Jul 27: Boyd upbeat as clouds gather

Boyd Gaming Q2, Underdog Fantasy fundraise, Kambi Q2, XL Media trading update, Bally analyst renewal +More

Earnings+More

Jul 27

Good morning. On today’s agenda:

The beats go on for Boyd Gaming despite year-on-year declines.
Underdog Fantasy raises $35m valuing it at $485m.
Kambi EBITDA and cash flow tumble with DraftKings’ exit impact.

The Ghost of Tom Joad.

Boyd Gaming Q2

Revenue nudged up to $894.5m while adj. EBITDAR was down 8% YoY to $353.9m.
By region, midwest/south -11%, locals -6 and Downtown LV up 43.5%.
Operating margins remained above 39%; debt $2.9bn.

Just stuff people do: Under persistent questioning from the analysts over signs of a recession, CEO Keith Smith was keen to stress the company saw “no compelling reason” to think there will be any changes to the direction of the business near term.

Tough comps: CFO Josh Hirsberg noted how well Boyd did during the comparative period last year when it benefited from consumers receiving stimulus checks and pent-up demand.
“While consumer spending may be off a little bit, it's coming off historical highs and is robust.”
Jefferies noted there was “limited macro visibility” around the regional picture, a situation acknowledged by the team at Wells Fargo who said they do not expect regional gaming to “fall off a cliff”.

Not complacent: Hirsberg was keen to stress that Boyd’s core consumer “continues to be stable”. “What’s driving our business is a focus on a very loyal customer,” he added.

Like a baby: Asked whether there was any scenario where management wouldn’t feel comfortable about the company's financial position, Hirsberg said “we’re not losing sleep”.
Buybacks: Boyd repurchased ~$168m worth of shares over the period and has $481m of authorization remaining.

Changing for the long term: Management reiterated the business model has changed since coming out of the pandemic with what CEO Keith Smith called “a new operating model”. That includes holding back on the promotional activity even if the consumer situation deteriorates.

“I don’t see us getting back into that game,” he said. “If we were it would have a significant impact on margins obviously.”
Curb your enthusiasm: Deutsche Bank said they had curbed their forecasts for the regional segment due to what they see as “heightened competitor promotional activity” as well as concerns on the consumer.

Online sideline: Boyd expects ~$30m in EBITDA contribution this year from its partnership with Flutter/FanDuel with growth coming next year from the opening in Kansas and Ohio. The company will finalize its Pala Interactive acquisition around year-end.

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Underdog Fantasy fundraise

The paid fantasy sports site has raised $35m in a Series B investment round led by Blackstone and Acies.

Famous names: “The fastest-growing paid fantasy site ever” is now valued at $485m after securing investment from Blackstone and Acies as well as existing investors such as Mark Cuban, Breon Corcoran, Mitch Garber, Eilers & Krejcik, Liontree Partners and Mark Pincus alongside a host of names from sports and entertainment.

Arms control: Chairman of Underdog Fantasy Jeremy Levine said the new money gave the company the “firepower” to work on new sports-betting products and adjacent areas.
Gonna need a bigger boat: The Brooklyn-based firm said its plans include the hiring of 100 new staff.

Kambi Q2

Revenue of €34.7m down 19% YoY with EBITDA down 47% to €11.6m.
Cash flow tumbles YoY to €0.1m from €11m; net cash at quarter end €84.5m

Paradise postponed: The postponement of the World Cup to later in the year, issues around the Netherlands (Kindred only launched in July) and DraftKings’ absence from this year’s numbers (worth 20%-30% in 2021 according to CFO David Kenyon) saw CEO Kristian Nylén talking about “very demanding 2021 comparatives” to explain the YoY revenue slump.

New deal: New clients signed in the quarter include Mohegan Sun. On the final day of the quarter Kambi entered Mexico with Rush Street.
New world: Nylén said he was now “starting to doubt” whether Brazil would open this year. “(LatAm) is a region we look at very positively,” he added. “The big focus for us is to find suitable partners in Brazil.”

Spare change: Regarding the €85.5m of cash on the balance sheet, Nylén noted that M&A was “definitely” on the agenda but Kenyon suggested share buybacks would be an option if no suitable targets were identified.

Earnings in brief

XLMedia issued a trading update saying it expected H1 revenue to come in at ~$44.5m, up 38.5%, adj. EBITDA up 59%. US sports affiliates were the driver, up 191% to $34m or 68% of total revenues. Gaming affiliates fell, however, down 33% to $8.4m. XL said that business was “now showing signs of stabilizing”. Personal finance affiliates dropped 87% to $0.6m.

The news on US revenues sent the share up over 13% in early trading in London.

Bally coverage renewal

The launch of BallyBet 2.0 will be the most important catalyst for Bally Corp according to analysts at Macquarie.

Two’s company: While admitting that market share concentration makes it difficult for the smaller operators, the team at Macquarie still think Bally has a “sound strategy” to achieve ~2% market share by 2025.

“With strong market access, we estimate that BALY will be able to offer a digital product in at least half of the US, particularly if California passes in Nov, where Bally is one of fewer than 10 mobile players backing the bill,” the team judge.

Over land and sea: Macquarie remain confident Bally’s 16 properties will weather whatever economic storm lies ahead in US gaming. Worse might be to come from the international segment, however, with same-store trends for Gamesys having “waned”, particularly in the UK.

Wish you weren't here: This could “continue to slip given inflationary pressure and additional preparation ahead of the UK White Paper”.

Century Casinos initiation

A sale of casinos in Poland and expansion in the US will close the valuation gap, say JMP.

Analysts at JMP note that Century trades at a 38% discount to its regional gaming peers but suggest the completion of $195m acquisition of 50% of the Nugget Casino Resort in Nevada will help to instill investor confidence. They suggest the Nugget is being bought at an “attractive” multiple of 5.6x EBITDA.

Like what they see: “We like the acquisition as it will diversify earnings further into the US, while we see potential upside from market tailwinds and capital projects.”

Pole jump: A sale of its eight-strong casino properties in Poland is also thought to be on the cards.
Penalty: JMP add that the market is ”over-penalizing” Century and suggest the current valuation implies a scenario where EBITDA would decline by 40% from 2024 estimates.
“This would imply higher negative flow-through vs. prior downturns, despite business model improvement in recent years.”

Lottery.com

Number’s up: Lottery.com CEO Tony DiMatteo has announced he will be stepping down from his post but will remain with the company as a senior advisor after the company said late on Monday that it has been advised by its independent accountants that its figures for the year to Dec21 and Q121 “should no longer be relied upon”.

Meltdown: The accounting scandal relates to a $30m overstatement of cash balances that was admitted on July 11.
The elbow: That triggered the resignation of chief revenue officer Matthew Clemenson and had previously led to the stacking of CFO Ryan Dickinson.
DiMatteo has been with the company since 2015 when it was known as AutoLotto.

Newslines

Bally has tendered 9.2% of its outstanding shares in a Dutch auction expected to raise $106.9m as part of its board’s authorization to complete up to $334.6m in share repurchases.

Penn National has announced its wholly-owned theScore subsidiary has now migrated to its own fully in-house sports-betting platform and tech stack. Penn said the move “significantly enhances” theScore Bet’s offering in Ontario including an upcoming new Parlay+ feature. The planned migration of Penn’s Barstool Sportsbook to the same platform is penciled in for Q3 next year.

Hard yards: Operators and real estate partners are considering developing casinos in Times Square, Hudson Yards, Willets Point in Queens and Coney Island in Brooklyn, according to The New York Post. The state gaming commission will issue up to three casino licenses downstate with Mayor Eric Adams wanting at least two in the city.

Crown Resorts says the long-awaited launch of gaming operations at Crown Sydney will take place on August 8 after the company was given the green light by the NSW regulator last month.

Flutter has appointed ex-Sun journalist Steve Hawkes as director of reputational and public affairs. He joins from public affairs agency BCW Global where he was senior director of strategic media communications.

Bragg Gaming has appointed ex-Nevada Gaming Control commissioner Mark Clayton, also previously a gaming attorney with Greenberg Traurig, as a director to replace Cristina Romero who has resigned from the board.

Rush Street Interactive has applied for a mobile sports-betting license in Ohio through a market access agreement with Penn’s Hollywood Casino Columbus.

Game time: The NFL has launched its exclusive subscription streaming service NFL+ offering live local and primetime regular season and postseason games on mobile devices, live local and national audio for every game and NFL Network shows on-demand. For more on developments in sports streaming, see sector watch on Friday.

Tin-eared: Newly-promoted Premier League side Fulham FC (the oldest club in London) has signed a club record sponsorship deal with W88, an Asian-focused gaming and betting brand that has previously appeared on the shirts of Wolves and Crystal Palace. The deal comes as the Premier League is contemplating a voluntary ban on all gambling shirt sponsorships.