Kambi shares drop as supplier reports 38% decline in Q1 operating profit
Kambi has reported declines in operating profit and EBITDA despite a 19% year-on-year increase in revenue to €44m for Q1 2023.
In Q1 2023, Kambi generated revenue of €44m, a 19% year-on-year increase.The sportsbook supplier’s operating profit (EBIT) for the quarter came in at €4.5m, reflecting a decrease of 38% compared to the same period in 2022, with an operating margin of 10.3%.
Kambi also revealed a 25% year-on-year decrease in earnings before interest, tax and amortisation on acquired intangible assets to €5.8m, which it attributed to foreign exchange movements and one-off costs intended to improve future efficiency.
Moreover, Q1 EBITDA fell by 7% to €12.8m compared to the same period in 2022.
In spite of the declines, Kambi’s Operator Turnover Index, which measures the quarterly turnover of its operator clients, showed a healthy increase of 12% year-on-year, with an operator trading margin of 8.2%.
The big news was Kambi’s decline in operating profit, which raised questions among investors about the company’s profitability, leading to an 11% drop in Kambi stock in the early hours of trading.
CFO David Kenyon explained that Kambi’s cost base increased from €29.5m to €39.5m due to additional capital expenditure for the acquisition of Shape Games and amortisation of acquired intangibles related to the acquisition.
Those two factors combined accounted for €3.6m of the cost increase. Kambi also incurred other one-time expenses of €2.3m in the quarter, including personnel restructuring costs of approximately €1m.
The restructuring involved reducing headcount by approximately 30 employees, primarily in Kambi’s trading department, to enhance operational efficiencies.
Kenyon expects this strategic move to result in annual savings of around €2m in operational expenses.
Furthermore, he stated that Kambi is not actively seeking to hire new employees at the moment.
In January, Kambi set ambitious financial targets for 2027, including revenue of approximately €330m to €500m and EBIT exceeding €150m.
“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,” CEO Kristian Nylén said today.
Nylén highlighted Latam as a region of significant long-term potential for Kambi.He added: “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.”
To achieve its financial targets, Kambi identified five key growth drivers, which included retaining important partners and signing up more tier-one operators, introducing third-generation trading, and establishing itself as a key supplier in the Americas.
Finally, Kambi revealed it has set its sights on launching in a major regulated Asian market.
In Q1, Kambi and Rush Street Interactive (RSI) signed an extension to their successful sports betting technology partnership in the US.
Kambi also agreed a long-term sportsbook partnership extension with Corredor Empresarial S.A., the operator of Colombian sports betting brand BetPlay, which has ambitions to expand into additional markets across Latam.
During the quarter, Kambi also signed a long-term extension with Sun International in South Africa.
Kambi completed 20 partner launches during Q1, all of which occurred in the Americas and included three new US states: Ohio, Massachusetts and Wisconsin.
During the earnings call, CEO Nylén was asked to clarify his statement about the non-linear path towards Kambi’s long-term financial targets and when he expects to see improvements.
In response, Nylén acknowledged that there will be both headwinds and tailwinds, with Penn National’s migration to its own proprietary technology an obvious headwind.
“As for tailwinds, we consider regulations in major markets such as Brazil or in Asia. However, most of these are expected to happen closer to 2026 or 2027, and that’s a big reason why we expect it to not be linear,” he said.
Given Kambi’s aim to launch into a major Asian market, ABG Sundal analyst Oscar Rönnkvist asked whether the company would consider making a move into India.
He referenced Sportradar’s recent decision to open a Mumbai office.
CEO Nylén said Kambi is already exploring opportunities in India, albeit on a very small scale.“We have refrained from creating a local product, and I think we are staying on the right side by doing so,” he added.
The CEO acknowledged that India holds significant potential, but believes the market will truly take off once it is regulated and more local operators enter the scene.
Current trading and outlook
Excluding foreign exchange movements, Kambi anticipates total expenses of between €38m and €41m in Q2 2023 and between €155m and €170m for the full year.
Investors will be keeping a close eye on Kambi’s future performance to assess its ability to overcome the recent decline in operating profit.