operators are still pushing for market shares? Any color here would be very helpful.

Yes. No, I would not, in any way, talk to fatigue. It is an exciting market. But I think there's a mutual understanding of the importance of regulation in order for a market really to thrive. And ultimately, this comes down to what sort of consumer experience can we expect? And one point is bonuses and overall conditions for players will matter when they choose where to bet. And unfortunately, there is an alternative being the nonlicensed market. And I think it's more in that direction that the discussion is and I think a shared interest and focus in the industry of educating regulators on the importance of this as it is a very fine balance of creating the right kind of consumer protection in the licensed market and basically not tighten too much, so you end up driving consumers into an unlicensed market.

So I mean, regulation at the current framework, so to say, with ad restriction and ban on welcome bonuses and also let's also include the -- maybe adjustment of GGR tax, that does not change your overall view on the Brazilian market.

No, we sort of took account of the regulation that was implemented. That is what we are navigating. We are taking part as many in educating about the effects of certain types of regulation. But no, we are just driving business and trying to maneuver based on the current regulation and cannot really speak to what will happen. That is -- yes, that will just be speculation.

Sure. That's fair. And then just last question from my side, and I will revert to the queue. Maybe if you could talk a bit into the underlying mix of your NDCs. I mean, looking at the implied CPA rate for the quarter, it's developing quite nicely. So what's the story really here? Is it less Brazilian NDCs in the mix? Or are there any sort of other reads into this?

Well, it's -- obviously, as you can tell that there are less Brazilian NDCs compared to previous quarters. To be honest, there are many variables in this equation. There's also a difference of whether it's paid customers we are driving and obviously, the geographical split. But overall, we are pleased to see that development that you have also noticed, Sebastian.

Is there also a factor in this equation being that you are more towards casino customers?

Well, it's -- again, it's one of those variables going into the equation. So you're right that more casino players in general will favor CPA rates.

Our next question comes from Hjalmar Ahlberg from Redeye.

A follow-up on the Brazilian market and the question on the regulation that's ongoing index. What have you baked into your 2026 expectation of growth? Do you foresee any -- I mean, I guess, the tax changes? Or do you expect any positive effect on bonus when looking at 2026 growth?

We have not guided on that specifically. I think what we have guided on is that we expect to be returned to growth for 2026. So we are not giving final details now for that part.

And looking into the second half here, I mean, you see a betting sports activity schedule. Also, I guess, in North America, the Missouri launch of sports betting there. What do you see in that market? Do you think it could be a good launch compared to historical launches? Or do you see risk of low activity in that launch?

I think in general, I would expect a fairly similar behavior with state launches. And then there may be slight changes, but it's not like I expect anything out of the ordinary. In general, speaking to the U.S. and North America, we are 2 weeks away now from the start of the NFL and I guess, by now, you know that it's busy times for us, striking deals, getting ready for that launch because it is such an important event for our business. So we really have, yes, a strong focus on execution right now in our North American business.

And also curious on -- I mean, you showed this chart on Brazilian NDCs historically delivered. I guess some of these have been converted to the regulated market, but should you also kind of -- that you have lost some of these operators that have not come back to the market? And could that come back when some operators that might have not gotten the license to get that in the future, if you understand the question?

Yes, I understand, Hjalmar. And to a very, very large extent, the NDCs delivered in the past have been sent to sportsbooks that now hold a license in the Brazilian market. In general, it's part of how we assess markets, in particular, when it's an international market with an expected regulation coming in, we are very focused on driving NDCs to those partners where we believe they will be active in the market post regulation. Otherwise, it's not really worth it in our view.

And also final question on capital allocation. I mean you highlighted some new share buybacks coming here. And also if you can give some update on M&A in relation to buybacks and also if you can say something about M&A in the Esports business now when it's standalone.

Yes, on M&A, nothing has changed compared to sort of statements earlier this year that we were very focused on realizing the potential with some of our more recent acquisitions and the existing potential in the business. So a high bar for a potential acquisition. Speaking to the share buybacks, historically, we have used shares for acquisitions. We have also quite recently canceled shares. So I think we have flexibility there in basically just doing what will create the most value for shareholders of Better Collective. But M&A, we have a lot of inbounds. We keep dialogues going, but are focused on realizing internal potential right now.

[Operator Instructions ]. We will now take our next question from the line of Oscar Ronnkvist from ABG.

So first, just a quick question on the sports win margin in Q2. Is it possible to quantify the positive impact of the sports win margin compared to an average in Q2?

Yes. I think compared to Q2 last year, we basically said it was in line with last year. So on comparison, it's sort of neutral.

I just wanted to hear more if it's possible to -- I mean, how much above the long-term average has it been, if that's possible?

No, we don't give that number, unfortunately.

All right. On Esports, so you mentioned it's a good growth driver ahead. Just looking at Q1, a little bit of growth, but H1 kind of stable year-over-year, a little bit of a decline. So can you just comment on the current status of this? And also if you have some color to give on the long-term growth opportunities, if that's possible?

Yes. So Esports, in particular, with the brands of HLTV and FUTBIN are 2 very powerful brands and huge communities and platforms that we own. Speaking to sort of a growth development, we have been affected by overall CPM rates being down and especially on the back of Liberation Day, it has affected the CPM and advertising market. So in light of that, performance is actually quite decent for our Esports business. And looking ahead, it's a business where we really believe that we will experience underlying growth, and there's also potential in the business where we can unlock more value. Very, very engaged audiences on both platforms and brands and unique positions in their ecosystems. So something we are truly excited about.

Got it. Perfect. Just the next one on the North American outlook. So obviously, you had kind of a rebasing in Q3 last year. And I think just converting the revenue to U.S. dollars, you're kind of at a similar rate now in Q2 as you were in Q3 last year after the sort of rebasing. So can you talk a little bit about the underlying growth in the North American market, if we just strip out the rebasing effect. Do you see potential for an acceleration? Or should we think that the underlying market growth is a little bit slower at the moment?

I think we already spoke to sort of the effect of the state launch last year compared to Q2 this year. And then in the fall, we spoke to the commercial landscape and sort of momentum around the start of the NFL and how that sort of developed. And then to be honest, we are right in it right now, those sort of work by our commercial teams with partners and preparation of content and our podcast show. So a lot is happening right now, and that's why we are razor focused right now on delivering up to the start of the NFL. So exciting times.