Evolution AB (publ)

Good morning everyone. Welcome to the presentation of evolutions 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 Karlessund 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, where after I will hand over to Jacob for a closer look at the financials. After that I will run off the presentation with an outlook for the remainder of the year. And after that of course we have to take all of your questions. So okay let's begin. Next slide please. We've started 2024 with a 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 strategic partnership with CSS Digital we are also adding an additional studio in New Jersey. Our new studio in Columbia 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 deliver a slightly lower margin but for the full year we reiterate our guidance on the FDA of 69 to 71 percent. 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 forms was strong. Revenue amounted to 501.5 growing 16.7 percent. EBD in the quarter increased by 15.2 to 345 million euro corresponding to a margin of 69 percent. There's still currency headwind and in constant currencies the -on-year growth amounts to 24 percent. We grew live revenues with 19.8 percent -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 RNG segment revenue amounts to 70.1 million euro showing a growth of by 0.8 percent. With -by-step improvements, operational benefits stemming from our OSS interface as well as AI injections, RNG 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 offer for top-line growth and market share. Our capex guidance for the full year remains at 120 million euro 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 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 developments 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 -on-year amounts to 3 206 employees corresponding to an increase of 18.5 percent. The increase is clearly higher than during the first three quarters 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 positions 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 deliver out of 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 percent which is a bit faster than revenue. However over time increasing activity a 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. The stock market life is a very important part of our scene 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 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 will 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 launching Q2 and a member of 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, drills and suspensions. Last I also want to mention another upcoming launch which is always eight baccarat. A fresh new take on the classic game of baccarat offering our own take that is reinvented where bankers first card is always an eight and permanently placed on the table. This opens for players to look for out for new trends and adopt different betting strategies. All these releases that we are going to do bear the evolution trademark. Games that make for new and exciting experiences in a new style and quality that they 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 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 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 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 plan studios we are well equipped to increase growth considering the underlying market demand. Asia continues to be our fastest growing market and we are very fast growing markets 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 previous year. Our expansion in the region is proceeding according to plan with the 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. The remaining is Adder which mainly consists of Africa. It stands for about .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 .7% compared to the first quarter of 2023. Revenue in the quarter is made up of 431.3 million euro from our Laika signal product and 70.1 million euro from our RNG 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 Laika signal revenue as mentioned amounts to 431 million euro. That's a growth rate of almost 20% year on year. It's also an increase of almost 26 million euro from the previous quarter. This is one of the largest increases of revenue from one quarter to next that we have recorded. This is of course partly driven by our increase in table capacity also as Martin mentioned earlier. RNG revenue amounts to 70.1 million euro. 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 RNG 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 euro 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 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 RNG 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 2.2 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 royalties. 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 least cost and also some revaluation of bank balances. Tax is at 48.3 million euro in the quarter for a tax rate of 15.2 percent 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 adapter operations to achieve a tax efficient structure where where that makes sense. These items brings us to a three a profit for the three month period of 269 million euro this equals an earnings per share of 1 euro 25 euro cents per quarter of the dilution to 9 percent increase compared to the first quarter of 2023. I'll move on to the next slide and this is a look at cash flow and financial position starting from the the left hand side this shows development of capital expenditures 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 on expansion for for 2024 and we expect capex of about 120 million euro this year. We slightly had of that pace in in the first quarter in q1 capex intangible assets that's the gray part of the bars that that is mainly related to studios and also some of this project it totals 19 million euro in the quarter and that is both expansionary 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. Cappex in intangible assets totals 17 million euro in the quarter so total capex in the quarter 36 million euro and as mentioned we maintain the guidance of 120 million euro for 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 tbta still on a very good level of over 80 percent for the rolling 12 month period and then finally on the right hand side of 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 euro during the quarter we have completed the buyback program of 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 percent payout of net profit but combining buybacks and and dividends 90 percent 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

if you wish to ask a question please dial pound key five on your telephone keypad to enter the queue if you wish to withdraw your question please dial pound key six on your telephone keypad the next question comes from ed young from morgan stanley please go ahead

uh good morning i've got three questions please um the first is on your capacity growth martin you seem satisfied that you're getting some better momentum in recruitment and you're adding a record number of studios this year obviously we don't get to see the phasing of those and we don't get to see from the outside how you're sort of building up tables within existing studios but is it fair to conclude from what you said that you expect to still add a record number of tables this year and would we would we still be able to expect you know stable to slightly growing revenue per table as you've had in previous years the second question is on um x seven point impact you've called out it's perhaps a little bit higher than um uh weird estimated so i wonder if you could just remind us about how you're constructing that fx impact is that both the impact of uh of billing in dollars for instance and and reporting in euros as well as the underlying purchasing power of the customers just be interesting if you could just give us the building how you get to that number and then the third was you haven't mentioned it in the release but there was some reporting yesterday that you'd signed 365 as a as a customer which i think will be the last tier one customer that wasn't previously on the on the system so perhaps one of you could just confirm confirm that and talk more broadly about how we should think about additions of new customers to your system versus greater than the existing customer base thank you

okay thank you and good morning i will take the fun part and i'll leave the building blocks of the effects to jacob now the tables it's not always the best way to calculate future revenues or forecasting so so for me right now yes we are expanding we have added more persons this or employees this evolutioners this quarter than i think ever before and we are we are with that's the second quarter in a row where we're ramping up and accelerating and and we will continue to do that and and we will add for some geographical markets we're building in check we're going to add tables for that we're going to we're going to build the right amount of tables to get the maximum out of market 2024 exactly what numbers if that is would be a higher number or lower number i i don't i don't want to comment on that because i don't really know if you ask me of course i see it as a larger number but we don't know that yet bet365 yes we are live with them it's something fantastic it's a great thing for us it's an honor for us to work with that 365 finally we worked on that for i think a decade or so and and eventually we are there nothing but fantastic and then we also have to put it in context of our financial situation 10 years ago it would have been a financially major deal today evolution is that large that one single operator however even if tier one or bet365 or other it won't affect the numbers in in a in a very significant way so we need to to keep that a little bit in a little bit tighter so fantastic to work with bet365 major deal great thing good for all players i think that they have vast amount of players that will enjoy playing with evolution we look forward to that and tables will will expand and then i'll leave the building blocks to yeah yeah

the effects it's like you said i mean it's both both the effects of our our actual building in other currencies than euros but but also incorporates the ggr that's generated in many different currencies and how you know if we were to convert that ggr to euro using the fx rates from from previous year then that would have given a higher higher revenue number so it combines both of those but it's not a lot of difference between except then under a similar level almost q3 q4 and now q1 so it will then was done lapping the big shift in in in the fx rates sort of about the year ago so coming into second quarter i expect the much lower number when it comes to the fx impact okay thank

you

the next question comes from oscar ronquist from abg sundial collier please go ahead

thank you good morning and thanks for taking my questions so the first one would just be on the heavy expansion phase that you have during 2024 and i believe it started already in q4 2023 where you have you know sharply increased the the hiring pace and the investments so do you see this as a sort of you know the the extremely high pace of investments as sort of you know more transitory and then we could see after 2024 that you are maybe going to see a little bit more operational leverage or do you think that this sort of you know new pace will continue for a few years or i don't know if you can elaborate anything on that please

there is of course the pace that we have now is a bit of catch up we were clearly under supplying to the market during a certain period after not being able to expand fast enough in the middle and almost in the beginning and in the middle of q 2023 so so we are continuing and and i mean expanding is good and in any trade off between market share and revenue and margin we would go for market share and revenue so we will continue and expand in the pace that is suitable for the market and and probably slightly less aggressive but still with good pace going forward

all right thank you and i don't know if you if i didn't hear that or not but but jacob just is the capex guidance still on 120 million

that's correct still 120 full year all right

perfect thank you um just uh i have a question on latin america um so i still think that the the growth is maybe a bit lower at least than what i expected but i think that you know maybe it's a part of the brazilian regulation which obviously constitutes a large part of the market so do you see any sort of impacts in latin america that the brazil is sort of you know ramping or being a bit muted ahead of the expected regulation do you see any impact of that thanks

i think your analysis is correct we we see a bit of an effect of the situation in brazil and brazil is the largest by far market in latin america so we look forward to a situation where it's where we can move a bit forward faster in brazil

great thanks i just have one more question just on north america i think that the market is doing pretty well at the moment and i think that you're growing slightly lower or than than the market both sequentially and looking year over year so just wanted to look at the split between live and i guess that you know you still have a very large market sharing live but i then assume that you know the rng pressure is is still quite high so do you are you doing anything to change that sort of trend or do you think that you know the live casino growth will sort of start to outpace the rng decline soon

there are a couple of comments to that first of all share of live is still fairly low in in north america so there is potential for that to grow that takes time we know that from europe it always takes time to build that market so we're on to that we are growing live with the market so we are we're doing well there and we are not doing as well as we could with with rng and we look forward to take the same steps as we do in europe and step by step increase the situation also in rng

so we're looking forward to that all right thank you

the next question comes from martin arnell from dnb markets please go ahead

yeah hi good morning guys my first question is so my first question is on on actually on the 365 extension to include live dealer would you say you know you said that you've been waiting for a decade is it something that's changed from their end or from your end that enables this now

it's a business relationship we're finally concluding we're super happy with that there a lot of parameters of course related to that exclusivity is another but but we're very happy that we concluded it now

okay thanks and on your live revenue growth if you look at the underlying trends is it fair to say that it's stabilizing now that you better meeting demand trends with increasing capacity

yeah i feel that we are in better balance now with supply demand and i'm very happy to see the activity increase in the quarter you saw the 33 percent on best of course we were we're in a we're in a good we're in a balance but much better balance now than before yes

do you see improved volumes in the start of the year compared to where you were late last year because of the new game releases that was sort of more into second half last year

i think that the best indicated showing the activity increase is the best spots right now so you see that there is like a 33 increase in the activity and and that comes of course both from the from from fantastic releases in the end of 2023 and a few two or so in in the beginning of 2024 stock market is a great release as well but also of course that we are now supplying better to the demand so good activity increase in in the beginning of the year perfect

and my final question the op ex maybe jacob you can comment on other op ex increased by 10 quarter on quarter and also some color on the cost per employee which looks to be up almost 10 percent in the quarter final loss from the cash flow receivables increase thank you

yes on op ex you're right i mean there is an increase in in in personnel cost it's mainly driven by by volume of that it's slightly up also even though if you look over a couple of more quarters than just compared to q4 then it's relatively stable but but yes the trend is a little bit up there and we have had inflation in many markets and you know that's i think that's partly reflected there salary willing is increased yeah salary does increase exactly the second question was on the other op ex yeah that is a little bit lumpy as you know i mean we even have a slightly lower i think amount on on that line one of the quarters last year but but over time i expect that to increase also i mean as we expand all of those items in there also will will grow with volume so to say but but it is more lumpy so a little bit harder to to model in in in in every quarter so to say on cash flow i think overall very good we do have a little bit of increase in accounts receivable in the in in the quarter a few items that sort of actually came in after the end of the quarter so adjusting for that it would have been on more or less the same level but but overall it's a number i always want to to have lower of course always want to get paid faster but but overall we yeah we feel good about that so but it is it is up a little bit in the quarter

okay thanks guys

thank you

the next question comes from karanjot gurawul from bofe please go ahead

okay guys um just a couple of questions from north america um fc have you seen any step change in how long it's taking for you guys to get game approvals um strictly thinking on the rng side now and then secondly what do you have forecasts for um potential states approving further i gaming in coming 12 to 24 months thanks

game approvals are i think that we are pacing it up bit by bit step by step it was a big struggle a year ago taking a long time it's a little bit better now that there's plenty to do and and we're still maneuvering it so so i think the the right way step by step a little bit better but there's still much to do to to get it as good as it is in europe for example when it comes to states that it's very hard it's the usual suspect of anything from new york to illinois indiana and others and and since those are political processes it's very hard for us to predict and and and honestly i we don't work out of that as soon as we have a rumor we we we go there we look at it and we prepare and once prepared we're ready to go and we're just waiting so so so so we are essentially waiting in a number of states just for for the political process to conclude hearing up did we lose you did we lose everyone

the next question comes from james roland clark from barkley's please go ahead

hi everyone thanks for taking my questions as well

morning

morning good morning my first one's on the guidance and your q1 margin 69 you've obviously flagged previously that h1 will be softer in the rest of the year but maybe could you help us with the cadence of the margin through the year so you know q4 is it growing each quarter that you report through the year was that your expectation my second question is on your capsule allocation so you've just finished a as you put it a very successful share buyback program so how do you think about the scope for another program or potentially a rolling program from here versus the opportunity for bolton acquisitions and then finally you talk in your statement about the ai opportunity in the rng business and i wonder if you could just give some color around how you see that as whether it's driving faster revenue growth therefore further operating leverage or whether it's more of a sort of cost efficiency based program you know that can reduce costs and drive margin that way thank you

okay yeah we got it i i want to since we'll get a little bit i mean there's been a couple of questions on the margin of course and i understand that and we have stated already before that it will be a state in the first half of the year and a little bit stronger in the second half now i want to take it on a on a on a different in a different way we had an under supply we needed to scale up get capacity and get going and and revenue comes after that scale up there is no physical possibility to get the revenue first and then and the scale up after so so the softer margin during first half is positive because we are scaling out we're we're we're pushing the delivery we are we're doing it and that revenue that will come out of that scale up is partially here but it will also come in the future so it's that it's a positive thing there is no other way to do it so that's why we're doing it and now we say that yeah it will be a not stronger margin in the q3 and q4 and we'll maintain the guidance of 69 71 so so i'm i'm very i'm satisfied with the 69 percent and and and i think that the scale up and to be in in a better balance between supply and demand is is very fortunate i will i i will leave the middle question capital allocation to you jacob and i will comment a little bit on the ai i today ai is so hyped and many companies look at it's like a solution to everything you we're going to build our business on ai everything is like oh wow we're going to ai is going to take over i look at it slightly different i talk about ai injections i talk about you should find the place in your software or your operation where ai make perfect sense and you should inject it in that part you shouldn't try to build an ai solution going for cost or going for revenue in total you should really look at where can i benefit from it it could be design elements it can be customer service it can be it can be chat moderation it can be ai suggestions of what games and it can be analyzed so so for me it's an injection to really find where the places are where we can do something that in the end of the day increase and use satisfaction and happiness and entertainment so if i if i look at it right now i think that it's almost 50 50 if it drives revenue or if it downgrades or takes down costs that's how i would say that we place our ai injections right now it's almost like a little bit on both sides now i go for capital yeah the capital

i'll say there's no real change in in the view on that i mean the as you know that the the main way of returning capital to shareholders is through dividends so we have the 50 percent dividend payout now the board asks the agm for a mandate every year for buybacks it will come up at the agm also also this year and then it's up to the board to when to use that and we have used it several times in the past this is i think the third one that was just now completed so it's definitely a tool that's in in the toolbox so to say but but there isn't a set policy or or a sort of certain threshold that that we've indicated for for buybacks and and then mna of course is also a use of capital we we have done some mna in the past we've said that we've intentionally been sort of kept it quite wide in terms of what what we're looking for you know recently you could say it's been more technical components that that support the the overall product portfolio i think that that's reasonable our main growth strategy is still organic so it's not a situation where we sort of need to do mna in order to to to grow that that we could be here next year and maybe no mna and that would be fine also but but if there are good opportunities that support the overall mission of becoming the leading provider of online casino products then then we for sure will go with that so there's no no change in the view on capital allocation that that's the way to summarize it

thank you very much

thank you thanks

there are no more questions at this time so i hand the conference back to the speakers for any closing comments

thank you very much for all for listening to to both our presentation and questions it's an honor to report for a great company like evolution and all fantastic people working there and we're very happy with the figures this quarter thank you