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

On a first note, I would like to mention that we actually have the chance of bringing Action CEO, Patrick Keane, onto this webcast, but he's sitting in the U.S. and the rest of the speakers are sitting in Copenhagen. So please excuse us if there are any issues with the set up and the line of communication. But we hope it will work well. Welcome to Better Collective's webcast presentation in connection with Better Collective's acquisition of Action Network, which we announced yesterday. My name is Jesper Sogaard. I'm the co-founder and CEO of Better Collective. I'm thrilled to announce this acquisition, which is the largest in Better Collective's history and which gives us a leading position within affiliation in the growing U.S. sports betting market. Please follow me to Slide 2, where we display our disclaimer regarding any forward-looking statements in this presentation. Please turn to Page 3. With me today, I have CFO, Flemming Pedersen; CEO of Better Collective U.S., Marc Pedersen; and CEO of Action, Patrick Keane. Between us, we'll cover a brief introduction to Better Collective and our U.S. business, a closer look at Action and the consolidation of our leading U.S. position. We will end the presentation with a Q&A session. Please turn to Page 4. Let me start by a high-level introduction. We've been executing our strategy with acquisitions and ongoing investments in the U.S. market since 2018. Our U.S. business, including leading brands acquired in 2019, has developed successfully with high growth and a rapid increase in profitability. Building on this success and the large potential in continued regulation, we have now completed our largest acquisition to date. In a highly competitive landscape and with the vast growth scenarios that we are looking into, adding a content-rich household media brand gives us a unique and market-leading position. We expect the U.S. market to continue growing and our U.S. revenues to surpass USD 100 million already by 2022, with positive and increasing operational earnings. Please turn to Page 5. For those of you on the call who are new to Better Collective, let me briefly say that Christian Kirik Rasmussen and I created our first iGaming website in 2002. And we founded Better Collective in 2004. It has since grown into a leading sports betting media group based on an affiliate business model as well as media partnerships and subscriptions. In 2018, we listed the company on Nasdaq Stockholm. And today, we are more than 600 employees, including the Action team that we are about to welcome. And we have offices across Europe and the U.S. Please turn to Page 6. Our products cover more than 30 languages and attract millions of users worldwide. As the illustration depicts, we have international brands with a global reach and regional brands with a more local reach. This means that our regional brands are tailored according to specific regions, countries and their respective regulations, specific sports, betting behaviors, user needs and languages. Our U.S. portfolio pre-Action include VegasInsider, Scores and Odds and RotoGrinders, that all have a federal reach. These brands already have large audiences, and we'll continue to invest in quality content for our users. I'll get back to our U.S. business in a few minutes. We remain focused on building strong brands, mainly within sports betting that are informative and entertaining for our users as we want to be the go-to place when it comes to finding and sharing information related to sports and betting. Please turn to Page 7. This leads me to why Action is a perfect fit to our strategic focus areas. Our M&A strategy was the cornerstone of our decision to IPO Better Collective in 2018, and we've been a key player in the consolidation of the market since 2017. The U.S. is a key market for us to expand our geography in the coming years and to establish a base from which to grow organically. Most of our business is based on the affiliate marketing model. And in recent years, we have started adding new revenue streams, making us a broader-based media group. This transition signifies an increased focus on our branded products and ongoing changes in how we interact with our users. Adding Action, which we deem to be the absolute best and most complete product for the U.S. market, clearly strengthens our position and secures market leadership. Since our foundation, we have aimed to make sports betting and gambling entertaining, transparent and fair for the global network of online betters, which aligns very well with Action's mission to make sports fans smarter about betting through credible sports betting products and information. Please turn to Page 8, and I'll pass the word to Flemming.

Thanks, Jesper. I'll briefly go through the terms of the transaction and the financial aspects. The purchase price of $240 million is for 100% of the share capital in Action network on a cash- and debt-free basis. It will be paid in cash at closing, except for $10 million that will be payable on a deferred basis as settlement for unvested share options. And $12 million will be paid in newly issued Better Collective shares to Action's management and key employees. The transaction will be financed through bank financing. The acquisition is subject to customary regulatory approvals and is expected to be completed in Q2 2021, so in this quarter. We will consolidate Action into the Better Collective group from the time of closing, and it will operate as a separate business unit, led by the Action CEO, Patrick Keane, who is with us today. In connection with the acquisition, Better Collective is updating the financial targets for 2021, where Action will be consolidated for part of the year. Total group revenue is now expected to exceed EUR 180 million, previously more than EUR 160 million. And operational profit is now expected to exceed EUR 55 million, previously more than EUR 50 million. Please turn to Page 9, and I will pass the word over to Marc Pedersen.

Thanks, Flemming. Before diving into Action, let me briefly introduce myself. After several years as VP of Business Development in Better Collective, I was appointed CEO of Better Collective U.S., which we incorporated in 2019 in connection with the 2 acquisitions of the RotoGrinders network, VegasInsider and Scores and Odds. I'd like to recap our existing U.S. business, which we have been growing significantly over the last couple of years. Please turn to Page 10. We see mass growth opportunity for the online sports betting market in the U.S., which we are well positioned to capitalize on. I will come back to the U.S. market projections on the next slide. Action marks the third significant acquisition following VegasInsider and RotoGrinders network, both acquired in 2019 and now integral parts of the Better Collective group. Our Better Collective U.S. unit has developed successfully in the last couple of years, even with the pause during the COVID closedown in 2020. The commercialization of key websites, including VegasInsider and Scores and Odds delivers promising results, contributing to a strong performance in recent quarters. We're off to a very good start in the newly opened states, Michigan and Virginia, and well positioned for further states opening. In January, revenue growth from the affiliate business in the U.S. exceeded 200% compared to January of 2020. We further have numerous growth avenues in the pipeline, including the paid media division, which we added in 2020, and this is currently being rolled out across our U.S. assets. All in all, we now have the confidence that the U.S. market will continue with rapid growth. And therefore, we are investing heavily in both our existing business as well as new acquisitions, as we just announced. Please turn to Page 11. Elaborating on market projections, we are looking at a 50% CAGR for online sports betting from 2020 to 2025. While the U.S. sports betting market has grown rapidly since the repeal of the PASPA act, this growth is only based on 13 states, which gradually have legalized online gaming. Many more are expected to follow in the coming years with the addressable market significantly expanding as a result. The total online sport betting revenues in the U.S. are forecasted to reach USD 4.2 billion in 2022, with a growth of 70% year-on-year. Looking at the longer-term, online sports betting is projected to nearly USD 40 billion in 2033, underlining a massive potential we're building for. Please turn to Page 12. Action complements an already strong portfolio of brands, namely VegasInsider, RotoGrinders, Scores and Odds, and Sports Handle. Our brands span across sports betting and fantasy sports, offering subscription services and picks sales, along with quality content. The acquisition of Action consolidates Better Collective's leading position in the affiliate and customer delivery verticals within online sports betting. This is enabled through these strong product platforms and the market-leading reach. Led by our strong U.S. brands and engaged users, we expect our combined U.S. business to surpass $100 million by 2022. Please turn to Page 13. In conclusion, with its subscription and affiliate-based platform, Action fully complements the Better Collective U.S. strategy through product and -- product leadership and independence. Being independent differentiates us from most media outlets who have teamed up with one specific sportsbook. With Action and Better Collective providing independent quality content and tech products, we cannot only acquire customers better, but we can continue to engage the customers throughout their user journey. The retention and reactivation opportunity with Action and Better Collective is remarkable. With that, I will pass the word to Action CEO, Patrick Keane, for a closer look at Action. Please turn to Page 14.

Good afternoon, everyone. Thank you so much for having me. As Marc mentioned, I'm CEO of Action Network, and I'm incredibly pleased to be on the phone today with my new colleagues at Better Collective. We thought that this was a great landing place for the business. And I'm very excited to share a little bit more detail on our platform, our company, our technology and our users. So what is Action? Action is the premier content and product destination for U.S. sports betters. And we do this in 2 ways. We are both a content business with award-winning media and content assets that we build across audio, video and our award-winning apps and platforms. We're also a technology company, with incredible assets and patented assets around informing sports betters and allowing them to track their picks, follow odds and engage in our excellent content. And those 2 things together produce what we believe to be the most qualified and highest intent sports betters in the United States. And this is -- so a few of our accolades from some of the leading publications in the U.S. from the Wall Street Journal, Business Insider, Slate, et cetera, that really reflect the quality of our content, the quality of our platform and the quality of our audience. With that, please turn to Page 16. So a few data points about Action Network. We've achieved revenue growth in the past year, well over 100%. Since the challenges of the pandemic, we've returned to massive growth in the business. We were projecting close to $40 million in revenue this year. Our audience has grown 60% year-to-date just through February. We have partnerships with 14 leading U.S. operators. The number of picks tracked in our platform has well north of 130 million and closing in on 0.5 million pick trackers, so highly engaged users. And this is seen by the number of monthly users approaching 4 million. Our users spend 35 sessions per month in our app, so they're deeply engaged. And our database of users through our CRM platform is soon to approach 2 million. If we could proceed to the next slide, Slide 17. So a little bit more about our content platform. As much as we are a product company, we are truly a content platform. We produce 50-plus pieces of content a day. And our content team, which is well north of 30 people, come from established U.S. and international brands like ESPN, CBS, CNBC, Golf Channel, Major League Baseball and the NBA, and we are covering every sport offered in legal markets. So just in 2020, we produced 10,000 pieces of betting-focused content. We have over 500 million impressions across our social media handles, and we are producing shows and audio content with millions of viewers of our content for sports betters. We can proceed to the next slide, Slide 18. So a little bit more depth on our product. We have incredibly engaging and highly useful betting products for users, and this gives you some examples of the odds that we share with our users, the ability to track their picks and the ability to in-platform see your success over time. So things like in-game win probability, live historical bet tracking are all part of the Action Network platform as it exists today. We could go to Page 19. Another big part of the Action Network platform and revenue profile is our subscription products. So these are 3 examples of our subscription products that we think ultimately meld quite well with the existing portfolio of assets in the Better Collective platform. So we have Action Pro, which are premium insights and tools for users that people pay for in the platform. We've Action Labs, which is for more sophisticated betters, that are paying more of a premium for access to our content, to our odds and to our data. And then lastly, and this, I think, will sync very seamlessly with the RotoGrinders assets. We have our fantasy tools and our daily fantasy products from lineup optimizers and projection models to player props tools. And we believe that those products have a high ceiling and opportunity for growth in the future inside of the Better Collective portfolio. And with that, we will turn to Slide 20. So this speaks a little bit to the rationale for why Better Collective acquired -- is acquiring Action Network, is our ability to transition our platform product and audience into subscribers, into sportsbook operators. So our affiliate platform has grown considerably from 0% of revenue just a few years ago to now approaching 70% of revenue. So as Jesper and Marc alluded to earlier in the presentation, the total addressable market for the sports betting population in the U.S. is growing and growing exponentially. We're only in 13 online mobile states. We know that's only going to grow. And our audience, our subscription products and our ability for conversion is only going to increase. And I will say, again, that our team, our partners are incredibly excited about this acquisition. And thank you. And with that, I will turn back to Jesper.

Thanks a lot, Patrick. Action is truly uniquely positioned in the U.S. We'll sum up this presentation with some additional comments on the transaction rationale. Please turn to Page 22. This acquisition is highly attractive for a number of reasons. We are investing in a market with significant growth, which we believe will accelerate even more in the -- in the years to come. We have 3 new, very well positioned U.S. sports media brands to our portfolio and welcome around 100 new, highly talented colleagues, together representing an invaluable pool of knowledge and expertise on the U.S. sports betting media market. The media sites are transparent and educating and already have an engaged audience. Action's affiliate business is nascent, meaning we can add our almost 20 years of experience from working with operators on an affiliate model. We can continue to build on Action's commercial position, and we can do it with the independency and transparency that comes with not being tied to one operator. Please turn to Page 23. The combination of Better Collective and Action creates the leading sports betting media in the U.S., owning the user's journey from first information on a potential bet or sportsbook to the actual bet placement. Across products, we're in the position to be top of mind for sports betters with informative and entertaining content for our users. Please turn to Page 24. To sum up this presentation, we're investing heavily in the high-growth U.S. market to intensify our exposure and fortify our leading position. We see highly attractive growth prospects for online sports betting, and we expect to surpass $100 million by 2022. This concludes our webcast presentation, and we'll now pass the word back to the operator and open for questions from the audience. Thank you very much for listening in.

[Operator Instructions] We have your first question from the line of Erik Lindholm of Nordea.

So looking at the Action Network platform here and the app, this seems like quite a unique asset. And I guess that the U.S. opportunity is huge, of course. But do you see any possibility of taking this app to other countries as well? I'll start there.

Initially, that is not what we are considering because we really have a focus on this fast, fast-growing market. But having said that, there's no doubt that the technology is something we potentially could use in all of the other markets that we are active. And actually, vice versa, that things we have developed for some of our other brands and sites could likely also be relevant for Action. So that's one of the attractive synergies that we see with this acquisition that we are in the same space. And then to add is the Canadian market, which is now also on the path to regulate. And there Action is obviously as relevant as in the U.S. So we see that as a very attractive extra opportunity for Action.

All right. Then looking at sort of the potential synergies here. Do you see any other potential synergies between Action and your other U.S. assets or other assets for that matter?

Thanks, Erik. I'll pass that question to Marc.

Yes. So with Action, we can see huge synergies when it comes to our experience within affiliation, monetization of affiliate traffic. We can engage with either further SEO expertise with conversion rate optimization. And likely most importantly, we believe with Action, we will have a very strong leverage with our sports betting partners. So we will be able to present the most attractive opportunity for sportsbooks in the U.S. to advertise on sports betting media. That also ties into further advertising outside the sports betting and sportsbooks generally.

Yes. So adding to that, that for me, what is really interesting is that we're going to be relevant from, as also stated in the webcast, from the person considering to register and sign up with a bookmaker and place the first bet throughout the lifetime of that user. And that is really important to us that we want to stay relevant with our products throughout the lifetime of the customers. And no doubt that, that Action is a great product that is sticky and will continue to be relevant for its users.

All right. Perfect. And just again, so a bit more of the details here, but looking at sort of your raised guidance here for 2021. I mean, is the only difference that -- only difference to this guidance is Action? Or are you raising the underlying guidance as well? And I mean in this guidance, when do you assume that you are consolidating Action? And also, should we look at this as you are guiding for a 25% EBITDA margin for Action already in H2 2021?

Thank you. I will pass that question to Flemming.

Thanks, Erik. Yes, the only difference that we have included is basically Action. So your assumptions are right, at least in rounded numbers. We expect to consolidate Action either from June or July, pending closing, not that it would make that much of a difference, but the current half year.

All right. And on the margin, should we view this as the guidance...

Yes that is basically the numbers showing. And as I said, in rounded numbers from the guidance you were spot on.

Perfect. And then looking beyond this sort of 25% level, do you think Action can reach EBITDA margin in line with BC's overall business over time? Is that fair to assume?

I definitely think they can with the simple math of the market expansion. As Jesper stated in the presentation, only 13 states have come online, and some are still, you can say, in the early phases. So we basically have now the confidence that the U.S. market will, let say, reach the high expectations that we all hoped for 3 years ago. And now we can see that more and more states are coming online and with a regime that is really attractive. So I think we have learned our lessons in the first 3 years and seen now that the market is regulating as we all hope for.

Perfect. That's a good flavor. And just one final question for me before I hand it over here. But I mean, you show this graph of the U.S. market growth here over time. I mean is it fair to assume that Action can grow in line with this U.S. sports betting market over time? And also -- and in your other U.S. assets, do you think this can also sustain the same growth level as the market over time here?

Yes. Marc here, I'll answer that. We are confident in Action's market position and ability to both grow with the market and likely also exceed the market growth.

[Operator Instructions] The second question comes from the line of [ Jakob Soderbaum ] of ABG Sundal Collier.

I'm filling in for Erik Moberg today. And I'd like to start with a question regarding the split revenue splits. I might have misheard you, but when you're talking about how the revenues was split between Affiliate, did I hear 70% for Action now?

Yes, we hear. Yes, that's correct. Ballpark, yes, that's correct.

Okay. And just one more question. In regards to synergies, could you project in percentages on the cost base how much do you expect to typically realize?

I think it's quite important to understand with this acquisition, it's actually not cost synergies that we are looking at. It's much more about revenue synergies and the growth potential. Action has such a big opportunity by having the best product in the market as well as an extremely strong brand with a lot of talent associated that are great at promoting it. So for us, it's not about seeing if we can cut costs 10%, it's much more about the top line and create growth there. And we are comfortable and have strong belief that we will be able to create that growth in the coming years in this market.

There are no further questions at this time, sir.

All right. Then we have some questions online. And the first question is from [ Lars ] [indiscernible]. And the question goes, who are the sellers/former owners of Action Network? The main seller is The Chernin Group, a venture company focused on digital media. They are by far the biggest seller. And the next question is from [ Michael Constantino ] with several questions. I'll take them one at a time. First question, why will Action Network operate a separate business and not be integrated into Better Collective USA. I'll hand that one over to Marc.

We have seen very strong traction on Action so far, and the team has delivered really, really good results over the past years. We're very confident in Patrick and his team to operate independently. With that said, we will do what we can to facilitate knowledge sharing and best practice learning between the entities. So whilst they will operate as stand-alone, we will still be harvesting operational synergies. Also referring to what I said about our overall attractiveness towards the sportsbooks on a commercial deal front.

Yes. And I can add to that, that I see the Better Collective group resources and expertise as an amplifier of what Action do and will do in the future. So they will continue doing what they're great at, and we'll help amplify that. Next question, that is what kind of synergies can we expect from Action Network joining Better Collective? I think we have already covered that question. So I'll move on to the next -- the third question. What is Action Network's management incentive to stay on board?

Yes. Flemming here. First and foremost, we have, as part of the settlement of the transaction, the management will be partly settled in shares in Better Collective, so that is one part of it. Secondly, we will, as we also will have, you can say, a history of in Better Collective, that we will implement new incentive programs also for the Action Network management and key employees.

And the next question comes from [ Jennis Pierson ]. And the question goes, how many staff do you now have in the U.S.A. and how many globally? And I'll refer to Marc for the number in the U.S.

Yes, the number is 175 for the U.S.

And then globally, so including the U.S. employees, we will be at 450, globally. And the next question comes from [ John Hanson ]. And the question goes, how competitive is the sports betting content and tax base in the U.S.? And how many genuine competitors does Action have in the U.S.? And again, I'll refer that question to Marc.

When it comes to the quality and tech product, we don't see anyone matching Action on the sports betting side of things. We deem Action to be by large and far the product leader when it comes to tech and content combined, both on web and on app, which we see as a very strong vertical in the U.S. There are a handful of genuine competitors in the U.S. when it comes to less tech-driven and more content marketing driven.

Thanks. And the final question is from [ Carlo Sedan ]. And the question goes, are the M&A projects and need for new capital in 2021? I'll take the first part and then add the second part to Flemming. So it's no secret that Better Collective, for several years and also going forward, has a very significant M&A strategy as part of our overall growth strategy. So we still have a pipeline that we work with and experience that we are a known buyer and an attractive buyer. So we get pitched a lot of potential deals. And then over to Flemming.

Yes, regarding need for new capital, of course, always tuned to the pace of the pipeline and exact timing of that. Right now, for this one, we have secured bank financing and also just renewed our authorization for equity and also this time for convertible bonds, which is accessible for us. So we will tune that and the timing of any potential capital need to the pipeline and the needs there.

And we just got a new question from [ Eddy Palank ], and the question goes, how long have you been in discussion with Action? And were there other bidders? We have actually had dialogue with Action for many years because we already had dialogue with them back in 2018. So it's a company that we know very well and have always been interested in acquiring. Now came the opportunity and sort of the other bidders in the process, I have seen speculation, but we don't know anything about these bidders. And with that, thank you very much for listening in. I hope you can all sense how excited we are about this acquisition. We believe that the American market has a very bright future. And now we have the leading position in this market, and we'll build on that. Thank you very much for listening in.

Thank you very much. That does conclude our conference for today. Thank you for participating. You may all disconnect.