PointsBet Holdings Limited (PBH) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the PointsBet Holdings Limited Q2 FY 2023 Appendix 4C Investor Presentation Conference Call. [Operator Instructions] I would like to hand the conference over to Mr. Sam Swanell, Group CEO. Please go ahead.

Good morning and thank you all for joining the PointsBet Holdings Limited Q2 FY '23 Business Update and Activities Report. This is Group CEO, Sam Swanell, and I'm joined on the call today by our Group CFO, Andrew Mellor; our regional CEOs and our U.S. Chief Strategy Officer. Before we begin, please note all numbers referred to are unaudited and in Australian dollars, unless otherwise stated. Turning to Slide 3. Before speaking to our quarterly results, we were pleased to announce this morning that we have agreed to amend the media services agreement with NBCUniversal originally dated August 27, 2020. The original agreement had a 5-year term ending in August 2025, and the parties have now agreed to extend the agreement by 2 years to August 2027. As a reminder, we are currently in year 3 of the agreement, which runs August 2022 to August 2023. PointsBet has trialed and gathered key learnings from a media perspective since going live in the U.S. market. We are thrilled to have agreed with NBCU on mutually beneficial adjustments to our agreement that fit perfectly within our more targeted, localized strategy, which is informed by those learnings. Put simply, we firmly believe a dollar spent in marketing on any other platform does not come close to rivaling the terms and efficacy of the partnership we now have with NBCU. The remaining committed marketing spend for the final 3 years of the original agreement will now be invested over the remaining 5 years of the extended term, being August 2022 to August 2027, significantly reducing the marketing spend in each remaining year to match our desired level of investment under the more localized targeted strategy. The total committed marketing spend for the 5 remaining years to August '27 is USD 294 million, with USD 25 million of its commitment having already been paid as at December 31, 2022, leaving USD 269 million remaining. The total commitment for the current year ending 27 August 2023 is USD 50 million, a reduction of 42% from the original agreement. It should be noted that over the next 4 years of the term, August 2023 to August 2027, the maximum cash payment in any 1 year will not exceed USD 56 million. Should the options issued to NBCU at the time of the original agreement not be exercised instead of a lump sum repayment of the option premium value of AUD 105 million by the company at the end of year 5, this amount will now be applied to pay for the media services across year 6 and 7. In this scenario, the total cash commitment over the remaining 5 years of the term applied largely on an equal annual basis will be USD 270.4 million, less the USD 25 million already paid this year, with the balance to be covered by the remaining value of the shares previously issued to NBC. To provide further context, we expect the U.S. marketing expense for FY '23 to be circa USD 90 million, down from USD 118 million in FY '22. We will provide some details later in the presentation regarding the superior effectiveness and ROI we are seeing from our more targeted marketing strategy. I will now ask our U.S. Chief Strategy Officer, Eric Foote, to provide some further insight into our marketing strategy and how the media properties of NBCU and Comcast under our amended agreement will assist. Eric?

Thank you, Sam. As a result of our learnings referenced by Sam earlier, we have shifted our marketing strategy from investing in large-scale national assets, which mainly focused on brand building, to highly targeted investment into states where PointsBet is live. The local focus is aimed at acquisition and retention of clients in our immediately addressable markets and delivering a direct return on investment from the marketing spend. In the current year of the amended term, 99% of total spend with NBCUniversal is being utilized locally or through geo-targeted assets, such as NBC-owned and operated broadcast stations, NBC Sports Regional television networks and Comcast Effectv. PointsBet continues to enjoy favorable media pricing across NBCUniversal's various media platforms and retains its status as official sports betting partner and exclusive online casino partner of NBCUniversal and NBC Sports. The unrivaled media properties of NBCUniversal, of which PointsBet have access to include: exclusivity on local and regional assets in both the sports betting and online casino categories, including integrations with its NBC Sports Regional television networks and our successful alternative television sports betting experiences called BetCast; and first-look rise on any new local and regional sports betting and online casino partnership opportunities across Comcast and NBCUniversal properties such as NBC Sports, Peacock sports, Comcast Effectv and any new digital properties, platforms and products developed by NBC Sports during the agreement. Further, the amended agreement allows PointsBet to more heavily utilize Comcast Effectv platform. With an estimated reach of 96 million U.S. adults, Effectv allows PointsBet to target audiences with hyper local level precision across a wide variety of linear TV inventory. Further, leveraging the best-in-class X1 voice remote in certain markets, PointsBet can serve a targeted call to action. Viewers are promoted to say PointsBet into the remote and then directed to the sign-up page via text messaging that includes special offers. As a result of our focused and targeted strategy, PointsBet has relinquished integration exclusivity over NBCUniversal's national media assets. During the first 2 years of the partnership, the NBCUniversal national media assets have successfully assisted PointsBet with establishing strong national brand recognition. However, we have learned that this approach is not the most productive tactic at this current juncture. Now PointsBet can execute on its highly effective local focused advertising strategy, while the reduction in the annual commitment marketing spend to NBC over the remaining 5 years of the agreement provides flexibility with the company's overall U.S. marketing budget. Additionally, if desired during the life cycle of the agreement, PointsBet will maintain second look rights on these national properties. An external brand lift analysis conducted by Kantar in October '22 indicates that between December 2021 and June 2022, we saw a 27% increase in brand favorability and an 18% increase in consideration intent against our key audience demographics via NBC advertising. Throughout the term, we will continue to refine our spend to ensure we achieve optimum efficiency, maintaining and building upon our momentum. NBC has been an excellent partner and very flexible through the process of this restructuring. I can speak on behalf of our entire team when I say that we are excited to enter this new phase and look towards 2023 and beyond. I will now hand back to Sam.

Thank you, Eric. Turning to Slide 4. The December quarter has been another period of progress for the company, achieving record net win across the group as well as each region. From a market launch perspective, on 24th of November 2022, we successfully launched online sports book operations in Maryland. This was followed by our launch in Ohio on the 1st of January 2023. In both states, PointsBet launched on the starting line representing the company's 13th and 14th online sports book operations in the United States. We've been very pleased with the activity we've seen since both state launches. During the first 3 weeks of operations, Ohio has delivered the highest number of first-time betters of any state launch. This is very pleasing as Ohio is the seventh largest population in the U.S. with 11.7 million people. As we've mentioned previously, these early results highlight the importance of being on the starting line in order to improve state launch effectiveness. From a product perspective, during the quarter, we delivered continued enhancements of our broader live betting product with the successful launch of additional Lightning Bet contingencies, including important NFL markets such as Result of Next Drive. Further, our in-house odds factory soccer model was released for the start of the FIFA World Cup, offering a market-leading array of live betting opportunities, including live player props and additional Lightning Bet options as we continue to focus on broadening the depth and breadth of our market leading live betting offering. In addition to the FIFA World Cup, soccer odds factory markets are now available across 18 international leagues, including LaLiga, MLS, French Ligue 1 and UEFA Champions League, providing customers even more betting opportunities across numerous time zones. Turning to Slide 5. Compared to the group results for Q2 FY '22 to be referred to as the prior corresponding period, or PCP, in Q2 FY '23, sports betting turnover was up 56% to $2.06 billion, and total group net win was up 34% at $103.4 million. As you'll hear from our regional CEOs, the U.S. continued its strong trend of net win growth, while Australia was back into growth mode having cycled through a strong PCP comparison that lapped lockdown-assisted months. I'll provide some concluding comments at the end of the call and will now hand over to the regional CEOs to provide an overview of their regions. Firstly, our U.S. CEO, Johnny Aitken.

Thank you, Sam. Now turning to Slide 6. Compared to the PCP, the U.S. trading business ended the quarter with sports betting handle up 75% at $1.05 billion, and total net went up 68% at $40.6 million. The strong growth in net win compared to the PCP was assisted by our strategy to focus on targeting, delighting and retaining a super user customer through product and service excellence. Given our focus on the super user, it was pleasing to see our net win growth, which increased 68% compared to the PCP, outpacing our player growth with rolling cash actives growing 39%, 292,000. This implied growth in player value is driven by our continuously improving product and has impacted our customer Net Promoter Scores, bets per player days favorably. This has been achieved while simultaneously reducing our bonus investment. Our primary objective, sports betting net win, grew 51% when compared to the PCP. Gross trading margin at 5.2% was impacted by some short-term negative VIP variance late in the quarter. However, margins have corrected higher in January as trading normalized with January net win expected to significantly exceed the December quarterly monthly average net win. This increase in net win growth momentum is pleasing to see. Looking ahead to the rest of H2 FY '23. We would guide towards an expected net win margin figure in excess of 4% for sports betting. This forecast for H2 is above the year-to-date trend but in line with what we have observed to date in January. This shift is enabled by the continuous evolution of our pricing model and trends in consumer behavior towards parlay bet types. Both of these trends are enabled by continued improvements with our betting platform. iGaming delivered a 128 increase -- a 128% increase, I should say, in net win compared to the PCP. This meant we achieved a new record high for iGaming net win performance in Q2 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 on our gaming. From a product perspective, Q2 saw improvements with every content launching in Michigan and gaming realms and casino game type launched in New Jersey and Michigan, supplementing content addition and improvements through existing suppliers. The iGaming lobby saw improvements in look and feel, with game category creation functionality deployed to support customers finding new and favorite content as well as a more optimized game layout, ensuring more content is exposed above the fold. However, we believe we have continued headroom to improve our iGaming product and the net win contributions iGaming can deliver to business in live U.S. states. Our marketing efforts are hyper focused. This means investing in our target customer and in regions and markets where PointsBet is live. Despite increasing our total addressable market and being live in 5 more states this quarter compared to the PCP, total marketing expense reduced by 17% to USD 24.5 million. The aforementioned growth in player value is driven by 3 factors fundamentally. Number one is marketing. With our continued increased brand values combined with more efficient and targeted investments. Number 2 is product, which fundamentally improves ability to retain and engage customers. The impact of our investments have been evident this half year in our internal Net Promoter Scores as well as the Eilers & Krejcik externally published product rankings, where we continue to be ranked in the top 3 online sports betting apps in the U.S. And number three is iGaming, with our ability to target both new direct casino customers and better engage our sports base, which has significantly helped drive up our player values in live iGaming markets. The improving marketing ROI can be seen by the increased net win versus the decreased marketing investment. It can also be clearly seen via our internal marketing investment to net win payback ratio. Tracking with our forecast, our payback ratio being more than 2x our FY '22 H1 PCP number. Payback is defined as the relationship between the expected lifetime value clients and the cost to acquire them. Our working CPA -- our working media CPA, I should say, for the quarter was well below USD 400. On a like-for-like comparison, our same-state total net win grew 36% compared to the PCP despite the reduced marketing investment as we realize the benefits of retained client cohorts. As has been reported by some other operators, PointsBet is seeing combined revenue from acquired clients in a given month, increasingly -- increased materially from year 1 to year 2. That is acquired clients as a group are more valuable in year 2 than year 1. During Q2, we launched one new state, Maryland in November, and also launched Ohio on January 1, 2023. That growth has meant that PointsBet is now live with its proprietary sports betting platform in 14 states of the U.S. Each new market launch carries expectations of improved velocity from day 1 in terms of FTBs and overall activity as we continue to harness learnings from prior launches and optimize our go-to-market strategy. Despite Maryland being a smaller population size in comparison to launches in Illinois, New York and Pennsylvania, for example, it broke internal records for first 5-day FTB volume compared with our prior 12 online sports betting launches. Our launch in Ohio followed on the 1st of January 2023, where we again proceeded to beat the FTB record set in our prior Maryland launch. Turning to Slide 7. We continue to shift more key sports onto OddsFactory, our proprietary trading platform, which powers our stated mission to own and create the best live betting experience for North American customers. OddsFactory to date has enabled PointsBet customers to experience a comprehensive depth and breadth of live betting markets supported by increased market uptime and faster bet acceptance than competitors. It is worth emphasizing some key data points on live betting and why it forms the foundation of our strategy and ability to win with the super user customer. This includes significantly reducing NFL suspension times versus the 2020 to 2021 season. The inability to place a live bet because of suspension is a key customer frustration, and we've invested considerably in delivering a leading betting experience in this respect, enabling customers to place faster bets with minimal interruptions. Our Lightning Bets products also referred to as micro markets, continues to attract our users, bringing them closer to the live action, allowing them to bet, for instance, on the NFL on the outcome of every play and drive. For Q2 '23 FY, Lightning Bets accounted for an average of 20% of all cash in-play debts. We were pleased to have again ranked third in the Eilers & Krejcik's U.S. sports betting apps testing, continuing to demonstrate that we have one of the leading apps in the U.S. market. Also in the quarter, we debuted a market leading suite of 130 live betting options for the soccer World Cup. Customers had access to an unmatched number of 1-minute and 5-minute Lightning Bet markets, along with the ability to build a same game parlay, prematch or live, to maximize their live betting experience. As we articulated previously, we expect net win margin performance to be sustainable above 4% as we continue to reap the benefits of owning our in-house sports betting technology and OddsFactory, our proprietary sports betting trading feeds solution. This will allow us to continually decrease promotional investment as we lean on our product and service excellence to drive sign-ups, retention and continued net win growth. I would now like to hand it over to our Australian CEO, Andrew Catterall, to provide an overview of the Australian trading business.

Thank you, Johnny. Now turning to Slide 8, Australia. In Q2 FY '23, the Australian trading business delivered PCP and quarter-on-quarter growth in turnover, gross win and net win. Our net win in Q2 was a record, not just for the second quarter but for any quarter in the company history. Total turnover was $938.5 million, up 29% compared to the PCP. And net win was $57.7 million, up 9% on the PCP. We cycled out of lockdown impacts on PCP comparisons by mid-November. December 2022 was the first full month in FY '23 clear of lockdown impacts for PCP comparisons. Pleasingly, in December, we delivered 21% growth in cash actives and 14% growth in net win compared to December 2021, validating the underlying growth in the mass market appeal of the PointsBet brand in Australia. Sport continued to be the primary driver of growth in actives, turnover and net win in Q2 FY '23. In our last report, we called out a net decline in free code racing turnover for the first quarter, primarily due to the hangover of lockdown impacts on Victorian and New South Wales-based customers. As we cycled out of these lockdown impacts from December onwards, racing performance returned to a consistent, slightly positive year-on-year trend. Our overall trading margin was lower at 10% for Q2 FY '23 compared to 12.7% in the PCP and 11.9% in the previous quarter. Turnover continued to weight towards sport versus racing through Q2, thus lowering margins despite the fact we made material improvements in the margin performance of multis. We continue to prioritize improvement in multi performance in our combined local and global product road maps. The global [ weight ] improved same-game multi products powered by OddsFactory has delivered material increases in activity and net win for the FIFA World Cup soccer and season-to-date performance for NBA and NFL, which we anticipate will also benefit in H2. We continued our strategy to improve the efficiency of our client promotions and to prioritize the retention and reactivation of known positive value clients over less valuable promotion-led clients during -- recruited during the lockdowns. The rate of client promotions as a percentage of gross win improved to 38% versus 42% in the PCP. The average monthly cash actives for the quarter was up 6% on the PCP. The 12-month rolling cash actives as at 30th December 2022 were nearly 235,000, up 1% on the PCP. Total marketing expense was $20.1 million for Q2, down 11% on the PCP and down 20% quarter-on-quarter. This is a continuation of our strategy to invest hard in brand promotion in Q1 and scale back from Q2. Our forecast marketing expenditure for the H2 FY '23 will be less than 50% of the H1. In Q2, we extended brand partnerships with Seven Racing, Fox Footy and Australian Community Media and secured a new partnership with ESPN, which will underpin our marketing efforts in H2. I'd now like to hand it over to Scott Vanderwel to run through highlights for Canada.

Thank you, Andrew. Now turning to Slide 9. We have been live in Canada since the market opened in April and have completed 3 operational quarters. This past quarter, we were pleased to see growth and momentum continue to build across both our Sportsbook and online casino offerings. Total Sportsbook handle was $80.4 million, up 284% quarter-on-quarter, with the NFL regular season in full swing and the NBA and NHL seasons returning to action. Our in-play mix of total handle grew to 63% in Q2, up from 59% last quarter, as customers continue to experience and enjoy this new form of betting, particularly during the recent FIFA World Cup. Sportsbook gross win was $3.5 million, up 121% quarter-on-quarter. And net win came in at $2.1 million, 4.8x higher than Q1. On the online casino side, we delivered $2.9 million in net win, an increase of 128% quarter-on-quarter. In total, across the full offering, we delivered total net win of $5 million, a 192% increase over our first quarter results. The competitiveness of the Ontario market continues to rise, with 67 licensed gaming sites from 35 different operators as of the end of December. Within that highly competitive environment, we continue to be pleased with the strength and quality of the customers that are making the choice to play on PointsBet. With growing cash actives growing to almost 21,000, up 57% from Q1 and average turnover per customer continuing to grow, our marketing spend was $8.2 million in Q2, and our marketing to net win payback ratio is very strong. We continue to make gains in strengthening our brand awareness and consideration and building our presence in the local community. We recently opened our Canadian office in the heart of downtown Toronto, providing a permanent home to our local staff supporting our Canadian clients. Our approach of working hand in hand with iconic partners and ambassadors, including Maple Leaf Sports & Entertainment, is helping to build connections with customers. And we see continued value in leveraging these trusted relationships as we build the PointsBet brand in market. Looking ahead, we expect to continue to deliver sequential performance improvements in Q3 as our base of customer grows. Our already class-leading product continues to innovate and improve. And the sporting calendar continues to be robust through the NFL playoffs, Super Bowl and the second half of the NBA and NHL seasons. I would now like to introduce our Group CFO, Andrew Mellor, to provide an overview of the cash flow statement.

Thank you, Scott. Turning to Slide 10 for the quarterly 4C cash flow summary. I'll move through each of the main line items. Net cash used in operating activities, excluding movement in player cash accounts in the quarter ending December 31, was $64.7 million, an increase on the $58.5 million of operating outflows in the prior quarter. Receipts from customers for the quarter totaled $105.8 million, a quarterly record for the group. This includes net win from Sportsbook and iGaming verticals of $103.4 million. And the balance includes cash 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 $61.3 million, which was higher than last quarter driven by timing of payments as well as by increased trading activities across the 3 regions in Q2 versus Q1. Noncapitalized staff costs were $25.7 million, lower than Q1 due to the timing of the FY '22 annual performance payment during Q1. Marketing cash outflow for the quarter was $67.5 million, higher than last quarter due to the timing of payments of accruals and prepayments across the quarters. As previously spoken to, the Australian marketing expense was $20.2 million for the quarter, below Q1 of $25.2 million, and the U.S. marketing expense was USD 24.5 million, slightly higher than Q1 of USD 22.8 million. The Canadian marketing expense was CAD 8.2 million, above Q1 of CAD 5.5 million. Administration and corporate costs and GST paid on Australian net win was $18.9 million for the quarter, slightly higher than Q1. Turning to investing activities. Net cash used in investing activities during the quarter ending December 31 was $16 million, higher from the $14.9 million in the prior quarter. Capitalized development costs were lower than Q1 due to the timing of the FY '22 annual performance payment during Q1. The U.S. business development costs increased on the prior quarter, and this was driven by market access and regulatory-related payments for the Maryland and Ohio state launches. There was $1.1 million used -- there was $1.1 million cash used in financing activities during Q2 versus $0.9 million in the previous quarter. It should be noted that there was a negative impact of $12 million from the movement in exchange rates due to the move in the USD, AUD spot price during the quarter given the majority of corporate cash is held in USD. The company has no corporate borrowings at the end of December '22, had $320 million in corporate cash. Now to provide some commentary on the H2 FY '23 cash flow outlook. Based on our expected trading performance for the second half, we currently anticipate the H2 FY '23 net cash outflows, excluding movement in player cash, will be circa 35% lower than H1. The operating cash outflows for H1 FY '23, excluding movement in player cash, was $123.1 million. And H2 operating cash outflows, excluding the movement in player cash, are not anticipated to exceed $70 million, a significant reduction versus H1. This will be driven by continued trading momentum of the 3 trading businesses. Further in Australia, we front loaded the marketing expense into the first half, with marketing in the second half to be less than half of H1. And in the U.S., we expect the marketing expense in the second half lower than the USD 47.3 million in the first half, with marketing -- with total marketing for the U.S. FY '23 to be circa USD 90 million, down from USD 118 million in FY '22. In closing, we would note that the velocity of hiring into FY '23 reduced significantly versus FY '22 with a focus on hiring into low-cost locations up to the end of December. At the 31st December '22, we have reached operational scale, and the group has implemented a global headcount freeze. We look forward to presenting our half year financial statements later in February. I'll now hand back to Sam.

Thanks, Andy. The end of the calendar year marks a turning point for PointsBet. In Australia, we look forward to delivering another full year of growth and EBITDA positivity on the back of an improving product and greater promotional efficiency. In Canada, we are seeing strong ROI from our early investment in a jurisdiction structured favorably for operators with iGaming and a reasonable tax rate. In the U.S., we've delivered strong PCP revenue growth through H1 while reducing marketing investment materially. As previously communicated, we expect New Jersey to be EBITDA positive by June 2023. With operational scale now having been reached, the impact of our growing revenues will begin to be seen in H2 as cash burn reduces by circa 35% from H1. We will report our half yearly results in the coming weeks. However, as can be seen from our H1 trading results, together with the realigned NBC deal and commentary on our cash flow outlook, we believe this is an important and positive juncture for the company and for our path to profitability. Thank you for your time, and I will now take questions with regards to our amended NBC partnership and our quarterly results discussed this morning. Before we do, please note that today, we will not be commenting on or answering questions on the ASX announcement dated 28th of December, which addressed speculation regarding our Australian trading business. As noted in that release, PointsBet will continue to keep the market updated in accordance with our continuous disclosure obligations. Thank you.

[Operator Instructions] Your first question comes from Rohan Sundram from MST Financial.

Just -- I might just start with a question on iGaming. And Johnny, you might have touched on it in the call. I might have missed it. But I noticed in the states like Michigan, there was a step change up in the revenue in the December quarter versus previous quarter. Can you just recap on what is driving that? What changes have you made that's driving that? And is that -- the sustainable increase, is that a new base we should now expect to see from iGaming and further strong ramp-up?

Go ahead, Johnny.

Sure. Thanks, Rohan. Good to speak. Yes. I think it's a combination of 3 things. Firstly, we're getting better and better at knowing when to cross sell, engage sports betters into casino with an improving product depth and game lobby. So when they're cross sold through to the PointsBet casino, it's on par from an experience compared with other, again, iGaming products. Secondly, we're starting to invest in acquiring a direct casino player. That's someone that thinks and bets -- first, someone that's more drawn to play slot games, and we're seeing them be quite engaged again off a low base, off a low spend, but something that will continue to ramp up with efficiency. And again, part of our NBC deal realignment is the ability, for instance, to invest through a marketing mechanic called Effectv, which allows us to go sort of over the top in sort of local markets around America. And again, we'll be doing that with casino branding and messaging in the state of Michigan. And then the third is the team just continues, again, to execute better and better. We're identifying customers earlier that are high value that are both playing across sports and casino and those that are playing across casino and giving them more personalized experiences, messages and offers. So there's not one, I guess, sort of silver bullet thereon. It's a combination of those 3 key factors that has seen our sort of revenue performance in Michigan grow.

And maybe one more just for either Sam or yourself, Johnny. Just how are you seeing the competitive environment at the moment, especially in those new state launches? I appreciate it's always going to be competitive. But how are you seeing it now versus, say, 12 months ago?

Go again, Johnny.

Sure. Again, what we're seeing is still a very, I guess, obviously, heavy-duty assets from all competitors that go live on sort of day 1, both in, call it, brand spend and promotional spend. Again, we're being very tactile and efficient with how we go to market in states. For both Maryland and Ohio, we were tactile in evolving our strategy to invest ahead of day 1 to continue to build a database that has been through the sign-up flow, again, without the point of depositing. But again, being through a sign-up flow, so when you get to day 1, they're sort of in our net, call it, and then able to step up and become first-time depositors and first-time betters. And I think that sort of materially added. Sam and I articulated upon setting FTB records for first 5 days of sort of Maryland as a record and then, again, Ohio eclipsing that. On the 1st of January, I am surprised that competitors are continuing to be really heavy duty sort of with promotional spend. A lot of competitors are still investing 200% to 300% of their gross earnings and promotions months sort of 1 and 2, which probably overstate, to a degree, their sort of market shares, where sort of month 3 onwards, it starts to wash out as operators act more sort of normal and sort of rational, which we're sort of doing from month 1. But I'd say, Rohan, in general, the launches in Maryland and Ohio, competitors have been as competitive as ever with their brand and sort of promotional spend.

Your next question comes from Phil Chippindale with Ord Minnett.

Just firstly on this marketing switch in the U.S. with NBC. You've highlighted this sort of switch or focus, if you like, to more localized marketing. Can we just unpack that a little bit, why you're convinced that that's the way forward? Perhaps you can reflect on your experience to date and just outline a bit more of the strategy.

Yes. I'll go first, and then Johnny can chime in. Yes. I think we've learned, obviously, through the first couple of years of the NBC agreement. And I would note the changes to the agreement effectively. We've been operating sort of under the expectations of this adjusted agreement since August. So while we're talking about we've seen a sort of a forward-looking way, we've been talking for the last couple of quarters about the more targeted localized strategy that we've been implementing, and that's been critical to the success and the efficiency that we've seen. So we've been moving in this direction since post the NFL launch season in 2021 when the market obviously went really, really hard, and it got all over heated, and we said, okay, we need to be more targeted with the target client that we're after, and we need to be targeted with our marketing. We can't just be generic. And I think we just feel that it's not -- it's probably not hard to see that if you're spending money nationally across all of America while you're live in 14 states, there's a bunch of states out there that you're not immediately monetizing. And at this juncture, we want to be monetizing and getting direct ROI from the states and where we're live. So we saw the benefits in terms of the impact it could have on brand by being on those national properties around the NFL, et cetera. But when it comes to marketing payback, making sure our marketing dollars are getting us on that path to profitability, it's far more efficient to focus them locally and regionally where we're live and making sure we're getting that right rather than perhaps worrying about when California might go live and the amount of marketing dollars that would be going into that jurisdiction from a -- if you're still spending nationally. Johnny?

Yes. I think Sam sort of again articulated that really well. So that firstly stepping up our performance when it comes to cost of acquisition to lifetime value and, again, investing more and more of our sort of marketing dollars in states we're live and operational very much assist that growth. From a local or sort of regional front, we really like those assets. We've obviously used them now for 2.5 years. We've tested sort of robustly again on those assets, and we have most freedom working with the leagues and then the sort of regional network, for instance, in Chicago and Philadelphia, to sort of integrate inside the sporting broadcast for NBA, MLB, NHL being sort of one on one. We're doing those integrations. Integrating our odds, our offers, our talent and really adding to the storytelling on the broadcast. That's what PointsBet wants to be. We want to be very authentic and bring to life what makes the company special, products, taking big bets, odds movements and talent as such. So we feel we have the best chance of bringing to life the brand with those key sort of regional and sort of local assets and, again, very pleased with the deal amendment that was announced today.

Okay. Just one more if I may. If we can just pivot to the Australian business. Sam, can you make a little bit of a comment as to the competitive environment that you're experiencing here? If I look between that, that gross margin is obviously down a little bit versus PCP, but you've said that's due to the mix to sports. But yes, I'd just be interested in that broader sort of promotional strategy that you've got here and how well or how aggressive you think the market is here at the moment.

Yes. Again, I'll get us going, and then Andrew Catterall can join in with some comments. I mean, look, I think there's no doubt there's a lot of competition still in Australia. Obviously, there's a big brand that's coming in better during sort of the half, and you've still got a long tail, I think, of operators that came in. Some are probably emboldened by the growth that was experienced through that lockdown period. I mean I'll be really interested to see other operators report this period. We're back in growth mode. I'd be interested to see if others are back in growth mode. I think it will be a marginal thing. So we believe -- I think I said at the end of the last financial year, with Andrew coming onboard, we really believe that our Australian business hadn't had a lot of love and that if we put some product effort into it along with Andrew's focused leadership, we have a lot of improvements still to come. Perhaps took a little bit of while that first quarter after Andrew coming in for that to sort of start flowing through. But also as we highlighted, we were cycling out against the COVID period. But I think we're now seeing that. We've got great confidence in our continued growth through the rest of the financial year. We stated that we'll be growing again this year, and we'll do it within EBITDA positivity. But yes, the market is definitely competitive. Again, it'd be interesting to see how behavior sort of goes if others aren't necessarily growing as they come out of that period. Again, our principles were improving product, greater use of promotional efficiency. Yes, there's been a little bit of a surprising change in yields due to the overweight of sports. We do think we can get those trading margins back above 4% as an example, as a starting point because there was some particular turnover that we saw during the quarter on some really low-margin product like tennis sort of head-to-head stuff and things. So on a normal product mix, even with sport growing, we think those margins can come back up. Andrew, I probably stole the most of your thunder. Anything you'd add?