Everyone, welcome to NorthStar Gaming's Q4 2024 earnings call. This is Trevor Brocato with RBMG, NorthStar's U.S.-based investor relations firm. NorthStar Gaming Holdings is listed in Canada on the TSX Venture under the symbol BET, and in the U.S. 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 Q4 and year-end 2024 financial results and an update on current operations and strategic priorities. After Michael's prepared remarks, we will open up to questions. If you are interested in asking a question, you can submit them in the Q&A module. I'd also like to thank those who have submitted the questions to us prior via the registration. Please note this presentation is being recorded today, Thursday, May 15, 2025, and will be posted on the company's Investors section on the website at northstargaming.ca/investors.
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 solicitation to buy or sell any security. NorthStar's full disclaimer is on the page here and on here and is also on the 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.
Thank you, Trevor, and good morning, everyone. We announced our fourth quarter and full year 2024 results earlier this week on Wednesday, May the 14th. Today, I want to review those results as well as other recent developments at NorthStar and discuss our outlook and priorities for the coming year. As you may know, NorthStar operates an online betting platform based in Ontario, Canada, with a growing presence across the country. We believe we are at the intersection point of iGaming and media. Let's begin with our investment highlights. First, the addressable market in Canada has been estimated at CAD 8.5 billion. Ontario was the first province to regulate online betting three years ago, and we also participate in the rest of Canada through a managed services relationship provided by the Abenaki Council of Wolinak to support their website, northstarbets.com. NorthStar has industry-leading gaming content and technology.
We partner with the best-in-class providers to power our platform, and our internal teams create proprietary content and a customized user experience that positions us as a premier offering. Earlier in 2025, we completed an important long-term debt financing deal 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 a growing Canadian market. We've got a differentiated position as a premium offering leading to superior customer experience and user economics, and as for example, we've got very high player values and attractive payback rates on acquired players. Our business is generally rapidly increasing gross margins as we benefit from operating leverage as well, and as the business scales, we're seeing margin expansion and holding operating expenses relatively flat. This trend is taking us closer to profitability.
I'll touch on each of these investment highlights through today's presentation. Before diving into the results, I'd like to touch on the addressable market itself in Canada. As I mentioned, the overall market is estimated to reach CAD 8.5 billion by 2026, and we generate most of our revenues in Ontario, which is currently the only province to license online betting, and the Ontario market exceeded CAD 3 billion in 2024 and is expected to reach CAD 3.3 billion in 2026. Although we see the regulated market begin 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 5.2 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're estimated in the first half of 2026.
In fact, last week, Alberta passed Bill 48 to legalize online betting. Of course, there's a number of details that will be finalized over the summer months, but this is very encouraging because Alberta is a very attractive market. It's the youngest average adult age. It's got the highest per capita GDP in Canada and the estimated market value of CAD 1 billion in Alberta, which makes it the eighth largest jurisdiction in North America. And then there's the rest of Canada. We address this market by providing managed services to northstarbets.com, an iGaming site owned and operated by the First Nations group, the Abenaki. We launched in late 2023, and we began to see traction in 2024. Building on our brand outside of Ontario will give us a head start should additional provinces become regulated in the future.
We believe NorthStar is well positioned for the different stages of growth in the Canadian market. In Ontario, we've been growing faster than the overall market, meaning we are gaining share. In the rest of Canada, we believe there's additional upside in our managed services business, and we will be ready to apply for a license when other provinces open up to commercial operators shortly. Before getting to our full year results, let's take a look at the fourth quarter. This was a record quarter for us on all of the metrics you see on this slide: total wagering, gross gaming revenue, revenue, and gross margin. The fourth quarter tends to be seasonally strong for us, but these are year-over-year % growth rates, and we're particularly pleased with the increase in gross margin. The next few slides show both Q4 and full year results.
As you can see, growth in total wagering was even stronger for the year, increasing by more than 50%. As a reminder, total wagering represents the dollar value of bets placed by our customers. Increases are driven by the number of active customers and their activity level. We nearly reached $1 billion in wagering for the year. It took us two full years of operations to record our first $1 billion of wagering, and now we are roughly double that space, that pace. Our revenue charts look very similar, increasing by 51% in the fourth quarter of 2024 and by 57% for the full year. You may notice that revenue growth outpaced total wagering for both Q4 and the year. While the two items tend to move in sync, there is a growing component of a revenue line that is not generated by our wagering activity.
Reported revenue includes gross gaming revenue, net bonuses, promotional costs, and free bets, as well as managed services fees. As I mentioned earlier, NorthStar provides managed services outside of Ontario for the First Nations group for a site they own and operate. Managed services fees represent CAD 2.3 million of revenue in full year of 2024, or 8% of our total. This is up significantly from CAD 0.5 million in 2023. It's driven by a rebrand in November of 2023 that helped kickstart momentum for the northstarbets.com site, and we expect managed services revenue to continue to grow in 2025 and beyond. I'll turn next to gross margin, where we delivered arguably our strongest results. Gross margin grew by 91% for the year to CAD 10.5 million, significantly outpacing the revenue growth of 57%. As a result, gross margin expanded as a percentage of revenue, reaching 36% for the year.
The explanation of margin expansion is that the fixed cost portion of our revenues remained relatively flat as the volume of business increases, so that costs are applied against a larger total. The full year increases in gross margin means that we had an additional CAD 5 million available to cover our operating expenses. As we announced in our earnings release, profits before marketing and other expenses would break even for the year, and in the fourth quarter, it was CAD 600,000. In other words, gross margin is now covering our overhead. Marketing is an important driver of customer acquisition for us, but it's also considered a discretionary expense. Further increases in gross margin enable us to narrow our operating loss even as we continue to invest in growth. This slide shows our total wagers and revenue for the 11 quarters since we launched NorthStar Bets in May of 2022.
While the upward trend is unmistakable, you can also see the fluctuation from quarter to quarter, including the occasional decline. This is primarily due to the seasonality of our business. The third quarter includes the summer months, which Canadians often take advantage of for vacations and other outdoor activities, and there tends to be less activity, and you can see the revenue drop from Q2 to Q3 in 2024. The fourth quarter has seasonally been very strong, led by the start of the season of several professional sports leagues, as well as people spending more time indoors, and the two biggest sequential increases in both wagering and revenue have been from Q3 to Q4 in both 2023 and 2024. While it's interesting to see the quarterly patterns, we do focus on year-over-year growth as a more relevant measure for success.
We don't have a slide on expenses, but I can tell you that we're relatively flat in 2024, as depicted conceptually here. Of our two largest OpEx items, marketing was up 10% in 2024, while G&A was down 15%. Consistent revenue growth enables us to pass the milestone of covering overhead in 2024, and the next milestone in this chart is break even. We're not projecting a timeframe to reach break even at this point, but it will be a function of continued growth and discipline across management, and we expect to execute on both. We call this operating leverage. The existing people and infrastructure we have in place is capable of managing higher volumes and at a lower incremental cost. We realize that operating leverage over time as we scale the business accordingly.
As I mentioned at the start, we recently completed an important long-term debt financing in the form of CAD 43.4 million. The loan matures in 2030 with payments deferred for 30 months. This is the largest financing in NorthStar's history and one of the largest debt financings in the B2C online gaming space. The lender is Beach Point Capital Management, a U.S.-based investment manager with CAD 19 billion in assets under management and a deep expertise in the gaming sector. Credit support was provided by Playtech, our largest shareholder and a key technology partner. We believe the confidence shown by both of these companies following an extensive due diligence process is an important validation of our business model. And more importantly, the funding will support our continued investment in growth. It is important to note that we do not find any significant changes in our operating approach.
We will manage costs with the same discipline that we always have, with a view to achieving profitability. With this capital injection, we believe we are fully funded to reach profitability based on the current business model. So, to recap our recent achievements, we strengthened our balance sheet with CAD 43.4 million of long-term debt financing. Our gross margin for the year is sufficient to cover overhead expenses. Our Ontario players placed approximately CAD 2.2 billion in total wagering since the launch of our platform in 2022, and 45% of that, nearly CAD 1 billion, was generated in 2024. Important product innovations include enhancements to our industry-leading Insights 2.0 content vertical and the Spring Tournament series we announced in March. I'll expand on both of these topics later in the presentation. And geographic expansion in the rest of Canada through our First Nations partnership made a meaningful contribution to our results in 2024.
The next few slides summarize the strategies that help drive our growth and position us for continued success. The Ontario online betting market is very competitive. There are 49 operators. There's 84 sites. Consumers have a lot of choice to see advertising everywhere. The first threshold to acquire a new customer is to be one of the platforms they consider, and for a smaller player like NorthStar, that means differentiating our offering. The pyramid on the slide summarizes our key pillars of differentiation, where we have the best opportunity to influence people's decision. Starting from the bottom left, we've always made it clear that NorthStar is a Canadian brand. That has even more relevance in the current political environment, where there is a strong buy Canadian sentiment. I'll come back to that point in a moment, and on the bottom right, innovative promotions and content.
Our goal is to attract, engage, and entertain customers. In the middle, the first-class customer support. This is about providing a simpler customer journey and being available to delight our players with white glove customer support on an ongoing basis, and at the top, ensuring that our VIP customers receive a premium experience where we continue to engage our most loyal customers. If we're doing all of these things right, we can accelerate the number of customers considered NorthStar and proportion that we retain. The next few slides will expand on each of these points. Here's a great example of an innovative promotion that is the centerpiece of our marketing plan. We ran a Spring Tournament series for the first time in March and April of 2025. It included three online tournaments, a Blackjack, slots, and Parlay tournament.
These are three of the most popular categories, so the objective was to engage a wide spectrum of our players, and the total prize pool was CAD 100,000. More broadly, we've been positioning NorthStar as a leader in the online tournament space. We're using the tagline, "Tournaments live here." The first splash we made was a Blackjack Championship we ran last November. This tournament helped drive the acquisition of new high-value customers, engagement of our existing players, and wagering activity. Our team completed a lot of custom development work and testing to validate the format prior to launch. We believe it was unique in the marketplace, not just in Ontario, but to our knowledge, any licensed operator, and the Spring Tournament series built on the methodology and other things we learned.
In essence, we are productizing our tournament experience to create a new category that will form part of NorthStar's identity in the market. Look for more variations of the online tournament theme in the months to come. Our tournament promotions are proving to make a positive impact across a number of key performance indicators, such as increased active customers, more wagering, increased gross gaming revenue, higher margins, and in many cases, the reactivation of lapsed players. Our knowledge of the Canadian and local market is very important. NorthStar is completely focused on the Canadian market. All of our content, branding, and promotions are designed with specific audience in mind, as our headquarters are located in Toronto. We think being close to our customer voice or the customer voice provides us an advantage compared to our international peers.
Our Insights section has fresh content daily, focused on sports that are more relevant to our players. Our bettors see personalized suggestions driven by our past behaviors. We have events and promotions geared to local events and national ones, such as Canada Day, which is coming up on July 1st. Then there is the advantage of being the Canadian brand. For the benefit of our American listeners, you may not follow Canadian news very closely, but I'm sure you're well aware of the tariff story that has been affecting global markets. One reaction among Canadians has been an increased desire to buy goods and services from domestic suppliers. To be clear, we don't expect people to sign up for NorthStar Bets based on the location of our head office.
We know we must provide top-tier customer experience to earn the loyalty of our players with a premium differentiated product. But our marketing, our content, and even our brand name itself makes no secret to our Canadian roots. If any potential customers are more inclined to try our platform based on the desire to make in Canada options, we're confident our platform will meet or exceed expectations. On the business side, I should note that we do not expect NorthStar to be directly affected by tariffs since we do not import or export goods. We are keeping a close eye and watch on the overall economy as always. Customers are more willing to spend money on entertainment when they have higher discretionary incomes. Now, let me return back to the idea of differentiation for a moment.
The best example of content as a differentiator is what we call Insights, highlighted by daily sports articles produced by our team of in-house writers. We're uniquely positioned because we integrate this type of content directly into our betting environment. Last year, we rolled out a new feature we called Insights 2.0. These enhancements include improved UX, UI design, and homepage redesign, more casino content, including game reviews, live scoreboard integrated with sportsbook, premium teams and player stats, injury and players' news feeds, etc. Our most active Insights, in comparison to non-readers, generate higher average deposits.
In fact, it's nearly three times that of non-readers, 75% higher average casino net gaming revenue, 175% higher sports betting net gaming revenue, and 49% higher combined sports and casino handle, essentially lifting all overall values of our players and giving those high-value players content that enhances their experience. The next slide shows the growth of our VIP category. VIP or high-value players are critically important to our overall performance and growth. These are the most active and loyal users who drive a disproportionate share of our results. Keeping this group happy is a top priority for us. We launched a VIP program in 2022, the year our platform went live. Our focus at that time was to identify the high-value players, make sure we met their expectations through solid customer service. In 2023, we optimized our program. We increased scalability. We added dedicated VIP hosts.
We optimized our bonus cost to balance cash versus free play. In 2024, we relaunched the VIP program under the name NorthStar Elite. We added more VIP hosts. We scaled our operational support, and we enabled us to lower our threshold for the entry into the program, offering more of our players a VIP treatment. This year, the NorthStar Elite program is in full operational scale. Streamlining administrations to support a growing base of automated rewards and enhancing our communication flow has been a priority. The bars on the slide show the dollars of gross gaming revenue generated by our VIP players, and the lines show the number of players. This demonstrates why we focus our acquisition and retention on high-value players based on their importance to the business. We expect further growth of both measures in 2025.
To expand on the importance of retained customers, this slide shows what we call our flywheel model. The higher our player retention rate, the more we drive customer lifetime value, and the higher returns we can drive from our initial investment in acquiring customers. The green portion of the bar shows new customers. In 2022, they were all new because we launched NorthStar Bets in May of that year. The blue portion shows the number of customers we carried over from the previous year. In 2023, 39% of our customer base had been with us for a year, and 61% of the customers were newly added that year and were responsible for the majority of our growth. By 2024, the majority of our customers were returning players. We still grew the business, but we're not dependent on acquiring new customers.
Our goal every year is to build on the customer base we've already established, and this is an important fact because of the added cost and challenge of winning new business. It is expensive. It costs on average CAD 800-CAD 900 for us to acquire a new player. This includes marketing and bonuses, etc., part of the offering, but the cost of reacting a player or reactivating a player already in our system that may have lapsed is only CAD 10-CAD 20, and of course, there's no cost associated with the players who use the platform regularly over a long term. We've invested significantly in marketing technology to help drive engagement of our existing base and maximize retention. I will conclude with a review of our priorities to maintaining and building our growth.
As we plan for the rest of 2025 and into 2000 and beyond, we're focused on four key areas. Now, number one is operational excellence. This starts with customer service, personalized content, simplifying processes, getting the routine things right, and 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 on our spending, making sure all of our investments directly support our growth strategy, and we are enhancing our regulatory compliance functions. Strategic partnerships. We spoke about Playtech being a key technology partner, and they are the best-in-class partners that help power our gaming engine. We also have a partnership with Torstar, one of Canada's largest media companies that distribute our content.
This is the sports insights I discussed earlier, which helps drive customers to our site. We have a dedicated tab in the Toronto Star and Torstar extensive digital properties. We have strategies to accelerate and expand by leveraging the capabilities and connections of these partners and others moving forward. Product innovation will remain a focus. Look for more enhancements through 2025 as we continue to refine and differentiate our product, and enhanced profitability. Incremental gross margin dollars will likely drop to the bottom line, and we expect to see continued narrowing of our losses as we approach breakeven. Today's final slide summarizes our cap table, as you can see. We've recently seen positive momentum in our share price, partly coinciding with the financing that addresses the potential risk for some investors.
We anticipate that the continued execution of our business plan will build further confidence among current and prospective investors. With that, and at this point, I'm happy to hand this back to Trevor, and we can open up for questions. Thanks, everybody.
Thank you, Michael. So if you do have any questions, you can submit them in the Q&A module. We'll kick off with some that have already been submitted. Michael, when you are ready.
I am ready.
All righty. What has changed in your business since the cash injection? Are you increasing spending to accelerate growth?
I mean, essentially, we're not changing the fundamental approach. What the debt funding has supported us with is really enabling us to execute on our growth strategy by strengthening our balance sheet. It just gives us more flexibility to pursue our strategies.
I will say there's no change to our maniacal focus on our costs and executing against our strategies. I will say that, again, it allows us to execute target market and make the investments required to continue to build our business as planned.
Got another one here. Looking at your quarterly revenue pattern, should we assume that Q1 2025 revenue will come in below Q4 2024?
We don't provide forward-looking forecasts, but I can tell you that our business has been growing year- over- year steadily. We had a strong finish to last year, and as I've indicated, we had a good start to the year as well, and we'll be announcing Q1 shortly. I will also say that Q4, as mentioned in the presentation, has always been a seasonally strong quarter for us. In Q1, less so only because some of the demand post the holidays start to diminish.
We've always paid attention to the year-over-year growth versus sequential growth. So stay tuned for that.
Thanks, Michael. Continuing on with some questions related to the numbers here. Why did you see such a dramatic swing in managed services revenue, for example, from CAD 300,000 in Q3 of 2024 to CAD 1.6 million in Q4 2024? Can you repeat or build upon the Q4 result?
So just on that, I mean, as I mentioned, there's variability from quarter to quarter based on betting outcomes, various factors, wagering payouts, etc. But I can tell you that we have been investing heavily. We've been investing continuously in the rest of Canada initiative and the managed services relationship we have with the Abenaki. The trend in managed services has been positive. That was the plan.
And as we continue to invest, and as I want to remind everybody, it's a large portion of the overall business market opportunity at over CAD 5 billion. It will continue to grow, and we will continue to invest in that area because it is the pipeline for the future. As I mentioned earlier, as markets become regulated, the databases and the business that we're building in that jurisdiction will then turn to regulated business in the future, in years to come. And a good example is Alberta, as I mentioned before. So investing in that base business will pay dividends later, and we continue to see that grow over time as we continue to invest in our dot-com, our rest of Canada business.
Makes sense. All right. Here's a question related to the reinstatement and the delay.
Can you explain why you needed to restate your financials and delay the release of results?
Yeah. So this is something that we've been obviously working on for the last couple of weeks, kind of to close this and good news that we're here talking and announcing. The net-net, most of it relates to an accounting treatment of merchant fees that were charged by the payment processors. I will say it's a non-cash impact, and it was adjusted for 2024 and the previous periods. So everything moving forward is in good shape and corrected, and restatement was complete. Again, it's a non-cash event, and fundamentally, it doesn't change the trajectory of the business or the fundamentals of the business. But it is all corrected, and it was merchant fees, and we're in a much better spot now.
Thank you, Michael. I'm going to stop sharing here.
And I'll put the ball back in your court. Looks like there's some good questions here that are primarily around the, let's see here, the growth in the company going forward. So what I'll ask you here, Michael, is what are the catalysts that you see going forward in 2025 and beyond that, shareholders, stakeholders as a whole, and look forward to?
I think just recapping on things, the success of the demand creation activities, including our marketing investments, will continue to drive growth in 2025 and beyond. And we've really refined a lot of those in our operational discipline. So looking forward to that. I will also mention that our recent ongoing product innovations, enhancing our user experience, is a key catalyst for our product itself. And reducing the friction for our players is key, and that comes with product innovation that we're working on.
We'll continue to enhance our differentiation around insights. As I mentioned, Insights 2.0 was launched, and we will continue to innovate around that. The NorthStar Elite program is key for us. That's our VIP program that was really redesigned in 2024, and I think that's going to drive tremendous customer value in 2025 and beyond. We mentioned that we've got a strong growing managed services business. Yes, it will change quarter to quarter, but generally speaking, it's a growth area for us in the rest of Canada as that market matures and then moves to regulated business. And then just in 2025, as we kind of now that we've gone over our fixed cost and our margins covering that, you'll see visibility as that's getting closer and closer to profitability, which is our ultimate goal.
We didn't talk about this specifically in a lot of detail, but the expansion of Alberta is coming up. It's on its way. There's a lot of readiness in 2025 to ensure that we're ready and able to hit this market in 2026. Lots of work from that perspective and tying back to our product. Just finally, what I'll say is just helping the catalyst is the capital injection that happened in 2024 is enabling us to execute on our plans in a diligent way. All of those things look to be a strong 2025 as our business continues to grow and stabilize.
I'll just ask you in particular, I mean, is there a particular metric that you and the board tend to look at as it relates to the value of the shares and the value of the company?
And as that metric continues to grow, one may think that the value of the common shares should continue to grow. Is there some sort of metric that investors should keep an eye on?
Listen, I focus on the metrics of the business. As I've always said, if we build a strong business and fundamentals and foundation, then the rest of it will come. I think managed revenue growth with a very close eye on profitability because they're highly connected and managing overall expenses are the kind of key metrics that I would look at in terms of measurement of business health and trajectory, and that will turn itself into ultimately shareholder value.
Well, thank you, Michael, and thanks for everyone for joining today. Again, NorthStar is traded in Canada on the TSX Venture Exchange, BET, and in the U.S. on the OTCQB under the symbol NSBBF. That concludes today's call.
We will have the recording sent out by email, and it'll also be posted on the website. Any additional questions that have not been addressed, please do email us at northstar@rbmilestone.com. Again, that's northstar@rbmilestone.com. Thanks again. You're now free to disconnect. Have a great day.