Kambi Q1 profits reduce by 40% despite major contract renewals

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Kambi CEO Kristian Nylén has celebrated the “great progress” the company has made in the first quarter as a naturally busy sporting calendar produced a “perfect performance”, whilst two key client renewals made up part of 20 contracts signed. 

Addressing investors as part of its Q1 financial report, Nylén said that a very busy sporting calendar, with the Super Bowl and March Madness popular sports betting events, helped drive revenues up 19% year-on-year up to $48.6m from $44.1m one year ago. 

This, management stated, was due to the renewal of two of the supplier’s “most strategically important partners” Rush Street Interactive and Correrdor Empresarial SA. It was disclosed that these two partners contribute to over 50% of Kambi’s total revenue in the Americas, highlighting the exposure to change that it faces. 

Despite revenue growth, Kambi’s bottom line was not so healthy, with EBITDA reducing 7% YoY to $14.1m, and operating profit dropping 38% YoY to $4.9m. Post-tax, Kambi’s profit has declined by 40% in one year, dropping to $3.6m compared to $5.9m last year. 

Nylen told investors: “The first quarter was another busy period for Kambi including new market launches in the Americas, the expansion of Kambi’s partner network, and a full sporting calendar. 

“These events helped drive a 12% year-on-year increase in operator turnover and a 19% rise in revenue to $48.6m. EBITA (acq) was $6.4m, impacted by several factors including foreign exchange movements and one-off costs to improve future efficiency.”

2022 was a year that saw both DraftKings and PENN reduce or remove their partnerships with Kambi, with the latter transitioning to its proprietary platform later this year. 

Leadership was asked about this partnership and how much Penn’s decreasing market share in some key sports betting states including Pennsylvania and Michigan has impacted its performance in Q1. 

David Kenyon, the CFO of Kambi, explained that Penn’s declining market share has impacted its performance but that as the operator gets closer to migrating to its own platform, the impact will reduce.

Kenyon said: “There has been a massive decrease in the market share in key states. I mentioned Pennsylvania, Illinois, and Michigan, the three examples that if you look at those numbers, it’s been a massive decrease from this time last year, but also kind of continued from Q4 through into Q1. 

“So yes, they’ve talked about not really focusing on customer acquisition right now. So it has fed through entire numbers. Yes, it’s a big factor for us, but yes, of course, will lessen the impact as and when they do leave the network, of course.”

The CFO also noted that there have been no transition service fees received in Q1 from PENN ahead of its migration, but that in Q3 when the transition is complete, there will be a 1m monthly fee for 15 months written into its results. 

New state launches 

Kambi has been striving to maintain its position as one of the leading sportsbook suppliers in the US during the quarter and has entered 20 new partner launches and has entered three new states. 

Kabmi is now in the markets in Ohio, Massachusetts, and Wisconsin via betJACK, Barstool Sportsbook and Potawatomi Casino & Hotels, respectively. This now means that the platform provider is live in 22 states, though there is no indication of its future in Massachusetts following Penn’s migration. 

Meanwhile, performance on the product side has been labeled as “perfect”, with the Super Bowl being the second-largest sports betting event in Kambi’s history. It was twice the size of the World Cup final. 

March Madness was a success, too, with turnover from the tournament up 17% from the 2022 edition, driven by enhancements on the product side with its BetBuilder and increased player markets available. 

“So I would say we have the best product out there for this tournament,” Nylen added: “We’re very pleased with, all in all, the product enhancements and especially, as I said before, perfect performance for these big events.

“I would say we are unmatched for market delivery and our customers can always trust us to be among the first in any new market coming up. And we are consistently enabling our customers to be on market, on time.”

Latin American prospects 

Kambi, like most onlookers, is anticipating the sports betting regulations in Brazil to be released and penned in the next few weeks. The firm has already penned a deal with Radio Pitco in the country and is expecting to sign on more customers as and when the market is established. 

In Argentina, meanwhile, it is live in eight jurisdictions with access to over 55% of the Argentine population and labeling its prospects in the country as “really good”.

The CEO explained: “Latin America is a region of significant long-term potential for Kambi and will become increasingly integral as we look to extend our lead as the number one supplier across the Americas.

“Kambi already has a strong foothold in some of the region’s most established sports betting markets such as Colombia and Argentina, and recent public announcements from the Brazilian government show positive signs that regulation of sports betting in Brazil is edging nearer in what is projected to become one of the world’s largest regulated markets.”

Whilst profit did reduce 40%, Kambi is bullish on its long-term financial targets, with 2027 revenues anticipated to be around $364.5m – $552.4m, whilst EBIT is anticipated to beat $165.7m. 

Despite this optimism, the markets did not share such high hopes, with Kambi’s share price dropping by 18% on the day of its Q1 results. 

Nevertheless, leadership noted that its long-term aims will be realized, but conceded that the road may not always be smooth. 

“We remain steadfast in our commitment to setting a new standard for sports betting and to pioneer next-generation entertainment that eliminates friction and creates new innovative betting options for operators,” Nylen concluded. 

“The road towards our long-term financial targets won’t be linear, but we are carefully putting in place the fundamentals which will enable us to accelerate as we progress. 

“With a market-leading sportsbook that continues to remove product boundaries, a strong sales pipeline, and the prospect of further regulation in key markets, I look forward to updating the market over the coming quarters.”