PointsBet Holdings Limited (PBH) Earnings Call Transcript & Summary

Good morning. Welcome to the PointsBet Holdings Limited 2024 Annual General Meeting. My name is Brett Paton, and I'm your Chair. I'd like to welcome those shareholders who have joined us here today in person, 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's now past 10 a.m., and that this is a properly constituted meeting. As a quorum for our general meeting is present, I fully declare the 2024 Annual General Meeting now open. In the room with me, we have our CEO, Sam Swanell; and others might just raise their hand to introduce themselves. Together with Non-executive directors, Peter McCluskey; Tony Symons; Kosha Gada; William Grounds. Also in attendance here today, our group CFO, Alister Lui; and Company Secretary and Chief Legal General Counsel, Andrew Hensher. Participating online are our U.S.-based Non-Executive directors, Becky Harris; and Manjit Gombra Singh. The notice of meeting was distributed to all shareholders, and copies are available online. I take the notice of meeting as read. As set out in the notice of meeting, the formal proceedings comprise of 5 resolutions. All resolutions will be decided by poll. Voting on the resolutions is actually now open. Computershare, the share registry company, is appointed to act as scrutineers; and Peter Rander is appointed as the returning officer for the purpose of the poll. For those in attendance in person, the blue voting cards handed out contains the resolution, and you should complete the voting card before the end of the meeting. Shareholders who wish to abstain from voting and proxy holders who have been directed to abstain from voting do not need to complete the voting card. Voting instructions. 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 the 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 during the proceedings. I will give a clear prompt later in the meeting to warn of any such closing. Question-and-answer instructions. We will also take the opportunity for questions. If you're attending online, you can start submitting your questions now by clicking the Q&A icon. You can also ask a verbal question by following the instructions on the broadcast window. We also welcome Amy Whittingham and her colleagues at RSM, 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 strategy, operations and financial results of the company. The key event during FY '24 was the completion of the sale of the U.S. business to Fanatics Betting & Gaming for a headline purchase price of USD 225 million. Despite the strategic success of building a valuable asset in the U.S., the cost of operating a state-by-state environment, together with the requirements to build significant scale to compete against well-capitalized operators meant that sale delivered the most attractive risk-adjusted outcome for our shareholders. The completion of the sale of the U.S. business involved a complex technical and operational migration, separation and reorganization of the business over a 10-month period. The ability to continue to deliver outstanding results in Australia and Canada whilst reconstructing the business for future growth and success, is a true testament to our staff. The net sale proceeds of the business, together with the majority of the company's surplus corporate cash reserves, was distributed to shareholders during the financial year. The Board is pleased to have returned a total of $442.4 million, representing $1.39 per share, to shareholders across the first and second capital returns. As previously announced, the company applied for and received a Class Ruling from the ATO, confirming that for Australian tax residents, no part of the first and second capital returns will be assessed as a dividend. The PointsBet group had an outstanding year and achieved -- and in a number of measures exceeded previous guidance. This includes total Net Win of $267.1 million, being 16% higher than last year; gross profit margins of 52.8%, an increase from 50.3% in that of FY '23; total marketing expense of $71 million, being 21% lower than last or previous year; normalized operating expenses, excluding marketing expense of $60.4 million, coming in at the lower end of the previous guidance of $60 million to $70 million; and a normalized EBITDA loss of $1.8 million, which was $2.2 million improvement, on the upper end of our previous guidance and represents a $47.2 million improvement from the loss of $49 million in the previous year. I'd now like to make some comments on our global commitment to responsible gaming. PointsBet endorses the principle of informed choice, which is aimed at empowering customers to make informed decisions and exercise choice regarding their gambling expenditure. PointsBet's commitment to responsible gambling is demonstrated through its wide range of responsible gambling initiatives and tools. Responsible gaming initiatives will continue to remain central to our organization's stability commitment -- sustainability commitment. In addition to paying $0.48 in the dollar to the Government and Racing and Sports bodies, PointsBet makes a material investment in achieving best-in-class compliance with important consumer protection measures. In Australia, PointsBet committed significant resources to deliver Zero Day KYC integration to the National Self Exclusion Register, and a ban on using credit cards to deposit. The package of initiatives and others mean the regulated online wagering sector in Australia is clearly operating to very strong consumer protection standards. When it comes to advertising, PointsBet has restated many times our support for advertising reform. However, we do believe it's important that reputable licensed Australian operators that pay significant taxes and fees can distinguish ourselves from unregulated offshore service providers via sensible advertising. We have consistently outlined the logical and sensible advertising model to be adopted that can clearly protect children and vulnerable people. The Board of PointsBet Holdings considers good corporate governance a priority. It has adopted policies and practices to ensure the Board remains effective and has the composition to adequately discharge its responsibilities and duties and maintain best practice in governance. A review of these documents was undertaken during the year to ensure we stay compliant with the ever-changing governance framework. During the year, there was a particular focus in the area of cybersecurity and data protection as well as know your customer and anti-money laundering policies and procedures in all our jurisdictions. A full summary of our corporate governance activities and policies is available on our website. Our Group CEO, Sam Swanell, supported by his executive leadership team has done a tremendous job in leading the business through a period of substantial change in growth over the last 12 months. In addition, our highly talented employees are a key asset, and the result -- and the results we have been able to achieve are a testament to their dedication, commitment and passion. On behalf of the Board, I'd like to thank all of the team for delivering on the opportunities we saw in FY '24 and positioning the business for continued growth in '25 and beyond. I would also like to thank my fellow Directors for their support over a very busy past 12 months as we executed on our strategy. I would like to thank you, our shareholders, for your support and vote of confidence in the business and its team. We look forward to delivering on the opportunities we see in the business moving forward and growing our shareholder value. It is now my pleasure to invite Sam Swanell, Group CEO and Managing Director, to provide further commentary on the FY '24 financial year and the business strategy and priorities over the coming year.

Thanks, Brett. In Australia, FY '24 was a record year of revenue, being $211.5 million, up 10% compared to the PCP. Gross profit was also a record being $111.8 million, up 14% compared to the PCP. Gross profit growth of 14% outstripped Net Win growth of 10% as our greater promotions efficiency and leaning to lower-cost international sports product improved our gross profit margin. Statutory segment EBITDA for the year for Australia was $26.8 million, a material improvement compared to the $100,000 in the PCP and constituted record EBITDA performance for the Australian business. We've now delivered positive full year EBITDA in Australia for the past 5 financial years. Our 10% growth in revenue outpaced the market, and we gained market share. In Canada, we continued our improvement in EBITDA performance on the back of revenue increasing 87% on the PCP. Statutory segment EBITDA loss reduced to $19.7 million compared to a loss of $35.8 million in the PCP. Gross profit was up 141% versus the PCP with improved gross profit margins from efficiency in cost of sales as the Canadian business continues to scale. Sportsbook net win was $15.2 million, up 124% versus the PCP. This growth was driven by both improved trading margin on a higher overall mix of multi bets and continued gains in customer generosity efficiency. Our multi, same-game multi and live same-game multis are powered by our in-house Odds Factory technology and along with our live in-play betting capability, form a cornerstone of our Sportsbook product-led strategy in Canada. Sportsbook in-play handle grew to 66% of total handle, up from 63% in the PCP, highlighting the strength of PointsBet's live betting product offering. The Ontario market continues to grow strongly, and we continue to outgrow the market and increase our market share. We are also particularly excited about our progress in online casino. In FY '24, we grew net win by 63%, while in parallel, we invested to strengthen our product and overall player experience, which has positioned us to accelerate our performance further into FY '25. As noted earlier, the completion of the sale of the U.S. business involved a complex technical and operational migration, separation and reorganization of the business over a 10-month period. This excellent work has met the PointsBet maintain significant operating leverage through our fit-for-purpose global 24/7 follow-the-sun operating model. We also continue to invest for growth via our investment in marketing, technology and product. Our investment levels are set at a level for the company we will grow into in the coming years. When we talk about transitioning to EBITDA profitability, we do so with investment in these key growth drivers already built into our P&L. However, that investment is largely stable now. And as we grow revenue, we will now benefit from significant operating leverage. This is a significant inflection point, and the revenue growth we generate will flow efficiently to the EBITDA line and expand our EBITDA margins. As I've said before, sports betting and iGaming remains a fast-growing global market. And companies like PointsBet, with a globally powerful product, proprietary technology and international regulated markets experience are available within this industry. I will now hand back to the Chairman for the formal business of the meeting.

Thank you, Sam. I will now move to the formal business of the meeting. Results will be released to the ASX after the conclusion of the meeting. Please note that only shareholders, proxy holders and authorized shareholder reps 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 '24 and the reports of the Directors and Auditor. Please note that no vote is required on this particular item of business. As mentioned previously, Ms. Whittingham, our 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 her 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 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?

Chair, there are no questions.

Thank you. Being no more questions, I will proceed to the resolutions to be considered. Resolution 1, Re-election of Kosha Gada. This item of business relates to the Re-election of Kosha Gada as a Director of PointsBet Holdings Limited. The resolution and the summary of the votes received before the meeting now appear on the screen. Details of Mr. Gada's background and experience is set out in the Notice of Meeting. However, I would now like to ask Kosha to speak to her re-election. Kosha?

Thank you, Mr. Chairman, fellow Board members and shareholders. Since I was appointed to the Board in 2021, it's been an honor and privilege to serve, bringing my experience in media, technology and digital business models to the Board over a period of time that has seen some impressive outcomes achieved by the business. I remain committed to continuing to bring that experience to bear for the -- for helping business execute our growth strategy and our growth agenda over the next period of time, and thank you for your support.

Thank you, Kosha. The Board of Directors, with Kosha abstaining, of course, recommends that shareholders vote in favor of resolution 1. The resolution is now open for discussion and questions. 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 phone?

Chair, there are no questions.

If there'll be no more questions, we'll move to the next item of business, resolution 2. Issue of STI shares to Mr. Sam Swanell. The resolution and summary of the votes received before the meeting now appear on the screen. Mr. Swanell was awarded a short-term cash incentive of $771,750 for the FY '24 financial year. Pursuant to the Company's Key Employee Equity Plan, the Board provides choice for Mr. Swanell and other executives to take their STI in fully paid ordinary shares in the company, and Mr. Swanell has elected to do so. The election was made in July of this year after it was clear an STI had been earned. On the 19th of July 2024, the Board agreed, subject to shareholder approval, to issue Mr. Swanell 1,728,444 shares, fully paid ordinary shares, in the company rather than pay Mr. Swanell the cash STI award. Details of how this was calculated is set out in the Notice of Meeting. On the 26th of July 2024, an Appendix 2A was released detailing the issuance of the STI shares to other members of the executive, and noting Mr. Swanell's STI shares will be subject to shareholder approval as required by ASX Listing Rule 10.14. Where shareholders do not -- where shareholders do not approve resolution 2, Mr. Swanell will receive the STI cash award instead. The Board of Directors, with Mr. Swanell abstaining, recommends that shareholders vote in favor of resolution 2. The resolution is now open for discussion and questions. Are there any questions from shareholders in attendance? Are there any written questions or phone questions?

Chair, there are no questions.

If there are no -- given there are no more questions, I'll move to the next item of business, resolution 3. Issue of performance share rights to Mr. Swanell. The resolution and a summary of the votes received before the meeting now appear on the screen. The purpose of Resolution 3 is to seek shareholder approval for the purpose of Listing Rule 10.14 to grant 1,647,411 PSRs to Sam Swanell under the Key Employee Equity Plan. The notice of meeting sets out how the PSRs have been calculated and the key terms of the grant including the performance conditions. The Directors, with Mr. Swanell abstaining, recommend the shareholders vote in favor of resolution 3. The resolution is now open for discussion and questions. Anyone in attendance today wishes to ask a question? Are there any questions on phone or in writing?

Chair, there are no questions.

Being no more questions, I will move to the next item of business, resolution 4, which is the Remuneration Report. This is a non-binding resolution. The next item of business is to adopt the Remuneration Report. Resolution and a summary of the votes received before the meeting now appear on the screen. The annual report for the 12-month financial period ended 30 June '24, contains a remuneration report, which was part of the directors' report, and sets out the remuneration policy of the company and it's controlled entities, 2023, '24. And reports the remuneration arrangements in place for Non-Executive directors and senior management during that period. The vote on this resolution is advisory only. However, the Board will take the outcome as a vote into consideration when reviewing our remuneration practices and policies going forward. The resolution is now open for discussion and questions. Is there anyone -- shareholders present in attendance today who wishes to ask questions? Are there any questions submitted on phone or in writing?

Chair, there are no questions.

Being no more questions, I'll move to resolution 5. Andrew, resolution 5?

Yes. So we put out an ASX release earlier today. The companies withdraw on this resolution given the company's market capitalization exceeds $300 million, which, therefore, makes us no longer an eligible entity for the purpose of Listing Rule 7.1A. As mentioned in the ASX release, the voting -- or that -- sorry, the withdrawal of that resolution doesn't impact any other proxy received today.