Kambi Group plc

Welcome to the conference call. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star 5 on their telephone keypad. Now I will hand the conference over to the speakers. Please go ahead. You are now in the main conference. Line muted. you

So hello everyone and very welcome to CanBizQ for 2022 report. My name is Mia Nordlander and I am Senior Vice President Investor Relations and I am here today with our CEO Kristian Elén and our CFO David Kenyon. Today we will hear them starting presenting the result for the quarter and thereafter you will be able to ask questions. You can either call in and ask them through the telephone or send them to me in the web. So once again, very welcome and over to you, Christian.

Thank you, Mia. And good morning. I will start with some highlights from a quarter and then I will hand over to David to go through the financial highlights. And then I will come back, talk a little bit about Canby 2022 and more specifically about the quarter. And then we of course do Q&A. So the highlights. First of all, I would say we had a very, very strong financial and operational performance with a 30% underlying revenue growth. And that is without one-off payment from PEN. During the quarter, of course, it was the World Cup, which is a very odd time of the year to have it in Q4. But I would say we had a very successful World Cup. I will talk about it more later. We have done three partner signings during the year. The most important, I would say, is Ray Dupitaco. which is Brazil's largest daily fantasy sports operator. And hopefully that will be a very, very successful story as soon as Brazil decides to regulate. And finally, we have expanded our footprint in America. We've launched in Maryland and Washington in the US and more retail places in Ontario and in four different Argentinian provinces. So over to you, David.

Thanks, Christian. Good morning. Welcome to the financial section of the presentation. So firstly, the financial highlights. Revenue for the quarter was 57.8 million. We had a very strong quarter. As Christian mentioned, there was the World Cup, of course, and a strong sporting calendar, which I'll talk through in more detail. That 57.8 million includes a one-off termination fee from PEN in relation to the termination of the contract. That's 12.5 million dollars or 12.6 million euros recognised on the P&L in the quarter. Excluding that one-off fee, revenue was 45.2 million, which is a 30% increase on the numbers from Q4 last year. I think it's a really strong result, especially as this is now the first quarter where we have no DraftKings in the comparative, so this is a true underlying growth in the business here of 30%. Costs for the quarter were 39.2 million, slightly lower than we actually forecast at the start of the quarter, and this was the first quarter where we had full costs from Shape Games. This led to an operating profit in the quarter of 18.7 million. And when stripping out the pen fee, it was 6 million euros as operating profit. Extremely strong cash flow in the quarter, 17.9 million. And I think this really kind of rebuilds our balance sheet after the cash acquisition of Shape Games. So I'll talk more about the cash flow and the balance sheet later, but we're really rebuilding the strength of that balance sheet with this very strong quarter. Turning to the full year. So full year 2022, revenue was 166 million. This includes the termination fee I just mentioned. Operating profit, 34.8 million at a margin of 20.9%. Looking back on the year as a whole, of course, we had some headwinds. This was the first full year without DraftKings, which was a major contributor last year for the first nine months of the year. And we also had some regulatory headwinds which impacted our revenues from the Netherlands, which impacted our revenues in the first half of this year. On the flip side, we've had many signings in the year. We've launched into new markets such as Arizona, Connecticut, Louisiana, and New York Online. And we have a full year of ABOS revenues now in our numbers, and first four months of Shape games after the acquisition in September, which of course both impact the revenue and the cost line of the P&L. So a pretty active year, and I think overall we're really happy with how we've emerged at the end of the year. In terms of mentioning costs here, we did talk about, we gave a cost forecast for the year ahead in the report this morning. We talked about a full year 2023, total expenses of 155 to 175,000. million euros. This includes, of course, the first full year of ShapeGames revenue compared to four months here in 2022. And the difference between the four months and the full year is estimated to be 12 to 15 million. So stripping that part out, the actual underlying cost base is growing at a much lower rate than we've seen in prior years. And at the recent Capital Markets Day, I talked about the reasons for that. And it's really that we can now benefit from years of previous investment, in particular to reduce growth in our headcount. So that's what's helping drive that slowdown in costs in the underlying business. This slide is an aggregation that we show each quarter of the underlying performance. It's an aggregation of all the operators in the network. The orange line is the operator trading margin across the portfolio. That was 8.1% this quarter. The blue columns represent an indexed aggregation of the turnover of the network. This turnover was up 20% versus Q4 last year. Of course, Q4 is always a strong sporting quarter. We have a full quarter of the US sports, NFL, NHL, and basketball, all contributing significantly. And we had the World Cup. Of course, this did displace fixtures in the major European leagues. So there was a downside there. But overall, the turnover from the World Cup actually contributed to a net positive compared to those fixtures that were displaced. So overall, we did see 20% growth year on year, which we're extremely happy with. We think it's excellent growth across the portfolio. I think we should note they could even have been better actually. We note comments from one of our operators, Penn, who talks about a reduced focus on acquisition of customers, which has led to them having a lower market share in key states. So these numbers here, I think actually is a positive read through for the rest of the portfolio. They're actually growing at a faster rate than you see indicated by this chart. So overall, we're really happy with these underlying growth numbers in the business. This graph shows the revenue conversion from starting at operator turnover growth, 17% increase on like-for-like exchange rates, and then factors in all the elements which ultimately end up in our revenue growth of 66% in the right-hand column. Operator margin was 8.1%, that compared to 7.8% this time last year, so that was a positive contribution versus Q4 last year. And as I mentioned, it's the first full quarter of Shape revenues, approximately 3 million, which is an add-on, of course, to what we had this time last year. And this, after the Shape contribution there, it's a 30% growth versus this time last year. Then adding in those pen termination fees of 12.5 million, recognised here in the P&L, that takes us to the 66% growth of the business. It's also been, as I mentioned earlier, a really strong quarter in terms of cash flow. We started the quarter with 45.6 million euros in the bank. We made 6 million operating profit, excluding PEN fees. Of course, we did get in that 12.5 million I mentioned. We also received the first tranche of the transition fees for support services we'll offer in the coming years in the contract we announced late last year. And so we had the first 5 million of those transition fees received in the quarter. So 17.5 in total in that PEN fees column. Movements in working capital include payment of our corporation tax and a small increase in our debtors. And the net effect of all balance sheet, again,

Another broadening our product, we've also been able to in-house offer our customers native apps. In Q4, we had the World Cup, which of course is a very strange timing. Still, it was the best World Cup tournament in Canvas history. Of course, it was a significant reduction in the number of domestic fixtures. I think of our top 10 leagues, it was roughly two-thirds of a normal year. And still, with the 64 matches from the World Cup, we still came out to what we estimate a net positive compared to having the domestic football. So, very, very pleased with the result of the World Cup. But more importantly, I think we had an amazing product, very much driven by what we will talk more about, our third generation trading capabilities. But all in all, very, very pleased with the product we were able to deliver to our customers and the result of it. As I said, we have launched our third generation trading during World Cup. We discussed it in depth at Capital Markets Day, so please listen to that if you want to have a more extensive insight in it. The rollout during World Cup could probably not have gone better. We stress tested at the absolute maximum scale and delivering more expensive products than we had before and with a better result. As an example, during knockout fixtures, we could in 90 seconds publish more than 500 new markets, giving our customers, of course, the first market possibility for their end users. But for us, it's also a massive cost efficiency going forward, being able to do publish automatically so many markets instead of, as before, some of the more special markets had to be done by manual labor. Since World Cup, we have ruled out this product on all the major European leagues, such as Premier League, La Liga, Champions League, and now it's roughly 60% of our pre-match turnover on soccer. In the weekends, it's even higher. We are planning to rule this out later in the year in in-play game as well. And after that, we are expecting to rule out more sports, hopefully one more during this year. In general, you can say that this capability has already improved the player experience. And it's building towards what we expect to become more and more a limitless sportsbook in the future. As highlighted previously in the quarters, we have a market leading bet builder product. We started developing our bet builder product in 2018. And I would say now it's more about really tweaking and making it better and better. And during Super Bowl, we actually were able to introduce it in play and offer cash out for Super Bowl bets. Today, though, I would like to focus a little bit on pricing. And the reason I would like to talk about the pricing is because it has been quite a discussion on other forums about margins. To do pricing correctly, of course, it's a vast work. You have to work with very, very large data sets. Of course, you have to have great algorithms. And again, here, the third generation trading will become more and more important. Preferably, you have some trading expertise, even if you can automate a lot. There are some situations where you still want to have the manual input. In Camby we have a unique network of data spanning across the globe of millions of users, which also gives us a great source of input to get to the most accurate pricing. I want to show you an example, and this is not a random example. It was featured in a Wall Street Journal article where we compared FanDuel and DraftKings pricing. Our price was of course not compared there, but just to give you an example here, on this random example, they took Kansas Chiefs to win the Super Bowl, Travis Kelce to score a touchdown, And the same for Yale and Hertz. When we looked at this price, FanDuel and DraftKings was roughly seven times the money. Cambi had 850. I would say that our price has roughly 15% theoretical margin. If that's the case, it would mean that FanDuel and DraftKings has roughly 30% theoretical margin. You can, of course, lower to that number and create a better margin for the operator. But I would say that is the wrong way to go. With a higher price, you create a much, much stickier product, better UX for the end user. And they will spend their money over a long time. But hopefully, and we would expect the customer to spend more money at a higher price than we would do on lower prices. So, going into our acquisition of Reido Pitaco. I think this is very, very exciting. Brazil is obviously a massive market when the regulators decide to open it up. One of our primary targets in Brazil was Radio Putaco, and we are very, very proud to design one. We have a massive database as a fantasy operator, and we expect and hope that we can emulate what the DraftKings and FanDuel did in the US when US market open and for Radio Pitaco to become a leading player in Brazil. We hope that this market will be regulated sometime late 2023 or 2024. During the Q4, we also signed LMG in Puerto Rico and Great Canadian in Ontario. But we covered that in the Q3 report already. In Q4, we continued to do a lot of launches across the Americas. We launched into two new states in Maryland online and in Washington state where we opened up a retail casino. In Canada, or specifically Ontario, we launched multiple properties for both Great Canadian and Mohegan during the quarter. And in Argentina, we continued our expansion. We've launched in four new provinces with Casino Club. Latam is gradually becoming a more and more significant market for Cambie. We have a strong position. and we believe it's having great potential, particularly with Brazil on the horizon. It has been a busy period after Q4. Most importantly for us, we have extended our partnership with Rush Street. Rush Street was our first US operator after PASPA, and it's one of the leading operators in the US, but also in Colombia and in Mexico. We extended our partnership with Sun International, a leading operator in South Africa. We launched on day one in Ohio, where we powered nine launches on the market opening day of 1st of January. And in the end of January, we also launched a retail sportsbook in Massachusetts, and we hope for online to be launched in March. And finally, in the end of, yeah, we have also done two new partnerships with Miami Valley Gaming in Ohio and the Lager Resort and Casino in New York, both retail and both already live. Camby is now live in 21 U.S. states and well established as the number one supplier in the US market. Also after Q4 we of course had our capital markets day and as we communicated last month we have adopted new financial targets to achieve revenues of two to three times the full year 2022 figure and an EBIT of at least 150 million euro. These targets are largely dependent on a few key growth drivers, which I will talk a little bit more about now. First, I think it's very, very important for us to retain our key partners. And a good sign is that we have already this year extended the contract with rush street and i hope you will see more coming this year earlier i spoke about the third generation trading capabilities we're currently ruling it out on soccer and i hope we will continue with more sports and i think this is very very successful for important for our success both when it comes to our product quality being able to have a leading product, but it also will have a very big impact on our cost efficiency. We are already clear market leaders, as I said, in the Americas, but I think we need to keep that position and extend it into new markets as we roll out. And there are a few key markets more important than others, namely Brazil, Texas, and California. which we hope and believe will be regulated during the next coming years. We need to be very successful with our modernization strategy, as we communicated during the Capital Markets Day. We have done a few acquisitions with EBIOS and SHAPE, but we also need to be very successful with Cambys yeah say old owned portfolio to be able to modularize that and assign tier one customers and finally we need to to launch a major regulated Asian market and we are looking especially at two here Japan or India if we are successful with drivers we are very confident that the EBIT target of 150 million is very achievable. So to summarize the quarter, we had an excellent financial result. We've growth across various KPIs. We had a very successful World Cup. And I would say this is coming in a quarter where the financial pressure globally It's quite tough. So very pleased with the results. The third generation trading performance, again, underlies the future potential we have. And the success we had during World Cup is very, very promising. And having laid out our study during the recent Capital Markets Day, we feel we are on a path to significant growth. and build towards the 2027 targets. Thank you very much.

Thank you, Christian. And David, now it's time for Q&A. And as I mentioned in the beginning, you can either call in your question or send them through the web to me. So over to the telephone conference, I think. Do you have any questions?

If you wish to ask a question, please dial star 5 on your telephone keypad to enter the queue If you wish to withdraw your question, please dial star 5 again on your telephone keypad. The next question comes from Oscar from ABG. Please go ahead.

Thank you. Good morning and thank you for taking my questions. So first of all, just apologize in advance if I ask you anything that is already mentioned because I missed a small part of the presentation. But first of all, I would just like to get the sense of if you had any impact from the Mattress Mac large win. So for example, Kindred had a pretty substantial negative impact in the US at least, but can you say anything about your impact? Is it substantial?

I don't want to go into exact details, but We took two bets, one through Kindred, as you say, and also I think Penn has mentioned that they had a bet from MattressMax. So there is some impact for us during the quarter, yes.

Understood. Thank you. Then on maybe a question for David, just the reason behind the wide OPEX guidance, because I mean, a little bit depending on the level, it represents quite a substantial part of EBIT, I guess. Is there any reason why it's like 20 million in the range?

Yeah, thanks for the question. I mean, I'd say obviously there are more parts of our business now, obviously with the Shape Games acquisition recently, there's kind of more parts we have to forecast. And specifically on Shape Games there, it's definitely a case of being able to match cost growth to revenue opportunity. don't need to grow the costs really unless those those revenue opportunities present themselves so that automatically gives us a little bit more kind of breadth in what the cost might be depending on where the revenue goes um add that to you know all the parts of the business we talked about at the capital market so the growth of ex-algo or the algo trading uh the growth of avios into odds revenues and of course uh the uncertainty in in the cost base um generally in terms of the global economic There's always kind of factors flowing around. I think that's why we gave a slightly broader kind of range this time. All right.

But, okay, so since the acquisitions of EBOs and ShapeGims, I mean, because, I mean, a lot of your cost basis is kind of fixed, right? So, I mean, you don't really have a lot of variable costs in the OPEX at the moment, or correct me if I'm wrong here.

No, that's correct. That's correct. I mean, there's the data costs, which, again, are impacted by the revenues, by the customers that we sign up with. So again, that's one that's variable, but broadly, the majority is fixed. So we've got a pretty tight view on the turnkey business, what the costs are with that. It's more on these other moving parts, the new modules in the business that come with a bit more, slightly more uncertainty from our perspective, hence the broader range.

OK. Yeah, I see. Then just, you were at the ICE conference recently, and I visited myself and saw some positive feedback, mainly on the third generation algo trading, and also, I mean, a bit on the bet builder. Can you share anything from your side? Did you receive a lot of interest for the modularization? And also, what were the sort of key highlights from potential clients on the BetBuilder? I mean, you obviously offer better prices, for example, in the BetBuilder also. How do you make sure that the bettors actually get aware of those differences in pricing?

a really really good venue again after last year when it was just before Easter and it was quite slow. It was packed and it was a great interest for us. I personally was in meeting rooms most of the times. don't have the first-hand information what happened on the floor but but what i heard it was a great interest for all modules really i think it was a lot of interest from both when it comes to ebioshape the algo trading and bat builders so very very positive across the board i would say um You touched on another thing here as well, the bet builder and the pricing. I think we reacted a little bit on it lately about the discussions about margins from different various US operators. So I think this is something we will really push operators to be aware of how good pricing they have. And I think We may not have done a great job so far on it, but you can be sure that that is top on mind for us to make sure that our current operators and, of course, new prospects are very, very aware about our pricing and what a significant difference it is. And this will become more and more evident when cash out becomes more of a given product for bet builders.

Brilliant. Thank you. Just a final question on RDP in Brazil. So obviously we've seen like FanDuel and DraftKings with decent conversion rates to the sports betting product from the fantasy customers. But can you give any details? Do you have any sense of what the sort of average spending per user in Brazil is compared to the US, for example? Because I mean, 14 million in downloads is quite a substantial number, but I mean, sort of the average revenue per user.

I'm sorry, I don't have that figure, so I can't really give you anything on it. But Brazil is a very, very large country. Obviously, they don't have the same financial means as Americans, so you should expect a much lower average spend per customer. But having said that, with the size of a country, it's very, very exciting.

Understood. That was all from me. Thank you very much.

As a reminder, if you wish to ask a question, please dial star 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Okay, thank you. We have a few questions actually here. We start with you, Kristina. Can you elaborate a bit on when you expect to be able to start selling the BetBuilder as a standalone model? And do you have any plans what the second model could be as a standard product?

We are selling as we speak. When we will sign a customer, I don't know. I would also say that the pipeline for the full turnkey product is very, very strong at the moment. So it's a little bit of a question on what to prioritize at the moment. But I definitely hope still that we will have something in place within a few quarters at least. I don't want to expand too much about what is the next module that we will start marketing.

Another question regarding BetBuilder. How will the pricing model look like? Higher or lower rev share than signing a whole platform?

I guess it should always be a discount if you take the full product and also the BetBuilder is a very complex part compared to for instance the straight money line prices on on a top league in soccer for instance so it will definitely be higher pricing on a bet builder than a full product okay um another question for you christian do you think one of the big u.s operators could have been profitable already today with a third party sportsbook provider rather than going in-house Yes, I do think so. Having said that, I guess the largest cost they have at the moment is marketing rather than the build of a sportsbook product. But I think they would have a more solid product service. So I think that would have been possible, yes.

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