Evolution AB (publ)

Good morning and welcome to the Evolution Q4 2022 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Martin Collison, CEO. Please go ahead.

Good morning. Welcome, everyone, to the presentation of Evolution's year-end report of 2022. My name is Martin Collison, and I'm the CEO of Evolution. With me, I have our CFO, Jacob Kaplan. I will start with some comments on our performance in the quarter, whereafter I will hand over to Jacob for a closer look at our financials. After that, I will round off our presentation with an outlook for the rest of the year, and at the end, we will open up for your questions. Next slide, please. I'm very satisfied to be able to present yet another strong quarter, which concludes a successful 2022 for Evolution. As always, operationally, it has been a very hectic year for us, and in the fourth quarter, we continued at the high pace from the previous quarters. We continue to see strong worldwide demand for our product in live casino, both existing as well as new games launched during the year, continue to attract new players, but also new player groups. We can also now notice how different parts of the world have issued slightly different preference when they begin their journey within Ablution. At the beginning of the year, I spoke of 2022 as the year of the product. I think 2022 has lived up to that belief. In the quarter, we have further expanded our North American footprint with the launch of a third studio in New Jersey to support the growing demand there, and the build-out of the new studio will continue in 2023. We're also gradually starting to expand our games portfolio in North America after the launch of Crafts in Pennsylvania last quarter, and we finally also launched a fantastic new game in New Jersey in Q4. In addition, the new studio was launched with our newest game called Football Studios. Furthermore, we will shortly also launch Mega Ball with the British Columbian Lottery Corporation with the other Canadian lotteries to follow. This will be the first real lottery game launched with a lottery in Canada. In January, we also went live with the Canadian province in Saskatchewan. Things are also moving within slots. Red Tiger, the third game supplier, to introduce Time Jackpots in North America. Time Jackpots is a mechanic for slots games that allows operators to set up a progressive jackpot that are guaranteed to hit before a certain time. In the fourth quarter, Red Tiger launched these unique time jackpots against in Connecticut, Ontario, and Quebec. And a week ago, they were launched in Michigan. They have been an instant success. At the end of the quarter, we had over 1,300 tables live, resulting from an increase of over 300 tables during the year. The high demand for our products means that we must expand in existing studios and be new ones to keep up the pace. We will continue to increase our studio capacity also during 2023. During the second quarter last year, we launched a new fantastic lobby, and since then we have rolled it out. And now in January, the transition to the new smart lobby was completed for all customers. The lobby's recommendation engine, powered by artificial intelligence, assures that the players will always get the content best suited to them. The recommendation engine gets smarter every time the player enters the lobby, and our goal with the new lobby is simple, to help players quickly find a game that they will enjoy. The new lobby is smart, powerful, and personalized, and it does definitely enhance the playing experience for the end users. During the year, we have faced difficult macroeconomic environments, with war in Europe, increasing cost levels, and pressure on supply chains. We tried to put pressure on our margins, but even throughout the year, we have continued to invest in growth. This year, as always, our main priority has been to continue to serve an ever-better experience with all fantastic new games, as well as enhanced existing games. With that backdrop, we delivered an EBD in margin within the guided range for 2022, despite the cost increases we have faced this year. In 2023, cost efficiency will increase remain as important as in 2022, and our efforts to increase efficiency and throughput will continue. The round of 2022 with a strong financial result comes into the new year with a fantastic pipeline of new gains and a strong momentum which makes us well-placed to further strengthen our market share and continue to widen the gap to our competitors. Now, let's move to the coming slides and see the effect on numbers on products on all our efforts. Operator, next slide, please. Our financial results for both the quarter as well as for the full year 2022 are strong. Revenues increased by 36%, both in the quarter as well as for the full year. EBITDA increased by 35% to 279.5 million euro in Q4, corresponding to a margin of 68.6%. For the full year, the EBITDA growth amounted to 37% and reached a margin of 69.2%, in line with our guidance of 69.71%. for the year, and an increase compared to the full year 2021. Two. Hard with the years now, when we are in the beginning of 2023. Land Casino delivered a very satisfactory growth of over 41% in the quarter, and for the full year, R&D revenue amounted to 72.5 million euro, a growth of 15.3% in reported numbers. The growth in the quarter compared to the combined revenue evolution and no-limit city for Q4 2021, the performer growth of R&D amounted to 5.1%. As earlier communicated, we have a target of double-digit organic growth in R&D. Moving forward into 2023, the path to our goal within R&D will not be linear, but we look forward to 2023. We will double the releases of our method brand, add new bonusing tools for slots and increase distribution for slots through OSS. Our EBITDA margin guidance for 2023 is 68 to 71, and we have widened the range with 1% as a result of the uncertainty of the macroeconomic situation in the world. It is, as always, important to state that the investment will continue to be high, and our main priority is to continue to grow, and as always in the trade office in growth and margin, we will always opt for growth. Important also to note that the Board proposed a dividend of €2 per share for 2022. This is in line with our policy and slightly above 50% of net profits. All in all, fantastic numbers, and I'm very pleased with our financial performance in the fourth quarter, and we are definitely well-placed to deliver a strong 2023. Operators, next slide, please. Expanding our student capacity means we need high recruitment pace, and in the quarter, we increased the number of evolutionaires with 1,100. Increase in staff 2022 amounted to 3,600, adding to over 17,000 evolutionists at the end of the period. Evolution is a truly global company. Our products can be played in most corners of the world, and our employees are a good mirror of that global reach. And at the end of the period, we had over 100 nationalities employed all over Evolution. We will continue to increase headcount during 2023 as we expand in and we will continue to consider diversity a strategic advantage and a key asset. It is a condition for evolution's operational excellence. I'm very proud of all our employees and the work ethos they show in their daily work. They make up a fantastic company. Next slide, please. Last quarter, we replaced bet spots as a measure of player activity on our network. and replaced it with game rounds. The bad spots slide was only related to live games, and by that did not cover the whole network and simply had played out its role as a performance indicator. A game rounds index instead shows the development of the whole evolution network and includes all games. A game round is what it sounds like, one round of a game. One round of roulette, one hand of baka, or one spin of a slot. All count as one game round. There are still differences between games, and for example, since the hand of Blackjack takes longer time than a spin of a slot, each game round of Blackjack typically carries a higher bet, so all game rounds are not equal in value. In the chart, the index values for game rounds from Live and RNG and other are weighted according to revenue contribution. This gives us a joint index that includes all games based on equal revenue contribution. Game round index will over time give a better view of the activity in our network. This index will not correlate exactly with the revenue each quarter. As you can see in the chart, activity has remained high in the quarter, over 70% year-on-year growth for the second quarter in a row. One reason for the high growth in game rounds compared to the revenue is that we are adding many game rounds from new markets that typically have a smaller bet size, so activity increases more than revenue. Still, increased activity in the network is a very positive sign and will contribute to growth in the future. Right there. Next slide, please. This slide shows the breakdown on revenue by geographic region. We see very good growth year-on-year in all geographical markets, and it's evident that demand is truly global. Year-on-year growth in North America amounted to 66%, with the highest growth rate of all regions for the fourth quarter. For the full year, the growth amounted to 65% compared to last year, In Asia, we saw continued strong growth of 50% year-on-year and the growth of 67% per full year. It's a good potential in both these markets and expect a continued high growth rate going forward. Europe as a whole, including UK and Nordic, saw the good growth of 7% quarter-on-quarter. European markets in general have a slower growth than North American and Asian markets due to both regulatory changes as well as that they are more mature. It's worth noting that this table does not include pro forma figures of the growth year on year, so to some extent it can be attributed to acquisitions. Other, including Latin America, Africa, and the remaining part of the world, shows a very good growth of 61% year on year. In this market segment, it is Latin that is the main driver for growth. Share of revenues from regulated markets amount to 40% in Q4. Next slide, please. Products. Most important thing, products. In 2022, we grew the Evolution live offering significantly, further widening the gap between Evolution and our competitors. One year ago, I said 2022 would be the year of the product. I set a goal for ourselves to deliver 88 new games in 2022. It would mean a record number of releases from Evolution in one year. We did it. I'm very proud of all the people within Evolution Group that made it happen. In 2023, we'll launch over 100 new games. I think it's fair to say it will be yet another year of the product. Among the new games in 2022, Extreme Lightning Roulette was an out-of-the-gate success. Monopoly Big Baller is another mega hit, and I'm happy to report that the original Monopoly Live continued to see good increase in player numbers even after the launch of Big Baller. A third exceptional game to point out is this live slot crazy coin flip, a truly unique game that combines slots and live show entertainment, and the game found a very large audience. I'm excited to do more in 2023, combining the worlds of live and slots. In the fourth quarter, we learned two new and exciting football team games, Football Studio Dice and Football Studio Roulette. Another game in Q4 was the Free Bet Blackjack, a variation of our classical blackjack, But what makes the version difference are the exciting free bets. Also new in the quarter is the gripping experience with Dead or Alive Saloon, a card game set in a fantastic Wild West Saloon-style environment. Actually, the studio I showed you on the cover of the Q3 report presentation, if you remember. While we want to see more in RNG, we have released many very good games also in 2022. During the fourth quarter, one of my favorites is Dead Canary from No Limit City, Other releases in the quarter, as you can see in the slide here, are in the rabbit hole from Red Tiger and cupcakes from NetEnt, but there were more. We will have a very high focus on RNG vertical 2023, and we will do everything in our power to deliver the best and most innovative slots in the world this year. Now, let's say just a few words about the roadmap for 2023. Operator, let's move to the next slide. Yes. Product 2023, exciting 2023. Here on this picture is a sneak peek at one of our launches of ICE next week. It's one of our headline games in 2023 and the most technically complex game we have ever built. It's the largest and most spectacular game show we have ever made. It's a strikingly beautiful studio and a bonus and multiplier extravaganza. end users will see something they have never seen before. I won't get into details of the release on ICE, but I'm very, I would say even extremely, excited to bring this experience to players across the world. 2023, we have a great variety and innovation amongst existing releases, both live and RNG, from all seven of our brands. We will show some, but not all, of what we are having in store for players next week at ICE. Looking forward to see you all there. At Evolution, we always try to be a little bit better every day. So, of course, 2023 is going to be our strongest product year ever. End-user entertainment and satisfaction is what will be the future, not only 2023 or 2024 or 2029. It's the ultimate goal for all of us trying to make a difference every day. We need to stay on our toes, breaking boundaries, create what others dream of and think is impossible. We can never stop. We need to relentlessly continue to create evolution's future. That's what all of us evolutionists do every day, trying to create what others dream of, and that is called ambition, hunger, and energy. That is why all of the soon 18,000 employees of evolution should be proud. With that, I will pass on to Jacob, who will speak more about financial details. Operator, next slide, please.

Thank you, Martin, and good morning to all of you listening. We now have a couple of slides with comments on our financial development during the period, and I'm on slide number nine. Revenue amounts to 407.5 million euro in the quarter. That is made up of 334.9 million euro related to live casino and 72.5 million euro from our RNG games. Live casino has had a very strong performance throughout this year. or 2022, I should say, and shows strong development also in the fourth quarter. Year-on-year growth is 41% in the final quarter of the year and 42% for the full year. As Martin mentioned, we see year-on-year growth in all regions and have also been successful with several strong game releases this year, and we feel good about the roadmap for 2023, as Martin just pointed out. There are still large growth opportunities for us in many markets. All that said, I expect the growth in percentage terms to continue to come down as our revenue base gets larger. RNG revenue amounts to €72.5 million in the quarter. Growth rate for RNG, just looking at the reported figures, is 15% in the quarter, but that does include No Limit City that was acquired in the third quarter of this year, so not included in the comparison period. Growth compared to performance figures is about 5%. This is a slight improvement in growth from Q3, but still lower than the goal of double-digit growth we communicated at the beginning of 2022. We stated also then that the development will not be straight-lined towards that goal, and I see that comment as still valid looking into 2023. We remain committed to the goal, as Martin pointed out, and are continuously working to improve productivity in our R&D operations, but we will not set a firm deadline for when the goal of double-digit growth can be achieved at this time. EBITDA for the quarter amounts to €279.5 million, given an EBITDA margin of 68.6 in the quarter and 69.2 for the full year. We are in line, albeit at the low end, with our margin guidance of 69% to 71% set at the beginning of this year. For 2023, we expect to achieve a margin in the 68% to 71% range. I guess you can say that's a lot slower than the guidance for 2022, but given the uncertainty in the world, the pressure we see on cost right now, and the fact that we exit this year just over 68%, we think the larger interval does make sense. As we have said many times before, and I will repeat now, we do prioritize growth over margins, so this guidance is a way to share our expectation today, rather than that it's a hard goal in and of itself. Operator, let's move to the next slide, please. We are at the end of the calendar year, so I have added this slide to the presentation, a little bit to zoom out and also take a look at the multi-year performance of Evolution. As you see here, we closed this year, or 2022, with almost 1.5 billion euro in revenue and just over 1 billion euro in EBITDA. When you look at numbers all day, sometimes they can be more than just numbers, and for me it was very nice to see us break the 1 billion level for EBITDA. Of course, 999 million wouldn't have been a huge difference, but still a milestone, and I should say we all are happy for that. Looking at the multi-year development, we also see that we have been able to increase margin with the growing top line. We do increase margin also 2022 versus 2021, but not with the same jump as we saw during pandemic years in 2020 and 2021. During 2021, we also added the main part of the R&G business through acquisitions of NetEntred, Tiger, and Big Time Gaming, which, as you can see here, gave an extra boost both to revenue and EBITDA. So as we talked about on the previous slide and earlier in the presentation, we have more work to do to achieve the future growth we want in R&G, but it's a highly profitable business that we feel has a very good fit in the group. Looking at revenue, we increased top line by almost 400 million, or 36%, 2022. That revenue figure does include a mix of organic and required growth, but looking at live casino revenue isolated, which is all organic, we add over 300 million euro in both 20 and 21, respectively, with growth rates around 50%. So while we actually add even more revenue 2022, the math works that the growth rate starts coming down a bit, as I mentioned on the previous slide. That was a quick look at the full year development. Let's go to the next slide and we'll have a more detailed look at the most recent quarter. So moving to the next slide. This shows our P&L in a bit more detail. As usual, we'll walk through the table from the top. Live revenue just under €335 million for the three-month period October to December 2022 and €1,188,000,000 for the full year. This is organic growth of 41% and 42%, respectively, compared to the same period as last year. Orange year revenue amounts to €72.5 million in the three-month period and €268.4 million for the full year. And the total growth, including organic and acquired growth, is 15% and 17%, respectively, as mentioned earlier. The majority of that was, of course, acquired, as was covered also earlier. Total revenue sum is up to €407.5 million for the quarter and just over €1,456,000,000 for the full calendar year 2022, a 36% growth in the full year numbers versus reported figures. And pro forma, that works out to about 33% for the quarter and about the same for the full year. Moving down to expenses, personnel expenses amount to €81.5 million in the quarter an increase of €26 million compared to the same period last year. This includes increasing staff compared to last year in all our teams, commercial operations, engineering, business support, across the board. The appreciations amount to €29.5 million. That does include €11 million in amortization of intangibles related to the acquisitions of NetEnt, Big Time Gaming, and No Limit City. Other operating expenses include items such as consumable equipment, communication costs, consultants, and royalties. Totals 46.4 million euro, an increase of 22% compared to the same period last year. Summing up, total operating expenses, 158 million euro, increase of 36% compared to reported figures same period last year. That brings us to operating profit. It sums up to €250 million in the quarter and €908 million for the full year period. Increases of 35% and 39%, respectively. Financial items includes, as always, a charge for right-of-use assets, according to IFRS 16. Also on this line, we have currency-related effects from the revaluation of balances on bank accounts that we hold in non-euro currency, as well as effects on intra-group loans. So it's a little higher cost there than the previous quarter, but it's not related to interest rates. We carried no external debt, so that's not what it is. Tax is just under 17 million euro in the quarter. That's a tax rate of 7.1%. For the year-to-date period, it's 7%. It's almost 1% higher than the previous year, and our tax rate will continue to gradually increase in 2023 as we increase our global footprint. Regarding the upcoming project of global minimum tax of 15%, or Pillar 2, as it's referred to in tax speak, I guess, the current timetable is that it will come into effect from 2024. A lot of work still remains, and we will probably know more as the year progresses how and when it will affect us. But expect a higher tax level from 2024, as I know most of you already have in your models. All this sums up to profit for the three-month period of €223.5 million. That's equal to an earnings per share of €1.03 per share for the quarter. And that's an increase of 34% compared to fourth quarter of 2021. And finally, the rolling 12-month period, the full year earnings per share is €3.88 per share. Operator, let's go to the next slide, please. Before handing back to you, Martin, a look at cash flow and financial position. And we'll start to the left, where we see a development of capital expenditure. The gray part of the bars, that represents investment in tangible assets. That means our investment in studio projects. And in the fourth quarter, CapEx intangible assets is almost 18 million euro. We have had a high activity in studio projects in the quarter. The blue part of the bar is intangible investments in intangible assets, and that's related to new games and features to the platform. It's about 10 million euro in the quarter and in line with previous quarters this year, as you can see. For the full year, 2022, CAPEX amounts to 97 million euro. It's much higher than the 90 million euro we estimated at the beginning of the year, but fully in line with our plans from later in the year. For 2023, we will maintain a high pace in our investments, and I estimate CAPEX will total around 120 million euro for 2023. In the middle of the slide, we show operating cash flow in the quarter. It amounts to 221 million euro. Operating cash flow in relation to EBTA on a rolling 12-month basis is still on a very good level at around 75%. And finally, to the far right in the slide, a quick look at the balance sheet. We maintain a very strong financial position, €532 million in cash on balance at the end of December, which if the board's proposal to the AGM of dividend of €2 per share goes through, €426 out of that will be paid as a dividend in early April. That was the end of my prepared remarks. I'll hand back to Martin for some closing words and we'll take questions after that. Martin, over to you.

Thank you, Jacob. Now we're on the next slide, the last slide before Q&A. Thank you. A few words to conclude this report presentation. We have a strong end of 2022 and an overall strong year for evolution with many strategic achievements such as building four new studios, launching a record number of new games, And most importantly, we have continued to increase the gap to competitors. In 2022, we worked hard to restructure the cost base to reach effectiveness and cost awareness, and that job will continue throughout 2023. Despite the macro challenges we face, inflation and cost increases are a reality for us. We have great momentum, and we will focus on evolution and the things we can control to innovate and push boundaries and enhance the play experience and increase the gap to competition even further. It's a good opportunity for continued positive development in the U.S. We'll continue to expand capacity in our studios and increase our gains portfolio in that market. Last week, we had an official opening of a new studio in Madrid, and with three others newly launched studios, we will, during the year, be focusing on scaling up the new studios, but at the same time, we'll build a number of new ones in 2023. We expect to see continuation of strong growth in Latin America, and we will expand our presence to capture those markets. With a local organization already in place, we are well prepared to continue our expansion there. Moving into the new year, increased growth within RNG is a high priority, and looking at the roadmap for games, I very much look forward to 2023. Beyond everything, and most important of all, is our focus to innovate and push boundaries to enhance the player experience. In the end of the day, that is what counts. Thank you all for listening. And we'll speak in a couple of months again. And now we'll move to questions. So next slide, please.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. We will take our first question from Ed Young at Morgan Stanley.

Please go ahead. Thank you. Good morning, both. Thank you for taking my questions. I won't ask about products. I recognise the importance. It sounds very exciting, but given you've heavily blurred your slide and it's ICE next week, I guess I'll wait till then to ask questions on that. So my first question, if it's okay, is on margin. You've given the range there, Jacob. I wonder if you could just go into the line items a little bit in terms of how you think about the evolution of that cost. I know that cost per personnel is was down a little bit in Q4 and Q3, but you've said there's a step up, I think, probably in the spring. So could you talk perhaps about, you know, particularly personal and other, how you think about the growth in those line items or how you'll be able to manage the business to hit within that margin target? I'll ask the questions in turn, if that's okay.

I will comment on that. We will continue to expand and we will build new studios. So So that cost is positive. We need to be cost-aware in all different parts, but we will continue to expand and grow this priority. Exactly how that will fall out over the month and quarter is very hard to say. We add the percentage to widen the gap to 68-71 due to the macroeconomic situation in the world. It's purely because it's very volatile in the world right now. There's a war in Europe, and To account for that, we add the percentage. That's the whole story of that. Our ambition is, of course, as high as it's always been when it comes to margin, and we have a scalable business, and we should continue to add that.

Understood. Second one's on returns. Martin, you've spoken over the past few months about your personal view on returns buybacks versus dividends, and we've had the conversation on these calls variously over M&A versus returns several times. I appreciate it's a decision for the board ultimately, but I just wondered if you could give any updates or colour on how you see things, particularly M&A versus returns, and if there is a prospect for the company to put its balance sheet towards buybacks over the coming year.

I think that the first comment would be that The money we have in the balance sheet now or currently at hand will, to a large part, go out as dividend in a couple of months. And the decision for dividend or buybacks is a board decision. My view is that it would be nice to complement the dividend with a buyback, but that's a decision that would be taken by the board in the late stage.

Okay. And then the final one is on the US. There was a legal update last week with the Superior Court of New Jersey's Appellate Division on the defamation lawsuit you brought around the report in late 21 that you said originated from a competitor. One of the aspects raised by the judge was whether the DGE or the Pennsylvania Gaming Control Board has finished any kind of review of the report they received more than a year ago. I appreciate it's a legal process, so you probably won't be able to say too much, but could you give any update or color around that at all, please?

We pursue and think that we are entitled to know who was behind the report and would take legal action to do so. That goes a little bit now it went up one instance, and that instance pushed it down, and I see that as positive.

Thank you.

Thank you. Your next question comes from Oscar Rongqvist from ABG. Please go ahead.

Thank you. Good morning, guys. Thank you for taking my questions. First of all, I just want to know about the competitive landscape. how you see it developing during the tougher economic environment. So do you see any signs of others slowing down as a result? And also just particularly on the U.S., how do you see competition developing, like authentic gaming in Michigan, for example, or Playtex expansion?

How it relates to the macroeconomic situation is, of course, that there's less money going around for companies that are in need of money. and that might affect. When it comes to the competition, I would say that it's been a couple of years now, and it's slowed down in my point of view. We have continued that before and even accelerated. So my point of view is that we increased the gap to competition, and they are now even further behind than they were before. But that's, of course, my view.

Understood. And just on the U.S. expansion, I mean... It's obviously, I think, Authentic Gaming just launched in Michigan, and Playtech is the only other live casino operator. Do you see any signs of any others coming in there, like Pragmatic, or should we see all those people that continue to dominate the US live casino space?

I don't think that we should single out any market. We have a huge amount of competitors in Asia. We have competitors in Europe, and And it's healthy to have competition, and we work and we fight every day. And there's no specific situation in the U.S. I'm very happy with the position we have and the expansion.

Okay, thank you. Next one, just on, I think that the U.K. saw a bit of a sequential increase. So are you seeing any signs of easing there, just looking sequentially ahead? from a bit, I mean, pressured levels, I guess. And also, I mean, if you have, like, any expectations sort of ahead of the white paper coming, did you see signs of operators actually, like, moving up their plans now? I mean, the comparables should be easier, I guess, soon enough.

It's very hard to say. It's been going a bit up and down when it comes to the UK regulation. If I would look at the total picture, I would say that I think that we have a bit more stable situation coming our way in 2023 and maybe 2022 in Europe than we have had before, and I hope we'll be right in that.

All right. And I just want to follow up on the capital allocation issue. question there. So you're not ruling out any potential M&A within the R&D space to maybe expand through M&A there?

I think our position has been the same for the past couple of years. We have a dividend policy of 50% payout, which this year is very much in line with, and I think most of the cash that we hold on balance right now will be that dividend. And then the Buyback is an opportunity if there is more cash than that. And we've also done some M&A, but that M&A, that's a bit opportunistic if the opportunity is right, if it fits within the group. So it's nothing that we rule out, but it's also not. Our main growth avenue is organic growth. That's how we put it in the past. Okay, thank you. That was all from me. Thank you very much.

Thanks, Oskar. Thank you. Thank you. Your next question comes from Joe McNamara at Citi. Please go ahead. Hi, morning.

Morning. I want to ask the first question on game releases, if that's right. A couple of them, I'll take them one by one. So you did very well, I think, to hit your H8 game targets here. And kind of despite the acceleration in Q4, RNG growth is still somewhat below your aspirations. So could you kind of help me understand why the throughput of these games was a bit soft and what needs to be done from a kind of slots quality perspective?

Yeah, I mean, the roadmap for RNG looks much better 2023 than it did 2022. To single something out, we will double the amount of releases on that time, which is highly needed, and we see great potential in that. When it comes to quality, that's a hard one. It's a little bit more of a volume business when it comes to RNG, but But we have a couple of things that we want to do and innovate when it also comes to slots, and we look forward to those. Then we are now in the distribution phase of OSS. So we also will increase the distribution of our slots with OSS 2023, which is a little bit later than what we expected. So also that we look forward to.

Excellent. Thank you. And then also kind of on the same topic, Can you disclose how many live games were released as part of the 88 and then kind of, I guess, what the aspiration will be for kind of live game releases in 2023? And I guess similar to that, one of the more popular games or the more popular games in 2022 were kind of your more game show style games such as, you know, Monopoly, Big Baller and Crazy Flipcoin. So, if you agree with this, is there going to be kind of continued increased focus on these kind of game show releases as well? Thank you.

The comment on live releases, we release, it's a multitude of brands and there's also Sugi, so there's like, I would say somewhere between 15 and up to maybe 20 live games for one year. And then they have a, Some games are aiming for one market, and there's a portion of live games, which are sort of regular, and a portion that is game shows. And we don't really break it out, but 15 to 20 games a year, and I think that's a good number, and we look forward to be on that somewhere on that, also 2003.

I think it's worth mentioning also that there's also a lot of innovation and innovation new things that go into the existing games. So, you know, improvements to the interface or sort of new functionality, things like that can also be very, very important. Then in terms of the game releases, you might be right in that, you know, some of these game show games, you know, very spectacular studios and they do get a lot of attention and should get a lot of attention. But there's a lot going on also when it comes to the traditional table games. Excellent. Very clear.

And then the last one is kind of a follow-on, I guess, from Ed's comments. Your kind of full-time employee growth was very consistent throughout 2022 of kind of 37 or so percent. Should we kind of expect this level of growth into the kind of first part of next year? And are there any regions, I guess this is more heavily concentrated, or is it again kind of across the board?

We don't really comment on the growth phase, but they can vary quarter on quarter and even maybe sometimes year on year, as we saw with the pandemic. But overall, we continue to expand and grow studios and ad studios also during 2023 and 2024, which then, of course, increases the staff. All right. Thanks very much for your time. Thank you very much.

Thank you. Your next question comes from Martin Arnell at DNB Markets. Please go ahead.

Hi, guys. Hope you're well. Hello. My first question is, Tom, on the growth drivers in 2023, what drivers are you most excited about if you have to choose one or two things?

I'm very happy with the new games released in 2022. We really see that. That's exciting. They were good. Many of them were mega hits in many ways. I'm also very excited about Latin America now coming on and the number of players we see there and the type of games that they play is also very exciting to see. Asia has always large markets, grows well, also exciting. But now we start to see a little bit pick up in Europe. That's also nice to see again. And then Africa is bubbling there, somewhere around the corner. There are countries in Africa that are really interesting as well.

Interesting. The locations, the studio locations, have you decided them, the one or two new studio locations for this year? And have you started the build? We are in the decision process right now. Okay. And what would you, I mean, are you preferring to keep it in Eastern Europe or could we look forward to LATAM or what do you expect?

Naturally, we need to get closer to all markets. There's no plan. The first question then would be, are there any plans for Sweden and Asia? No, we don't have that. Latin America is, of course. Europe is, of course, something that we need to expand capacity.

You mentioned product. It's obviously your key focus here and also this year. This new game that you're marketing a little bit today without commenting too much, staying alive. Is that a completely new version of a game show, or is it an idea built out from existing games? Also, do you think it could be on par with the success of your biggest game show, or what kind of expectations do you have on the game?

There will be more answers on Tuesday when the game is released.

It's an extremely exciting time now to be able to release that. It's a fabulous game. It will be very exciting. Exactly what will happen with players and how they will be received. Of course, we have high expectations on that and we think that this can be something phenomenal, but you never know. So we will wait with the valuation of it until release.

Okay. Fair enough, guys. And one final for you, Jacob. You mentioned that you expect growth rates coming down a bit, given the big base, and you've talked about that for quite some time. Is that something you experienced so far in January, in the new year?

It wasn't a comment on January, really. It's more in the year-over-year scenario where I think you see that. Even Light Casino were fantastically happy with 40% growth this year, but it was 50% a little bit higher last year, or 2021. So more to highlight that. So not a comment on January. Okay.

Thanks a lot for clarifying. Thanks, guys. Thank you.

Thank you. Your next question comes from Marlon Banik from Nordea. Please go ahead, sir.

Yep, thank you. Good morning, Martin and Jacob. Just a few follow-ups here. Firstly, on Latam, what markets are performing well here? And also, if you open a new studio in the Latam market, what parameters are important?

We won't single out markets in Latin America. Either we stick to sort of this, but But the general comment on markets in Latin America is that they follow, of course, the social economics and the number of people living in the country. So that sort of gives you the idea of where the biggest portion of players could be. That's the same for Europe or other parts of the world. That's the same. Large parts of Latin America is regulated or on its way to regulate. So we follow that and And if we would place a studio for that place in to see exactly how and what markets to serve from what. So we will look into a lot of parameters when we decide where to build a studio in Latin America.

Yep, all right. And also, just quickly here, the Ukrainian development hub, have you been impacted here for the SWAT development? Have we seen any delays in game development here?

We had a large development hub or community there for slots. Of course, it was impacted, but more maybe in the beginning of 2022 than in the later part. And it's a tough situation in Ukraine. We feel a lot for that. And we needed to offset that without development.

Perfect. And just lastly, given the inflationary environment we see here, How should we understand the royalty rate towards operators going forward? Should we expect some pricing power from your end when renegotiating contracts given the conservation we see?

As usual, we want to deliver the best products ever existed to any operators. And we want to be a one-stop shop where we supply all possible content that makes operators successful. And we don't want to use that position as a pricing power. We believe in competition. We believe in running faster. And we believe in a partnership relation with our operators.

Okay. Thank you all for that.

Thank you. Your next question is from Kirin Yodgroval from Bank of America. Please go ahead.

Hey, good morning, guys. Good morning. A couple of questions from me. Firstly, the pipeline in new studios in 2023 is lighter than that for 2022. Should we assume relatively fewer cost headwinds in that case because less of ramp-up cost, I suppose? And then the second question is, you still have this goal to reach double-digit growth in R&D. What's going to drive this step up in growth? And related to that, you've done several acquisitions over the last few years on R&D. have these fully been integrated? Are you leveraging all the sort of USPs from the different acquisitions and combining them now in your new games? Thank you.

Do you want to start on the second one, maybe, and I can take the first one?

We're happy with our acquisitions. We're not happy with the 5.1%. We believe in double-digit growth. But don't lose eyesight from the fact that we have added fundamental value and good margin and cash flow from the R&G business. And it's a great business in addition to Evolution. I think that coming to this WG growth, we will be very satisfied and very happy with the R&G business.

On the first question carrying out, was that related to Python of Studios, or I didn't catch the first part of what you asked there.

It was on the pipeline of new studios. I think there's fewer new studios for 23 than 22, assuming that with each one.

I don't know that that's correct. I think we've had quite a rapid expansion pace during 22, as you see in the CapEx, where studios development has been high through the year. And I think we see that we maintain that also for next year. So it's not... I wouldn't say that the pipeline for new studios is so different. Also remember, now we're soon up to 20 studios or something like that. We're maybe between 15 and 20. And adding a new studio or expanding an existing one is not that big a difference when it comes to the cost implications of that. So I would say that we have a high pace of expansion in 2022, and we expect to continue that into 2023. So no shift there. Okay, perfect.

Thank you.

Thank you. Your next question comes from Simon Davies at Deutsche Bank. Please go ahead.

a couple from me. You added 300 light tables in 2022 and I think 300 in 2021 as well. Is 300 the magic number that we should think of in terms of capacity expansion?

Not the magic number, but it's roughly where we've been the last couple of years. But it's not the magic number in itself, no.

It could be a bit more. It could be more likely, not less.

The gap with the competition expanding to ever greater levels.

Signs of your competitors... You broke up, sorry. Can you repeat the question?

The gap with your competition as great as it had ever been. The evidence of your on price.

You break up a bit, but if I little bit guess, you're asking if the gap to competition is the largest ever and if it affects the pricing position for us. And I will answer that. In my belief, I think the gap to competition has never been wider. We're adding much more games. We're adding phenomenal games. And if you come to us, you will see something spectacular and And the competition is more now than a couple of years back, actually only copying what we did, and to some extent, maybe not even trying to do something of their own. So the gap is widening. The pricing is... I think that we charge far too little for our product. I always say that, and we should charge much more. But I neither see that there should be price pressure. We deliver fundamental value. We add new games. We add new players. We add new player groups to operators. So I think that it's fine. Neither I think that we should use our power to increase the price just because we can. We're in a partnership with our operators and should continue being that.

Last one was just on obviously it's been the key focus for M&A over the last few years. their growth rates have been disappointing. Is it fair to assume that the focus will be on consolidating what you've got now as opposed to any further M&A in the RNG space until you can kickstart that business?

I think that the acquisitions over the last year have been truly right. I think that we've bought the right companies. I think that we've actually put the cost and we increased the margin and we delivered on that and that contributed a lot of value. I think that we are a little bit late with the distribution of ourselves. We didn't get the games out that we wanted to have out in 2022 and we're a little bit late. But besides that, we are in very good shape and we look forward to 2023 when it comes to RNG as well. For us, the mergers or the acquisitions or the M&A for us, it's a way to enable us to reach the position as a worldwide leader. And if a new company would occur, look at what we bought DigiWheel. It's a fantastic acquisition adding value to us. And maybe there are more things like that, small or big, and then we'll consider it.

Thank you. There are no further questions at this time. I would like to hand back to our presenters for closing remarks. Thank you.

Thank you very much for listening. It's been a pleasure to be here today, and it's a fantastic new year started, and thank you, and see you in a couple of months.

Thank you. That concludes our conference for today. Thank you for participating. You may now disconnect your lines.