Pointsbet Holdings Ltd

ASX:PBH

Earnings Call Analysis

Earnings Call Transcript 2024-Q4

[Operator]

Thank you for standing by, and welcome to the PointsBet Holdings Limited Q4 FY '24 Appendix 4C Investor Presentation Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Sam Swanell, Group CEO. Please go ahead.

[Samuel Swanell, executive]

Good morning, and thank you for joining the PointsBet Holdings Limited Q4 FY '24 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. Following the successful final completion of the sale of the U.S. business to Fanatics spreading and Gaming in April, the second capital return of $126.9 million, representing $0.39 per share was completed on the 16th of May 2024. The Board is pleased to have returned a total of $442.4 million, representing $1.39 per share to shareholders across the first and second capital returns. As previously announced, the company applied for and received a class ruling from the ATO, confirming that for Australian tax residents, no part of the first or second capital returns will be accessible as a dividend. Further details of the class ruling can be found on the Investors section of the company's website.

As previously noted, the completion of the sale of the U.S. business involved a complex technical and operational migration, separation and reorganization of the business over a 10-month period. I would like to again acknowledge the entire PointsBet team for their significant efforts, the ability to continue to deliver outstanding results while restructuring the business for future growth and success is a true testament to their commitment and skill.

Before I speak to the Q4 trading results, I would like to provide some comments on the full year results. In May, we upgraded our full year FY '24 normalized EBITDA guidance to be a loss of between $4 million and $6 million. I'm very pleased to note that normalized EBITDA is now expected to be a loss of $1.8 million, which is a $2.2 million improvement on the upper end of our previous guidance and represents a $47.2 million improvement from the loss of $49 million in FY '23.

On Slide 4, we can see that this outstanding result has been driven by record full year group net win of $267.1 million, up 16% on FY '23. Our improved efficiency and productivity has also been a critical catalyst. We continue to invest for further growth, in particular, in our core technology and product capabilities and through our strategic marketing investment. This is driving our market share growth in Australia and Canada and setting the company up for further success in FY '25 and beyond.

We will release our audited FY '24 full year results in late August, at which point, further details will be provided. In Q4 FY '24, the group delivered net win of $68.4 million, up 12% on the PCP. Sports betting net win was $64.7 million, up 12% on the PCP. While gaming net win contributed $3.8 million, up 4% on the PCP. During the quarter, iGaming performance was impacted by some VIP negative variance. We also increased the amount of casino promotional spending to reengage our base after completing the Strive migration. Through partnering with Strive, we will be able to bring our customers a broader selection of casino games and enhanced overall experience.

We expect this new offering will accelerate the growth of our iGaming business in FY '25, helping drive a more favorable game mix over time with higher gross margins along with enhanced retention and customer lifetime values. We are also thrilled to report that the company reported a Q4 net cash flow normalized for the U.S. business sale-related items of positive $7.1 million, a record quarterly cash flow performance. Post capital returns, the company had $28.1 million of corporate cash as at 30 June 2024. The company remains well capitalized to invest in further growth and to execute ongoing operational and strategic plans.

Turning to Slide 5 to discuss the Australian trading business. The Australian business had another strong quarter. Net win improved 8% versus the PCP, and we continue to gain market share. Having now cycled out of PCP periods where turnover and active client numbers were noisy with some nongenuine clients. It was pleasing to see, as expected, cash active clients again grow at $227,900, up 3% from Q3 FY '24. We expect that decline growth to continue into FY '25 and beyond. Trading margin of 13% was above our long-term average, and this led to strong net win margin of 10%.

The sustainability of our Australian business continued to improve with net win growth versus the PCP from both our mass market and VIP cohorts. In Q4 FY '24, PointsBet Australia paid $27.3 million in GST, point of consumption tax and product fee payments to Australian governments and racing and sports bodies. This represents 45% of our net win for the quarter. Sport continued to be our strongest driver of growth in Australia. Sport again delivered strong double-digit net win growth versus the PCP, with the strongest drivers being AFL, NBA, soccer and Cricket. Racing had another quarter of single-digit net win growth versus the PCP.

Our growth in sports wagering aligns with the overall positive trajectory in demand for premium sport in Australia, especially AFL, NRL, the major North American sports and global sports like soccer and tennis. We have a unique opportunity to win share through Sports given our world-class odds factory engine, our ability to personalize generosity investment on a one-to-one basis and our sports-led brand positioning. A good example of this strategy was our success at leaning into the popularity of Same Game Multis during the recent NRL State of Origin series.

Through excellent product and promotion execution, each game of the series broke the previous record for the number of clients placing a Same Game Multi in the state of origin game. This culminated in game 3 of the series breaking the all-time record for the most SGM clients for any NRL game, including all state of origins and all grand finals. We are well positioned to carry this momentum into the upcoming AFL and NRL final series and into the 2024, '25 seasons for NBA and NFL.

Turning to Slide 6. In addition to our ongoing commitment to a best-in-class suite of consumer protection mechanics, PointsBet has voluntarily implemented an advertising strategy that seeks to minimize the risk of promoting wagering products to children and families. We have shaped our FY '24 and '25 advertising strategies against the theme shown on Slide 6 that we believe could be used to form the basis of a pragmatic and fair package of government-led advertising reforms that will meet community expectations.

Importantly, our results show that online wagering operators can continue to grow actives and net win with the sustainable, safe and responsible advertising model. In Q4 FY '24, we announced that PointsBet will waive our contractual rights to the major partnership for the Manly Sea Eagles and the stadium naming rights partnership for the Cronulla Sharks for FY '25 and beyond. Our major partnerships with the 2 clubs have been very successful, but we understand that community expectations have changed, and it is no longer appropriate for gambling brands to be presented in or around the field of play for Australian sport.

Turning to Slide 7 to discuss the Canadian trading business. We again delivered strong net win in Q4 of $8.3 million, up 52% on the PCP as we saw strong engagement throughout the NBA and NHL playoffs combined with the opening of the MLB season. Sportsbook net win came in at $4.6 million, up 147% versus the PCP. This growth was driven by a significant improvement from the PCP in our trading margin and more targeted promotional spending. Our sports trading margin is consistently ahead of the broader market. Our implant mix of total handle remains strong at 66%. Our high sports margin and strong in-play handle percentage is a testament to our proprietary odds factory capability on the most popular North American and global sports.

On the iGaming side, we delivered $3.8 million in net win, an increase of 4% versus the PCP. As mentioned earlier, iGaming performance was impacted by some VIP negative variance, and we also increased the amount of promotional spending in the quarter to reengage our base after completing the Strive migration. While improved efficiency led marketing spend to be down 11% versus the PCP, the excellence of our in-play betting product, combined with a strong focus on driving customer retention and reactivation drove cash active clients to $45,100, up 4% from Q3. I will now hand it to Al Lui to walk through our quarterly cash flow statement.

[Alister Lui, executive]

Thank you, Sam. Turning to Slide 8. At 30 June 2024, the company held $28.1 million in statutory corporate cash. During the quarter, the company received USD 50 million from Fanatics Betting and Gaming, representing the final installment of the U.S. business sales headline purchase price of USD 225 million. The company also completed the second chart of its capital return, returning $126.9 million to shareholders. In aggregate, the company has returned $442.4 million to shareholders. Q4 net cash flows from operating activities, excluding movement in player cash accounts, was $11.4 million. Receipts from customers for the quarter totaled $68.5 million, and operating cash outflows during the quarter included cost of sales of $23.4 million, noncapitalized staff costs of $9.1 million, sales and marketing of $13.5 million and administration corporate costs and GST paid of $12.3 million.

We are also pleased to report that as of Q3, the company reported a Q4 net cash flow normalized from U.S. business sale-related items of positive $7.1 million, a record quarterly cash flow plan. The company remains well capitalized to invest in further growth and to execute ongoing operational and strategic plans. I'll now hand it back to Sam.

[Samuel Swanell, executive]

Thanks, Al. Turning to Slide 9. As set out on this slide, the company has had an outstanding year, and based on unaudited results has achieved and in the number of measures exceeded our guidance for the 12 months to 30 June '24. These include total net win being 16% higher than FY '23, gross profit margins of 52.8%, an increase from 50.2% in FY '23. Total marketing expense will be 21% lower than in FY '23. Normalized operating expenses excluding marketing expense, of circa $60.4 million, coming in at the lower end of the previous guidance of $60 million to $70 million. And normalized EBITDA is expected to be a loss of $1.8 million, which is a $2.2 million improvement on the upper end of our previous guidance and representing a $47.2 million improvement from the loss of $49 million in FY '23.

In H1, the group delivered a normalized EBITDA loss of $13.3 million. In H2, we have delivered an unaudited normalized EBITDA profit of $11.5 million. As we start FY '25, PointsBet is well positioned to continue its revenue growth and for this growth to drive our transition to full year profitability. Sports betting and online Gaming remains a fast-growing global market and companies like PointsBet with a globally powerful product, proprietary technology and international regulated markets experience are valuable in this industry. We have a clear vision to leverage what we have built to deliver shareholder value now and into the future. We'll now take questions.

[Operator]

Your first question comes from Rohan Sundram with MST Financial.

[Rohan Sundram, analyst]

Sam, Alister. Just a question around how are you seeing the competitive landscape at present? And I take on your [ earlier ] comments around the advertising strategy. Is that also -- I'll leave it at that, but just keen to get your thoughts on the competitive landscape.

[Samuel Swanell, executive]

Rohan. Yes, I mean, look, we see it being pretty rational at the moment. We haven't seen any large sort of uplift of new competitors coming to the market and pushing things into sort of irrational space. So you would see that the life of Sportsbet, Ladbrokes, TAB, et cetera, everyone seems to be pretty rational. So we don't see anything on the horizon that is going to disrupt, let's call it our trajectory and the strategy that we're executing. There's always strong competition from a product innovation perspective, and that's something that we pride ourselves on and our ability to be very competitive there. So we always expect strong competition there. Australia is a pretty mature market from that perspective.

I suppose the only other insight we get asked about a lot is expectation reconsolidation, and we continue to expect that there's going to be attrition and/or consolidation at the low end of the market, the cost of compliance and the ability to compete from a product perspective is going to make it very hard for small operators. So that's probably our overall view of the market right now. I mean the overall sports versus racing, I think we've given sort of our indications there that sports from our perspective continues to outperform racing, and that suits us because I think out of the major operators, we have the largest exposure to sports in the market.

[Rohan Sundram, analyst]

And sorry if I missed any comments you made earlier in the call with regards to the advertising strategy. Are you anticipating -- sorry if you said this, but are you anticipating tighter regulation to come? Or have you made the conscious decision to just be proactive around it?

[Samuel Swanell, executive]

Both. I mean we proactively moved into a direction that we believe is the right direction to be moving in, but it's also the direction that has proven to be the right approach for us. We don't want to be advertising to an audience that is not interested in our products. We ought to be more targeted with our advertising and promotions. And we definitely have the capability to do that and media channels have the capability to do that. I think it's pretty -- I think there has to be some outcome from the House of Representative standing committee recommendations on advertising reform for the industry. So there's going to be some change and where we've presented our model, which we believe could represent a very appropriate model for -- to be adopted and that it can be adopted without the industry forgoing growth and opportunity.

[Operator]

[Operator Instructions] Your next question comes from Henry Copley with Jefferies.

[Henry Copley, analyst]

I was just wondering, how has 1Q '25 started from a market perspective in Australia and Canada, please?

[Samuel Swanell, executive]

Henry. Look, we will provide our own views of sort of forward-looking commentary at our full year results later in August. Look, I wouldn't say we're 1 month into FY '25. I'd say the trends that we've spoken to, just as I answered Rohan's questions are sort of the ones that we're seeing, which is stronger growth in sports versus racing, market continues to be pretty rational. As it relates to Canada, the Canadian market or the Ontario market specifically continues to grow strongly. I think the regulator put out some figures there that talk to the market growth. I think the market as a whole grew at sort of circa 34%. PointsBet obviously grew superior to that. So again, we're growing our market share.

But Canada remains an earlier stage market with more strong growth potential. But no specific insights as it relates to July that are any different that we've been commenting on recently.

[Henry Copley, analyst]

Okay. Great. Thanks so much. Good results. Cheers.

[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.