Kambi Group PLC

STO:KAMBI

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Mia Nordlander, executive]

Good morning, everyone, and very welcome to Kambi's Q2 Report Presentation. My name is Mia Nordlander and I am Senior Vice President, Investor Relations and Sustainability. And this morning, I'm here with our CEO, Kristian Nylen; and our CFO, David Kenyon. Today we will start to hear about some highlights from the quarter from Kristian, then David will talk about the financial summary and Kristian will come back and talk about some commercial and strategic updates, then a short summary and finally, time for questions. [Operator Instructions]

So once again, very welcome to our presentation. And over to you, Kristian.

[Kristian Nylén, executive]

Thank you, Mia, and good morning. So yes, Q2 I would say is a very strong financial performance. We have a turnover plus 20% if we're excluding Penn online and this is of course driven by the larger football tournaments, Euro 2024 for Copa America. The result was very bookmaker friendly. So we had a quarterly record margin this quarter. I will talk more about the tournaments later on in the presentation. Early on in the quarter we signed 1 of the largest tribes in the U.S., Choctaw Nation of Oklahoma. They are very large in Oklahoma of course and the proximity to Texas means that we have lot of traffic from Texas as well and this proximity to Texas also opens up for a lot of potential if Texas opens up at some point. I will talk more about that later as well.

As ever, we have completed a number of partner launches. And most importantly, we started with Svenska Spel and with LiveScoreBet ahead of Euro, which was on time and very important both for us and our partners to get those launches out ahead of the big tournaments. And of course we have appointed Werner Becher as our new CEO and he starts tomorrow taking over from me and I will talk more about that later as well.

But for now, I hand over to David.

[David Kenyon, executive]

Thank you, Kristian, probably for the last time, but thank you. So revenue for the quarter was EUR 45.7 million versus EUR 42.9 million Q2 last year and for the first half, EUR 88.9 million compared to EUR 86.9 million. As Kristian mentioned, this was driven by a really strong sporting calendar and an excellent performance with a strong margin in those events and I'll talk more about those. Our total costs were within our guided range and this led to an EBIT; earnings before interest, tax and amortization on acquisitions; of EUR 7.5 million, up from EUR 5 million this time last year. For the first half, the same metric was EUR 13.3 million, up from EUR 10.8 million. We carried out EUR 3.3 million worth of buybacks in the quarter. Nevertheless, our cash balance increased from EUR 46 million to EUR 52.7 million at the end of the quarter; EUR 46 million at the start of the quarter, EUR 52.7 million by the end of the quarter; and I'll run through that cash flow shortly.

This is the turnover index, which sets out the aggregation of our operators' performance. As usual, the blue columns are an indexed aggregation of the turnover with the operators and the orange line is the aggregated operator trading margin. The turnover for the quarter was 704 on the index. This was an index that was set at 100 originally when we first listed. So this index of 704 this quarter is a 3% growth from last year on the face of it, but 20% when stripping out the Penn online impact. This of course was really helped by the significant level of activity on both the Euros and the Copa America. In the Euros, we had 40 of the 51 matches fail in Q2 and the Copa had 22 of their 32 matches in the quarter and overall, these 2 tournaments alone contributed 9% of our turnover this quarter.

The Euros in particular had a really strong margin with some very operator-friendly results and this really contributed to the strongest margin you'll see on this graph here so 10.3% across the quarter. This very high margin may have had a slight dampening effect on our turnover. But I think all in all, we can conclude it was an extremely strong quarter from an operational perspective. This of course led to strong cash flow for the quarter. So as I mentioned, we had an opening cash balance of EUR 46 million and on top of that, we made an operating profit of EUR 6.2 million. Our tax movements here you see included a tax refund of EUR 4.6 million, which is part of the annual corporation tax payment mechanism in Malta. We also repurchased EUR 3.3 million of shares at an average price of around SEK 97 per share. And this led to a closing cash balance of EUR 52.7 million, an extremely healthy balance sheet as we move forward.

A bit more detail then on the buybacks we carried out. So as I said, we did EUR 3.3 million in the quarter, that's 392,000 shares and this now takes us to 636,000 shares repurchased in the first half for a value of EUR 5.6 million. We now hold 4.4% of the total shares in the company through buyback schemes. And in May we announced a long-term capital allocation policy to really set out our story with what we will do with buybacks going forward, which is to return capital to shareholders through buyback schemes whilst preserving sufficient capital in the business for our operational requirements. I think in practice what this means is we'll be likely to see more material amounts used for buybacks over longer periods than we've done historically and we of course will start carrying those out as soon as we can.

So with that, I'm going to hand you back to Kristian.

[Kristian Nylén, executive]

Thank you, David, and that's also for the last time then probably. So here's an overview of the commercial milestones for Q2 and Q3 so far. I will of course talk more about Choctaw, Svenska Spel and LiveScore later. So I will focus on the other ones. With Kwiff, Tzeract, signed very first non-Kambi partner and we also got the product launched with Kwiff quickly ahead of Euros. So very pleased to see this working as a stand-alone service and I think the first result has been very positive. Already in Q3 we have launched Virgin Bet. I will talk more about that of course since it's part of LiveScore Group. But we also signed 711, which we signed in Q4 last year. They have been growing steadily as a casino vertical in Netherlands since 2022 and they received their sports betting license and have just started a sports betting business.

Choctaw Nation, which we signed a few days after the Q1 report, I think is a very important long-term strategic deal for Kambi. It gives us, first of all, a big presence in Oklahoma when that state decides to regulate. But as you can see on the map here, the proximity to Dallas gives them probably a lot of traffic if Oklahoma would regulate before Texas. But also with the possibilities of Texas regulating, Choctaw Nation has a fantastic position. They are an official partner of the World Series Champion, Texas Rangers and with the last proposal of a regulation that was tied to professional teams. So that would give Choctaw Nation a very, very good possibility to also get a good foothold in Texas if and when Texas decides to regulate.

So this is a deal we have been working on since I think 2019 and we are very, very pleased to finally get it done. Just before the Euros, we did successful launches both with Svenska Spel and LiveScore. As you can imagine, this is 2 deals where they migrated away from other suppliers, which means that they had very particular product requirements and there is more complexity doing these kind of migrations. This went very, very smooth. I'm very impressed of what we have been able to achieve doing these product requirements in time and I think the early results from the big tournaments has been very, very positive both for Svenska Spel and LiveScore Group. With Svenska Spel, we also saw Shape Games delivering unique front-end to Svenska Spel. So again we get some added value of the Shape Games business to be able to support the deals such as Svenska Spel.

With LiveScoreBet, we have also a couple of weeks ago successfully migrated the largest brand Virgin bet so they are also up and running in the U.K. market now and with that, we have managed all of LifeScore's migrations of their current business in Nigeria, Netherlands, U.K. and Ireland. We had 2 very large and important football tournaments, which usually happens every second year, either the Euros and Copa Americas or the World Cup. It has been a little bit different the last couple of years because of choices of locations and of course COVID. But I hope we are back to the normal route now and as you can see here, the growth we have had on these 2 tournaments has been quite good. With Euros, which is of course in very established market for us, you see a very nice growth of 14%.

But what I really want to highlight here is Copa, which had a growth of over 200% and I think this is a testament to our position in the Latin American market and especially in Colombia. Worth noting that Colombia actually reached the final. Thankfully for us maybe, they didn't win the final and I think that really has contributed to great results on both the Euros and Copa during this tournament. Euro, Copa America Final, we also saw 1.3 million Bet Builder bets. And I think one thing we would like to highlight is that out of this 1.3 million, 690,000 was unique different combinations and I think this shows a little bit on where the betting industry is going and importance of being able to have a very, very large and flexible system for event combinations. And I think we are very proud with the technology we have built now. These Bet Builders for soccer is of course traded and risk managed by Tzeract.

So we expect to be able to keep on the level of offering we have for these 2 big tournaments to the large football leagues during autumn. I also just wanted to show the importance of these tournaments compared to other important events. And as you can see, Copa America actually outshined even the NFL playoffs and Super Bowl this year, was bigger than March Madness. And as you can see, Euros was significantly larger than the average tournaments on this picture. I'm also very pleased to announce my successor, Werner Becher. Werner will actually start tomorrow so very pleased with that. Werner was a standout candidate in a field of very strong candidates I would say. His background in technology coupled with his industry experience both in the B2C and the B2B field has been very contributing factors to the appointment. And yes, I'm exceptionally confident that he will be a great successor to me.

Of course I will myself continue from the Board, which I was elected to join in May, and I will remain closely involved with the business and ensure that handover will go smoothly and then focusing more on the long-term strategy. So to summarize the quarter. We had 2 very successful tournaments in Euro 2024 and Copa America with a leading product and I think this really underlines how strong our sports betting product is at the moment. We, as I said, are very delighted to have appointed Werner as our new CEO and with his experience and leadership, I'm confident he can take Kambi to the next level. We are continuing with our long-term strategy to open up our platform and provide portfolio of services.

And with that, I would like to thank you. It has been a fantastic journey for me personally. I'm very proud of what we have achieved during these years and I believe we have set up a great foundation for future success.

[Mia Nordlander, executive]

So thank you very much, Kristian. Thank you very much, David.

[Mia Nordlander, executive]

It's time for questions. We will start with the telephone. So first of all, I would like to welcome Oscar Ronnkvist from ABG.

[Oscar Ronnkvist, analyst]

First of all, thank you, Kristian, as well and I wish you all the best in your future endeavors and happy to see you on the Board as well. So my first question would just be on the employees and the OpEx development, which seems to have been flattening out a little bit. Also looking at your implicit H2 guidance on OpEx. Good to see that employees are flattening out or slightly being down a little bit. So can you just talk about the headcount going forward and what you expect in terms of potential OpEx increase or if that should be flattening out from here driven by the AI trading?

[David Kenyon, executive]

So I can take this one. Yes. I mean yes, you're right firstly that it has flattened out and I think we've seen our headcount stabilize over the last kind of 12 months. Going forward, I think we haven't put out a guidance yet. We typically will do that later in the year for next year. But long term there will be some synergies from the divisions through the acquisitions we've made with Shape, but also the Tzeract division. So we'll set those out in detail when we have a very clear timeline for them. But absolutely, we think both of those areas can provide headcount synergies.

[Oscar Ronnkvist, analyst]

Got it. But I think it's the sort of 10% to 15% OpEx increase year-over-year that you talked about a few years ago. Is that sort of -- can we interpret that that's not going to happen going forward or is that too much to say at the moment?

[David Kenyon, executive]

I don't commit to a number at this stage, but I mean I think you're seeing a slowdown in the costs already now and there are other synergies still to come. So yes, we'll keep you posted as and when we can be more clear on that.

[Oscar Ronnkvist, analyst]

Perfect. My second question would be in respect to your final day, Kristian. I think I have to ask the question on the pipeline. So I noticed that obviously you can't say anything about it, but you haven't begun the new buyback program now after the report. So I guess it could be some sort of moral related thing so I respect that you can't say anything about that. But just sort of in general, I think you commented a little bit on the pipeline as well before. Is it anything that you can say or are you still keen on delivering a solid H2 in terms of signings or is it anything that you can elaborate on?

[Kristian Nylén, executive]

Yes, of course I can't comment on earnings specifics, but I'm still steadfast in what I said in earlier quarters. We have a very strong pipeline. And as I said with Choctaw, I mean we started talking to Choctaw in 2019 and we signed them a few months ago. So some cycles are very long. But I'm very, very positive and I think we'll have a good chance to do more business in the future.

[Oscar Ronnkvist, analyst]

Just the final one just on Choctaw. Obviously great opportunity in Oklahoma and also Texas. Do you have any sort of view on the Texas regulation in 2025? Correct me if I'm wrong, but it's 2025 or 2027 we could potentially see it? Is that anything that you are seeing any positive signs on?

[Kristian Nylén, executive]

No. I mean, yes, various positive signs. But in the end, I mean it is a political decision and it's really hard to know what will happen especially now when we also have election coming up, that may change things. But I think there is a chance for sure, but that something happen next summer.

[Mia Nordlander, executive]

Next person is Georg Attling from Pareto.

[Georg Attling, analyst]

Just echoing Oscar here. Congrats, Kristian, on the tenure coming to an end in a very good way. I have a couple of questions. So just start with the top line guidance for the full year and not raising it so that the midpoint sort of implies flat growth here in the second half of the year. But could you add some more comments to how you view the guidance now compared to when you first issued it maybe?

[David Kenyon, executive]

Yes. I mean firstly, I can say we obviously are more confident we're going to hit it. We're halfway through and we're well on track towards hitting it. Also in terms of tailwinds here, we have the recently launched partners such as LiveScore and Svenska Spel so we'll obviously get a full half of revenues from those customers. But the really key 1 to mention here is the Penn transition fees. So first half, we had 6 months of those and we'll only have 1 month of those in the second half. So that's a EUR 5 million headwind on the kind of first half versus second half of the year. Also of course we've had a high operator trading margin in the first half and the Euros and Copa like I mentioned. So those of course won't necessarily -- those tournaments, we're only going to get the tail end of those in the second half. And then probably the last one to mention is the Swedish gaming tax increase, which is another headwind we talked about, EUR 0.4 million headwind in the second half. So you can see there's quite a few moving parts that's here. That's why we don't really want to narrow the range, but hopefully we're still very confident we're going to be well in that range and hopefully towards the upper end.

[Georg Attling, analyst]

Fair enough. And then on the betting margin, could you say how much of that strong margin is driven by increase in penetration of Bet Builder and how much is just favorable results in sort of the normal betting products?

[Kristian Nylén, executive]

I don't have any numbers on it, but of course I think on the 2 big tournaments here, we had over 30% of the turnover coming from Bet Builders. So I think it has quite a big impact especially when you have big tournaments. But except the first couple of days in Euro, the results was exceptionally betting friendly, bookmaker friendly. So I think that you see a new record on margin, there's definitely more to be contributed to the great results.

[Georg Attling, analyst]

You can't quantify the difference in margins between Bet Builder and just regular bets.

[Kristian Nylén, executive]

No. I mean they are quite correlated since even Bet Builders are very much based on the good results so it's hard.

[Georg Attling, analyst]

Yes. And then obviously this probably has an impact on turnover as you mentioned in the report. I know you sort of guided on how much of an impact that has on turnover. Is that something you could do here in the quarter as well?

[David Kenyon, executive]

You mean the dampening effects of the margin. It really isn't an exact science so we don't like to put a number on it as such, but it's clear that when the margin is over 10% and we're guiding a lot lower than that, it's not an exact science. I don't know if we could put a number.

[Mia Nordlander, executive]

It's hard. We tried to figure it out, but it was not really possible.

[Georg Attling, analyst]

And then just final 2 ones. If you firstly, could share the contribution from Shape and then second, if you have any comments on the future with LeoVegas when that contract ends and if you think there's any possibility of an extension or if that's lost business when the current contract ends?

[David Kenyon, executive]

Yes. I mean on the modules, we look at them all together now as a whole so across Abios, Shape and Tzeract. They contributed to around EUR 5 million on a revenue basis and a small positive on an EBITDA basis. Shape being the biggest element within those 3.

[Kristian Nylén, executive]

And on Leo, I mean we don't know very much at the moment. Of course the platform we have acquired is not yet customized to do all the different geographies. So we'll see, but there will surely be discussions during autumn on how Leo and MGM decides to do the transition.

[Georg Attling, analyst]

And can you say when the current contract ends precisely?

[Kristian Nylén, executive]

No, we have never disclosed that.

[Mia Nordlander, executive]

Next in line is Martin Arnell from DNB.

[Martin Arnell, analyst]

I wanted to follow up on this implied guide for the second half. You commented on the headwinds if you look first half versus second half with the trans fees. But how does it look year-on-year? Because you did almost EUR 12 million last year in the second half and the implied midpoint guidance range or midpoint from the range now is like EUR 6 million I think.

[David Kenyon, executive]

Well, things change fast year-on-year. We're most certainly focusing our analysis on versus the first half. We're not really providing a forecast for the second half. So I mean it's not what I want to go into too much more.

[Martin Arnell, analyst]

No. But it's an implied guide. But if I frame it like this, the Penn revenue that you had last year, you're not going to have this year in the second half, right? Do you know how much that is on top of your head?

[David Kenyon, executive]

So there we had EUR 5 million headwind again from the second half last year versus this year.

[Martin Arnell, analyst]

Okay. So that leaves the EUR 5 million. So then the implied guide is fairly flattish EBIT on the second half and I was just wondering if there was anything more that we should -- how to interpret that?

[David Kenyon, executive]

No. Well, the Swedish tax one I mentioned is obviously a new headwind for us, which will start this second half, which we didn't have last year, that's EUR 0.4 million. But there's probably not many other specific points to call out.

[Mia Nordlander, executive]

And maybe another thing to point out versus year-on-year is of course the headwinds with new contract terms. That's of course impacting us as well year-over-year.

[Martin Arnell, analyst]

Okay. And then can you comment little bit more on this comment on the lower data supplier costs that certain partners are engaging with suppliers directly? If you could elaborate a little bit more on that, please?

[David Kenyon, executive]

I mean the partners are free to -- basically with data, they can either come to us and we act as a kind of hub for all our partners direct to liaison with the data suppliers or they can go direct and do their own deals. And it doesn't really matter to us in so far as if they come to us, we have a cost and a revenue and if they go direct, we have neither. So this is just a question of 1 or 2 of them deciding to go direct as opposed to reaching it through us just so they have their own personal relationship with the data suppliers. So 0 impact on EBIT, it just affects revenue and cost lines.

[Martin Arnell, analyst]

Okay. And then my final question is on what's your expectations on potential launch in Brazil at this point?

[Kristian Nylén, executive]

I think we still expect and hope that 1st of January is the date that everyone is targeting.

[Mia Nordlander, executive]

There seems to be some delays with the regulation to Buenos Aires. But hopefully, we'll launch 1st of January. But you never know with Brazil. I've been saying the last couple of years that this is the year, but we are still hopeful.

[Martin Arnell, analyst]

Okay. That's all for me. And good luck in your new role, Kristian.

[Mia Nordlander, executive]

Now it's time for questions from the web. I start with you, Kristian. Can you give some insight on Bally's launch in the U.K.? Are they planning to launch more brands in U.K. or other markets?

[Kristian Nylén, executive]

Don't think they have any plans to launch any new brands. So I think it's the existing brands we are doing, we launch with.

[Mia Nordlander, executive]

A few questions about some bugs during the Euro and Copa. Anything you can share with us what happened?

[Kristian Nylén, executive]

No, I can't go into any details really. But we did some launches of improved tooling, which had some teething problems. But overall we had some mishaps that was corrected very quickly. But overall, I would say that the product has become much, much stronger and the result of these improvements, I think we also have much, much better risk control now than we had before.

[Mia Nordlander, executive]

Anything you can share with us development for Abios for e-soccer during Euros and Copa?

[Kristian Nylén, executive]

To be honest, I don't know the numbers. But in general what I can say about e-soccer that I mean it is absolutely flying. If it were to be considered a league, it would probably be 1 of our largest soccer leagues. So it have really taken off and it's very, very pleasing to see. And I hope we will have the same effect with e-basketball soon.

[Mia Nordlander, executive]

And the last question here, dialog with new customers for Bet Builder, I mean Tzeract. Anything you can share there of sports interest?

[Kristian Nylén, executive]

No. Of course there are dialogs. I can't share very much more until something is happening.

[Mia Nordlander, executive]

Thank you very much. Thank you, David. Thank you, Kristian. We will miss you a lot. Thank you for all these fantastic years. Actually now I have a surprise for you. I have a special guest, very welcome Werner Becher to the stage, our new CEO from tomorrow. Kristian mentioned that your background comes from tech, but also from the industry. Can you please give me some more information of your background and who are you?

[Werner Becher, executive]

So my career started as a software developer and later I co-founded one of Austrian's leading software companies. After a successful exit, I was CEO of Interwetten, a B2C betting and gaming operator, for 8 years and we tripled the revenues in these 8 years. In 2019 I moved to the U.S. as Managing Director for Sportradar and we had an NASDAQ IPO in 2021. And I moved then back to Europe as CEO of Europe, Middle East, Africa and Latin America. So I think I have a strong tech background, yes. And having been in the shoes of B2C CEOs myself, I think I also understand a little bit the challenges operators face today. And at Sportradar, of course I could build a great B2B network in our industry around the globe selling modular services.

[Mia Nordlander, executive]

Great. It sounds like a perfect fit for us. But why do you find Kambi interesting?

[Werner Becher, executive]

I think this is easy question. So Kambi is clearly the leading independent sportsbook company on this planet. And as a betting operator, if you want to compete with these big global Tier 1 operators out there, if you really want to compete with them, I think you have to talk to Kambi. We must be on top of your partner list. Why? Because from my perspective, this is a critical time for the industry. I see many operators struggling out there. Why? Because of technology is evolving really rapidly. And with Kambi as a partner, I think all the operators can be sure that they will stay ahead of the game.

[Mia Nordlander, executive]

Great. And last question, what are you most excited about?

[Werner Becher, executive]

So first of all, I would like to thank Kristian. I think he and his team have done a great job and I'm honored that I will be handed over an incredible company tomorrow from Kristian. Kambi has a very, very good reputation in the industry and clearly offers the best sportsbook platform and will continue to do so in future. My vision for the company is to even expand the TAM of the company. On top of the Sportsbook platform we already have today fully in line with the long-term strategy of the company to also offer now our [indiscernible], our managed trading, our Bet Builder, player profile and much more services as easy to integrate services for our customers and the foundations are definitely already in place. And I come in now with my network and some experience in pricing and selling product like that.

[Mia Nordlander, executive]

This sounds fantastic. So welcome from tomorrow then. And thank you, everyone, for listening in to us. Werner, David and I will be back on the 6th of November for the Q3 report. And I wish you a very lovely day. Thank you very much.