Earnings Call: Q4 2021

Jul 29, 2021

Thank you for standing by, and welcome to the PointsBet Holding Limited Q4 FY 2021 Appendix 4C and Investor Presentation Conference Call. All participants are in a listen only mode. I would now like to hand the conference over to Mr. Sam Sonnel, Managing Director and Group CEO. Please go ahead. Good morning and thank you all for joining the PointsBet Holdings Limited Q4 FY 2021 Business Update and Activities Report. This is Sam Swinell's CEO, and I'm joined on the call today by our CFO, Andrew Mello. In addition to our Q4 trading results, we will also speak to the capital raise and there will not be a Q and A session at the conclusion of this call. Please note all numbers refer to $1,000,000,000 unless otherwise stated. Since inception, PointsBet's Board and Management have been working towards establishing the key building blocks that have put us in the strong position we are in today to pursue the expansion of the North American sports betting and iGaming opportunity. In FY 2021, we have made significant progress across our Australian and U. S. Businesses. We have also recently completed 2 strategic acquisitions. Firstly, the acquisition of Bannock Technologies is not specifically tailored for the North American market. The addition of Bannock Technologies strengthens our capability area of in play, micro and player prop offerings. We have built a very material profitable Australian business in a highly competitive and advanced market. We have gained strong U. S. Markets, a top tier operator, have extensive market access that continues to grow. We secured a transformational U. S. Media partnership with NBC Sports providing access to leading national, regional and local television as well as comprehensive digital assets. NBC has the largest sports audience of any U. S. Media company, accessing over 184,000,000 viewers. As noted earlier, we have established a market leading team and continue to add bench strength in key areas. We have attracted outstanding brand ambassadors including Paige Spiranek, Drew Brees, Keel O'Neill, Allen Iverson and Devin Hester. We have entered into strategic partnerships with the major U. S. Leagues as well as a host of sports teams across the U. S. And we have assembled a highly experienced iGaming team and built an in house proprietary iGaming platform and administrative tools, which have been successfully launched in 2 U. S. States. As shown on this slide, we've put together all the pieces of the puzzle needed to take advantage of the significant North American Our continued focus remains on 1st class execution and building upon the growth and success we have achieved to date. Turning to Slide 12. In each of the states we are live based on available data PointsBet is either the 4th or 5th largest operator by handle. Our execution strategy continues to be clear. We will continue to invest to remain a top 5 operator in the long term, targeting 10% market share in each of the states we offer sports betting. As we have said since we first launched in the U. S, it is clear the product will ultimately win. We currently have a terrific product as can be seen by our success to date. However, we will continue to invest as evidenced by the recent acquisition of Bannock and the ongoing investment in tech and product talent. We have the fastest app in the U. S. Market with outstanding stability in UX. We were thrilled to again be awarded the EGR Sports Book of the Year in 2021. Notwithstanding this, we see clear opportunities for innovation ahead for both our sports betting and iGaming products. We will continue to execute strategic marketing campaigns leveraging our media partner NBC Sports as the cornerstone with further innovative integrations across the NBC Sports media portfolio to accelerate client and brand growth across North America. Turning to Slide 16. I was very pleased with the performance of the global trading business during Q4. Performance compared to the prior corresponding period of Q4 FY 2020 to be referred to as the PCP was as follows. Turnover was up 182% at $986,100,000 Gross win was up 128 percent at $98,700,000 Group net win including iGaming for the first time was up 81% at $60,800,000 Group cash active clients were up 220% at over 355,000 clients. Turning to Slide 17. You can also be seen that for the full FY 2021 year, operations performed strongly. And I was very pleased with the global performance of the following KPIs compared to FY 2020. Turnover was up 2 28 percent at $3,780,000,000 Gross win was up 201 percent at 353,100,000 Group net win including Igaming was up 154 percent at $208,500,000 PointsBet launched Igaming operations in Michigan on May 5, 2021 and we were pleased to record net win to 30 June of $1,500,000 Now turning to Slide 18. In Australia, PointsBet continued to focus on growing its market share throughout Q4, supported by the refreshed brand campaign featuring Shaquille O'Neal. Leveraging such an iconic figure in global sport during both the AFL and NRL seasons has continued to build the PointsBet brand across the country. The Australian Trading Business Q4 marketing expense was $16,900,000 which assisted in driving 12 month rolling cash active clients to 30 June to 196,585. In the United States, September March is traditionally peak season for the sports calendar and thus sports betting. April to August is the lower period. As such, for the June quarter, marketing expense was reduced compared to the March quarter from $33,300,000 to $26,300,000 This U. S. Marketing expects assisted in driving 12 month rolling cash active clients to 30 June to 159,321. We continue to have a constant focus on our cost per acquisition and we're pleased that first time better CPAs across all operational U. S. States except Illinois again tracked below US500 dollars for the quarter. As it regards Illinois CPA, as a reminder, the state moved back to an in person sign up from what was a remote registration environment on the 4th April 2021, which means for the industry as a whole reduced acquisition volumes. Given the size of the opportunity in Illinois and ahead of the upcoming NFL season, PointsBet continued its strategic marketing investment into the Illinois market. And as a result, we were willing to accept higher CPAs over the quarter. While an in person registration environment results in lower sign up volumes compared to remote registration, we anticipate that our sign up location advantage will have an increasingly positive impact on market share in line with the commencement of the NFL season together with increased foot traffic as COVID concerns ease in Chicago. Now turning to Slide 21. The Australian Trading business continued its outstanding performance, ending the quarter with turnover of 494 $800,000 up 63% compared to the PCP and net win of $43,100,000 up 33% from the PCP. Gross win margin and net win margin were an impressive 13.4% and 8.7% respectively, continuing the trend of strong quarterly margins. It was particularly pleasing that net win grew by 33% compared to the PCP, given the Q4 FY 2020 online industry results was significantly boosted due to COVID and based on peer to peer reporting, it is expected the online industry in Australia had a negative growth versus the PCP. Compared to the PCP, the Australian trading business has seen improvement across a number of key KPIs, Particularly with respect to customers continuing the trend of movement towards higher margin multi products, improvements in marketing tech tools and the refresh brand campaign also assisted with acquisition and retention compared to the PCP. I'm extremely pleased with the performance of the Australian business across the full financial year And this strong momentum sets up very well for FY 2022 and in particular the coming football finals and spring carnival beginning in September. Turning to Slide 22. The U. S. Business achieved quarterly gross win of $32,300,000 compared to a gross win of $1,600,000 in the PCP with a quarterly net win of $16,200,000 compared to a net win of $1,200,000 for the PCP. It should be noted that Q4 FY 2020 was impacted by COVID resulting in the majority of key U. S. Sports codes postponing or delaying their seasons. The U. S. Business achieved strong quarterly gross win margins of 6.6% and a quarterly net win margin of 3.3%. On 10 June 2021, we announced a multi year agreement with The Riverboat Group to provide online and retail sports wagering in the state of Maryland. On 20 July, we announced an agreement with Cliff Castle Casino Hotel to pursue online sports betting market access in Arizona. These agreements expand PointsBet's United States sports book market access footprint to 17 states subject to the passing of enabling legislation and licensure. On the 8th July, PointsBet announced that NFL all time great, Drew Breeze officially joined the PointsBet team. Breeze, who this season is transitioning to a broadcasting career with NBC Sports, will deepen the NBC Sports and PointsBet relationship as the company continues to expand and realize the growing North American online sports betting and iGaming opportunity in 2021 and beyond. In addition to Drew Brees becoming a PointsBet global brand ambassador, The PointsBet NBC Sports Partnership continued to break new ground as it reached the final quarter of the 1st year of the deal. PointsBet was integrated into coverage in or around NHL playoffs, NBA playoffs, U. S. Open Golf and the Indy 500. This allowed PointsBet to reach sports fans during peak events helping it further grow its brand awareness. PointsBet is now operational in New Jersey, Iowa, Indiana, Illinois, Colorado Michigan saw the inaugural launch of PointsBet's iGaming product in May 2021, followed by New Jersey on 23 July. As mentioned earlier, we expect to launch an additional 13 North American jurisdictions over the next 17 months. Turning to Slides 2324, I will now briefly touch on each state. New Jersey recorded a quarterly gross win of $13,700,000 at a gross win margin of 6.7% and a net win of $9,100,000 at a net win margin of 4.5%. PointsBet achieved 7.8% market share in New Jersey for online sports betting handle during the quarter. Illinois recorded a quarterly gross win of $10,100,000 at a gross win margin of 7% and a net win of $5,700,000 at a net win margin of 3 0.9%. PointsBet achieved 7.8% market share for online sports betting handle during the quarter, ranking as the 5th largest operator by sports betting handled in the month of May, the last month the Illinois State data was released. Michigan recorded a quarterly gross win of $2,500,000 at a gross win margin of 5.8 percent and a sports betting net win loss of $300,000 at a negative net win margin of 0.8%. PointsBet achieved 4.9% market share for online sportsbookhandles during quarter ranking as the 5th largest operated by Sports Betting Handle for the month of June. Sport PointsBet launched iGaming operations in Michigan on 5 May 2021 and we were pleased to record net win to 30 June of $1,500,000 Indiana recorded quarterly gross win of $2,800,000 at a gross win margin of 6.3% and a net win of $1,000,000 at a net win margin of 2.3%. Indiana PointsBet achieved 5.5% market share for online sportsbook handle during the quarter, ranking as the 4th largest operator by sports betting handle for the month of June. In Iowa, PointsBet is happy to report we have extended our agreement for sports betting, retail and online, as well as signing a new agreement with Cat 31 December 2030. Details of the company performance in Colorado and Iowa are set out in the quarterly update released to the ASX this morning. I will now hand over to Andrew Mello. Thank you, Sam. Turning to Slide 25, which summarizes the quarterly net win breakdown of FY 2020 and FY 2021 as well as comparing Q4 net win to total net win for the 1st 9 months of the respective year. In Australia, it can be clearly seen that COVID lockdowns in Q4 FY 2020 significantly contributed to net win growth in that quarter versus Q3 FY 2020. Therefore, it was Pleasing that net win in Q4 FY 'twenty one grew by 33% compared to the PCP. In the U. S, for the 9 months to the 31st March 2021, the business generated $24,700,000 of net win, followed by $17,700,000 in the June quarter, demonstrating good momentum for the U. S. Business. Turning to Slide 26. Given today's announcement of a capital raise, we have provided some additional unaudited disclosures in addition to the 4C reporting requirements. As previously referenced, global net win was $208,500,000 for FY 2021. Global net revenue is $194,700,000 for FY 2021. The differences between net win and net revenue are GST payments required in Australia and B2B and ADW revenues post our recent acquisitions. The Australian trading business is EBITDA positive for FY 2021. The Australian marketing expense increased from $20,100,000 in FY 2020 to $51,400,000 in FY 2021. The U. S. Segment saw significant increase in marketing expense versus FY 2020 to US90.1 million dollars quarterbacked by NBC Sports. This increase was driven by increased number of operating jurisdictions. The business was operational in 2 states in FY 2020 and 6 states in FY 2021. This strategy is consistent with previous new market entries with upfront investments required to establish and grow market share and drive revenue growth. The U. S. Marketing expense is expected to continue to increase as our footprint expands into more American jurisdictions. Technology and corporate expenses rose as trading activity increased and the business continues to scale the global team and its operations. The unaudited group statutory EBITDA loss for FY21 is expected to be 163,700,000 Turning to Slide 27 for the quarterly 4C cash flow summary. At the 30th June 2021, the company's corporate cash balance was $245,500,000 The company has no corporate borrowings. Net cash used in Operating activities in the quarter ending 30 June was $43,000,000 Receipts from customers totaled $62,500,000 Receipts from customers includes net win from Sportsbook and iGaming verticals as well as B2B revenues post the acquisition of Banting Technology and ADW revenues in the U. S. Post the acquisition of BetPTC. Cash outflows during the quarter included cost of sales of 26,900,000 Non capitalized staff costs of $12,700,000 marketing costs of $49,300,000 administration, corporate costs and GST paid on Australian net win of $16,200,000 Net cash used in investing activities in the quarter ending 30 June 21 was $37,500,000 During the quarter, the company completed the acquisition of Bannik Technology and Bet PTC and the cash payments net of cash acquired was $31,800,000 The cost of capitalization of our technology and product staff was $4,800,000 for the quarter. I'll now hand back to Sam. Turning to Slide 29. I would like to provide some comments on Igaming, which is a key part of our U. S. Strategy. Igaming revenues in the United States have grown exceptionally since the repeal of PASPA in May 2018. Across New Jersey, Pennsylvania, Michigan and West Virginia, iGaming revenues reached nearly US900 $1,000,000 in the June 21 quarter, which if annualized would equate to greater than US3.5 billion dollars per annum. The size of the opportunity is evident. PointsBet has assembled a highly experienced iGaming team with deep experience developed at Aristocrat, Ainsworth and Bet365 just to name a few. Turning to Slide 30, as I previously said, owning and controlling in house technology will become an increasingly important strategic advantage. On 5th May 2021, PointsBet launched iGaming operations in Michigan. We now have 30 slot video poker and table games. We were pleased to record net win in Michigan to 30 June of $1,500,000 Since the launch of the iGaming product, around 40% of all Michigan cash active clients have placed an iGaming bet. This inaugural launch was followed by the launch of iGaming operations in New Jersey on 23 July 2021. The company will bolster its iGaming offering in H1 FY 2022 with the addition of strategically selected slot games, live dealer table games and other innovative initiatives. Pending regulatory approval, PointsBet will roll out our gaming operations Pennsylvania and West Virginia in FY 2022 and expect Ontario to also be added to the list. PointsBet has also and gaming access in Ohio, Indiana, Missouri, Louisiana and Iowa pending the passing of enabling legislation. I would now like to provide some commentary on the emerging Canadian opportunity. On 22 June 2021, The Canadian Senate passed Bill C-two eighteen, legalizing single event sports betting. Previously, only parlay sports betting was allowed. Regulatory details will be worked live in late 2021 with an open licensing system followed by Alberta with a 2. In anticipation of this significant opportunity, PointsBet has already mostly served as Senior Vice President for Rogers Communications, where we oversaw corporate strategy, operation of Monkey Knife Fight, the 3rd largest daily fantasy sports operator in the U. S. And Shantel has the Canadian consumers' needs, satisfies the important requirements of regulators, enables fans to what Nick, Shantel and the team we are building in Canada will help us do just that. Moving to Slide 33. In addition to Drew Brees becoming a PointsBet global brand ambassador, The PointsBet NBC Sports Partnership continued to break new ground as we reached the final quarter of the 1st year of the long term partnership. In addition to the regional sports network integrations, PointsBet was integrated into coverage in or around NHL playoffs, NBA playoffs, U. S. Open Golf and the Indy 500. This allowed PointsBet to reach sports fans during peak events helping it further grow its brand awareness. PointsBet's on air talent, Teddy Greenstein and Jay Crouch have continued to be integrated further into NBC content during the quarter. The MVC Predictor app has now delivered over 385,000 leads for PointsBet. As we enter new states like Maryland and Arizona and others, This provides us with a database of potential clients to target. The Predictor app will again be super popular this NFL season and we continue to be the exclusive partner of this valuable digital property. With the NFL season approaching quickly and sports betting advertising being allowed around NFL For the first time, PointsBet looks forward to working with NBC to capitalize on this new opportunity. It's been a great year for PointsBet. I'm happy to also report that FY 2022 is off to a strong start with July trading tracking very well. With 3 days of July still remaining, the Australian trading business has already achieved a record month for net win, delivered strong momentum as we head towards spring. Similarly, the U. S. Business has started the financial year well. As we approach the 2021 NFL season launch and the rapid expand we have put ourselves in. I will now hand back to Andrew Melon to provide some commentary on the capital raise of $38,000,000 to $42,000,000 This morning, the company launched a fully underwritten equity capital raise institutional placement of $10 to raise approximately $215,000,000 and a $1,000,000 per share to raise approximately $185,000,000 Also, we sell a combined 2,900,000 shares, representing 15% of their respective interest in PointsBet. Brett Patten has agreed to purchase 1,500,000 of the shares under the co founder sell down founders, independent of the company, have sought and paid for their own financial and legal advice with regards for a period of 12 months. Also PointsBet Chairman, Brett Patten, approximately $6,000,000 for his eligible entitlements. Proceeds from the placement and rights issue will be used for North American marketing and client acquisition, technology and product development, both across sports betting and iGaming U. S. Market access and government licensing fees Continued investment in talent and scale of operations and balance sheet flexibility. The Board of PointsBet believes this is an appropriate time to raise additional equity capital, provide a strengthened balance sheet as we continue to execute in North America and leap forward on the back of our operational success to date. I'd like to thank you all for attending the call today. And thanks, operator, that concludes the call. That does conclude our conference for today. Thank you for participating. You may now disconnect.