Evolution AB (publ)

Good morning, everyone. Welcome to the presentation of Evolution's first quarter of 2024. Sorry for being a couple of minutes late. We have invested in a new conference solution. So here we are. My name is Martin Karlsson, and I'm the CEO of Evolution. With me, I have our CFO, Jacob Kaplan. I will start, as usual, with some comments on our performance in the quarter, whereafter I will hand over to Jacob for a closer look at the financials. After that, I will round off the presentation with an outlook for the remainder of the year. And after that, of course, we're happy to take all of your questions. So, okay, let's begin. Next slide, please. We've started 2024 with very good momentum, and I'm very pleased to say that we have continued to increase our delivery capacity. which actually started in the last part of 2023 and has carried over into this year. We have substantially improved the balance between supply and demand and we have accelerated our recruitment and have seen advancements in our expansion projects in several studios. As always, we remain focused on increasing our delivery capacity. We continue to see strong regional development and in North America, we have expanded our presence by adding a new partner, Fanatics, and expanded our strategic relationship with CSS Digital also adding another studio in New Jersey. We have also entered into another state, Delaware, where players now can find our slot game offering and soon to follow also live games. Our top priority continues to be growth and our efforts and consequent results in increasing capacity creates the momentum we see in Q1. As already communicated, we launched the Bulgarian studio in the fourth quarter of 2023, And as mentioned before, due to the expansion of our strategic partnership with CSS Digital, we are also adding an additional studio in New Jersey. Our new studio in Colombia is on its way, and we are also adding yet another new studio in the Czech Republic during 2024. We thereby reiterate our guidance of opening four studios during 2024. With the growth in capacity and new investments in 2024, we initially delivered a slightly lower margin, but for the full year, we reiterate our guidance on the FDA of 69 to 71%. During the quarter, we have also acquired LiveSpins, an innovative B2B social streaming game provider that enables operators to offer their players an opportunity to bet behind their favorite streamers, brand ambassadors, or influencers. LiveSpins is bringing a brand new exciting playing experience and a new dimension to online casinos. The online casino market grows at a high pace and we continue to see great commercial opportunities worldwide. The demand of our products across the board is high which results in that we show growth in all regions both compared to the previous quarter as well as compared to Q1 2023. Now, let's move on to the coming slides and get into some details of the quarter and also some comments on what we see ahead. Next slide, please. Let's look at some financials. For the first quarter of 2024, evolution performance was strong. Revenue amounted to 501.5, growing 16.7%. EBD in the quarter increased by 15.2 to 345 million euro, corresponding to a margin of 69%. There's still currency headwind, and in constant currencies, the year-on-year growth amounts to 24%. We grew live revenues with 19.8% year-on-year, and compared to the previous quarter, we added 25.7 million in revenue, which is among the largest additions of revenue in a single quarter that we have recorded. For the R&G segment, revenue amounts to 70.1 million euro, showing a growth by 0.8%. With step-by-step improvements, operational benefits stemming from our OSS interface, as well as AEI injections, R&G is an integral part of our portfolio, contributing to increased revenues and higher margins, whilst also complementing our offer to operators. I'm pleased with the margins for the quarter, and as many times stated before, In any trade-off between margins and market share, we will opt for top-line growth and market share. Our capex guidance for the full year remains at €120 million, and we will be put to increasing capacity and inviting games that excite and entertain. All in all, really strong numbers, and I'm pleased with our financial performance in the first quarter, and we are definitely well-placed to deliver a strong 2024. Next slide, please. With a strong underlying demand globally for our products and the fast growth of the company, we experienced challenges during 2023 in terms of recruitment and thereby increasing table capacity. But with focus on organizational development, we have accelerated recruitment and made progress in our construction projects in several studios. By the end of the first quarter, for the first time, we exceed 20,000 motivated and skilled people bringing excitement and entertainment to customers around the globe. The increase in staff year-on-year amounts to 3,206 employees, corresponding to an increase of 18.5%. The increase is clearly higher than during the first three quarters of 2023, which shows that our efforts in the recruitment area is delivering results. As we continue into 2024, our focus remains on serving the underlying demand and leveraging our market position fully. And to achieve this, we need to increase our recruitment pace even further, especially with four new studios being launched in 2024. Next slide, please. The Game Round Index shows the development of the whole Evolution network and includes all games. It can be seen as a general indicator of our activity in our network. I'm very pleased with the activity increase in the quarter, attributable to high delivery out of our studios and the increased table capacity. As you know, game rounds activity does not always correspond directly to revenues in the quarter. This quarter, activity increased by 33%, which is a bit faster than revenue. However, over time, increasing activity and number of players on the network will support revenue increases, and I'm very happy to see the development of game round index in the beginning of 2024. Next slide, please. This is the first quarter of the product leap years of 2024 and 2025. We always keep our ambition high and for this year we plan for more than 100 new exciting games to be released aimed at bringing players new experiences that increase entertainment value and lift excitement to new levels. Let me mention a few of our games recently or soon to be launched. Let's start with Stock Market Life, a theme that might appeal to some of you on this call. It is a hybrid live RNG game released in the quarter. It's a thrilling, fast-paced game with a simple goal. The gameplay mirrors the fast-moving world of stock trading where you place bets on whether a fictional stock value will rise or fall. All the excitement of the stock market trades combined with an entertainment of online gaming. This game has been one of our strongest releases recently and was very well received by our end-users. One of the strongest brands in our portfolio is the Lightning franchise, and towards the end of the second quarter, we'll be launching Lightning Storm, our most ambitious game show ever, and the newest, most thrilling, and extravagant member of the Lightning family. You saw a glance on the first slide, you saw a glance at the studio, and Lightning Storm masterfully combines instant payouts, bonus games infused with experimental twists. and sizable multipliers to deliver a unique gaming journey. Also planned for launch in Q2 and a member of the Lightning family is Lightning Dragon Tiger, a classic Asian card game with striking multipliers. It is set in a sophisticated studio and features dramatic effects, thrills, and suspense. Last, I also want to mention another upcoming launch, which is Always Aid Baccarat. A fresh new take on the classic game of Baccarat, offering our own take that is reinvented where a banker's first card is always an eight and permanently placed on the table. This opens for players to look out for new trends and adopt different betting strategies. All these releases that we're going to do bear the Evolution trademark, games that make for new and exciting experiences in a new style and quality that players have come to recognize. In RNG, over 20 new titles were introduced in the first quarter and we have more than that lined up for Q2. We will be more determined than ever. With RNG, new studios, new technology take a leap towards even higher entertainment for end users. We will expand our portfolio of great games to all markets with an endless energy to continue to develop the games of tomorrow. As market leaders, we truly lead the way. We have no one to look at for inspiration. The game creation lies with us. It sets the bar for us at Evolution, a challenge that we're more than welcome. Next slide, please. Our products have a truly global audience, and in the first quarter, we see growth both compared to the previous quarter and the first quarter 2023 across all regions. Europe continues to have a stable organic growth, almost 10%, in the first quarter compared to last year. With increased table capacity and new plant studios, we are well equipped to increase growth, considering the underlying market demand. Asia continues to be our fastest growing market, showing robust growth in the first quarter by 28% year on year. The pace of growth is coming down as our size is increasing, but it's still a market with vast potential. In North America, we are on a total level, growing 5% quarter on quarter and are taking steps forward. Our live business is growing in line with the market, but we are still not where we want to be with RNG, which is behind Europe in development. As we move through 2024, we will take the same approach as in Europe and step by step improve. Latam is also a region where there is a lot of development. In the first quarter, growth was 10% compared to the previous year. Our expansion in the region is proceeding according to plan, with a new studio in Colombia set for launch this year. The ongoing regulatory process in Brazil keeps our operators awaiting the transition, and I expect more activity from operators when the regulation is fully in place. Remaining is other, which mainly consists of Africa. It stands for about 3.5% of the group revenue, and it's a future growth opportunity for us. The share of revenues from regulated markets continues to be stable as we see growth on all markets, but slightly down to 39% of total revenues in the first quarter. With that, I'll hand over to you, Jacob, and next slide, please.

Thank you, Martin, and good morning to all of you listening. Revenue in the first quarter amounts to 501.5 million euro. for a growth rate of 16.7% compared to the first quarter of 2023. Revenue in the quarter is made up of €431.3 million from our Leica Sino product and €70.1 million from our R&G product. In the comparison to Q1 2023, there is a negative effect from changes in currency rates. Our estimate is that year-on-year growth is negatively affected by just under seven percentage points, making the growth in Q1 adjusted for that just under 24%, as Martin mentioned earlier. At current FX rate, the year-on-year negative effect from currencies will be significantly less when comparing to the second quarter of last year. So expecting less of that in the remainder of the year. Moving on, light casino revenue, as mentioned, amounts to €431 million. That's a growth rate of almost 20% year-on-year. It's also an increase of almost €26 million from the previous quarter. This is one of the largest increases of revenue from one quarter to the next that we have recorded. And this is, of course, partly driven by our increase in table capacity, also as Martin mentioned earlier. R&G revenue amounts to €70.1 million. It's a slight improvement, plus 1% increase compared to Q1 of 2023, and also a small increase from the previous quarter. We continue to see gradual improvement in our R&G business. There are always things to further improve, of course, but today we have a good tempo of new releases coming to market, and we start to see the increased benefits for operators from our OSS interface. EBTA in the quarter totals €345.8 million for an EBTA margin of 69%. As mentioned earlier also, we are in a period of heavy expansion and that has had some effect on margin. For the full year, we maintain our guidance of EBTA margin in the range of 69% to 71%. As you see in this quarter and also as we stated when we presented the year-end report a few months ago, we will have lower margins in the beginning of the year and aim to see an increase in Q3 and Q4. I'll move on to the next slide. This slide shows our P&L in a bit more detail, starting with revenue at the top of the table. For the three-month period January to March, live and R&D revenues increased 19.8% and 1% respectively, compared to the same period last year. And that is all organic growth, as all the recent acquisitions were included for the full year last year, so fully organic growth. Moving down to expenses, personnel expenses amount to 106.7 million euro in the first quarter, 29% increase compared to the same period last year. Headcount has significantly increased in Q4, and that good momentum in recruitment also carried over into Q1. with further additions to headcount, so that's the main driver there. Depreciations amount to 34.2 million euro. That includes 11.2 million euro in amortization of intangibles related to acquisitions. Next line, other operating expenses include cost items such as communication costs, consultants, consumable equipment, and also royalty fees. The line amounts to almost 49 million euro in the quarter. It's up 5% compared to the same period, 2023. Summing up, total operating expenses total just under 190 million euro for the period. That's a 20% increase compared to last year. Operating profit sums up to 311.6 million euro in the quarter. And finally, moving on, financial items amount to 5.9 million euro. This includes interest rates, income, of course, but also a negative charge for IFRS 16 lease costs and also some revaluation of bank balances. Tax is at 48.3 million euro in the quarter for a tax rate of 15.2%. As has previously been communicated, our tax rate increases for this year, 2024, as the Pillar 2 regime comes into effect. Still not fully clear exactly how the Pillar 2 top-up tax will be administrated, and the actual top-up tax will be paid first in 2026. We will, of course, follow this development closely during the year and continue to accrue tax to our best knowledge. We will naturally also look to adapt our operations to achieve a tax-efficient structure where that makes sense. This item brings us to a profit for the three-month period of €269 million. This equals an earnings per share of €1.25 per share for the quarter after dilution, a 9% increase compared to the first quarter of 2023. I'll move on to the next slide. This is a look at cash flow and financial position. Starting from the left-hand side, This shows development of capital expenditure. As we mentioned a few times today and also in the year end report a few months ago, we are in a heavy expansion phase. Lots of studio projects and generally big emphasis on expansion for 2024. And we expect capex of about 120 million euro this year. We slightly ahead of that pace in the first quarter. In Q1, capex intangible assets, that's the gray part of the bars, that's mainly related to studios and also some office projects. It totals 19 million euro in the quarter, and that is both expansion in our existing studios and also several new studio projects, as we've said. The blue part of the bar represents investments in intangible assets, and that's related to development of new games and features on the platform. CapEx in intangible assets total 17 million euro in the quarter. So total CapEx in the quarter 36 million euro. And we maintain the guidance of 120 million euro for the full year. Moving on to the chart in the middle of the slide showing cash flow in the period with the operating cash flow after investments of 265 million euro. Cash conversion, operating cash flow in relation to EBITDA still on a very good level of over 80% for the rolling 12-month period. And then finally on the right-hand side of the slide, a summary of our balance sheet at the end of the period. We are in a strong financial position, fully equity financed. At the end of the period, the cash balance was 974 million euros. During the quarter, we have completed the buyback program of a total 400 million euro that was initiated in November of last year. And the board proposes a dividend of 2.65 euro per share for the AGM on Friday this week to decide upon. And that would total roughly 560 million euro. So that's in line with our dividend policy of at least 50% payout of net profit. But combining buybacks and dividends, 90% of profit from 2023 will be shifted back to owners. That's why maintaining a strong growth agenda for the business also going forward. That was the end of my prepared comments. Back to you, Martin, for some closing words, and we'll open up for questions after that.

Thank you, Jacob. And now just a few words to summarize this report, just before the questions from you. Evolution has a truly unique market position. One of the biggest challenges is to keep up with demand. Few companies are privileged enough to exist in this reality, but it also raises the bar on us as an employer, an innovator, a game creator and a market leader. We need to work even harder to step up to this challenge. The roadmap for 2024 looks amazing and our ambition level remains higher than ever. The coming year constitutes the product leap year for Evolution And considering our historic performance, that is saying a lot. I will round off and say that I very much look forward to the rest of 2024. And by that, I open up for your questions.