US expansion costs push profit down at Kambi in Q3

Sports betting solutions provider Kambi Group has reported a year-on-year rise in revenue for the third quarter, but saw its operating profit decline as a result of higher spending related to its US expansion efforts.

Total revenue for the three months to 30 September 2019 amounted to €23.0m (£19.9m/$25.5m), up 12.3% from €20.8m in the corresponding period last year.

Kambi put this increase primarily down to a 23% year-on-year rise in operator turnover, with a margin of 8.5% for the quarter. The share of revenue derived from regulated markets was up from 53% in Q3 of last year to 73% for the recent quarter.

The provider said this revenue growth was all the more impressive considering that the quarter did not contain a major international football team tournament, whereas the comparable period last year featured the latter stages of the 2018 Fifa World Cup.

However, this increase in revenue was accompanied by a rise in operating costs for the quarter, with Kambi spending a total of €19.6m, up 20.2% from €16.3m in the same three months in 2018.

Kambi said this was mainly the result of higher staffing costs, which were up 36% from €7.5 to €10.2m as the provider added to its workforce to support ongoing growth plans in the US.

Amortisation costs were slightly up from €2.1m to €2.5m, while Kambi also saw a slight increase in other operating expenses, which climbed from €6.7m in Q3 of 2018 to €6.9m this year.

Revenue growth in the period was not enough to offset higher costs, with Kambi seeing operating profit dip 19.1% from €4.2m to €3.4m, The provider again cited investment costs related to its US expansion as of for the key reasons for this, as well as the absence of a major international football event.

Profit before tax in the third quarter dipped from €4.1m to €3.3 and after paying €991,000 in tax, profit after tax stood at €2.9m, compared to €3.3m last year.

Reflecting on the results, chief executive Kristian Nylén said that he was pleased with the Q3 performance, highlighting multiple customer launches, new product releases and major commercial agreements.

Nylén also noted that the third quarter is traditionally challenging for the sports betting industry, particularly in a year with no major summer football event, but added that activity began to pick up with then US major league season began in September.

“I also pleased to see momentum increase throughout the quarter, culminating in September’s operator turnover, which was up significantly year-on-year and surpassed the previous highest monthly total,” he said.

“This encouraging performance was due to the combination of multiple customer launches, enhancements to the Kambi sportsbook, and a busier sporting calendar, which gives me confidence for the rest of the year.”

Nylén picked out the deals with Penn National Gaming and JACK Entertainment as agreements that Kambi signed in Q3, saying these will help the business grow in the US.

“Overall, there were multiple US customer launches to mention in Q3, with online or on-property launches taking place across the states of New York, Iowa, Indiana, Pennsylvania, New Jersey and West Virginia,” he said. “Among those launches was Unibet, who made its US sports betting debut in New Jersey and then launched retail in Pennsylvania.

“In general, Kambi remains well positioned for the future and I look forward to building on our successes in Q4 and beyond.”