Betr Entertainment Limited (BBT) Earnings Call Transcript

Thank you for standing by, and welcome to the betr Entertainment Limited FY '27 Q1 Investor Update. [Operator Instructions] I'd now like to hand the conference over to Mr. Andrew Menz, Chief Executive Officer. Please go ahead.

Good morning, and thanks for joining us today for the betr Entertainment Limited quarterly business update for Q1 FY '27. I'm Andrew Menz, CEO of the company, and I'm joined today by our Chief Operating Officer, Bill Richmond; and our Chief Financial Officer, Blake Matthews. As we indicated when we released our full year results in August, we've made a fast start to FY '27. In Q1, turnover grew by 19% with our investment in product and brand driving share gains and the right kind of customer activity. Whilst the World Cup provided a tailwind early in Q1, the exit rate from the quarter evidences that there is strong underlying growth in the business attributable to that marketing and product investment, which has created a more compelling proposition for our customers. Wildcards is a revolutionary product that was built for and is resonating strongly with our target market of sports Same Game Multi and recreational racing punters. Rapid innovation remains a critical competitive advantage for the business, reducing the cost of promotional generosity and allowing for real and meaningful product differentiation in a cluttered market. Q1 is always our heaviest investment quarter as we avail ourselves of the material customer acquisition and reactivation opportunity during Footy Finals and the lead up to spring. This year, customer-friendly results, particularly on marquee sporting events, were a drag on gross win margin and therefore, on cash. Whilst marketing, CapEx and cost base landed on plan, we had a net variance to our cash forecast attributable to those results of circa $4 million. In October to date, margin has rebounded strongly and net win is up more than 70%. More than half of the estimated Q1 results-related cash impact has already been reversed. This supports our confidence heading into the peak of the Spring Racing Carnival. We today reaffirm our FY '27 guidance, normalized EBITDA in the range of $13 million to $19 million and positive operating cash flow for the year. We're going to take you through the operating progress behind that confidence in today's presentation. Turning to Slide 4. Overall, turnover of $432 million was up 19.1% on PCP, with the World Cup providing an early tailwind. The quality of the active customers here matters just as much as the top line growth. And we see our customers betting with us more often as we continue to win share of wallet from competitors, and those customers are choosing our higher contribution products. We saw that Same Game Multi penetration rose 7% and Same Race Multi penetration rose 25%. As I've outlined, in October to date, gross win margin has rebounded to above historical levels and turnover continues to grow faster than the market. Our continued promotional efficiency means that net win conversion has been outsized with those desirable customer characteristics running alongside more normalized sports and racing results. In Q1, customer-friendly results took around 1.8 points of gross win margin for the quarter. Sports was the main driver through the World Cup and Same Game Multis on the AFL and NRL finals. And in racing, we saw a run of Saturdays where favorites and well-backed runners outperformed their historical levels. Critically, though, we continue to be more efficient in our generosity spend. Generosity of 3.5% of turnover was 30 basis points better than the PCP, a meaningful decline in circumstances where there was strong turnover growth. Also, because cost of sales is tied to turnover, that stronger turnover at lower margin accelerated around that $4.2 million of cash outflow in the quarter. And as I said, half of that has already turned around in October to date. We launched Wildcards in late August as the first Same Game Multi product that enabled customers to improve their chances of their bet winning during a match. Early take-up and results are strong. 75% of our Same Game Multi actives are taking up Wildcards and customers are now adding an extra 2 legs on average and at $6.50 higher odds on average. And therefore, we're better able to optimize that generosity. Our promotional costs are 37% lower using Wildcards compared to more traditional Same Game Multi generosity. Wildcards is now live across racing, AFL, NBA and the NFL and is a key demonstration of our innovation agenda, giving our customers products and experience that they love and creating a differentiated, more compelling customer experience. The well-publicized advertising reforms start on the 1st of January 2027, and we're ready for them. The business already has strong controls in place for safer gambling, anti-money laundering and advertising compliance. Our data and AI capability already supports customer level marketing controls, monitoring, harm minimization and reporting. We don't, therefore, need to make any knee-jerk reactions to any risk and compliance settings to our offering, our marketing or our product suite. We've always taken a long-term view. And accordingly, we don't expect the reforms to have a material impact on trading or our FY '27 guidance. We will keep working constructively with regulators as the remaining details are finalized and further reforms are implemented over the course of 2027. As we've said many times now, our model is product-led. We are winning on differentiated products and customer experience, not on advertising and inducements. We made a conscious decision well in advance of these reforms to go that way, and we're confident that it will continue to pay dividends as those reforms take place over the course of the next 12 months. I'll now hand over to Blake to take you through the finance position for the quarter.

Thanks, Andrew. Moving to Slide 8. Q1 turnover was $432.3 million, up 19.1% on the PCP. Gross win was $53.5 million, up 3.2%. The growth in turnover saw net win grow to $38.4 million, up 1% despite softness in net win margin at 8.9% in the quarter. Pleasingly, October has seen a sharp margin recovery. Year-to-date to 26th of October, turnover is up 15.9% to $568.5 million and net win is up 14.9% to $54.1 million. Year-to-date net win margin has lifted to 9.5% and October itself is tracking above 11%. Moving to Slide 9. We opened the quarter with $27.8 million of cash and closed with $18.5 million, including $11.1 million of client balances. Trading was the whole variance in Q1. The customer-friendly results accelerated our anticipated cash outflow with marketing, CapEx and the cost base all landing net on plan. More than half of that results impact has already reversed in October. Consistent with guidance, we expect operating cash flow to be positive in FY '27 weighted to half 2. At forecast turnover and margin, operating and total cash turned positive in Q3 and build through Q4, and we do not require any additional equity capital. Moving to Slide 10. Net cash from operating activities was negative $6.8 million. Payments to suppliers and employees were $43.9 million, including $5.3 million of marketing and seasonally higher admin and corporate costs. The underlying cost base reflects the FY '26 cost actions. Payments for intangibles were $2.1 million in capitalized platform development, including the build and deployment of Wildcards. There were no financing cash outflows in the quarter with interest on our NAB facility sitting in operating cash flows. We entered the peak racing season with $7.4 million of available cash and marketing already front-loaded. Cost outflows stepped down in Q2 and half 2 is meaningfully cash generative. I'll hand back to Andrew.

Thanks, Blake. As we've already outlined, October trading supports our FY '27 outlook. We are up to a much stronger start. October-to-date turnover is $136.2 million, up circa 7%. Gross win margin of 15.4% is up 2.7 points and net win of $15.7 million is up 73% year-on-year at a net win margin of 11.5%. Promotional costs as a share of turnover are down around 30% against the same period last year. That continued turnover outperformance, combined with net win margins above our target range have allowed us to reverse half of that cash shortfall from Q1 results already in the month of October to date. It shows that we have generated the right activity in Q1, retained the right customers, and we are now in a position to monetize them over the peak Spring Racing Carnival period as has been evident by the performance in October so far and as we expect over the Melbourne Cup Carnival. Our priorities are clear. We need to turn the momentum that we have into sustainable shareholder returns, delivering positive operating cash flow and being very disciplined with our cash balance. In the product space, that first-to-market Same Game Multi and racing products have been launched with Wildcards extended across racing from Everest Day, the NBA and NBL. In terms of mix and margin, changes to our tote offering as part of the move to a national tote and deeper Same Game Multi and Same Race Multi penetration continue to improve our contribution margin on our customer activity. Data and AI continue to drive down those generosity costs whilst engaging our target customers better than ever. And you've already seen that we've been able to energize the base through Q1. We're aggressive through finals and spring and disciplined in acquisition and reactivation, seeking only those right and more valuable customers for the business. And from a capital perspective, we'll continue to deploy selectively, look for where the returns are strongest and aimed at creating long-term shareholder value. We go into Melbourne Cup Carnival in very strong shape. Turnover is growing, margin has rebounded. Wildcards is live in racing and our customers are more engaged than ever. Again, we reaffirm guidance for this year, normalized FY '27 EBITDA between $13 million and $19 million and positive operating cash flow for FY '27. We're looking forward, and we are very ready for our biggest week of the year. Thank you, and we'll open the line to questions.

[Operator Instructions] Your first question today comes from Phil Chippindale from Ord Minnett.

First question from me, just on customer numbers. They decreased from about 156,000 to a bit over 150,000 on an active basis. Can you just sort of tell us -- you've mentioned sort of prioritizing the right clients, so I sort of understand that. But just thinking about the future, what are you expecting in terms of how that trends perhaps over the next 12 months or so?

Yes. Look, Phil, I think the point on our active customer base is that it is entirely quality over quantity. What we're seeing is increased turnover and revenue per active and our generosity and our product spend has been focused on engaging those right customers. We've made a conscious decision in this business to let some of those more promiscuous customers who are very difficult to generate any net gaming revenue from. We've let them go. And in a world where taxes and fees continue to increase, we do need to find the right clients and invest in the right clients to make sure that we're maximizing the profitability of the customer base. So active customers is an important measure, but what we're really looking for is those more valuable actives, and we'll continue to invest in those right customers over the balance of the spring carnival.

Okay. Obviously, one of the best numbers, I think, in your results was this 19% growth in turnover. Can you maybe make a comment as to how you think that compares to others and perhaps systems/market growth?

Yes. I think there's enough competitor reporting out there to suggest that 19% for the first quarter is a significant outperformance on the market. This market has been flat to low single-digit turnover growth over the last 12 months. And therefore, our performance in Q1, we think, is significantly outstripping the market and evidencing top line share gains. And I'm most impressed by the turnover growth, particularly in circumstances where we have been so disciplined in the generosity spend. It shows that we are winning customers from our competitors. We are winning share of wallet from across the board because of the differentiated product and what we think is a much more compelling customer proposition than we've been able to have out before. So it's that innovation agenda, that investment in product that we've spoken about that is driving the turnover. And we have confidence, therefore, that, that growth, not at 19% long term, given the World Cup tailwind, but turnover growth faster than the market is definitely sustainable for this business over the balance of the financial year.

Okay. And then last one is for Blake. Your investing cash flow for the quarter, I think it was a little bit over $2 million. That included some Wildcards investment. What does that number sort of look like on a run rate basis for the rest of the year? Is sort of $2 million about the right sort of level?

Thanks, Phil. In summary, it is. We're looking at the moment, Wildcards is out, which is obviously very exciting. We're looking at what's next on that road map, and we've got some exciting innovation ahead. But that number in terms of forecasting ahead would certainly be that $2 million or lower. It certainly wouldn't be increasing as we move through the balance of FY '27.