Kambi Group PLC

STO:KAMBI

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Mia Nordlander, executive]

Good morning, very welcome to Kambi's Q3 2023 2023 report. My name is Mia Nordlander, I am Senior Vice President, Investor Relations. And I'm here with our CEO, Kristian Nylen; and our CFO, David Kenyon. Today, you will hear David and Kristian talk about the quarter, and then we will have time for questions. You can either call them into the studio here or send them directly in the web. So once again, very welcome, and over to you, Kristian.

[Kristian Nylén, executive]

Thank you, Mia, and good morning. Yes, I will go through the highlights quickly and then I will hand over to David, who will go through the financial highlights, and then I will come back and give you some more meat on the commercial and strategic updates and the summary, and then we'll do Q&A. So first quarter, as usual, in Q3, it's quite a slow quarter when it comes to sporting events, of course. But nevertheless, we have a revenue growth of 15%. It's boosted to some extent by certain nonrecurring fees, but David will go through in more detail later on.We have a few exciting contract extensions in ATG and Rank Group, which takes our partner renewals for 2023 to '27, which we are very pleased with. There are 2 big things to talk about this quarter or actually happened after a quarter is our agreement with Svenska Spel and LiveScore, which is two very important new deals for us, very exciting. And it's the 2 deals ever with the highest revenues from sports betting at contract signing. With those 2 deals and of course, with Valley, we have now done 10 Kambi complete partner signings so far in 2023. I now hand over to David, and I will come back later.

[David Kenyon, executive]

Thank you, Kristian. Good morning, everyone. Okay. So Q3 2023. I'd say it's a robust financial performance this quarter and what's effectively our first quarter without Penn online. So we had revenue of US 42.1 million. This was boosted by some nonrecurring items, which I'll talk about in the form of transition fees from Penn and a one-off license fee for Shape. Earnings before interest, tax, amortization on acquisitions was GBP 6 million, up from GBP 4.2 million this time last year. This increase is driven by the increase in revenue, which we see there, partially offset by a full quarter of costs from the Shape business and a negative impact of foreign exchange on our P&L versus last year.And excluding FX, this metric is up from GBP 3.3 million to GBP 6.3 million this year. Our net cash at the end of the quarter is GBP 62.4 million, a significant increase from Q3 last year, and I'll talk through the main changes in that balance. But our balance sheet is in a really healthy position as we move into Q4. This is the turnover index, I present each quarter. It's an aggregation of the portfolio's performance. The blue columns are an indexed turnover across all operators, an index we set at 100 back in 2014.And the orange line there is the aggregated operator trading margin for the quarter. Operated turnover is down 6% from Q3 2022. And of course, the biggest impact is the migration of the Penn online business in early July. And turnover actually grew 9% if you strip out the impact of this Penn migration. Turnover was also impacted by foreign exchange with the dollar and the Swedish crown weakening against the euro versus last year, offset partly by a stronger Colombian peso. We saw actually a sporting calendar, which was a little quieter this time, this year than last year when there was an increased number of soccer matches due to that Winter World Cup. So that did have a slight dampening effect also on our turnover versus last year.The operator trading margin was 8.8% compared to the very high 9.5% we saw in Q3 last year, which takes us to our revenue conversion graph. And firstly, a couple of comments on this graph. It looks kind of unusual this quarter. Firstly, we've moved Shape business into the other column here. It's been more than a year now since the acquisition. So we look at that more as a BAU, so we don't want to just keep separating that out. So that's now into the other column. And also, I mean it's fair to say that with all the various revenue streams and business models we now have across the business as well as the repeatedly kind of large items we see in other that I always have to explain. I think it's fair to say that we will assess whether this remains the best format to present our revenue conversion information.On to the numbers themselves, turnover at constant FX rates was down 3.4% from last year. and was also negatively impacted by that those foreign exchange movements I mentioned, taking us down to the 6% overall turnover decrease. The margin dropping from 9.5% to 8.8% contributed to an overall net gaming revenue decrease of 12.8%. However, this was offset by a number of items which you see there in the other column. Firstly, the impact of fixed revenues and minimum guarantees on our business, where our revenue is boosted by factors outside of the turnover growth.We had the transition fees from relating to the migration of Penn. That was GBP 3.4 million recognized in the quarter. And we'll keep seeing those fees through to July 2024. There was a one-off license fee in respect to the Shape business of GBP 2.6 million. And we also had a full quarter of revenues from Shape, so 3 months versus 1 month this quarter last year. So that had a positive impact of GBP 2 million on that other column there. And all in all, adding together all these factors, this led to a 15% revenue growth for the business overall. There's a lot of movements in our cash position on a year-to-date basis. And actually, that is kind of a more interesting story, I think, than just looking at the quarter. So we're showing here a year-to-date position on the cash flow.We started at GBP 60.7 million at the start of the year. This has been boosted by GBP 12.8 million of operating profit. Working capital has increased our cash by just over GBP 10 million due to some debtor balances on a couple of larger accounts, which built up at the end of 2022 and were paid off in Q1. I. Then we used GBP 7.2 million in Q2 to repurchase some of our own shares. And we also, in Q2, we paid the GBP 7.5 million convertible bond, which was our only external debt and is now fully extinguished.The tax paid year-to-date is GBP 8.7 million. But at the end of the quarter, we have a tax recoverable position of GBP 3.5 million, which we expect to recover in due course, and we'll increase our cash balance. And also offsetting that operating profit is GBP 3.9 million of amortization on the acquired intangibles. That's, of course, a noncash item. So our cash balance actually increases due to that. The net effect of all these movements I talked about here is to increase our cash by GBP 1.7 million since the start of the year, giving us a closing balance of EUR 62.4 million. And with that, I'll pass you back to Kristian.

[Kristian Nylén, executive]

Thank you, David. All right. So I started with talking about 2 very exciting signings. And of course, those are Svenska Spel and LiveScore Group. As I said, these are the 2 most our largest deals in terms of existing sports betting revenues at the point of signing. And it's very pleasing for us. Both these operators have a very well-established sports book. And we are feeling very, very happy about making these deals. If you remember, I've been talking about the sales pipeline and that it would have some impact on our modernization strategy. And with Valley and the Svenska Spel and LiveScore Group, we have taken on some future development, and that was what pushed out our modernization strategy slightly. But we are still on track with all of that.Both these operators are expected to have a very meaningful financial impact, especially from H2 2024. And I will talk a little bit about the launches individually on these two. I would say the most important for us is that, I mean, these 2 deals really validates that the Kambi complete product is still a very, very strong product, and we believe that we will have a very good pipeline going forward as well to make more deals on our complete product and I think what we have done over the last couple of years, giving more and more possibilities to differentiation has made our product more and more attractive, and that's what we're seeing now with signing Svenska Spel and LiveScore Group.Going into them in detail. Svenska Spel for many of you who are Swedish like myself, I don't think we need much of a presentation of Svenska Spel. I know they started with Logan as a former monopoly in fixed sports betting in 1986. I as a 15-year-old made my first fixed sports bet the first week long and existed, I think. They are, yes, one of [indiscernible] with largest brands in Sweden, whether it's sports or any other industry. And we are a major sponsor of both Swedish football and ice hockey associations among our sponsorships.We again did work together with Shape Games. So they are a big part of this deal, and they will power the front end for onset and that will enable them to additionally differentiate from our other Swedish brands. Svenska Spel are planning and hoping to go live before the euro that takes place this summer. And therefore, we think they will have a meaningful impact on our financial results from H2 and forward. The other big signing LiveScore Group has an even bigger existing revenue than Svenska Spel. They have 2 brands, LiveScore Bet and Virgin Bet. Both of these brands are very big in the U.K. And I think Virgin Bet has been around for more than 4 years and LiveScore Bet slightly shorter.This is also driven by the LiveScore app, which is a live betting up, but I think I started using myself in 2000, so has been around for a long, long time. It currently have more than 50 million active users globally. And I think 31% of the U.K. betters are acquired from this media platform. Again, a very meaningful sports betting revenues. We're planning to start getting live with them earlier than Q2. But from H2 next year, we believe they will have a very meaningful impact on our results. I believe LiveScore Group can be one of Kambi's largest operators quite quickly. We have about 50 million global users and their plans to expand into new markets. I think we have a very interesting journey ahead of themselves. And I would say on the back of winning valleys, Svenska Spel and LiveScore Group, we have really put ourselves in a great position going forward. LiveScore and Svenska Spel is our headline deals. It has been a lot of other activities. I will not go through all of these pieces on this slide. I'll let yourself to look at this. But I want to [indiscernible], as I said before, we have done a partnership extension. They have been a great partner to us and have been the market leader in sports betting in Sweden over the last couple of years. So really important to get them extended. We have, of course [indiscernible] with LeoVegas. And of course, we've attracted some attention. But this is just a simply a continuation of our LeoVegas partnership. And so far, I think the signs are very good. BetMGM is gaining traction in the U.K. And finally, I would also like to talk a little bit about 711, which is probably not a household name in gaming for anyone. But they are a casino operator in the Dutch market and doing quite well on casino, and we hope they can replicate that. I also would like to talk a little bit about what's happening with Abios and Shape. Starting with Abios, firstly, they have now launched the e-sports product on the Kambi network [indiscernible] which has been a huge project for us to make Abios our test track that I soon will talk about, but also external suppliers able to trade through our gateway.The signs so far of the Abios Ads product is great, and I'm very pleased to see what has happened so far and looking forward to a future with more and more spots coming on. And they have also signed a deal with OA in the Nigerian market to provide as the first external operator provide their order services. And then we have Shape Games. Of course, the partnership with Svenska Spel is a great win also for Shape Games. And I think the partnership with Kambi is a big reason we won with steel. But they have also been active outside of that. They have made a deal with Sunbet, which is, of course, already Kambi powered operator.And they have also launched with BetCity on a Shape Games native casino are going to push them through our rest of the network. As I promised the last quarter, I will go more into the incubation of our AI trading unit. But first, I would like to talk a little bit on factors that is driving this development. First of all, every year, you get more and more depth and quality of sports data, but you can utilize to create new betting markets. And it becomes more and more tough for the human brain, these kinds of markets. I have always talked about how important players are becoming for the young audience.People have stopped following teams and are more starting to follow players. And I believe that the betting pattern will reflect that in this complex market. But what you can also see is when we started with our AI trading at World Cup, the shift in this graph has been quite dramatic. I believe this will be a must for -- we have already been winners of a few awards on this technology. So we are really looking forward to taking the next step with our AI trading.And therefore, I'm very happy to introduce Tesseract, which is also a 4-dimensional cube. We aim to bring a new dimension to sports betting and to open a whole new world of possibilities for our operators. So better quality and pricing, we can do a much, much wider range of pricing, and we can also do it much, much more effective. Secondly, it gives us a huge innovation potential bet offers. And I think it leaves rooms, both for ourselves and also for our operators to come up with new unique betting products on their algorithms. And it has already proven at scale.So far, so very, very pleased with what has happened so far. We recently went live with Tesseract first test customer outside of the Kambi network. And we expect a full product and commercial launch in Q1 2024. And Kambi is added to the portfolio. We recently returned from G3 exhibition in Las Vegas. And I can tell you that the interest for Tesseract. We didn't unrevealed the name though at that point was quite spectacular, and this will be a great vehicle for our modular services going forward.So in summary, I believe LiveScore and Svenska Spel really underline the demand for Kambi Sportsbook. I've been talking for quite some time about being able to talk about LiveScore and Svenska Spel in this quarter report. With Tesseract, we are raising the bar in AI sports trading. And I believe the product innovation we can create will be spectacular, both for our complete product, we believe that what we presented at the Capital Markets Day has been a great strategic route and what we have delivered so far really lays a great foundation for our future growth. Thank you very much.

[Mia Nordlander, executive]

I just want to remind you that you can either call to us here in the studio or send them directly through the web. But we will start with the telephone questions. So over to you, operator.

[Operator]

[Operator Instructions] The next question comes from Oscar Rönnkvist from ABG Sundal Collier. Please go ahead.

[Oscar Rönnkvist, analyst]

Thank you, Hi Kristian, David and Mia. So first of all, I just wanted to get a sense of the modular pipeline. So I mean, it's great to see that you have won some key turnkey contracts now. So could you just say anything about sort of the time line on the modularization strategy? You obviously say that you are going to launch now in Q1 '24 with the new AI trading, which sounds very interesting. But also, I mean, I think that you have already launched some sort of modulars before this year, but we haven't really seen any sort of signing.So what that would be like? And then also what do you think about the new, I mean the remaining pipeline, which types of contracts that you can win? And if these signings are the sort of main ones that you expected before or if we could see additional sort of Tier 1 or Tier 2 client signings here? Thank you.

[Kristian Nylén, executive]

That was a lot at the same time. So if we start with modernization study. First of all, I want to stress that, I mean, we are presenting, we stressed that I mean I talked about it already in Q2 or even Q1. I think actually what we believe that we would have to pause a little bit on some of the trading modernization due to product requirements from signings and product requirements in all of them. So it will probably take some time to get to a situation for us to do the first launch of modernization strategies for trading.I think the easiest path for us is with testing on the sports we have done traditionally. But I do believe that we will see our first signings on the trading during hopefully, the first half year of 2024. The second part score was part of what we expected to be our pipeline that we have been talking about. And I think we have been in quite deep discussions with LiveScore and Svenska Spel for best part of the year or more.So obviously, but with at length, I will say that there are ever still in that pipeline that we have been talking to for quite some time. We have signed 10 operators this year. So obviously, it has taken a little bit out of the pipeline, but it's still very solid at the moment. Did I forget anything?

[Oscar Rönnkvist, analyst]

I think it this is a small follow-up because correct me if I'm wrong, but both LiveScore and Svenska Spel are former SBTech clients, I think. And just I guess that there are a few other former or current SBTech clients, if you could expand on that.

[Kristian Nylén, executive]

I think both Svenska Spel and LiveScore are very desirable customers for anyone that are operating sports betting. And it's, of course, on the European market that has historically been the most competitive. So everyone are, of course, interested in winning these kind of deals. So it's as tough competition as it could be.

[Oscar Rönnkvist, analyst]

Understood. Just the next question I have on the cost side. So I think that we saw a bit of an improvement now in Q3, and you obviously are lowering the midpoint guidance with 4% for 2023. Just sort of the run rate and going into next year as well and also balancing costs between revenue going into 2024. Should we assume that, I mean, employees should sort of flatten out at these levels? I noticed they were up from Q3, but do you expect that hiring needs to increase more into 2024? Or should this be sort of a decent level going forward? Thank you.

[Kristian Nylén, executive]

I think the main point is that at the Capital Markets Day, we talked about slowing the rate of cost growth. And we've seen that underlying this year, so taking out the acquisitions we've made, the rate of cost growth has come down significantly versus what we did historically. And I think going forward, we haven't released our guidance for next year, but I think that pattern of reduced cost growth will continue. Of course, there are inflationary pressures, et cetera, on that cost base. So it is likely to go up to some degree, but it will be in a much in a slower rate than you've seen over the prior years, I would say.

[Operator]

The next question comes from Viktor Högberg from Danske Bank.

[Viktor Högberg, analyst]

Yeah, good morning, so on LiveScore, you said, Kristian, that you think this can become one of your largest customers quite quickly at that. I think your largest customers generate about EUR 30 million a year. What will be the accelerant for LiveScore to get rich or getting close to that level? Because we can see in public filings that they're not there yet in terms of B2C revenue. Could you just help us understand what you're seeing and what they will do and what they have said that they will commit in order to accelerate growth with the new supplier?

[Kristian Nylén, executive]

Yes. I mean maybe I said one of the largest, not the largest to start with. But I can't comment very much on what we have talked to me about, I think, that is for LiveScore to talk about. But it's quite obvious that they are looking at more international expansion. So that is obviously where I believe a lot of this growth can come. I also hope that we are able to bring a better product to them, and therefore, that we can grow quicker on very existing markets as well.

[Viktor Högberg, analyst]

Okay. Thank you, and also on the revenue question here in Q1 on the one-off revenues. Firstly, on EUR 10, the EUR 3.4 million. I thought it was $1 million per month. Is this slightly higher? Or did it slightly higher than that, but what's the driver for that?

[Kristian Nylén, executive]

Yes, that one quickly. It's actually over $15 million over 13 months. So it's a slightly different calculation there. So yes, to July 2024.

[Viktor Högberg, analyst]

Okay, [Indiscernible]. And also, the Shape license EUR 6 million, could you help us wrap what that includes, what it's tied to? Is it a real one-off or that you take it to a new revenue baseline, just so we understand what deal that was tied to? And is the background for that?

[David Kenyon, executive]

Yes. I'll take that one. Yes, it's a real one-off. It's one component of one of our deals. I can't kind of get into who it was or any more real commercial details. It's not allowed to go there. But as part of one of the deals we had to apply the terms of IFRS 15 on how to recognize revenues for licenses, and so that led to this GBP 2.6 million as a pure one-off on that particular deal as one of the components of that deal. But yes, you shouldn't count on it going forward.

[Viktor Högberg, analyst]

Not on this client maybe, but for other client signings, would this be a dynamic that could come back for other future signings? Or was this just a very special case?

[David Kenyon, executive]

Quite a special case. I'd say it shouldn't be a standard part of the business model going forward.

[Viktor Högberg, analyst]

Okay. And while I have you, just help us with Abios, the revenues now in Q3?

[David Kenyon, executive]

Yes, they're still running at approximately breakeven, slight losses around GBP 0.5 million still on revenue. Obviously, Kristian mentioned the launch of the odd product that hasn't really kicked in, in terms of those revenues yet. So that GBP 0.5 million is really from kind of business models they were operating prior to the odds. So hopefully, it can go up in the future, but for now, it's around GBP 0.5 million at around breakeven.

[Viktor Högberg, analyst]

Okay. Final question for me. Could you have possibly some details on the AI trading to the Tesseract customer that you mentioned. Is it going to be relevant for operators larger and small or yes, some part of the market just thinking about the potential time and the signing opportunity?

[David Kenyon, executive]

We believe it will be relevant for anyone. I say we will have a focus on larger customers rather than smaller customers. But I think it can be highly valuable for any operator to get this kind of services.

[Viktor Högberg, analyst]

Could you help us just remind us on the revenue model on this on one slide. Is it going to be take on the turnover that flows through this product or some kind of fixed fees related to it as well? Or just remind us on that?

[David Kenyon, executive]

I mean I could see different models. It depends a little bit on the flexibility we give on setting their own margins. But I would say, either turnover based or commission base is probably the most likely. It could be some element of fixed also as well, but I don't think that is a majority of anything.

[Operator]

The next question comes from Oscar Rönnkvist from ABG Sundal Collier.

[Oscar Rönnkvist, analyst]

All right. Again, Just starting on a follow-up on the new AI trading and the potential clients. So would you say that there have been interest from larger operators that are currently having in-house trading and then sort of a total in-house sports book at the moment, looking to maybe outsource just some part of the trading to your AI trading platform?

[David Kenyon, executive]

Yes. I mean, yes, to be clear, for us to sell Tesseract services, they need to have their own platform, of course. So yes, it must be customers who are having their own platform and therefore, to a large extent, probably very on trading.

[Oscar Rönnkvist, analyst]

All right. Then just I wanted you to elaborate a little bit on the start of the Brazilian launch with Lance. I guess that RDP is awaiting license approval before launching. Is that correct? And also, how has the start with Lance has being going in Brazil? Thanks.

[Mia Nordlander, executive]

There have not been any public figures published. So of course, we cannot really comment on that. But regulation is moving in Brazil a few days ago, the Ministry of Finance actually released initial regulation and that gives operators the fast track to register within 30 days, but that's what we can say about Brazil. I think we all feel a bit disappointed about the delay, but we feel that regulation will come into place at some point. And that's also when RDP will go live.

[Oscar Rönnkvist, analyst]

The regulate, I think it will be late Q1 2024 or early Q2 2024. Are you currently having any customers that you know are going live in Peru? Or is it anything that maybe is in your sales pipeline?

[David Kenyon, executive]

I mean, to start, I think we have 2 customers already active in Peru. And of course, it's one of the regions we are looking or one of the countries in LATAM where we are looking to add to our portfolio.

[Oscar Rönnkvist, analyst]

I see. Perfect. And then just the last one. If you expect any sort of impact from the Finnish regulation, I think it is supposed to come in 2026 or something. Do you have any updates on that and how that might impact you?

[David Kenyon, executive]

No, not really at the moment, but obviously, any regulation comes with a greater possibility to do marketing, which is a positive. It may present new opportunities for us, which is a positive. But it will also impact us negatively with the tax burden. So historically, I would say that most regulations has been net positive to us. So we obviously hope that's the case with finish regulation as well.

[Operator]

The next question comes from Viktor Högberg from Danske Bank. Please go ahead.

[Viktor Högberg, analyst]

Hi, sorry, just another one for me on the sports betting margin. You've been consistently in the high end of the range you put forward and you still keep the range 8% to 9%. Could you just help us understand what to expect over time with an increased influence maybe from combinations? Thank you.

[David Kenyon, executive]

Yes, I would say that we probably will, at some point, guide for a higher margin. But I don't know if you have been following the soccer in October, I don't think this is the right time to guide for higher margins. As you can see so far in October, it has been quite a lot of favorites winning in the soccer.

[Viktor Högberg, analyst]

But over time, Q4 side, you see a structurally higher sports margin, of course, a negative impact on turnover on that one. Would you say that the net effect will be neutral on revenues or slightly positive in the short term and then neutral over time as the dynamic so that would be?

[David Kenyon, executive]

Yes. I think, I mean, it's not a 100% correlation between turnover and margins, of course. So a higher margin in short term will always render slightly higher revenues. The question is on the long term, if you can keep players active when you have too high margins. So that is always something we are looking into whether we are getting 2 good margins out of the players and for that reason, should possibly raise the paybacks slightly. So that's yes, always something we are looking at talking to our operators about. But the current trend with more and more exotic, more and more bets placed on bet builders, margins will continue up unless we are changing the paybacks.

[Operator]

There are no more questions at this time. So I hand the conference back to the speakers for any questions from the web and closing comments.

[Mia Nordlander, executive]

Okay. Thank you very much. We actually have quite a few questions here. I'll start with you, Kristian. With half of your revenue now coming from the Americas. What is Kambi's most important growth markets, we start with that and I have some more?

[Kristian Nylén, executive]

Yes. It's a little bit hard to say. I mean, with the announcements we have done this quarter, I would say Europe is the biggest growth market for now. But I do believe that LATAM at the moment is probably the market we will see most growth in. At some point, I really hope that the movement will happen in California and Texas. And then I think in North America will become the largest growth market.And then, of course, as we have talked about, to some extent, Asia is the largest gaming market in the world by quite some distance, and we hope that we will see some regulations there in the future.

[Mia Nordlander, executive]

Okay. And then about AI, is this the most significant technology development pushing the betting industry forward according to you?

[Kristian Nylén, executive]

Yes. I mean, I think if you look at the gaming industry, it has always been outside technology that has been driving the gaming industry forward. First, online, then you had mobile and so on. And now I think AI is the massive driver of what is possible in the field of sports betting.

[Unknown Analyst]

Then it was about the LiveScore deal. Do you see a lot of value and potential in your new partner coverage model of media and betting?

[Kristian Nylén, executive]

Yes. I mean, as you saw, I mean, they have 30% of our acquisitions in U.K. is coming from the use of a LiveScore. So obviously, that is an amazing driver of, yes, owning your own affiliate. And the way they have been working with this with very deep integration, creating streaming services, LiveScore app, news and also combining it were betting, I think, is a very, very strong proposition.

[Mia Nordlander, executive]

Another customer question. How would you say the launch of Bally's has started? And do you feel that the potential of Bally's is intact?

[Kristian Nylén, executive]

I do feel that potential is definitely there. I think so far, we have focused more on getting it launched for existing users and have not really pushed the button on marketing. So I hope we will see that in the near future.

[Mia Nordlander, executive]

Thank you. David, your balance sheet is very strong. Under what circumstances would you initiate a new share buyback program?

[David Kenyon, executive]

I mean, yes, it is strong. I think we certainly have done buybacks in the not too distant past. For sure, something the Board will be looking at, I'm sure, given the strength of the recent signings. So yes, we'll update the market as soon as there's any news, but we have got a strong cash balance and those signings under our belt. So I think it looks good.

[Mia Nordlander, executive]

Although we need a strong balance sheet, of course. Many questions here. We go over to you, Kristian. Do you feel that it's easier to sign partners where you're already strong like Sweden, U.K., Netherlands?

[Kristian Nylén, executive]

Not really. I think, yes, you need to have -- it becomes easier when you have a strong brand for sure. So getting the first kind of reference customers into new markets are very important. But I don't really feel that.

[Mia Nordlander, executive]

Thank you, now when you're talking to potential customers, do you feel any price pressure or is it similar levels as before?

[Kristian Nylén, executive]

It's always price pressure. And I will say it's going up and down a little bit. I think not having -- so it's always something you have to work about. But I also think we have a fantastic product and operates are willing to pay a bit more for our service than others.

[Mia Nordlander, executive]

And this is a classic question now?

[Kristian Nylén, executive]

As I said, I still think it's strong. Obviously, we have got a few out of the sales pipe at the moment, but it's coming new and we will laying for over the discussions we are having, as I said, little discussions for almost a year each. You can imagine that there are others that we are in discussions with at batteries point as well.

[Mia Nordlander, executive]

Okay. David, can you give some color on data supplier cost, is this?

[David Kenyon, executive]

Kind of move the cost down slightly. But you've got to bear in mind, it's an activity-based costs. So it's one that is impacted by the number of the customers we have. So when Penn moves online, migrates away from us, that reduces that cost. And of course, seasonality on the same basis will affect it and the launch of new customers. So it's a cost it's one that if it goes up, it's because there's more like customers are doing well, and we're doing more.

[Mia Nordlander, executive]

Yes, thank you. So many questions today. I'm excited here. Kristian, over to you now, how far away of the market are you with Tesseract, are your B2B competitors or the largely to your knowledge?

[Kristian Nylén, executive]

I definitely think that there are others that are doing great things in this area. But compared to the general market, I think we are in a very, very good position. We obviously have only launched, but I think the system we have built is quite easy adaptable to new sports, which is one of the big advantages here.

[Mia Nordlander, executive]

A question about Svenska Spel. You're mentioning report about empowerment tools. Can you give some color there what that means?

[Kristian Nylén, executive]

I don't want to give too much until we have launched more of it. But of course, one big part here is that they will go for bespoke differentiate their front than what customers have on our network unless they are building the on front of, of course.

[Mia Nordlander, executive]

And the question about Kindred revenues. When should we expect to start to see a tail off from them? And can you please elaborate to which extent the recent signs will be able to offset the reduced Kindred revenues?

[Kristian Nylén, executive]

Yes, I can take that one. So as we announced previously, the new Kindred contract kicks in from 1st of January next year. So of course, that comes with new commercial terms. So that accompany numbers on that, but that's when you'll start to see that new terms kick in. New customers can replace that but we said those new customer revenues from these most recent signings are probably not going to come into our books really until second half of next year. So it's going to be a time where you're going to have pressure on the revenues on that basis. But longer term, for sure, it looks very exciting and positive and so great to have those signings done.

[David Kenyon, executive]

About the Kindred deal is that we have $55 million in minimum revenue guarantee over 3 years. That doesn't have to be distributed equally. But I mean, it puts a floor for what revenues will be between EUR 24 million and EUR 26 million.

[Mia Nordlander, executive]

Yes. Thank you. A few questions here. Can you give some more color on the AI test client? You mentioned that it was out of your network. Did you test doing before or after G3?

[David Kenyon, executive]

No, I don't want to give any more color on that.

[Mia Nordlander, executive]

You mentioned continued optimism on the pipeline, but should we expect to be full turnkey or models? Or both?

[David Kenyon, executive]

As I said, I mean, at the moment, we were not 100% there because of product commitments, we have a big complete clients we have taken on. This something announced. It's more likely to be complete clients rather than modular customers.

[Mia Nordlander, executive]

Thank you and we had the last question. Is the launch of [indiscernible] in Argentina through your existing partner on this?

[David Kenyon, executive]

Yes.

[Mia Nordlander, executive]

It is. Yes. Thank you, David and Kristian. We will be back here for the Q4 result presentation on the 21st of February. As always, if you have questions, feel free to reach out to the IR department, myself or Chris, and I hope you have a very good day. So thank you very much.

[David Kenyon, executive]

Thank you.