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Edited Transcript of KAMBI.ST earnings conference call or presentation 25-Oct-19 8:45am GMT

Q3 2019 Kambi Group PLC Earnings Call

Nov 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Kambi Group PLC earnings conference call or presentation Friday, October 25, 2019 at 8:45:00am GMT

TEXT version of Transcript

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Corporate Participants

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* David Kenyon

Kambi Group plc - CFO

* Kristian Nylén

Kambi Group plc - CEO

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Conference Call Participants

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* Christian Hellman

Nordea Markets, Research Division - Director of Small and Mid Cap

* Erik Moberg

ABG Sundal Collier Holding ASA, Research Division - Research Analyst

* Lars-Ola Hellstrom

Pareto Securities, Research Division - Analyst

* Viktor Högberg

Danske Bank Markets Equity Research - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the Kambi Group Q3 Report 2019. Today, I am pleased to present Kristian Nylén, CEO; and David Kenyon, CFO. (Operator Instructions)

Speakers, please begin.

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Kristian Nylén, Kambi Group plc - CEO [2]

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Good morning, and welcome to Kambi's third quarter result presentation. I am Kristian Nylén, Chief Executive, and joining me is our CFO, David Kenyon. Please turn to Slide 2. In a moment, I will give you a brief overview of the quarter for Kambi, after which David will talk you through the numbers. I will then speak about the quarter in a little bit more depth. But first, on Slide 3, let me give you a brief introduction to Kambi.

Kambi is a premium turnkey sports betting service offered on multiple channels including web, mobile and retail. Our service is managed from an in-house developed platform, which has been continuously developed over the last decade. The platform, together with more than 800 highly skilled staff, forms the foundation of our service. The Kambi Sportsbook consists of multiple elements from front-end user-interface and open APIs, through to odds compiling, customer intelligence, risk management and managed services, enabling our customers to offer their players the leading sportsbook experience on the market from day 1.

On to Slide 4. Kambi's business is built up on a revenue share model with our growth linked to our operators' success. The foundation of our strategy is based on scalability, and the majority of our cost base is fixed. At no additional cost to the operator, Kambi continuously invests in products, people and technology to maintain market leadership.

We operate an experienced in-house trading and risk management team to optimize operator trading margin. And our business is underpinned by our corporate probity and integrity. We are publicly listed and have successfully obtained all licenses we have applied for. All of this combined enable us to offer operators the flexibility and scalability required to succeed in today's highly regulated and global market. Our technology has been structured in a way that enables Kambi and its partners to quickly and efficiently comply with a myriad of regulatory requirements, removing a major barrier to market and allowing them to enter new markets as and when they require, with a high quality and localized sportsbook.

In total, we power more than 20 operators across 6 continents, including some of the most recognizable and successful brands in the industry. Together, we create a powerful network of operators. This model enables Kambi, for instance, aggregate and analyze all data produced across the network, which guides and influence our product development, ensuring we maintain market leadership.

The network effect also contributes to trading and risk management with our global coverage feeding into delivery of sharper and more accurate prices. With each and every operator added to the Kambi network, the benefits are felt by all. And it's a major reason why our operators have been able to grow and become market leaders. Let's look at the quarterly highlights on Slide 5.

In Q3, we posted revenues of EUR 23 million, a 12% year-on-year increase. Despite the quiet sporting calendar, operator turnover was up 23% at an operated trading margin of 8.5%. Encouragingly, operator turnover picked up significantly during the period, in line with the start of football and American football seasons, to the extent September was comfortably the best month in our history, contributing 38% of the operator turnover in Q3.

We signed 2 new customers in Penn National Gaming and JACK Entertainment, who I will speak about in more detail later. In total, we launched sportsbooks in 7 casinos in the U.S., including taking the first legal sports bet in New York with our partner, Rush Street, and launching on day 1 of Iowa and the Indiana markets going live.

Later, I will touch on our activity so far in Q4, which includes taking the first legal online bet in Indiana, as we continue to set the pace in the U.S.

Now I hand over to David Kenyon who will talk you through the financial highlights. Turning to Slide 6.

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David Kenyon, Kambi Group plc - CFO [3]

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Thank you, Kristian. Good morning, everyone. In Q3, we had revenue of EUR 23 million, up 12% from last year. For the first 9 months, revenue was EUR 65.6 million, up by 20%. Operating costs for the quarter were EUR 19.6 million with an operating profit of EUR 3.4 million at 14.9%. Year-to-date, operating costs of EUR 57 million and operating profit is EUR 8.6 million at 13%. Our cash flow for the quarter, excluding working capital movements, was EUR 2.6 million and the net cash position at the end of September was EUR 34.2 million.

So let's look at the income in more detail. Turning to Slide 7. This slide sets out the Kambi turnover index. The graph shows the aggregated results of Kambi's operators. The turnover is the total stakes placed with the operator by their end users. In Q3, operator turnover was up by 23% in Q3 last year, including underlying growth from existing operators and for new operators in the U.S. and Sweden, in particular.

This growth is despite Q3 last year, including the final 14 matches of the 2018 football World Cup, which contributed 7% of the operator turnover and 11% of the gross gaming revenue or GGR in that quarter. Excluding this World Cup effect, operator turnover growth was 33%. In years with no football World Cup or European championship, Q3 typically experiences seasonality effects with a relatively quiet sporting calendar in July and the start of August before the major European football leagues and NFL season start later in the quarter. We saw this in Q3 with 38% of the quarter turnover coming in September. The margin represents the combined trading margin made by the operators.

In Q3, this margin was 8.5%. The operator's trading margin fluctuates in the short term due to the outcome of sporting events with the highest betting volumes and value. We can see the conversion from operator turnover growth to our revenue growth on Slide 8. Operator turnover was up by 23% compared to Q3 2018. The operator trading margin multiplied by the turnover generate the operators' GGR. The operator trading margin of 8.5% compared to the 8.6% we saw last year. Overall, this led to an operator GGR increase of 21% year-on-year.

Kambi's commission is based on a percentage of the operator's net gaming revenue, which is after the deduction of gaming tax and certain marketing incentives. This tax impact has increased significantly, reflecting the increase in the parts of our business coming from locally regulated markets, including Sweden and the U.S.

We had a full quarter of retail and online business in Pennsylvania for the first time, where the state tax is 36%, and we also commenced operations in both Iowa and Indiana.

In total, 73% of our revenues came from locally regulated markets compared to 53% last year. The impact of the fixed part of our revenues and certain volume-related commission tiers is shown in the other column of the graph. This quarter, we've seen a marked effect from the increased revenues from live event packages, which are fixed and not directly linked to the turnover growth. This effect is increased by the number of new operator signings since Q3 of last year. The net effect of all these factors is that revenue for Q3 2019 is up by 12% from Q3 last year to EUR 23 million.

Let's turn to the full income statement on Slide 9. Operating expenses for the third quarter were EUR 19.6 million. We continued to invest in building the market-leading sportsbook as well as the ongoing licensing and development of our commercial operations in the U.S. Our new office in Philadelphia is now operational with 20 staff currently, handling some of the risk management on U.S. sports, local customer support and some of the technical developments for the U.S. market.

Looking forward to Q4, as we seek to capitalize on the commercial opportunities we see ahead of us, we anticipate sequential growth in operating expenditure of 3% to 5%. Operating profit was EUR 3.4 million for Q3 compared to EUR 4.2 million last year. The comparative period was boosted by the World Cup, which contributed 11% of GGR for the quarter, directly increasing EBIT for that period. Operating profit for the year-to-date is EUR 8.6 million. Profit after tax was EUR 2.3 million for the quarter and EUR 5.8 million for the year-to-date.

Now let's look at the cash flow on Slide 10. Set out on this slide are the major components impacting our cash position during the quarter. Our opening cash balance was EUR 40.4 million. Capitalized development costs in the quarter were EUR 3.4 million, whilst the amortization charge on previously capitalized costs was EUR 2.5 million. Our trade receivables increased by EUR 1.9 million, reflecting the increase in the amounts invoiced -- in the amounts invoiced to operators. The net cash inflow for the quarter was EUR 1.1 million, and our closing cash balance was EUR 41.5 million.

So now let me pass you back to Kristian. Turning to Slide 11.

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Kristian Nylén, Kambi Group plc - CEO [4]

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Thanks, David. Thanks, David. On August 1, Kambi signed an agreement with the largest regional gaming operator in North America. Penn National Gaming has tremendous market reach, operating 41 gaming properties across 19 states, amounting to roughly half of the U.S. population. As you can see at the bottom of the slide, 8 of those 19 states are already regulated in some form. Other states such as Ohio, Massachusetts, Michigan and Maine are all progressing towards regulation.

Within the space of a few weeks, Penn National was up and running with Kambi on-property sportsbook in Iowa, and now has a total of 5 retail sportsbook across 3 states, with Pennsylvania and Indiana, the other 2. The most recent launch was just this week when we replaced Penn National's incumbent supplier at [Hollywood] Casino in Pennsylvania.

The online component will follow next year. There should be no mistaking the ambition of Penn National. They have a great record of venture building, have hired a fantastic team to lead the sportsbook, a plan to build their own IP on Kambi's platform and are on record stating their goal to be the market leader in the U.S. Penn National, quite rightly, thought long and hard about their sportsbook strategy, and I'm delighted they came to the conclusion their future was best served by partnering with Kambi.

Turning to Slide 12. While Penn National is a national giant, JACK Entertainment is a local hero and a company where we were always keen to partner with. JACK is a household name in Ohio, one of the most popular states in U.S. Upon regulation in Ohio, Kambi will power retail sportsbook at JACK Cleveland Casino and JACK Thistledown Racino.

JACK, which currently has established online presence in the state, will also launch an online sportsbook. I'm very excited by the potential of JACK and believe it can take a top position in Ohio. The partnership should extend to other states in the future, should attractive opportunities arise.

Moving to Slide 13. In addition to signing new customers, we also extended deals with 2 of our current customers. Of course, many of you have seen the contract extension agreed with DraftKings in August. The new terms significantly increased geographical reach of agreement to 9 states.

In the space of 2 months, Kambi has helped DraftKings launch online in Indiana and West Virginia and on-property in Iowa, Indiana and New York. Having already taken a strong position in New Jersey, we are now live with DraftKings in 5 states, with more to be added. Elsewhere, we also renewed our agreement with NagaWorld in Cambodia, where we will continue to power the retail sportsbook at its 2 flagship casinos with an extended live package. NagaWorld was our first pure retail customer, so I'm delighted to see us continue our partnership.

Now to Slide 14. It was another busy quarter for customer launches with more than a dozen in total. As I mentioned previously, Kambi recorded another first in the U.S. when taking the first legal bet in New York with Rush Street. We also launched on day 1 of the regulated markets going live in Iowa and Indiana and also supported Unibet with its first U.S. launch in new -- with New Jersey Online and later, retail in Pennsylvania. In total, Kambi launched customers into 6 U.S. States across online and retail, once more proving our operational excellence.

Turn to Slide 15. We also continue to improve the product our customers offer to their players. Kambi will only be successful in the long term if our end users enjoy best sports betting experience and keep returning to play. Accumulators are a popular bet type. They always attract recreational players and deliver good margin. This is why evolving accumulators has been a major focus for many Tier 1 sportsbooks in recent years.

Earlier this year, we launched Bet Builder, which allows for in-game accumulators, and is now a hygiene factor for leading European sportsbooks. In Q3, we expanded on the capability of Bet Builder by launching Multi Builder, which effectively allows players to combine Bet Builders or in-event combinations with other multiple or single bets even in the case of related outcomes. This gives players much more freedom to combine a greater range of selections into a single bet. What we are effectively doing is breaking down the barriers that exist when combining [out counts] by putting more flexibility in our platform.

As an example, you can see on the right the bet slip containing a [free] selection Bet Builder in last night's Arsenal match, combined with an in-event combination in this morning's NFL game. With one single price offered. Almost everywhere else, this bet wouldn't be possible due to related contingencies. Kambi is leading its peers in offering this functionality, which has already proven to be popular among players despite minimal marketing.

Turning to Slide 16. The momentum we built has continued into Q4. So far, we have completed 7 separate launches, including taking the first legal online bet in Indiana with Rush Street and DraftKings and launching in 2 Pennsylvania properties with Penn National Gaming. Meanwhile, our achievements were recently recognized by the Global Gaming Awards, where we were named Digital Supplier of the Year, up against companies from sports betting and casino gaming verticals.

Turning to Slide 17. Regulation and compliance is key to Kambi's success. One of our major strengths. And while this is something we have long been focused on, the recent tightening of regulations in some countries as well as the opening up of new regulated market continues to create a complex global market in which to operate. For many companies, a myriad of regulations are creating a barrier to entry, often delaying or completely ruling out expansion into new markets, largely due to inflexible technology, unable to comply with these regulations.

Meanwhile, we have seen some companies fined and even withdrawal from markets due to introduction of more stringent regulations. One of the main reasons Kambi was created was because we recognize the spread of regulation will deliver greater complexity. So from the outset, we built the technology and instilled processes, which would give us and our customers a competitive advantage in this landscape. Evidence of this can be seen over the past year or so, where we have created a number of market firsts in the U.S., enabling our customers to be first to market and gain early market share while also preemptively minimizing their exposure as a license holder. The regulatory risk in countries such as U.S., Spain and Sweden where there are varying restrictions of taking bets on events involving under 18s or local college sites, for instance.

When combined with the strong relationship we build with regulators, often lending advice and sharing best practice, our customers have been able to operate with confidence, safe in the knowledge that Kambi is excellent in all aspects of compliance is increasingly a competitive advantage.

Turning to Slide 18. So to recap, Q3 was another good quarter. Despite the quiet sporting calendar early in the period, September was our finest operator turnover month on record, which gives me confidence for the rest of the year and beyond. We signed 2 new customers in Penn National Gaming and JACK Entertainment, which gives us a strong position in Ohio, a major state in the U.S. and market access to states, which can make up around half of the U.S. population.

Finally, our recent award win in the Global Gaming Awards cements our position as a global leader in sports betting provision and underlines the great 12 months both Kambi and its customers have enjoyed.

Now I will pass it over to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question is from Erik Moberg from ABG.

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Erik Moberg, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [2]

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Congratulations on a good report. If we break down the business into 3 parts, your U.S. business in one part, and then you have new contracts in Europe and Latin America since late 2017 and during 2018 such as ATG and Corredor, National AD, et cetera. And then we also have your legacy business, such as Kindred, 888 and LeoVegas. How much do you think that the legacy business, on a stand-alone basis, will be able to grow into 2020? You do have a positive effect from Euro Championship in soccer, do you think that this part can grow by double digits?

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Kristian Nylén, Kambi Group plc - CEO [3]

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So yes, to reiterate the question, you're asking about the more established business, if that can grow more than double digit percentages.

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Erik Moberg, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [4]

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Exactly. So sort of Kindred, 888, LeoVegas, if we exclude for the U.S. and then also new contract signings such as ATG, Corredor, National AD, et cetera.

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Kristian Nylén, Kambi Group plc - CEO [5]

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I would guess double digit is probably a little bit ambitious for the more mature business at this point, mainly due to all the recent regulations.

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Erik Moberg, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [6]

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Yes. Fair enough. Is it fair to assume more in line of say, 5% to 7%, sort of, or?

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Kristian Nylén, Kambi Group plc - CEO [7]

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We haven't really broke down the businesses. So I don't really want to give you a too detailed figure.

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Erik Moberg, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [8]

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Okay, fair enough. Could you perhaps also give us an update on Corredor in Colombia's performance. Is this momentum continuing? Did you grow on a Q-on-Q basis? And also how have Q4 started?

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Kristian Nylén, Kambi Group plc - CEO [9]

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So Corredor in Colombia has gone from strength to strength. i think we are the clear market leader in the Colombian market at the moment and they have certainly grown quarter-on-quarter.

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Erik Moberg, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [10]

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Got it. And in terms of Latin America, could you perhaps give us an update on the current road map in terms of regulation and also add some flavor in regards of -- of the pipeline of the new client within that region?

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Kristian Nylén, Kambi Group plc - CEO [11]

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Yes. So I think it's some uncertainty at the moment. We felt then there were -- were very certain that something would happen in Buenos Aires when we talked last quarter. And now it's a new government that's probably coming in, and that may slow down the rollout of the new regulations in Argentina.

Brazil, we also expect something will happen, but no news -- no new news since last quarter. And I guess, those are the 2 most important countries, of course, in Latin America. But we're also looking at other countries in the region. When it comes to the sales pipeline, yes, I think we have some interesting leads surely in Latin America.

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Erik Moberg, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [12]

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Fair enough. And in terms of Indiana, could you elaborate a bit on the start there and how you expect the market to ramp up?

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Kristian Nylén, Kambi Group plc - CEO [13]

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Yes. I think, very, very positive start. Still quite early days, but it's a sufficiently large state. So I have a great hopes for Indiana.

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Erik Moberg, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [14]

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Got it. And in terms of JACK Entertainment. I mean, there is currently -- there is approximately 12 million people who lives in Ohio. So what sort of -- what sort of market position could we expect JACK Entertainment to take in Ohio? And did you perceive JACK Entertainment to have similar potential as ATG has in Sweden?

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Kristian Nylén, Kambi Group plc - CEO [15]

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Probably not. I think ATG had a very unique position with having a long, long monopoly for racing. What kind of market share JACK can gain? I think it depends a little bit on how the market access will pan out. But as I said, I mean, when it comes to retail casinos, they are one of the largest and most known brands. So they should be able to take a good position in the market.

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Erik Moberg, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [16]

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Got it. And what do you think about the potential within online? Do you think they have -- they will be able to compete within the online landscape as well?

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Kristian Nylén, Kambi Group plc - CEO [17]

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Yes, I hope so. I definitely think so. I mean, as I said, they have a very well known brand. And that is usually a good ingredient to take a decent market share even online.

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Operator [18]

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(Operator Instructions) The next question is from Christian Hellman from Nordea.

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Christian Hellman, Nordea Markets, Research Division - Director of Small and Mid Cap [19]

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Just a question on the U.S. Can you please perhaps share something about the size of your U.S. business currently? Is it around 10% of revenues in Q3, a little bit less, a little bit more? But I'm thinking it's in that region. But is it possible to say something about that in terms of numbers, quantify it?

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David Kenyon, Kambi Group plc - CFO [20]

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Chris, we haven't actually at this stage, fully split out all the geographical sources of the revenues. It's something we're looking to potentially put next quarter onwards. But yes, I mean, everything is, of course, broadly disclosed in the U.S. And yes, you're give or take, you're on the right track with those estimations you make.

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Christian Hellman, Nordea Markets, Research Division - Director of Small and Mid Cap [21]

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Okay. And you stated that 38% of your turnover was generated in September. Is that sort of -- can you sort of equate that to around 38% of your revenues? I understand that it depends perhaps on the sportsbook margin in the different months, et cetera. But everything equal, so to speak.

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David Kenyon, Kambi Group plc - CFO [22]

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Yes, that's a fair -- I mean, yes, everything else being equal. Yes, that would -- that works. Yes.

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Christian Hellman, Nordea Markets, Research Division - Director of Small and Mid Cap [23]

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Perhaps that's a [leading] question, but if you can just sort of do the numbers, that means if you did close to EUR 9 million in revenues in September, I guess you can sort of -- if you triple that you should be doing at least EUR 26 million in Q4. Again, given the sort of the sportsbook margin stays roughly the same. Or is there something we should sort of take into account, perhaps, I mean maybe (inaudible) was quite [stringent] in Q4 last year.

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David Kenyon, Kambi Group plc - CFO [24]

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Sure. I mean, I'd say, obviously, this quarter, we've seen a very high margin, 8.5%. So yes, I wouldn't necessarily count on that for the full Q4. The other thing is the sporting calendar does tail off slightly toward the -- over Christmas, the football seasons across Europe. All those leagues takes some downtime. So yes, a pure extrapolation doesn't work as such but yes.

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Christian Hellman, Nordea Markets, Research Division - Director of Small and Mid Cap [25]

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Okay, okay. And last year -- and last year, the sportsbook margin was quite strong as well, wasn't it?

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Kristian Nylén, Kambi Group plc - CEO [26]

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In Q4, yes.

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Christian Hellman, Nordea Markets, Research Division - Director of Small and Mid Cap [27]

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Yes. Yes, sure. And then -- yes. And so just to further understand U.S., which clients are sort of ramp -- will ramp up a lot in Q4? If you sort of look at their -- at least [sufficiently] communicated plans. I'm thinking about Penn and DraftKings in particular. I guess, they're still sort of 2 big ones in terms of potential for you in the U.S. but how should one think about sort of what you've done in September, which is sort of the first month of really a lot of sports betting activity in the U.S. and sort of, how these clients of yours in U.S. will sort of expand operations in Q4.

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Kristian Nylén, Kambi Group plc - CEO [28]

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Yes. So as I -- as we've stated, I mean, this has been a lot of new launches in the U.S. during the latter part of the quarter. When it comes to DraftKings, I mean, they are live now in both West Virginia and Indiana and online, which I would believe is the largest chunk of revenues.

You can probably see something happen in 1 or 2 more states as well. For the others, I think Penn National, I mean they are live in 3 states with retail casino. But as we've stated in the report, nothing will happen on the online side until somewhere next year.

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Christian Hellman, Nordea Markets, Research Division - Director of Small and Mid Cap [29]

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Okay. And relative to sort of your own expectations on September, if you just look at sort of the turnover statistics that have come out from New Jersey and also from Pennsylvania when NFL season kicked off. Obviously, it was a huge uptick versus August. But versus your own sort of internal expectations, what's your sort of view on how the U.S. sports betting season is ramping up now with all the leagues getting on?

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Kristian Nylén, Kambi Group plc - CEO [30]

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Yes. I mean, traditionally, even in Europe, and I think you will see the same pattern in U.S. October and November are the 2 strongest months of the year, sporting calendar-wise. NBA, the second largest league in the U.S., started last week. So from a -- yes, yes, activity-wise, when it comes to sports, Q4 is significantly better quarter than Q3.

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Christian Hellman, Nordea Markets, Research Division - Director of Small and Mid Cap [31]

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Yes. I understand that, but I'm thinking about September. Just looking at those numbers, were those numbers better or a bit below your own sort of thoughts ahead of the number, so to speak?

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Kristian Nylén, Kambi Group plc - CEO [32]

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I think we were very pleased with the numbers for September. Very much in line with our thoughts, I would say.

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Christian Hellman, Nordea Markets, Research Division - Director of Small and Mid Cap [33]

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Okay, okay. And then just finally, on sort of customer pipeline going forward. Obviously, Penn National is a huge signing for you, but if we look at what's your sort of feelings about the customer pipeline at the moment for the U.S. but also for Europe. I know the G2E Conference was in Vegas a few weeks ago. And I guess, a lot of [spit] deals and whatnot are made during those days in Las Vegas. But what's the pipeline looking at, at the moment?

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Kristian Nylén, Kambi Group plc - CEO [34]

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I think it looks very, very promising. I'm very pleased with the exhibition in Las Vegas. So I mean, I think there are, yes, a lot of good opportunities. I think though the kinds of Penn Nationals, there are not very many or if even any multi-state operators left on the market at the moment. So I think you will see more of a kind of deals, JACK Entertainment rather than Penn Nationals going forward.

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Christian Hellman, Nordea Markets, Research Division - Director of Small and Mid Cap [35]

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Okay. And just a final question on sort of the competitive landscape for you as a B2B supplier. I don't know the exact state of (inaudible), but there's rumors of it being up for sale and it goes a bit back and forth. How does that sort of impact you from -- when negotiating with potential clients? I guess, that would be sort of a relative positive for you or...

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Kristian Nylén, Kambi Group plc - CEO [36]

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Yes. I mean, it would depend very much on what kind of buyer is -- of course, I would assume that if a buyer is an operator, our operators would be less inclined to stay as a customer, if we're a competitor.

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Christian Hellman, Nordea Markets, Research Division - Director of Small and Mid Cap [37]

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Yes. And also signing, I guess, if they don't know what they (inaudible)

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David Kenyon, Kambi Group plc - CFO [38]

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Exactly.

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Christian Hellman, Nordea Markets, Research Division - Director of Small and Mid Cap [39]

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But have you felt that?

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David Kenyon, Kambi Group plc - CFO [40]

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At the moment, I think we are in such a strong position anyways. I mean, what we have delivered so far in the U.S. is taken very, very positively. And if you look at our competitors and what market shares they have been able to gain in competitive markets, it's quite a wide difference at the moment. So I think we already have a very, very strong position in the U.S.

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Operator [41]

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And we have one more question, and it's from Viktor Högberg from Danske Bank.

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Viktor Högberg, Danske Bank Markets Equity Research - Analyst [42]

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I have a question on the organizational expansion with your employees now at some 830 people. Could you elaborate how that translates into the 3% to 5% OpEx increase into Q4? And what the implications for 2020 might be?

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David Kenyon, Kambi Group plc - CFO [43]

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Yes, if you look at kind of what we've done in the last quarter, I mean, we're up around 50 versus what we reported last quarter. As I mentioned, we're fully operational now -- oh no, not fully operational. But operational in Philadelphia with around 20 staff. The rest -- there's some in IT development, but the majority of the rest is kind of traders in our Manila and Bucharest offices, as we're increasing the number of live events we're offering and also (inaudible) our U.S. college sports offering.

So I think given that pattern, yes, we've translated then the numbers -- obviously, different cost levels in different parts of the business translates into the 3% to 5%. I think if we're looking forward, we haven't yet given our guidance for next year. We'll probably do that on the back of the Q4 report. But at the moment, we're just making the right level of investment to capitalize on the U.S. opportunity, and we'll continue to do that. So it should be around a similar level, I would estimate, at this stage.

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Viktor Högberg, Danske Bank Markets Equity Research - Analyst [44]

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Okay. So 3% to 5% sequentially in 2020 as well, maybe. Could I ask also you retrace the sports margin ranges that you expect over time of 6.5% to 8%. It was a long time ago. We saw the low end of that range. Could you elaborate something about the structure of the market since like European margins are structurally higher? And is this range relevant going forward?

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Kristian Nylén, Kambi Group plc - CEO [45]

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It's a very good question, actually. We are doing a thorough work now to see where we think that the margin should be going forward. There has been a lot of new introductions of high-margin products, such as Bet Builder and now Multi Builder that impacts the margin upwards. And then the big question for us is still -- I mean, we have always thought that the U.S. margin would be lower.

So that is a big uncertainty for us, where should the long-term average be for the U.S. market. So I think we will probably come back, either to give you a reiteration of the current stand or change it in the next quarter review.

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Viktor Högberg, Danske Bank Markets Equity Research - Analyst [46]

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Yes. Okay. So assuming U.S. margin is a couple of percentage points lower. The U.S. is around 10% now. Decent growth in the U.S. is going to take some years for that to make a dent in the group margin then. So coming years, the upper range, upper end of that range would be more advantageous, I guess.

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Kristian Nylén, Kambi Group plc - CEO [47]

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I would wait to do a conclusion on that until we come back with our studies on this.

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Operator [48]

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So we have one more question from Lars-Ola Hellstrom from Pareto Securities.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [49]

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First of all, just a clarification on the cost side. Looking on other costs, it's sequentially lower, the lowest level since Q1 2018 while employee staff cost jumps quite a lot. Is there a reclassification of the cost because you're still guiding for 3% to 5% sequential OpEx growth in total. So just between those lines, is there a reclassification?

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David Kenyon, Kambi Group plc - CFO [50]

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No. No reclassification. It's just more kind of a bit of a seasonal pattern in terms of our costs. So we used a little bit less on the IT consultants during the summer. There's also a bit less travel and also some of the marketing events are more actually around Q1 and Q4 in particular and also a little bit in Q2, a bit less in Q3 on the marketing events and marketing costs we incur. That's why other was actually down.

In terms of the staff cost, it's a few different things, so it's various bonuses related to customer signings. It's some additional NI cost from share options and it's the increase in staff, the heads that I talked about.

But I think overall, yes, we're still seeing 3% to 5% next quarter. The pattern might shift back to a slightly more normal split between staff and other within that 3% to 5%.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [51]

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Okay. And can you give us some flavor on the margin in October where we're listening to the call of Kindred and it seems like at least in Europe, the margin has been quite similar of the first 23 days in October to last year. Have you seen the same thing for...

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Kristian Nylén, Kambi Group plc - CEO [52]

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So yes, we have chosen not to give any guidance from our side. But obviously, Kindred is still a very large chunk of our business. So I guess you can, at least for a large chunk of our business, make some assumptions based on Kindred's comments.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [53]

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And my final question about operator turnover index, you said it was -- the strongest month was in September when it was really, really high. Of course, it's U.S., the NFL is starting as well. But is this a broad-based pickup in activity in the legacy business in Europe as well, including the Netherlands?

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Kristian Nylén, Kambi Group plc - CEO [54]

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Yes. I mean you have to remember that, I mean, the whole soccer season -- European football season, I mean, there is nothing going on in June and July. So I mean all leagues, except in Scandinavia, is starting in August. So -- there is definitely an uptick. I mean September is the first month, we have full activity in the football leagues in Europe as well.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [55]

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And more specific, you have seen strong activity coming back in Netherlands as well, even though it has been some kind of restriction on the payment methods or so.

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Kristian Nylén, Kambi Group plc - CEO [56]

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I can't comment on one single country. But obviously, yes, the Dutch players are very much into football. So you can draw your own conclusions from that.

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Operator [57]

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And there currently no further questions, so I hand the call back to the speakers for any closing comments. Please go ahead.

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Kristian Nylén, Kambi Group plc - CEO [58]

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Thank you for your questions and for listening in. We look forward to updating you on the 12th of February 2020 when we publish our fourth quarter results for 2019.

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Operator [59]

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And this now concludes the conference call. Thank you all for attending. You may now disconnect your lines.