Good morning, and thank you all for joining the PointsBet Holdings Limited Q3 FY 2023 business update. I'm Sam Swanell, and joining me on the call today are Group CFO, Andrew Mellor, Johnny Aitken, Andrew Catterall, and Scott Vanderwel. Before we begin, please note the safe harbor statement. All the numbers referred to are unaudited and in Australian dollars, unless otherwise stated. For the last few periods, I've spoken to our focus on net win growth for the group as a whole and for North America in particular. We've been delivering strong growth for a number of quarters now, while at the same time spending less on marketing via greater efficiency. It's clear strong momentum continues in our North American business, and the Australian business is outperforming the market in an industry facing headwinds.
Group net win growth was a company record for this quarter and continues to perform well versus PCPs, together with our continued focus on reducing costs, improves the global business performance. I will make some comments on potential strategic transactions towards the end of this call. Turning to Slide 4. Compared to the group results for Q3 FY 2022, to be referred to as the prior corresponding period or PCP, in Q3 FY 2023, total group net win was up 39% at AUD 106.6 million, a record for the group. The U.S. and Canadian divisions continued their strong trend of net win growth, while we were pleased with our performance for Australia, given the overall softness we saw early in the quarter in racing and in VIP turnover, as flagged at the first half year results. Turning to Slide 5.
Rolling twelve-month group net win to March 31, 2023 was AUD 374.6 million. The group has 555,125 active cash clients split between Australia, 238,054, and North America with 317,071. We continue to expect to report a normalized EBITDA loss of between AUD 77 million and AUD 82 million for the second half of FY 2023. Also, as reported at our H1 FY 2023 results announcement, the company currently continues to expect H2 2023 net cash outflow, excluding movement in player cash, to be approximately 30% lower than H1. We recently completed a cost and efficiency review of our North American operational workforce. This resulted in the streamlining of operations and a 12% reduction of headcount.
This reduction is expected to result in annualized cost savings of approximately AUD 6 million. The company held AUD 251.7 million in corporate cash as at 31 March 2023 and has no corporate debt. Turning to Slides 6 and 7 on North America. Q3 was encouraging in terms of having again delivered strong revenue growth. North America net win was up 128% compared to the PCP. Our more targeted approach has delivered this growth in parallel with marketing and promotions coming down compared to last year. Our North American 12-month rolling cash actives rose 27% from the PCP. Our marketing and promotions are more efficient than ever before.
They are targeted and segmented to reach the right customer, one that pays back on this investment and generates meaningful revenue over their lifetime as they remain engaged and bet month after month. Our rate of revenue growth far outstrips our growth in users as we are monetizing them more effectively than in the past. North America's sports betting net win margin was significantly better this quarter at 4.7%. As we mentioned in our H1 2023 results commentary, we expect the net win margin figure to continue to track in excess of 4% for sports betting. This is enabled by the continuous evolution of our pricing model, trends in consumer behavior towards parlay bet types. Both trends are enabled by continued improvements with our betting platform. Average net win per user is significantly higher than during the PCP, the drivers of which we'll discuss shortly.
On January 1st, PointsBet launched online sports betting operations in the state of Ohio, our 14th operational state of the U.S.A. As a result, PointsBet's product is accessible for approximately 35% of the U.S. adult population. Our TAM increases without necessitating incremental marketing, a scale benefit that helps lower CapEx. North American iGaming delivered a 181% increase in net win compared to the PCP, driven by the overall growth of the casino-only cohort and an ongoing improvement in our ability to convert and retain cross-sold sports bettors to iGaming. Turning to Slide 8. I wanted to present a visual of the direction of the business model. Net win growing, expenses rationalizing. We have previously articulated our strategy to focus on valuable clients who can discern the superior product experience rather than those who are enticed by advertising and general promotional offers.
We've made great strides in improving our payback on marketing, making every dollar work harder for us. Turning to Slide 9. We've been encouraged by our improvement in monetizing clients on Sportsbook. North American monthly net win per player increased significantly compared to the PCP by 79%. Players are placing more bets on average. The super user segment is highly engaged, and their prominence is driving up the average bet count. As noted during the first half call, our customer profile is evolving to a more sustainable, lower average staking mix. Finally, optimizations made to promotions have provided a major uplift in net margin and net win per player. We are adamant that market-leading product experience and features will ultimately supersede promotions and generosities as the key driver of loyalty and share of wallet. Turning to Slide 11 on Australia.
During the reporting period, total net win for the Australian trading business was AUD 50.7 million, down 3% on the PCP. Total turnover was AUD 579.8 million, flat on the PCP. Turnover growth in sport was offset by softness in racing, which we understand is in line with the market, and we flagged at our H1 FY 2023 results. The shift in turnover mix towards sport led to a reduction in overall gross margin to 12.1% in the reporting period versus 13.6% in the PCP, but an improvement in, on Q2 FY 2023 of 10%. Notably, racing margins improved on the PCP and Q-on-Q. Total gross win was AUD 70.3 million, down 11% on the PCP. This was partially offset by continued improvements in the efficiency of our client promotion spend.
Continued focus on promotions efficiency led to the rate of promotions as a percentage of gross win, improving to 27.8% versus 33.6% in the PCP, enabled by tokenization improvements. The combination of the shift towards lower-margin sports turnover offset by continued improvements in the efficiency of our client promotions capability led to the relatively stable net win result of AUD 50.7 million. As presented at our H1 results presentation, we continue to see an increasing portion of our net win come from our large volume of mass market clients. We saw a 15% growth for this segment versus the PCP. The Q3 FY 2023 marketing expense for Australia was AUD 8.3 million. H2 FY 2023 marketing expense is expected to be circa AUD 15 million.
I would now like to hand over to Group CFO, Andrew Mellor, to provide an overview of the cash flow statement.
Thank you, Sam. Turning to Slide 12. Net cash used in operating activities, excluding the movement in player cash accounts during the quarter ending 31 March 2023 was AUD 59.3 million, a reduction of 8% on the prior quarter. Receipts from customers for the quarter totaled AUD 108.9 million. This includes net win from Sportsbook and iGaming verticals of AUD 106.6 million. The balance includes receipts from our European and New York B2B operations and cash receipts from our U.S. racing ADW business. Cash outflows during the quarter included cost of sales of AUD 55.5 million, which was lower than last quarter. Non-capitalized staff costs of AUD 26.8 million in line with Q2.
Marketing cash outflow for the quarter was AUD 69 million, slightly higher than last quarter due to the timing of payments and accruals and prepayments across the quarters. As previously spoken to, the Australian marketing expense was AUD 8.3 million for the quarter. The U.S. marketing expense was $22.3 million, and the Canadian marketing expense was CAD 7.1 million. As it regards marketing cash outflows in Q4, given the strategic reduction in marketing expense across H2, we currently expect Q4 marketing cash outflows will be significantly lower than Q3. Administration, corporate costs, and GST paid on Australian net win was AUD 19.7 million for the quarter, in line with Q2. Turning to investing activities.
Net cash used in investing activities during the quarter ending March 31, 2023, was AUD 11 million, 31% lower from the AUD 16 million in the prior quarter. The U.S. business development cost decreased on the prior quarter due to a quieter market launch period. Financing activities, there was AUD 1 million cash used in financing activities during the quarter ending March 31, 2023, which was in line with Q2. The company has no corporate borrowings at the end of December, sorry, end of March, had AUD 251.7 million in corporate cash. I'll now hand back to Sam.
Thanks, Andy. In summary, our focus on net win growth is working for the group as a whole and for North America in particular. We are delivering strong growth while at the same time reducing costs. Turning to Slide 13. Finally, I'd like to make some comments on potential strategic transactions. Consistent with commentary previously provided to our investors and the market more generally, PointsBet continues to engage in discussions regarding strategic transactions that offer the potential to add value for our shareholders. The company is currently in discussion with multiple parties in respect of potential transactions that would involve part or all of our North American business. Certain negotiations are well advanced. In response to media speculation on 27th December 2022, PointsBet advised that it was in discussions regarding a potential transaction involving the sale of its Australian business.
PointsBet has terminated those particular discussions but remains in discussion with other third parties who have expressed an interest in acquiring our Australian business. There is no certainty that any of these discussions referred to above will lead to a binding transaction. PointsBet confirms that it remains in compliance with its disclosure obligations and will keep the market informed of relevant developments. I'll now hand to the operator for Q&A, noting I won't be able to comment directly on potential strategic transactions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a 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. Sam, I just take on board your comments around the potential transactions, and I appreciate you're limited in what you can say. Maybe are you able to talk us through just your thought process?
You are thinking through the various options available. What's most important to you? What are the key considerations, if you're able to share? Thanks.
Yeah. Good day, Rohan. Yeah, I mean, look, it's all about shareholder value, Rohan. You know, we've built a valuable business, as I've said consistently. We're pleased with our market conditioning. We clearly have a growth plan that we're delivering on. At the same time, we're conscious we operate in a rapidly evolving market. We've got a strong balance sheet, we acknowledge that at some point, yeah, we're gonna need some additional capital. You know, we continue to assess all of these sort of credible strategic opportunities really carefully. Ultimately, in determining which of these opportunities would be pursued, you know, we answer one key question, which is: what would be most value accretive for shareholders?
Thanks, Sam.
Thank you. Your next question comes from Don Carducci from J.P. Morgan. Please go ahead.
Morning, Sam and Andy. Can you guys let us know the number of Canadian active customers for this quarter?
Yeah. Good day, Don. Yeah, I think it was about AUD 28,000 for the quarter.
If we assume 28,000, what you're telling us is the U.S. active customers have actually declined about 2%. Is that right?
Yeah, it's slightly down. Yeah, slightly down quarter-on-quarter. Let me just sort of, I suppose, talk to that. There's a few things there. First of all, you know, we've made it really clear that we're focused on the right clients, not just on keeping clients active for the sake of keeping clients active. There'll be some clients that are rolled out of the previous March quarter that, you know, we have no concern about letting them go away because we don't see them as valuable. I think the other thing you have to think about is seasonality. Eilers & Krejcik Gaming, as an example, say that the December quarter makes up 34% of GGR in the U.S. market, and that drops to 21% for the March quarter.
That's like a drop-off of something like 30%-40% in seasonality. Despite that, you know, we've grown our net win dramatically quarter on quarter. Yeah, client growth not, I mean, we wanna keep growing clients, but fully explainable with the seasonality and our focus on quality clients.
Do you expect that trend to continue?
I'd expect us to continue to grow client. We have to keep growing clients, obviously. As you work some of the, let's call it low-value clients out of the system, and we've been pretty focused on, let's call it value over numbers for the last few quarters, so we should be washing them out. We also need some help from a seasonality perspective. I mean, you know, at a 30% drop-off in seasonality, it's like going from the month of November in Australia to the month of December. You know, your actives are gonna drop off somewhat because of seasonality. Yeah, we're growing net wind on, we're clearly focused on the right clients, and it's getting the results.
Yeah. Can you maybe give us a bit of a heads up or think about that with your Q4 cash outflow, what we should expect with that?
Well, I think the guidance that we gave was 30% improvement on H1. H1, I think, was AUD 156 million, so that would sort of talk to a circa AUD 110 million for this half. This result, I think, was AUD 69 million or AUD 70 million. I think that points to the June quarter coming down dramatically to circa AUD 40 million.
Right. I guess maybe cognizant you're expecting to sell the U.S. business. I think it's fair to say that U.S. business is a scale game. I'm trying to understand how you're confident that those discussions would result in transaction if you're losing scale and share?
I'm not gonna comment specifically, Don, it's clear we have huge momentum in the U.S. You know, we're growing PCP revenue. I think it's like 100%, 80%, 100% the last few quarters. It's clear that we have one of the best products in the market. We have a great footprint in hard-to-get states. The business is going really, really well.
Yeah. Okay, maybe the last question for me. Understand you're not commenting on the likelihood of that sale or any of the transactions, if we assume that you don't sell the U.S. business or a transaction doesn't occur, I think the market would be keen to understand kind of what happens in the coming quarters because you have less than a year of cash remaining.
Yeah. Well, I mean, we've provided some guidance to the end of this half. We're not in the business of making those long-term forecasts. You know, we've made substantial revenue growth. We've made great progress in terms of cost management, bringing our burn down. From our perspective, it's all heading in the right direction.
Would you be focusing more on the Australian business, we would expect a little bit more of a cutting back in that U.S. marketing spend given, again, transaction doesn't occur, less than a year of cash? Is this more of an Aussie-focused business going forward?
No. No, we're focused on both our businesses. We have growth plans for both of them, and they're both performing well. Australia are performing well. We think we're outgrowing the market in a slightly tough market, but we're really happy with both businesses.
Awesome. Thanks, team. Appreciate it.
Thank you. Your next question comes from Chris Savage from Bell Potter. Please go ahead.
Thank you. Good morning. Good day, Sam and co. Sam, first question around the racing. You've flagged this softness in racing, and I get it. There was a spike obviously with COVID and lockdowns, and there's been some softness since. Are we back to where we were pre-COVID levels, or has there been some sort of structural change, and we're softer than even back then?
Well, it's very hard for us to answer that definitively because, you know, we don't have access to all the principal racing authorities' data. It's really hard to know. You know, we're calling out that we think we're outgrowing the market from an overall net win perspective. Obviously, that's what's most important. There's a mix. There's definitely a trend towards Sports betting over race betting. Whether that means that where racing is, you know, this quarter versus last quarter or next quarter, down, flat. You know, we think generally there's some racing softness. That's what we're seeing, it seems that others are reporting softness in racing, that seems to be where it's going. We can't talk definitively to, you know, to the racing industry as a whole's number in Australia.
What's your view though, Sam? Like, is it a structural change, and is it because just now there's, you know, alternate betting as you said, the sports betting's taking off?
Yeah. I mean, we think as long as the market, you know, the market's going through a bit of a pause post that COVID burst. You know, as long as the market picks up from a growth perspective, you know, whether that's sports betting, or race betting, it's up to the consumers to decide where they want their, where they, where they want to invest. I mean, we know there's been a lot of innovation from us in the Sportsbook space. You know, our NBA product powered by a lot of our OddsFactory capability in Australia has resulted in a real strong uptick...
Yeah.
In NBA action. Soccer, we released some upgrades to soccer. We saw some upgrades. There's no doubt that when you deliver a better product to clients, they respond. Sports has probably seen a bit more innovation in Australia with same game parlays and multis, et cetera, than racing in recent times. Yeah, we see the market as having a little bit of a pause. We're outgrowing the market, but we expect it to return to growth.
Okay. Just switching to the U.S., like you're obviously now 14 states, 1 province, just launched Ohio, Maryland. What's the short to medium term outlook now? Are you gonna pause with the number of states, or you still expect you'll add another few in the coming months?
No, no. I think we spoke previously the fact that we'll pause for now. You know, that TAM that we've got with 35% of the population is extremely large. You know, we wanna keep proving the growth in net win growth and keep managing that relationship with costs. Yeah, that's what we're focusing. We don't foresee any launches in the short term.
Just last question, I appreciate you can't say much on the strategic or potential strategic transaction, Sam, but just I guess timing? Like you made a note in the announcement that some of these negotiations are quite advanced. Should we expect potentially something this quarter or is it more next quarter?
Look, I can't comment. I mean, we also said that, you know, like, there's no guarantee that they get to an endpoint look. I won't comment on that.
Okay. Thank you.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Larry Gandler from Credit Suisse. Please go ahead.
Good morning, team. Thanks for taking my question. Just wondering if there's been any further consultation or updates with the RWA on the Australian Federal Online Gambling Review or any kind of color you can add around that. Thank you.
Look, I might ask Andrew Catterall to make some comments. Like one thing I would note is I saw a note of the news overnight about, you know, credit card bans for deposits for players in Australia. You know, that's been a position that we've been in support of and RWA has been in support of for some time. It's not a material impact at all. Most consumers have moved away from credit card deposits because they attract fees, you know, when depositing, so there's far more efficient ways for clients to get their monies into accounts. Catt, did you wanna add anything there?
Yeah. The credit card stuff was well expected. It's a declining percentage of total card deposits. It was about 8% of active cards were credit cards, 92% are debit cards, and it was a declining percentage of deposits. We're very comfortable with the credit card transition, and it's something, as Sam said, we've lobbied for actively since 2021. Was the broader question about has there been ongoing discussions with the RWA group? Is that the question?
Yeah.
Brad?
In relation to the gambling review, has there sort of been any further consults? I saw the U.K. white paper overnight was looking at implementing affordability checks. Has there been sort of any updates there?
There's a lot of work going on with the other members of RWA across each of the issues identified. Well, I think a lot of those issues were live and ongoing issues anyway. It ranges from the advertising frameworks through to responsible gambling and minimum standards. Also in play is the Northern Territory code, which is being updated as well, and the National Consumer Protection Framework 2.0, which is also in process of being updated. We're very active in all that.
We're very positive, we think, that we're very well positioned to support continued improvements to the minimum standards required to be a licensed operator in the Australian market. We think that's highly advantageous to a business like us, with the quality of our technology and our existing consumer protection frameworks that we operate within the business.
Okay. Thank you, team. Appreciate it.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone. We'll pause for any final questions to register. Thank you. There are no further questions at this time, and that does conclude our conference for today. Thank you for participating. You may now disconnect.