Evolution AB (publ)

Good morning and welcome to the Evolution Q1 2023 earnings call. All participants will be in the listen only mode. Should you need assistance, please signal a conference specialist by pressing star, then 0 on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you must press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Martin Karlsson, CEO. Please go ahead.

Good morning. Welcome everyone to this wonderful day and presentation of Evolution's report for the first quarter of 2023. My name is Martin Karlsson. I'm the CEO of Evolution. With me, I have our CFO, J.K. Kaplan. I will as usual start with some comments on our performance in the quarter. Whereafter, I 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 we are after that happy to take all of your questions. Okay, let's begin. Operator, next slide please. 2023 started in a high tempo and we continue to see strong worldwide demand for our products. There is a slowing of the general economy in large parts of the world. But we continue to attract new players and grow in all our markets. As we have said in earlier quarters, it's reasonable to assume that the general slowdown of the economy also affects us on some level. But we cannot say that we see any clear signs of a slowdown in our business. Of course, we are supported by the fact that we have come into the new year with a fantastic pipeline of new gains and a strong momentum from 2022. I want to mention some of the operation highlights in the quarter. The opportunities in North America continue to be very promising and we continue to expand our offering in both R&G as well as live casinos. We have now rolled out Red Tiger time jackpots in Ontario, Quebec, as well as in Connecticut and Michigan. And just a week ago, also in New Jersey, with the remaining states in the US to follow. Red Tiger remains the only game supplier to offer time jackpots in the US. This unique state of the art progressive jackpot mechanic for online slots that allows operators to set progressive jackpots that are guaranteed to hit before a certain time. It's a feature that has been widely popular in other regions and we are excited to bring it to the North American players. Furthermore, in Q1, we launched Megaball with the British Columbia Lottery Corporation with the other Canadian lotteries to follow. Megaball was our first bouncing ball game a few years ago and we have now added more games in the category. Megaball appeals to players all over the world and is an example of how we extend the product portfolio to include something for everyone. The focus to bring all of our fantastic products to each state, regulated or regulating in US, continues. And we are constantly investing, building and working with all regulators to achieve this. Also in Europe, we are off to a fast start of the year. I'm very happy that we have agreed to launch our games with Sky Bettingham Gaming in the UK. I've known the people at Sky for many years, so we are happy to finally bring our games to their players. I mentioned the development in Latam several times in the past

years.

And it continues to be a rapidly developing region that is in focus for us. We have had a local organization there for some time and we are also exploring opportunities for expanding our presence with local studios. In the first quarter, the transition to the new Smart Lobby was completed for all our customers. Our new lobby is being incredibly well received and the data from it has been strong. Players can favorite games, search without a field, sort by tables, filter by native languages, speed tables or limits. All in all, we make it easy for the players to quickly get what they want and also discover new games. Now, let's move to the coming slides and see the effect on numbers and products for all of our airports. Operator, next slide please. We continue the good momentum from 2022 and have seen a strong start to 2023. The combination of global demand for our products and constant pursuit of cost efficiency, hard work and high ambitions of all employees all sums up to the fantastic numbers. Operationaly, it has been a very hectic quarter and I'm pleased to see the financially strong result we present today. Revenues increased by .5% to 430 million euro. EBITDA increased by close to 31% to over 300 million euro, corresponding to a margin of 69.9%. Which is within the guidance of 628 to 71 for the full year. I'm happy with the margin in this quarter as it is a result of the high demand of our products in combination with the constant that we constantly work hard on cost efficiency. We show that we are able to increase efficiency and strengthen the margin from Q4 2022 even in the very difficult circumstances as we see in the world today. Live Casino delivered a good growth of 36% compared to Q1 last year. R&D revenue amounted to 69.5 million euro with a growth of .6% in reported numbers. The growth in report compared to the combined revenue evolution and no limit for Q1 2022 performance growth amounted to 0.6%. As earlier communicated, we have a target of double digit organic growth of R&D. As we stated already in the end of last year, the path to our goal within R&G will not be a linear but we look forward to 2023 where we will double the releases of our net net net brand, add new bonusing tools for sloth and increase the distribution of sloth through OSS. Increased growth within R&G will remain a high priority throughout the year. All in all, I'm very pleased to be able to present yet another very strong report for evolution. We are definitely well placed for further strengthening our market share and continue to widen the gap to all our competitors. But as always, we need to work hard and become better every single day. I constantly also want to remind you that all numbers you see in the is the creation of the thousands and thousands of fantastic evolution employees working hard and a little bit better every day. Next slide please. As we grow our business, we also expand the headcount. In this quarter, the increase is about 300 net, a bit smaller addition than what we saw per quarter 2022. The increase of headcount can be a little bit lumpy. We added a lot of stock in Q4, so we are benefiting some from that also in Q1. The increase in stock year on year amounted to close to 3000, corresponding to an increase of 21%. We will continue to increase numbers of employees during 2023 as we expand in our service and we will continue to consider diversity, strategic advantage and key assets. It is a condition for evolution's operational excellence. I'm proud of all employees and the work ethos they show in their daily work. They make up a fantastic company. Next slide please. The game rounds index shows the development of the whole evolution network and includes all games. A game round, as I pointed out earlier, is what it sounds like, one round of a game. Even so, I want to reiterate that one round of a vat, one hand of a backer and one spin of a slot all counts as one game round. Also important to note is that there are differences between games since one hand of Blackjack takes longer time than one spin of a slot, as well as that each game round of Blackjack typically carries a higher bet compared to the slot spin. And as a result, all game rounds are not equal in value. In the chart, the index value for game rounds from Live and RMG are weighted according to revenue contribution. This gives us a joint index that includes all games based on equal revenue contribution. With this as a backdrop, we need to notice that the true activity and entertainment of a player comes from a game round. And the health increase of close to 70% we see in Q1 2023 is very good. Operator, next slide please. As a group, we are committed to creating the best gaming experience for every player in Online Casino. For 2023, we are planning to release over 100 new games across all categories. Our roadmap this year is nothing but fantastic. Another year of the product. We need to constantly increase entertainment factor and push boundaries to be relevant for the players in 10 years from now. Online Casino industry needs to understand that doing and delivering the same as today in 10 years will not be satisfactory for the much more fluent younger online generation. Evolution knows this. Evolution acts on this. Evolution gets energy from this. And as evolution constantly moves forward towards the future, we do not stand still and wait for it to happen. During the first quarter, we released 18 RMG games which is similar to last year and we will see a ramp up of releases in the second half of 2023. During Q1, we presented two of our big live games this year, even though both will be available to players first in the second quarter. Extra Chilli Epic Spins is a unique online game that brings together live and slots in a game show style game created around the hugely popular slot Extra Chilli from Big Time Gaming. It's a fresh way to enjoy slots, adding a community feeling, social aspect, and we are excited to see how it is received by players. I think it is a theme that we will explore further in the future. In 2017, we launched the first ever game show in Online Casino, Dreamcatcher. It was a first attempt at a live game that would appeal to players who were not in traditional table games. We wanted to increase entertainment, we wanted to expand live to other players within Online Casino, and we wanted to expand live to new players outside Classic Online Casino. After that, we released Deal or No Deal, Monopoly Live, Mega Ball, Monopoly Big Baller, and of course Crazy Time. And a few more games that have reshaped the gaming industry and made it more fun. That is something to be very proud of. We have learned a lot developing game shows and we have had a few failures too. That is all in part of the process. We have now taken all of that knowledge and put it to work on our latest creation, Funky Time. It is the most complex game that I think anyone has ever seen in the gaming industry and it is going live in May. The game is built around our own patent technology, the DigiWheel. There have been hundreds of persons who have worked on bringing this game to life, and additional dozens of people who contributed to the concept in various ways from bonus works, the master sign, the studio, the DigiWheel, and all the magic it does. We are very excited about Funky Time and I think it will be a wonderful complement to Crazy Time and the rest of our family of game shows. Our group's product roadmap for this year is the strongest one ever. With great variety and innovation amongst existing releases from all our brands. Needless to say again, I am very excited about the new games that we have in line up for 2023, the second year of the product. This slide shows the breakdown of revenue by geographic region. From this quarter we have made a change to better reflect how we work with the different regions. As mentioned earlier, Latam is a region that has seen a strong development during the recent year and we now break it out as a separate region in the table. We also group UK and Nordics into Europe as that better reflects our current structure for addressing the region. We have a true global demand for our product which is also reflected in the spread of revenues of the geographic regions. Now, let's look at the development in the region. Europe reported strong growth of 14% in the first quarter compared to last year. As a whole it represents some 40% of total revenue. Europe overall is a more mature market in comparison to some of the other regions but there is still much development and we see that it has large potential for evolution in the future to come. It's great to see the quarterly growth rate improving during the past quarters but I don't expect we return to the growth rate in the region from three or four years ago. Asia has been our fastest growing region in the past years and we are likely to surpass Europe as the largest region during this year. It reports strong growth of 49% compared to last year. That said, I expect growth rate in Asia to come down as our size simply gets bigger even though the potential in the market is very large. North America growths 56% in the quarter and as I mentioned at the top of the call there is much going on here. We have little impact on the political process for further regulation of USA but we foresee that new states will regulate in the coming years which again will expand the market further. And Latam currently makes up 7% of the total revenue in the quarter and we believe it is a region with great potential and positive momentum. Remains the other region which is mainly because it's West Africa, it stands for merely 3% of the group revenue and it's a future growth opportunity for us. Share of revenues from regulated markets amounts to 40% in Q1. With that

I'll hand over to Jacob. Next slide please. Thank you Martin and good morning to all of you listening. Now for a couple of slides with a closer look at the financial development. I'm on slide number 8, title the financial development. Revenue amounts to 429.6 million euro in the quarter. That's made up of 360.1 million euro from our live casino business and 69.5 million euro from our RNG games. Live casino has a very strong start this year as Martin mentioned continuing a nice momentum from 2022. Year on year growth is 36%. Growth in live casino has a quite broad base on most metrics. Looking at products both recently released games from 2022 contribute but also the big traditional table games like Baccarat, Roulette and Blackjack show very nice growth. Similarly as we saw in the previous slide, year on year growth is widespread across most regions. Naturally with varying pace of growth but the shift into online casino and live as a central part of the user experience online is widespread. We think we have a long runway for growth and see good opportunities in many areas. However as we have pointed out also during last year we do expect growth rate to continue to slow down as our base continues to increase. That is to be expected. RNG revenue amounts to 69.5 million euro in the quarter. It's a step back from Q4 and only very slightly up compared to previous figures for the first quarter of 2022. Our message has been the same since Q1 of last year that we remain committed to reaching double digit growth in RNG. We have not set a time on that goal and we have also pointed out that the development would not be linear. And sometimes it hurts to be right. So while not surprised by the result in Q1 I admit it is disappointing compared to my expectation from one year ago. As Martin pointed out lots of work is going on but it will take some time before we see the financial results. So I'm confident we will reach our ambitions but I don't see a quick turnaround in Q2 or Q3. EBITDA for the quarter amounts to 300 million euro giving us an EBITDA margin of .9% in the quarter. Well within our guidance of 68 to 71 set at the beginning of this year. The margin level in Q1 is a step up from Q4. Growing revenues is of course a large part of that increase but also our whole team has shown a great awareness to costs during the past two quarters. Our cost base naturally increases as we grow but we are now spending deliberately and where it makes a difference. So going forward we maintain the 68 to 71% range as guidance. And I'll take the opportunity to remind you that margins can still vary both up and down quarter to quarter. The increase of inflation levels seem to have leveled off in several markets at the start of this year. But we're still talking about 10% or even higher increases in price levels in many markets. So cost increase will continue to affect also us. But overall we are very happy with the improved margin in the quarter. Please take us to the next slide operator. This slide shows our P&L in some more detail. From the top again we have live revenue 360 million euro and RNG at .5% and growth rates of 36 and almost 12% respectively compared to the reported figures in Q1 of 2022. But that includes acquired growth when it is related to RNG. So growth versus comparable business is .6% as discussed. Total revenue 429.6 million euro, that's an increase of over 100 million euro compared to Q1 of last year. Moving down to expenses, personnel expenses amount to 82.9 million euro. That's an increase of 31% compared to the same period last year. We have increased headcount by about 20% since last year. So compared to the first quarter last year there is an increase in cost per headcount. And this is due to slightly less over staffing but also wage increases and the mix of staff between regions play role. Depreciations amount to 28.7 million euro, that is up a little over 6 million euro compared to the same period last year but more or less in line with the previous quarter. Depreciations include 11 million euro in amortization of intangibles related to the acquisitions of NetEnt, BigTime Gaming and No Limit City. Moving on, other operating expenses that includes items such as consumable equipment, communication costs, consultants and royalties. The line amounts to 46.5 million euro in the quarter, that's up almost 13 million euro or 38% compared to the same period 2022. But also here flat compared to the previous quarter Q4. Summing up, total operating expenses total just over 158 million euro for the first three months of this year. An increase of 32% compared to the reported figures of the same period last year. Operating profit sums up to 271.5 million euro in the quarter. Financial items, that includes costs related to the right of use assets according to IFRS 16. And also on this line we have currency related effects from revaluation of balances on bank accounts in non-euro currency as well as some intra-group loans. Tax is at 18.9 million euro and the tax rate is 7% in the quarter. This item brings us to a profit for the three month period of 251 million euro, equalling an earnings per share of 1 euro and 14 cents per share for the quarter of the dilution. And that's an increase of 26% compared to Q1 2022. Operator, let's go to the next slide please. Before I hand back to Martin again, a look at the cash flow and financial position. Starting to the left in the slide, there's development of capital expenditures. The grey bars represent investment in tangible assets, which is mainly our studio construction projects. In this quarter, capex in tangible assets is almost 11.5 million euro. We continue to invest heavily in current studios, although in this quarter the amount is a notch lower than previous quarters. This is more due to timing of projects and how they progress rather than any slowdown in the actual pace of work. The blue part of the bar is investment in intangible assets and is related to development of new games and features to the platform. Relatively stable the past four or five quarters and amounts to 10.7 million euro in the three month period. In total, capex is 22 million euro, so slightly lower than what our guidance of 120 million euro for the full year would imply. We are however expecting investments to increase during the second half of the year, so I will keep the estimate of 120 million for the full year for now. In the middle of the slide, we show operating cash flow. In the quarter, it amounts to just over 221 million euro. Operating cash flow in relation to EBDA on the rolling 12 month basis is maintained on a very good level at around 75%. And to the far right in the slide, quick look at the balance sheet. We have a very strong financial position, note that, and almost 760 million euro in cash at the end of the period. Since then, however, since the end of the period, 426 million euro has been paid as dividends, so the balance is lower today. That was the end of my prepared comments. I'll hand back to Martin and then we'll take questions after that. Martin?

Okay, we're on the last slide, number 12. Thank you Jacob. A few words to conclude this report presentation. 2023 has started with high intensity and full speed forward. We have entered the year with a good momentum and equipped with a fantastic product portfolio and all talents I look forward with enthusiasm for the rest of 2023. We will release a record number of new innovative, exciting and fantastic products, exciting games to inspire our current as well as future players. Take yet another step towards expanding online casino to new players and increase entertainment and excitement even further. It's as always, hectic times of evolution. But remember, demand of our products is a global phenomenon. And we will continue to invest in products due to capacity and of course in our people in order to fulfill the worldwide demand. In any trade off between market share and margin, we will always opt for market share and revenue. I can promise you that we will relentlessly continue to push boundaries as paranoid as ever also 2023. Thank you all for listening and we'll speak in a couple of months again. Now let's move to questions. Next and final picture. Thank you.

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 speaker phone, 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. At this time we will pause momentarily to assemble our roster. Your first question comes from Martin Arnold from DNB Markets. Please go ahead.

Good morning guys. Good morning. Good morning. So it looks like a good quarter in live and I was just wondering on the Asia numbers and Vakarat in specific, what is the driver of the very strong performance in Vakarat that we've seen in this and also in the last quarter. Is it the focus that you had in 2021 on the Vakarat games and that is still paying off or can you give any flavor on that?

Vakarat is the main game in Asia as a region as well as Roulette is the main table game in Europe and Blackjack is the main table game in North America. So as Asia continues to deliver it will grow and we have the best Vakarat product in the world. And of course any changes we did in 2021 has paid off but we continuously develop the Vakarat game.

Can you share any light on why Asia seems to have picked up in the last six months?

I think that that's a quarter on quarter analyze and it will always fluctuate. I think that we have good momentum actually in all markets and it can come out a little bit, I don't know if I could use the word lumpy over the quarter but it goes a little bit like that. So I think that the momentum is strong and has been strong.

And if you look into North America, what do you see as the main driver of growth in the coming 12 months in that region?

Of course it comes to the question if other states would regulate and if we set that aside, we don't know and if that happens that will of course drive growth. But we need to continuously invest in products and release all of our beautiful products to the North American population. And we are on to that and working constantly on that. So that's the main driver of course. We need to see that we fulfill all the demands that are in the market in the right way in respect that will also drive the growth. And then as we have seen in Europe, share of life will of course slowly increase also in that market.

Okay, so you expect to be able to grow at this pace or high double digit even without more states in the coming 12 months?

We don't guide on growth on separate markets.

And just final two questions. Firstly, you comment that you expect growth to slow because the base gets bigger. Do you see that quarter to date in April? And secondly, what would you like to do with the big cash position aside from payout to shareholders?

On the first question there, it's something that we've pointed out for some time. And I think we also see that growth rates, even though fantastically strong, are in percentage terms gradually lower through last year. And I expect that also this year. So that's that statement. The cash position, as I said, it's a bit lower now than what it was at the end of the period due to the dividend. We hope to have continued good cash flows. The main part of shifting capital back is dividend. I mean 50% of net earnings are, that's the dividend policy. So you could say significant part of the current cash will be dividend next year. And then of course the other options are there's the opportunity of buybacks, which is something that the board has to mandate for and have used in the past as well. We do not have a continuous program in the market right now, but that's an option. And then we have also made some M&A in the past years. That's a bit optimistic. That might happen, but it's not that we, our main growth strategy is not through acquisition. It's definitely organic. So there's no change there in what we've said the last few years.

Thanks guys. I'll go back to the quake. Thanks.

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

Thank you. Good morning, Morning and good morning, Jacob. Good morning. Thanks for taking my questions. So first I just want to get a sense of the underlying RNG growth here, the Performa RNG growth. And the game releases, as you say, that you remain committed to the 10% growth. So just in terms of timing, can you share any thoughts on when we should expect that to pick up? Because I think it's quite driven by the game launches. Is that correct?

Yes, I understand the question. And we are in an increasing release pace right now. So we look forward to having a better release plan in the second half of 2023. And that is of course not a light switch move, so it will gradually over the year. But as I stated on the call, it's like the first quarter 2023 is about the same level of releases as earlier.

Okay, perfect. Then just on the live casino growth pace as the former analyst asked as well. So just in terms of the pace run rate, are you seeing any slowdown in live casino market growth? Or I mean, is your stellar growth driven by you still grabbing market shares in, for example, Asia? Or is it purely driven by the live casino market still growing?

I would say that in Asia for sure it's driven by market shares. I mean, that's been the growth path for a long time. In Europe, we have a large market share and we continuously grow and we see a good quarter now. But there it's probably market is catching up a little bit. Some markets are a little bit moving forward and so on. So it's a little bit wearing depending on what market. I mean, in the US we are on live more or less alone. So that's also a different situation.

All right. But in Latin America and in Asia, can we expect an increased share of live in terms of or in relation to online casino in total or is that more mature as well?

It's very hard to say in those countries where the numbers are not really displayed or public. So even I would fight to know that. I mean, we share our numbers, but in Latin America no one else does.

Okay, I see. Thank you. Just the final question I have on costs. So we saw just a minor sequential increase in cost this quarter. Can we expect any more salary pressures from these levels? Because it doesn't really seem to be the case that salaries have increased that much or salary expenses in relation to number of employees in the quarter. Just really comparing to Q4 and Q3 last year. So how do you see salary pressure and also what other cost items are you seeing the inflation pressure because of the, I mean, the growth thing or sorry the cost increase sequentially wasn't really that big.

No, that's true. I think we see the cost increase as we talked about last year really across many categories. So sort of across the board and including increase in wages. So we've seen some of that all through as we hire people of course during the year last year. And of course the salary review itself is typically sort of happening now this month. So the full effect of that is not in the Q1 numbers. So that's part of the increase that we'll see in the years to come. But you can say when it comes to personnel costs on the total level that it's not just adjusted once a year. We hire people continuously so some of that effect will come gradually. I think as we mentioned, we talked about it also last year. We were coming into 2022 or sort of rather coming out of 2020 and 21. We had due to the pandemic and the sort of special circumstances around that we had to release a bit of pressure on the cost side and spend on some extraordinary items. And at the same time the business grew rapidly so we also needed to expand in many areas. And then through 2022 or I should say maybe second half of 2022 we felt that we gradually sort of came back to the type of cost awareness that we've had within the company pre-pandemic. So I think that's a little bit part of it. Then with cost it's also, there's so many factors and some things are a little lumpy here and there. So we will of course continue to increase our cost base through this year. So we're not expecting that cost in any way. So I think ultimately it's reflected in the margin guidance for the year of 68 to 71. That's how we see it. But it's a good quarter margin-wise and part of that is that the team has really shown great awareness to the cost side and sort of spent money but carefully. So that's good.

Alright, so just one follow-up there. So do you expect or should I interpret it as we could expect a little bit more increase or growth, sequential growth to pick up in costs from Q2 maybe. And if you want to like any comment on the margin guidance because I mean it's early in the year of course but last year you pointed towards the lower end of the margin in quite early stages or at least from Q2. So could you comment anything on the range if you expect it to be sort of in the top because of the strong start to

the year

or is it too hard to say?

We don't guide on the guidance. So we are like on 68 to 71. I am happy with 69.9 in the quarter. That's a good figure but the figure is not important. The importance is that we have good traction and we work with the cost. And I see traction on that. But we will expand. We need to continue to push forward. We are going to build students in Latin America and in Europe and potentially even in US. So it's like constantly in a trade-off between margin and revenue and market share we will go for margin and revenue share. But we are in a good place when it comes to the margin. 69.9

Perfect. Thank you very much. That was all for me.

Thank you. Your next question comes from Ed Young from Morgan Stanley. Please go ahead.

Good morning. My first question is on North America. As you say the quarter to quarter progression is always a bit lumpy. It's good year on year growth but less so quarter on quarter. You made the comment there Martin around live penetration will grow slowly over time. Why should live penetration grow slowly? What are the constraints on being able to grow the live market? Could you potentially give us where you estimate live penetration is in the US right now? The second is on studios. You mentioned there expectation for studio growth. I appreciate you also growing capacity in your existing studios. I understand that. But do you have a view of how many studios you might be adding during this year? Third of all, just to come back on the personnel costs. You mentioned a few different factors there. I wanted to elaborate a bit because the per employee cost was down sequentially in Q1. I just wondered if you could talk about what exactly has driven that. It's a little bit surprising to see. Quite impressive to see. How could we see that develop through the remaining quarters on a per employee basis? What are the drivers of that?

It's a little bit of a memory quiz to remember. I'll do my best. I'll go first. Why does share of live in the market grow a little bit slower or why doesn't it just happen at once? One answer to that is that any table game has a bit of an intimidation factor. You go into a land based casino, it's a bit, you're going to sit down and you affect other players. And not all do that. So many end up with a slot machine. The slot sort of comes first. You're alone, it's not the same intimidation. Then live and online comes and it takes a while before the person that then starts playing slots comes over to live and experience that. But once they come over to live, it's a much richer, happier, more entertaining product. So over time more and more persons comes out. That's why it takes a while for the live product to grow. That grow has a lot of parameters. It's trustworthiness, you need to be comfortable, you need to see it. So it's a little bit of marketing, a little bit of understanding, a little bit of everything. And that takes a while. Just exactly as we've seen it did in Europe or in other places as well. So that's a little bit of growth. Where are we right now? We're in the lower range. Let's give it 12-15%, something like that. And we stated that. And that's just a little bit of rule of thumb in different states and so on. But it has potential. That was the first answer. The second question was... Number of new studios. Number of new studios where we're growing. We will add studios in Latin America. A couple of them. We will add studios in Europe. A couple of them. We just went live in the new studio in New Jersey. A fabulous, great looking studio in New Jersey. The third one actually. And we're expanding there. And we might add even more in North America even though another state might take a little while. So I would say that we will add studios on all markets essentially as fast as we can. Now I'll leave the personnel cost to the employees.

That was the third question. I think you're right. The gross numbers, personnel cost over the employees at the headcount at the end of the quarter. Year on year it's up a little bit. The reason for that is partly the wage increase but also the mix between regions. Compared to Q4 it's actually a little lower in Q1 which I agree is a little bit surprising maybe. But it's also there these factors play in a little bit. How we grow in certain regions. The addition of headcount in this quarter was, as Martin pointed out, a little lower than what we've seen during last year. Partly because we added a lot of staff at the end of Q4. So that number also moves a little bit. But going forward we haven't given any guidance on the per employee, per headcount cost. But personnel cost in general will of course continue to increase.

Okay, thank you very much.

Thank you.

Your next question comes from Kieran Juck-Gruble from Bank of America. Please go ahead.

Hey, morning guys. Just a few questions from me. On RNG, could you sort of elaborate where the products available at the moment? I would have thought there would be good exposure there to the faster growing markets such as North America, Latam, Asia that would be supporting growth. So just trying to understand what's holding that growth back. Thank you for the new disclosure on the regions as well. Just looking at the other category, I know it's very small now, but that looks like it's weakened. Just as it is a new segment, what's in that and what's driving this softness? Is that something that should sort of remain going forward? And just to go back to Asia, the segment's up nearly 50% year on year. What are the key regions driving this growth? Is it also just market share or is it just new customers coming in? Are you able to see operators expanding in those regions and start supporting that growth? Just want to see how sticky that could be going forward. Thank you.

Okay, RNG first. Why isn't it growing faster in North America? Why aren't we releasing, I mean we have games, why aren't we releasing in a faster pace? There, it's a lot of regulatory requirements and you need to certify and see that each and every game is regulated and certified in each market. That takes time and it's not our time, it takes the regulator's time and the external certification institutes and that piles up. So we're pushing quite hard to get out more. But that is, let's say, a limiting factor in some aspects. We are also in the middle of the rollout of all our games into OSS, so it's also a little bit of a limitation. But main, as I stated before, is that we are still releasing in the bulk about the same games as we did last year. We will see gradual ramp up a little bit faster towards the end of the year. So that's the comment on the RNG. When it comes to the other, now we have, when we broke out the geographic regions, which I'm very happy with and I'm happy that you're happy with it. The other is mainly Africa. There are a couple of other Middle East and maybe New Zealand as well, type of countries that doesn't fall into any particular region. So mainly Africa and other. Softness in that, it's a smaller part of the business. There are challenges in regions like Africa, both internet connectivity and so on. And we need to work at that. And in the beginning, everything is usually a little bit, quarter over quarter it can be a little bit up and down. What's driving the market share in Asia? Our growth comes from that we take market shares from others. I don't see that live is growing in that sense. I think that we take market shares and we will continue to do that. We don't split out the different markets, but we have good traction in Asia and taking market shares simply because we have a better product. Now, I think that was it. Please comment. Was that everything, Jenny?

Yeah, that was everything. Thank you.

Thanks.

Thank you. The next question comes from Monique Pollard from Citi. Please go ahead.

Hi, morning guys. A quick question to Ramiya if I can. The first was just, do you have any sense of how fast the slots market, the RNG market is growing globally or if you have a sense of how fast your big competitors or what uses your big competitors are growing in that market? I'm just trying to get a sense of the current environment for RNG versus your medium term plan of double digit growth. The second is just on the cash utilization. Obviously, you touched on that before. You said M&A was possible but not the big focus. You're talking about your 50% payout ratio and buybacks. Would you consider further M&A on the RNG side? And then just on Asia, I just wondered if you were able to give any color as to whether you've signed any meaningful clients recently or if it's more on the consumer spend side in markets that is driving that strong growth in that region?

I think most of these are on my plate. I would say to judge the global or per-region underlying growth of RNG is very hard. There are a few institutes trying to do that and usually the only conclusion I can draw from it is that they are wrong. They try to do their best but it's very hard to do estimates. The underlying online casino in Europe is growing. What percentage, very hard to say. Probably between 5 and 20 but depending a little bit on markets. US of course continues to grow. You can follow those figures there. Asia, more stable. It's a large game market, more stable. Africa

and

other, very hard to say. I couldn't give you any sense for that. When it comes to M&A, we always consider, we look for, we are very particular. We want to have something that adds value strategically. We do not go for buying growth or market shares of course and we want to add it. Right now of course we're looking, we have the right product mix in RNG. We need to work with that so of course we're looking but no, I wouldn't see that. Asia, there isn't any major big operators added or it's more business as usual and market growth. Market share growth.

Okay, so more market share growth than it would be necessarily spend per head meaningfully changing.

Yes, yes.

But you can also look at it, I will make one comment. You saw that we're adding Sky and if you go back 10, 12 years that would be major, would impact our figures today. It doesn't impact cost of the size. Adding, we are dominant enough in our, we're on all markets and no, it's market share growth.

Understood, thank you.

Thank you. Once again if you have a question please press star then one. Your next question comes from James Wilden Clark from Barclays. Please go ahead.

Hi, morning everyone. Morning. Good morning. First question is on the European growth rate which you mentioned has improved there. Are there any markets that you would call out as helping to drive that? I appreciate you said it's not really a market share gains market so it's more about the market overall itself. So any particular countries that you would call out?

I wouldn't call out any specific. It's a little bit, it's spring in the air right now for Europe and we did a good quarter.

Okay, thank you. And then in the US again you mentioned one of the drivers is iGaming legislation. Any states that you're looking at with particular interest at the moment that you expect to legislate first? I realise who knows, it's all down to politics but where are you most optimistic?

It's the usual suspect and we are quite defensive right now but it's Indiana, Illinois, New York and then there suddenly can be someone completely different and that goes faster. But I have no real fundament for any direction on that.

Okay, thank you. And my final one is just on M&A just following up on what Monique just asked. You said you're quite happy with your product mix in R&G and also your technological capabilities. So can you just elaborate on where you see the M&A opportunities? If you're very happy with R&G, is there space for M&A there? You also mentioned you don't want to buy market share so what is the sort of M&A opportunity you're looking at and can we assume it's not into another product vertical such as online sports betting?

I think that we don't talk too much about it because it's not of the size but when we acquired DigiWheel we did that to get that phenomenal piece of hardware combined software that we could use and the fruit of that is Funky Time which is the most advanced and the most thrilling game that we have ever made. Whatever the players think of it, that's later to be seen but we needed that and we bought it and then we used that to penetrate also land based with the DigiWheel which is revenues to come from 10, 15, 20 years ahead. Don't calculate net present value of that but that type of acquisition we wouldn't hesitate if we could find that type. That would be phenomenal.

Ok, thank you. And sports betting points, you wouldn't be looking at moving into another product vertical we can assume.

We're very comfortable where we are with the business of business in online casino. We want to be the largest supplier of online casino in the world for 10, 15, 20 years to come. We're happy with that place.

Great, ok thank you.

Thank you, your next question comes from Marlon Varnick from Nordia Markets. Please go ahead.

Thank you, good morning Martin and Jacob. Just a follow up question here on studios. How is the ramp up of existing studios going? I remember you mentioned that Geravan was going slowly before and what's causing the potential problems in the studio ramp ups here?

It's always going too slow. It's the state of things, going too slow. We need more speed. But I think we're doing better and better in for example Geravan and it's growing nicely. We need to add more studios, more capacity and there's no in particular thing that makes it go slow but we always want more.

You also mentioned that you expect a couple of new studios in Lattam. Can we expect anything already during the second half of 2023? Any time frame you can give here would be appreciated.

I understand that you want it and the problem is I can't give it to you right now. As soon as I have a good and valid time frame I will share it.

Ok, fair enough. Thank you Martin. Thank you.

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

Good morning guys. Just two quick ones from me. Firstly, in terms of disclosure, you absorbed Nordic and the UK within Europe. Can you give us a break out in terms of how those two markets performed in the period? Secondly, the 3 million-ish FX hit. Which were the big currency moves that impacted that?

On the first part of the question, we don't break down any of the regions really so we won't single out Nordics and UK going forward. They are part of Europe. There is no sudden change. The trends that you've seen in those regions in the past year or so are relatively stable still. That's valid. They will be included in Europe. The currency question is that we have included that in the report. We actually haven't had that before. We don't put a lot of focus on the currency effects ourselves. But you will have that number going forward. If the quarter would have been consolidated with the same FX rates as the first quarter of 2022, then yes, it would have been 3 million higher EBITDA in this quarter. It's just one of many external factors that affect us. We don't put too much weight on it. As for the currencies that we are most exposed to, US dollars and George and Larry are the ones that we have with us. But mainly we are in Europe both in terms of revenue and expenses. That's also why the currency has not been a big topic for us in the past. But you will have that going forward.

Great, thanks.

Thanks, Simon.

Thank you. This concludes our question and answer session. I would now like to turn the conference back over to Mr. Kullasan for any closing remarks.

Thank you very much for participating. It's a pleasure to have you and I look forward to speak to you in a couple of months again. Thank you. Bye.

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