Hi everyone, welcome to NorthStar Gaming's third quarter earnings call. This is Trevor Brucato with RBMG, a U.S.-based investor relations firm. NorthStar Gaming Holdings is listed in Canada on the TSX Venture Exchange 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 going through the company's Q3 results, current operations, and upcoming milestones. After Michael's prepared remarks, we'll open up to questions. If you do have any questions, please submit them in the Q&A module. Please note this presentation is being recorded today, December 3rd, 2024, and will be made available on the company's website at northstargaming.ca.
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 the control of the company and should not be construed as a recommendation or solicitation to buy or sell any security. NorthStar's full disclaimer is on their website and can be found in their presentation, as you can see here. Lastly, RBMG is not a registered investment advisor or broker-dealer. For more information, please visit rbmilestone.com. And now it is my pleasure to turn it over to NorthStar's Chair and CEO, Michael Moskowitz. Michael, the stage is yours.
Thank you. Good morning, everyone. We announced our third quarter results last week, Wednesday, November the 27th. Today's presentation will start with a review of Q3 results, followed by a discussion of our key success factors and a preview of our upcoming priorities. First, very quickly, for those of you who don't know NorthStar Gaming or aren't familiar with our company, NorthStar operates an online betting platform. We are the intersection of iGaming and media. Our home market is Ontario, Canada. We operate nationally and are growing very rapidly and gaining market share. Let's begin with some investment highlights. Some of you may have seen this, but we operate in a very large market. It's CAD 8.5 billion of addressable market. The Ontario-regulated market launched in April of 2022, and then the rest of Canada for us opened with NorthStarBets.com platform in November of 2023.
NorthStar has industry-leading gaming content and technology. This is critical to our success. We've got the best-in-class partners powering our platform and user experience. We've got proprietary content and local customization to create a very unique user experience to delight our players and keep them coming back and keeping very highly engaged. From a funding perspective, we have a cornerstone investment from Playtech. Playtech is a technology partner along with a key investor. They're the largest B2B iGaming software company in the world. They chose NorthStar as their partner in the Canadian market, and to date, they've invested over CAD 23 million, plus ongoing marketing support. We've got a very experienced management team with local knowledge and insights targeting the Canadian audience, a diverse background of iGaming and technology and consumer products and media all combined into one.
This is both true for not only the management team, but also the board level. We've got a very differentiated positioning as a premium offering leading to superior customer experience and user economics. For example, our player values are extremely high, and we've got very attractive payback rates on acquired players. We've got a variable cost model, which fully aligns our incentives amongst our vendors and NorthStar. Our business model is highly scalable with significant operating leverage as we grow the business, relatively low investment upfront for really a great tech stack that we support. Our partners are rewarded and aligned. As we grow, they grow, and we've got lots of upside as we pass the break-even point. We'll expand on these investment highlights throughout the presentation. Before getting into our Q3 results, I'd like to expand first on the investment highlights about the addressable market in Canada.
As mentioned previously, the overall Canadian market is estimated to be CAD 8.5 billion by 2026, but let's break it down. Currently, most of our revenues are generated in Ontario. Ontario is estimated to be CAD 3.3 billion by 2026. This year, they're on track to exceed CAD 2.6 billion. But Ontario is only 39% of the population in Canada. The potential market outside of Ontario is actually CAD 5.2 billion. Expecting that Alberta will be the next province to license online betting, we're estimating that somewhere at the end of 2025. It'll likely be a similar approach to Ontario. Both casino and sportsbook will be regulated. It'll be smaller in Ontario, but a very attractive market. They have the youngest average adult age. They've got the highest per capita GDP in Canada, and we're estimating the market value to be CAD 1 billion. That would be the eighth largest jurisdiction in North America.
And then we turn to the rest of Canada. We address this market by providing managed services to NorthStarBets.com, an iGaming site owned and operated by the Abenaki Council of Wolinak. We launched in late 2023. We're still in the early stages of investment and growth by leveraging our existing people and assets. We do see the spillover benefits from the existing media and marketing spend in Ontario that's now flowing into other jurisdictions. We will continue to build our brand outside of Ontario, as well as our database for our customers. And this should give us a head start should additional provinces become regulated in the near future. We believe that NorthStar is very well positioned in our market. As a Canadian-based company, we certainly view all of Canada as our natural market.
We know that 80% of the market is shared amongst the large international brands, but 20% of the market is niche and very local. Yet this is still a very significant slice of the overall pie. It equates to approximately CAD 1.3 billion overall. And just for perspective, if you are 3% of the overall market in Canada when it matures, that would be more than CAD 200 million in terms of business, which is a significant increase from where we are today. So we're excited about the opportunity for growth and expansion here in Canada. Now let's turn to our third quarter financial results. Over the quarter, we had a strong year-over-year growth. This slide shows our key financial metrics: total wagering, gross gaming revenue, revenue, and gross margin. All increased by at least 45% on a year-to-year basis, and in the case of wagering, by nearly 70%.
Total wagers reached CAD 234 million in the third quarter, up by CAD 96 million, or 69%, from Q3 of 2023. That establishes a new record for total wagering in the quarter for NorthStar, and it's the fourth consecutive quarter we've done that. As a reminder, total wagering represents the dollar value of the bets placed by our customers and increases are driven by the number of active customers and their activity level. On a year-to-date basis, total wagering is CAD 677 million. It's an increase of CAD 239 million, or 54%, over the first nine months of 2023, and we're on track to reach a billion-dollar annualized run rate in wagering by the fourth quarter of 2024. Just noteworthy, since NorthStar Bets reached its first billion dollars of wagering early this year after 24 months of operation, soon we expanded to be roughly double that pace.
Revenue, which includes managed services, fees, gross gaming revenue net, bonuses, promotional costs, and free bets, was CAD 6.9 million in the third quarter, which is an increase of CAD 2.1 million, or 45%, over Q3 of 2023. 45% growth is a very good result, although investors may notice that it is below the growth rate of total wagering. Last quarter, we saw the reverse. The revenue grew. The revenue growth outpaced wagering, and this variability is expected. Some quarters will see the favorable payouts, and other quarters are less favorable. Interestingly enough, one of the large U.S. operators recently reported a revenue impact in the hundreds of millions due to the stretch of what they call customer-friendly outcomes in NFL games. This kind of risk will always exist for operators from time to time.
But we do expect to see reduced variability as the business continues to scale since individual bets will have a smaller impact overall. It also tends to even out over a longer period of time. For example, over the last year-to-date basis, revenue grew by 55% in line with total wagers growth, which was 54%, so almost the same. I'll now turn to gross margin, which continues to be very strong. Gross margin of CAD 2.7 million in Q3 was up 63% year-over-year. Year-to-date, gross margin has increased 72% to CAD 8 million. That growth rate has significantly outpaced the growth of both revenue and total wagering over the same period. As the volume of business increases, the fixed portion of our cost of revenues remains relatively flat, allowing margins to increase more quickly.
As a result, gross margin has expanded as a percentage of revenue, reaching 39% in Q3 2024 and 40% year-to-date. Margin expansion is one of the best indicators of our operating leverage. This slide shows our results over the 10 quarters since we launched NorthStar Bets in May of 2022. Looking at total wagers and revenue over the timeframe, I think the first thing that kind of stands out and comes to mind is the steady growth we've delivered. In a competitive market with more than 50 operators and 80 iGaming sites, we've carved out a solid position among independent local operators. The second thing you'll notice is some fluctuation from quarter to quarter. We do experience seasonality in our business, and the patterns are becoming clearer. Our third year in operations really helps with that.
We now have a much stronger forecasting and business planning cadence to support critical investments at critical times of the year. The third quarter tends to be slower, and we believe this is due to the summer months offering the widest variety of entertainment and vacation options for Canadians. The fourth quarter has been seasonally strong for us as people return to their routines and many of the major professional sports leagues begin their seasons. You can see the sequential increase from Q3 to Q4 in both wagering and revenue in 2023, and this gives us confidence in delivering a good finish to 2024. In any case, we've always said that we're focusing on generating year-over-year growth, and on that measure, we continue to deliver. I mentioned operating leverage a moment ago.
We need a certain amount of people and infrastructure in place to operate the base of business, and we can manage much higher volumes with those existing resources. As we build scale and grow revenue and gross margin, our expenses are not increasing as quickly. On a year-to-year basis, we're now covering our overhead costs, and I'll expand on that point as well. This slide compares selected results from the first nine months of 2024 versus the same period in 2023. We've added over CAD 3 million of gross margin year-to-date. The CAD 8 million of gross margin now fully covers our overhead costs, which is primarily general administration expenses. G&A was essentially flat compared to last year. Our earnings release included a calculation for profit or loss before marketing and other expenses. Year-to-date 2024, that figure was positive CAD 600,000, compared to a loss of CAD 3 million in year-to-date 2023.
We increased our marketing spend by CAD 1.6 million in part because we launched our fall ad campaign a bit earlier, and the expenses landed in Q3. As a percentage of revenue, marketing has declined from two-thirds last year to roughly a half this year. Assuming we continue to scale the business, we will increasingly cover marketing expenses as well on an annual basis, and that means break-even and then becoming profitable. I will conclude the review of the results with a recap of some of the achievements in 2024. Number one, we raised CAD 6 million in short-term debt funding from Playtech. Number two, our gross margin is now sufficiently covering our overhead expenses. Number three, we surpassed CAD 1.5 billion of total wagering since our launch in 2022 with rapid growth. And number four, we continue to enhance our products.
We released NorthStar's industry-leading Sports Insights 2.0 vertical in the fall and we're seeing very good traction. And we created a Blackjack Championship tournament that we think can be scalable over the long term as we refine this. But, too, really interesting product enhancements. And then the geographic expansion into the rest of Canada. And we're starting to see meaningful contribution to our results in the rest of Canada, and we already spoke about the larger market opportunity. As you can see, NorthStar has established a strong and solid track record of growth. Over the next several slides, I'll summarize the strategies that have enabled us to achieve these results and position us well for continued success. Product innovation is fundamental to our strategy.
Our approach can be summarized with a phrase, "Constantly better and fundamentally different." We focus on small-scale, continuous improvements that enhance the overall experience and customer satisfaction. Better could mean enhanced quality, reliability, speed, simplicity, and different means something our customers value that sets us apart from the competitors. We aren't trying to match everything offered by the large international players, but there are places that we can really compete and be very unique. We have always positioned NorthStar Bets as a premium online betting platform that delivers a superior customer experience. Let's focus on several aspects. Number one is industry-leading content and technology. Number two is simplifying the customer experience and making sure it's effortless and seamless for our players, and number three is targeting the most valuable players that we have.
As for results, they can be seen through some of our key performance indicators, like our accelerated casino revenue, which increased 58% year-to-date, our steady growth in active players, which increased 32% year-over-year, and our highly estimated 12-month player value, which also increased 22% year-to-date. In addition, although we don't report this, we are seeing the highest customer retention rates since launch. As our base grows, retention becomes a key strategy for us moving forward. An important success factor has been the effectiveness of our marketing. Our goal is to disrupt and innovate locally and focus on its marketing strategies to local players. In recent months, our strategy has been to focus marketing campaigns on a high-value casino segment, things like progressive slots and Blackjack. We've emphasized our first-class customer service, unique selling proposition paired with new products.
We focus our efforts on sports opportunities that yield high-value hybrid players through our Sports Insights 2.0 content revamp. We're focused on accelerating our app acquisition to drive customer retention. We've been targeting our growing customer base with CRM activities such as proactive outreaches on promotions, which target customers specifically. And as a result, our new player values and retentions are all at an all-time high. An important differentiator for us is our content. Recalling that at the beginning of this presentation, I said that NorthStar is spearheading the intersection of iGaming and media. The best example is our content vertical, Sports Insights, integrated directly into our betting environment, which is unique for our space, produced in-house by our team of writers. And throughout 2024, we've rolled out new features we call Sports Insights 2.0, announced in October, and it's available across all of our platforms now.
Enhancements include improved UX and UI design, homepage redesign, live scoreboards and integrated into our sports book, more casino content, including game reviews, premium team and player stats, injury and player news feeds. And our most active player insight readers, in comparison to the non-readers, generate higher VIP penetration, higher average deposits, higher average casino turnover, and higher sports betting turnover, as you can see. This lifts the overall value of our players. I'll continue today's presentation with a review of our priorities going forward to maintain and accelerate our growth, and then we'll open up for questions. As we look ahead to 2025, we are focused on four key areas: operational excellence. This starts with customer service and customer-first approach, personalized content, contact, simplifying processes, getting the routine things right, giving players a reason to keep on coming back.
This year, we've introduced features and services tied to our NorthStar Elite program aimed at our most active and valuable players. Operational excellence also includes being disciplined in our spending, making sure that all of our investments directly support our growth strategy and strategic partnerships. We spoke about Playtech being a key partner, and they're one of the best-in-class partners that you could have, and really helping to power our gaming engine. We also have a partnership with Torstar, one of Canada's largest media companies, to distribute content. This is the Sports Insights I discussed earlier and helps to drive our customers to our site and our pipeline, and we have strategies to accelerate our expansion by leveraging the capabilities and connections with these partners and more. Product innovation, we will remain focused. Look for more enhancements in 2025 as we continue to automate our platform.
Expansion within the Canadian market represents a significant growth opportunity in Alberta and across the country. Finally, this slide summarizes our cap table. We've got a fairly diversified shareholder base. Directors and senior officers are large holders, two large seed investors, plus our technology partner, Playtech, which are represented on the board. While I'll say that the share price does not necessarily reflect the progress of our activities and the progress that we've made, we anticipate the value will become increasingly compelling as we continue to execute against our objectives. At this point, I'd like to take any questions. Trevor, could you remind everybody around the process to submit questions before that happens? Thank you.
Thank you, Michael. We will kick off the Q&A portion of the webinar.
If you do have a question, you can submit them in the Q&A module at the bottom of the Zoom app or web platform. For the first question here, let's kick off with this: What is NorthStar's continued growth in revenues and growth margins attributed to?
There's a lot of factors, but I mean, essentially, the growth is attributed to our efficiency of marketing, our segmentation, the ability that we've been in business now for three years, and we understand our players and our customers. I would say that also we are extremely close to them via our customer care, our direct touch with those players on an ongoing basis.
And I think the second part to that, after marketing and care, is really the enhancements of our product, our ability to drive players to our product and keep them based on the speed, agility, user interface, integration of our content has really been enhanced in 2024. And I'll say one last thing is just now that we're a little bit more mature, the efficiency of our business planning and our allocation of capital has really helped to accelerate our business.
Thanks, Michael. And with the advancements on the product front, a question here speaks to that. With the somewhat recent improvements to the app, did you find engagement with Sports Insights to be an improvement, I guess, in that rollout of 2.0?
Yeah, we really did. I think I mentioned it back in a slide previous, but as I mentioned, we saw VIP penetration increase.
We've seen deposits increase over the base. So we compare those Sports Insights readers to non-readers. We saw average casino turnover increase as well. Interestingly enough, we're starting to add casino content to insight sections. So we're really getting those crossover players increase, which are probably our most valuable players. And even, of course, sports betting turnover was up by 138%. So we compare that to our base, and we're seeing really good traction on Sports Insights. And I think it's all a testament to the team and the great work that they've done to pull that together and launch 2.0, which is essentially a year in the making. And frankly, it was based on a lot of customer feedback that we had received both from our customer care and all the focus groups that we had.
The team did a great job pulling that together and making it very unique to NorthStar.
Michael, would you say the marketing strategy for, say, Alberta, would that be similar to the successful strategy that you've rolled out in Ontario?
I think there's two elements of that. To answer your question, once the business becomes regulated, it's going to be quite similar. Many of the tools that we leverage in Ontario and the learnings, we can replicate that in Alberta. Obviously, being very local, being very focused on the messaging to the Albertans, that will be different. But we have tools to do that with Insights. But so I think from a regulated perspective, we can leverage many of the tools. The answer is yes. In the dot-com environment today, there are some uniquenesses and differences as it relates to marketing in that jurisdiction.
And as I said, we're still early in the game and learning those, but we're seeing nice progress and increasing momentum in Alberta and the rest of Canada.
Appreciate that, Michael. And what would you say the options are that you're considering for raising additional capital to fund near-term and long-term growth?
Yeah. Good question. So I mean, as you are aware, just to kind of step back, we've got two promissory notes to Playtech, 8% interest, paid in kind. We are definitely looking to raise additional capital. It's a priority to fuel our growth. You can see that we need to fuel that and diligently pursuing the financing or looking at options to raise capital to fund this business into 2025. And hope to have more information around that very shortly, but we are well aware.
I will tell you that we've kept all financing options open, and we are always looking at the best interests of our shareholders to ensure that the business can continue to accelerate. I will close with one other comment that, of course, as the business continues to scale, we're realizing the operating leverage that I spoke about before. We expect the cash usage to decrease nicely over the coming years. So I'll leave you with that, but definitely top of mind and something we're absolutely focused on to fuel our good business here.
You say just at this point, I mean, you say that you're open to all different options. I'm sure shareholders and prospective shareholders are looking at where you are from a valuation perspective today, looking at the continued growth from a fundamental standpoint and how this business would be funded.
Are you leaning towards a non-dilutive type of initiative versus a, say, vanilla equity type of strategy here?
Yeah, I think, like I said, the answer is yes. That's what we are leaning towards, keeping all options open to us, but that is what we are leaning towards as our priority. And so hopefully, we'll have some discussions around that very shortly. But that would be our preference.
Gotcha. So with additional capital allocated towards the business, one would assume that that should fuel continued growth here, not just on a revenue front and on your margins, but possibly expand the footprint and brand, which should hopefully result into further activity on the open market and allow you guys to expand away from, say, that 5 million type of market cap. You guys are kicking butt taking names.
So hopefully, as you guys continue to allocate your capital here, the market should recognize that, and there should be, if you want to call it, more of a recovery here from a capital market standpoint. Yeah. I mean, yeah. Yeah. And I think something that will be helpful for investors to know is really what is your growth expectation for 2025, maybe talking a little bit about milestones on a timeline basis.
Yeah. I think that generally, as I mentioned before, of course, the price doesn't necessarily reflect the progress that we've made. And we continue to be maniacally focused on our operation, delivering progress as we've been doing. That's what we do day in, day out. I think that as it relates to kind of forward-looking, we're coming off of kind of the last month of 2024. It's typically a seasonally strong quarter.
I think 2025 is, although we don't give guidance, we anticipate it to be strong. Our players, our value of our players, our efficiency of our marketing continues to accelerate. I expect that to continue into 2025. This business isn't about kind of a light switch where you just turn it on, you turn it off. It's about the building blocks to get to a place where you start to turn the corner. And we've been in that building block mode for some time now. So it's not a typical business where you're in and out. It doesn't work like that. You have to constantly invest. And we've seen significant improvement across all our fundamentals. As I mentioned, our player values, investment into our business, our design of our product, our partnerships with third parties. It's pretty remarkable.
And now we're turning our attention to retention, or we have been, and we're seeing good results from that because our player base is actually getting quite large. We do expect to see ongoing operational leverage as revenue outpaces expenses. I think I mentioned that in Q3. We'll see that in the remainder of the year and into 2025. That'll take us even closer to that break-even point. We're kind of one step now closer with the covering of our SG&A and now starting to move into that kind of marketing territory. And as I mentioned in the earnings release, the gross margin is increasing as well. So we do see that leverage coming from our platform. We have a certain number of employees and specialists that we need to kind of launch the business, but then you can get scale from that.
So as long as you're maintaining your cost structure, which we will do, you start to see that acceleration towards that break-even point. And then marketing becomes just the variable. And as it becomes more efficient, you're spending less on cost per acquisition. So I'm very excited about 2025. I think we've got a very strong base of business that we're building upon, and all the learnings will help to support that accelerated growth going into next year.
Thanks, Michael. And I mean, on the blackjack tournament front, you guys recently rolled that out, the attention to retention, rolling out new products, new games. In your mind, would you say that that blackjack tournament was successful by your measure?
Yeah, I think it was successful. We haven't published numbers kind of just, and it's just ended. So most of the postmortem is being done now.
But I will tell you two things. One is we had very strong sign-ups on it, and the players that were playing were extremely high value compared to our regular base of players. So really excited about that. So from my perspective, it ties back to two things. One is we had nice acquisitions coming from it. We had strong player values, and it absolutely acted as a strong retention tool moving forward. And a lot of the mechanics around that program were difficult to orchestrate. Now we've got the mechanics completed and the technology done. Now it can be replicated. So very happy with the results.
Thank you, Michael. And thanks to everybody for joining today. Again, NorthStar trades in Canada under the symbol BET and in the U.S. under the symbol NSBBF.
Today's webinar recording will be sent to all registrants and will also be made available on the company's website at northstargaming.ca. If you have any questions that have not been addressed today, please do email us at northstar@rbmilestone.com. Again, that's northstar@rbmilestone.com. Thanks again. That concludes today's webinar. Hope you all have a great rest of your day.