Release Date: August 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Completion of the sale of the US business to Fanatics Betting and Gaming for USD225 million, which provided significant returns to shareholders.
- Record revenue in Australia, with $211.5 million, up 10% compared to the previous corresponding period (pcp).
- Improved gross profit margins in both Australia and Canada, with Australia achieving a gross profit of $111.8 million, up 14% compared to the pcp.
- Significant reduction in marketing expenses, down 26% in Australia and 12% in Canada, leading to improved marketing efficiency.
- Positive EBITDA performance in Australia for the past five financial years, with a record statutory segment EBITDA of $26.8 million in FY24.
Negative Points
- Normalized EBITDA loss of $1.8 million, although an improvement from the previous year's loss of $49 million.
- Statutory segment EBITDA loss in Canada of $19.7 million, despite improvements from the previous year's loss of $35.8 million.
- High taxation costs in Australia, with total taxation, including race fields and product fees, amounting to $111 million or 47.6% of net win.
- Challenges in the racing sector, with single-digit growth in racing net win compared to strong double-digit growth in sports net win.
- Potential impact of advertising reforms on future marketing strategies and customer acquisition, with ongoing discussions and uncertainties around federal government proposals.
Q & A Highlights
Q: Just a question on Canada. Maybe can you just talk us through how you envisage that pathway to profitability and what you envisage would be the key drivers to that, please?
A: We clearly believe there's enough evidence now to say that we're well and truly on track. You look at that revenue retention ability that we've demonstrated in Australia, and you can see that Canada is profiling along the same line. So it's just a matter of getting another year of acquisition under our belts and building a bit of scale. At some point this year, we'll definitely be run rating profitability, we believe. The biggest swing factor in terms of how quickly we get to that profitability is the progress that we make around iGaming.
Q: The breakeven cash flow expectation in '25, should I assume is that free cash flow ex any major items? Or is that operating cash flow?
A: No, that's net cash flow.
Q: I just want to unpack your sensitivities in Canada between OSB and iGaming, and in particular, your relationship with Strive gaming. You mentioned you're investing in the product and player experience. How do we think about the timing of the road map given the power of the iGaming sensitivities that you called out in terms of market share?
A: Our iGaming share remained flat, but obviously, the market grew. So as we said, I think we grew 63% or 68%, the number was around gaming. So that will continue to grow. And as I just referenced to Rohan, a big part of that is growing our sports share. Sport is where you can attract the mass market, I suppose, of clients on the back of the popularity of sport. But we do recognize that there is a role to be played in making the most of that cross-sell. The road map will be -- the product will get stronger as the year goes on.
Q: I just want to understand a little bit about the contribution and the guidance by region. And in terms of the SKU sort of first half, second half, the way we should be thinking about it because that will obviously have a relationship to the cash generation as well.
A: The SKU will be pretty similar. I mean, obviously, you can see what we did from half year to full year. That seasonality in the business is always going to be there, even as Canada has an increasing contribution. It does have a similar SKU of you're investing around now because in Australia, there's 40 finals and Spring Carnival. And in Canada, you have the start of the NFL season and getting back into basketball, NBA, et cetera. So you'll still have sort of more investment in the first half and more profitability in the second half.
Q: First question, just on marketing expense expectations for FY25. If I sort of back solve your $11 million to $16 million of EBITDA guidance and trying to get sort of the cost breakdown, it looks like marketing expenses will be broadly flat year on year. Is that a fair assessment?
A: Your comment on marketing is correct, Phil. We're largely flat. Again, we want to leave flexibility up our sleeve as it relates to Canada versus Australia and levers that we can potentially pull. We invest above our market share at the moment, and that's what will allow us to keep growing our market share in both Canada and Australia. And that's baked into our P&L.
Q: What are you assuming in terms of current market conditions, noting in your prepared remarks, your split is moving more towards 50-50 between racing and sports, please?
A: We think there's enough evidence now to show you that the market is returning to growth in Australia. Probably only going to be circa inflation type growth. But you can see there in our TAM slides that we expect it to get to grow. So that's the baseline that we're basing things off. Yes, as it relates to racing and sport, yes, we thought we would -- we continually get asked about our split between racing and sport. And we clearly again, because of our capability from a technology perspective where we've positioned our brand. We do lead into sport more, but racing remains vitally important in Australia.
Q: How does the advertising reform impact your guidance for FY25 and your longer-term assumptions in terms of the ability to attract and retain customers?
A: I think where we sit today, any outcome of the government recommendations is not going to impact FY25. So it's really about '26 onwards. As I sort of commented before, as we have spoken to and provided some data points around longer-term margins, our assumption is we continue to spend as we are now, or growing amount from where we are now on the basis that we will be a growing business in Australia and Canada.
Q: My questions have kind of already been asked, but I just want to come back, Sam, to the comments you're making around Canada and going into Alberta and British Columbia because the odd model was obviously take three years to get to EBITDA positive as you went state to state through North America. So are you suggesting that will you be EBITDA breakeven year one? Or would it still be a year of losses? Like how long does it take to get to sort of EBITDA profitability?
A: What I would go, Chris, what I would say is a new province opens up there would be marginal, incremental technology cost, maybe marginal incremental OpEx from Canada, very marginal. The main incremental expense would be, you would then start performance marketing into the new province. So if you think about $22-odd million of Canadian marketing spend, there's some brand spend in that. And then there's performance marketing.
Q: And just around the guidance. I know it includes absorbing the Victorian point of consumption tax. And I know you're referring to it before as a rather blunt instrument. But do you have any -- like do you think we're done in terms of increasing or implementing those taxes? Or do you think there's risk of further to come?
A: I've said before, and we stand by our statements that we believe we're done. A couple of points. Victoria, had a review process. Victoria was going to 15%. They went to 15% on July 1. But because -- for whatever reason, Victoria had another review process where they engaged with Racing Victoria. And I suppose the logic being that all states could all do with any extra tax revenue they can get, but they engage with Racing Victoria, and they analyze the data very closely.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
