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Good morning, and thank you all for joining the PointsBet Holdings Limited Q3 FY '23 business update. I'm Sam Swanell, and joining me on the call today are Group CFO, Andrew Mellor; Johnny Aitken, Andrew Catterall, and Scott Vanderwel. Before we begin, please note the safe harbor statement. All the numbers referred to are unaudited and in Australian dollars, unless otherwise stated. For the last few periods, I've spoken to our focus on net win growth for the group as a whole and for North America in particular.
We've been delivering strong growth for a number of quarters now, while at the same time spending less on marketing via greater efficiency. It's clearly strong momentum continues in our North American business and the Australian business is outperforming the market in an industry facing headwinds. Group net win growth was a company record for this quarter and continues to perform well versus PCPs. And together with our continued focus on reducing costs, improves the global business performance. I will make some comments on potential strategic transactions towards the end of this call.
Turning to Slide 4. Compared to the group results for Q3 FY '22 to be referred to as the prior corresponding period, or PCP, in Q3 FY '23, total group net win was up 39% and $106.6 million, a record for the group. The U.S. and Canadian divisions continued their strong trend of net win growth while we were pleased with our performance for Australia given the overall softness we saw early in the quarter in racing and in VIP turnover as flagged at the first half year results. Turning to Slide 5.
Rolling 12-month group net win to 31 March 2023 was $374.6 million. The group has 555,125 active cash clients split between Australia, 238,054 and North America with 317,071. We continue to expect to report a normalized EBITDA loss of between $77 million and $82 million for the second half of FY '23. Also, as reported at our H1 FY '23 results announcement, the company currently continues to expect H2 '23 net cash outflow, excluding movement in player cash to be approximately 30% lower than H1. We recently completed a cost and efficiency route of our North American operational workforce.
This resulted in the streamlining of operations and a 12% reduction of headcount. This reduction is expected to result in annualized cost savings of approximately $6 million. The company held $251.7 million in corporate cash as at 31 March 2023 and has no corporate debt. Now turning to Slide 6 and 7 on North America. Q3 was encouraging in terms of having again delivered strong revenue growth.
North America net win was up 128% compared to the PCP. Our more targeted approach has delivered this growth in parallel with marketing and promotions coming down compared to last year. Nonetheless, our North American 12-month rolling cash actives rose 27% from the PCP. Our marketing and promotions are more efficient than ever before. They are targeted and segmented to reach the right customer, one that pays back on this investment and generates meaningful revenue over their lifetime as they remain engaged and bet month after month.
Our rate of revenue growth far outstrips our growth in users as we are monetizing them more effectively than in the past. North America sports betting net win margin was significantly better this quarter at 4.7%. As we mentioned in our H1 '23 results commentary, we expect the net win margin figure to continue to track in excess of 4% for sports betting. This is enabled by the continuous evolution of our pricing model, trends in consumer behavior towards parlay bet types, both trends are enabled by continued improvements with our betting platform. Average net win per user is significantly higher than during the PCP, the drivers of which we'll discuss shortly.
On January 1, PointsBet launched online sports betting operations in the state of Ohio, our 14th operational state of the U.S.A. As a result, PointsBet's product is accessible for approximately 35% of the U.S. adult population. Our TAM increases without necessitating incremental marketing, a scale benefit that helps lower CACs. North American iGaming delivered a 181% increase in net win compared to the PCP driven by the overall growth of the casino-only cohort and an ongoing improvement in our ability to convert and retain cross-sold sports betters to iGaming.
Turning to Slide 8. I wanted to present a visual of the direction of the business model. Net win growing, expenses rationalizing. We have previously articulated our strategy to focus on valuable clients who can discern the superior product experience rather than those who are enticed by advertising and general promotional offers. We've made great strides in improving our payback on marketing, making every dollar work harder for us.
Turning to Slide 9. We've been encouraged by our improvement in monetizing clients on Sportsbook. North American monthly net win per player increased significantly compared to the PCP by 79%. Players are placing more bets on average, PCP user segment is highly engaged and their prominence is driving up the average bet count. As noted, during the first half call, our customer profile is evolving to a more sustainable, lower average staking mix.
Finally, optimizations made to promotions have provided a major uplift in net margin and net win per player. We are adamant that market-leading product experience and features will ultimately supersede promotions and generosities as the key driver of loyalty and share of wallet. Now turning to Slide 11 on Australia. During the reporting period, total net win for the Australian trading business was $50.7 million, down 3% on the PCP. Total turnover was $579.8 million, flat on the PCP.
Turnover growth in Sport was offset by softness in racing, which we understand is in line with the market, and we flagged in our H1 FY '23 results. The shift in turnover mix towards Sport led to a reduction in overall gross margin to 12.1% in the reporting period versus 13.6% in the PCP, but an improvement on Q2 FY '23 of 10%. Notably racing margins improved on the PCP and Q-on-Q. Total gross win was $70.3 million, down 11% on the PCP. However, this was partially offset by continued improvements in the efficiency of our client promotion spend.
Continued focus on promotions efficiency led to the rate of promotions as a percentage of gross win improving to 27.8% versus 33.6% in the PCP enabled by tokenization improvements. The combination of the shift towards lower-margin sports turnover, offset by continued improvements in the efficiency of our client promotions capability led to the relatively stable net win result of $50.7 million. As presented at our H1 results presentation, we continue to see an increasing portion of our net win come from our large volume of mass market clients, and we saw a 15% growth for this segment versus the PCP. The Q3 FY '23 marketing expense for Australia was $8.3 million and H2 FY '23 marketing expense is expected to be circa $15 million. I would now like to hand over to Group CFO, Andy Mellor, to provide an overview of the cash flow statement.
Thank you, Sam. Turning to Slide 12. Net cash used in operating activities, excluding the movement in player cash accounts, during the quarter ending 31 March 2023 was $59.3 million, a reduction of 8% on the prior quarter. Receipts from customers for the quarter totaled $108.9 million. This includes net win from Sportsbook and iGaming verticals of $106.6 million and the balance includes receipts from our European and New York B2B operations and cash receipts from our U.S. racing ADW business. Cash outflows during the quarter included cost of sales of $55.5 million, which was lower than last quarter, non-capitalized staff costs of $26.8 million, in line with Q2. Marketing cash outflow for the quarter was $69 million, slightly higher than last quarter due to the timing of payments and accruals and prepayments across the quarters. As previously spoken to the Australian marketing expense was AUD 8.3 million. For the quarter, the U.S. marketing expense was USD 22.3 million, and the Canadian marketing expense was CAD 7.1 million. As it regards marketing cash outflows in Q4, given the strategic reduction in marketing expense across H2, we currently expect Q4 marketing cash outflows will be significantly lower than Q3. Administration, corporate costs and GST paid on Australian net win was $19.7 million for the quarter, in line with Q2. Turning to investing activities. Net cash used in investing activities during the quarter ending 31 March 23 was $11 million, 31% lower from the $16 million in the prior quarter.
The U.S. business development cost decreased on the prior quarter due to a quieter market launch period. Financing activities, there was $1 million cash used in financing activities during the quarter ending the 31st of March '23, which was in line with Q2. The company has no corporate borrowings at the end of December -- sorry, end of March had $251.7 million in corporate cash. I'll now hand back to Sam.
Thanks, Andy. In summary, our focus on net win growth is working for the group as a whole and for North America in particular. We are delivering strong growth while at the same time, reducing costs. Turning to Slide 13. Finally, I'd like to make some comments on potential strategic transactions.
Consistent with commentary previously provided to our investors and the market more generally, PointsBet continues to engage in discussions regarding strategic transactions that offer the potential to add value for our shareholders. The company is currently in discussion with multiple parties in respect of potential transactions that would involve part or all of our North American business. Certain negotiations are well advanced. In response to media speculation on 27 December 2022, PointsBet advised that it was in discussions regarding a potential transaction involving the sale of its Australian business. PointsBet has terminated those particular discussions, but remains in discussion with other third parties who have expressed an interest in acquiring our Australian business.
There is no certainty that any of these discussions referred to above will lead to a binding transaction. PointsBet confirms that it remains in compliance with its disclosure obligations and we'll keep the market informed of relevant developments. I will now hand to the operator for Q&A, noting I won't be able to comment directly on potential strategic transactions.
[Operator Instructions] Your first question comes from Rohan Sundram from MST Financial.
Sam, I'll just take on board your comments around the potential transactions, and I appreciate you're limited in what you can say. But maybe are you able to talk us through just your thought process, how you are thinking through the various options available? What's most important to you? What are the key considerations if you're able to share.
Yes, I mean, look, it's all about shareholder value, Rohan. So we've built a valuable business as I've said consistently. We're pleased with our market conditioning. We clearly have a growth plan that we're delivering on. But at the same time, we're conscious we operate in a rapidly evolving market.
We've got a strong balance sheet, but we acknowledge that at some point, we're going to need some additional capital. So we continue to assess all of these sort of credible strategic opportunities really carefully, but ultimately in determining which of these opportunities would be pursued, we answer one key question, which is what will be most value-accretive for shareholders.
Your next question comes from Don Carducci from JPMorgan.
Can you guys let us know the number of Canadian active customers for this quarter?
Don. Yes, I think it was about 28,000 for the quarter.
So if we assume 28,000. What you're telling us is the U.S. active customers have actually declined about 2%. Is that right?
Yes, it's slightly down, yes, slightly down quarter-on-quarter. But let me just sort of, I suppose, talk to that. There's a few things there. First of all, we've made it really clear that we're focused on the right clients, not just on keeping clients active for the sake of keeping clients active. So there'll be some clients that rolled out of the previous March quarter that where -- we have no concern about letting them go away because we don't see them as valuable.
I think the other thing you have to think about is seasonality. [indiscernible] checked, as an example, say that the December quarter makes up 34% of GGR in the U.S. market, and that drops to 21% for the March quarter. So that's like a drop-off of something like 30% to 40% in seasonality. Despite that, we've grown our net win dramatically quarter-on-quarter. But yes, client growth, not -- I mean we want to keep growing clients, but fully explainable with the seasonality and our focus on [indiscernible].
So do you expect that trend to continue?
No, I'd expect us to continue to grow client. We have to keep growing clients, obviously. But as you work some of the, let's call it, low-value clients out of the system, and we've been pretty focused on let's call it, value over numbers for the last few quarters. So we should be washing them out, but we also need some help from a seasonality perspective and then a 30% drop-off in seasonality. It's like going from the month of November in Australia to the month of December, your actives are going to drop off somewhat because of seasonality. But we're growing that window and we're clearly focused on the right clients, and it's getting the results.
Yes. So can you maybe give us a bit of a heads up or think about that with your Q4 cash outflow, what we should expect with that?
Yes. Well, I think the guidance that we gave was a 30% improvement on H1. So we -- H1, I think, was $156 million. So that would sort of talk to a circa $110 million for this half. This result, I think, was $69 million or $70 million. So that points to the June quarter coming down dramatically to circa $40 million.
Right. And then so I guess maybe kind of you're expecting to sale of the U.S. business, but I think it's fair to say that U.S. business is a scale game. So I'm trying to understand how you're confident that those discussions would result in the transaction if you're losing scale and share?
Look, I'm not going to comment specifically, Don, but it's clear we have huge momentum in the U.S. We're growing PCP revenue, I think it's like 100%, 80%, 100% the last few quarters. It's clear that we have one of the best products in the market. We have a great footprint in hard-to-get states. The business is going really, really well.
So maybe the last question for me then. So I understand you're not commenting on the likelihood of that sale or any of the transactions. But if we assume you don't sell the U.S. business or a transaction does occur, I think the market be keen to understand kind of what happens in the coming quarters because you have less than a year of cash remain?
Yes. Well, I mean we've provided some guidance to the end of this half. We're not in the business of making those long-term forecasts. We've -- we've made substantial revenue growth. We've made great progress in terms of cost management. We bought -- bringing our burn down. From our perspective, it's all heading in the right direction.
Would you be focusing more on the Australian business, so we would expect a little bit more of a cutting back in that U.S. marketing spend given again, transaction doesn't occur, less than a year of cash. Is this more of an [indiscernible] focused business going forward?
No. No, we're focused on both our businesses. We have growth plans for both of them, and they're both performing well. Australia are performing well. We think we're outgrowing the market in a slightly tough market, but we're really -- we're happy with both businesses.
Your next question comes from Chris Savage from Bell Potter.
First question around the rating. You flagged the softness in racing, and I get it, there was a spike, obviously, with COVID and lockdowns and there's been some softness sense. But are we back to where we were pre-COVID levels? Or has there been some sort of structural change in where after then even back then?
It's very hard for us to answer that definitively because we don't have access to all the principal racing authorities data. So it's really hard to know. We're calling out that we think we're outgrowing the market from an overall net win perspective. Obviously, that's what's most important. There's a mix. There's definitely a trend towards sports betting over race betting. But whether that means that where racing is -- this quarter versus last quarter or next quarter down, flat. We think generally, there's some racing softness. That's what we're seeing. And it seems that others are reporting softness in racing. So that seems to be where it's going, but we can't talk definitively to the racing industry as a whole number in Australia.
What's your view, though, Sam like is it a structural change? And is it because just now there's alternate betting, as you said, the sports betting is taking off?
Yes. I mean we think as long as the market -- the market is going through a bit of a pause post that COVID burst. But as long as the market picks up from a growth perspective, whether that's sports betting or race betting, it's up to the consumers to decide where they want to invest. I mean we know, there's been a lot of innovation from us in the Sportsbook space. Our NBA products powered by a lot of our [indiscernible] factory capability in Australia has resulted in a real strong uptick in NBA action.
Soccer, we released some upgrades to soccer. We saw some upgrades. So there's no doubt that when you deliver a better product to clients, they respond. And so sports has probably seen a bit more innovation in Australia with same game parleys and multis, et cetera, than racing in recent times. But yes, we see the market is having a little bit of a pause. We're outgrowing the market, but we expect it to return to growth.
Okay. Just switching to the U.S. side. You're obviously now in 14 states on province, just launched Ohio, Maryland. What's the short- to medium-term outlook now? Are you going to pause with a number of states? Or you still expect you'll add another few in the coming months?
No, no, I think we spoke previously to the fact that we'll pause for now. That TAM that we've got with 35% of the population is extremely large. We want to keep proving the growth in net win growth and keep managing that relationship with cost. Yes, that's what -- we don't foresee any launches in the short term.
And just last question. I appreciate you can't say much on the strategic or potential strategic transaction, Sam. But just I guess, timing, like you made a note in the announcement that some of these negotiations are quite advanced. Should we expect potentially something this quarter, or is it more next quarter?
Look, I can't comment. I mean we also said, that like there's no guarantee that they get to an end point. Look, so I won't comment on that.
[Operator Instructions] The next question comes from Bradley Beckett from Credit Suisse.
Just wondering if there's been any further consultation or updates with the RWA on the Australian federal online gambling review? Or any kind of color you could add around that?
Look, I might ask Andrew Catterall to make some comments. One thing I would note is I saw -- I noted the news overnight about credit card bands for -- for deposits for players in Australia. That's been a position that we have been in support of and RWA has been in support of for some time. It's not a material impact at all. Most consumers have moved away from credit card deposits because they attract fees when depositing. So there's far more efficient ways for clients to get their monies into account. But Catt, did you want to add anything there?
Yes. So the credit card stuff was well expected. It's a declining percentage of total card deposits. It was about 8% of active cards were credit cards, 92% of debit cards and it was a declining percentage of deposits. So we're very comfortable with the credit card transition, and it's something, as Sam said, we've lobbied for actively since 2021. Was the broader question about has there been ongoing discussions with the RWA Group? Is that the question?
Yes. In relation to the gambling review. Has there sort of been any further consult. I saw the U.K. white paper overnight was looking at implementing affordability checks. So has there been sort of any updates there.
Yes, there's a lot of work going on with the other members of RWA across each of the issues identified. Well, I think a lot of those issues were live and ongoing issues anyway. It ranges from the advertising frameworks through to responsible gambling, compliance and minimum standards and also in place Northern Territory code, which is being updated as well and the National Consumer Protection Framework 2.0, which is also in process of being updated. So we're very active in all that. We're very positive, we think that we're very well positioned to support continued improvements to the minimum standards required to be a licensed operator in the Australian market, and we think that's highly advantageous to a business like us with the quality of our technology and our existing consumer protection framework that we operate within the business.
[Operator Instructions] There are no further questions at this time. And that does conclude our conference for today. Thank you for participating. You may now disconnect.