Betsson AB

STO:BETS B

Earnings Call Analysis

Strong Financial Performance and Record Growth

In the third quarter of 2024, Betsson achieved remarkable financial results, setting new records in both revenue and EBIT. Revenue surged to €280 million, reflecting an 18% increase year-over-year, while EBIT rose to €64.5 million, a 15% increase, marking the 11th consecutive quarter of EBIT growth. This growth was driven by high customer activity, highlighted by a 20% increase in customer deposits and a 10% rise in active customers.

Growth Across Product Lines and Markets

The growth was broad-based across various markets and products. The Casino segment was the main growth driver with a 14% increase in turnover and a 22% rise in revenue, representing 75% of the total group revenue. In contrast, Sportsbook turnover increased by 19% year-over-year, with revenue from Sportsbook amounting to €68 million, an 8% increase compared to the previous year.

Increased Market Share in Locally Regulated Markets

Betsson's focus on expanding its footprint in locally regulated markets is paying off. Revenue from these markets grew by 54% compared to last year, now constituting 58% of total revenue. The ongoing trend indicates that the company's strategy of compliance and localization is resulting in sustainable growth and reduced regulatory risks.

Cost Management and Profit Margins

Operating costs increased primarily due to higher gaming taxes as revenue grew. Despite the rising expenses, Betsson maintained a stable EBIT margin of 23%. The gross profit for the quarter reached €179 million, with a margin of 63.8%. The careful management of expenses, alongside healthy revenue growth, reflects effective operational strategies.

Positive Start to Fourth Quarter

Looking forward, the company reported a promising start to the fourth quarter, with average daily revenues up 13.9% compared to the same period last year. This momentum, combined with a Sportsbook margin that has slightly exceeded historical averages, indicates continued robust performance into the next reporting period.

Strategic Investments and Innovations

Betsson's strategy includes enhancing technological capabilities and expanding product offerings. The company made significant investments in technology and product development, exemplified by the acquisition of trading and pricing services from Sporting Solutions. Additionally, Betsson is focusing on improving its proprietary platform, Techsson, to better serve its expanding customer base.

Sustainability and Market Engagement

Sustainability remains a core element of Betsson's strategy, illustrated by its AAA rating from MSCI. The company continues to promote responsible gaming practices and has received renewed accreditation from the Global Gambling Guidance Group. Furthermore, Betsson's increased involvement in sponsorships across sports reinforces its commitment to community engagement and brand visibility.

Regional Performance Insights

Analyzing regional performance, the Latin America market showed particularly strong growth, with revenue rising by 34% year-over-year, largely driven by casino products. Conversely, the Nordic region experienced a slight decline, down 1.8%, primarily due to reduced activity in casino offerings. Western Europe and CEECA regions also demonstrated positive growth, indicating a well-diversified revenue stream.

Conclusion and Future Outlook

In summary, Betsson's third-quarter results reflect a strong operational performance backed by strategic growth in both B2C and B2B segments. The ongoing enhancements in product offerings, along with a solid financial position featuring a net cash of €128 million, position the company favorably for sustained growth. Investors can look forward to continued positive trends as the company navigates through the challenges of the evolving gaming landscape.

Earnings Call Transcript 2024-Q3

[Operator]

Welcome to Betsson Q3 Report 2024. [Operator Instructions]

Now, I will hand the conference over to CEO, Pontus Lindwall; and CFO, Martin Ohman. Please go ahead.

[Pontus Lindwall, executive]

Thank you very much. Hi, everyone, and welcome to Betsson's earnings presentation for the third quarter of 2024. I'm Pontus Lindwall, President and CEO of Betsson. And presenting together with me here today is also our CFO, Martin Ohman.

Let's start by looking at some key figures for the third quarter. I'm very pleased to report new quarterly records in revenue and EBIT, which means the 11th quarter in a row with sequential growth on the EBIT level for Betsson. The high customer activity continued during the quarter with all-time high levels in customer deposits and turnover. Customer deposits increased by 20% year-over-year. Casino turnover increased by 14% and Sportsbook turnover increased by 19% year-over-year. Active customers were up 10% year-over-year. Group revenue increased by 18% and EBIT increased by 15%. Growth was broad with continued high activity in the regions Latin America, Western Europe and CEECA. The share of revenue from locally regulated markets continues to increase and went up from 45% to 58%. The Sportsbook margin was 7.4% during the quarter, which is in line with the average margin over the past 8 quarters.

I'm glad to see Betsson's continued involvement in sports. In addition to the important shirt sponsorship with Inter that was announced in July, it's also worth mentioning that the jersey sponsorship agreement was signed in the Greek top league in football, with the club Crete FC. Additionally, the sponsorship contract with the Greek basketball AEK Betsson BC was extended. Further, Betsson is probably the most engaged betting company in the growing racket sport padel. And during the quarter, a new multiyear global sponsorship deal was signed with Premier Padel, the leading official professional padel tour worldwide.

Moving on to other news in the quarter, we note that local licenses were obtained in Peru for the Inkabet brand. As previously reported, local licenses have also been obtained for the brands Betsson and Betsafe.

Two investments worth mentioning in the third quarter are shown on this slide. In August, the group announced the acquisition of Sporting Solutions' trading, pricing and sports betting risk management services verticals from the FDJ Group. The acquisition enhances Betsson's B2C and B2B sportsbook offerings, building on a successful partnership with Sporting Solutions, spanning over the past 10 years. Also during the quarter, the group's ownership in Betsson France was increased from 49% to 67%.

Now, let's look at product and tech. Betsson's gaming sites are mainly operated on a proprietary platform, or PAM, called Techsson. The platform manages payments, customer information and account management, as well as the games. Further development and adaptions of Betsson's platform are continuously being made to support both the B2C and the B2B offering. Also, work on new apps for several markets continued during the quarter. A new internal front-end framework has been developed and the implementation started during Q3. In the Sportsbook, new sports and features continue to be rolled out for the BetBuilder function. The major football tournaments, UEFA Euro and Copa America ended in July. Throughout the entire championship period, the uptime for the platform was 100%.

Sustainability is an integrated part of Betsson's business strategy and is seen as a prerequisite for generating shareholder value, and at the same time, taking long-term responsibility for customers, employees and the communities in which the group operates. Betsson holds a AAA rating by Morgan Stanley Capital International, MSCI ESG Ratings, which is the highest possible rating after an upgrade at the end of June last -- this year. During the quarter, Betsson's Global Gambling Guidance Group, G4, accreditation was renewed for the 20th year in a row. G4 aims to minimize the impact of problem gambling by promoting a worldwide accreditation and certification program, which is considered as the international benchmark for responsible gaming. The renewal means that Betsson's core website globally, as well as processes and personnel remain certified by G4, and as such, follow their standards for responsible gaming. When it comes to KPIs for responsible gaming, these KPIs are presented in our Q3 report.

So now, I hand over to Martin.

[Martin Öhman, executive]

Thanks, Pontus, and hello, everyone. Zooming out a bit, Betsson has delivered stable revenue growth over a long time now. But even more important, we can conclude that the 11th consecutive quarter with EBIT growth. EBIT margin is stable around 23% and has been so for the past 6 quarters, although the share of locally regulated revenue has increased significantly from 36% in the beginning of '23 to 58% in the third quarter in 2024. This quarter, again, highlights the scalability in the business -- Betsson business model, which is the result of the strategic direction decided upon already back in 2020, focusing on sustainable and long-term profitable growth through geographic diversification and supported by our in-house technology.

The third quarter was yet another record quarter with growth, and as Pontus mentioned earlier, a quarter with a lot of all-time highs. The Q3 result is supported by year-over-year growth of 20% in deposits, which is also the highest deposit levels ever for a single quarter, growth in gross turnover of 14% and growth of 11% in active customers. The gross turnover in Sportsbook across all Betsson's gaming solutions was almost EUR 1.55 billion and represents an increase of 19% compared to the third quarter last year. Sportsbook margin was 7.4%, which is slightly higher than the 7.3% margin in the third quarter last year and in line with the 2-year rolling average margin of 7.4%. Sportsbook revenue increased by some 8% compared to last year and amounted to EUR 68 million.

The graph on the top right corner displays that the Sportsbook margin has somewhat fluctuated from quarter-to-quarter. But regardless of that, the Sportsbook revenue has increased over time. And again, diversification is an important part in the Betsson strategy, not only geographical diversification, but also product diversification. In months and quarters where the Sportsbook activity is somewhat softer, the casino side of revenue often makes up for that as we see in this quarter, where the casino turnover increased by 14% year-on-year and casino revenue increased by 22%, which is the highest casino revenue ever for an individual quarter. Casino revenue represented 75% of the group's total revenue in the quarter and Sportsbook some 24%.

Reported revenue for the third quarter amounted to EUR 280 million, the highest revenue ever in a single quarter and an increase of 18% year-on-year and 51% organic growth. Growth is coming from both the B2C and the B2B business in the quarter, where the B2C business contributed with EUR 213 million in revenue, while some EUR 67 million came from the B2B operations, corresponding to some 24% of total revenue for the group. Revenue from locally regulated markets increased by 54% compared to last year and now constitutes 58% of total revenue in the quarter.

Splitting revenue by region, we see growth compared to previous year in all regions except for the Nordics, which is slightly down compared to last year. The decline in the Nordic in this quarter of 1.8% compared with last year is primarily driven by lower activity in the casino products. The Nordic region represented 16% of the group's total revenue in the third quarter. Revenue from Western Europe increased by 14% year-on-year or by EUR 6 million, and is mainly driven by increased casino revenue. Revenue from Belgium increased compared with the same period previous year, mainly driven by the updated casino offering launched on the back of the new online casino license received in the end of the first quarter in 2024.

The Italian market is also contributing to the growth in the Western Europe region, driven by strong underlying growth with new records for active customers, deposits and turnover. The increase in revenue compared with the corresponding period last year is 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 is still comparably lower than the group's casino revenue in Italy. The Western Europe region represented 16% of total revenue in the quarter.

Revenue from the CEECA region increased by EUR 19 million, representing an increase of 20% and reported all-time high in the quarter. This driven by high underlying activity in casino. Croatia and Greece reported all-time high revenue in the third quarter, mainly driven by the casino products. Estonia, Latvia and Lithuania reported growth compared with the corresponding period last year. Georgia reported decreased revenue compared to last year following lower activity from casino. The CEECA region represented 42% of the group's total revenue.

Revenue in the Latin America region increased by EUR 18 million, which is a new all-time high, representing an increase of 34% compared to the same period last year. The increase is driven by the casino products. Argentina and Colombia reported growth both compared to the corresponding period last year and the previous quarter, mainly driven by the casino product. Peru reported increased revenue compared to the corresponding period last year, also driven by the casino product. The Latin America region represented 25% of the group's total revenue in the third quarter compared to 18% in the first quarter this year.

Changes in EBIT year-on-year is impacted by increased revenue by some EUR 43 million following -- and following that also increased cost of services provided. The increase in cost of services provided and decrease in gross profit margin is mainly explained by higher gaming taxes following increased revenue from locally regulated markets, but also increased affiliate and partner commission marketing costs.

Gross profit increased by EUR 22 million compared to the same period last year and amounts to EUR 179 million, which corresponds to a gross profit margin of 63.8%.

Marketing spend increased with some EUR 5.5 million compared to last year, but is in line with previous quarter's levels.

Personnel expenses increased by some EUR 4 million in the third quarter due to increased number of employees, yearly salary revisions, performance-related compensation and increased investments in product and technology development.

Depreciation and amortization costs increased by some EUR 3 million. The increase is mainly driven by one-off items, of which EUR 0.9 million is attributable to retroactive amortization on trademarks from the acquisition of betFIRST.

Other items include other external expenses, which has slightly increased, driven by sustained increased investments in technology and product development. Other items also include other operating income and expenses, which stem from foreign currency effects, mainly unrealized, which are somewhat lower than previous year -- previous period last year.

EBIT amounts to EUR 64.5 million, which is all-time high and an increase of 15%. EBIT margin was stable at 23% compared to 23.6% last year and previous quarter.

Operating cash flow amounts to EUR 62.5 million. Operating cash flow is negatively impacted by changes in working capital by some EUR 10 million. The negative effect on working capital is mainly explained by increased customer withdrawals compared with the previous quarter that had increased balances related to the Euros and Copa America. Cash flow from investing activities sums up to EUR 23 million, where the majority relates to investments in own products and technology development, increased ownership in joint ventures and also impacted by deferred paid purchase prices.

In September, senior unsecured bonds were issued at a total amount of EUR 100 million under a framework of up to EUR 250 million. The bonds have a tenure of 3 years and a floating interest rate of Euribor 3 months plus 325 basis points. In connection with the bond issue, early voluntary redemption of the bonds in the 2022-2025 series was offered. For those who refrain from this, a mandatory redemption was called for and remaining bonds in the 2022-2025 series that did not participate in the voluntary early redemption offer were redeemed in October. The issue of the new bonds and the redemption of the bonds in the 2022-2025 series means a step down in interest from Euribor plus 650 basis points down to Euribor plus 325 basis points, which will lower the group's interest cost going forward.

Cash flow from financing activities impacted cash flow by some EUR 35 million, explained by the issuance of the new bonds. Betsson has, as end of September, a net cash position of EUR 128 million.

And, Pontus, now back to you to present the trading update.

[Pontus Lindwall, executive]

Thank you, Martin. Now, let's look at how the fourth quarter has started. The average daily revenue in the fourth quarter of 2024 up until and including the 20th of October has been 13.9% higher than the average daily revenue of the full fourth quarter of 2023. During the measurement period so far in this Q4, the Sportsbook margin has been somewhat higher than the historical average.

So now, let's briefly summarize the Q3 report. We delivered new quarterly all-time highs in revenue and EBIT. This was the 11th quarter in a row with sequential growth in EBIT. Customer activity continued to be high throughout the quarter, which resulted in solid KPIs such as growth in customer deposits and active customers. The casino product was the main growth driver in the third quarter. The business continued to generate solid cash flows and the balance sheet remains robust with a net cash position. And, as shown in the previous slide, the start of the fourth quarter has been positive with an average daily revenue up 13.9% in the first 20 days of the quarter compared to the full fourth quarter last year.

Thanks, everyone, for listening to this presentation. And let's open for questions from the audience.

[Operator]

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

[Unknown Executive]

There was one question from the web audience, actually, if we could give some color on the consolidation of business in France, if that has affected the reported numbers in Q3?

[Martin Öhman, executive]

I can comment on that. I mean, yes, it is -- when having joint ventures and investments in associates, it is impacting the numbers. But since we now have a majority stake in it, we have consolidated the figures into our numbers. So yes, they are included, but they do not have a material impact in the Q3 numbers as yet.

[Unknown Executive]

There was another question from the web audience. What the expectation should be when it comes to sustainable effective tax rate moving forward?

[Martin Öhman, executive]

I mean, I think we have commented upon this earlier, and we have mentioned that our kind of tax rate going forward, we cannot kind of guide on. But it is, of course, impacted on the Pillar 2, which is the minimum tax of 15%. That impacts all companies with a revenue over EUR 750 million. And then, of course, it is also impacting if you grow in countries where you have local companies with a higher tax rate than the 15%.

[Pontus Lindwall, executive]

Yes. So that was it, I guess, in terms of questions. No more questions from the web, and there were no questions in the call. So thank you, everyone, for listening in, and we look forward to see you again when we will present the fourth quarter. Thank you very much. Bye-bye.