Betsson AB

STO:BETS B

Earnings Call Transcript 2023-Q1

[Operator]

Welcome to Betsson Q1 Report 2023. [Operator Instructions]Now I will hand the conference over to CEO, Pontus Lindwall; and CFO, Martin Ohman. Please go ahead.

[Pontus Lindwall, executive]

Thanks a lot. Good morning, everyone, and welcome to Betsson's results presentation for the first quarter 2023. My name is Pontus Lindwall, and I'm here with the -- I am the CEO of Betsson. And with me today is also CFO, Martin Ohman.First, a quick look at the outline for today's presentation. First, we'll give a business update, looking at the key financial highlights for the quarter as well as some activities in our markets. I will also provide a regulatory update for some of the markets that are relevant for Betsson. Martin will then present our financials in more detail. After that, I will show a trading update for the start of the second quarter 2023 and the end presentation with a summary. After the presentation, we will open up for questions from the audience.So in the past years, we have invested in geographical expansion to new markets and to strengthen the product offering and the competitive position for the group. We can see that these efforts continue to pay off. Betsson started 2023 with yet another record quarter, again delivering all-time high figures for revenue and EBIT even though the first quarter has historically often had less activity than the other quarters. We saw continued positive development in both sports betting and casino. Geographically, revenue increased in all regions except for the Nordics.On this slide, you can see some key figures for the first quarter of 2023. Total revenue amounted to EUR 222 million, up 30% versus the same quarter last year. Organically, the growth was 38% for the quarter. EBIT was EUR 43 million, which is up 82% year-on-year. 82%, this represents an EBIT margin of 19.4%. We also set new quarterly records for both casino turnover, which was up 51% year-on-year and for casino revenue, which was up 37%.Customer deposits across all gaming solutions were also at new all-time high level for the quarter, well above EUR 1 million and up 47% year-on-year. Sportsbook turnover was up 40% year-on-year and the Sportsbook margin was 8%, which was below the 8.3% recorded in the first quarter 2022. This resulted in 19% growth in Sportsbook revenue for the quarter. So this slide highlights some of the activities in the past quarter. We are proud that Betsson's involvement in sports is continuing together with clubs, athletes, fans and customers.During the quarter, Betsson was the main sponsor of the tennis tournament ATP 250 Chile Open, which took place in February and March in Santiago, Chile. In Italy, we continue to see great activity and we continue to invest in marketing. During the quarter, a new partnership was signed for our local brand StarCasino.Sport as the VAR partner for the second Italian Football League, [ Serie B ].Argentina, the new business in Argentina is developing well. Revenue increased strongly during the quarter and Betsson continues to make significant investments in marketing to build brand awareness in these regulated markets. In Colombia, which is a regulated market, the group recently increased its ownership stake in the operator Coolbet from [Technical Difficulty]. We view Colombia as an interesting regulated market in the longer term. During the quarter, ambassador partnership was entered with the Chile presenter [ Sora Reba ].Betsson continued to invest resources into product and technology development to ensure that the product offering is competitive and that the tech platform is scalable for all its markets. During the quarter, development of native apps continued. In February, Betsafe was launched on the regulated market in Ontario, Canada. The B2C offering, which includes casino and sports betting is available in native apps for both Android and iOS. Development work has also continued to adapt and further strengthen Betsson's platform and sportsbook to support the D2D offering. Work to migrate Betsson's brands to the cloud to optimize the proprietary platform also continued during the quarter.So here's a brief regulatory update. In Norway, the implementation of the season desist order by the Norwegian gambling authority has been further deferred by the NGA until the 15th of May considering the changes to its offering that the company has carried out and will continue to carry out. In Peru, the publishing of the new online gambling regulation, which is a step required for the new licensing regime to enter into force continues to be delayed following the recent political changes in the country.In Brazil, the Ministry of Finance has confirmed a series of recent reports that Brazil's government is finally gearing up to implement the federal law from December 2018 that authorized fixed-odds sports betting. In the Netherlands, it was recently announced that an advertising ban for gambling will enter into force on 1st of July 2023. Gambling operators in the Netherlands will be prohibited from advertising on TV, radio and in public spaces, both indoor and outdoor. The ban will also apply to sports sponsorships. We continue to monitor the developments in these markets closely.And now I will hand over to Martin, who will take a closer look at the financials in the quarter.

[Martin Öhman, executive]

Thanks for that, Pontus. I would now give you some more details of the financials of the first quarter, which again was a good quarter and the fifth consecutive quarter with revenue and EBIT growth and the best quarter ever in Betsson's history, both in terms of revenue, organic revenue and profits. The result is underpinned by year-over-year growth of 47% in deposits or by EUR 1.1 billion, which makes it all-time high in deposits as well as all-time high in casinos turnover and casino revenue.Active customers decreased by 11% year-on-year and is mainly explained by changes in the offering in the Latam region just to find the right customer acquisition strategy and to make the offering more sustainable in the long run, which is part of our ongoing work to improve our operations across the business and especially in new markets. Reported revenue for the first quarter amounted to EUR 221.9 million, an increase of 30% year-on-year and organic growth of 38%. Both the B2B and the B2C business contributed to growth with EUR 164.6 million revenue coming from B2C and EUR 57.3 million coming from B2B.Casino turnover increased by 51% year-on-year, and casino revenue was EUR 152 million, an increase of 37% year-on-year. The gross turnover in Sportsbook across all Betsson's gaming solutions was EUR 1.3 billion, which is an increase of 40% compared to the first quarter last year. Sportsbook margin was 8.0%, which is lower than the 8.4% margin in the first quarter last year, but slightly higher than the 2-year rolling average margin of 7.8%.Sportsbook revenue increased by 19% compared to last year and amounted to EUR 67.2 million, being the second highest revenue for a single quarter ever after Q4 last year, which was impacted by the World Cup in football. Sportsbook revenue represented 30% of the group's total revenue in the quarter and casinos on 69%.Breaking down revenue by region, we see growth in all regions, except for the Nordics. In the Nordics, we see a slight decrease of EUR 2.2 million, representing 4% year-on-year decrease. Finland and Denmark showed growth driven by increased Sportsbook revenue in the case of Finland and both casino and Sportsbook for Denmark. Sweden reported decreased revenue in the quarter, explained by decreased casino and Sportsbook revenue.Revenue in Norway also declined as a consequence of the changes made to comply with the Norwegian authorities requirements. The Nordic region represented 23% of the group's total revenue in the first quarter. Revenue from Western Europe increased by EUR 5 million, correlating to an increase of 22% year-on-year. The Italian market is continuing to perform well and reported all-time highs in turnover, deposits and revenue during the first quarter.Revenue from the German market is following the same trend as in the past quarters and years and continue to decline from Betsson driven by the market restrictions that have been implemented in the past years. The Western Europe region represented 12% of the total revenue in the quarter. The CEECA region increased by 75% year-on-year and report a new all-time high, driven by strong underlying activity in both casino and Sportsbook operations. Croatia and Greece showed continued positive trend. Georgia reported growth compared to the corresponding period last year, driven by the casino products. Lithuania reported all-time high revenue in the first quarter, mainly driven by the casino product.Estonia reported decreased revenue in the quarter, explained by a lower margin in the casino product compared with the corresponding period last year. The CEECA region represented 42% of the group's total revenue, making it the largest region by revenue. Reported revenue in the Latam America region amounts to EUR 45.2 million, representing an increase of 23% compared to the same period last year, where all countries in the region reported revenue growth, driven by underlying activity, with deposits and turnover from both Sportsbook and casino grew in the region.The Latin America region represented 21% of the group's total revenue in the first quarter. Revenue from Rest of the World increased by $0.5 million or 13% compared to the same period last year and is mainly driven by the Nigerian operations. Revenue from markets where Betsson paid local betting duties increased by 31% compared to last year and constituted 36% of total group revenue in the first quarter.Digging into more details of the competition and development of EBIT year-on-year, we see that revenue has increased by EUR 52 million. And following that also cost of services provided. Gross profit increased by EUR 40.4 million compared to the same period last year, corresponding to a gross profit margin of 66.5% compared to 62.9% last year. Changes in the margin is a result of increased revenue and the mix of revenue with the affiliate and partner commission marketing costs decreased as a percentage of total revenue.Marketing spend was higher in absolute numbers compared to the same quarter last year. This to increase brand awareness in new markets. Focus in the quarter has been towards the Latam region and especially in the new markets such as Argentina. Marketing costs in percent of B2C revenue amounted to some 22% and 26% when including affiliate marketing as well, which is in line with previous year. Personnel expenses increased by EUR 7.3 million in the first quarter compared to same period last year due to increased number of employees, yearly salary revisions, performance-related compensation, geographic expansion and increased investments in product and technology development.Other costs increased by EUR 4 million, where the majority relates to other external expenses and is mainly driven by sustained increased investments in product development and technology, specifically from increased investments in cloud-based environments and from extension of the Sportsbook's offering. When breaking out costs related to development of new markets, this sums up to EUR 12.5 million in the quarter, of which EUR 2 million was attributed to the U.S. expansion. The remaining EUR 10.5 million consists of EUR 7 million in marketing costs and $3.5 million in other costs with the bulk of the costs related to external consultants within the tech development. EBIT amounts to EUR 43 million, which is all-time high and an increase of 82% compared to the same period last year. The EBIT margin is 19.4%.Moving on to the cash flow and financial position of Betsson. We see cash flow from operating activities amounting to EUR 48.8 million, driven by operating income and changes in working capital. Negative impact from working capital of some EUR 3 million comes from increased accounts receivable from B2B customers following increased revenue in the quarter. Cash flow from investing activities amounted to EUR 10 million, of which the largest part relates to investment in capitalized development costs.Cash flow from financing activities impacted the cash flow by EUR 1.9 million, mainly explained by lease payments. Betsson has as of end of March, a net cash position of EUR 105 million and an equity ratio of 64%.And by that, I hand over to you, Pontus, again to take us through the trading update.

[Pontus Lindwall, executive]

Thank you, Martin. Now let's have a brief look at how the second quarter of 2023 has started. The average daily revenue up to and including the 23rd of April, was 26% higher than the average daily revenue of the full second quarter in 2022. Organically, the average daily revenue during the start of Q2 2023 has been 35% higher than average daily revenue of the full second quarter 2022. During the period in April, the Sportsbook margin has been more or less in line with the historical average.And finally, here is the summary of the first quarter 2023. Betsson has again reported all-time high levels for group revenue and EBIT. The organic revenue growth was 38% per year. We saw strong performance across the business with all-time high levels for casino turnover and casino revenue. Revenue increased in all regions except for the Nordics, with Latin America and CEECA as key growth drivers.Customer deposits were up 47% year-on-year, reaching about EUR 1 million for the quarter. B2B EUR 1 billion. B2B continues to perform well. This is a sign of strength that reflects the investments made in the past years in product and tech development as well as M&A. Betsson keeps investing for future growth. With a scalable business model, such investments can be absorbed with maintained or higher profitability over time. For the first quarter, a significant increase in the EBIT margin was reported compared to the first quarter 2022.Betsson's business continues to generate strong cash flows, and we ended the quarter with a strong balance sheet and a significant net cash position. Looking ahead, we maintain our focus on profitable growth and the second quarter has started well with average daily revenues up 26% compared to the average daily revenues for the full second quarter 2022.So thanks, everyone, for listening to the presentation. Now let's move over to Q&A, where we welcome your questions.

[Operator]

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

[Oscar Ronnkvist, analyst]

So first of all, just had one on -- or I should start with saying that, I mean, one of your key perks is that you're quite agile in finding new market opportunities. So which are the new markets that you're most excited about entering to see all future growth? And also in -- I mean, looking at the opposite, you are performing, as you mentioned, a little bit worse in Sweden, for example. Is that a result of investment cuts in the market? Or is that pure underperformance by you? If you could elaborate on that, please?

[Pontus Lindwall, executive]

Yes. To start with the first part of the markets that we are excited about is, of course, Latam is very interesting and we are growing in all the different markets that we are active in Latam, and then there are further markets that will come and be added on to that later on. And realizing the fact that Latam is a market which is in its early stages compared to Western Europe and Nordics, it's a very interesting future that we are looking forward to. And that's where we put a lot of our efforts and we see great results so far.Looking at the Nordics, we have -- we are still happy with the development in the Nordics, but we have pulled down a bit on marketing in Sweden. And as Martin spoke about in the presentation, we have adopted our offering in the Norwegian market to the Norwegian authorities requirements and that has brought down the revenues a bit in that market.

[Oscar Ronnkvist, analyst]

Okay. Perfect. So -- and in Latam, for example, so would Brazil be one of your key regions to grow in the future? And also are you sort of awaiting the new regulation to maybe enhance your focus towards that market?

[Pontus Lindwall, executive]

Yes. We are waiting for the regulation and I think the industry awaited the regulation to come into force for some time already. We're looking for -- we are looking forward to that to happen. And of course, it's being a massively large market, this is something that we are looking forward to.

[Oscar Ronnkvist, analyst]

Okay. Then on -- just on Latin America again. We saw sequential decline in the Sportsbook and also, I mean, looking year-over-year that the Latam Sportsbook revenues are pretty flattish just looking year-over-year. So I mean, given that it's quite a big growth market for you, how should we think about the Sportsbook growth in Latin America going forward?

[Pontus Lindwall, executive]

I think that part is something which we are not worried about. There was some less packed sports calendar for that region in the first quarter, but we still see a huge potential going forward, and we see no reason to kind of slow down in the long term for us on that market.

[Oscar Ronnkvist, analyst]

Just I have one more question just on the B2B side. So first of all, I just wanted to get a sense of the strong B2B growth. Is that because your customers are grabbing market shares? Or is it purely due to the market growth or maybe a mix if you could elaborate on that one. And the other question on the B2B side is I know that we have discussed it before, but if you could share like any thoughts on how we should think about the contribution margin in the B2B segment?

[Pontus Lindwall, executive]

Yes. I'll start with the first part. I don't have any specific details on market share, et cetera, for our B2B clients. But seeing the strong growth, I wouldn't be surprised if they are taking market share and I would be happy if that is the case, which it probably because we have put a lot of efforts into product development and it should pay off over time and I think it does.On the second part, of course, B2B revenues comes, we don't have the same amount of marketing costs and it's a different structure. So they are a good contribution to our profitability and that's why we are into B2B and that's why we did the acquisition of KickerTech. So this is in line with our strategy to strengthen the profitability of the company, which I think is a very important part for any company.

[Operator]

The next question comes from Georg Attling from Pareto Securities.

[Georg Attling, analyst]

Just a couple of questions from me, starting on the B2B side as well. Could you just describe the growth in a bit more detail in terms of have you grabbed a higher share of wallet from your customers? Or is it increased prices or just volumes? If you could give some more detail on that?

[Martin Öhman, executive]

Yes. There have been no adjustments to our pricing towards the customers on the B2B side. They have been doing fantastically well, not only on the Sportsbook side, but also on casino specifically, some broad great performance by our customers.

[Pontus Lindwall, executive]

And it's also reflecting the kind of investment both in that organization and through M&A that we have done in the past that is paying off now in the B2B side.

[Georg Attling, analyst]

Okay. And how was performance of your product that you're speaking about, if you just describe that in more detail what sort of improvements that you've done?

[Pontus Lindwall, executive]

It's -- I can't describe that in detail, but we have a huge product development partners and we're launching so many new parts of our offerings for the time on a constant basis and that brings the products to higher and higher competitiveness and that should pay off and we are happy to see that it does.

[Georg Attling, analyst]

Okay. And could you comment on KickerTech's contribution to the B2B revenues?

[Martin Öhman, executive]

I can't really comment on that, but KickerTech is a part company which is on strong growth. So it's a good contributor.

[Pontus Lindwall, executive]

I think we also mentioned in the press release that the acquisition of KickerTech added some plus customers in relation to that.

[Georg Attling, analyst]

And the next one is on Latam, on the sports revenues in Latam. I'm just wondering how much of the fluctuations we've seen in the last 2, 3 quarters is due to the margin and how much is volumes?

[Pontus Lindwall, executive]

The margin has fluctuated a bit in the last past few quarters, but not that much. So I think, I mean, in general, we are on a strong growth trend in sports betting in Latam. That's the main thing to think about. Then it will always be fluctuations between quarters depending on the Sportsbook margins, depending on the calendar, what it looks like for different games and depending on the outcome of the games in certain territories. So -- but the general trend is that we are in a strong Sportsbook in Latam.

[Georg Attling, analyst]

Okay. And would you say that the sporting schedule in Latam was more quiet than in your other regions or roughly similar?

[Pontus Lindwall, executive]

In some of the markets in the first quarter, there was a bit in at least one of the markets. There were a few games canceled due to political turmoil in the country, which of course had a little impact, not entirely, but it should be considered.

[Georg Attling, analyst]

Okay. And then the final question on the trading update. Just wondering the [indiscernible] very strong. Is it the same drivers as in Q1? Or could you give some more color on that?

[Pontus Lindwall, executive]

I would say so. As I said, the Sportsbook margin is in line with the normal Sportsbook margin. So that's nothing that stands out. So it's a general strong performance across the board.

[Operator]

The next question comes from Martin Arnell from DNB Markets.

[Martin Arnell, analyst]

So a lot of questions have been asked here. But in Brazil, can you just elaborate a little bit on how you prepare for the upcoming sports betting regulation there?

[Pontus Lindwall, executive]

I mean we are prepared in all kinds of ways. Of course, we are preparing marketing. We are preparing the organization. Then again, it's very hard to tell when the -- exactly when the regulation should come into place. We still don't know that yet. So we can't do too much of a detailed planning. But we are putting ourselves in a position to be in a good place when the regulation happens.

[Martin Öhman, executive]

And we have people on ground there. So -- and we've been operating that market through our acquisition that we did in 2019 for some years now. So we have kind of all available setups in place already, which is a good, good start when the sport betting kicks off.

[Martin Arnell, analyst]

Are you in a commercial partnership stage? Or how should we think about that?

[Pontus Lindwall, executive]

This is nothing that we can comment on right now. But I think you can see from historical activities that we always try to find good partnerships and good exposure for the brand and there is no reason to change that in the case of Brazil.

[Martin Arnell, analyst]

And when it comes to Latam overall, it looks like you have a good contribution already from this market in an early stage. Do you expect that to continue? Or are you ramping up? You did some big partnerships there in the past. How should we think about your investment levels in that market going forward?

[Pontus Lindwall, executive]

Yes. I think, first of all, we have to conclude that it's a massively large market. And we have high ambitions for that market. That means that we will invest in the markets going forward. And at the same time, that's nothing to be very afraid of. We have invested up until now and we have created good revenues on those investments with pretty decent payback time. So I think we will just continue as we have done so far and invest carefully.But then again, it's not a small -- it's not one small country. There are many countries. It's not a small market. So it will take investments to keep on growing. But we believe this growth from Latam is dutiful. So we will keep on investing in it.

[Martin Arnell, analyst]

And just 2 more questions from me. On North America, the B2B potential case here, how should we think about that now? You're still in the finding partnership phase? How do you think about it?

[Pontus Lindwall, executive]

Yes, we are. And we are in discussions with potential customers. It's very hard to say when we can come to the next level and take the next step there. And obviously, we would have been more happy if we had already had 1 agreement or 2. But things takes time. These are big decisions and we are looking forward to establishing the first B2B contract in the U.S. market, in the North American market, I would say.

[Martin Arnell, analyst]

Are you still as certain about this case as you were like 1 or 2 years ago?

[Pontus Lindwall, executive]

The case, as such, is a moving target and it changes on a daily basis, but -- and we are always evaluating all our different business streams that we have. But for the time being, yes, market is going to be huge with the need for diversity on the product side. So we think we are in a good sport still.

[Martin Arnell, analyst]

And just a final one. Maybe to you, Martin, the margin development this year. Do you think Q1 is a good indicator for the full year on the EBIT margin?

[Martin Öhman, executive]

That's a very hard one, Martin, to answer. You know that we try to stay away from giving guidance of what will happen. But I think we're up to a good start, as Pontus said, the trading update shows that we have started off well and we have a scalable business model. So we can manage to continue to increase revenue, I think that's a good start.

[Operator]

[Operator Instructions] There are no more questions from the Telco at this time. So I hand the conference back to Pontus and Martin for written questions or closing comments.

[Pontus Lindwall, executive]

Thanks a lot, and thank you, everybody, for listening in, and we are looking forward to talk to you again when we present the second quarter in a couple of months' time. Thanks a lot for today. Bye-bye.

[Operator]

This concludes today's call. Have a nice Thursday.