Evolution AB (publ)

Good morning. Welcome, everyone, to the presentation of Evolution's report for the third quarter of 2023. My name is Martin Carlesund. I'm the CEO of Evolution. With me, as usual, I have our CFO, Jacob Kappa. I will start with some comments on our performance in the quarter, as usual, as well, and thereafter, 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 then we are happy to take all of your questions. Okay, so let's begin and move to the next slide. Non-blind growth drives of our business remain solid. There is a global audience with excitement and entertainment that online casino brings, and we continue to see strong global demand for our games. During the third quarter, we have released more games than in any earlier quarter, and we are on track to exceed our target of 100 new games in 2023. There is more to come in the fourth quarter, with games like Crazy Pachinko and Red Door Roulette, shown here in the slide, and I'll come back to that for the upcoming games later in the presentation. During Q2, and now also Q3, we see higher demand for our live casino than we currently can deliver. which is very positive as our games have phenomenal traction and demand. Even so, we need to expand our studio space as well as increase the speed of recruitment. We are addressing this with full force and at the moment, in parallel, building new studios in Europe, Latin, and also planning to add new studios in North America as well as expanding existing studios. We have faced some delays in build-out, but even more importantly, we need to increase the recruitment pace as the new students and more tables get ready to be added to the Evolution Network. We are in an investment phase, and we will continue to invest as fast as we can during the end of 2023 as well as during 2024. Notable projects this quarter include a new small studio in Colombia, which went live just after the end of the third quarter. A larger studio is also initiated in Colombia as the next step during 2024. We also aim to open one new studio in Europe later this year, and three, four new studios are planned both in Europe, North America, and Latin America for 2024. Now, let's move to the coming slides and see the effect of numbers and products on all our airports. Let's look at financials. Revenue in the quarter increased by 19.6% to 452.6 million euro. For the year-to-date period, growth amounted to 26.1%. EBITDA in the quarter increased by 22.1% to 318.6 million euro, corresponding to a margin of 70.4%. For January to September, we reached a margin of 70.3%, which is in the upper part of our 68% to 71% guidance for the full year 2.3. I'm pleased with the margin level, considering the cost levels in the world have increased significantly during the year. Our focus on continuously increasing efficiency in our operations, as well as good cost control throughout the organization, has helped us achieve this. For live casino, we grew revenue with 24.3% compared to Q3 last year, summarizing the total revenue of 385.8 million euros. In the third quarter, RNG revenues amounted to 66.8 million euros, corresponding to negative growth of 1.9%, and our RNG business amounted to 14.8% of total revenue. For the first nine months, though, we grew RNG with 4.9%. Overall, financial results in the quarter is solid. We prefer to concentrate on factors that we have control in explaining our results, and in general, we continue with this approach. However, this quarter, the impact from external factors are on a higher level than ever before, so I think we'd be wrong not to mention it at all. The strengthening of the euro against most currencies compared to Q3 last year affects our top-line growth during this year. Quantifying those effects, in the third quarter, we calculated 6 to 8 percent points negative headwind on growth from currency effects on revenues when comparing to the same quarter last year. Without this headwind, figures would have been very strong. Now let's move to the next slide. With the fast growth of the company, we need to have an equal high pace in our recruitment, and recruitment will continue to be one of our priorities and one of our key processes. At the end of the period, we were close to 18,000 evolutionaries, working hard to delight players every day. The increase in stock year-on-year amounts to 1,900 employees, corresponding to an increase of 12%. As said at the beginning of the presentation, we have not added headcounts fully as we would have liked. Together with Studio Buildout, we are now in full force focusing on expansion. Hiring and retaining the best people is tough as it's ever been, and we're working with this continuously, identifying inefficiencies, improving our recruitment process. Challenges with recruitment are not new to us. It's just a reality in the business that is dependent on continuous high-income people. Equally, this is the reason why it's very important to have the right incentive programs in place. Now, move to the next slide. The game round index shows the development of the whole evolution network and includes all games. It can be seen as a general indicator for activity in our network. Over time, more game rounds means more activity leads to increased revenue. This quarter, game rounds increased 36% year-on-year, so a higher growth rate than our total revenue. Game rounds growing faster than revenues is a development we have seen in the past few quarters, and it's natural as the volume of new players from new regions coming in with a lower bet cycle. Looking at the absolute level of the index in Q2 and Q3, you can see some flattening, which to some extent reflects what we discussed in the previous slide regarding that we see a higher demand of our product than we currently can deliver. Next slide. Move to products. The width of our product portfolio is already today unmatched in online casinos, and there are many more games to come. This year we launched a record number of exciting games to inspire our current as well as future players. Let me mention a few of the games recently and soon to be launched. Two of the strongest brands in our portfolio are the Lightning franchise and Chris Time. Both will expand in the coming months, and even a combination will be added to the product portfolio. This fall, it's time for the additions to the CrazyTime family. In both of them, we continue to combine the world of live casino and R&D. Red Door Roulette combines the award-winning Lightning Roulette with the exhilarating experience of CrazyTime's most popular bonus game. The CrazyTime game is going to be Crazy Pachinko, based on the CrazyTime bonus round with the same name. This new addition to the CrazyTime family really shows the outstanding play experiences that we can create when mixing live and RNG together. Lightning Lotto is not just any game. It's a live game. It's a bouncing ball live game that takes the traditional Lotto game players that know and love this game to a new level. We change it up with an electrifying twist and a two-ball drawing machine, completed with a live game host. It's a fast-paced, immersive, high-energy game that's sure to keep the players entertained. With Evolution, players can always find what suits their taste when it comes to gaming experience. The breadth of offering is a major distinguishing factor for Evolution. Remember that an operator in online casinos today is not just competing against other suppliers of online casinos. It's competing against the rest of the entertainment industry. We as Evolution need to add products that will go up against streaming services and social media platforms for players' time. End-user entertainment is the only true long-term measurement that matters. You need to be able to ensure that you constantly increase the entertainment factor and push boundaries to be relevant for the players. Our games are on the edge, immersive and entertaining. We constantly develop and move forward and earn the player's attention. Innovation and the best game will always drive evolution. We continue to innovate, substantially enhance and refine the player experience. We are currently in full preparation for the roadmap 2024, and yes, it will be the best roadmap ever. 2024 is yet another year of the product. Move to the next slide. This slide shows the breakdown of our revenue by geographic region. We have a true global and strong demand for our product, which is also reflected in the spread of revenues over geographic regions. Europe continues to have a healthy growth with amounts of 10% in the third quarter compared to last year. For the first nine months, the growth amounted to 13%, which is a good sign that we still develop and grow in our most mature markets. In Asia, we saw continued good growth, which amounts to close to 35% year-on-year. We still see rapid growth in Asia, but the growth rate in percentage terms continues to come down as our size simply gets bigger. Even so, the potential in Asia remains huge, with 7 billion people per population. Also worth mentioning is that earlier this year, the Philippines became the first country in the region to have a regulation for online gaming in place. North America is growing year-on-year by about 9%. For the period of nine months, the growth amounts to close to 26%. The decline in revenue from Q2 is due to step-back in R&D revenue, while our live offering has steady growth in the quarter. We're working hard to launch new games in the U.S., and we have a fantastic lineup of games, including Crazy Time. soon to be launched, and I have high expectations that they will perform well. It's a good potential that there is a long growth runway in the existing state, and over time, we will also see more states to regulate. The North American region is still in its early stage of development. Latam currently makes up about 8% of our total revenue in the quarter and with a growth in the quarter of close to 39%. We believe it's the region with a great potential and good momentum. In addition to already launched studios in Argentina, we initiated construction of a state-of-the-art studio in Colombia to cover the demand we see in the market. We see that the regulatory trend in Latam continued earlier this year, a repass legislation for online gambling, and also Brazil has taken some steps forward towards to regulate online gambling. Remains the other region, which mainly consists of Africa. It stands for nearly 3.5% of the group revenue, and it's future growth opportunity for us. Share of revenues from regulated market continues to be stable as we see growth on all markets and amount to 40% Q3 2023. With that, I'll hand over to Jacob and move to the next slide.

Thank you, Martin, and good morning to all of you listening. I'll now cover a couple of slides with comments on our financial development. Revenue amounts to €452.6 million in the quarter. It's made up of almost 386 million, rated live casino, and 66.8 million from our R&D games. Live casino is about 85% of our group revenue in the quarter, and has year-on-year growth of 24.3%, with an increase of 75 million euro from the same quarter last year, and 14 million euro increase from the previous quarter this year. I'll come back to this slide in a minute, but I actually added this slide to show our live casino development in a slightly other perspective over time. This slide shows the increase quarter on quarter for our live casino. The dashed line is the average increase per quarter during the past five years, about 70 million euro per quarter. It's a period that, of course, includes the pandemic years, but also a few years which I would see as more normal. In this slide, you can see that our increase to most recent quarters is much lower than the average for this period. As Martin mentioned, we focus our energy on factors that we control in expanding our financial development. And right now, as you also heard Martin mentioned, we're not expanding our table capacity as we would like to, and that's affecting our revenue growth. It's not possible to exactly quantify the financial effects of this under supply, as we call it. So I don't have a straight answer to that question, but clearly it's something that's limiting us at the moment. So that's what we can control and what we work on, and I'm confident that we'll be able to fix. But to understand the financial result in the quarter, there are also factors outside of evolution to address. I'll now spend two minutes talking about currency rates. I think both Martin and I will have full understanding. If you'd rather not listen to it, and if you want to do something else for a couple of minutes, please go ahead. But anyway, during this year, we have seen large movements in currency rates. It's understandable as shifts in interest rates and the general economy have also been on levels not seen for many years, positive ethics. As a result of this, the Euro has strengthened significantly versus most currencies compared to the third quarter 2022. This affects our revenues negatively as players wager and generate gross gain revenues, GDR, in many different currencies with our operators. That GDR is converted to euro and is the basis for our commission revenue. Stronger euro means that the GDR generated in local currency equals fewer euros. We have to make the changes in euro rates affect our total growth negatively by six to eight percentage points in this quarter compared to Q3 last year. This indirect effect that I just described is not captured in the currency effect that is more direct in our accounting, meaning we convert our non-euro invoicing and our non-euro expenses with another rate from a previous period. That's reported separately. Of course, it's also not a new thing, but during this year, the movements have been larger than what we have seen previously. So that's why I mentioned it today. However, it doesn't change anything. I can adjust the adjustments until I get completely lost and everything actually looks good, except for the fact that maybe it's not good. all of this talk of currencies, that the interest in the quarter is still 14 million euro. We need to recruit better. We need to add more tables. We're in a very good position to do so, and that's what we're focused on. All right. I'll now go back to the previous slide and move on to a few comments on our R&D business. R&D revenue amounts to 66.8 million euro in the quarter. It's a 1.9% decline from the same quarter last year, and 2.5 million euros lower than the previous quarter this year. Naturally, we're not happy with our financial delivery in this area. However, as I stated earlier, we're making step-by-step improvements. The output of new games is now satisfactory level. All our new games are released on our OSS, and the roadmap ahead is full of strong games. Our earlier communicated goals for growth still remain, but we've already moved into what I would call show territory rather than tell. So for the next quarters, I'm first of all looking for incremental improvement from where we are today. Also, as I said already in the Q2 comments, the last quarter, while it's not growing as we want, the R&D business, it's very profitable. very good cash generation, and we definitely see a lot of potential in this area going forward. EBPA for the quarter amounts to €318.6 million, giving us an EBPA margin of 70.4% in the quarter. We keep our guidance of 68% to 71% margin for the full year. That was set at the beginning of this year. And as you can see in the chart, we have been within that range each quarter this year. For the year-to-date period, the margin is 70.3%. We're very pleased with the margin level. Some of the pressures to margin we saw in the beginning of the year have materialized, but have been offset by hard work and a very good cost awareness in all our teams. This next slide shows our team in a little bit more detail. We'll, as usual, walk through from the top. In the three-month period, July to September, live revenue, as we just talked about, 325 million, and R&D, 167 million. This adds up to total revenue of 452 million. That's a growth rate of 19.6%. That is fully organic, as all the most recent acquisition of Limit City was included also in the third quarter of last year. For the first nine months of the year, growth in total revenue is 26% compared to the same period last year. Moving down to expenses, personnel expenses amount to 91 million euro. That's an increase of 19% compared to the same period last year. We are adding to that in many locations, but as we have mentioned several times now, we think that we should be able to increase even more going forward. Appreciations amount to 31.4 million euro. That includes 10.9 million euro of mortization in intangibles related to acquisitions. Next line is other operating expenses. This includes items such as consumable equipment, communication costs, consultants, and royalties. The line amounts to 43 million euro in the quarter. It's up 4% to the same period of 2022. It's also up compared to the previous quarter by a little over 1 million. Summing up, total operating expenses total just over 165 million euro for the period, an increase of 16% compared to the same period last year, and for the first nine months of the year, expenses totaled 483, which is an increase of 24%. Operating profit sums up to 287 million in the quarter. Financial items amount to 5.3 million euro. This includes interest rate income, interest rate income, which is picking up with the higher interest rates. Financial items also include a negative accounting charge for interest on our right of use assets. And also there are ethics differences related to intra-group transactions and revaluation of bank balance as important currency. So there's a bit more than just a short interest rate income that goes here, but that is the major item of the quarter. Tax is at 19.7 million euro for the quarter. This is a tax rate of 6.7% for the nine-month period. Sorry, 6.7% for this quarter, and for the nine-month period, the rate is 6.8%. Tax rate for this year will be around 7%, also in Q4. And from 2024 next year, as has been communicated during probably the past two years, tax rate will increase with about 10 percentage points to 16, 17% after the regime comes into effect. So that's most of you know that. We'll move to the next slide before I hand back to you, Morten. We'll start to the left in the slide with the capital expenditure. The great part of the bars, that's investment in tangible assets, mainly art studio projects. In the quarter, the capex in tangible assets is €8 million. It's lower than earlier this year. We have had a slightly lower pace of studio expansion than what we planned at the beginning of the year, but also capex can vary quarterly depending on how projects develop. a little bit lower than what we've been earlier. The blue part of the bar is investment in intangible assets. It's related to development of new games and features to the platform, slightly increased throughout the year. It's at the 10.9 million euro in the quarter. So total capex year to date is 63, almost 64 million euro. It's now clear that we will not reach the 120 million euro for the full year. That was our guidance at the start of the year. But that's not clear. And as you've heard earlier today, we continue to have ambitious plans for studio expansion going forward. I expect some increase in capex during Q4, but also going into next year. So we should pick up here. In the middle of the slide, moving on to the next chart, we show operating cash flow. Continued very good cash generation in the past period. In the quarter, operating cash flow amounts to 265 million euro. Operating cash flow in relation to EBTA on the rolling 12-month basis is still maintained on a very good level, just under 80%. Outside of operating cash flow, we have during the period paid the first tranche of the earn-out to BTG, Big Time Gaming. In total, that was 67 million euro, of which 47 million was cash. So including that, cash conversion would be around 75% for the rolling 12-month period. So it's still very good. Finally, to the far right in the slide here, a quick look at the balance sheet. No big changes. We have a very strong financial position, 813 million euro in cash at the end of September. Out of that current cash balance, roughly 400 million is according to our dividend policy. That's the Q-related dividend so far this year. So that's one you will see later. That was the end of my prepared comments, Martin. I'll come back to you for some closing words.

Thank you very much, Jacob. A few words to conclude this report presentation before we open up the question. Evolution offers an unparalleled portfolio of unique games, something that pays for the whole industry with new groundbreaking releases. And currently in full preparation of the roadmap for 2024, development is going on at full speed and I can assure you it looks nothing but fantastic. In 2024, we'll take yet another step towards expanding online casino to new players and increasing entertainment and excitement even further. Investments for the future will continue in form of new studios and in constant innovation of new products and, of course, in our people in order to fulfill the worldwide demand. As the leading innovator in online casinos, together with a record number of new products released every year, we continue to relentlessly increase the gap for our competitors. We are well equipped for a strong last quarter of the year and indeed exciting times ahead. That was my final remarks and now we move to the next slide and your questions.

If you wish to ask a question, please dial star 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star 5 again on your telephone keypad. The next question comes from Martin Arnell from DNB Markets. Please go ahead.

Good morning, everybody. Good morning. So my first question is on this under supply situation and how can you convince us that this is an issue that you can actually solve during the next year?

Let me call it like this.

It's not changed in a heartbeat. We were talking about expansion, recruitment, fiscal bills, and so on. And it's sometimes hard to manage to time that exactly right. So that's what it is. And we're focusing on that. And then we are really, really trying to do it as fast as possible. But we're not in the view that we convince that we're going to do it at a certain time.

Okay, and these problems, is it mainly in Europe and its recruitment? Can you explain why it is so difficult? Or is it anything else behind it?

The major hubs are in Europe. We constantly have challenges also elsewhere, but right now we're talking mainly about Europe, the delivery out to Europe. To build out hundreds of thousands of square meters with everything that is needed, with all the equipment, that is a complex task. And sometimes you get delays just like if you would build your own house or whatever you do. So there are physical parameters, deliveries, suppliers, and everything like that. So it's a hard work. And then to recruit on top of that thousands and thousands of people, It's a challenge. There's no fundamental things that have changed for us. It's just that, okay, we're a little bit behind right now. We see a higher demand for our product than we can supply. And mind, don't forget that that's a very positive situation that you have a higher demand for something that you can deliver than the opposite. So in all fairness, it's a positive problem.

And if you compare your control of this problem today compared to this spring, do you have a better overview of it now or is it sort of getting worse?

We have a better overview right now.

Okay. And these new studios in Europe, 3 to 4, how concrete are those plans? Is that what you're hoping for or is it actually sort of, are you, you know, in the contract phase of these studios?

We say three to four in next year in Europe, Latin America, North America. And we say we will add one more student in Europe this year. All students that are mentioned there are concrete plans.

Yeah. Okay, good. And just final question is on North America, the growth slowdown there. um you know your work to improve that um you know i i noted that you marketed crazy time quite heavily at vegas at the g3 you know the certification process how's that going do you expect it to be closed now or i won't give you time but it's going well okay so is it only about certification and getting the new games in or you know what else are you doing in north america to improve

There is, of course, a little bit. Now we're getting the R&D delivered and everything is done. There is, of course, a little bit of a lag to get them certified and regulated and compliant in all five states. So there's a little bit of a lag of that.

It's great talking to you, Martin, but I think we might want to... You can come back later. We need to let a couple of other questionnaires. Of course.

That was my final question. And just so you know, I stayed on. when you clarify the effects, that was very nice.

The next question comes from Oscar Ronquist from ABG Sundal Collier. Please go ahead.

Thank you. And good morning, Martin, Jacob. Thanks for taking my question. So just first of all, just on market share, I think you're mentioning in the outlook statement that you continue to take market shares and the increased gap to our competitors. I don't know if that's a statement or if that is like for the upcoming few quarters or years, but just do you have anything to elaborate on the last couple of months market share and So you do think that you're still expanding the gap to your competitors? I would let's say pragmatic for in particular. So, I mean, they are growing their player numbers at least pretty fast in Baccarat and Blackjack. And also, I mean, in the U.S., it seems like you're growing slower than the market at the moment. So if you could just elaborate on the market share, please. Thanks.

First of all, the market share is very, I mean, I don't have any figures from Pragmatic. I can't compare that. And the competition figures are very scarce. So they are, it's hard to do that. But I know, for example, that we're growing faster than the market as far as I can see in Europe and also in Latin America in total. Then when it comes to North America, last quarter, a little bit and so but but in the year to date it's 26 overall we're doing very well in life casino and we're pushing forward in rng understood thank you uh just the next one on um on the demand here so for instance roulette which is i mean more scalable than of course blackjack for instance so

If you could see that the demand is very, very strong overall and that there are supply chain or supply issues in some of the markets, could we interpret that as, I mean, let's say roulette, for example, would still be very, very strong in terms of the actual numbers that you report now? Or is it more like that you also have some challenges in branded tables?

I won't comment on the table setup in total, but naturally, the demand on the non-scalable product is much higher. So that's where the pent-up demand is. But we also have to remember that the player plays many games. So each session contains many games. You have to satisfy that. Otherwise, you will end up in a situation a little bit where we were during the COVID that we forced players into their own games.

Perfect, thank you. I have one more, if that's okay, just on the weaker macro outlook in general. So, I mean, I saw bets on CEO saying that wouldn't be a headwind, or they haven't seen it at least. I assume that it's the same for you in macro, just regarding any potential headwinds. And then just on cost of living pressure, would that actually be sort of a net positive for you, people not going to retail casinos because of the cost of living pressure?

pressure and then maybe staying home and and being online instead and going on on your types of games we haven't seen any general slowdown in the economy then the however the interest rate inflation and the exchange rates are affected by the situation in the world that sort of central banks and finance ministers we just see that but we don't we don't have any due to the situation in the world.

Understood. Thank you very much.

The next question comes from Ed Young from Morgan Stanley. Please go ahead.

Good morning. My first question is on supply. You've always talked about choosing growth over margin, but over the past years, you've obviously exhibited some very good cost control in the face of a lot of different cost pressures. The one thing you haven't mentioned at all in terms of recruitment is around wages. Do you think there's a possibility you've been too restrictive on wages and actually you might need to invest some margin into wages in order to solve recruitment, or do you really think it is all just about processes, as you've talked about so far?

I don't see that we are paying a premium salary for the level of work that we do, and I think that we are in the right level. I don't see that it's the salary level that has created a situation where we are not delivering to the demand of the market, Okay. Sorry. If that would be the case and we would have that indication, the statement still stands. We will go for growth and market share before margin. So if I would have a possibility to solve that with investing more money or paying more, we would do that. But I wouldn't do that and waste the owner's money to Throw money at the problem that I don't think is the solution. So the statement still stands and we would invest if needed.

Okay, understood. The second thing on North America, you talked a bit about it already and I don't want to labour that, but I know you spent some time there this summer. Could you talk a little bit about more broadly what you've looked at changing that business? What wasn't working correctly or what do you hope you've managed to

uh change in that area in north america yes we we are we have a fantastic new management in place and we're forward to see what they can deliver so we make some changes with that We need to be much closer to the market when it comes to commercial, and we also need to have the gains there to deliver. And now when we've got the gains flow going out of engineering and product, we also need to get them through regulation and compliance, and there is a little bit of a lag. So we look forward to the coming quarters.

Okay, final question on capital allocation. Cash flow is over $800 million. I appreciate, Jacob, you said the dividend would be 400, but you'll presumably produce 250-ish of cash in Q4 as well. So at what point with the shares now sort of down year to date, despite the profit growth you've achieved, do you think it would be appropriate for the company to consider allocating some of that capital in the form of buybacks or something similar?

There's no other answer to that than previously. Like you point out, the main way of shifting capital back to owners is our dividend policy, which is 50% of net profit. And beyond that, we have done buybacks in the past, about a year ago, I think it was the last time. So it's not ruled out in any way, but ultimately it's a decision for our board.

Okay, thank you.

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

The first question I had was just on the interest income. Obviously, Jacob, you explained that there are a few one-offs in there and it wasn't just the sort of straightforward interest income. Could you just give me an understanding of whether the one-offs were largely drags rather than benefits? Is the underlying interest income even better than what was reported today?

Yeah, they're not one-offs, really. I mean, you can say that the IFRS 16 charge, that's recurring. So that's kind of a component that's there every quarter. The effects on, like, what is one of our... euro companies hold dollars on the back account, that gets revalued, so that is a little bit up and down. In this case, of course, it's slightly negative, but the main item there is interest income, and it's a little bit higher than the total given these other items, but I wouldn't say they're all big. It's not big one-offs. Did that answer your question?

Yes, that's clear. The second question I had was just on the FX headwind. So thanks for that detail earlier. Just wanted to understand if there was any sort of transactional FX headwind as well from sort of cash. I understand that you're largely invoicing in euros, but then you did mention some non-euro invoicing, et cetera, and just understanding sort of what the cash impact is of cash sitting in other currencies.

Yeah, there's a couple of different components there. What we call the direct FX effect and that we reported every quarter this year, that is if we revalue the invoicing or our revenues in non-euro currencies and then the same for our expenses in non-euro currencies. in this quarter on EBITDA level. So you could say our dollar expenses are a little bit less in euros in this quarter than if they would have been valued at the exchange rates from one year ago. So that's the more direct component, and that's what we normally talk about. What we call out with the 68%, that is more indirect. What I tried to explain there, The GDR that's generated in local currencies, even if it's invoiced in euros, it's not captured in that first FX effect we talked about. But indirectly, of course, also affects revenues, since the amount of GDR varies with exchange. So in that case, a stronger euro would lead to lower revenues for us, because we get a lower general. with ethics, like you heard before. We try, we of course follow it, but it's nothing that we spend too much time on trying to control. But in this quarter, it's a relatively big headwind, so I think it's right to understand it. But yeah, that's how it is. Hope I answered your question.

Okay, sorry, just to follow up, Dave. The FX impact this quarter, though, apart from the translational impact that I understand, there wasn't much of a... The cash impact was minor. Absolutely, that's what I was saying.

Absolutely in relation to the 68% we talked about. So, yes, that's the minor impact, yes.

Okay, and then, sorry, just the final question was... Obviously, Martin, you've been clear that you're undersupplying the market, particularly in Europe. Are there things that we can be looking at from the outside that help us understand sort of how you – obviously, you understand internally that you're undersupplying the market, but are there things that we can be tracking that help us to see the ways in which you're undersupplying the market and get an indication as to when that starts to ease?

I mean, naturally we have all the BI and all the data, so we see when a table opens and when we need to add a table and when we don't need to add a table and where it's needed and what. So when we say that we undersupply to the market or we have a high demand, I know that we do not add what is needed. That part of data is something that you would not see. It's very hard for you to get that. I don't see how you would get that. So right now we're understanding, but you can also just notice that the figure 68% in Africa is very large, and the undersupply is mainly, let's say, uh non-scalable product and much much less or much less got it understood thank you thank you the next question comes from raymond ku from nordia please go ahead

Yeah, hi, good morning. Two questions from me, first one. You write in the report that you made progress in RNG despite the declining growth. Could you elaborate on the difference between how you work with RNG game releases before compared to now?

First of all, we release the right amount of games during Q3, so we are on track with the release schedule. That's the first what we are there. And then, of course, now we need to work with the commercial decision that we... that we get used and handle these higher amount of R&D games that are there. So that we're working on and of course there's a little bit of lag in that. And then we have to push those new games over the Atlantic and get them into compliance department and get them regulated and compliant in all five states that we're operating right now. So that's how we progress with that. And I would say that it's a better quarter three than quarter two. We can see that it's a little bit step forward. And also remember then that the FX effect that we talk about also affects this part of business.

All right, thank you. And then regarding the global minimum tax rate of 15% set to be implemented in 2024, I assume you talked to tax experts. Do you get the sense that your tax rate is going to end up north of 15% or are there caveats that make you believe it can be lowered somehow?

No, I think that the basic The effects for us is that the tax rate in Malta today is effectively 5%, and then that will increase 10% to 15%. So now not all our profits are in Malta, but a large share of our profits are in Malta. So pretty much that comes through on the group level. Then, of course, as we grow, I mean, we've had a trend upwards on tax over the past years. establish ourselves in more parts of the world, we of course pay tax in all jurisdictions where we are active. So then we'll see. I mean, there can be, like I say, there can be caveats. And of course, many countries want to remain as an attractive place for investment. So we'll see how things develop. But as a base case, now I would just, like we talked about before, it will go up, will increase 10 percentage points. It goes from 5 to 15 in Malta, and that comes through on the

Okay, thank you very much. Thank you.

The next question comes from Kiranjot Gurwal from Bofe. Please go ahead.

Hey, good morning, guys. Good morning. I just had a couple of questions on the studios. It's great to see that acceleration, the rollout plans. You've been sitting on a pretty large cash platter for a while, and we've heard from you that demand's running ahead of what you can manage for a while. So what's been sort of the delay in rolling studios out? Have you been trying to get closer to sign-offs before flagging them to us?

Have you tried to get closer to...

signing off on those before flagging the rollout to us, or were you just not looking for new studios for a while?

When it comes to the understudy, and I'm not sure I completely get the question, but it's the same as it was. We build studios, hundreds and thousands of square meters, and it's quite lengthy. It's an 18-month minimum process to build a studio. So we are constantly in that. And now we are facing a little bit of delays in that. We're not getting it to where we want. And then on top of that, we're not recruiting fast enough. I mean, don't get me wrong. We are recruiting, but we're not recruiting fast enough. So we need to speed that up. And those two come together, and that's why we're on the supply chain.

Got it. And I think in the past, when we've spoken about struggles of recruitment, you've also mentioned recruiting the right languages in your existing studios. Is this true? And if so, should we expect another studio to come in a major metropolitan city within Europe rather than sort of in Eastern Europe?

I won't comment exactly where, but naturally we put the studios where we think we can recruit the nationalities and the persons we need, and the volume is there. So we have Madrid and Malta, and we're adding a couple of them in Europe to get a higher pace in delivery.

got it and just the last one on studios are you planning the large footprint studio sites like we've got in Riga or is this going to be you know much more focused smaller studios for the language gaps that you have I think that medium-sized studios is what we are planning to add

Okay, perfect. Thank you. And that I would regard really as an upper-medium studio.

Got it. Thank you very much.

The next question comes from Simon Davies from Deutsche Bank. Please go ahead.

Yeah, morning. Just one lesson from me, please. In the US, there's obviously been a quiet period in terms of iGaming states opening up, and I'm assuming that must be one of the features behind the slowing growth rate. What are your expectations in terms of new state openings over the next 12 to 18 months? I presume you'll have your ear to the ground in terms of the latest speculation.

Yeah, there's always a lot of speculation on that, and I think we have stated that it could be one, two year, but it could also be three years without one, and then it could be three, one year. Right now, there are the usual suspects as before. There's always talks about New York. I think that it's more of a dream than reality. There is Illinois, Indiana. And there are a few others bubbling. And it's a political process. And I think that your guess is almost as good as mine. But there are these usual suspects. Mind you, and we've had this situation before, Southern Pennsylvania came and outperformed all the others and suddenly it was regulated. So the next regulation could be someone that we haven't talked about.

Right. You're not hearing of anything imminent.

Okay, thank you.

The next question comes from Jonas Wertmann from Investor. Please go ahead.

Good morning, everyone.

Good morning.

I think, in my opinion, this quarter was again very good. Honestly, I think evolution is one of the best business models in the world and the whole management team is doing a great job. And I think it's quite normal that business figures fluctuate quarter by quarter and therefore it is almost irrelevant for the long-term success whether the margin the next quarter is 68 or 71 or whether the growth is 25 or 30 percent. I think the only challenge which has to be addressed promptly is to deliver capacities for the excess demand. The management follows the right strategy to invest heavily in new studios during the coming quarters. Then every customer who cannot be served right now will probably lead to a loss in market share as he is playing with other suppliers. So my first question is, how long does it take you to open up a new studio so from the point of seeing excess demand to build up a studio hiring staff and run it on full capacity the lead time for a new studio from planning to execution 12 to 24 months so they are always in part they're always working on that the 12 to 24 months okay i see and my second question is whether the excess demand in europe can be served through the studios in the us as a short-term solution since there needs to be a studio in every state there might be excess capacity which could be used currently that is not the case but that is possible even though good thoughts all right thank you thank you thank you

The next question comes from James Roland Clark from Barclays. Please go ahead.

Morning, everyone. Just a few minutes. Hopefully a few short ones to finish up. I'm just curious on your comments about not hiring at a fast enough rate. Could you also just talk about your existing live dealer staff are you seeing any change in the churn rate for that sort of for your existing live dealer you know staff count or is it the same as it previously was i would say that the it's getting mathematically lower so we are the service length is increasing in general Okay, and then can you just elaborate us on the timing of RNG delivering double digit growth, please? Maybe update us on your thoughts there. I know you've added a lot of games, but perhaps a bit more color on when you think that could turn. Thank you.

Yeah, so we haven't set a timeline on that. Like I commented earlier, I think definitely the ambition is still there, but from where we are this quarter, we're actually... 1.9% lower than the same quarter last year. So we'll take it from here, show some improvements from this level. So we haven't set a timeline on double digits. But of course, it's absolutely a possibility. We still strive for that.

Okay. And so my final one is just on the supply of studios and staff to the market. You've got this slowing revenue growth and you know, if it's going to take you a little bit of time to add sufficient capacity to service the demand, how can you convince us that you are holding on to market share or indeed gaining market share? Given your earlier comments, you've actually put it in the release that you are taking market share still, you're still ahead of the market. You've got a time lag now where you're not servicing the demand. So how do you, you know, how do you sort of

rob rate or how do you convince us that that is the case that you're holding market share for not quite meeting the demand there are other players the first one the first one is that you have all our figures and it's very very hard to actually get figures from anyone else so that there we are blindsided so the only thing that we can rely to is the little data we have where for Institute deliver data on Europe and we compare to that or we get sort of some idea on Asia or we look at states in the US. And that data is also available for you and that's what we have. So with that data, that's where our statement rests. However, we are not here to convince you of our market share. We only tell that's how we look at it. If we would have all the data, we would produce it to you.

Okay, thank you. One final one, hopefully it's quick, is what do you think the impact is on undersupply in terms of your live dealer growth for the foreseeable future?

We haven't quantified that, but I gave you the indication that it's at least much lower than the headwind in FX rates.

Okay, thank you.

Another question?

The next question comes from Ali Ghandaz from Private Investor. Please go ahead.

Hi, good morning, guys. My question is about your long-term product vision, specifically about the scale of your game show R&D. So this year you launched Funky Time, probably the highest budget iGaming project ever. And now that some time has passed since that launch, Are you satisfied with the ROI of the project, both in terms of player interest and financial performance also? So do you think the future of evolution opportunities in the live sector lies in similar or even bigger projects, bigger budget projects, where you can take advantage of your scale compared to competition? Or is it rather about releasing many numbers of smaller to medium-scale game shows? Thanks.

The first answer is that yes, we are very happy with Funky Time. It's a fantastic game performing very well. Secondly, of course, the size of our network is that the biggest online gambling network in the world has the potential to receive these fantastic games that we do, and they get this exposure. So that's, of course, a competitive advantage. And yes, we would like to release many more entertaining, fantastic, large game shows.

Okay, thanks.

Thank you.

As a reminder, if you wish to ask a question, please dial star 5 on your telephone keypad.

Okay, I think that that was the final question.

It was a pleasure to have you all, and I look forward to seeing you in a quarter. Thank you very much.