Hi everyone, welcome to NorthStar Gaming's earnings call. This is Trevor Brucato with RB Milestone Group, NorthStar's US-based investor relations firm. NorthStar Gaming Holdings is listed in Canada on the TSXV under the symbol BET, and in the US on the OTCQB under the symbol NSBBF. Joining us today is NorthStar's Chair and CEO, Michael Moskowitz, who will be presenting the company's Q2 2025 results, current operations, and strategic priorities. After Michael's prepared remarks, we will open up to questions. If you do have a question, you can submit them in the Q&A module. Please note this webinar is being recorded today, 14 August 2025, and will be posted on the company's Investor section at northstargaming.ca/investors. This is where you will also find NorthStar's August presentation and fact sheet.
Now, for a quick disclaimer, today's presentation may contain forward-looking statements that are subject to risks and uncertainties that may be out of NorthStar's control and should not be construed as a recommendation or a solicitation to buy or sell any security. NorthStar's full disclaimer can be found in the presentation, as you can see here, and on their website at northstargaming.ca. Lastly, RBMG is not a registered investment advisor or broker-dealer. For more information, please visit rbmilestone.com. Now it is my pleasure to turn it over to NorthStar's Chair and CEO, Michael Moskowitz. Michael, the stage is yours.
Thanks, Trevor. Good morning, everyone. Yesterday, we announced our financial results for the Q2 of 2025. I'll start today's presentation with a review of those results, followed by an update on our recent progress at NorthStar, and finally, our outlook and strategic priorities. As a reminder, NorthStar operates an online betting platform. We're based in Ontario, Canada, with a growing presence across the country. We believe that we are at the intersection point of iGaming and media, as I've said many times. Let's begin with our investment highlights. For those that are new to the call, the addressable market in Canada has been estimated at CAD 9.5 billion. Ontario was the first province to regulate online betting three years ago. We also participate in the rest of Canada through managed services provided by the Abenaki Council of Wolinak to support the website northstarbets.com.
NorthStar has industry-leading gaming content and technology. We partner with the best-in-class providers to power our platform. Our internal team creates proprietary content and customized user experiences that position us as a premier offering in the marketplace. Earlier this year, we completed an important long-term debt financing that we believe provides the funding we require to reach profitability. We have an experienced management team that is completely focused on meeting the needs of growing the Canadian market. We've got a differentiated positioning as a premium offering, leading to a superior customer experience and user economics. For example, we have very high player values and attractive payback rates on acquired players. Our business is generating rapidly increasing gross margins as we benefit from operating leverage. As the business scales, we are seeing margins expansion and holding operating expenses relatively flat. This trend is taking us closer to profitability.
I'll touch on each of these investment highlights throughout today's presentation. Before diving into our results, I'd like to touch on the addressable market in Canada. As I mentioned, the overall Canadian market is estimated to reach CAD 9.5 billion by 2026. We generate most of our revenues in Ontario, which is currently the only province to license online betting. The Ontario market exceeded CAD 3 billion in 2024 and is expected to reach CAD 3.7 billion by 2026. That's tracking ahead of some previous estimates, which were predicted at about CAD 3.5 billion in market size. Although we see the regulated Ontario market beginning to mature over the midterm, the market continues to be very large. The potential market outside of Ontario, where 61% of the population lives, is CAD 5.8 billion, and we see tremendous midterm upside from the expansion outside of Ontario.
Alberta is expected to be the next province to license online betting, which we are estimating by the first half of 2026. Alberta is a very attractive market. It's the youngest average adult market. It's got a very high per capita GDP in Canada. We're estimating the market value to be in excess of CAD 1 billion. It's about 1/3 of the Ontario size and would make it the eighth largest jurisdiction in North America. As it relates to the rest of Canada, we address this market by providing managed services to northstarbets.com, an iGaming site which is owned and operated by the First Nations group, the Abenaki of Wolinak, as I've mentioned.
We launched this back in 2023, late 2023, and then we didn't really start to see traction until 2024. If you look at the most recent quarter, it's about 10% of our revenues in Q2 of 2025. So building and building our brand outside of Ontario gives us a really good head start should additional provinces become regulated in the future. We believe NorthStar is very well positioned for the different stages of growth in the Canadian market. In Ontario, since launch, we've been growing faster than the overall market, meaning we are gaining some share. And in the rest of Canada, we believe that there's additional upside in our managed services business. And we will be ready to apply to the license when the provinces open up to commercial operators shortly. So now let's take a look at our Q2 results.
Once again, we delivered double-digit year-over-year growth on the key measures. We tracked revenue increased by 15% over Q2 of 2024. Gross margins was up 25%, and profit before marketing and other expenses grew by 87%. We also reduced marketing expense with both in absolute dollars and as a percentage of revenue. And I'll provide more color on each of these items. Revenue of CAD 8.5 million in Q2 was the second highest in our history. For the first half of the year, revenue was CAD 16.4 million, which represents a growth rate of 23%. It outpaced the growth rate of Q2. And so for those who have been following NorthStar for a while, you may notice that the percentage of growth rates are lower than we've reported in the past. We expected this and budgeted for it accordingly.
Like any other early-stage company, as revenue increases in absolute dollars, it's natural that the rate of growth slows. It is more important that we continue to build our customer base and grow revenue on a year-over-year basis while focusing on our path to profit.
One of the key drivers of recent growth has been the managed services NorthStar provides outside of Ontario. Managed services generated CAD 900,000 of revenue in the Q2 . It represents about 10% of our total revenue for the quarter and up more than 100% over Q2 of last year. The managed services business has considerably higher margins and operating synergies while leveraging our existing infrastructure in Canada. We believe there continues to be upside in our managed services business in the coming years and will continue to invest accordingly based on that growth project. This slide shows our revenue for every quarter since we launched NorthStar Bets in May of 2022. As you can see, we have delivered steady growth over time. There is variability from quarter to quarter due to the seasonality of our business.
For example, the Q4 is generally our strongest, with several professional sports leagues beginning their season. And as the weather turns colder, activity levels within our base increase. The Q3 is typically a little slower due to Canadians taking vacations or spending time outdoors during the summer months. And then Q2 is somewhere in between that. As always, we focus on year-over-year growth as a measurement of success. And the annual patterns do provide some measurability of predictability and enable us to plan promotions around various periods. For example, we're currently finalizing our plans to take advantage of the exciting and expected busy season and period that is coming up in the fall this coming fall. So stay tuned for that. And so next slide, this slide shows our gross margin for both the quarter and the six-month period.
Gross margins grew by 25% in the Q2 to CAD 3.5 million for the first half. The year-over-year increase was 39% to CAD 6.5 million. It's important to note that in both cases, gross margin outpaced revenue growth. This is one indicator of operating leverage, meaning our economics improve as business scales and we apply our costs against a larger total. As a percentage of revenue, gross margin increased by 40.8% for Q2 and 39.7% for the six-month period. The Q2 margin percentage was the highest we've ever reported for a single quarter. We're pleased with the expansion of our gross margin percentage, and we believe there is some room for further growth, possibly to low mid-40 range, and gross margin dollars will increase along with revenue growth, of course.
Another indicator of operating leverage is a metric we've been reporting since last year called profit before marketing and other expenses. A positive number means a gross margin is covering our overhead expenses. In Q2, profit before marketing and other was CAD 700,000, and that is the highest that we've ever reported and represents an increase of 87% over Q2 of last year. As you can see, the figures were negative for the first half of 2024, so we weren't covering our overhead, but in the first half of the year, it was positive, CAD 1.3 million. This increases for both periods are driven by the growth in gross margin. Marketing is the most significant cash cost that falls below the line item, and it's considered a discretionary expense.
Let's take a closer look at our marketing spend and demand creation. Here we see marketing expense presented as a percentage of revenue. Marketing spend in the Q2 decreased by 16% compared to Q2 of last year from CAD 3.6 million to CAD 3.1 million. With revenue increasing over the same period, marketing expense fell from 48.8% of revenue to 35.8%, which is the lowest it's ever been. You can see a similar pattern for the first six months of the year, with marketing declining significantly from 55.1% of revenue to 43.7%. It's important to remember that we will still grow the business despite spending less on marketing. We are becoming more efficient in our marketing effort as we target our spending in the most productive areas, which include both acquisition and, as I've mentioned before, a keen focus on retention, which is a lower cost.
Similarly, we've been emphasizing financial discipline across the entire business. If you look at G&A expense as a percentage of revenue, it also would have declined except for some one-time expenses we incurred this quarter. We will continue to align our resources and optimize our cost structure to support our midterm profit target. We expect to demonstrate further progress in the second half of this year and to even greater extent in 2026. The combination of the expense management and revenue growth should enable us to move further to the right of this chart. I spoke earlier about operating leverage, and this slide illustrates the idea conceptually. As we scale the business, we do not need to keep adding resources or costs at the same rate. As I described, we started covering our overhead costs partway through 2024 and are continuing to do so so far this year.
The next milestone is break-even when our gross margin also fully covers marketing and other expenses. We're not giving guidance on this time as we reach break-even, but we will continue to report on the progress as we manage closely our costs. As we prioritize reaching profitability, I should emphasize that we are very well capitalized. I mentioned at the start that we recently completed an important long-term debt financing. We secured a CAD 43.4 million loan from Beach Point Capital Management in January of 2025, which was the largest financing in NorthStar's history. The funding will support our continued investment and growth, providing us flexibility as we make steady progress toward break-even. We continue to believe we are fully funded to reach profitability based on our current business model. This slide lists some of our key achievements for the first half of 2025.
We strengthened our balance sheet with long-term debt financing. We continue to increase our gross margin, which is now more than covering our overhead expenses. Our customer retention has reached record levels in the past two quarters as we see more repeat engagement from our first-time depositors. I'll speak more about the importance of retention a bit later, and we continue to emphasize product innovation, including the introduction of the Spring Tournament Series that spanned the first and second quarters of this year, and we strengthened our casino platform with the addition of more best-in-class games from leading providers around the world, as well as the beginning of a comprehensive update and upgrade to our casino UI and UX design. In the next part of the presentation, I will summarize the strategies we're employing to drive growth and position us for continued success.
We did go through a lot more detail during the last call, so I'll keep this a little bit briefer at this point in time. But we believe that NorthStar is well positioned to accelerate consideration. In other words, increasing the capabilities in our platform that consumers consider when they are looking for online betting options. After all, you can only acquire a new customer if they know who you are and think of you as a viable choice. This is not a simple achievement in a very competitive market like Ontario, where consumers are bombarded with online advertising, specifically around betting. A brand like NorthStar Bets needs to differentiate our offering to become a top-mind choice. The pyramid of this slide summarizes our key pillars of differentiation, where we have the best opportunity to influence people's decisions.
At the top of the pyramid is ensuring that our VIP customers receive a premium experience where we continue to engage our most loyal players. We continue to invest in this important area to support our premium brand. Moving to the bottom left, we've always made it clear that NorthStar is a Canadian brand, starting from the name itself. We add fresh content daily, focus on sports that are most relevant to Canadians. We have events and promotions geared to local events, our national ones that are included over the course of the year, like the Canada Day on July 1, long holiday that we focused on. With a head office in Toronto, we believe that we have greater knowledge of local markets compared to many international competitors and are very agile and flexible.
Being a Made in Canada option also fits nicely with the recent surge in many people's desire to buy goods and services from domestic suppliers. On the bottom right is an innovative promotions and content. Our goal is to attract, engage, and entertain customers. One of the most recent was called the Spring Tournament Series, which we ran in March and April of 2025. It included three separate online tournaments for blackjack, slots, and parlay, with a total prize pool of up to CAD 100,000. The tournaments helped us to attract new players, improve engagement among existing players, and even reactivated some lapsed players. As for the differentiated content, the best example is what we call insights. This section on our platform features daily sports articles produced by our team of in-house writers. We are unique in integrating this kind of content directly into our betting environment.
It's really seamless and intuitive. It's got a great look and feel and tied right back into the bet slip. We recently expanded the insight sections with more casino content, including game reviews, premium team and player stats, injury and player news feeds, and a live scoreboard. This kind of content enhances the player experience and leads to improved economics among the most active readers. I look forward to sharing additional news in the fall related to our content strategy that will help to scale, acquire, and monetize our sports and casino content moving forward. In the middle of the pyramid is first-class customer service. This is about providing a simplified customer journey and being available to delight our players with a white-glove customer support.
If we are doing all the things right, we can accelerate the number of customers who consider NorthStar and the proportion that we retain, which is so valuable to our model. I'll take a moment to share some of the details of our current summer promotion called Summer of Spoils. The campaign taps into a sense of nostalgia. It sets against an iconic Canadian summer backdrop. Each letter in the logo represents a different landmark or destination. There are different events and offers throughout the nine-week campaign designed to drive engagement during what we call maybe a little bit of a slower season. At the same time, we've been running tactical advertising to boost our profile as a Canadian brand. This strategy ties back to our pyramid from the previous slide. So now I will conclude with a review of our priorities for maintaining and building on our growth.
This has not changed, and we are maniacally focused on executing on our plans. As we plan for the rest of 2025 and into next year, we are focused on four key areas. One is operational excellence. This starts with customer first. It's personalized content, simplifying processes, getting the routine things right, giving players a reason to keep coming back. This year, we introduced features and services tied to our NorthStar Elite program aimed at our most active and valuable customers. Operational excellence also includes being disciplined around our spending, making sure that all investments directly support our growth strategy. Strategic partnerships. We spoke about Playtech being a key technology partner, and there are other best-in-class partners that have helped power our gaming engine and the experience to our customers, which is amazing.
We also have a partnership with Torstar, one of Canada's largest media companies, to distribute our content on their various digital platforms. And we have strategies to accelerate our expansion by leveraging the capabilities and connections of these partners moving forward. On the product innovation front, we remain highly focused on this because it is the experience a consumer sees first. Look forward to further enhancement throughout 2025. And as I mentioned earlier, we are well on our way to a new look and feel around our casino on the UI and UX design. Enhanced profitability. Incremental gross margin dollars will largely drop to the bottom line. We expect to see continued narrowing of our net losses as we approach break-even. And today's final slide summarizes our cap table. We have a fairly diversified customer base or shareholder base.
Directors and senior officers are large holders, two large seed investors, plus our technology partner, Playtech, who has supported our growth from the beginning and has been a very strong partner, are included, and as we continue to execute on our business plan, we will build further confidence among current and prospective investors. At this point in time, I'd be happy to take any questions. Trevor, could you remind the listeners of the process of submitting questions, and we can get started.
Absolutely. Thank you, Michael. As mentioned, we will move on to the Q&A portion of the webinar. If you do have any questions, you can submit them in the Q&A module, and if we do not have time to get to all of your questions, management will do its best to address them via email in a timely manner. Some questions have come through, so let's kick off.
First question here, Michael, is with a limited amount of cash available to the company, do you have any concerns about NorthStar's ability to continue to grow revenues and acquire players?
Okay. It's a good question. Listen, at this time, we have no concerns about the cash resources and limited potential for the growth business. Kind of two parts to this. One is that, as discussed in the Q1 webinar, the acquisition costs are somewhere around, not a little bit lower, but let's call it CAD 700-CAD 800. However, the cost of activating a dormant player from the database is CAD 10-CAD 20. So just the pure math of that, as our player base increases and expands, we will dedicate more effort towards reactivation. And that will obviously help the financial situation of the company as it costs us less to reactivate.
A combination of both, where early on in the business, we were exclusively focused on acquisition as a new brand, we now have a much larger base of players and customers that we're engaging. The model changes. I want to also remind everybody that working capital is not linear. Balance sheet is clean. Some of the cash outlay in Q2 was a function of paying for Q1 marketing. We've got about CAD 10 million or so plus CAD 5.5 million in interest reserve. I think the important thing is the second half of 2025, losses will be significantly less, and the cash burn revenue will continue to be lower. In fact, we've seen very positive signs in July, and that is continuing in August.
So absolutely, things are going to get better in the back half, and we're maniacally focused on costs, as I've mentioned before, which is all part of it. Thanks for the question.
Thank you, Michael. Next up, following the CAD 300,000 expense for restatement in past financials, is NorthStar confident that it has addressed all legacy issues in its financials going forward?
Yes. I mean, yes, well, for us, it was quite a frustrating time. We're confident that the legacy issues, which caused restatement and some incremental one-time costs in the quarter, have been identified and resolved. And we do have a robust process now in place to prevent any repeat issues. Despite some of the pain that we went through, it was actually a positive thing from a structural perspective because it made us much stronger.
But to answer your question specifically, yes, it's behind us and a lot of lessons learned, and we're preventing and we've got process in place to prevent those from happening in the future. Thanks for the question.
Thank you. Let's see what else we have here. Beyond the eventual regulation of Alberta, what are other near-term catalysts which investors should be on the lookout for? Well, Alberta is a very exciting opportunity. As I mentioned, not exactly sure on the launch date, but we're targeting the first half of 2026. And listen, beyond that expansion of the regulated market in Canada, I think we continue to drive towards profitability for the balance of the year. And we see that with gross margins continuing to expand and covering more of our marketing costs as we continue to invest in this business. So I'll answer it like that.
But I think just as we look at the next opportunity outside of the rest of Canada piece, the regulated Alberta market for us is a key attribute. And the healthier our business becomes in Ontario and the rest of Canada, the more fuel we have for launching and creating demand in the exciting market of Alberta, as I mentioned.
Thank you, Michael. It's clear that you guys are focused on reaching break-even. So what would need to happen in order to do so?
Yeah. I mean, obviously, this is a day-to-day discussion as we are so focused on our operation and our discipline around our financial metrics. But I think that we've demonstrated consistent success in increasing revenues year- over- year. And that is a critical component. So one, continuing that. We believe that we will achieve the break-even by continuing along the growth trajectory that we have been on. Of course, as the business gets larger, the growth percentage year- over- year starts to reduce, but our growth is there. And the other very positive thing is the market is growing significantly as well. So we are growing and the market is growing. And those are two key components of an opportunity and a strong business.
And similarly, we've done a really good job at managing expenses, which we discussed. They're declining as a percentage of revenue, and we expect to see that continue. That's the model. As I mentioned, resources are not required. A significant number of resources are not required to expand the business longer term. Of course, marketing is a key component of that, and we continue to invest, but actually, the G&A is not.
So I think it's a very scalable model. And as the costs are reduced as a percentage of revenue, you can see that we're well on our way to kind of getting to the next threshold, which is the break-even part. And as long as we continue to grow, we should be able to achieve our objectives, which are critical. And I think now that we're three-plus years in this, you can see the trend is going in the right way. Thanks for the question, though.
Thanks, Michael. It looks like that's it on the questions front. So for the sake of everybody's time, we'll conclude there. Again, thank you, Michael. And thanks to those stakeholders for joining today. NorthStar trades in Canada under the symbol BET, and in the US under the symbol NSBBF.
Today's webinar recording will be sent to all registrants, and will also be made on the company's website at northstargaming.ca. If you have any additional questions that have not been addressed, please email us at northstar@rbmilestone.com. Again, that's northstar@rbmilestone.com. Thanks again. That concludes today's event. Hope you all have a great rest of your day.