Apr 28: Evolution: ‘We should take a bigger cut’

Evolution Q1, Kindred Q1, Betsson Q1, Las Vegas Sands Q1, Churchill Downs Q1, Rivalry Q4, March US sports-betting estimates +More

Earnings+More

Apr 28, 2022

Good morning. A busy schedule today as the Q1 earnings season hits its stride:

Evolution powers on, driven by live casino growth.
The Netherlands exit was “more severe than expected” at Kindred.
Betsson sees the benefit of geographic expansion.
Las Vegas Sands, Churchill Downs and Rivalry also report.

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Evolution Q1

Revenue up 38.6% to €326.8m; EBITDA up 43.4% to €229.7m.
Live casino revenue up 43.9% to €264.5m; pro-forma RNG up 1.8% to €62.3m.
Asia was up 94% to €104.3m, Europe combined up x% to €xxx, US up to €xxm.
EBITDA margin hits 70.3%.

Raising the roof: Towards the end of the call this morning, Carlesund spoke about what he sees as the value that evolution brings to its customers and suggested this was running ahead of how much the company actually charges.

Martin Carlesund, CEO: “We add so much value, year in year out. We should take a bigger cut”.

Pound of flesh: EBITDA margins hit over 70% for the quarter, within annual guidance of between 69%-71%. Asked about room for further improvement, CFO Jacob Kaplan said “we won’t say there is upside today”.

Martin Carlesund: “Inflation is increasing and there is a war going on, so we are very happy to maintain guidance on margins given the circumstances.

Global outlook: CEO Martin Carlesund said “demand for our product is global”. He noted the company was actually underserving the market, suggesting this would remain the case for a while.

Lesson learned: Carlesund said a “key lesson” from the pandemic was not to rely on any one studio. In response the company has opened a new studio in Madrid as of this week and will be adding a new facility in Yerevan in the coming weeks.

X marks the spot: The number of what Evolution calls ‘bet spots’ shows the strength of underlying activity, with the number up 31% QoQ and also up sequentially on a seasonally strong fourth quarter.
In North America, Carlesund noted the company has a ‘selected’ (read exclusive) relationship with FanDuel. As to further US regulation, he said it was ”a little bit like asking what the weather will be like tomorrow”. “It’s very hard to predict,” he added.
Asia received a mention: Carlesund said the market is large and “we see good momentum as well”.

The fly in the ointment: The RNG performance was flat but Carlesund said the “path to growth in RNG is a high priority”. “It could be much better,” he added. A record number of games have been released this year and Carlesund said the ambition is double-digit growth, but he didn’t put a timeline on that.

Asked about further M&A, Carlesund said the company was “always looking but we are picky”.

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Kindred Q1

Gross win revenue fell 31% to £242.4m and underlying EBITDA down 77% to £24.5m.
Excluding the Netherlands, casino up 1% but sportsbook down 12%.
April gross win revenues down 35% YoY; 15% down excluding the Netherlands.

The long game: CEO Henrik Tjärnström said the impact of the Netherlands exit had been “more severe than expected” but insisted that the situation was of a “temporary character”.

On when it expects to receive its license, he said the company was “very confident we are nearing the end of that process”. Kindred applied for a license on Nov 29. “Six months is the guidance.”
Year zero: “We start from zero and then we’ll have to work with that.”

Mixed bag: Performance was also affected by headwinds in the UK and France. Succor came from the Nordics (up 9% YoY) and Australia (up 30%).

April shower: The company blamed weak margins for the April declines; hold was 7.8% compared to 10.7% for Q221.
Fade out: Q1 started strongly but then faded sports betting activity slowed. The company also saw a marginal impact from ceasing betting on Russian and Belarusian events.
Trough at the top: Tjärnström noted that Q3 and Q4 would be “very, very tough” in terms of comparatives. “It’s normal we go through these troughs.”

Not happy: Tjärnström said Kindred was ”not satisfied” with its North American performance. He added that despite the current “unsustainable” marketing environment, the group remains convinced about the long-term prospects. Gross win revenue in North America was down 26% to £5.6m.

It will launch its own proprietary platform in New Jersey in Q322 and noted that it went live in Ontario in April, where it said the Unibet brand “was already known”. “We’re gradually increasing our marketing efforts,” Tjärnström added.

Up the hill and down the slope:

Affordability: Asked about the extra affordability measures the company has introduced in the UK, Tjärnström said the most impact was with higher-value customers. “It’s a bit blunt, as we see now. It needs to be more surgical”.

Gers-tcha: Kindred announced it is donating its shirt sponsorship for Rangers’ upcoming Europa Cup semi-final tonight to the club’s mental health project ‘Team Talk’.

Betsson Q1

Revenue was up 8% to €170.2m but EBITDA was down 7% to €33.4m.
Sportsbook up 45% but casino revenues dropped 5%.

Diversify this: Betsson said successful geographic diversification of its activities had made the company “less sensitive to disruptions in individual markets”.

Revenues from the group’s Western European activities suffered the biggest drops (-43.5%) due to new regulations in Holland and Germany.
Latin America was up 174% to €36.8m, western Europe down 43.5% to €22.2m, Central & Eastern Europe and Central Asia flat (-0.2%) at €53.4m and the rest of the world (driven by Canada) up 19.3% to €3.7m.

New, new markets: Betsson will be active in Ontario in the summer and plans to launch in Mexico with its partner Big Bola Casino later in the year. In Latin America it has launched in the City and Province of Buenos Aires, Argentina.

CEO Pontus Lindwall: “The switch from the Colbet to the Betsson brand in Colombia has been good. It was wise to change brands because we can do large marketing initiatives that can roll out across different countries.”

License issues: The ongoing conflict in Ukraine led the company to return the local license it held in Belarus and completely shut down its operations there. With regard to the Netherlands, the group applied for a local license in February and the review usually lasts six months.

German exit: Betsson has ceased its B2B activities in Germany where it supplied the broadcaster proSieben Media. Lindwall said proSieben decided “it wasn’t possible to make a big impact on the market given the difficult regulations”.

Las Vegas Sands Q1

Revenue down 21.2% to $943m, adj. property EBITDA down 55% $110M.
Cash on the balance was $6.43bn at March end, total debt was $14.95bn.

Uncertain timing: CEO Rob Goldstein said with business reopening in Singapore he was confident the business there would generate strong cash flow.

But visibility remained low in Macau and reopening timings remained uncertain. Concession renewals should be issued by the end of the year.
Sands China CEO Wilfred Wong does not expect any material impact from ongoing court cases with junket operators.

Build project: In terms of long-term growth, LVS said it wanted to focus on building rather than outright acquisitions, as per its recent investment in the igaming compliance services supplier U.S. Integrity.

Goldstein added that LVS will consider US land-based opportunities that could generate a large amount of EBITDA in Texas, New York or Florida.

Churchill Downs Q1

Revenue up 12.3% to record $364.1m, adj. EBITDA up 16% to $128.5m.

Capital projects: During the quarter CDI announced a definitive agreement to acquire the casino and racetrack operator Peninsula Pacific Entertainment for $2.48bn, securing a $1.2bn revolving credit facility, $800m senior secured loan, both due in 2027, and issuing $1.2bn in senior secured notes due in 2030 to finance the acquisition.

The group also completed the first two phases of a $90m expansion of Rivers Casino Des Plaines, Illinois and will acquire Chasers Poker Room in Salem, New Hampshire, for up to $150m.

Note: Churchill Downs will hold its Q1 investor and analyst call at 9am EST today.

Rivalry Q421

FY21 revenue up 617% to $11.1m, Q421 revenue up 615% to $2.2m.
Preliminary Q1 revenues up 62% sequentially to $40.2m.

Speed: The Toronto-listed esports and OSB operator said it enjoyed a “tremendous” year having listed in Toronto late last year. With $35.5m of cash on the balance sheet, CEO Steven Salz said the business had the financial resources to accelerate its momentum.

Youth club: Rivalry noted that 82% of its lifetime customers were under 30 and thatb the average customer age was 26.
Registration drive: Customer registrations had increased to ~610K vs. 350K in the prior year.
Oz fest: In February the group obtained a bookmaker’s license in Australia, launched its mobile esports betting offering in March and was one of the first licensed betting brands to launch in Ontario on April 4.

Newslines

Spend, spend, spend: Advertising platform provider Viamedia reported a 3,399% increase in California political adverts over the last four years due "an explosion of issues spending around climate change and gambling." The November 2022 California ballot could have three sports betting measures on the ballot, as a result advertising spend linked to gambling could increase even more in the next eight months.

Exclusion zone: Louisiana lawmakers have introduced a bill that would expand the state's casino self-exclusion list to also include online sportsbooks. Senate Bill 290 proposes that players that opt-in to the state's self-exclusion program from land-based casinos would also be banned from wagering at legal online sportsbooks.

What we’re reading

‘Where to find refuge? In sports and sports betting, that’s where.’ Bloomberg’s John Authers looks for trading lessons from betting.

“It turns out that sports betting provides useful practice for financial markets, as it is a great laboratory for quants and academics to study market inefficiencies.”