PointsBet Holdings Limited (PBH) Earnings Call Transcript & Summary

Good morning. Welcome to the PointsBet Holdings Limited 2023 Annual General Meeting. My name is Brett Paton, I'm your Chair. I'd like to welcome those shareholders who have joined us here today in person, and together with those shareholders who are participating through our hybrid online meeting platform. May I now request that all mobile phones be turned off. Thank you. Turning to the agenda for today's meeting. I note that it is past 10 a.m., and this is a properly constituted meeting. As a quorum for a General Meeting is present, I formally declare the 2023 Annual General Meeting now open. In the room with me, we have our CEO and Managing Director, Sam Swanell, together with Nonexecutive Directors, Peter McCluskey, at our left, Tony Simons and Kosha Gada. Also, in attendance today our Group CFO, Andrew Mellor; and Group General Counsel and Company Secretary, Andrew Hensher. Participating online, our U.S.-based Nonexecutive Directors, Becky Harris, Manjit Gombra Singh and William Grounds, welcome. The Notice of Meeting was distributed to all shareholders, and copies are also available online. I'll take the Notice of Meeting as read. As set out in the Notice of Meeting, the formal proceedings comprise 5 resolutions. All resolutions will be decided by poll. Voting on the resolutions is now open. Computershare, the share register of the company is appointed to act as scrutineers, and Peter Renda is appointed as the returning officer for the purpose of the poll. For those in attendance in person, the blue voting cards handed out contained in the resolution -- contains the resolution and you should complete the voting cards before the end of the meeting. Shareholders who wish to abstain from voting and proxy holders who have been directed to abstain from voting to do -- abstain from voting do not need to complete the voting card. For those participating online, you can select The Vote icon at the top of your screen. You can then cast your vote, and you will see a vote confirmation. You can vote any time during the proceedings until I declare the voting closed. You can also change your vote at any time through the proceedings. I will give you a clear prompt later in the meeting to warn of those to when it's close in voting. We will also take the opportunity for questions. If you are attending online, you can start submitting written questions now by clicking Q&A icon. You can also ask a verbal question by following the instructions on the broadcast window. We also welcome Billy Chan and his colleagues from RSM, the company's auditors. Before I move to the resolutions to be considered today, together with Sam Swanell, I would like to provide some commentary on the strategies, operations and financial results of the company. A lot has happened since I addressed you in the 2022 Annual General Meeting. First of the U.S. business sale. The pivotal event during the year was the approval by shareholders on 30 June 2023 of the sale of the U.S. business to Fanatics Betting and Gaming for a headline purchase price of USD 225 million. As previously detailed, the U.S. business became exposed to an increasing number of risks required significant capital to execute on our U.S. sports betting and iGaming strategy. This reflects the structural high cost of operating in a state-by-state regulated market. The requirement to pay partner fees in most U.S. states and the continued competition from well-capitalized competitors. In view of the significant capital requirements associated with U.S. business, the company explored a range of strategic alternatives to alleviate the demands on PointsBet's balance sheet that is currently used in both Australia and North American markets. PointsBet Australian Trading business has a strategically important place in the Australian wagering market, a point that has been validated by previous unsolicited third-party approaches expressing interest in our business. The company intends to grow its market share in the Australian market with the benefit of a more focused approach given the streamlined business that will remain. The company also retains exposure to an early-stage North American market via the Canadian Trading business. In Canada, PointsBet is live in the sports wagering and iGaming market in Ontario. The Ontario market structure is attractive for sports and iGaming operators including no partner revenue sharing agreements, nominal license fees and acceptable effective tax rate of 18% of gross gaming revenue. The lower capital requirement and higher operating margins relative to most U.S. states creates strong prospects for attracting future economics. I'd like to talk briefly about responsible wagering. Comments in our continued commitment to responsible gambling. As set out in the FY '23 Sustainability Report, responsible gambling continues to be a key focus and PointsBet is playing a leadership role as the industry evolves in both Australia and North America. PointsBet endorses the principle of informed choice, which is aimed at empowering customers to make informed decisions and exercise choice regarding their wagering expenditure. Recently in Australia, we implemented our integration to BetStop, the national self-exclusion register for online wagering. We also implemented a 0-day verification, also known as pre-verification, meaning a customer can only undertake wagering activity, such as deposit or place a bet once their identity is verified. Previous verification had to be completed within 72 hours of account opening. This functionality served to protect the underage and those individuals have chosen to exclude themselves from betting through BetStop. These are 2 important initiatives for the Australian industry. In Canada, we are delivering our learning from the mature Australian market and have rolled out a set of tools to assist our Canadian customers manage their spend. Corporate governance, despite evolving into a smaller company, the geographic and regulatory complexity of our business remains, and the Board continues to focus on effective corporate governance as a priority. We have adopted policies and practices to ensure the Board remains effective and has the composition to adequately discard -- discharge its responsibilities and duties and maintain best practice governance. To ensure that the Board remains fit for purpose, taking into account independent size, skills and compensation following the completion of U.S. -- the sale of the U.S. business, the Board has engaged an independent third-party consultant to undertake a board review. It is my attention this review will be completed and its recommendations implemented in parallel with the completion of the sale of the U.S. business early next year. In conclusion, I would like to thank my fellow directors for their support over a very busy past 12 months, has been negotiated and executed on the sale of the U.S. business, facilitate a significant return of capital to shareholders and deliberate over management strategic plans for the continuing Australian and Canadian businesses in FY '24 and beyond. Most importantly, I would like to thank you, our shareholders, for your support. We look forward to delivering only opportunities we see in the business moving forward and growing the shareholder value. It is now my pleasure to invite Sam Swanell, Group CEO and Managing Director, to provide further commentary on the FY '23 financial year and business strategy and priorities over the coming years.

Thanks, Brett. Good morning. This is Sam Swanell, Group CEO and Managing Director, and I would like to thank you all for attending the 2023 Annual General Meeting of PointsBet Holdings Limited. We are at an important stage in the PointsBet journey. Over the past 5 years, the company has grown revenue in our continuing operations, being the Australian and Canadian businesses from $26 million in FY '19 to an anticipated $230 million to $250 million that creates the most value for PointsBet shareholders. We also retain the rights to use and further develop the Banach OddsFactory Technology assets, which drive our market-leading in-play in Same Game Parlay products and the cash out feature is used in all of our markets but particularly powerful in the North American live betting market. I believe it's important for shareholders to understand just how valuable our technology has become. It's been one of the critical features of our company, and it bodes well for the value and the future of the Australian and Canadian businesses. We've harnessed the power of a single unified code base that is agile as it is robust. This versatile code base seamlessly handles low latency requirements for in-play betting and the high scalability needed for handling an impressive volume of beats per second, especially during peak periods, such as Melbourne Cup Day, AFL Grand Final and Super Bowl. Our platform seamlessly handled over $7 billion in turnover in FY '23 across online sports betting and casino. We're also very efficient. Our technological foundations accelerates innovation and streamlines development, fewer hands are needed in the process, which translates to cost savings and faster delivery of new product developments. The end product we have in the hands of our customers is very strong and getting stronger every month. Our front-end and back-end capabilities are driving our efficient revenue growth and will continue to do so. The bottom line is that our technology organization is not just agile, it's a powerful, reliable machine that can handle both the horizontal and vertical scaling needs of the market, making our app highly user-friendly and efficient. We believe our technology will continue to drive our success in the upcoming year and beyond. I'll now briefly touch upon our FY '23 results, which were released together with an investor presentation to the ASX on the 31st of August before providing some forward-looking commentary. In accordance with AASB accounting treatment as a result of the sale of the U.S. business, the United States and European operations, which from part of the Fanatics sale perimeter were reported as discontinued operations as at 30 June 2023. As such, references to the group are referencing to the continuing operations being the remaining Australian and Canadian businesses. For the 12 months to 30 June 2023, the group total net win was up 2% at $230 million. Net revenue of $210.3 million represented growth of 7.6% and gross profit of $105.7 million represented growth of 5% versus the 12 months to 30 June 2022. The group's normalized EBITDA loss was $49 million. The Australian Trading business recorded a net win of $211.7 million, down 2% from the prior year. Sports turnover increased by 47% compared to the prior year, offsetting declines in racing turnover. Continued focus on promotions efficiency led to the rate of promotions as a percentage of gross win improving to 31.5% compared to 36.3% in the prior year. Net win growth from AFL and NRL combined was up 86%, and tennis and soccer combined were up 53%. We were also pleased that the Australian Trading Business achieved its fourth year of EBITDA profitability, recording a statutory EBITDA of $0.1 million. We look forward to the Australian Trading segment delivering significant EBITDA in FY '24. In Canada, we completed our first full year of operations in Ontario with total net win of $18.3 million. While the Ontario market is competitive, our Canadian business continues to perform well. The strength and quality of the customers that are making the choice to play on PointsBet demonstrates the effectiveness of this strategy. As we look ahead to FY '24, we are looking forward to delivering strong revenue growth in Canada. We have a top-tier North American sports betting product, an exciting product road map and we'll continue to invest in our product and app experience for both Sportsbook and online casino. I look forward to Canada growing revenue and significantly reducing its loss in FY '24 on its way to being EBITDA breakeven in FY '25. Trading performance over the important Spring Racing Carnival has been strong and provides me with great confidence in our technology, team and strategy. Group net win for the quarter to date being the 1st of October to the 25th of November 2023 was $48.2 million, representing a 26% increase over the prior corresponding period of $38.2 million. The Australian Trading business has contributed a net win of $42.2 million for the quarter to 25th of November, a 20% increase on the prior corresponding period, and the Canadian Trading business has contributed a net win of $6 million for the quarter, a 107% increase on the prior corresponding period. Importantly, our front and back-end technology platform performed seamlessly over the peak spring period, providing our customers with a first-class betting experience. Our strategy is clearly working, and I'm very excited about our future in Australia and Canada. Our Australian operation has a strategically important place in the Australian wagering market. We intend to continue to grow our online share in this market from a current 5% position with the benefit of a more focused approach from a people and tech and product perspective. In Australia, our marketing and generosity strategy will continue to shift from a broad-based above the line to a highly targeted below-the-line focus, allowing us to target and reward a more loyal and profitable segment of clients and deliver increased net win growth. Our strong PCP results year-to-date in Australia are clearly outperforming the market and thus driving our market share growth. The Canadian business provides shareholders continued exposure to the North American market through a jurisdiction that is more attractive than most U.S. states with no partner fee and acceptable tax rate and iGaming complementing sports betting for the entire market. We believe the early stage of the Canadian business complements our more mature Australian business as well as providing an opportunity to leverage attractive features of our tech stack that aren't available in the Australian market, such as online casino and online live betting. The [ FY '24 ] results to date provides increased confidence that Canada continued to deliver high growth for the business and is on track to be EBITDA breakeven in FY '25. As previously disclosed to the market and mentioned earlier, we remain on track for delivering revenue growth of between 10% to 20% in FY '24. Group EBITDA to be at or close to breakeven post the close of the Fanatics transaction in March 24 and delivering positive group EBITDA in FY '25. And importantly, we do not anticipate any external funding requirements to deliver the [Audio Gap] Result. We have a best-in-class team that will deliver shareholder value now and increasingly into the future. I'll now hand back to the Chairman for the formal part of the meeting.

Thank you, Sam. I will now move to the formal business of the meeting. Casting your vote. Results will be released to the ASX after the conclusion of this meeting. Please note that only shareholders, proxy holder and authorized shareholder representatives may vote. Any undirected proxy votes given to the Chairman will be voted in favor of the resolution. Any directed proxies given to you by the shareholder will automatically be cast as directed when the poll is closed. Ordinary business, financial statements. The first item of business listed in the Notice of Meeting is to receive and consider the financial statements for the 12 months ended 30 June 2023 and the reports of the directors and the auditor. Please note that no vote is required on this particular item of business. As mentioned previously, Mr. Chan, partner of RSM, is with us today. Questions relevant to the conduct of the audit, the preparation and content of the independent audit report, the accounting policies adopted by the company in relation to the preparation of the accounts and their independence in relation to the conduct of the audit may be directed to him through me as Chairman. Any questions in relation to director and executive remuneration policies will be considered when we come to that item of business covering the adoption of the -- in the remuneration report.

Firstly, are there any questions from shareholders here in attendance today? Are there any written questions, which have been submitted online or any shareholders who wish to ask a question over the -- or via the phone.

Yes, Chair, there is a couple of questions online for Mr. Stephen Mayne. The first one, states. Our biggest competitor, Sportsbet has been providing the federal labor party with donations, gifts and dinners seeking to influence gambling policy. Does the CEO and the Chair think this is going to work? And also what is our history of making political donations.

I think Stephen, it's probably better that I just comment on our policy rather than speculating on how other's activities will work or not work. We relatively recently joined the industry body responsible wagering in Australia, the RWA. And they -- as far as we can see, they conduct industry observations and alert industry participants and watches on behalf of the whole industry. In regard to our specific, we have no -- our board endorsed policy is in Australia and Canada, there are to be no political donations or political donations that are social donations in a similar way.

Thank you. And the next question also from Stephen Mayne was, PointsBet won $211 million from Australian gamblers in 2002 -- sorry, 2022, 2023, how long will it take to crack $300 million in revenue? And can you comment on where our market share is and whether we should merge with smaller players to gain scale?

Stephen, thanks for the questions. I think in terms of forward-looking statements, we've given as much as -- we've given more than we customarily given in this update today in terms of the quarter-to-date update in terms of meeting the $300 million revenue referred to. I'd like to ask Sam but we don't give forecasts though. So if Sam can think about an elegant way to answer that.

Yes. Obviously, there's analysts in the marketplace that cover the stock points bet. We've provided some guidance on FY '24 that we expect revenue to grow to 10% to 20%. That takes, I mentioned in my address, somewhere between $230 million to $250 million of revenue for this year. So it's about making an assumption on future growth rates, which we haven't provided a in any guidance on, but there are analysts out there obviously providing some topics like that. Hopefully, that helps, Stephen.

Perhaps, if there are no further questions online, move to Resolution 1, election of Mr. William Grounds. This item of business relates to the election of William Grounds as a Director of PointsBet Holdings Limited. The resolution and a summary of the votes received before the meeting now appear on the screen. Details of Mr. Grounds' background and experience is set out in the Notice of Meeting. I'd like to ask William to speak to his election. William?

Thank you, Chairman, and good morning, shareholders, ladies and gentlemen. I'm honored to offer myself today for election as a Director of the company. I joined the Board in December 2022. It has been an intense 12 months, as you know, and I've enjoyed working with the Board, management and advisers to reach a solution that strengthens the company's balance sheet. I've been very impressed by the caliber of the Board and the management team and stand for election in the hope of continuing to work for them and with them. I have over 25 years of senior executive experience with major Australian public companies in project management and funds management and with a UAE sovereign wealth company in the gaming and hospitality industry. Since 2008, when I located to the U.S.A., I've been involved in the U.S. gaming industry overseas -- overseeing investments in a major Las Vegas mixed-use Resort and Casino and a major global gaming enterprise. For 8 years from 2013, I served on the Board of Directors of MGM Resorts International, one of the world's largest gaming and hospitality companies. During this period, online sports wagering was legalized in the U.S.A. and MGM formed the BetMGM online gaming joint venture. I'm currently a board member of a NASDAQ-listed consumer finance business, consumer portfolio services, and I was recently appointed to the Board of the newly established UAE gaming regulator. My senior executive and nonexecutive experience has equipped me with the relevant skills and global perspective to assist PointsBet execute on the strategic goals. If elected, I will continue to commit the time and effort required to making a meaningful contribution to the future success of PointsBet. Thank you very much.

Thank you, Will. The Board of Directors with William Grounds abstaining, recommends that shareholders vote in favor of Resolution 1. The resolution is now open for discussion and questions.

Firstly, are there any questions from shareholders in attendance today? Are there any written questions, which have been submitted online or any shareholders who wish to ask a question via the phone?

Yes, there is one, Chair. Again, from Stephen Mayne, whilst it's not specifically in relation to Will Grounds' election, it does speak to U.S.-based directors. The question is, does it still make sense to have 3 U.S.-based directors now that we've sold the U.S. business, albeit remaining a much smaller Canadian operation?

Thanks, Stephen. As referred to earlier in my Chairman's address we're alert -- very alert to the issue you've raised in terms of conserving shareholder funds and making sure we have the right breadth and depth of the Board to carry the business forward. We are acutely aware that we do have a presence in Canada, which hopefully will grow in terms of provinces and in terms of market penetration. With that in mind, we are also very happy with the early stage of the independent expert assisting us in reviewing the scope, size, competency and remuneration for all directors. Thanks, Stephen. More questions?

If there are no more questions, we will move to the next item of business. Resolution to election of Mrs. Becky Harris. This item of business relates to the reelection of Becky Harris as a Director of PointsBet Holdings Limited. The resolution and summary of the votes received before the meeting now appear on the screen. Details of Mrs. Harris background and experience is set out in the Notice of Meeting. I would also like to Becky to speak to her reelection.

Thank you, Chairman. Good morning, Board, shareholders and other stakeholders. It has been my profound privilege to serve on the Board of PointsBet for the past 4 years. I have very much enjoyed my time on the Board. I am honored today to offer myself for reelection as a Nonexecutive Director. I joined the PointsBet Board on November 11, 2019. Since that time, I have served on the Audit Risk and Compliance Committee as well as the Remuneration and Nomination Committee. I have expertise, experience and a unique vantage point into government relations and regulatory affairs. Prior to my board service, I had the honor of Serene as a Nevada state senator/Because I possessed legislative and policy experience from serving as Vice Chair of the Senate Judiciary Committee, and I obtained an LLM, which is an advanced slot degree in Gaming Law, I was appointed to be the first women's Chair of the Nevada Gaming Control Board. As Chief Regulator, I have the responsibility for comprehensively regulating the multibillion-dollar gambling industry in the State of Nevada. I also served as a global ambassador to other gambling regulators and led the world's most highly regarded gambling regulatory body through several high-profile matters, including the repeal of the Professional and Amateur Sports Protection Act, or PASPA, the emergence of sports betting across the United States, various Wire Act issues and the #MeToo movement. I am currently the distinguished fellow in gaming and leadership at the International Gaming Institute at UNLV and I am on the faculty at the International Center of Gaming Regulation and the Boyd School of Law, both of which are at the University of Nevada, Las Vegas. I collaborate with stakeholders around the world on gambling policy, regulation and legislative affairs, educating gambling regulators and ensuring that they have the information, knowledge and tools necessary to assess and improve gambling policy and regulation in their respective jurisdictions. I have received the Anti-Money Laundering Specialist credential for ACAMS. I believe that this background and experience has uniquely positioned me to assist the Board and PointsBet's executive team in navigating the ever evolving and increasingly complex global gaming and regulatory environment in which the company operates. If reelected to the Board, I am committed to dedicating the time and effort necessary to contribute to the company in a meaningful way, and look forward to supporting PointsBet's incredibly talented and dedicated management team. I believe that the Board has and continues to develop impactful strategy and is well placed to facilitate PointsBet's innovative and dynamic approach in the years to come. And I hope to continue the journey alongside PointsBet. Thank you.

Thank you, Becky. It's -- there's been many a time when the spirit has been there, but the law hasn't supported it.

No more questions?

If there are no more questions, we'll move on to the next item of business. Resolution 3. Reelection of Mr. Manjit Gombra Singh. This item of business relates to the reelection of Manjit Gombra Singh as a Director of PointsBet Holdings Limited. The resolution and summary of votes received before the meeting now appear on the screen. Details of Mr. Gombra Singh's background and experience is set out in the notice of meeting. I would like to ask Manjit to speak to his reelection.