Evolution AB (publ)

The presentation of Evolutions year end report of 2023. My name is Martin Karlsson. I'm the CEO of Evolution with me. I, as usual, have our CFO, Jacob Kaplan. I will start with some comments on our performance in the quarter, where after I will hand over to Jacob for a close look of our financials. After that, I will round off our presentation with an outlook for 2024. And then we are happy to take all of your questions. So, let's begin. Next slide, please. The underlying growth drivers for our business remain strong. There's a global audience for the excitement and entertainment that online casino brings, and we continue to see a strong global demand for our games. We also clearly see the trend where more and more countries regulate. Latest and one of the more interesting being Brazil. In Live Casino, both existing as well as new game launches, 2023, continue to attract new players and also new playgroups. At the beginning of the year, I spoke of 2023 as the year of the product, and I think 2023 has lived up to that billing. In the year, we launched more than 100 new exciting games, a record number in any given year for Evolution. In the quarter, we have further expanded our North American footprint by expanding our games portfolio. In December, we saw the long-awaited launch of Crazy Time in New Jersey. This is a landmark launch for evolution for the U.S. online gaming market. We are very optimistic about Crazy Time becoming a favorite online game show in the United States, as we have seen it perform exceptionally well globally. In the quarter, we also launched Crazy Coin Flick in New Jersey, as well as Super Sick Bow in Pennsylvania. The three games are due to go live in additional states during 2024. Another achievement in the quarter is the Craps launch in Connecticut, which means that Craps now is live in all our U.S. markets. The broader portfolio in U.S. opens up for new player types entering into live casino, as it has already done in the rest of the world, and a bit by bit increasing the share of live in the total online casino market. Also worth mentioning is that we recently signed a new content partnership agreement with Fanatic Betting and Gaming for the U.S. market. At the end of the period, we had over 1,600 tables live, resulting from an increase of over 300 tables during the year. The high demand for our products means that we must expand in existing studios and build new ones to keep the pace with demand. We will, as already mentioned, accelerate the increase of studio capacity during 2024. Notable projects this quarter include the opening of a new studio in Bulgaria, as well as a small studio in Colombia, where the largest studio is planned to go live in Colombia later this year. In Q4, we'll also see good pace up in recruitment, and it is now on satisfactory levels. We will continue to have a high focus on recruitment as we need to expand our service base to answer up to high demand. We round off 2023 with strong financial results and come into the new year with a fantastic pipeline of new gains and a strong momentum, which makes us well-placed for further strengthening our market share and continue to widen the gap to competitors. Now, let's move to the coming slides and get into some details of Q3 and also some comments on 2024. Next slide, please. Let's look at the financials. Revenues in the quarter increased by 16.6% to 475 million euro. For the year-to-date period, growth amounts to 23.5%. EBITDA in the quarter increased by 20.5% to 337 million euro, corresponding to a margin of 70.9%. For the full year, we reached a margin of 70.5%, which is in the upper part of our 68 to 71% guidance of 2023. We grew live revenue with 21.1% compared to Q4 last year, summarizing the total revenue of €406 million. In the fourth quarter, R&D revenue amounted to €69.8 million, which is a growth of 4.5% compared to Q3, but a negative growth of 3.7% compared to the same quarter last year. For the full year, it's important to point out that R&G growth is 2.6% in total, which I for now is satisfied with. We, of course, have high ambitions, but we are taking clear and important steps forward in R&G during Q4. I'm very pleased with the margin for the full year 2023, as it is a result of the high demand of our product in combination with that we constantly are working hard to increase efficiency. In 2024, we will increase investments in expansion both in new product, R&D, existing studios and new studios, leading to our EBITDA margin guidance for 2024, which is 69 to 71 cents. It is as always important to point out that in any trade-off between margin and market share, we will opt for market shares. Important also to note that the board proposes a dividend of 265 euro per share for 2023, which is in line with our dividend policy of distributing 50% of net profit back to our shareholders. All in all, fantastic numbers, and I'm very pleased with our financial performance in the fourth quarter, and we are definitely well-placed to deliver strong growth and strong transport. 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 well beyond 19,000 evolutionaries, working hard to delight players every day. The increase in staff year-on-year amounted to 2,195 employees, corresponding to an increase of 13%. The increase in headcount is clearly higher than the two previous quarters, and we are focusing on increasing the expansion phase further. In 2024, as we continue to experience, a very high demand that we need to fulfill. We have high focus on recruitment in recent months, and we have been able to identify inefficiencies and improving speed. It will even so take a couple of quarters to get back to where we need to be in order to fill our studio, build out with new fantastic evolutionaries. Next slide, please. The game round index shows the development of the whole evolution network and includes all gains, and it can be seen as a general indicator of activity in our network. Over time, more game rounds mean more activity leads to increased revenue. This quarter, game rounds increased 30% year-on-year, so high growth rate than our total revenue. Game runs growing faster than revenue development we have seen in the past few quarters, and it's natural and positive as the volume of new players from new regions come in with a little bit lower batch sizes. I'm very pleased with the activity increasing Q4 at the back of all great releases, but also as a result of the higher delivery out of our studios. Next slide, please. Beautiful slide. In 2023, we grew the Evolution live offering significantly, further widening the gap between Evolution and our competitors. Over all categories, we launched more than 100 games. On the slide, you see the logotypes of the 12 live games that we launched during the year. Two of the strongest brands in our portfolio are our Lightning and Crazy Times. In 2023, we kept advancing those in-house brands with spin-offs, including titles like Crazy Pachinko, Red Oralette, Lightning Lotto. We also launched the largest and most spectacular game show we had ever made, Funky Time. In 2023, we completed a fantastic product roadmap. Most games were launched in the second half of the year, and we're only starting to notice the contribution to our network. I'm very pleased of what we have created and proud of everyone at Evolution who never stops pushing boundaries forward of what is possible. Even so, we have greater goals than ever for 2024-2025. First, I want to mention that we in 2024 will launch the by far most advanced and technically complex game show we have ever made. And it will make even crazy times nervous of being pushed off the throne. It will take entertainment and excitement to new levels. Come to ICE next week to see the true spectacle being unveiled. 2024-2025 will revolution be the product leap years. We will, more determined than ever, with R&D, AI, new studios, new technology, take a leap forward to even higher entertainment for our end users. We will expand our portfolio of great games to all markets and with endless energy continue to develop the games of tomorrow. The core of evolution is innovation and the end game is entertainment. The future doesn't wait for you. You need to run to catch up and sometimes take a leap. Never stop. Never be complacent. Always be paramount. Run faster than anyone else and be a little bit better every day. Every year we try to surpass ourselves. There is no one else to look for inspiration. We have to motivate ourselves. We need to stay on our toes, breaking boundaries, create what others dream of, think or think it's impossible on our own. We need to relentlessly continue to create evolution's future, which is the same as the future of iGaming. Our group's product roadmap for 2024-2025 is the strongest one ever. But during 2024-2025, we'll take a product leap. Next slide, please. 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 to 9% in the fourth quarter compared to last year. For the full year, the growth amounted to 12%, which is a good sign that we can still develop and grow our most mature markets. In Asia, we saw continued growth, which amounted to 40.5% compared to 2022, and for the quarter, the growth was 33.4%. We still see rapid growth in Asia, and the potential in Asia remains huge, with several billion population. We grew revenue in North America with 8% from Q3 to Q4, and in total for 2023, close to 20%. We worked hard to launch new games in the US, and in December, we were finally able to launch three new games in the market, including Crazy Time. will continue to bring new games to the US market. And next in line is our wonderful retro game video poker. The North American market is still in an early stage of development, and there is a long runway for growth, albeit the pace is unpredictable. Latin America currently makes up a bit less than 7% of our total revenue in the quarter, and with a growth in the quarter of close to 20%, We believe it's a region with great potential and good momentum. We now have one small studio in Argentina, one in Colombia, and we have initiated the construction of the largest state-of-the-art studio in Colombia to cover the demand we see in the market. We see that the regular trend in Latin America continues, and we are very excited about the opportunity in Brazil. Remains the other region, which is mainly consists out of Africa. It's not primarily 3.5% of the growth revenue, and it's a future growth opportunity for us. Share revenues from regulated markets continues to be stable and amounts to 40% for Q4 2023. With that, I'll hand over to you, Jacob, and next topic.

Thank you, Martin, and good morning to all of you listening. Revenue amounts to 475.3 million euro in the quarter. In total, this is a growth rate of 16.6% year on year compared to the fourth quarter of 2022. This is fully organic growth as the latest acquisitions were included also in the last quarter of 2022. In the comparison to Q4 2022, there is a negative effect from changes in currency rates. Our estimate is that revenues are negatively affected by just over 8 percentage points. making year-on-year growth in Q4 adjusted for changes in currency rates about 25%. Growth of constant currency is an estimate. We based it on recalculating the GGR generated in many different currencies to Euro using the exchange rates from the same quarter the previous year. We added this disclosure in Q3. At that time, we stated the estimated negative effect that revenues to be six to eight percentage points in the quarter. We provided a range then and have settled on one number now. As mentioned, it's still an estimate, not an exact number. But overall, my view is that the FX have won at a similar level in Q3 and Q4. The total group revenue of 475.3 in the fourth quarter is made up of 405 million euro related to live casino with a growth rate of 21% year-on-year and 69.8 million euro from RNG games. An increase of 3 million euro from the previous quarter, but 3.7% lower than the same period, 2022. In Light Casino, we have managed to increase the number of table launches, and as Martin mentioned earlier, we're in a much better balance and are gradually moving out of the undersupply situation that we talked about in Q2 and Q3. Still more to do, and we have a year of very heavy investment and expansion in front of us, but we have made very, very good progress in the fourth quarter. RNG also shows improved revenue numbers in Q4, albeit Q4 is a seasonally stronger quarter, so some increase to be expected, but we are happy to break the negative trend from earlier in 2023 and look to continue improvements in small steps from where we are today. We can see how one-stop-shop OSS It gives us new opportunities to offer our operators some really compelling functionality. Some of that we will preview already next week at ICE. EBPA totals 337 million euro in the quarter for a margin of 7.9%. For the full year, margin amounts to 70.9% in the quarter. And for the full year, the margin is 70.5%. which is well within the guidance for the full year of 68 to 71%. Every quarter includes a number of expense items that are somewhat one-off or non-recurring, but there's always something every quarter. Sometimes this weighs a little bit negative, sometimes it'll be positive. In the fourth quarter, I would say it weighs on the positive side, so the reported margin is a little bit helped by that in Q4. Looking into 2024, our expectation for EBITDA margin is 69 to 71% range, in that range. The heavy expansion phase we are in at the moment, and will continue to next year, will affect the margin, especially in the first half of the year. And then we expect to improve towards the second half of the year, so starting out probably in the lower end of the range. I'll go to the next slide. This is the final report, the final quarter of 2023. So I've added this slide to zoom out a bit and take a look at the multi-year performance of Evolution. The chart to the left shows reported revenues by year split over live casino and RNG. And as you can see in the chart, year over year, we have added between 300 and 350 million euro in live revenue per year over the past three years, I think 335 in 2023. R&G revenue has also increased since we entered the vertical in 2021. Even though, as you know, we feel we could do even better in R&G, it has been a very profitable high margin addition to the group and a great expansion to the product portfolio. The chart to the right shows EBITDA and EBITDA margin. As we have grown top line, we have also managed to increase margin over the years. This is a product of a scalable business model and also our firm belief that high awareness cost is healthy for an organization. We had a very rapid margin expansion during the pandemic years in the 20 and 21, and we managed to maintain a high margin and also increase the margin some in the past two years. As we have pointed out many, our main priority is revenue growth. increasing market share, and ultimately increasing profits. So while we do give margin guidance for the coming year, the margin is a product of all the things, the other things we do, and not a target in and of itself. Let's quick look at the full year development. I'll move on to the next slide, and then we'll take a closer look at the most recent . This slide shows our P&L in some more detail. Let's go through it from the top. We've covered revenue development, both for the three-month period, October to December, and the full year comparison on the previous two slides. So I'll move down to expenses. Personnel expenses amounts to just under 94 million euro in the three-month period. That's an increase of 15% compared to the same period last year. We've managed to increase pace in recruitment in several locations in the quarter, as mentioned. Personal expenses also is affected by some positive one-off effect as bonus provisions have been adjusted at year-end. Depreciations amount to 34.4 million euro. That includes 11.1 million euro in amortization of intangibles related to acquisitions. Moving further down, other operating expenses. This includes items such as consumable equipment, communication costs, consultants and also royalties. The line amounts to 44.5 million euro in the quarter. It's 4% lower than the same period 2022, but up one and a half million from the previous quarter. It is a line item that is a bit lumpy and we will see continued increases during 2024 as our expansion pay increases, as I mentioned earlier. Summing up, total operating expenses, just under 173 million euro for the period. an increase of 10% compared to the same period last year. And for the full year, expenses totaled 655 million euro, and that's a 20% increase compared to the full year of 2022. Operating profit sums up to 303 million euro in the quarter. Financial items amounts to about half a million euro. This includes interest rate income, which is positive, 7 million euro. but in the quarter, but also negative charges for IFRS 16, these costs and the revaluation of intergroup debts and bank balances in other currencies than the company currency. And the net is happening on financial items. Tax is at 20.1 million Euro in the quarter, with a tax rate of 6.7%. For the full year tax rate is 6.8%. As has been communicated several times during the past two years, tax rate will increase as Pillar 2 regime comes into effect during this year, 2024. There's still uncertainties as to exactly how Pillar 2 top-up tax will be administrated, and the actual top-up tax will be paid first in 2026. So we will see how this plays out. We will be open to adapter operations to achieve a tax-efficient structure where that makes sense. These items brings us to a profit for the three month period of 283 million euro. This equals an earnings per share of one euro 31 euro cent per share for the quarter of the dilution and 4.93 euro for the full year. That's the full year numbers increase of 27% compared to 2022. I'll move on to the next slide. Before I hand back to you, Martin, we'll look at cash flow and the financial position. As usual, we'll start to the left. This chart shows development of capital expenditure. The grey part of the bars represent investment in tangible assets, which is mainly our studio-built projects. In the quarter, CAPEX's intangible assets is 12 million euro, slightly up from earlier quarters, 2023. And as we've mentioned a few times, we are ramping up our expansion projects that will be reflected in higher investment also going forward. The blue part of the bar is investment in in-handed assets, and it's related to development of new games and features to the platform. It's 18 million euro in the quarter. Total capex for the quarter is 13 million euro. For the full year, capex expenditure amounts to 94 million euro, clearly short of the 120 million that was our guidance at the start of the year. And the reason for this is that we think we have not been able to expand the pace we we envisioned at the beginning of the year. For 2024, we maintain 120 million euro guidance for CapEx. But we have picked up the pace in Q4 and also have ambitious plans for expansion during the year. 120 million euro is a significant level of investment, but it's well within our financial capacity. Looking at the chart in the middle of the slide, showing cash flow in the period, we see operating cash flow after investments of 284 million. So financial risk will remain low, even with the increased pace of investment. Cash conversion, operating cash flow in relation to the DA is 80% for the full year, a good level. Finally, to the far right of the slide, a summary of the balance sheet. We're in a strong financial position, fully equity financed. The board proposes a dividend of 2.65 euro per share. That's approximately 564 million euro to be distributed to owners. This is 52.7% of our net profit for the fiscal year 2023. So in line or slightly over our dividend policy of at least 50% payout on that profit. In addition, the board has initiated a buyback program during the period in total 400 million euro. So through buybacks and dividends, 90% of profit for the year will be shifted back to owners while we manage to maintain an aggressive growth agenda for the business. Over the buyback, about 115 million euro have been completed at the end of the period. So 285 million euro remains to be done 2024. At the end of the year, cash balance was 985, after which then 564 million will be dividend and an additional 285 will be used for buybacks. Okay, that was the end of my prepared comments. I hope that you will take questions off of that.

Thank you, Jacob. Thank you. A few words to conclude this report presentation before we open up for questions. Evolution offers an unparalleled portfolio of unique games, something that pays for the whole industry with new groundbreaking releases. The roadmap for 2024 looks nothing but fantastic, and our ambition for 2024-25 is higher than ever. We want and desire to do and create what others dream of. And 2024-25 are probably years of revolution, but we will continue to bring exciting new live casino title game shows and slots to players in the whole world. Next week at ICE in London we will show some, but not all, of what we have in store for players during 2024. The roadmap for the year is extraordinary and I'm very excited to bring our entertainment to players across the world. Come visit us at ICE in London next week, which by the way is the last year in London as 2025 ICE will be in Barcelona. Investment for the future will not only continue, it will accelerate 2024. Even so, we are cautious and mindful with how we spend our money, as always. Innovation and R&D is key to increase the end-use satisfaction. Copying someone will never drive development. As the leading innovator in online casino, together with a record number of new products released every year, we continue to relentlessly increase the gap to our competitors. We are well equipped for a fantastic year and exciting times ahead, and I'm very much looking forward to 2024. Now, let's move to questions, please. Next slide.