PBTHFPBTHFOTC
Loading
Operator: Thank you for standing by, and welcome to the PointsBet Holdings Limited Q2 FY '25 Appendix 4C Investor Presentation Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Sam Swanell, Group CEO. Please go ahead.
Samuel Swanell: Good morning, and thank you for joining the PointsBet Holdings Limited Q2 FY '25 business update. I'm Sam Swanell and joining me on the call today is our Group CFO, Alister Lui. Please note the Safe Harbor statement. All the numbers referred to are unaudited and in Australian dollars, unless otherwise stated. Turning to Slide 3. While full H1 results will be released next month, we are thrilled to report that we've improved our H1 EBITDA position by $10 million, compared to the PCP, coming in at a loss of $3.3 million. This in turn, means the company has passed a very important milestone, having now delivered full year EBITDA profit for calendar year 2024 of $8.2 million. These results have been delivered on the back of revenue growth, and improvement in our gross profit efficiency. As we have stated consistently over recent quarters, our focus is not just on delivering revenue, but also ensuring it is earned efficiently from a gross profit perspective. H1 gross profit grew 11% versus the PCP, and by 17% in calendar year '24, versus calendar year '23. Total Q2 group net win was $69.9 million, and was negatively impacted by circa $3.9 million, due to some very customer-friendly results in Canada across NFL and Slots. This NFL season has been the most customer-friendly, since the launch of regulated online sports betting, with the highest rates of favorites winning in nearly 20 years. The group had over 292.6k rolling 12-month cash actives at 31 December, a new record. Our growth in the relative contribution of our mass market recreational segments in both Australia and Canada has been strong, and this is delivering a more diversified a more sustainable revenue base, and also expanding gross profit margins. Turning to Slide 4, to discuss the Australian trading business. Australia continued to deliver on our strategy to align growth in quality actives with a sustainable growth in net win and gross profit. Net win for Q2 was up 2% versus the PCP to $60.5 million, and gross profit was up 16% versus the PCP to $28.9 million, both our new Q2 records for the Australian business, and we have now delivered record PCP, net win and gross profit for each of the last four quarters. Total Australian cash actives reached 235.1k, and was up 8% versus the PCP. In the PCP, we reported that gross and net win margins were markedly lower, because of significant turnover from the high-staking client cohort, performing below expected yields. This explains the large negative PCP comparison for turnover, and positive comparison in gross and net win margins. All the Q2, FY '25 metrics, you can see on this table performed in line with, or ahead of consistent benchmarks established over the last 12 months. The absence of this low-margin turnover was positive for gross profit for the quarter, and was a significant factor in gross profit growth, being substantially above net win growth. Stated another way, in the PCP, we had turnover and net win that delivered negative gross profit. Turning to Slide 5. Our multiyear view shows the upward trend in both net win and gross profit. Turnover has performed in a consistent band excluding spikes, caused by high staking client behavior in Q2, FY '23 and Q2, FY '24. As just mentioned, net win and gross profit have delivered record PCP results, for each of the last four quarters. Importantly, these impressive results have been achieved despite an increase in the Victorian point of consumption tax on July 1, 2024. The aggregate gross profit across these last four quarters, being the 12 months to 31 December '24, was $117.6 million an increase of 13.5% on the prior 12-month period, being the 12 months to 31 December '23. This reflects the growth of the Australian business. We believe our gross profit margins are industry-leading in the Australian market. And continue to grow at the gross profit level, is at the core of our strategy. Gross profit efficiency for Q2 includes a blend of peak volumes, across high-cost Australian Spring Carnival racing product, and lower-cost international sports such as NBA and NFL, which are more efficient at a gross profit level. It should be noted that gross profit margins are historically higher in Q3 and Q4, reflecting the relative cost structures of the racing and sports calendar. Turning to Slide 6. Net win margin was 10.2%, marking the fourth consecutive quarter to be at or exceeding 10%. Over time, net win margin improvements have been driven by stable racing margins, above 12% and an improving sports margin. If not for some punter-friendly NFL results in the most recent quarter, we can see that sports net margins have been consistently above 7.5% for the last 12 months. Despite net win from NFL turning negative for the quarter, overall net win from NFL, NBA and college football and basketball increased over 100%, compared to the PCP. PointsBet Australia is well-positioned, to take advantage of the ever-growing demand for wagering on premium sport, because of our sports-first brand positioning and proprietary technology, including Odds Factory and tokenized generosity. The continued development of our tokenized generosity capability, is particularly important in highly competitive trading periods like the Spring Racing Carnival, and the peak of the NBA and NFL seasons, which play out in Q2. Generosity spend efficiency for Q2 improved to 25% of gross win, versus 32% in the PCP. Generosity spend to non-genuine clients reduced by 50.4%, versus the PCP. This follows the reduction in Q1 of 27%, compared to Q1, FY '24. Turning to Slide 7. A core focus of our investment in technology, Odds Factory, generosity and brand, is to compete at the leading edge of sports multis, which are the highest growth category of the Australian online wagering market, in the half we achieved a 15% growth in actives, and 62% growth in net win from sports multis. Growth in sport multi actives, bet count and net win was strongest in mass-market cohorts that bet in small stake sizes averaging $17 per multi-bet. Reflecting our ability to release new products from our Odds Factory capability, our new 5 for 25 same-game multi-product was a key stimulant for Q2 growth in actives, and same game multi-bet per active, to mass-market cohorts that bet in small stake sizes. The trend of greater growth amongst lower staking segments, is consistent across the Australian business, with net win growth being driven by mass-market segments and delivering a more sustainable revenue base. Performance in the larger betting cohort in H1 of FY '25, was influenced by multiple factors, including macroeconomic factors, our continued investment in responsible gambling interventions, and our continued investment in high standards of enhanced customer due diligence, anti-money laundering and fraud safeguards. PointsBet continues to invest in high compliance standards, in full knowledge that the largest stake in client net win, we choose to close for compliance reasons, often becomes available for smaller wagering operators that, do not focus on their compliance obligations and as such, operate at materially lower standards from larger operators. In Q2, FY '25, PointsBet paid $29.1 million in GST, point of consumption tax and product fees to Australian governments, and racing and sports bodies. This represented 48.1% of our net win for the quarter. PointsBet remains active in encouraging the wagering industry, governments, sports bodies and media to promptly resolve, sustainable and pragmatic advertising reform. We've consistently argued that this reform should lean into the very real potential of digital and social media platforms to deliver sign in, age, dating, opt in or out and volume and frequency caps to consenting adults. The implementation of the federal government's requirement, to limit access to social media for Australians over the age of 16 years, is a step towards a sustainable framework, for categories that can only serve us adults like wagering. Turning to Slide 8 to discuss the Canadian trading business. We delivered strong quarterly and half-yearly turnover growth versus the PCP, across both sports and iGaming, which translated into H1 total net win growth of 14%, versus the PCP. As mentioned earlier, Canada Q2 results were negatively affected by customer-friendly results impacting both sports and casino. We estimate the cost of this negative variance, is approximately $3.9 million in net win. On an adjusted basis, Q2 net win PCP growth would have been circa 28% versus negative 10% reported, and we will talk more to this shortly. 12-month rolling cash active clients grew strongly in the quarter to 57.4k up 49% on the PCP. On the iGaming side, we continue to see positive shifts in the composition of our iGaming customer base, and the overall mix of game play with the mix shifting towards higher-margin Slots games. Pleasingly, we saw a further increase of in-play turnover as a percentage of total turnover, being 70% versus 65% in the PCP, as we continue to improve and leverage our Odds Factory capabilities. Turning to Slide 9. As set out on this slide, we estimate that the customer-friendly results experienced in Q2 across the NFL, suppressed our sports net win by approximately $2.9 million. In addition, we estimate that slots-based casino games negative variance, impacted net win for the quarter, by a further $1 million. Adjusting both the PCP and this quarter's net win result to remove variants, a normalized growth rate of 28% is delivered. Structural margin on Sportsbook remained strong, with Q2 expected gross margin consistent with previous quarters 8% to 9%. While the higher than expected customer payouts on slots games were a drag on our results in the quarter, the higher mix of slots activity that we are seeing, is expected to deliver improved performance in H2 and beyond. Turning to Slide 10. Last quarter, we shared an update on our plans, to accelerate the growth of our iGaming business. We continue to make significant progress on the second critical step in Q2, expanding our content portfolio. We launched an additional three content providers in the quarter, which brings us to six new content provider launches in H1. We expanded our slate of games, by an additional 40% in the quarter, including some of the top-performing games and titles in the market. We now have well over 600 games live in the Ontario market. While our efforts to release new content will continue into H2, our focus now turns to the next phase of our acceleration journey, creating essential commercial tools designed to deliver stronger results. These tools will enable us to achieve broader margins, reduce churn and enhance customer lifetime values. We were slightly behind where we wanted to be with our casino generosity and loyalty initiatives as we finish H1, but look forward to accelerating our momentum in H2. I'll now hand to Al Lui, to walk through our quarterly cash flow statement.
Alister Lui: Thank you, Sam. Turning to Slide 11. On 31 December 2024, the company held $15.3 million in statutory corporate cash. Net cash flows from operating activities, excluding movement in player cash accounts, was $2.7 million. Total cash receipts from customers of $69.9 million, including $63.6 million from Sportsbook and $6.3 million from iGaming. Operating cash outflows during the quarter included cost of sales of $27 million, sales and marketing of $21.3 million, representing the company's continued investment into the peak acquisition period in Australian and Canada, as reflected in the record group cash active number of $292.6k at the end of December. Non-capitalized staff costs of $9.7 million, which returned to normalized levels post payment of FY '24, staff performance bonus payments and administration, corporate costs and GST paid of $9.2 million. Net cash outflows from investing activities were $4.1 million, which as per our operating staff cost payments has returned to normalized levels, and reflect our continued investment in product and technology, to power our top-tier product both in Australia and Canada. Net cash flows will be positive in H2, in line with seasonally strongest EBITDA performance, and our continued momentum. The company remains well capitalized as we enter this phase of positive cash flow. I'll now hand it back to Sam.
Samuel Swanell: Thanks, Al. Finishing with Slide 12. We have provided today further insights into what has driven PointsBet's strong transition to group profitability. Our client base of genuine clients is growing, and our revenue base is also growing, in particular in the mass market recreational segments. We continue to invest in technology and marketing to drive our growth, and we have logical and sustainable strategies in both Australia and Canada that play, to the strengths the company has built. We are earning our revenue with ever-increasing efficiency, and this is delivering gross profit margin growth. Our strong H1 EBITDA result, whereby we improved on the PCP, by $10 million illustrates that we are on track, to deliver our FY '25 EBITDA guidance, but we are narrowing the range to $11 million to $14 million. We are now delivering positive EBITDA margin, and will continue to maximize our operating leverage and improved gross profit efficiency, to strongly expand this margin. These results have been delivered despite some customer-friendly outcomes, and some softness in the VIP cohort, and these factors have contributed to us updating our revenue guidance, to $260 million to $270 million. Finally, having delivered full calendar year group EBITDA profitability for the first time in our history, and as we enter ongoing positive cash flow generation, PointsBet strategic position in Australia, Canada and globally continues to grow. Our team, our technology and our regulated markets experience are valuable, and mean we can continue to deliver shareholder value. We'll now take questions.
Operator: [Operator Instructions] Your first question comes from Kai Erman from Jefferies. Please go ahead.
Kai Erman: Hi Sam and Alister, thank you for taking my questions. Just like to dig into the EBITDA and revenue guidance a little bit. If we take the EBITDA guidance reduction is being explained, by the unfavorable results in Canada, could you please run through how we get a significantly larger decline in revenue? And then that - what that implies for margins, not just for FY '25, but how you're thinking about margins and EBITDA growth on a longer-term basis?
Samuel Swanell: Yeah, good day Kai. Look, I think the overall story that we're - the audience should take away, is that gross profit is largely on track. The difference is just the way we're getting to that gross profit figure. So revenue is off a little bit, some negative variance in H1, some VIP softness, casino a little bit behind where we expected it to be from a product perspective right at the moment. But it's nearly all been made up for in that improved gross profit efficiency, and so Australia is a great case study. We keep telling people don't just look at net win. Most of the audience has now moved on from looking at turnover, which is largely irrelevant. But don't just look at net win. It's how you earn that network and how efficient you in that net win. So look at our gross profit growth rates, and that's a reflection of how the Australian business is growing. So our gross profit profile is largely unchanged. It's just being delivered in a different way with slightly less revenue, but with a greater than expected gross profit efficiency. So as it relates to EBITDA margins going forward, no change no change. We're now delivering positive EBITDA margins in calendar year '24. We'll keep improving, and we'll keep that cost base hard now solid. We won't see a cost blow out, and we'll keep improving those gross profit margins. So those EBITDA margins continue to expand. So yes, I think that's the main thing to look at when updating models and the like is, how we get to the gross profit line has changed a bit, but not much has changed from below that gross profit line.
Kai Erman: Perfect. That makes a lot of sense, Sam. And in terms of the cost out and the margin uplift you're talking to, could you please run through what are sort of the drivers there, where that's the improvement from a generosity perspective, some of the areas you might be taking cost out of the business?
Samuel Swanell: Yes. Well, again, things like generosity happen above the gross profit line. They impact your net win number, but they also do impact your gross profit efficiency. So if you're talking about costs out, we're not taking costs out. We want to continue to investing in technology and marketing. There might be some slight improvements. There might be some slight savings that we don't find a $5 million, to spend that we otherwise plan to spend. But really as I said before, gross profit is largely what we expected it to be. And thus, EBITDA and EBITDA margins are what we expect it to be. We don't need to pull out costs. We just need to hold costs relatively solid.
Kai Erman: Perfect. Thanks, Sam. I'll pass it on there.
Operator: Thank you. Your next question comes from Rohan Sundram with MST Financial. Please go ahead.
Rohan Sundram: Thanks. And hi Sam and Al. Questions have been answered actually, but just one from me around the federal government's pending regulation changes seems to have going to be quiet. Sam, what are your latest thoughts on this? And are you anticipating anything in the very near term around this?
Samuel Swanell: It probably - it does seem less likely now that anything is going to happen in the shorter term, let's call it, pre-election, post-election type considerations. We continue to - and so does the industry continue to put forward logical solutions. I think we called out again today in our briefing, obviously, that there are logical solutions there. So I think the positive is, is that some of the rumored outcomes that we were hearing about last year. Have been put on hold, because of logical and reasonable feedback. And so, we'd like it cleared up, full stop. We think there's a logical solution we want it dealt with. But I think it's a good recognition that some of that feedback has been listened to, and that there are appropriate solutions to be found that can satisfy our needs.
Rohan Sundram: Great. Thanks, Sam.
Operator: Thank you. [Operator Instructions] Your next question comes from Rohan Gallagher with Jarden Group. Please go ahead.
Rohan Gallagher: Sam and Al, hi good morning. Good morning, everybody. A couple of questions, if I may. Just on sports, can you just run through your major sports exposures? And then how prospective changes to AFL product fees may adversely impact profitability for the industry and for yourselves?
Samuel Swanell: Yes, it'll be slightly different at a group level to just an Australia level. But broadly speaking, AFL is one of the biggest ones. NBA would be at the top, your AFLs, your NRLs, your NFLs, soccer, tennis, because they're always on global sports where there's plenty of content going around. Look, I'd say it's very early days from some of those rumored press articles. There's lots of consultation going on. I think the racing industry is a really good example, of the dynamics that play and the way cost of a certain product can dictate, where turnover goes on a certain product. We are rational. And PointsBet is the perfect example of a company that is customizing its strategy around the cost modeling an Australian market. So look, a long, long way to go. I'd be surprised if there's a really material adverse outcome for lots of logical data that, we'll be able to provide to the AFL.
Rohan Gallagher: Fantastic. And with respect to Canada, obviously, you had some friendly customer outcomes. You were looking at Canada hitting breakeven, EBITDA breakeven point in FY '25 run rate or otherwise? Has that view changed? Or where do you see the ongoing growth in the Ontario market?
Samuel Swanell: Yes. So Rohan, what we spoke about was that we said that FY '25, would not be EBITDA breakeven for the full year, but we said that towards the end of the financial year, we'd expect some months to be tipping over. We're still hopeful that can be the case. We think it's going to be a fine run thing, but it's definitely possible. So we are - that iGaming momentum that I talk about a lot is the swing factor. So yes, still on track to have our first month of EBITDA positivity late this financial year, or early next financial year, and no change to our expectation that FY '26, can be that first year where we wash our face, or move into profitability.
Rohan Gallagher: And just whilst we're in that part of the world, obviously, a lot going on over there. But any update on the progress in relation to other provinces, such as Alberta and to a lesser degree, B.C. opening in calendar year '25, '26, respectively, please?
Samuel Swanell: Yes, yes. So not a whole lot of chatter waiting for governments to come back, and resume their deliberations and sessions and the like. But the expectation is still clearly NFL season this year. So you talk about September this year, or around that time line. And that's an important point, because Alberta will just add a material amount to the size of that market. And it won't come with a whole lot of additional costs, very little additional cost. So in terms of helping Canada power towards that EBITDA profitability that, additional province coming online around that time will be very helpful.
Rohan Gallagher: And finally Sam, obviously, you know my views on quarter-on-quarter, it sort of moves around depending on big whales, customer-friendly outcomes, et cetera. You recently put out very good long-term aspirations in terms of where you want to be over the medium term. Are there any changes to those prospective forecasts moving towards things like revenues of $400 million, margins 20%, et cetera?
Samuel Swanell: Yes. Just on that first point you made, Rohan, which is really important, because I think yes I want everyone to be clear on this, that we put a slide in there that showed Slide 5 that shows very consistently, the upward movement on net win and gross profit. It's unfortunate that this quarter last year had a huge amount of turnover, which didn't make us any money. And has sort of interrupted what is a very clear, and easy to understand journey. So if you just, again, focus on net win, you focused on the gross margins and net win margins, they're very consistent. Slide 5 and 6 in the pack, to very clearly show that our performance over the last four quarters, the last 12 months is very consistent. Net win margins of over 10%, net win going up, gross profit going up by even more, because we're earning that net win even more efficiently. Turnover noise is just - a noise. There was a whole lot of turnover in that quarter last year, but didn't amount to anything and actually cost us gross profit. So it's not being there is a positive. And yes, it makes no change to our longer-term, medium-term goals. We've said it. The way we're getting there is slightly different, to how we thought we would get there in FY '25, from when we started the year, but our gross profit is on track and our EBITDA is on track.
Rohan Gallagher: Thank you gentlemen. I'll hand it over.
Operator: Thank you. Your next question comes from Phil Chippindale with Ord Minnett. Please go ahead.
Phil Chippindale: Hi gens, thanks for your time. Just firstly, Sam, I know you're talking about focusing on the gross profit line, but I do want to talk to net win revenue, because you have lowered your guidance by $20 million. So noting your comments that GP is largely unchanged. But can you just talk to, was this a change in strategy since you put out the previous guidance? Or was it a function of the results and softness in VIP market, et cetera, particularly in Australia, I'm talking about there that's caused that revenue guidance decrease?
Samuel Swanell: Yes. No, it's not a change in strategy. We tried to give you the elements that have resulted in that. Obviously, the negative variance, $4 million in the first half, is the clearest of that. Some VIP softness in both jurisdictions in Australia, partially due to macroeconomic factors, but also the step-up in compliance at all the large wagering operators are doing. And in Canada, there's a little bit of VIP negatively softness as well related to casino, and we haven't quite made the ground that we wanted to. So yes, that's the reason. We haven't changed strategy. And I acknowledge, I clearly acknowledge that the revenue downgrade. But I'd rather be downgrading revenue, and keeping gross profit relatively stable, versus upgrading revenue and dropping gross profit, you know what I mean? So the gross profit line is obviously more important, and it's good that we've been able to largely - we expect to largely hold that.
Phil Chippindale: Yes, understood. Can you just talk to maybe sort of the split in marketing expenses, for each of Australia and Canada? Noting that if you're holding GP and your EBITDA is, you push it down slightly towards the lower end, but if you've got a pretty good performing sort of second half of the year? Just trying to understand, how we should be thinking about marketing expenses split between the two? Sorry guys, are you there?
Operator: This is the conference operator. Please continue to hold and the conference will resume shortly. [Technical Difficulty] Sorry, Phil, if you could just repeat your previous question?
Phil Chippindale: Sure. I was just asking about the marketing expenses, Sam. Maybe you can just talk to the sort of split between the Australian and Canadian operations. I can't see a split there in the materials in the quarter?
Samuel Swanell: Yes. We haven't disclosed that. And obviously, it's a bit hard, we always to do this quarterly and then we come out with the H. I'd rather save some stuff so that we - get everything under the right presentation. But broadly speaking, we've said previously feel that both Australia and Canada will spend in line with what they spent last year. It's not our intention again to - cut costs. There might be, as I said earlier to another question, there might be a saving of $1 million or $2 million there. But you can largely reflects that Canada and Australia are spending very similar amounts, and to a very similar profile to what they did last year. So if you look at our H1, for both of them last year, it's going to be very similar.
Phil Chippindale: Okay. Just last one from me. Just on the guidance slide, you've removed the comment around cash flow for the year. So I'm just wondering what you can say about expectations for the closing cash balance at the end of FY '25, please?
Samuel Swanell: Yes. Yes. So we finished the half at $15.3 million. We've largely we've said that cash flow obviously profile is very similar to EBITDA. I mean, if you take the midpoint of our guidance, and our H1 result, it talks to us making, say, 15.8% of EBITDA in H2, right? So a big step up from H1 and cash will largely have the same similar profile in terms of stepping up. So look, given the updated guidance, we probably fall a bit short of what we said was cash flow neutral for the full year, which would have mean we finished the financial year at around $28 million. It will be a bit short of that, but not far off it.
Phil Chippindale: Okay. Thanks guys. I'll jump back in the queue.
Operator: Thank you. There are no further questions at this time, and that does conclude our conference for today. Thank you for participating. You may now disconnect.