Kindred could exit more US states as cost control prioritized after ‘disappointing’ 2022

Kindred Q4: Exit Sign
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Kindred Group CEO Henrik Tjärnström has revealed that the operator could exit more US markets if they are deemed to be financially unviable following the rollout of its sportsbook platform this year. 

Tjärnström spoke after Kindred posted its Q4 and FY22 financials, which painted a bleak picture as the group failed to meet its expectations for the year across a series of global markets. 

More Kindred North American exits on the cards

Kindred’s performance in North America resulted in underlying EBITDA losses of $18.0m in Q4, with marketing costs reaching $11.1m during the period, more than double the gross win revenue. 

Gross Win Revenue in Q4 reached $5.3m, a 38% decline year-on-year, though this was significantly hampered by Jim “Mattress Mack” McIngvale’s win with the Unibet brand sportsbook on the Astros to win the World Series, which resulted in a record payout of $5.3m. 

Astoundingly, Mack’s antics halved Kindred’s entire revenue in North America for Q4, with GWR excluding the payout reaching $10.6m, which would have been a 24% increase YoY. 

Having already exited Iowa due to a lack of opportunity of igaming legalization and high marketing costs, investors were eager to know whether Kindred would consider exiting more jurisdictions if leadership felt it right. 

Tjärnström said that it ‘absolutely’ would, but wants to give its proprietary platform time to reduce operating costs in the short term before making any big decisions. 

He told investors this morning: “We have always been clear that we are looking at things on an ongoing basis. As we said before, we have refocused our investments from across all states in our footprint to more focus on the multiproduct states. 

“We exited Iowa in December and we have chosen not to pick up one of the unnamed market access opportunities we had in our portfolio and for sure, (more exits) could be an outcome going forward as well that we do further refinements on that.

“But of course, we’re also keen to roll out our platform and see the return we can get from it – we’re expecting it to be good.”

Kindred’s proprietary platform is expected to roll across New Jersey, Pennsylvania and Ontario over the next two quarters, following which management will review the cost-effectiveness of remaining in certain markets. The CEO revealed that the platform is under regulatory review in New Jersey and could launch within ‘a couple of weeks’.

The requirement to reduce the cost of sales is evident from the group’s financial statement, with Q4 North American CoS reaching $8.7m, which the proprietary platform would hopefully reduce.

The Kindred CEO noted that the group’s North American losses had reached a trough and that he expects to meet the target of breaking even in North America by 2026. 

In the meantime, though, the group will continue to reduce its cost base and focus more closely on multi-product states to capture enough market share to be a top 10 operator. 

He added: “One of the key aspects of rolling out our own platform across North America is to get an improved customer experience and add more content and more relevance and more speed in our own performance. So we’re expecting to invest in our own platform rollout, hence why we’re reducing investments prior to rolling out the platform. 

“Again, we’re focusing on the Multi Product states to reduce costs in the short term, and then scaling up once we have rolled out the platform.

“We’re still committed to being a top 10 operator across our footprint of states, and also to have sort of low to mid-single-digit market share.”

Q4 and FY22 results

Publishing its update this morning, Kindred recorded full-year revenues of $1.2bn, down 16.7% year-over-year, though fourth-quarter revenue did increase 20% YoY to $369.4m. 

On the profitability side, the outlook was bleak, with Kindred’s full-year underlying EBITDA  dropping 61.6% YoY to $157.1m, and fourth quarter underlying EBITDA rose to $47.3m, from $33.4m one year previous.

A key fourth-quarter sporting event was the FIFA World Cup, which Kindred set lofty ambitions for, though did not reach such heights. 

Despite a 12% increase in active customers YoY excluding the Netherlands – which was boosted from a regulatory settlement – Kindred stated that the event ‘did not manage to offset the decline in sports activity both before and during the event’.

This was felt in the group’s full-year bottom line, with profit after tax reducing by 59% to $145.2m, whilst fourth-quarter profit was down 34.1%.

Explaining the disappointing year in his report, Tjärnström told investors: “Despite growth in our core markets and continued encouraging performance in the Netherlands, following re-entry to the market in July 2022, the fourth quarter fell significantly short of our ambitious expectations. 

“The first-ever World Cup held in Winter did not manage to offset the decline in sports activity both before and during the event, and regulatory changes in Belgium and Norway also negatively impacted revenues. 

“Although normal during a World Cup quarter, an increase in marketing investments, totaling 26% of Gross winnings revenue, also pressured profitability in the short term. However, this resulted in the second-highest active customer base ever of 1.83 million, which is expected to improve activity at the start of 2023.”

Outlook and 2023 targets

Kindred ended 2022 with cash and equivalents of $308.2m, compared to $327.2m at the end of 2021. 

Following period trading, the group Board of Directors proposed an ordinary dividend of $0.423 per share, equal to a total dividend of approximately $90.7m, to be paid out in two equal tranches, in the second quarter and the fourth quarter of 2023.

Looking ahead, despite the ‘difficult’ 2022 that the group faced, Kindred still remains bullish on its performance in 2023, setting a target of $241.9m in EBITDA at a margin of 21-22% for the year ahead, with revenue expectations of $1.9bn.

Closing his remarks, Tjärnström concluded: “2022 has been a difficult year in many ways, not only for Kindred. However, while the geopolitical uncertainty and cost-of-living challenges remain, the actions now taken and a large customer database from the fourth quarter will strengthen our path towards our 2025 financial targets.”