28 April: Beats by Boyd +More
Kindred, Kambi and Boyd Gaming Q1, 888 trading update, Nevada March GGR
Welcome to the latest results news. Another packed day as the first quarter results season kicks into gear. On the European front, we have quarterly results from Kindred and Kambi as well as a trading update from 888. But we kick things off with Boyd Gaming and the news from the Nevada Gaming Board on the evidence of a rebound in Las Vegas.
Boyd Gaming Q121
The top line
The Las Vegas to regional casino operator boasted of all-time record results as the company looks to exit the extraordinary Covid period firing on all cylinders.
Q1 revenue rose 10.7% to $753.3m, adjusted EBITDAR rose 91.5% to $311.2m. Revenues were down 8.9% on 2019 but EBITDAR was up on 2019 by 26.7%.
A Deutsche Bank note was titled ‘There are beats and then there are bludgeons; this is the latter’ as the analyst team pointed out Boyd had bettered earnings estimates by 20%.
Exceptional performance: The company said the performance was driven by the general economic recovery from the pandemic and increasing visitation, particularly among the returning older demographic. On the earnings call, CEO Keith White hailed an all-time EBITDAR record. "Consumers are clearly growing more comfortable in returning to their pre-pandemic activities," he said.
Getting back to normal: In part, Boyd said it had benefited from the lack of other entertainment options, and the company expects the rate of play to normalise as the situation changes. The upside from this general societal return to normal will be an expected increase in the destination business.
Impossible margin: One huge factor in the record quarter is the margin performance, up around 1,750 basis points to 41.3%, a factor that Deutsche Bank said was “the story.” Josh Hirsberg, CFO, said Q1 margins were "incredible.” "It is unrealistic to think we will maintain that," he said. DB said that while margins “should not be construed as the new base line” there were hopes that a margin improvement of around 600bps vs 2019 levels might be achievable.
“Given considerable reductions in labor, more efficient marketing, and refined customer re-investments, as well as the historical performance, relative to select regional peers, we have long believed this type of margin appreciation was achievable.”
Sitting on cash: Given the free cash flow and the high rating of the stock, Hirsberg and White were asked about the potential for getting involved in further M&A. Said White: "Our approach hasn't changed over the last 12 months. We look at it in a very disciplined way. How we finance, whether it is equity or debt, is a different conversation from whether we should own it.” Hirsberg was more direct:
“Just because we have all this free cash flow, doesn't mean we are going to spend it all. It all comes back to whether we can generate the return from the investment and if we don't see it, we're not going to do it.”
Stardust memories: Online got a mention on the earnings call. As well as the FanDuel partnership (Boyd owns a 5% stake) the company spoke about the launch of the Stardust online operation in Pennsylvania and New Jersey. The company reiterated that it expected the interactive business to deliver $20m+ in EBITDA in 2021.
Nevada Gaming Board, March 2021 GGR
Think locals
Nevada cleared $1bn in GGR in March for the first time in over a year. Strip GGR rose 67% YoY but was down 9% on 2019. Locals was up 54,7% YoY and also up 23.1% on 2019. Q121 Strip revenues were down 20.2% at $1.17bn while Locals Q121 was up 13.5% YoY and 4.8% on Q119. Downtown LV also enjoyed a good month, up 63.4% YoY and 21% up on March 2019. Strip slots handle was up 121% YoY and table volumes were up 80.5%.
Nevada Gaming Control Board senior research analyst Michael Lawton pointed out that the most recent mid-March capacity expansion coincided with March Madness. He added that the numbers benefited from the recent stimulus payments, enabling increased spend from both local and visitors.
“However, these numbers also benefited significantly from stimulus payments allowing for increased spend by customers across the state including locals and visitors.”
In a Q1 results sector preview note, Barry Jonas, analyst at Truist Securities, said he continued to prefer regional operators for reopening exposure. “We see improving trends in Las Vegas too though this is largely weekend/leisure-driven as uncertainty around midweek/conventions lingers.”
Concrete steps: Jonas noted the next most notable capacity change is in Nevada, where casinos can hold 100% fire-code capacity beginning May 1 (up from 50% as of March 15). As it stands, the weekends in Vegas are far outpacing the midweek recovery. The May 1 date will also see hotel capacity increase from 50% currently to 80%. They will move to 100% once Clark County is 60% vaccinated. "That said, midweek is still a challenge; and while conventions are starting to return (World of Concrete returns in June), it’s unclear what attendance will look like at this point," Jonas said.
Speaking on the Boyd Gaming earnings call yesterday, Keith White CEO said the move towards 80% had a symbolic effect on the consumer.
“It is incrementally positive, certainly on big, heavy weekends, to have more capacity. But it has a psychological effect saying Las Vegas is open and driving people to town.”
Sports-betting: GGR for sports-betting came in at $39.3m from handle of $641m. Unsurprisingly, basketball and March Madness dominated contributing $501.5m of total handle. The comparator is 2019 (no tournament in 2020); basketball handle was up 1.3% on that year. Mobile represented over 60% of handle.
Kindred Q121
The top line
Gross winnings up 41% to £352.6m, underlying EBITDA more than doubled to 398m and pre-tax profit soared to £85.3 from £2.4m. Generated free cash flow of £90.1m. Net cash stands at £174.9m. Actives up 19% to over 1.8m, an all-time high. Revenue generated from locally regulated markets rose 39% to 59% of total (down from 61% in Q420). Trading in first 25 days of Q221 up 52% YoY (55%cc).
Sports-betting 45% of revenues, casino 50%, poker 3% and other games 2%. Growth rates for each product shows casino as the big driver, up 56%. Sport up 30% and poker up 23%.
Marketing costs rose 21% but as a percent of gross win marketing dell back to 21% from 26% YoY.
Pragmatic moves on casino: A new live casino studio is to be launched in conjunction with Pragmatic between Q2/Q3 this year, The company said the work on Dynamic Live Casino lobby was in the final stage of testing. It said this was a “significant move” as it will lead to greater control of the user experience by giving customers the option to select the live casino table that they want to play directly from group websites. Casino was down, however, in Sweden due to the current restrictions.
Regional growth: Nordics GGR as a whole was flat YoY, western Europe up 58%, CES 33%, other 91%. CEO Henrik Tjärnström said in the UK the company was outgrowing the market. Now looking at a profitability contribution from the UK "It's become one of our largest markets," he said.
The big mo: Momentum from last year continued despite the disruption caused by Covid. The company noted that this had been achieved despite sports margin normalising to 9.4% (10% in Q420). The positive trend on margins was partly attributed to the regulatory requirements in the French business to cap pay-back to customers at 85% over time. Revenues from the Cheltenham Festival rose 26% YoY. A proprietary racing platform was also launched in Sweden over the quarter.
Blankenberge generation: After period close, Kindred completed the purchase of the Blankenberge Casino-Kursaal in Belgium from Rank for £25m. The acquisition gives Kindred a solid foothold for online operations in the country. In other low countries news, Kindred said it is ready to enter the Netherlands market as and when a license is awarded. Tjärnström said the company expected a “similar step-change" in regulated revenues from the Netherlands opening as was seen when Sweden regulated.
Virginia slim: Kindred launches in its fourth state, Virginia, later today (seventh operator in the state). US revenues in Q121 rose 185% (203% cc) to £7.4m. Active customer levels (figure not given) rose 92%. Tjärnström said it was still early days.
M&A prospects: Bearing in mind the strong cash position, Tjärnström said M&A was a question of “when not if.” “The consolidation in the sector has been ongoing for 20 years plus and if anything it has been accelerating,'“ he said. He mentioned “strategic acquisitions" and said the company was “following developments.” “We're looking across a variety of acquisitions.”
Aiming for Net Zero: Kindred notably trailed this morning's earnings report this morning with an update the previous day on its responsible gambling efforts. Recall, Kindred's aim is to generate zero revenue from problem gambling by 2023. On Tuesday, the company said it had made progress on this effort with that percentage down slightly to 3.9%, down from 4.3% in Q420. The improvement effect after interventions increased to 76.6%.
"I am pleased to see our 'journey towards zero' moving forward as planned, but I am equally aware that this will not be a straight- forward journey," said Tjärnström.
Kindred says the reaction to the effort has been "predominantly positive" and indeed, the company is to be applauded for tackling the issue of revenues from problematic players head on. He added that the share of 'social gamblers' was improving.
888 trading statement
The top line
888’s Q121 revenues were ahead of expectations and rose 66% YoY (56% at constant currency) to $272.5m. Consumer revenues rose 67% to $262.8m and B2B revenues were up 27% (20% at constant currency) to $9.7m. The group saw 27% growth in average daily FTDs and an 18% increase in active players accounts.
Casino revenues drove most of the growth at $195.2m, up 80% YoY, despite the impact of regulatory changes in Germany during the period. Regulated markets contributed 76% of the revenue (vs. 73% in Q1 2020).
Migration patterns 1: Sector-watchers will be interested by the comment on the switch to 888’s own Spectate sportsbook platform. 888sport website saw stakes increase 38% and betting net win rose to 8%, compared to 6.8% in Q1 2020, thanks to favourable sporting results and “a structural improvement in win margin due to the enhanced product and promotional capabilities of our in-house platform”. Pazner said 70% of sports-betting business has now migrated to the new Spectate platform. He said the sportsbook rollout was “a huge success.”
"This is a real landmark for 888 and for the first time we are now serving the majority of our sports-betting on our own platform."
He said the rollout would be complete in 18 months. There is also a “long list” of improvements on the version 1 of the platform. “It’s performing very well, but it’s only the first version of this product,” said Pazner. Analysts at Peel Hunt suggested the migration was proceeding with ”admirable dullness.” In gaming, Pazner also noted the “great games” being produced by in-house games designers, Section 8.
Impossible Germany: Pazner said that “as planned” 888 had seen a decline in the Germany business - around 40-50% YoY. "We are in the process of gaming a license and we see its an important market and a growth engine in the future."
M&A murmurs: “We have a strong technological platform and product suite which we believe can support significant scaling up,” said Pazner when asked about M&A potential. “Where we will find attractive opportunities we won’t be afraid to pursue them.” He noted his previous comments on a potential bid for the William Hill International business, but he wouldn’t be drawn any further. “But I would say we are more confident than ever.”
Kambi Q121
The top line
Kambi published a strong set of Q1 results despite 888Sport (see above) migrating to its in-house platform in January. CEO Kristian Nylen said the sports focus would now shift to more European patterns, with the football Euro championships and regular events like Wimbledon and the French Tennis Open coming up.
Q121 revenues were up 55% to €43.2m (vs. €27.9m in Q1 2020) and operating profit (EBIT) rose 173% to €18.7m (vs. €6.8m in Q1 2020). The group’s operating margin nearly doubled to 43.2% compared with the 24.5% in the same period last year and its trading margin (generated by its operators) came to 8.5%.
After tax profits after tax amounted to €15.1m (vs. €4.8m in Q1 2020). Kambi had €16.5m in cash flow capital at the end of the period (vs. €4.1m in Q1 2020). Cash balance ended the quarter at €71m.
Migration patterns 2: Platform migration was also a theme for Kambi.Its Q1 turnover index was boosted by a very busy US sporting calendar. When asked about its expectations for the rest of the year as the US sports schedule winds down somewhat, Nylen said this would depend to an extent on the DraftKings migration (from Kambi to SBTech) that is scheduled for Q3.
“As we have other partners and revenue sources we don’t expect it to have too much impact. All things being equal Q3 will be on a lower level than Q1 but September is a strong month for US sports and we will be ramping to the end of the year.”
Both Nylen and CFO David Kenyon would not provide details of the impact of 888Sport migrating to its in-house Spectate platform in January, emphasising instead the strong set of results Kambi had just produced “despite one of our big partners migrating.”
Up for the Copa: The US market generated 63% of Kambi’s turnover in Q1, but this is expected to balance out in Q2 and Q3 with Europe and Latin America, helped by the Copa America football tournament, taking more share of volume.
On social: Vegas is back, back, back.
Newslines
Peel Hunt *hearts* Playtech: Looking at Playtech, analysts at Peel Hunt have revised their opinion. “Playtech is a complex set of moving parts. However, having picked the business apart, we conclude that there is upside from retail reopening; from a pivot towards higher-quality licensing and structured agreements; from turning green shoots in the US into a material business; and from a thorough restructuring.” Upgraded to a buy.
DraftKings *hearts* La Batard: Media moves continue with DraftKimgs which has announced it has signed a distribution deal for the Le Batard Show on any and all platforms including radio, television, podcast and social media. The Miami Herald was told DraftKings is spending about $40 million in a three-year deal.
Earnings calendar
29 April: Betsson Q121, Flutter Trading statement, Gaming and Leisure Partners Q121
30 April: MGM Growth Properties Q121
5 May: Aspire Global Q121, Bet-at-home Q121, Golden Entertainment Q121, MGM Resorts International Q121
7 May: LeoVegas Q121, Penn National Q121, AGS Q121
Contact us
Scott Longley scott@clearconcisemedia.com
Jake Pollard jake@openmediaservices.com