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Thank you for standing by, and welcome to the PointsBet Holdings Limited Q3 FY '24 Appendix 4C Investor Presentation Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Sam Swanell, Group CEO. Please go ahead.
Good morning, and thank you for joining the PointsBet Holdings Limited Q3 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. Before we turn to the Q3 results, I would first like to comment on the completion of the sale of the U.S. business and the second capital return, which was announced this morning. On 4 April, the company announced a subsequent completion had occurred following satisfaction of the required conditions, including the final requisite U.S. gaming regulatory approvals. The company received USD 50 million representing the final installment of the headline purchase price of USD 225 million. The company retains its leading Australian trading business and growing Canadian trading business, together with ownership of PointsBet's proprietary sports wagering, racing and iGaming platform and a perpetual royalty-free license to exploit the Banach Odds Factory technology assets. I would again like to acknowledge the entire PointsBet team for their significant efforts through what was a lengthy and complex technical and operational migration. As announced earlier this morning, the company is pleased to confirm that it will be making a second capital return of $127 million, representing $0.39 per share. As set out in the capital return Notice of Meeting back in August 2023, the estimated amount of each capital return was based on a number of assumptions regarding future events, trading conditions, business performance and the successful implementation of the sale of the U.S. business. In determining the $0.39 per share, the Board's core consideration was to ensure the company has sufficient capital to execute its ongoing operational and strategic plans. The Board is pleased to be able to return to shareholders a total of $442 million across the first and second capital returns. The timetable for the second capital return can be seen on this page, and shareholders are encouraged to check that accurate details are registered with Computershare, the company's registry. Turning to Slide 4. The combined Australian and Canadian businesses delivered record total Q3 net win of $70.6 million, up 24% on the PCP, accelerating from the 14% growth delivered in H1. Our performance continues to be driven by our outstanding proprietary platform, including our elite Odds Factory capability. We are thrilled to report that the company reported a net cash flow normalized for U.S. business sale-related items of positive $2 million for the quarter, another first and important milestone in the company's history. We reconfirm again our full year normalized EBITDA loss guidance of between $9 million and $14 million, currently tracking towards the $9 million end of that range. This is a very strong result given the significant complexity the company has managed during the 9 months of the U.S. business sale and transition process. Turning to Slide 5 to discuss the Australian trading business. The Australian business had a very strong quarter. Compared to the PCP, net win improved 20%, and we have again grown our market share. Growth in net win was driven by 4% growth in turnover, strong margin performance at 12.7% at the upper end of our long-term average and continued improvement in the efficiency of our generosity spend running at 20.9% versus 27.8% in the PCP. We had 221,000 cash active clients in Australia, up 1% from Q2 FY '24.
As previously communicated, we have now cycled out of periods when non-genuine 0 value clients and turnover were present in our numbers, and we expect turnover and actives growth to more closely match net win growth going forward. At a product level, [ free ] code racing delivered mid-single-digit net win growth versus the PCP and sports again delivered double-digit growth in net win versus the PCP. Our suite of international sports enabled by the Odds Factory platform continued to perform well in Q3, and we've also seen a positive start to the AFL and NRL 2024 seasons. In Q3 FY '24, PointsBet Australia paid $26.4 million in GST, point of consumption tax and product fee payments to Australian governments and racing and sports bodies. This represents 43.4% of our net win for the quarter. PointsBet continues to make a material financial contribution to the ongoing funding and sustainability of Australian racing and sports. In line with our ongoing commitment to best-in-class standards of harm minimization and regulatory compliance, we began the process of removing the ability to deposit funds using a credit card, which will be implemented by the June 2024 deadline. This outcome will add to our existing suite of consumer protection mechanics, including the national self-exclusion register, zero-day know your customer, deposit limits, monthly activity statements and voluntary take or break options. In Q3, we conducted over 209 million checks on the national self-exclusion register and over 4,600 responsible service of gambling check-ins with active clients. With our Shaq-led established brand, top-tier products, excellence in trading, data science and operations, and strong investment in compliance and responsible gambling, our Australian business has an established, profitable and growing presence in the market, and we continue to invest significantly in both marketing and technology to drive further growth. H2 marketing spend in Australia for FY '24 will be greater than FY '23.
Turning to Slide 6 to discuss the Canadian trading business. Q3 saw the NFL playoffs and Super Bowl, along with the heart of the NBA and NHL regular seasons, which PointsBet capitalized on with our market-leading sports betting platform powered by Odds Factory. We again delivered strong net win in Q3 of $9.9 million, up 62% on the PCP. Sports betting net win came in at $4.3 million, up 78% versus the PCP. This growth was driven by -- both by an improved trading margin on higher overall mix of parlay bets and continued gains in customer promotions efficiency. Our in-play mix of total handle remains strong at 67%, up from 63% in the PCP. On the iGaming side, we delivered $5.5 million in net win, an increase of 52% versus the PCP. While the improved efficiency led marketing spend to be down 22% versus the PCP, cash active clients continue to grow to 43,200 up 12% from Q2. Importantly, we completed the integration with Strive Gaming during the quarter. Through partnering with Strive, we will be able to bring our customers a broader selection of casino games and an enhanced overall experience. We expect this new offering will accelerate the growth of our iGaming business, helping drive a more favorable game mix over time with higher gross margins, along with enhanced retention and customer lifetime values. Our Canadian business will continue to grow on the back of our outstanding Odds Factory-driven live sports betting capability. The enhanced experience we are now delivering for online casino will complement our sports strength and further enhance revenue growth and path to profitability. I will now hand over to Al Lui to walk through our quarterly cash flow statement.
Thank you, Sam. Turning to Slide 7. At 31 March 2024, the company held $67.2 million in statutory corporate cash with adjusted corporate cash of $74.7 million. Please note, this does not include the receipt of the final transaction proceeds from the U.S. business sale of USD 50 million, which was received after the completion of the quarter on 4th of April. Q3 net cash inflows from operating activities, excluding movement in player cash accounts was $5.4 million. And importantly, the company expects total net cash flows from operating activities excluding movement in player cash accounts in Q4 to be positive. Receipts from customers for the quarter totaled $70.6 million, and operating cash outflows during the quarter included cost of sales of $29.7 million, marketing cash outflows of $14 million, non-capitalized staff costs of $9.8 million and administration, corporate costs and GST paid of $11.9 million. Net cash inflows from investing activities during the quarter was $14.2 million. This included full repayment of the loan from PointsBet USA Holdings Inc. offset by additional payments related to the U.S. business sale. As mentioned at the start of this call, we are also pleased to report that the company reported a net cash flow, normalized the U.S. business sale-related items of positive $2 million for the quarter, another first and important milestone in the company's history. I'll now hand it back to Sam.
Thanks, Al. With the sale of the U.S. business complete and the lengthy and complex technical and operation migration behind us, it truly is an exciting time for PointsBet. In parallel with managing the closure of the U.S. sale, we've completed a material 6-month-plus transformation of our operating model, redesigning and building core workflows and resource structures across the business. As a result, we've improved our efficiency and productivity, and this is helping drive the impressive results we've announced today and year-to-date. In addition, we have a proprietary technology platform that we've invested in significantly over the last 5 years, and we are leveraging that investment, in particular, Odds Factory, to also drive our growth in Australia and Ontario. H2 FY '24 is on track to be the first EBITDA positive half in the group's history ahead of ongoing EBITDA profitability in FY '25 and beyond. We are excited to now be delivering our strong revenue growth profitably. Sports betting and iGaming remains a fast-growing global market. And companies like PointsBet with the international capabilities, technical excellence and ability to work in highly regulated markets are valuable in this industry. This means we can leverage what we have built to deliver shareholder value now and into the future. We'll now take questions.
[Operator Instructions] Your first question comes from Rohan Sundram with MST Financial.
Just one for me. Just thinking about the -- how you're thinking about the Australia growth outlook. Just in light of the headwinds ahead around point of consumption taxes and the prospect of further increases, and if at all, if there's any strategies to partially mitigate that, I appreciate it's getting harder to do as it's becoming more widespread. But just any thoughts you had around that would be great.
I mean we've definitely budgeted for -- from the 1st of July that increase in Victoria from 10% to 15% in the point of consumption tax regime. So that's -- we're ready to tackle that head on and keep going with our growth. I mean it's an interesting one because we continue to grow really strongly. Our results in Australia are in a market that's under some pressure, obviously continued quarter-on-quarter. So we're pretty confident in our ability to keep that momentum. We don't see an environment where there's further increases in point of consumption taxes. We think that the principal racing authorities, in particular, they're very aware of the negative impacts that would result from further POC rate increases. And in fact, we are getting to the point where those PRAs are looking at ways to improve the cost model for operators to stimulate a turnaround in betting on their product, being the racing product, which hasn't been obviously as strong as sports betting.
[Operator Instructions] Your next question comes from Kai Erman with Jefferies.
Just one from me. Any observations fourth quarter '24 trading with NRL and AFL underway, how the market's performing? And anything that you guys are seeing in terms of a potential racing market improvement?
Yes, I mean, again, sort of repeat a little bit what I just said earlier. I mean we can see what the market is doing. We've seen that Sportsbet and Entain Australia are down PCP from a revenue perspective in Q3. It's -- we're not seeing necessarily signs of that taking a U turn and the macro all of a sudden turning positive. So we'll keep growing our net win and keep growing our market share on the back of that. We've reiterated our guidance for the full year. I added some extra commentary there that H2 is going to be our first -- we expect it to be up first positive EBITDA at the group level. So I won't talk specifically to trading intra-quarter, but that tells you that we're still heading in the right direction and continue with our momentum.
Your next question comes from Rohan Gallagher with Jarden Group.
Congratulations on a good quarterly result. Obviously, it's a quarterly result, so we can't sort of extrapolate too much. But historically, you've, Sam, focused on sort of gross win of 12%, 13%, net win of around 8% to 9%. Obviously exceeded that this quarter. Is this quarter more of an aberration or do you see upward pressure to those realized margins on a sustained basis going forward?
Rohan, are you talking about Australia specifically more so than the group?
Yes, just Australia at this point in time, Sam.
Yes. Yes. I mean, look, 12.7%, we made a statement that, that was at the upper end of sort of where we've generally delivered results. It really does -- for us, it'll come down to the mix between sport and racing going forward. If sport continues to -- if the growth trend continues as it has this year year-to-date, with sport outgrowing racing, that does put a little bit more downward pressure on your margins because racing is still a higher-margin product compared to sport even with the multi-effect, I suppose. So no, we still say around that 12% is what we'd be talking to. There might be some quarters we're a bit above and some we're a bit below based on that mix. But no, we're not striving to see that grow to 13%, 14%, for example. We think around that 12% is the right mark for us.
Okay. And where -- how do you see Canada at the moment in terms of where do you see that trending? Will that eventually head towards Australian margins? Or is there structural differences there?
Yes, the structural difference is in that they don't have racing. Having said that, we -- historically, we had sort of probably been a bit conservative in our thoughts around where our Canadian sports betting margin would be. So we've delivered 9.3% for this quarter. I would say, high 8s to 9 is what we'd expect ongoing, so definitely ahead of where we were this time last year. And as we alluded to, that is driven by the popularity of the growth in parlays as they're called over in Canada.
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.