Evolution AB (publ)

Good morning. Welcome, everyone, to the presentation of Evolution's interim report for the third quarter of 2021. My name is Martin Karlsson, and I'm the CEO of Evolution. With me, I also have our CFO, Jacob Kaplan. As usual, I will start with some comments on our performance this quarter. I will then hand over to Jacob for a closer look of our financials. And after that, I'll round off our presentation with an outlook for the rest of the year. And then we're happy to take questions. Operator, next slide, please. I'm very satisfied to report consistently strong results for the third quarter. Our investment in new games and studios are having an increasingly strong impact, which is reflected in both the high growth as well as the stronger margins. It has been another hectic quarter where much of our folks have been about investing and building capacity for the future. We see a continuously increasing demand for our products, which means that we must expand in existing studios and build new ones to keep up with that demand. The growth is a natural part of our business, and you will never see us slow down, even if the pandemic still continues to somewhat impact the pace of our expansion plans. We've launched and are rolling out our one-stop shop, enabling a truly global reach of evolution's casino products. This is a true masterpiece created in a short time inside evolution engineering teams. With OSS, all our operators will reach all our content through one seamless backend and integration. This will enable a much faster rollout of new products, faster regulatory adjustments, and a global reach for all products. At the same time, also making it easier for operators to access and handle all products. In the third quarter, we launched our studio in Michigan, Evolution's 11th live casino studio worldwide. And we are now in the rapid expansion phase with both new products as well as volume. After the end of the period, we launched RNG games in Connecticut with live games to follow soon. We are now building our fourth US studio in Connecticut and look forward to an as soon as possible launch. Since yesterday, we're also live in newly regulated Canadian, Ontario. The Canadian market also successfully launched, together with the Ontario Lottery Gaming Corporation, OLG. The Ontario market is exciting, and with a population of close to 15 million people, surpasses the size of any US state where iGaming is regulated. Currently, this market is only open for OLG. as the state lottery, but in December, the commercial market is planned to open, and we're already working with operators who plan to obtain a commercial license. The North American market is developing rapidly, and I'm proud and excited to further expand our North American footprint. That being said, we are confident that there will be more North American states that will follow. We're prepared to move quickly. I would also like to comment the newly regulated Dutch market has opened on the 1st of October. We went live with the Nederlands Lotterij, as well as several other operators that got one of the first 10 licenses. However, some of Evolution's largest customers in the Dutch market did not get one of the initial licenses and had to wait until 2022 to get one. We, of course, very much look forward to add also those as soon as possible. The opening of the market was stronger than expected, and we see a very limited negative effect of less than 1% during Q4, and in the long term, we see the Netherlands as a growth catalyst in Europe. As I stated before, the demand of our products is truly global, and we're expanding our studio capacity everywhere. Right now, we're building new studios in Spain and Armenia, as well as expanding, essentially, in all existing locations. was the first one with big-time gaming consolidated. Our long-term ambition is to become a world-leading provider of online casino, as you know, and we have a high expectation that BTG will be an important piece to achieve that ambition. Now, let's move to the coming slides and see the effect on the numbers and the products of all our efforts. Operator, next slide, please. In the third quarter, we continued the momentum from the first half of the year with a strong development. Revenues increased 97% to €276 million. EBITDA increased by 113% to almost €193 million, corresponding to a record margin of 69.9%, exceeding our guidance for the year. Life has seen a delivery growth of 53% compared to Q3 last year, albeit a lower growth than previous two quarters. It still exceeds all the quarters during 2020. R&D revenue, now including BTG, in the quarter amounted to 61.5 million euro, with a growth of 7.8% compared to the combined revenue of Nestland BTG during Q3 2020. At that time, not part of evolution. If I isolate our Nestland and Red Tiger brands, growth is about 3% or not higher compared to Q3 2020. It is in line with our base expectations, however, we do have a higher expectation for the growth going forward for these two brands. We're in the process of reshaping our R&D roadmap, which have led to fewer new releases this year, which in turn has had an effect on the growth. In addition to that, we have rebuilt the technical platform, which I've already mentioned, which will have a positive effect going forward. Albeit fewer new Netman titles so far this year, the ones that we have launched, which is much more important, have been embraced well by the players and a strong contribution to the result. The lineup of coming slots 2022 is strong and I look forward to see the performance within this vertical as we move forward. All in all, fantastic numbers and I'm very pleased with our financial performance in the third quarter and we're off to a strong start of Q4 and definitely well-placed to deliver a strong finish of the year. And as always, we will relentlessly strengthen our market share and continue to widen and get to competitors. Next slide, please. Betspots is to be seen as an indicator for the activity in the live network, the evolution of live games. The number of betspots from the end user amounted to 18.1 billion, an increase from last quarter with 3.3%, and compared to the same period last year, a growth by 4%. Increase in our volume that you can see in the increase of bet spots every quarter is a result of that we have been able to attract new players and at the same time been able to keep the players we already have. While it's important for us to keep the players that we already have, we are almost obsessed with the players that we don't have. That is why we have to continue to innovate, always refine the playing experience and be the leader that develop new groundbreaking products for the future. Every year, we have to develop totally new games that can attract completely new groups of players. Next slide, please. Expanding our student capacity means that we need a very high recruiting pace. In the quarter, we hired almost 1,000 new employees. The increase in staff year-on-year amounts to almost 5,000 people, corresponding to an increase of 66%. At the end of the curve, we were over 12,000 revolutionaries, And we have to continue to increase headcount to support our rapid expansion. Improvement is one of our key processes, especially in new markets where our company and products are not always well known. Because of that, we have to show that we are one of the best companies to work for and that we take care of our employees and that everybody that steps into Evolution Studio office or engineering hub feel that they are seen and that they are appreciated. Evolution is about working as a team, and the success of the company depends on everybody's contribution. Everybody should feel that they are an important cog in the evolution machinery, regardless of where they are placed or what they do. Since the pandemic is still not over yet, I would once again stress that our main priorities are to minimize the risk of spreading the virus and to create a safe workplace for our employees, as well as to maintain the operations for our operators. We follow all the requirements of the authorities in countries where we operate, but in many cases, we are taking more far-reaching own actions. The well-being of our employees is, of course, the well-being of evolution. I'm very proud of all our employees that make up this fantastic company, and it's important to me that the people in the companies that we recently acquired feel that they are welcomed and that they are appreciated. Next slide, please. Our R&D vertical amounted to 22.3% of the total revenue in the third quarter. It is at similar level to previous quarters, and as mentioned earlier, our growth is higher in live casino, but in Q3, we also added B2G for the first time. Big time gaming further strengthens our already world-class slots offering and IT. We've lost fewer slots this year, which I mentioned, compared to what happened historically, but the ones that we've launched have been successful and well-received by players. An example of that is Starburst Extreme, the new slot title based on the iconic Starburst slot game. With the addition of brands such as NetEntred, Tiger, and Big Time Gaming, Evolution has become a powerhouse that now offers incredible array of best-in-class solutions for operators and their players across live casino, RNG table games, and slots, not to mention a new generation of live online game shows. Very few doubt that we are the most innovative developers of live casino, but we still have to prove ourselves in RNG. That's why it's so rewarding that we at the EGR B2B awards won the innovation in RNG casino software award for our first-person range of RNG-based table games. Natant and Red Tiger were also joint winners of the innovation in slot provision award for the collaborative development of Gonzo's Quest Megaways, among other games. Next slide, please. Innovation and the best games will always revolution. We continue to innovate substantially and refine the play experience and user focus as always. In the quarter, we have continued to expand our range of immersion and engaging game shows with the launch of Casual Crash, an exciting ball-drawing game. The game allows the player to make choices during the game with enhanced play control of the outcome. Casual Crash appeals to an even broader spectrum of players. Games that give more decision-making for players is something you will see more of during 2022. Another launch quarter was the Santan, a classic Asian favorite that has traveled the world and is now set to join the Evolution live casino lineup. In the quarter, we have also announced that we have acquired DigiWheel, developers of the world's first HD spinning gaming wheels. The deal will further strengthen our online gaming portfolio with DigiWheel's unique and innovative digital technology being blended into our online live casino games and game shows during 2022. In the fourth quarter, we will launch Golden World Baccarat. It's very similar to Lightning Baccarat, but a luckier version, offering more frequent wins. Another launch I look forward to is Lightning Blackjack, an electrifying blackjack with enhanced payouts, which is launching in November. The game is a unique blend of a scalable blackjack and add lightning multipliers. In addition to new game launches, an important aspect of our product development is to constantly enhance user interfaces. In the quarter, we have implemented a new zooming feature to our blackjack that enables the player to clearly see the real car's belt, which increases the playing experience. With technical innovations coming rapidly, continuous improvements and existing games, it is essential in securing long-term quality and keeping the games up to date. Now, we are currently in full preparation for the roadmap of 2022. Development is going on at full speed, and I can assure you it looks very good. I'm very excited. 2022 will be a year of innovation and product development. Come to ICE 2022 and have a look. Operators, operator, please, next slide. This slide shows the breakdown of our revenue by geographic region. We see very good growth year-on-year in all our geographical markets, and it's evident that demand is truly global. The Nordic makes up about 10% of total revenue. It's very rewarding to see the growth of 18% from the second quarter. The growth year-on-year can, to a large extent, be attributed to Natant, which has a strong position in the Nordics. UK is about the same size as the Nordic. Natant and the Tiger Games have contributed significantly to the increase compared to the same for 2020. The rest of Europe is about 37% of the total, so together with UK and Nordics, about 51% of revenues comes from Europe. Compared to previous year, all the regions in Europe show good growth, but compared to the second quarter, both UK and rest of Europe are slightly lower, while Nordics show an increase. I received many questions on the effect for us of society's opening after COVID, and it's difficult to say anything decisive on this topic. In Europe, where many countries have started to open during the quarter, the picture is mixed. And as you can see, with UK and the Nordic, both societies have reopened, moving in different directions compared to Q2. As we have seen during the past year, Asia and North America have grown very fast, with year-on-year growth amounting to 120% and 246% respectively. We see good potential in both these markets and expect a continued high growth rate going forward, particularly as we see still our small actor in Asia, with more and more states regulating our products in the U.S. Other including South America and Africa and the main part of the world shows good growth of almost 70% year-on-year. Revenues from regulated markets, as you see, constitutes about 38% of revenues. And now, I will pass over to Jacob, who will speak more about financial defects.

I'll play the next slide, please. Thank you, Martin, and good morning to all of you listening. We'll now move on to a couple of slides for the closer look at financial development during the period. I'm on slide number nine. So as you heard earlier, revenue amounts to $276 million in the third quarter. That is made up of $214.5 million related to our live casino product and $61.5 million from our R&G games. Like Casino continues to develop really well. Growth in this quarter compared to the third quarter of 2020 is 53%. This actually exceeds the pre-pandemic growth rates from 2019. It's great to see that many of the new players from the past year are staying on the network. Our R&G business consists mainly of two acquired businesses, NetEnt, which was consolidated from December 2020, and Big Time Gaming, which is consolidated for the first time in this quarter. This quarter, our R&D revenue is 61.5. It's a 7.9% increase if I compare to the performer numbers of NetDent and BTG in Q3 2020. They were then not part of the evolution group. Big time gaming adds just over 10 million, 10.6 million to revenue in this quarter. And isolated, it has a growth rate of over 35% compared to its corresponding quarter in 2020. The growth comes both from the continued success of the Megawaste game mechanic, as well as increased volume of play on the BTG games. Consequently, the remainder and the larger part of our RNG business relates to our Netdent and Red Tiger brands. As Martin mentioned earlier, performance growth for those brands compared to the same period 2020 is just over 3%. And also, as we talked about earlier today and also in previous quarters, it is worth pointing out that we have made a large restructuring of our R&D business during the year, both on the product side where the roadmap has been reworked and also on the technical side where the infrastructure has been rebuilt. And the side effect of this restructuring is that there are two NetEnt games released this year, and the games that have released overall have been very strong, but it adds up to 3% growth. So while in line with our expectations and plans, we do have ambition to increase growth in RNG during next year. EPPA for the quarter amounts to 192.9 million euro and an EPPA margin of 69.9% in the quarter. Again, this is a quarter with very strong margin. I have to admit, it exceeds my own expectation from just three months ago and the guidance we gave in connection with the second quarter report. As most of you know by now, we prioritize top-line growth. And while we do give guidance on margin, we don't steer to specifically achieve it. We are in a period of heavy expansion, and we'll continue to invest and add tables in the fourth quarter as fast as we can. This can have an effect on margin in the short term, but overall, margin looks good. I'll refrain from guessing on the margin this time, and I'll leave it at concluding that we are at 68.7% margin year-to-date, and we will exceed our guidance of 68% for the year. All right, let's move on to the next slide, please. This has the P&L in a bit more detail. Going through from the top, we have live revenue again, €214 million, comparable to €140 million reported in the third quarter of 2020. So organic growth is 3%. And the R&D revenue is €61.5 million. And like explained on the previous slide, this was not part of the group in Q3. So on this slide, you see no performer figures for 2020. Total revenue, 276 million, increase of about 97% compared to reported revenue of the third quarter 2020. And looking at the year-to-date figures, revenue amounts to 768 million euro. It's an increase of 100%, where of 166 million euro done is through acquisitions. So you could say organic growth is 57% for the first nine months of this year. Moving down to expenses, personnel expenses amount to 51.5 million euro, an increase of 20 million euro compared to the same period last year. It includes increasing staff in, I would say, all our teams, commercial operations, engineering, business support compared to last year. Depreciation amounts to almost 21 million euro, including 11.5 million euro in amortization of intangibles related to the acquisitions of NetBank and now also then Big Time Gaming, which adds about 1.5 million in the quarter. Other operating expenses include items such as consumable equipment, communication costs, consultants, royalty fees, and this line amounts to 31.5 million euro in the quarter. Summing up, total operating expenses totaled 104 million, an increase of 84% compared to the reported figures of the same period last year. And that brings us to operating profit of 171, almost 72 million. Taxes at almost 12 million in the quarter for a tax rate of 7%. It's about 1% higher than previously this year. Then all of this brings us to a profit for the three-month period of 157 million euro, equaling an earnings per share of 71 euro cents per share for the quarter, a 66% increase compared to the same quarter last year. For the rolling 12-month period, EPS is 2 euro and 39 cents per share. Let's go to the next slide. Before I hand back to Martin, look at cash flow and financial position. So we start to the left in the slide, development of capital expenditure. The gray part of the bars represent investment in tangible assets. Mainly, this relates to our studio constructions. It's up a bit in the quarter, just over €7.3 million in the quarter. Martin commented earlier on our plans for new studios and also the continued investment in current studios. Ongoing projects include... Spain and Armenia, as mentioned earlier, as well as the fourth US studio in Connecticut. And in addition, I would say we're expanding in almost all current locations. So a very hectic period that's behind us, but also in front of us. The blue part of the bar is investment in intangible assets, and it's related to the development of new games and features to the platform. It's 5.3 million euro in the quarter, up a bit compared to the same quarter 2020, but now, of course, also includes the development of NetEntra, Tiger, and BCG Games. Year-to-date capital expenditure total 39 million, so our run rate is a lot lower than our estimated capex for the full year of approximately 60 million euro. We are in a busy period, as mentioned, but I think we might not reach all the way to 60 million euro this year, but... There will be, you know, continued high investment pace also in the fourth quarter. Moving on to the middle of the slide, we show operating cash flow. Cash flow very strong in the quarter, over 180 million. The increase from the second quarter is due to both operating profit increasing, some improvement in working capital, and also a tax refund on our tax receivable from Malta. So cash conversion percentage relatively stable, just under 80% for the 12-month rolling number. And then finally, to the far right in the slide, a quick look at the balance sheet. We have added big-time gaming in this quarter, which affects Goodwill with about 400 million euro. In this table, Goodwill is included in the non-current assets. And also, there's an increase in non-current liabilities also related to the BTG acquisition of this earn-out component to that deal. Those were my prepared comments. I'll stop here. I'll hand back to you, Martin, for some closing words, and we'll take questions after that.

Thank you very much, Jacob. A few words to conclude this report presentation. I already mentioned ICE 2022, and we're in full focus and full speed to prepare right now. At ICE, we will release a record number of new innovative products, and we will also release a record number of new games 2022 in total. It will be a year of product and innovation with the potential of global releases through OSS. This would be all possible because of the fantastic persons in Evolution and the teamwork between all of you. This is when we display why we can pride ourselves on delivering an exceptional and flawless player experience. It is where we show what makes us unique and how we own up to our name, Evolution. ICE 2022 will also mark the first time where all six product brands of our group will come together under one roof to meet the industry. Very exciting. In October, we launched in Michigan. We were first to the market in Connecticut, and yesterday we went live with the Ontario Lottery. It's hectic times, to say the least, as I started this presentation with. But remember, demand of our products is global phenomenon, and we need to invest in products and studio capacity in order to reach all corners of the world, and we have to stay on our toes and never be laid back and content in order to keep increasing distance to our competitors. Ever so far paranoid, trying to run faster every single day, do something better today than yesterday, constant focus on end-user satisfaction. Thank you all for listening, and we'll speak again in a couple of months. Now, let's move to questions, please. Thank you.

Ladies and gentlemen, if you wish to ask a question, please dial 01 on your telephone keypad.

We have a first question from Ed Young from Morgan Stanley.

Please go ahead. Good morning. Thank you for taking my questions. I've got three, if that's okay. My first one is on RNG, so the smaller of your businesses. Could you talk perhaps a little bit about the strategy there? It seems like there's been, if I could characterize it, I don't know if it's fair to say, a sort of pivot towards quality from quantity. That's sort of been at the heart of what your roadmap said. But it also feels like you've made choices between the pace of rollout. and also investing in things like the OSS platform and trying to change that roadmap. If you went back to the time that deal completed, is there anything you would look to do differently? I mean, obviously, as Jacob reminded us, you always prioritize growth over margin. So do you think that business should have had more investment to keep the pace of releases going, or are you still convinced it's at the right track? And how should we think about the – the evolution, no pun intended, the sort of trajectory of RNG growth Q4 and into next year as the OSS benefit comes through. That's my first question. Thanks.

There's no limitations to the investments so that we could go back and invest more and get it faster. To get the OSS, to rebuild the complete platform and get everything in one core, That's like down in a phenomenal phase. It's not related. It's hardcore brain power to get that out, and it's not related to investment money. So that's just fantastic. The focus of end-user satisfaction is always there. It has to be there for slots. It has to be there for life. We need to make the best games on the market. That's why we revamped, rent-changed, and modernized the slots system. for also 2021. And to do that is, of course, hard work, but it's also about not money only, it's about actually finding out what to do, and I'm very happy with the position we are with the Townshend Rules List.

Okay, thank you. The second was on geographical growth. As you said, there's no clear picture, Nordics and UK representing different paths on some of the same news. But in general terms, Europe, it grew, I think, 1% quarter on quarter, but was still sort of down quarter on quarter in both the UK and the rest of Europe. And equally, North America, very good growth, obviously, year on year, still very good growth quarter on quarter. But I wondered if you could perhaps give a bit more colour on those two in particular with North America, how would you think about the ramp up in Michigan? You said it's been very successful, but it still feels like it's very early days there. So how should we think about where you are now versus where you might be over the coming quarters? And equally, I guess, how quickly the phasing might be in both Canada and Connecticut when they're up and running?

Thanks. There's a lot of small questions inside that. I mean, I can pick a few things to just add. I mean, Ontario market, it will just look at that. It will commercialize somewhere in December. Maybe it will become later. It depends on how fast operators and regulators are. But, I mean, that's 15 million persons in a size state, but it's larger than any other state for casino regulated in the U.S. So it's a good market. It's phenomenal. It's really great. So that, of course, will fuel the In a general perspective, I think that we're still behind when it comes to supplying to the markets. We're still in a ramp-up phase, essentially, and you hear that all over. We're expanding in all different places at full speed. No limitations to money. It's about actually getting people to do together what we need to get done. With 12,000 people, it's really a massive work. So we see phenomenal potential in the future. When it comes to new states in the U.S., no one actually knows exactly when it happens, but we know it will happen. It's just a matter of time. Europe, there's all different flavors of it. There's risk in regulated markets, as I often point out, due to regulators come to adjust, and we've seen that in the U.K., a little bit of pressure on the market. We now see that the Netherlands, regulating finally, they announced that they're four, five years ago, and now it's actually happening. We go live with these 10 operators that have licensed, or most of them, and we're really happy with that, and it takes off strong, and we see limited effect and look forward to less than a percent, and we will look forward to get the old customers back as well during 2022, but also good. Germany, of course, puts pressure on the market. They don't really regulate clearly or Everyone is a little bit like us. Europe, in a more regulated space, but still great potential. U.S., of course, depending on when the state comes, full speed forward, seat of demand. Canada, really good, comes on. Asia, we're still a small player, phenomenal market, huge amount of people. And Latin America and Africa, we talk about this. That's something for the future, but we are there. We're starting to focus on that.

Thank you. Final question. I'll try and ask a cleaner single question than the last two. Can you just talk a little bit about how the impact of game performance, the new games rather, impacts growth? So I think it's fair to say a lot of the growth through the summer, there have been some game releases, but it's been very, it feels like, late q3 into q4 weighted in terms of some of your big releases like cash or crash or lightning blackjack or some of the asian games so you sort conceptually what does that do does that bring new players to life does it create a halo effect over the whole thing to help operators market evolution games more within their websites can you talk a little bit about the kind of impact you expect that to have on q4 and going forwards in general terms it's also a rather wide question but it's

We're very happy with the release of the games, both in slots and live. We look forward to a year of product and innovation, even increasing the speed 2022. I think that the message that you should take with you is that the market and the end user doesn't stand still. They are moving. They are doing differently today than five years ago. There are new products out there, TikTok and Snapchat, and everything is moving and changing. To take that market, we need to be on our toes, and we need to get that level of engagement. And I think that that's some kind of learning to everyone. We all in this line of business need to innovate, focus on entertainment, and get that. And I think that we are, and I'm happy with the releases 2021, but I even more so look forward to 2022. Okay, thank you very much.

Thank you. We have a next question from Marvin Barnick from Barreto Securities. Please go ahead. Hi, good morning, Martin and Jacob. A couple of questions if I may. To start off, I think there's a comment on the Q4 start. You said it's a strong start. You did not comment on the start of Q4 in the last year, Q3 report, when life was, you know, grew 51% year-over-year. Putting aside that Q4 is a seasonally strong quarter, how should you interpret your Q4 start-to-start comments, especially strong this time, and what's describing the growth? Any comments there would be helpful.

It's hard to weigh the words exactly, but I'm very happy it's a strong start to Q4. I would like to leave it with that. I'm happy. It's a strong start of Q4, and we look forward and we're excited to come to the end of the year and go into the next year with full speed.

You can add also on that, I mean, it's still relatively early in the quarter. I mean, it's been four weeks, but it's intentional that we haven't quantified it in a specific way. But, yes, it's a good start to the quarter. Okay.

Didn't help much, right? No, but anything about what's driving the growth here?

Play activity. New players, play activity. Traction of games.

Okay, thank you. But for Q4, I mean, given it's a seasonally strong quarter and a strong start, And historically, looking at the Q4 margin increases further sequentially. How should we see the EBITDA margin here in Q4 in relation to Q3? And what in the cost space, especially ramping up here in the short term?

Yeah, it's a little bit like we commented in the presentation that, yeah, for sure the margin in this quarter is a bit stronger than what we saw a few months ago. So that's positive. And the margin year to date now is 68.7. So we don't see that we will be – over 68%, which was the guidance for the year with some margin. So it doesn't mean that it necessarily needs to go up, up, up every quarter. I mean, you know, things that can affect the margin is, of course, when we have periods of of rapid expansion, we will take on costs in order to support future growth. So the priority is to achieve top-line growth. So we haven't – again, we haven't said anything specific, exact for the fourth quarter other than that. For the year, we see that we will exceed the 68%. So that's how we see it. I mean, we've said it so many times that we don't – We do give guidance on margins to kind of share our view on where we are at the moment, but it's not the number that we specifically fear on and try to hit. As you see in this quarter, sometimes it can definitely move around. It can go a little bit up now. Over time, yes, we do have scalability in the business. That hasn't changed. I mean, we think that we should be able to improve margins when we increase top line. It's not that this is the the absolute ceiling for margin. But for one quarter to the next, it's, yeah, it's hard to say.

Thank you. And the final question. It's the first time I see you mentioned that the Madrid studio has an ongoing studio project. Can you comment a bit further here of what you're trying to get from the Madrid studio and why you chose Madrid location?

The reason why we are adding another studio in Europe is, of course, demand. We focus on international demand, meaning different languages in Madrid. Perfect location. We scanned, I don't know, 15, 20 locations and chose Madrid. For, of course, various reasons, which is important to us.

And are you looking into the opportunity to open... I'll just clarify that it's not a studio that will serve only the Spanish market. It will, similarly to Malta, serve the network with international languages.

And are you looking into a studio or opportunity to open a studio with more focus on Asian players? I mean, dealers with more native Asian-speaking languages? And where could that be?

We're not, we're not, that could happen, of course, yes.

Okay. All right. Thank you all for me. Thank you very much. Thanks. Our next question is from Martin from B&D Market. Please go ahead. Good morning, Martin and Jacob. Good morning. Good morning. I just want to ask the first question on the expansion of studio network there as well. What's the size of these new ones, the Spanish and the Armenian studio? Is that a medium-sized studio? Yeah, correct. Okay, and you're expanding all of your existing ones as well. What are you adding there? Is it You're adding capacity. Is it mainly for dedicated tables?

Both. The network has to be contained. We add both. It's not only dedicated. Okay.

Excellent. I remember... I think we mentioned it before, but It would be good to repeat that. I mean, right now, with now 11 studios, you could say that the additional capacity can be expanding a current studio or adding a new site. It's, of course, when we add a new site, it's a little bit extra that comes with that. But in terms of the capacity, we try to always invest in that. So it's not that, you know, with Madrid or with Armenia, the capacity in the network is I mean, we're every month adding capacity somewhere. So that's, yeah, that's just good to know.

Yeah, perfect. Thank you for clarifying. And then I remember this summer you mentioned that you had pent-up demand in the dedicated table area. Is that still the case, or have you now filled that pent-up demand from last year? We still have demand. Simple as that, yes.

Okay. So demand is still good. Then it's always a little bit difficult to sort out what's demand from last year and what's demand right now. But, you know, the demand for tables is still there.

Demand for tables and we are in a hurry. There is more demand. We have time for demand.

And what about restrictions in your studio networks? Can you say anything on that relating to?

I could probably talk about COVID for like two hours. I mean, right now, it's still a lot of rules. curfew, transportation, social distancing. There's lots of rules in different countries and some countries have opened but some is closing now. So there's still a lot to do with COVID and we are not out of COVID yet. It's not like this should be a big excuse for not doing or for one or the other. It's just that Right now, the society is more open than the work life in general. So it's like more restrictions for us as an employer and maybe a little bit less for the private life, restaurants and other, but there's still a lot of restrictions, yes.

And just on that subject, what measures have you taken yourself in the Baltics, for example, where one of your most important studios are in Riga?

We constantly revise. We're in negotiation, not negotiation, but we talk with the health ministries and see that we're always aligned with them. And lately, they, the Latvian government has actually, they're about to take the decision on the law where the employer cannot let a person that have not been vaccinated work. So, essentially, they are not vaccinated. fired or put on hold without salary to get the vaccination level increasing. So there's a constantly change, and there's going on now for the night. So there's constant, in each and every country, there's always new rules and regulations, and they are not in sync in the world, which people might think. It's really different from country to country, depending on the situation.

Excellent. Thank you. And you mentioned the one seamless backend, one-stop shop. And I was just curious to know, what do you think that will mean for your competitiveness going forward? It will strengthen. Can you elaborate a little bit more? Sorry for... I mean...

I think it's important to look at it from one perspective of the operator. It will make it easier for every operator to integrate. It will make it sort of – they can select whatever games they want seamlessly from us. No pressure to take whatever they want, and they have one integration that works. For us, it means that when we release a certified game, it will reach the whole world at the same time. And instead of going to different regulatory and different processes and different integrations and different, it's one. Release it and it's out. But it's just like I said, it's a magnificent piece. I'm very proud of it. It's really good. I don't think it's been done, at least not in this speed as we have done it. And I look forward to rolling it out right now. So I look forward to do that.

Great, thanks. And just one final for me. When you look at the pipeline, game pipeline for next year, what's the main topic in there in the games pipeline? And will you announce the full package at ICE or will you sort of gradually announce your new games next year as you did this year?

The... The common word would be innovation and end-user satisfaction. The release on ICE will be we will release more games than ever. And then, of course, there will be more games during 2022 than ever, so there will be more releases coming after. So product and innovation year, we're going to focus on that, and now we're full speed ahead with that.

Okay. Thanks, guys. Thank you. Thanks. We have a next question from Oscar Erickson from Carnegie. Please go ahead. Thank you, and good morning, Martin and Jacob. Good morning. So starting at the same place as the last question here on the 2022 product roadmap, I'm equally excited to see the roadmap as we're working. So first of all, do you think 2022 products presented at ICE or released for the full year? Do you have to repeat that? And also then on the same topic, is it possible to say something about the mix roughly between live and slots, entirely new products versus incremental product improvements and variations as well? Thank you.

There will be a lot of products more than ever released on ICE in itself, playable at ICE, and then there will be even more products released in the remaining part of the year. With that big now, with all these brands, we can't release everything at the same time, and we will sort of, but there will be more products than ever on ICE. So that's the answer to the first. And it would be exciting to release them at ICE, and I don't want to go into the mix right now.

Understood. And then personal slots. Seems like DTG is performing in line or slightly above expectations here in Q3. What will next come to the Tiger perhaps not giving up to your full ambitions in the long term? What are you doing to accelerate revenue development for these entities? And except for the one-stop-shop, which seems really exciting, how will you combine your R&D-focused entities going forward?

I think that your description is fairly accurate. We're, of course, now coming out of the OSS creation, and now we're focused to deliver even better games, making the right roadmap for next year with even more games.

So good games, more games. That's sort of the answer.

Great. And then maybe a question for Jacob.

The operating costs are quite stable sequentially despite a clearly rapid expansion phase, the B2B cost relation. What's the explanation here? And could there be any sort of catch-up effects in Q4?

you know, I think as we continue to expand, you know, the cost base will also grow. I mean, there's always in every quarter there's We don't report them as one-offs because there's a new one-off every quarter. So there is, of course, a bit of variation. Sometimes you have a little more of those costs that come in a quarter and sometimes a little less. So some of that is behind it. But, yeah, definitely we will see costs continue to increase in the quarters to come. Longer term, it's driven by the expansion of studios and tables and more staff. Staff is the biggest. the biggest core item, of course.

Great. And then a question on M&A as well. How do you think here currently regarding incremental opportunities? Is the primary focus on slots? Is there anything to do at all live through M&A? Is sports an alternative? And also, will the one-stop shop tech here support and accelerate the sort of integration pace for potential targets?

Yeah, on M&A, I think our answer there is really what it's been for the past couple of years that we remain open to. The focus is organic growth. That's true in live and definitely in slots as well, as Martin just commented on. And then, of course, one-stop shops, that is a good foundation to also be able to add more products. So that will... will enable that. But it's not that that in itself doesn't change the strategy. The main growth will be organic still as we see it. And then the second point, I mean, no change there in terms of different verticals. We see ourselves as trying to become the best provider of online casino in the world and drive innovation in that space. So sports is not It's not in our plans right now. Then again, I won't rule it out forever and ever that some of the same rationale that was behind the move from live into also RNG, getting a broader product portfolio and so forth. That can of course be said also for sports, but it's not in our plans right now.

Understood. And then a final one for me. Connecticut's obviously incremental revenue opportunity. With regards to Ontario, could you discuss just a little bit on how you view this, what type of revenue contribution you have from Ontario currently? What do you think in terms of market growth potential and adding operators?

I think I can answer that. As we said, the Ontario market is a relatively big one. It's a big population and has a lot of potential based on that. It will also open for, right now, it's the Ontario Lottery that's in the market, but there will be other operators eventually as well. So, I think of it like what we see in many markets when they regulate. There's a period where the incumbent is the first one to market, and then eventually the market opens up to more players. We see something similar in the Netherlands, I assume. That's how we see it. Very excited about the potential. It's a big market. What's the future?

Excellent. That's it for me. Thank you. Okay, we have a next question from Karen from Bank of America. Please go ahead.

Hey, morning, guys. A couple of questions for me. Firstly, on taxes, it's very topical at the moment. We do have this backdrop of a potential global tax for 2023, but, I mean, in the run-up to that, any thoughts on how we should think about 2022 taxes? On CapEx, you said there's been a bit of a delay this year. Should we expect a ramp-up of some sort in Q4 this year or some sort of catch-up or maybe in 2022? And then lastly, just looping back, actually two more, looping back on the OSS, Any idea if you did make an acquisition and you integrated on OSS, does it speed up the integration potentially? And then the last one is on consensus. Currently consensus margin for 22 is 69%. How do you feel about that given the Q3 margin print? Thank you.

Let me start with the OSS round. So on another hand over with the capex and fax and margin to Jacob. Naturally, If we would, which we don't know if it would happen that we would acquire something, it would be fitting very well into the OSS. That's the whole thought. It would essentially make it possible to integrate anything into that, meaning other casino content. Now, I think it's important to understand that we do this right now to make it good for the operators to make it, to enable them to make it sort of simpler, easier, seamless, flawless, and we make it for us to be able to distribute and handle our content. So that is why we're doing it. But the possibilities are still there, yes. I'll hand over to the tax graphics and margins here.

So on tax, you know, we also follow all the news on the development of the, you know, regime and the pillar to debate, and it seems to definitely be moving forward. Don't really have any sort of firm view on it from our point of view. If you look at us right now, our tax rate, I would say, disregarding the Pillar 2 development, will trend up a bit. I mean, we already see in this quarter we're adding Big Time Gaming, which is taxed in Australia, so that's a 30% tax rate. And as we grow in all parts of the world, our tax rate will also trend upwards. So we haven't set any straight number for 2022 or 2023, but I think we're at 7% in this quarter, so I would So we expect it to move a little bit upwards towards that, from that level. And then it depends on where growth comes from and sort of what happens. On CapEx, you're right, I think we will see, in absolute terms, CapEx has been up year over year and will continue to to increase so i think we'll probably invest more in 2022 than we did this year specifically for q4 we will this high activity as you've heard so you know i think capex could go up we probably won't reach 60 million for the year in total you know that that um I don't know. We would like to. If we could build that fast or do as much, we'll try to reach it. But it's probably a little less than that. But it's just where we are on that.

And Morgan, you said 69%. We will say something.

you know, give some guidance for full year on margin when we report the first quarter as we normally do. So the statements on margin are what we said in the past. I mean, there is absolutely possibility as we grow top line, you know, we can still increase margin some. And we're at 68.7 now, so 67,000 to 69,000, that could probably be reasonable. But, yeah, we'll see. We'll say something when we're in a couple of months.

Perfect. And just on the topic, the delay this year, is that because of COVID that you haven't been able to roll out certain things you wanted to? Is that what's causing the delay?

Yeah, I think everyone thinks that.

There's always reasons. COVID could be one. But to build in such many locations that we are doing, it's a physical thing. It's like sometimes it's not money. It's not external. It's just that it takes a little bit longer time. We all probably renovated maybe a house or an apartment. And it's easy to like want to do more in a shorter time than it's actually possible. And right now we're pushing really hard for all expansion, all throughout the world, and of course you can say that it's related to COVID, but not only.

I think also, in honesty, when we said 60 million for the year, that was kind of a relatively rough number. It's not that... So in comparison to previous quarters, you know, CapEx is increasing.

So, you know, that's maybe more the relevant. Got it.

Thank you very much. Thanks.

Thank you. Thank you. We have a final question from Simon Davis from Deutsche Bank. Please go ahead. Morning. I've got two questions. If that's okay. Gambling Act review should be reaching some kind of conclusion fairly shortly. Do you expect any potential? potential impact from that and how sensitive would the business be to any imposition of maximum state limits on slots or deposit limits?

Any adjustments that they do which sort of limits the game phase of course affecting us through our operators, we're completely sort of aligned with them on that. And there's so much speculation and no firm real conclusions yet, and so to evaluate I would rather wait until we know exactly what it is. But any limitations, of course, affect us equally as it would affect an operator.

So you're not at this stage expecting any material impact?

I don't know, to be honest, what to expect.

But there's no information that I have that would say that it is a material impact. And there's been pressure constantly, and I don't see that there might be, I don't know that there might, that will be any major changes that will affect us right now but that's in the hands of the regulator yeah absolutely um and secondly very swiftly you mentioned

An impact of about 1% only from withdrawal of customers in the Netherlands. The second round of licensing. What would the impact be in Ontario? Because presumably there you'll be... seeing the number of your customers withdrawing from the market in the short term, is that going to be a similarly modest impact?

I don't want to give a figure.

Very good question. I like that you asked it. I don't want to give a figure on that, but there will be a limited impact at the time being. And then, of course, it's only a couple of months and the commercial market will open again. And OLG is doing a great job now. They've only been live for a day, but I'm sure that they will do good. It's slightly too early to give a figure on it, but there will be a small impact, yes.

Right. Thank you very much. Thank you very much.

Thank you. We have no further questions in the queue.

Okay. Lovely. I want to thank you all for listening. listening and to the quarterly report so have a nice day thank you very much