Thank you for standing by, and welcome to the PointsBet Holdings Limited Q2 FY 2024 Appendix 4C Investor Presentation Conference Call. All participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Sam Swanell, Group CEO. Please go ahead.
Good morning, and thank you for joining the PointsBet Holdings Limited Q2 FY24 business update. I'm Sam Swanell, and joining me on the call today is our Group CFO, Andrew Mellor. Please note the safe harbor statement. All the numbers referred to are unaudited and in Australian dollars unless otherwise stated. Before we turn to the results, I want to reiterate our commitment to responsible gambling and provide insight into what we are doing to adapt to the evolving regulatory environment and community expectations. During the quarter, our responsible gambling team in Australia focused on enhancing the direct communications with customers who may be at risk of experiencing gambling-related harms.
Additionally, during the important Spring Carnival period, we executed a dedicated SMS and in-app messaging campaign, encouraging customers to pause and consider their gambling activity during a period that, for some, can see an increase in the risk of gambling-related harms. Also of note, we made advancements to the way we communicate with BetStop, the national self-exclusion register, the way we communicate with customers returning from temporary betting breaks, and to the presentation of our customer activity statements. Each of these are critical components of the National Consumer Protection Framework, and these advancements ensure that PointsBet will continue to be best in class. Turning to slide 3 and 4. Total Q2 group net win was up 11% at AUD 69.9 million, with Australia growing 3% versus the PCP and Canada up significantly versus the PCP at 109%.
The group had over 256,000 cash-active clients at 31 December, split between Australia with 218,000 and over 38,000 in Canada. At 31 December 2023, the company held AUD 74.3 million in adjusted corporate cash. We are also pleased to report our first positive operating cash flow quarter in the company's history. Ownership of 13 out of the 14 U.S. states have now transferred to Fanatics Betting & Gaming, and subsequent sale completion and second capital distribution is on track as anticipated for completion in early-to-mid Q4. PointsBet continues to support Fanatics from an operations perspective as part of the transition in each state. Turning to Slide 5 to discuss the Australian trading business.
During the reporting period, total net win for the Australian trading business was a record AUD 59.5 million, up 3% on the PCP. Gross win margin was 9.8% versus 10% in the PCP, although lower than our long-term average of 12%-13%. This resulted from significant turnover in the high-staking client cohort in the second half of the quarter that did not yield at expected margins. We expect gross win margin to return to the long-term average in H2. Net win contribution from racing was in line with the PCP, with net win contribution from sport growing versus the PCP. Through Q2, we continued to see strong activity across our core international sports offering of NBA, NFL, and soccer. All sports we operate from our market-leading Odds Factory capability.
In-play in Australia is performing strongly, with our Darwin-based phone betting team taking record best-bet placement volumes through Q2. Odds Factory is a key enabler of our in-play offering globally. Turning to Slide 6. Our continued focus on promotions efficiency led to the rate of promotions as a percentage of gross win, improving to 32.5% compared to 38.2% in the PCP. This was enabled by leveraging our proprietary in-house tokenization, data science, and CRM capabilities to shift our promotions investment from same for all customers to more personalized offers. This has allowed us to ensure promotions are returning value to the right clients and revenue is not being leaked. A larger share of our promotion spend is now aligned with higher-margin inventory, such as same-game multis and same-race multis.
Total marketing spend for the quarter was AUD 13.6 million, 33% lower than the PCP. This is in line with our strategy to reduce total marketing spend by between 15%-20% for FY 2024. Despite lower spend, our brand consideration increased from 34% to 37% year-on-year for the three months to November 30. We've targeted our spend into key verticals that align with our customer strategy: domestic racing, AFL, NRL, and U.S. sport. In the period, we have renewed key deals for calendar year 2024, including Seven Racing, ESPN, and Fox Footy. The net result of our more targeted promotional strategy is that our 12-month rolling actives number is lower than at the end of Q1, but the client mix of that active base is significantly improved.
Two important statistics to support this strategy are: compared to calendar 2022, the total number of calendar year 2023 active clients rated as positive increased, and the total number of calendar year 2023 active clients rated as negative declined, and our mass-market client base delivered 6% net win growth versus the PCP. We have demonstrated that this strategy continues to improve our client mix and drive growth in total net win, especially from mass-market cohort, which underpins the sustainability of our Australian operations.... Off a strong base and improved client mix of 218,000 rolling twelve-month actives, we expect this number to grow over the coming quarters. We expect to achieve this growth while aligning our media partnerships, promotion strategy, and responsible gambling services towards the core principles we think should underpin sensible and pragmatic reform outcomes from the federal government review into online wagering.
Turning to Slide 7 and 8 to discuss the Canadian trading business. We delivered our strongest net win quarter to date in Canada across both sports betting and online casino in Q2. Sportsbook net win came in at AUD 4 million, up 94% versus the PCP. This growth was driven by both improved trading margin on a higher overall mix of parlay bets and continued gains in customer promotions efficiency. Our in-play mix of total handle remains strong at 65%, up from 63% in the PCP. On the iGaming side, we delivered AUD 6.4 million in net win, an increase of 119% versus the PCP. In total, across the full offering, we delivered total net win of AUD 10.5 million, up 109% versus the PCP.
While marketing spend was down 12% versus the PCP, we drove our highest quarterly number of registrations and first-time bettors in Q2, with our conversion funnel performing at its most efficient since we launched in Ontario in April 2022. Combined with our efforts on driving retention and reactivation across our customer customer base, twelve-month rolling cash actives reached 38,627, up 18% from Q1. As we look ahead to H2, we're excited about the opportunity in front of us. Q3 in North America brings the NFL playoffs and Super Bowl, along with the heart of the NBA and NHL regular seasons, which we are poised to capitalize on with our market-leading sports betting platform, powered by Odds Factory.
As can be seen on Slide nine, importantly, we also recently announced our strategic partnership with Strive Gaming, which will transform our iGaming offering and accelerate our growth in this critical market. Through partnering with Strive, we will be able to bring our customers a broader selection of games and enhanced overall experience. We've been hard at work with Strive, working through the integration, and we've begun the progressive rollout of Strive capability onto our platform. We expect this new offering will accelerate the growth of our iGaming business, helping drive more favorable game mix over time with higher gross margins, along with enhanced retention and customer lifetime values. I'll now hand over to Andy to walk through our quarterly cash flow statement.
Thank you, Sam. Turning to Slide 10. At the 31st December 2023, the company held AUD 46.3 million in statutory corporate cash, with adjusted corporate cash of AUD 74.3 million. Adjusted corporate cash is our statutory corporate cash, adjusted for an amount of AUD 7.5 million, being a reimbursable US business sale-related payments, paid in Q4 FY 2023, that will be reimbursed at the subsequent completion. And secondly, adding an amount of AUD 20.5 million held by PointsBet USA Holdings, Inc., as required to operate the US business until subsequent completion. This amount will be transferred to PointsBet Holdings Limited by the 31st of March 2024. Q1 net cash received from operating activities, excluding movement in player cash accounts, was AUD 100,000, the first positive operating cash flow quarter in the company's history.
Importantly, the company expects H2 FY 2024 total operating cash flow, excluding movement on player cash accounts, to be positive. This is an important milestone for the company. It reflects the revenue growth and the cost out initiatives are working, and that the company is on the path to profitability. Receipts from customers for the quarter totaled AUD 69.9 million, and operating cash outflows during the quarter included cost of sales of AUD 31.6 million, non-capitalized staff costs of AUD 8.7 million, marketing cash outflow of AUD 21 million, and administration, corporate costs, and GST paid of AUD 9.4 million. Net cash used in investing activities during the quarter was AUD 7.9 million.
This included capitalized staff costs for software development of AUD 3.9 million, and payments related to the sale of the US business of AUD 3.9 million, being transaction costs, such as legal, tax, and financial advisor fees, and a portion of the agreed funding requirements. Finally, referring to Slide 11, the company reiterates previous FY 2024 guidance and also provides FY 2024 normalized EBITDA loss guidance of between AUD 9 million-AUD 14 million. This is circa 75% lower than the FY 2023 normalized EBITDA loss of AUD 49 million, and as we've previously said, we expect to deliver positive group EBITDA in FY 2025. We look forward to presenting our H1 results in February. I'll now hand back to Sam.
Thanks, Andy. Finishing with Slide 12. As stated, in Q2, both Australia and Canada have delivered record quarterly net win and built upon our strong Q1 results. The H1 result is a group net win of AUD 128.1 million, up 14% on the PCP. This has been delivered while at the same time reducing marketing for the half by 13.1% versus the PCP. The significantly increased efficiency of marketing and promotions is critically supported by the continuing evolution of our products and the advanced technology that drives them. Our strategy is working. I'm also pleased to report the group has had a strong start to the quarter, with an excellent January performance, with one day to go. With the final closure of the sale of the US business imminent, we're obviously at an important stage in PointsBet's journey....
The combined Australian and Canadian businesses have grown revenue from AUD 26 million in FY 2019 to an anticipated AUD 230 million-AUD 250 million in FY 2024, as per our guidance that we have reiterated today. Our ability to deliver strong growth is evidenced by our H1 result, and upon the completion of the sale of the US business, we will be delivering this top-line growth profitably, matching it with positive EBITDA and EBITDA growth from FY 2025. Sports betting and iGaming remains a fast-growing global market, and companies like PointsBet, with the experience, technical capabilities, and ability to work in highly regulated markets, are rare and valuable in this industry. This means we can leverage what we've built to deliver shareholder value now and importantly, increasingly into the future. I'll now take questions.
Thank you. If you wish to ask a question, you'll need to press the star key followed by the number one on your telephone keypad. If you wish to cancel your request, please press star two. If you're on speakerphone, please pick up the handset to ask your question. Your first question comes from Rohan Sundram from MST Financial. Please go ahead.
Hi, Sam and team. Just a couple from me. On the Australia business, just noting the higher net win year-on-year, despite what looked to be a meaningful sequential decline in the cash actives, can you just talk us through? Were there any one-off, like a cleanup or any one-off yield management drivers there? And maybe can you attribute the yield management in terms of how that compares as a factor versus other factors, such as harm minimization, the environment, competition in that drove that decline in cash actives? Thanks.
G'day, Rohan. Hope you're well. Look, I think first of all, you know, we're really happy with our Australian result, and got a bit unlucky late in the quarter with results. I would have thought that we could probably produce a little bit more net win, over and above the good result that we had had. So I think it's pretty clear from the last few quarters, you know, we've seen actives pretty much be flat to softening, but it hasn't stopped us growing net win. You know, the softening of active has been a deliberate strategy, as we said in the script. We've grown net win through growing the number of positive value clients and improving our net win from these clients through efficiency.
Just as important has been reducing the number of negative value clients and reducing the revenue leakage to them. You know, there are a bunch of clients out there that are, for want of a better word, bonus chasers, you know, and part of what we've cleaned out over the last 12 months is leaking value to those clients unnecessarily, and that efficiency has been what's helped grow our, grow our net win. Spoke about yield management, you know, I think the other point related to the fact that we got a bit unlucky late in the quarter. You know, the, the impact of that is obviously your yields come down, and because clients are winning, they can reinvest, and they can drive turnover more.
So, you know, if you look at our results from the last few quarters, the trend has been yields better, in particular net yields, and turnover down a bit. And, you know, that is, that is the way the market has been going. You know, we think the market's in reasonable shape. I think Sportsbet for the half are down 5%, for the half, from a revenue perspective. You know, that's—they represent nearly half the market, so that's probably a pretty good indication of where the market is. And in Australia, I think for the half, we're up 7%. So we're clearly outperforming the market in Australia, even with a bit of, you know, bad luck, impacting numbers late in the quarter.
So yeah, we do expect that our yields will return to the long-term average, 12%-13% gross, 8%-9% net, as we said. Look, I think from a responsible gambling perspective, you know, I don't see, let's call it the softening of the Australian market, as relating to those impacts. I think it's more related to the fact that operators are being more rational with their promotions and getting better at how they allocate them. And so you have a bunch of clients that were otherwise going around to various bookies. They might have five, six, 10 accounts, just taking advantage of bonuses, and, you know, they're of no value to those bookies, so that turnover naturally sort of goes away.
Cheers, Sam. Thanks. And just on that, how would you describe the competitive landscape at the moment versus, say, six months ago? Is it more rational than before? How would you describe it?
Yeah, I think it's very rational. Yeah, I mean, I think you know, from a macro perspective, obviously, you have, you know, let's call it some cost of living pressures, not just in Australia, but globally. And I think, you know, the major competitors here in Australia in sports betting and entertainment, you know, they're part of global groups and need to operate within the bounds of their global strategies as well. So, you know, we think that the market overall is pretty rational. We're already, as we've said before, you know, marketing and promoting in a way that we think is responsible and where, you know, advertising outcomes will likely not inhibit the way we're executing our business.
Where we think the government inquiry outcomes will end up, we don't believe will inhibit our business to continue to market the way we're doing so, and we're doing so really effectively. There is still a, you know, a long tail of operators, I think, in the marketplace, you know, that perhaps is not overly helpful, but I think the economic realities of operating businesses that can't yield at the appropriate levels and can't invest in responsible gambling, et cetera, will probably, you know, help a natural rationalization of the market in time.
Great. Thanks, Sam.
Thank you. Our next question comes from Don Carducci from JPMorgan. Please go ahead.
Morning, team. Just one from me. I'm just trying to understand maybe this high-stakes client cohort impact. So, you know, turnover was down 4% in Australia. If we take out that high-stakes cohort, would turnover be down more like, what, 10%?
Yeah, I mean, I think it'll be down, Don. We've said previously that, you know, higher the yield, obviously there is a cannibalization effect on turnover. That's the reality. So we've yielded at a net level below our long-term average, so that has helped, you know, bolster turnover. But I think the main point where I'll try to take everyone in the market and all the analysts these days is, don't focus on turnover. You know, focus on net win and revenue. That's what we wanna see growing. And, yeah, we're clearly growing it. As I said, the market's probably slightly negative growth, with Sportsbet down 5%.
Yes, to answer your question, you would expect that if yields were more at the natural level of where we would see them being, that that would have had an impact on turnover, but we would have expected our net win result to be net better off, if we hadn't had that sort of bad run of results.
Yeah, but that, that makes sense. You guys have done a good job on net win, I guess. I think maybe you've guided to what the high stakes cohort's been in the past. Is that kind of a 10, 20, 30% of turnover? Or just, again, trying to understand, not necessarily a number, but just trying to understand the direction of the market and down 10% feels about sensible, but just wanted to kind of confirm what that high stakes cohort was as a percentage of your book.
No, we don't disclose that. You know, I suppose the general definition has been that, you know, someone that turns over in a, you know, sort of an above average, abnormal amount, but generally might have a lower yielding client, with our experience has been that generally a lower yielding client. But, you know, it's interesting, Don, the PCP actually had a similar profile. We had some turnover and slightly lower yields compared to, for example, the quarter that preceded it. So we've seen a little bit of history repeating that the PCP was probably a little bit overstated on turnover and a little bit understated on yield. Same things happened this year, but if you look at the other quarters in between, that's clearly the trend that we would point to.
Great. Thank you.
Thank you. Your next question comes from Phil Chippindale from Ord Minnett. Please go ahead.
Oh, hi, Sam and team. First question, as much as we are sort of focused on net win margin, I just want to look at the Canadian business and the turnover figure, noting your comments you just made there, Sam. But turnover has come down versus the PCP, even though active has almost doubled. I mean, you mentioned, you know, strong net win margin does tend to impact your turnover, but that did surprise me a little bit. Can you just unpack maybe what's happening in terms of the Canadian dynamic?
Yeah, yeah. Yeah, I think, look, again, it, it definitely is the same broad trend that I just spoke about. If you double net margins from 2.6% to 5.4%, and that is gonna have an impact on turnover. I mean, that's just you, you are winning client, you're winning money more effectively off the clients, there's less ability for them to reinvest. What I would say is, not to the same extent of Australia, but we'd had, you know, the Canadian market only launched in April 2022.
I think, you know, as you go through these periods for the first time, you're in more acquisition mode, you're trying things, you know, it's just more focused on bringing clients through the door, and then as the business gets a little bit more mature, we execute a little bit better. You know, you get more refined with your approach. So yeah, I mean, we definitely want to be yielding at—we don't want to be yielding at net margins of 2.6 like we were at this time last year. We want to be yielding more, you know, 5.4 is probably above expectations, to be honest, but we seem to have settled there, because in the first quarter, we had 5.3%. I would also point out that in Q1, handle was 44.2.
So we've, you know, we haven't quite doubled it, but it's a pretty big step up. But reflective of, again, that in Q1, net win margins were also above 5%, so particularly high.
Okay, appreciate it. Just the last one. You might have made a comment, but perhaps I missed it. Just on the U.S. distribution, now being pushed back to the June quarter, is that just relating to the approval of, the last date?
Yeah, I mean, I think previously we spoke to the fact that regulatory approvals we thought might take until sort of late March, and then, you know, the distribution would occur shortly after that. So, you know, that was always sort of looking more like a, like an April. I think we're being just a little bit conservative here in saying, look, the closure of the last regulatory approval might drag into April. Probably 50/50, to be honest. It could come through in March, and we're sticking to our original time frames, but we just wanted to err on the side of caution as it related to that timing.
Okay, thanks. That's all from me.
Thank you. The next question comes from Kai Erman from Jefferies. Please go ahead.
Thank you, everyone. Just one question from me. In relation to your comments about growing active clients over Q3 and Q4 in Australia and understanding the change in strategy, how do you guys view a sustainable level of Australian client growth going forward? Is that something that you expect to be low single digits around 1%-2% a year?
Yeah, I think the best way I can answer that, I don't think it'd be 1%-2% a year. I think the best way to answer that is it should more closely reflect net win growth. You know, so we've had this disconnect through this year as we cycled out of zero-value clients, basically, that we've been able to keep growing net win despite active clients being soft. We'd expect active clients to pick up in the next half, probably still to be a little bit behind the net win growth that we can achieve, because we still believe we're getting better at share of wallet from existing clients and reactivation of existing clients and the like. But you'd expect it to be more parallel with net win growth going forward.
Perfect. Thank you.
Thank you. Once again, if you wish to ask a question, please press number one, sorry, the star key and then number one on your keypad. Your next question comes from Chris Savage, from Bell Potter. Please go ahead.
Thanks. Hey, Sam. Hey, Andy. Maybe a question more so for Andy, given it's his second last call. Andy, is the cash where you about expected? 'Cause I know there was quite a negative exchange rate impact in Q2, or at least for the first half, so is it a little bit less perhaps than where you thought it would be now?
Hi, Chris. No, it's not. It's tracking as we expected. You know, I think as it relates to that FX movement, that's not FX as related to hedging the cash coming in to the Fanatics. That's a cash flow movement that relates to balance sheet movements and payment movements, et cetera. So yeah, the cash is where we expect it to be. We're obviously pleased this quarter to deliver our first quarter of operating positive operating cash flows. We've obviously given the guidance now that we expect that to continue through the second half, and, you know, that's an important change for the business. We've talked previously about how CapEx will look as it relates to the software development costs. That's pretty consistent quarterly.
And then the last element will be assumptions around final transaction costs and restructuring costs. So now the cash is broadly where we'd expect it to be, and it's just now for the business to continue to execute it and hit our guidance numbers.
Just as a follow-on, on question, it might be a bit unfair, but if the cash is where you thought it would be, in terms of the second capital distribution, should we be thinking about it sort of being around the middle, or are there other factors still to determine?
No, I think we've given the range of AUD 0.39-AUD 0.44, and we've also been specific that the final amount will be determined post the second close, which, as Sam guided to, will be likely April. So the board will make the determination at that particular time, what part of the range that will be. I think we can't sort of provide any more clarity to that at this point.
Yeah. Fine. And Sam, just one for you. When you were talking about active cash clients in Australia, you made a comment about the mix between positive and negative being more positive. Can you just explain what you mean by positive and negative in terms in relation to those clients?
Yeah. So like, the easiest example I can sort of give you is you don't really want to be giving value to non-genuine clients. You know, if, if you're leaking net win to non-genuine clients because you're giving them bonuses and free money, that's a negative drag on your net win. And so part of our performance this year has been getting better outcomes from our good clients, you know, our genuine clients, and growing their share of wallet and having them deliver. But part of our performance has also been by cutting unnecessary leakage to non-genuine clients who are just there really to take advantage of the promotions and not be a genuine client.
And so those, that trend, where actives have been soft, has been on the back of, you know, really getting rid of those non-genuine clients who now know that there's no point trying to take advantage of us. They're not gonna get, not gonna get free money in terms of inefficient promotions coming their way.
Got it. All right, thanks. Cheers.
Thank you. There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.