Better Collective

Regulatory release 57/2024

Flash highlights

• Revenue of 81 mEUR, growth of 8%, organic growth -6%
• Recurring revenue of 53 mEUR, growth of 14%
• EBITDA before special items of 22 mEUR up 14%
• Net debt to EBITDA of 2x
• Downgrade of 2024 financial guidance ahead of the report due to lower-than-expected partner activity in the US, and an accelerated slowdown in Brazil heading into the expected regulation next year
• Initiated a 50 mEUR cost reduction program to streamline operations and align investment base with market dynamics and outlook
• 2023-2027 financial targets remain unchanged

CEO letter: Positioning Better Collective for the next chapter of growth
Better Collective has been on a strong path of growth for over two decades both financially as well as organizationally, expanding the team significantly across many geographies. Our audience across our sports media network has surged from 7 million to over 400 million visits since 2018, a testament to the impact we've made in the digital sports media arena in the pursuit of becoming the leading digital sports media group. However, sometimes, in the pursuit of growth, it's necessary to pause, reassess, and adapt, to prepare for the next chapter of growth.

During Q3 we have experienced changing dynamics in the US market, which has changed the outlook. Further, Brazil has seen an increasing slowdown all year heading into the expected regulation. The impact on Q3 and the outlook led us to lower our financial targets for the year, marking the first downgrade since becoming a listed company in 2018. Although the first state in the US has been operational for six years, it is effectively only three years mature for most states. Meanwhile, the Brazilian market is expectedly on the brink of regulation. Young markets bring challenges and opportunities, and we are committed to navigating this, like done historically in more mature regulations.

In the fast-evolving digital sports media landscape, adaptability is key. We have initiated a review of our Group’s operational cost. The decision to streamline our operations comes against the backdrop of 35 acquisitions, as the complexity introduced by such rapid expansion has made it essential to find efficiencies and optimize our structure. Furthermore, the changed market outlook makes it important to readjust. Regrettably, as part of this process, more than 300 valued colleagues have left our team post Q3, representing around 15% of our workforce. I want to take a moment to acknowledge the contributions of these colleagues. Their hard work and dedication have been instrumental in building this company, and we remain grateful for their efforts in helping us reach where we are today.

Our tactical adjustments have concentrated on reducing operational expenses, specifically targeting non-revenue driving costs and pausing certain investments. This approach has been crucial in minimizing effects on our commercial organization, impacting only those areas with changing growth outlooks. We have strategically safeguarded direct costs associated with our Paid Media and Media Partnerships businesses to preserve their growth roles in our operations. Lastly, we remain firm believers in our strategy to own the strongest sports media brands and foresee great growth ahead, hence the portfolio of brands remains unaffected of the initiatives taken.

I have been asked whether the changes we have encountered represents a structural shift to our business model. I want to assure you that it does not. We operate in the sports media and sports betting industries which are sectors with bright futures and significant growth potential. In an expanding, growing and competitive industry, sportsbooks and other partners will continue to seek growth in new and existing markets through customer acquisition and brand awareness. I remain certain that our unique products and offerings will remain a central part of our partners pursuit for growth in the future, just as it has been the case over the past 20 years.

This is how I have always considered our business: given the nature of our high-margin operating model, we have operated in full investment mode, supported by a strong database of contractually secured revenue share that promises steady inflow of revenues well into the future. This stability has allowed us to remain ambitious and pursue numerous investment projects that drive innovation and expansion. When we encounter changed market dynamics and/or shifts in the market outlook, it has always been our option to pull the breaks and readjust.

The recent changes leave Better Collective a leaner organization, poised to attack future opportunities and challenges head-on. By ensuring our operations reflect current demand, we retain the flexibility to scale up as opportunities arise. I am optimistic that this strategic recalibration will lead to a stronger foundation for future growth, allowing us to continue delivering exceptional value to our partners and stakeholders. Related to returning to growth, our long-term financial guidance remains intact, implying strong growth ahead, including M&A when the timing is right.

Lastly, I want to extend a big thank you to my incredible colleagues, investors, partners, and other stakeholders for your unwavering support. Despite current times presenting headwinds, we are adapting and building a resilient future together. Thank you for your trust and partnership.

Jesper Søgaard
Co-founder & CEO

Q3 highlights

• Ahead of the release of the Q3 report, Better Collective downgraded its financial guidance as per:
  • Revenue of 355-375 mEUR (previously 395-425 mEUR)
  • EBITDA of 100-110 mEUR (previously 130-140 mEUR)
  • Net debt to EBITDA below 3x (unchanged)
• Long term 2023-2027 targets remain unchanged as per below:
  • Revenue CAGR of +20%
  • EBITDA before special items margin of 35-40%
  • Net debt to EBITDA below 3x
• Group revenue increased 8% to 81 mEUR with organic growth declining -6%. The decline was due to a lower activity than expected by partners in the US as well as an accelerated slowdown in Brazil heading into the expected regulation from next year. The rest of the business is performing in line with expectations.
• Recurring revenue grew by 14% to 53 mEUR making up 65% of group revenues.
• EBITDA before special items was 22 mEUR up 14% compared to Q3 last year.
• Cash flow from operations before special items was 32 mEUR. The cash conversion was 131%. By the end of Q3, capital reserves stood at 107 mEUR of which cash of 44 mEUR and unused credit facilities of 61 mEUR.
• The group delivered 396.000 New Depositing Customers (NDCs) of which 84% were on revenue share contracts. The NDCs were down 11% due to the factors mention under revenue development.
• Better Collective has experienced a changing landscape in the US market, primarily when it comes to the part of business that relies on performance marketing. The US market stands out from most of the rest of the world because it is young, constantly evolving, and dominated by a few key players. In the past quarter, Better Collective has experienced overall partner activity has decreased. We have continued to see increased success in our collaborations with partners working on revenue share contracts building a sustainable long-term growth, however deferring revenue and earnings. In response to these market changes, Management has initiated a restructuring of operations to ensure continued sustainability and profitability in North America whilst continuing to build value around revenue share.
• Central to the US strategy is the transition from upfront payments to revenue share income. This shift not only aligns with the changing market dynamics but also provides long-term financial stability. The transition started two years ago, and as of this quarter, the Group estimates this strategic shift has resulted in an accumulated Customer Lifetime Value (CLV) database of more than 155 mEUR, with a portion already recognized as revenue in hybrid deals. This leaves approximately an estimated more than 120 mEUR to be recognized in the future. Better Collective continues to send new depositing customers to its partners daily, constantly adding more and more value to the revenue share databases. In 2025, Better Collective expects to recognize around 10-15 mEUR in pure revenue share income in the US market and expects this to increase in the future.
• Management has decided to aim for the North American business to deliver a minimum 20% reported EBITDA-margin, and more than 35% margin when incorporating the continued revenue-share build up. As the business navigates this transition, the commitment to adapting to the US market's shifting landscape remains steadfast.
• The Brazilian market has within a few years grown to become a significant part of Better Collective’s operations accounting for approximately 20% of Group revenues. These revenues are predominantly generated through revenue share income as well as advertising revenues. At the outset of 2024, Better Collective anticipated a highly active year leading up to the expected regulation that has been awaited for years. Better Collective notes that several international sportsbooks have reduced activity in anticipation of the official regulation early 2025. This dynamic has affected Better Collective in two ways; Firstly, revenue share income has declined and secondly, there has been a decrease in new depositing customers as partners have limited marketing activity in the period leading up to the regulation. This was mentioned earlier in the year and has accelerated in Q3.
• While regulation is anticipated by early 2025, final decisions have not been made, leaving some uncertainties. Brazil remains a new and immature market, and Better Collective does expect the period after a potential launch to include changes and adjustments from a regulatory point of view, like other markets post launch. Once the market regulations take effect, Better Collective's revenue share income in Brazil will be subject to a still unknown tax rate. It is anticipated that approximately 100 sportsbooks will be granted licenses, creating a highly competitive market dynamic that offers a favorable business environment for Better Collective. Better Collective remains confident in the long-term growth trajectory of the Brazilian market and is greatly positioned to grasp growth opportunities ahead.
• Following recent large acquisitions as well as a changing market outlook, Better Collective has announced a cost reduction program of more than 50 mEUR. At the end of October, Better Collective made the difficult decision to lay off more than 300 employees, representing more than 15% of the workforce, and certain other operating costs will be reduced to lower levels. With most measures already having been executed, Better Collective is well on track for the cost reductions and tactical adjustments to have full effect from the beginning of 2025.
• On May 5, Google activated a new policy focusing on third-party content across a variety of commercial categories. This impacted the rankings and thereby audience to some of Better Collective’s media partnerships. The owned and operated sports media portfolio has made up for the decreased performance. Since Q2, Better Collective has not experienced more changes.
• Better Collective has acquired Playmaker HQ, Playmaker Capital and AceOdds within the past year. The acquisitions have developed in line with integration plans – except for Playmaker HQ where there was an earn-out settlement in Q2. Following the settlement the brand has been performing as expected.
• In Q3, Better Collective has acquired a smaller social media asset in North America for a consideration of 7 mUSD.
• Better Collective is still working on implementing the ad serving platform, Advantage, on larger brands, and remains committed to the development of the platform and the long-term opportunities it entails within its sports media network.
• On 6th of September, Better Collective’s Board of Directors resolved to extend the buy-back program so that execution of the buy-back program will take place until and including 27th of November 2024. With the extension the intention remains to acquire up to 20mEUR.

Significant events after close

• On October 10, Better Collective appointed its nomination committee as per Regulatory Release no. 50.
• On October 24, Better Collective adjusted its financial guidance for 2024 following an assessment of preliminary Q3 performance, including the first six weeks of high season in the US market. After recent large acquisitions and the market outlook, Better Collective also announced the implementation of a streamlining process to optimize the organization accordingly.