Aristocrat Leisure Limited (ALL) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Aristocrat Revised Segmental Disclosures Conference Call. [Operator Instructions] Please be advised, today's call is being recorded. I would now like to hand the conference over to James Coghill, General Manager, Investor Relations. Thank you. Please go ahead.

Good morning, everyone, and thanks very much for joining us on the call this morning. Before we begin, I'm pleased to acknowledge the traditional custodians of the land upon which we meet today, the Wattamattagal clan of the Eora people, and we pay our respects to elders both past and present. Our CFO, Sally Denby, is with me here in Sydney. As you would have seen towards the end of April, we completed our acquisition of NeoGames, and we shared that Aristocrat will be breaking out a third business segment in its management reporting, which will be known as Aristocrat Interactive. Ahead of the establishment of Aristocrat Interactive, we also conducted a detailed internal and external review of how we present our financial performance across the broader group, and we're sharing the outcome of that review today. We welcome further feedback after this call as you work through the numbers. And we're on a journey here at Aristocrat as we grow and transform our online RMB (sic) [ RMG ] business, and we want this evolution to be as clear and straightforward for all the followers of our stock. I'll hand over to Sally shortly, who will provide a short overview of the changes, after which there will be an opportunity to ask questions directly on the teleconference. Sally?

Thanks, James, and good morning, everyone. Thanks for your interest and for making the time to dial in to the call today. As James highlighted, the objective of this call is to discuss the pro forma financials for the past 2 years that we released to the ASX this morning. These pro forma P&Ls present how Aristocrat Interactive will be disclosed alongside our other 2 segments, Aristocrat Gaming and Pixel United. We have also taken the opportunity to make a number of other changes to the reporting of our performance that I will address. Before I get into the detail, I would like to emphasize that these changes are focused on our management reporting of the P&L performance and do not impact the group's balance sheet, cash flows or previously reported statutory P&L. You will note in the pro forma that Aristocrat Interactive represents the business we previously referred to as Anaxi, which included our nascent online RMG operations as well as our Customer Experience Solutions business, which we refer to as CXS. And Anaxi, including CXS, was previously included in our Gaming segment and has now been presented as a stand-alone business to better align to our strategy, management structure and growth expectations. And surprisingly, Aristocrat Interactive revenues primarily reflects CXS revenues at this stage as this casino systems business has been an important enabler of our Gaming business in the Americas and the ANZ region for a number of years. The contribution to Interactive from our nascent online RMG operation is currently minimal. The Aristocrat Interactive P&L for financial year '23 represents a base from which we intend to grow our online RMG operations. Similarly, our Gaming segment will no longer capture the results or the start-up costs associated with Anaxi. The first half of financial '24 up to 31st of March will be presented on this basis next week, noting a step change in this segment occurred with effect from the 26th of April 2024, the date from which NeoGames will be consolidated into the division. We felt it was appropriate to share financial view of the existing business ahead of NeoGames joining the business in the second half of '24. We intend to disclose revenues for 3 distinct operational divisions within Aristocrat Interactive to help you better understand the business and assist in your modeling, and we will share more about these operational divisions at our results next week. As you will appreciate, there's lots of work underway following the completion of the NeoGames acquisition a couple of weeks ago. And by the time we get to our Investor Day on June 26, we will also share some further financial detail on these operational divisions to assist integrating NeoGames appropriately into your models under our new reporting structure. Now moving on to other changes we are making. We're fine-tuning our broader group reporting to better align to how Aristocrat is managed and take account of our changing growth profile. As we establish Aristocrat Interactive, we're taking the opportunity to ensure the rest of our business performance is communicated in a clear, relevant and consistent manner. The most significant change is the establishment of North America as an operational division of Gaming, reflecting its relative size, exceptional growth and our success in the region in recent years. All of the Gaming regions will be grouped in the Rest of World. Summary P&L will be provided for these 2 segments going forward. You will recall that we previously presented Gaming as the Americas, ANZ and International. So to be clear, Rest of World now includes all our operations in ANZ, EMEA, Asia Pacific and Latin America, noting that Latin America was previously included within the Americas. I understand that many of you track ANZ closely and are keen to ensure continuity in your modeling. While our growth offshore continues to reduce the relative contribution of ANZ gaming to the group performance, we will continue to disclose ANZ revenue on all revenue operating metrics driving this business for you to understand the performance of this business through this period of change. A few of the changes to Gaming worth mentioning. We're disclosing unit sales for adjacencies, which are included in outright sales of the new data point, given the significance of these markets for North America's growth. We are no longer disclosing conversions in our Outright Sales business. Their contribution to revenues compared to the sale of new platforms is not sufficiently material to continue to disclose conversions to the model in variable. In summary, our Gaming segment will effectively reduce from 3 to 2 reported operational divisions, better reflecting our business operations and reducing complexity across the broader group as we build out our third new business. Now let me briefly touch on Pixel United where we are making minimal changes. The 3 genres will continue to be reported as before with consistent operating metrics. We will also share the exact dollar value of bookings across major games versus providing previously the percentages [ earn rate ]. You will also observe a new data point, direct-to-consumer revenues. These are generated by the Plarium Play platform. As we expect this to be a growing source of revenues for Pixel United over time, we felt it was important to share the exact number rather than an approximate indication. We intend broadening disclosure in the future as other forms of revenue that we generate outside the 2 major platforms become more material. With that, we're happy to open the lines for any questions on the segmental disclosure changes that we shared today.

[Operator Instructions] Our first question comes from Justin Barratt from CLSA.

You highlighted, Sally, that Aristocrat Interactive was previously disclosed in -- within, I guess, your broader Gaming segment. But I just was wondering if you're willing to share for our benefit, whether [ there was reporting ] in Americas or whether it was just Americas and International?

It was largely in Americas with CXS business also within our [ own broad ] organization, yes. So it's [ the 2 ]...

Yes. Okay, no problem. And then just the final comment that you made around, I guess, Pixel United and direct-to-consumer revenues. You mentioned in your, I guess, March update that you are looking at providing or creating a new direct-to-consumer channel. Could we expect that to be reported separate to Plarium Play in the future? Or do you think that it's likely to be all recorded as, I guess, a direct-to-consumer revenue source?

Look, I think that's evolving, probably, direct-to-consumer in totality, but we'll work through that as that continues to develop and grow.

[Operator Instructions] Our next question comes from the line of Matt Ryan from Barrenjoey.

Just with Aristocrat Interactive, can we get a split of the operating cost between iGaming and CXS?

Thanks for the question, Matt. I think -- I mean what we've done is we've been providing D&D over the last 18 months. I think operationally, we're providing the revenues. We're not splitting the actual cost base underneath. Obviously, as that business continues to grow, a larger portion of that will be relative to iGaming rather than CXS. But at this point, we've chosen to share revenues and, obviously, with the land on D&D going forward.

Was there much operating cost within iGaming in the FY '22 period?

It would be very small because they only ramped up in the second half.

So I guess reversing those numbers out, you could probably assume that the operating cost within iGaming would be $60 million to $70 million if there's nothing in the FY '22 year? Is that fair?

There would be some in FY '22, Matt, but we only started growing -- building the business in the second half. So what I would say is proportionately, it would be different now to what it was in FY '22.

Right. Okay. And then with the adjacencies, can you sort of clarify exactly what's in there, presumably, things like video Class II and VLT and bar top and the like that you've talked about previously? But can you just be very specific in terms of what exactly is going to those adjacencies, please?

I mean I'm probably not going to be able to call on that now. But you would have bar top in there, you would have historic horse racing, you'd have the VLT. Obviously, going forward, Georgia COAM would be in there, [ whether we made fortunes ] in CDS, they would be all the big ones off the top of my head, Matt. The ones that we've actually talked about...

Video Class II?

No, video Class II falls into Class II.

Okay. Stepper?