Evolution AB (publ)

Welcome to the Evolution Q3 2024 report. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to the speakers, CEO Martin Carlsund and CFO Jacob Kaplan. Please go ahead.

Thank you. Good morning, everyone. And welcome to the presentation of Evolution's third quarter of 2024. My name is Martin Karlsson, and I'm the CEO of Evolution. With me, I 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 closer look at our financials. After that, I will round off our presentation with an outlook for the remainder of 2024. And then we will open up the call for questions. Next slide, please. The third quarter of 2024 has been continued focus on operational development, and we have successfully launched several new exciting games and at the same time opened two new live studios. We are step by step continuing to build evolution worldwide to meet future demand and make sure that evolution is equipped to capture the great potential from the continued development of online casino around the globe. However, the quarter has also included near-term challenges and events outside evolution that have had a negative impact. But let me start on the positive note. We continue to expand our network of studios throughout the world. During the quarter, we have launched the first table from our new studio in Colombia. This is our second studio in Colombia, and it will be a main studio to serve the quickly developing Latin market. However, this studio will also support Europe as well as Asia. Since we spoke last, we have also opened the first tables in the new studio in the Czech Republic. The Czech studio will primarily serve the Czech market, but will over time also be a great addition to our European capacity and an important piece of our global studio puzzle. I've also had several new game launches in the past period. The major addition to our lineup of game shows is Lightning Storm. It's our most ambitious and advanced game show to date. cutting edge technology and innovative game design come together to create a simply fantastic player experience. I'm very pleased and happy to see that it is an initial success with players. We also acquired Arcadia Gaming Solutions, which is an innovative technology company. Arcadia enables players to engage in real time with physical arcade machines through their mobile devices, offering a unique and engaging online experience And we now look forward to integrate parts of this technology in our future games. In North America, we are step by step expanding our live casino product portfolio. And I feel we have better traction now than earlier. During the quarter, we have added new games like Crazy Coin Flip, Super Sick Bowl, Video Poker, and Crazy Time in several states. Those releases, bit by bit, enhances the player experience and satisfaction in North America. And we see good pickup on new games in North America. Another piece of news in North America is that we are set to launch a Sugi as a standalone brand outside New Jersey. This further broadens our offering to operators in the US and is part of our North American expansion. In Canada, we've signed partnership with the Atlantic Lottery, with the addition to provinces of New Brunswick, Newfoundland and Labrador and Nova Scotia. We can now offer our games to all of Canada. R&D also has a growing momentum as we are continuously expanding our OSS footprint. I'm happy to see the growth of 8.5% in the quarter, and I look forward to the coming quarter, even if I want to remind you that it's not a linear growth pattern quarter on quarter. As I mentioned at the start, the quarter has also included events that have been challenging for us. As I think most of you know, we have had challenges with our operation in Georgia, and I will come back with a bit more details on next slide. However, as a result of the strike and the illegal actions taken by the union in relation to the strike, we're currently operating at about 60% of full capacity in the studio in Georgia, which is a level we will try to maintain. We do not see us returning to full capacity due to the instability. With a new network with over 20 studios, we are able to offset loss capacity in other studios and limit the impact for our customers. But overall, the disruption has been negative and caused negative effect in the quarter. Currently, the situation in Georgia is stable and we will continue to rebuild and increase capacity in other locations in the network over the coming quarters to be able to support future growth but also to increase our redundancy in operative capacity. During the quarter, we have also seen an increase in amounts of cyber attacks against our Asian video distribution. These attacks have impacted us negatively. Cyber criminals use advanced technology to intercept our video feed, manipulate it, and redistribute it without authorization, which leads to loss of revenue. These kinds of thefts will always be a problem for a leading and most desired product. But we have, during the last currency, a more advanced and significantly increased activity. We have deployed several measures to counteract these cyber attacks, but it has negatively impacted the third quarter. Cybercrime is a problem in many industries, and I'm afraid that this is a new reality to some degree. But Evolution is one of the leading companies in the area, and we are increasing our efforts to prevent these attacks. So clearly, we have had challenges over the past period and based on that, I'm very happy and proud of the delivery in Q3 and also how the organization has responded to those challenges. When we face challenges, we will work harder, find smarter solutions and most important of all, never settle but strive to be better every single day. In my view, some of our operational achievements this quarter is not fully reflected in the financial result, but very significant. We have made progress in several key projects that makes us stronger for the future.

Next slide, please.

I want to share some more details on the situation in Georgia. This slide shows pictures from our A building in Georgia. Top left is the reception. Bottom left is one of three subsidized canteens. Top right, you see the A building from the outside. And bottom right, you see a part of the internal and amazing free gym. We have created a great work environment with the same standard as in any other European studio. We have competitive salaries and overall very attractive terms. But during the summer and early fall faced a difficult situation in Jordan. After two years of dialogue and negotiations with the union, a strike was initiated mid-July. Demands from the union were simply from our point of view, unreasonable. I want to point out that evolution fully supports the right of individuals to participate in unions and other organizations of their choice. However, it's important that unions take the responsibility to act in line with legislation and overall union values. There's been a lot of disinformation and blunt lies spread by the union in media, and one of many examples is the strike participation. In average, over the period, there have been around 550 participants, and currently it's around 300 participants out of 7,500 to 8,000 employees, and nothing else. As a result of the low participation and low engagement, our daily operations were not impacted by the strike. However, as of August 1st, a small number of union activists as well as non-employees started to illegally block the entrance to the workplace, vandalize our buildings, behave violently and harass and threaten our working staff. These actions caused severe disruptions to operations and forced us to move part of the operations to other studios. This is for me a very sad outcome. We are very proud of the workplace we offer in Tbilisi Studio. Thousands of young Georgians have taken the first step of the professional life here. and hundreds have gone to work in our operations in other countries, we offer a great opportunity and work base based on European values in Georgia. As mentioned on the last slide, the slide before this one, the situation is now stable and we maintain operation of approximately 60% of full capacity. Next slide. Let's have a look at the financial highlights. For the third quarter, our total operating revenue amount to €579 million. That includes net operating revenue of €519 million, corresponding to year-on-year revenue growth of close to 15%, revenue growth at constant currency is estimated to 19% for the quarter, and then other operating revenue of €59 million. This is entirely related to reduced earn-out liability, Accounting rules require this to be recorded as a revenue item. We have adjusted for this non-recurring item when looking at our EBDI in the period, which I will comment later. Adjusted EBDI margin comes in at 68.5 for the third quarter. This is slightly lower than we expected coming into the quarter, and we expect margins to remain around this level for the final quarter of the year. expect to complete the year around 68.5% margin, which is slightly under expectation from the beginning of 2024, which was a full year EBITDA margin in the 69 to 71% range. We will come back to our outlook for 2025 when we report the full year. For our live segment, revenues amount to €447 million for the quarter, corresponding to a year-on-year growth of 15.8%. R&G revenues amount to 72.5 million euros, corresponding to a growth of 8.5% year-on-year. We start to see effects from the incremental improvements to our R&G offering during the past year, and I'm happy with the growth in Q3. There still remains much to do, and we are only in the beginning to see the benefits of OSS for our operators, with the new features and tools starting to roll out, in addition to exciting new game releases for all our brands. Next slide, please. We see an effect of the downsizing of employees in Georgia in our total headcount at the end of the period. As I mentioned, we are now starting to recruit again in Georgia to maintain the current capacity level. Also important to note that even though the number of employees have been reduced in Georgia, have carried large costs in Georgia as a result of the current situation. In other locations, recruitment is on good to strong levels, and we have stepped up our recruitment to ensure that we can meet demand and expand in our newly launched studios. We also continue to invest in new studio capacity. Right now, we're planning new projects and studios in Brazil and Philippines. 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 activity in our network. When we lose table capacity in the network, as has been the case in the quarter due to development in Georgia, we will adjust delivery to serve the most important parts of the network. This reduces the number of bets placed but will not affect revenues to the same extent. As we continue to expand capacity in studios outside Georgia, we look forward to serving also the lower value volumes of players. Also impacting the quarter when it comes to the game rounds are countermeasures that we have launched towards the unauthorized use of our product in Asia. This has impacted the number of game rounds recorded in the quarter negatively. Despite these factors, reducing the game round index in Q3 vs Q2, I see the underlying activity in the network as very good and healthy. I expect that we're going forward, we'll continue to see game round index increase with Q3 as a new adjusted baseline. Next slide, please. We are now three quarters into what I like to call the product leap years of 2024 and 2025. Our ambition remains as high as ever, both in terms of quality and quantity and lifting excitement to new levels for players worldwide. Let me mention some of the fantastic games that are about to be released. To bet with famous persons, streamers and influencers is an entirely new way to play. Through our new product, we offer end players to play together with their favorite streamers, brand ambassadors and influencers. They can chat, play behind and have fun together. Through this entirely new product, we offer our operators a platform to increase the social aspect as well as the entertainment factor of gaming even further. Don't forget that the end user excitement and entertainment is the most important of everything in the long run. Deal or no deal was our first ever live slot game and featured RNG qualification, top up phase and a live bonus game. And now we have ramped up excitement even further with the release of an upgraded version of the game, giving players an even better experience. The shiny and new game features improved qualification slots, the top-up 15-segment money wheel, where the players can top up the amount of money in the briefcases by 5 to 50x. And then the real excitement starts. Our engaging game host enters and guides the players through the iconic stage of deal-or-no-deal game. And the scheduled release for this fantastic game is October 30th. Bat Stacker Blackjack. This is an enhanced version of the Infinite Blackjack game, introducing bat stacker rules and bonus elements allowing the players to stack their main bats for potentially greater wins. It really elevates the thrill of Blackjack and the potential for even greater balls. Then, also, Crazy Balls Live is an entirely new game mashup and it's an unmatched gaming experience. It's an incredible live game show in which the thrill of crazy times for unique bonus games with the big multipliers meet the excitement of a bingo-style main game. Scheduled release is November 2024. On the RNG side, we have released 20 titles in the quarter, all high-quality, high-innovation games representative for all of our uniquely individual RNG brands, no limited to Red Tiger, NetEnt, and Big Time Gaming. We are game changers and game creators. Through our innovations, not only do we offer a unique play experience, a state of the art game, but we are also transforming an industry with our R&D investments in studios and the mentality of never settling. We constantly defend and expand our market leading position.

Next slide, please.

Our product has a truly global audience, and the potential for online casinos continues to grow with every increasing demand. We continue to see year-on-year growth in all regions. In North America, we see good momentum, reporting 18% growth for the third quarter. Currently, for the first time this year, we also see a small increase in revenues from our R&D offering in North America, together with live casinos that have performed really well throughout the year. With expansion, both in terms of new agreements, product launches and available games, I look forward to the future development of North America. Europe has shown consistent growth of around 10% over the last year and continues its steady increase coming in at around 11% for the third quarter compared to the same quarter last year. Even though it's our most mature region, it continues to show great potential. With our studio expansion in the region through our new studio in Czech Republic, We stand ready to increase delivery. Asia remains our fastest growing market, and the size of population and size of market offers great future potential. In this quarter, there is an impact from the mentioned cyber attacks, and we see a small increase in revenue compared to the previous quarter. We have addressed the situation, but I think we will be a couple of quarters before we are back to our earlier growth path. For Latin America, we see 9% growth for the region, and we anticipate this market will pick up the pace in terms of growth during 2025, as the Brazilian market would regulate in early 2025. Other regions, mainly consists of Africa, is showing good growth in the quarter of 24%. Important to note that the maturity of the markets, including the segments, make the development quite lumpy. The share of revenue from regulated markets continues to be stable just under 40%. With that, I will hand over to Jacob for a closer look at the financials. So, next slide, please.

Thank you, Martin, and good morning to all of you listening. We'll have a couple of slides with a closer look at the financials, as you mentioned. Net revenue in the third quarter of this year amounts to 519.4 million euro, and that's a growth rate just under 15% compared to the same quarter 2023. Revenue in the quarter is made up of 446.9 million euro from live casino games and 72.5 million euro from our RNG offering. In the comparison to Q3 2023, there's a negative effect from changes in currency rates as it's made to about 4%. This quarter also includes 59 million euro of other operating revenue. This is related to a reduction of our earn-out liability. It's a non-recurring item and not included in net revenues in this slide. So revenues and EBTA are comparable over time here. Adjusted EBTA in the slide means excluding this 59 million other revenue. I hope that's clear. We've been a bit lucky not to have had any adjustment items for some time, but Now we have to live with this one, but I'm sure we will manage that also. The live casino revenue in the quarter of 446.9 million euro is equal to growth rate of 15.8% year on year. Live casino is negatively impacted both by the situation in Georgia, where we have reduced table capacity and also by cyber attacks in Asia as Martin covered just a minute ago. However, the underlying development of the market is still healthy in our view, with a very good reception of new product launches in the quarter and overall strong customer demand. Moving on to RNG, RNG revenue amounts to 72.5 million euro. It's an increase from both from the previous quarter and it also amounts to 8.5% growth year on year. We are starting to see effects of the improvements that we have talked about during the past year. Better release tempo of new games, improved commercial presence, and also the benefits of OSS becoming more evident for operators with new features and tools rolling out as Martin just talked about. All these things contribute to the growth. There are still many things we can do better in our delivery. We will continue to make improvements and strive to be a little bit better every day also in this area. But to a side note, RNG in North America specifically has been an area where we have seen a decline in revenue earlier during 2024. We do see a small growth year on year in North America RNG in the third quarter, which is encouraging. Also, if I look at RNG outside of North America, the combined growth is well over 10% during actually the past two quarters. So we're starting to make some headway also on the RNG side. Moving on. Adjusted EBITDA in the quarter totals €355.6 million for an adjusted EBITDA margin of 68.5%. This is an improvement from Q2, but still a notch lower than what I expected three months ago. The events in Georgia have negatively impacted both revenue and cost and are a large part of that deviation against my own expectations. Currently, we expect margins to remain around this level for the final quarter of the year, And thereby, we are likely to complete the year slightly under our expectation from the beginning of 2024. At that time, we said that our EVTA outlook for EVTA margin for the full year was 69 to 71% range in that region. As usual, we will come back to our view on margins for 2025 when we report the full year. Okay, with that, I'll move on to the next slide. This has the P&L in a bit more detail. I'll start from the top. For the three-month period, July to September, live and RNG revenues increased almost 15% and 8.5% respectively, compared to the same period last year, as come from the previous slide. And further to the right in the table, if you compare the year-to-date periods of 2024 and 2023, growth for the nine-month period is almost 18% for live casino and 3.6% for RNG. Next in the table is other operating revenues. This is a new line item for us in the quarter, and as I mentioned, it refers entirely to reduced earn-out liability related to the big time gaming acquisition, where the maximum earn-out has been reduced by the 59 million. So it's reduced liability that's accounted for as a revenue this way. Moving down to expenses. Personnel expenses amount to 110.6 million euro in the first quarter, an increase of 21% compared to the same period last year, but a slight reduction from the previous quarter this year. Downsizing in Georgia has reduced staff levels towards the end of the quarter, as mentioned, and at the same time, we are expanding in other locations. Total headcount is slightly lower at the end of the quarter compared to the end of the second quarter. We will continue to increase staff during the rest of the year. as we ramp up our newly opened studios and also expand elsewhere. Depreciations total 36.1 million euro up 15% compared to the same period 2023. 11.4 of that depreciation is amortization of intangibles related to acquisitions. Other operating expenses includes several items such as consumable equipment, communication costs, consultants and also royalties. It's 53.2 million euro in the quarter. That's up 24% compared to the same period 2023. And also on this, like I said, the situation in Georgia has driven some additional costs. Summing up, total operating expenses are 199.8 million euro for the period. Increase of just over 20% compared to the same period last year. Operating profit, next line, is 378.2 million euro in the quarter. And that includes the one of other revenue. So comparison to last year in the table is not quite like for like. Adjusting for the non-recurring item in this quarter, the increase in operating profit is 11.3% compared to Q3 2023. Next, we have financial items. The main parts are interest income, which is a positive item in the quarter, and revaluation of bank balances, which is a negative item in the quarter. Also, IFRS 16 lease costs are booked here. So altogether, net financial items is a cost of 1 million euros this period. Tax is at 49.6 million euros in the quarter. That is a tax rate of 15.6%, adjusted for the non-recurring revenue. As has been previously communicated, our tax rate increases 2024 as the Pillar 2 regime comes into effect. We continue to evaluate how to best locate our operations to achieve efficiency in operations, as well as a tax efficient structure. These items bring us to profit for the three month period of 328.6 million euro, which equals an earnings per share of 1 euro 57 euro cent per share. After dilution and for the nine-month period, EPS amounts to 4.09 euro per share, a 13% increase compared to the same period last year. Compared to last year, of course, there's a significant increase in tax level between two periods. We'll move to the next slide. This has our cash flow and financial position as the heading. Starting from the left in the slide, it shows the development of capital expenditure. As we have spoken about earlier this year, we are investing heavily. Since last quarter, we have opened the first tables in the Czech Republic studio and also our new studio in Colombia has seen its first tables. CapEx level in general is up compared to 2023. We estimated 120 million euro in total CapEx for this year. for the first nine months, CAPEX amounts to about 100 million euros. So we are slightly ahead of that pace and will likely be over 120 million for the full year. Looking closer at the table to the left in the slide, the gray part of the bars, that represents CAPEX in tangible assets. It's 14.3 million euro in the quarter. It includes both expansion on our existing studios and also new projects. The blue part of the bar, that represents investments in intangible assets, and that's related to development of new games and features on the platform. It totals 17.9 million euro in the quarter. Moving on to the middle of the slide, the chart in the middle of the slide, this shows cash flow in the period. We see strong operating cash flow after investments of 324 million euro. And cash conversion, operating cash flow in relation to EBDA was on a very good level, over 80% for the rolling 12-month period. And then finally, to the right in the slide, a summary of our balance sheet at the end of the period. We remained fully equity financed and in a strong financial position overall. At the end of the period, cash balance was 764 million euro. Since the end of the quarter, the remainder of our buyback program has been completed. The program was completed on Monday this week, so that has consumed an additional almost 150 million euro of the cash balance that we had in end of September. Those were my prepared comments. Martin, back to you for some closing words.

Thank you, Jacob. Fantastic. A few closing words before we open up for your questions. We are in a period of heavy expansion and investment right now. Expansion in our studio operations, expansion in our game portfolio, expansion in new markets like Czech Republic, Brazil and Philippines. At the same time, we're preparing and waiting for further regulation and opening of new markets in the world. We're waiting for new states in the USA. Of course, I'm waiting for Brazil to regulate. maybe even France, and more countries to regulate. It's an exciting and potential future. To be able to push this growth agenda while at the same time distributing significant capital back to owners is a sign of strength of our business, and I'm very happy for that. As those of you who follow us for some time know, we are always excited about our product roadmap and the next game. ICE, the major iGaming trade show, has been moved to January 2025 and to Barcelona from London. Right this minute, we are intensely pushing forward towards the delivery of the best and most exciting roadmap ever. We will again take a large step forward during 2025 and we will showcase it on ICE. At the same time, we're extremely focused on rolling out our new games during Q4 2024. We see the traction of games like Lightning Storm and we see how traction continues to build. We see the comments on the game from end users and we measure their engagement. End user entertainment and to continue to build new games that challenges the boundaries of online gaming is what success looks like in the longer time perspective. Don't follow and copy what others do. That is simply not enough. Lead the way and innovate. understand the demand of the younger generations growing up, and create the games that will entertain them in the future. We stand on a strong foundation today and have a bright future in front of us. The way for us to capture that future is to work hard and continue to improve day by day, one step at a time. Thank you for listening so far. With that, we open up for questions. Please, there's a last slide.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Ed Yuen from Morgan Stanley. Please go ahead.

Good morning. I've got three, please. First of all, could you elaborate a bit more on the cyber attacks? When did they start? And can you perhaps talk about what exactly has been happening and if you can estimate any kind of impact you've seen on that? Second of all, RNG has obviously been decently stronger. Is there anything you can call out particularly why that's inflected in North America, or is it just a matter of comping out some of the negatives from last year? And then finally, on margins, I know you won't guide to next year, but can you talk perhaps in principle that if you continue to see a reduction in your sort of group supply from Georgia and a reallocation essentially of supply to other geographies, is it fair to assume that's margin negative or not necessarily so? Thank you.

Okay, a few comments on the cyber attacks. There has always been this type of attacks happening. You have the best product, someone wants it, and there's been technically advanced ways of intercept and manipulate and redistribute that. So that's been there. Now, during Q3, we've seen an extensive and significant increase of that. That's the effect that we're talking about. quantify that. It's very hard. It's very subjective. So we don't have an exact figure to give you on that. It's an effect. When it comes to R&D, I think that systematically, methodically, we're doing the right thing. We've been a little bit delayed, as we have talked about before. And now we start to see traction towards our goals and we deliver. And then, of course, We have had a very big R&D portion in North America, and we're happy to see that growth. And on the total now, without North America growing well beyond 10%, that's good. And on a total 8.5, we're happy with that. When it comes to margin, we are working now. We are setting up new studios. We're expanding in other parts of the world. We are a notch lower, a couple of tenths of a percentage lower than the guidance. We're 20,000 employee company worldwide. So, okay, we're a little bit lower on that. We will come back 2025 for the guidance, but we don't see a structural difference in evolution going forward.

Okay, thank you.

Thank you.

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

Thank you. Good morning, guys. Good morning. So my first question just on the little bit, you know, slowing growth in Asia. So obviously there was some cyber attacks. There will also be some news around, you know, Pogo and Japan payment blockings, etc., Have you seen any other impacts in Asia except for the cyber attacks that could burden the Asian revenue growth? Thanks.

There is always a lot of things happening on different markets. So there are other effects, but usually there is a little bit positive, a little bit negative, and it comes out. Right now, we call out the cyber attacks. We do not see any underlying differences in demand or player volumes. as such. The attacks is the ones that we point out.

Okay, thank you. And just on the split in the reduced capacity in Georgia, is that mainly low-stakes blackjack tables? Have you seen any impact on, for instance, the Baccarat tables on the reduced capacity? Thank you.

When we have this situation, that we can go as deep as we want into the market or we don't have enough capacity in some way. We, of course, maximize the output of the tables that we have. So we take away the lower value tables first. And there are some limitations to that. So I leave it with that comment that it's lower value tables that are closed down.

Perfect, thank you. Just one more then, just on the reduced capacity, so have you had any customer feedback? Do you see any sort of mitigation to moving to your competitors when you have reduced capacity? I don't know if it's in branded tables, for instance. Thank you.

It's naturally not positive, and the situation with the customers, when when a union illegally blocks and makes thousands of people unable to go to work is negative. I think that we work closely with our customers and offset that, but of course it's not hosted.

Got it. Thank you very much. Thank you. Thanks, Oskar.

The next question comes from Alistair Johnson from BNP Paribas. Please go ahead.

Morning, guys. Morning. So I've got three as well. So firstly, on Georgia, do you think the kind of strikes negative publicity have damaged kind of your relationships with regulatory authority or government in the country? And could that sort of impact how much we invest there going forward? That was one question or two. That was one question.

Okay, got it.

Thank you. Secondly, do you expect Georgia to get back to the staffing levels you've seen previously? I appreciate you said you're hiring there. And then I guess, is there risk in having so many staff in one studio? And then thirdly, you've called out the kind of strength in RNG gaming, but at the same time, you've got a reduced an out liability for big time gaming? Can I just get some color on sort of what's happened there, I guess?

Okay, yeah. I met, I was traveling recently, I met regulators and such. I think that they see through the social media and the situation with the unions and how they communicate and what status. I do not see an an effect in any regulatory aspects. I think that regulators base their judgment on facts rather than social media. So we'll work on that. When it comes to the Georgian, we are now operating on the Georgian capacity. We're operating on 60%. And we do not see us going back to 100%. It's too unstable for that. There's elections tomorrow. It's a bit of instability. So we will keep it on 60%. The last question was on the R&D and the relation to the cut of the earn-out and the effects of that. I would say that we are very aggressive when it comes to setting up our acquisitions. We demand high growth for the earn-out to come in force. We are a little bit delayed with the effects of R&D and therefore we have lower or not payment in relation to the G up that comes now because of the timing of the the about station but on total 8.5 percent and 10 percent and even more than that in work with we're actually up by them nothing has changed rather that we continue on the path that we talked about with you so we are a little bit delayed that has an effect on their not but we are I'm quite happy with the Q3 results, if that makes sense.

The next question comes from Martin Arnell from DNB Markets. Please go ahead.

Good morning, guys.

Good morning.

My first question, could you just, you mentioned something about, you know, when you talked about the game round index, it's down quarter on quarter, but revenues up. And I appreciate the comments on the tables, but you said something about Asia there as well. Could you comment on that again, please?

Yeah, when we take countermeasures on Asia, on the cyber attacks, of course, they're not 100% precise. So there is a little effect on the game round index because we cut a little bit deeper than maybe only exactly the ones that are cyber attacking.

So that has a little effect there. Yes.

Okay. And you're happy, I guess. I mean, it's impressive to see the mitigating actions you've done here with running at 60% capacity in Georgia. Anything other to comment on that? How you were able to mitigate?

I think that that comes through in my comment that the organization of evolution is responding well. I think that we are a company not standing and looking at the sunset, we are actually doing something and wake up in the morning and get things out of the door. And you can see that when we have these challenges, we do things and make it work. So I'm happy without them. And that's my comment when I said like, maybe it's not showing in the financial results, but good quarter, well done to all of the employees of Evolution.

Yeah, thanks. The studio in Asia, this will be your first studio in Asia, the Philippines studio. And I remember we've talked about this several years, right? And you've always been, no, it's too early. And now you're here. So the question is, what's changed? And, you know, do you have an ongoing relationship with the authorities there?

The change is simply that the Philippines regulate and they do it in a good way with a serious regulator and we are then to continue on that market obliged to have a studio in Philippines and after careful evaluation we have taken that step and I see that as the first step now where potentially Just like in Europe, once upon a time, where the UK regulated and other countries would follow, I think that we can see the same trend. It could take 10 years, could take 20 years, could take five years. We do not know that, but it will probably say this is the first step. So it's an interesting thing.

Thank you. My final question is on R&D. I remember that you said that's going to be lumpy, the sort of path up to double-digit growth, and now you're at almost there. But you didn't say anything on that, Jacob, in this quarter. Is this a new level?

Well noted. It's of course still, it can move up and down. And in all honesty, the comparable quarter here for RNG Q3 2023 is a relatively weak one. It's probably still true that it's not a straight line development. But we started to talk about in the beginning of this year, we looked to do improvement quarter on quarter and we managed to do that. And I think we continue to have that aim. But yeah, of course, the growth rate can still be lumpy. So that probably should have been in there.

Thank you, guys. That's all for me. Thank you very much.

Thanks.

The next question comes from Amar Gulijasevic from Carnegie Investment Bank. Please go ahead.

Good morning, guys. Maybe I'm tired of getting questions on the cyber attack here, but I just want to fully understand exactly how that works. So the way I get it is someone basically immediately broadcasted your feed, intercepted that, but how exactly does that affect in lost revenues? for you guys, and how does it affect the game round index?

Simply put, someone else is selling our product.

Okay. It's hard to quantify, as Martin pointed out earlier, but players that would have been playing on our games are not. They are somewhere else.

Okay. And then How much should we read into the fact that you, I think you said something about Q3 being the new baseline in Asia. We shouldn't expect a big bounce back in Q4. Like, okay, now we've solved this issue and we're kind of getting back to

The comment on the new baseline was in relation to the game rounds index. We are expecting to grow the game round index from where we are. That doesn't correlate revenue, just to keep those things apart. When it comes to the situation in Asia, The comment I made was that it would probably take a couple of quarters before we get back to the pattern we had before. Of course, we hope to see a gradual increase and slowly move back, but it won't be a light switch maneuver.

That's very clear. Finally, you touched upon it, Martin. France is potentially working towards regulation here in 2025. Do you have any expectations for this or what are your thoughts?

My thoughts would be that the ghost of France regulating has been around for many years. It's been talking about it for a long time. Now it's a little bit more concrete. It's in the budget and that's great, so that moves forward. France is probably the largest online casino market in Europe. One of the largest for sure. That's not only related to the population, it's just a large market. So that's fantastic. I also reacted to this tax level in France, which I saw was on 55%. So that's on the high side, it's kind of difficult. And they have had tax regimes on others which have been high. But look forward to it. I hope for it. Great market.

Okay, great. Thank you, guys. That's all from me.

Thanks, everyone.

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

Morning, everyone. Morning. through from me if I can. The first one is on the cash flow statement. There was 100 million of cash outflow for other financial assets, and I just don't know what that relates to, much higher outflows than we've seen historically. The second question I just had was just trying to get an understanding of, so if we think about the studio capacity at the end of the third quarter versus, say, earlier in the year or the end of the second quarter, where are we in overall studio capacity because obviously we're running at 60 studio capacity in georgia but we've also opened studios in czech republic and colombia so sort of how do those two net out um and then the final question was just on rng obviously the performance improved significantly in the quarter and he's talked about um you know how strong the growth has been in north america But just wondered if you could touch a bit on one-stop shop and how much you thought that had been a benefit to the RNG performance in the quarter.

Okay, I'll leave the cash flow to you. I will comment on the capacity in RNG. So maybe I can start with the capacity. We are, I mean, in a normal situation, we would be expanding capacity as well as not closing. So right now, even though we are expanding Colombia, expanding Czech and adding tables and resources into other, we're a little bit behind. So hence, that's why I comment that, of course, we're not serving all of the volume that we want to serve and we'll report to come back to that. and also that hands again that that's why the game round index is a little bit weaker this this quarter so that's the capacity uh when it comes to rng uh i mean i would say as i said before it's a systematic and method methodically We have been on this for a long time. And one of the really important things that delivers now is the OSS. All of our RNG products go through OSS. It's easy to access for the customers. They get one integration and they have all of our beautiful games and they can do whatever they like with that. So that's absolutely fantastic. And on top of that, we add functionality where we add spin gifts and other things that are supporting our products. and all on OSS. So OSS is of course one important part, but maybe the most important part is still to make the right gains for the market, of course. So I think that we are moving on systematically and methodically on all aspects of that. It's hard to say that it's exactly this one. OSS plays a big role, yes.

Yes, on the cash flow there, it's part of our cash management. We have moved about 100 million to a bond portfolio. So before we have most of our cash on just on account, and now we have put a small portion of it in a bond portfolio. So it's a hold to maturity portfolio, so it will not be sort of mark to market, so it won't fluctuate. We will just sort of keep it for the time being.

Sorry, just to clarify, so that 100 million that's been moved to this bond portfolio that you'll hold to maturity, that's just so you can earn a bit more on your cash?

Yep. Okay, understood.

Thank you.

Thank you very much.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you, Siri, your fantastic AI voice. We will miss it when we're done with the conference. Thank you very much for listening. Pleasure hearing you all, and see you soon. Thank you. Thank you. Thank you. Thank you. Good morning, everyone. And welcome to the presentation of Evolution third quarter of 2024. My name is Martin Karlsson, and I'm the CEO of Evolution. With me, I 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 closer look at our financials. After that, I will round off our presentation with an outlook for the remainder of 2024. And then we will open up the call for questions. Next slide, please. The third quarter of 2024 has been continued focus on operational development, and we have successfully launched several new exciting games and at the same time opened two new live studios. We are step by step continuing to build evolution worldwide to meet future demand and make sure that evolution is equipped to capture the great potential from the continued development of online casino around the globe. However, the quarter has also included near-term challenges and events outside evolution that have had a negative impact. But let me start on the positive note. We continue to expand our network of studios throughout the world. During the quarter, we have launched the first table from our new studio in Colombia. This is our second studio in Colombia, and it will be a main studio to serve the quickly developing Latin market. However, this studio will also support Europe as well as Asia. Since we spoke last, we have also opened the first tables in the new studio in the Czech Republic. The Czech studio will primarily serve the Czech market, but will over time also be a great addition to our European capacity and an important piece of our global studio puzzle. I've also had several new game launches in the past period. The major addition to our lineup of game shows is Lightning Storm. It's our most ambitious and advanced game show to date. cutting edge technology and innovative game design come together to create a simply fantastic player experience. I'm very pleased and happy to see that it is an initial success with players. We also acquired Arcadia Gaming Solutions, which is an innovative technology company. Arcadia enables players to engage in real time with physical arcade machines through their mobile devices, offering a unique and engaging online experience And we now look forward to integrate parts of this technology in our future games. In North America, we are step by step expanding our live casino product portfolio. And I feel we have better traction now than earlier. During the quarter, we have added new games like Crazy Coin Flip, Super Sick Bowl, Video Poker, and Crazy Time in several states. Those releases, bit by bit, enhances the player experience and satisfaction in North America. And we see good pickup on new games in North America. Another piece of news in North America is that we are set to launch a SUGI as a standalone brand outside New Jersey. This further broadens our offering to operators in the US and is part of our North American expansion. In Canada, we've signed partnership with the Atlantic Lottery, with the addition to provinces of New Brunswick, Newfoundland and Labrador and Nova Scotia. We can now offer our games to all of Canada. R&D also has a growing momentum as we are continuously expanding our OSS footprint. I'm happy to see the growth of 8.5% in the quarter, and I look forward to the coming quarter, even if I want to remind you that it's not a linear growth pattern quarter on quarter. As I mentioned at the start, the quarter has also included events that have been challenging for us. As I think most of you know, we have had challenges with our operation in Georgia, and I will come back with a bit more details on the next slide. However, as a result of the strike and the illegal actions taken by the union in relation to the strike, we are currently operating at about 60% of full capacity in the studio in Georgia, which is a level we will try to maintain. We do not see us returning to full capacity due to the instability. With a new network with over 20 studios, we are able to offset loss capacity in other studios and limit the impact for our customers. But overall, the disruption has been negative and caused negative effect in the quarter. Currently, the situation in Georgia is stable and we will continue to rebuild and increase capacity in other locations in the network over the coming quarters to be able to support future growth but also to increase our redundancy in operative capacity. During the quarter, we have also seen an increase in amounts of cyber attacks against our Asian video distribution. These attacks have impacted us negatively. Cyber criminals use advanced technology to intercept our video feed, manipulate it, and redistribute it without authorization, which leads to loss of revenue. These kinds of thefts will always be a problem for a leading and most desired product, but we have during the last currency in a more advanced and significantly increased activity. We have deployed several measures to counteract these cyber attacks, but it has negatively impacted the third quarter. Cyber crime is a problem in many industries, and I'm afraid that this is a new reality to some degree. But Evolution is one of the leading companies in the area, and we are increasing our efforts to prevent these attacks. So clearly, we have had challenges over the past period, and based on that, I'm very happy and proud of the delivery in Q3, and also how the organization has responded to those challenges. When we face challenges, we will work harder, find smarter solutions, and most important of all, never settle, but strive to be better every single day. In my view, some of our operational achievements this quarter is not fully reflected in the financial result, but very significant. We have made progress in several key projects that makes us stronger for the future.

Next slide, please.

I want to share some more details on the situation in Georgia. This slide shows pictures from our A building in Georgia. Top left is the reception. Bottom left is one of three subsidized canteens. Top right, you see the A building from the outside. And bottom right, you see a part of the internal and amazing free gym. We have created a great work environment with the same standard as in any other European studio. We have competitive salaries and overall very attractive terms. But during the summer and early fall faced a difficult situation in Jordan. After two years of dialogue and negotiations with the union, a strike was initiated mid-July. Demands from the union were simply, from our point of view, unreasonable. I want to point out that evolution fully supports the right of individuals to participate in unions and other organizations of their choice. However, it's important that unions take the responsibility to act in line with legislation and overall union values. There's been a lot of disinformation and blunt lies spread by the union in media, and one of many examples is the strike participation. In average, over the period, There has been around 550 participants and currently it's around 300 participants out of seven and a half to eight thousand employees and nothing else. As a result of the low participation and low engagement, our daily operations were not impacted by the strike. However, as of August 1st, a small number of union activists as well as non-employees started to illegally block the entrance to the workplace vandalize our buildings, behave violently and harass and threaten our working staff. This action caused severe disruptions to operations and forced us to move part of the operations to other studios. This is for me a very sad outcome. We are very proud of the work place we offer in Tbilisi Studio. Thousands of young Georgians have taken the first step of the professional life here and hundreds have gone to work in our operations in other countries. we offer a great opportunity and workplace based on European values in Georgia. As mentioned on the last slide, the slide before this one, the situation is now stable and we maintain operation of approximately 60% of full capacity. Next slide. Let's have a look at the financial highlights. For the third quarter, our total operating revenue amount €579 million. That includes net operating revenue of €519 million corresponding to year-on-year revenue growth of close to 15%. Revenue growth at constant currency is estimated to 19% for the quarter. And then other operating revenue of €59 million. This is entirely related to reduced earn-out liability Accounting rules require this to be recorded as a revenue item. We have adjusted for this non-recurring item when looking at our EBDI in the period, which I will comment later. Adjusted EBDI margin comes in at 68.5 for the third quarter. This is slightly lower than we expected coming into the quarter, and we expect margins to remain around this level for the final quarter of the year. expect to complete the year around 68.5% margin, which is slightly under expectation from the beginning of 2024, which was a full year EBITDA margin in the 69 to 71% range. We will come back to our outlook for 2025 when we report the full year. For our live segment, revenues amount to €447 million for the quarter, corresponding to year-on-year growth of 15.8%. R&D revenues amount to 72.5 million euros corresponding to growth of 8.5% year-on-year. We start to see effects from the incremental improvements to our R&D offering during the past year, and I'm happy with the growth in Q3. There still remains much to do, and we are only in the beginning to see the benefits of OSS for our operators, with the new features and tools starting to roll out, in addition to exciting new game releases for all our brands. Next slide, please. We see an effect of the downsizing of employees in Georgia in our total headcount at the end of the period. As I mentioned, we are now starting to recruit again in Georgia to maintain the current capacity level. Also important to note that even though the number of employees have been reduced in Georgia, have carried large costs in Georgia as a result of the current situation. In other locations, recruitment is on good to strong levels, and we have stepped up our recruitment to ensure that we can meet demand and expand in our newly launched studios. We also continue to invest in new studio capacity. Right now, we're planning new projects and studios in Brazil and Philippines. 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 activity in our network. When we lose table capacity in the network, as has been the case in the quarter due to development in Georgia, we will adjust delivery to serve the most important parts of the network. This reduces the number of bets placed, but will not affect revenues to the same extent. As we continue to expand capacity in studios outside Georgia, we look forward to serving also the lower value volumes of players. Also impacting the quarter when it comes to the game rounds are countermeasures that we have launched towards the unauthorized use of our product in Asia. This has impacted the number of game rounds recorded in the quarter negatively. Despite these factors, reducing the game round index in Q3 vs Q2, I see the underlying activity in the network as very good and healthy. I expect that we're going forward, we'll continue to see game round index increase with Q3 as a new adjusted baseline. Next slide, please. We are now three quarters into what I like to call the product leap years of 2024 and 2025. Our ambition remains as high as ever, both in terms of quality and quantity and lifting excitement to new levels for players worldwide. Let me mention some of the fantastic games that are about to be released. To bet with famous persons, streamers and influencers is an entirely new way to play. Through our new product, we offer end players to play together with their favorite streamers, brand ambassadors and influencers. They can chat, play behind and have fun together. Through this entirely new product, we offer our operators a platform to increase the social aspect as well as the entertainment factor of gaming even further. Don't forget that the end-user excitement and entertainment is the most important of everything in the long run. Deal or No Deal was our first ever live slot game and featured RNG qualification, top-up phase and a live bonus game. And now we have ramped up excitement even further with the release of an upgraded version of the game giving players an even better experience. The shiny new game features improved qualification slots, top-up 15-segment money wheel, where the players can top up the amount of money in the briefcases by 5 to 50x. And then the real excitement starts. Our engaging game host enters and guides the players through the iconic stage of deal or no deal game. And the scheduled release for this fantastic game is October 30th. Bat Stacker Blackjack. This is an enhanced version of the Infinite Blackjack game, introducing bat stacker rules and bonus elements allowing the players to stack their main bats for potentially greater wins. It really elevates the thrill of Blackjack and the potential for even greater balls. Then, also, Crazy Balls Live is an entirely new game mashup. and it's an unmatched gaming experience. It's an incredible live game show in which the thrill of crazy times for unique bonus games with the big multipliers meet the excitement of a bingo-style main game. Scheduled release is November 2024. On the RNG side, we have released 20 titles in the quarter, all high-quality, high-innovation games representative for all of our uniquely individual RNG brands, no limits to Red Tiger, Netlant, and Big Time Gaming. We are game changers and game creators. Through our innovations, not only do we offer a unique play experience, a state-of-the-art game, but we are also transforming an industry with our R&D investments in studios and the mentality of never settling. We constantly defend and expand our market-leading position.

Next slide, please.

Our product has a truly global audience, and the potential for online casino continues to grow with ever-increasing demand. We continue to see year-on-year growth in all regions. In North America, we see good momentum, reporting 18% growth for the third quarter. Currently, for the first time this year, we also see a small increase in revenues from our R&D offering in North America, together with live casino that has performed really well throughout the year. With expansion, both in terms of new agreements, product launches and available games, I look forward to the future development of North America. Europe has shown consistent growth of around 10% of the last year and continues its steady increase coming in at around 11% for the third quarter compared to the same quarter last year. Even though it's our most mature region, it continues to show great potential. With our studio expansion in the region through our new studio in Czech Republic, We stand ready to increase delivery. Asia remains our fastest growing market, and the size of population and size of market offers great future potential. In this quarter, there is an impact from the mentioned cyber attacks, and we see a small increase in revenue compared to the previous quarter. We have addressed the situation, but I think we will be a couple of quarters before we are back to our earlier growth. For Latin America, we see 9% growth for the region, and we anticipate this market will pick up the pace in terms of growth during 2025, as the Brazilian market would regulate in early 2025. Other regions, mainly consists of Africa, is showing good growth in the quarter of 24%. Important to note that the maturity of the markets, including the segments, make the development quite lumpy. The share of revenue from regulated market continues to be stable just under 40%. With that, I will hand over to Jacob for a closer look at the financials. So, next slide, please.

Thank you, Martin, and good morning to all of you listening. We'll have a couple of slides with a closer look at the financials, as you mentioned. Net revenue in the third quarter of this year amounts to 519.4 million euro, and that's a growth rate just under 15% compared to the same quarter 2023. Revenue in the quarter is made up of 446.9 million euro from live casino games and 72.5 million euro from our RNG offering. In the comparison to Q3 2023, there's a negative effect from changes in currency rates as it's made to about 4%. This quarter also includes 59 million euro of other operating revenue. This is related to a reduction of our earn-out liability. It's a non-recurring item and not included in net revenues in this slide. So revenues and EBITDA are comparable over time here. Adjusted EBITDA in the slide means excluding this 59 million other revenue. I hope that's clear. We've been a bit lucky not to have had any adjustment items for some time, but Now we have to live with this one, but I'm sure we will manage that also. The live casino revenue in the quarter of 446.9 million euro is equal to growth rate of 15.8% year on year. Live casino is negatively impacted both by the situation in Georgia where we have reduced table capacity and also by cyber attacks in Asia as Martin covered just a minute ago. However, the underlying development of the market is still healthy in our view, with a very good reception of new product launches in the quarter and overall strong customer demand. Moving on to RNG, RNG revenue amounts to 72.5 million euro. It's an increase from both from the previous quarter and it also amounts to 8.5% growth year on year. We are starting to see effects of the improvements that we have talked about during the past year. Better release tempo of new games, improved commercial presence, and also the benefits of OSS becoming more evident for operators with new features and tools rolling out as Martin just talked about. All these things contribute to the growth. There are still many things we can do better in our delivery. We will continue to make improvements and strive to be a little bit better every day also in this area. As a side note, RNG in North America specifically has been an area where we have seen a decline in revenue earlier during 2024. We do see a small growth year on year in North America RNG in the third quarter, which is encouraging. Also, if I look at RNG outside of North America, the combined growth is well over 10% during actually the past two quarters. So we're starting to make some headway also on the RNG side. Moving on. Adjusted EBTA in the quarter totals €355.6 million for an adjusted EBTA margin of 68.5%. This is an improvement from Q2, but still a notch lower than what I expected three months ago. The events in Georgia have negatively impacted both revenue and cost and are a large part of that deviation against my own expectations. Currently, we expect margins to remain around this level for the final quarter of the year, And thereby, we are likely to complete the year slightly under our expectation from the beginning of 2024. At that time, we said that our EVTA outlook for EVTA margin for the full year was 69 to 71% range in that region. As usual, we will come back to our view on margins for 2025 when we report the full year. Okay, with that, I'll move on to the next slide. This has the P&L in a bit more detail. I'll start from the top. For the three-month period, July to September, live and RNG revenues increased almost 15% and 8.5% respectively, compared to the same period last year, as come from the previous slide. And further to the right in the table, if you compare the year-to-date periods of 2024 and 2023, growth for the nine-month period is almost 18% for live casino and 3.6% for RNG. Next in the table is other operating revenues. This is a new line item for us in the quarter, and as mentioned, it refers entirely to a reduced earn-out liability related to the big-time gaming acquisition, where the maximum earn-out has been reduced by 59 million. It's a reduced liability that's accounted for as a revenue this way. Moving down to expenses. Personnel expenses amount to 110.6 million euro in the first quarter, an increase of 21% compared to the same period last year, but a slight reduction from the previous quarter this year. Downsizing in Georgia has reduced staff levels towards the end of the quarter, as mentioned, and at the same time, we are expanding in other locations. Total headcounts slightly lower at the end of the quarter compared to the end of the second quarter. We will continue to increase staff during the rest of the year, as we ramp up our newly opened studios and also expand elsewhere. Depreciations total 36.1 million euro up 15% compared to the same period 2023. 11.4 of that depreciation is amortization of intangibles related to acquisitions. Other operating expenses includes several items such as consumable equipment, communication costs, consultants and also royalties. It's 53.2 million euro in the quarter. It's up 24% compared to the same period 2023. And also on this, like I said, the situation in Georgia has driven some additional costs. Summing up, total operating expenses are 199.8 million euro for the period. Increase of just over 20% compared to the same period last year. Operating profit, next line, is 378.2 million euro in the quarter. And that includes the one of other revenue. So comparison to last year in the table is not quite like for like. Adjusting for the non-recurring item in this quarter, the increase in operating profit is 11.3% compared to Q3 2023. Next, we have financial items. The main parts are interest income, which is a positive item in the quarter, and revaluation of bank balances, which is a negative item in the quarter. Also, IFRS 16 lease costs are booked here. So altogether, net financial items is a cost of 1 million euros this period. Tax is at 49.6 million euros in the quarter. That is a tax rate of 15.6%, adjusted for the non-recurring revenue. As has been previously communicated, our tax rate increases 2024 as the Pillar 2 regime comes into effect. We continue to evaluate how to best locate our operations to achieve efficiency in operations, as well as a tax-efficient structure. These items bring us to a profit for the three-month period of €328.6 million, which equals an earnings per share of €1.57 per share After dilution and for the nine-month period, EPS amounts to 4.09 euro per share, a 13% increase compared to the same period last year. Compared to last year, of course, there's a significant increase in tax level between two periods. We move to the next slide. This has our cash flow and financial position as the heading. Starting from the left in the slide, it shows the development of capital expenditure. As we have spoken about earlier this year, we are investing heavily. Since last quarter, we have opened the first tables in the Czech Republic studio and also our new studio in Colombia has seen its first tables. CapEx level in general is up compared to 2023. We estimated 120 million euro in total CapEx for this year. for the first nine months, CapEx amounts to about 100 million euros. So we are slightly ahead of that pace and will likely be over 120 million for the full year. Looking closer at the table to the left in the slide, the gray part of the bars that represents CapEx in tangible assets, it's 14.3 million euro in the quarter. It includes both expansion on our existing studios and also new projects. The blue part of the bar, that represents investments in intangible assets, and that's related to development of new games and features on the platform. It totals 17.9 million euro in the quarter. Moving on to the middle of the slide, the chart in the middle of the slide, this shows cash flow in the period. We see strong operating cash flow after investments of 324 million euro. And cash conversion, operating cash flow in relation to EBITDA was on a very good level, over 80% for the rolling 12-month period. And then finally, to the right in the slide, a summary of our balance sheet at the end of the period. We remained fully equity financed and in a strong financial position overall. At the end of the period, cash balance was 764 million euro. Since the end of the quarter, the remainder of our buyback program has been completed. The program was completed on Monday this week, so that has consumed an additional almost 150 million euro of the cash balance that we had in end of September. Those were my prepared comments. Martin, back to you for some closing words.

Thank you, Jacob. Fantastic. A few closing words before we open up for your questions. We are in a period of heavy expansion and investment right now. Expansion in our studio operations, expansion in our game portfolio, expansion in new markets like Czech Republic, Brazil and Philippines. At the same time, we're preparing and waiting for further regulation and opening of new markets in the world. We're waiting for new states in the USA. Of course, I'm waiting for Brazil to regulate. maybe even France, and more countries to regulate. It's an exciting and potential future. To be able to push this growth agenda while at the same time distributing significant capital back to owners is a sign of strength of our business, and I'm very happy for that. As those of you who have followed us for some time know, we are always excited about our product roadmap and the next game. ICE, the major iGaming trade show, has been moved to January 2025 and to Barcelona from London. Right this minute, we are intensely pushing forward towards the delivery of the best and most exciting roadmap ever. We will again take a large step forward during 2025 and we will showcase it on ICE. At the same time, we're extremely focused on rolling out our new games during Q4 2024. We see the traction of games like Lightning Storm and we see how traction continues to build. We see the comments on the game from end users and we measure their engagement. End user entertainment and to continue to build new games that challenges the boundaries of online gaming is what success looks like in the longer time perspective. Don't follow and copy what others do. That is simply not enough. Lead the way and innovate. understand the demand of the younger generations growing up, and create the games that will entertain them in the future. We stand on a strong foundation today and have a bright future in front of us. The way for us to capture that future is to work hard and continue to improve day by day, one step at a time. Thank you for listening so far. With that, we open up for questions. Please, there's a last slide.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Ed Yuen from Morgan Stanley. Please go ahead.

Good morning. I've got three, please. First of all, could you elaborate a bit more on the cyber attacks? When did they start? And can you perhaps talk about what exactly has been happening and if you can estimate any kind of impact you've seen on that? Second of all, RNG has obviously been decently stronger. Is there anything you can call out particularly why that's inflected in North America, or is it just a matter of comping out some of the negatives from last year? And then finally, on margins, I know you won't guide to next year, but can you talk perhaps in principle that if you continue to see a reduction in your group supply from Georgia and a reallocation essentially of supply to other geographies, is it fair to assume that's margin negative or not necessarily so? Thank you.

Okay, a few comments on the cyber attacks. There has always been this type of attacks happening. You have the best product, someone wants it, and there's been technically advanced ways of intercept and manipulate and redistribute that. So that's been there. Now, during Q3, we've seen an extensive and significant increase of that. That's the effect that we're talking about. quantify that. It's very hard. It's very subjective. So we don't have an exact figure to give you on that. It's an effect. When it comes to R&D, I think that systematically, methodically, we're doing the right thing. We've been a little bit delayed, as we have talked about before. And now we start to see traction towards our goals and we deliver. And then, of course, We have had a very big R&D portion in North America. We're happy to see that growth. And on the total now, without North America growing well beyond 10%, that's good. And on a total 8.5, we're happy with that. When it comes to margin, we are working now. We are setting up new studios. We're expanding in other parts of the world. We are a notch lower, a couple of tenths of a percentage lower than the guidance. We're We're a 20,000 employee company worldwide. So, okay, we're a little bit lower on that. We will come back 2025 for the guidance, but we don't see a structural difference in evolution going forward.

Okay, thank you.

Thank you.

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

Thank you. Good morning, guys. Good morning. So my first question just on the a little bit, you know, slowing growth in Asia. So obviously there was some cyber attacks. There will also be some news around, you know, Pogo and Japan payment blockings, etc. Have you seen any other impacts in Asia except for the cyber attacks that could burden the Asian revenue growth? Thanks.

There is always a lot of things happening on different markets, so there are other effects, but usually there is a little bit positive, a little bit negative, and it comes out. Right now, we call out the cyber attacks. We do not see any underlying differences in demand or player volumes as such. The attacks are the ones that we point out.

Okay, thank you. And just on the split in the reduced capacity in Georgia, is that mainly low-stakes blackjack tables? Have you seen any impact on, for instance, the Baccarat tables on the reduced capacity? Thank you.

One, we have this situation that we can't go as deep as we want into the market or we don't have enough capacity in some way. We, of course... maximize the output of the tables that we have. So we take away the lower value tables first. And there are some limitations to that. So I leave it with that comment that it's lower value tables that are closed down.

Perfect, thank you. Just one more then, just on the reduced capacity, so have you had any customer feedback? Do you see any sort of mitigation to, you know, moving to your competitors when you have reduced capacity? I don't know if it's in branded tables, for instance. Thank you.

It's naturally not positive, and the situation with the customers, when when a union illegally blocks and makes thousands of people unable to go to work is negative. I think that we work closely with our customers and offset that, but of course it's not positive.

Got it. Thank you very much. Thank you. Thanks, Oskar.

The next question comes from Alistair Johnson from BNP Paribas. Please go ahead.

Morning, guys.

Morning.

So I've got three as well. So firstly, on Georgia, do you think the kind of strikes, negative publicity have damaged kind of your relationships with regulatory authority or government in the country? And could that sort of impact how much we invest there going forward? That was one question or two. That was one question.

Oh, sorry.

Thank you. Secondly, do you expect Georgia to get back to the staffing levels you've seen previously? I appreciate you said you're hiring there. And then I guess, is there risk in having so many staff in one studio? And then thirdly, you've called out the kind of strength in RNG gaming, but at the same time, you've got a reduced and out liability for big time gaming? Can I just get some color on sort of what's happened there, I guess?

Okay, yeah. I met, I was traveling recently, I met regulators and such. I think that they see through the social media and the situation with the unions and how they communicate and what status. I do not see an an effect in any of regulatory aspects. I think that regulators base their judgment on facts rather than social media. So we work on that. When it comes to the Georgian, we are now operating on the Jordan capacity. We're operating on 60%. And we do not see us going back to 100%. It's too unstable for that. There's elections tomorrow. It's a bit of instability. So we will keep it on 60%. The last question was on the R&D and the relation to the cut of the earn-out and the effects of that. I would say that we are very aggressive when it comes to setting up our acquisitions. We demand high growth for the earn-out to come in force. We are a little bit delayed with the effects of R&D and therefore we have a lower earn out payment in relation to the VTG. But that comes now because of the timing of the situation. But on the total, 8.5% and 10% and even more than that in the world, we're actually satisfied and nothing has changed. Rather that we continue on the path that we talked about with you. So we are a little bit delayed. That has an effect on the earn out. But we are I'm quite happy with the Q3 results, if that makes sense.

The next question comes from Martin Arnell from DNB Markets. Please go ahead.

Good morning, guys. Good morning. My first question, could you just, you mentioned something about, you know, when you talked about the game round index, it's down quarter on quarter, but revenues up, and I appreciate the comments on the tables, but you said something about Asia there as well. Could you comment on that again, please?

Yeah, when we take countermeasures on on the cyber attacks, of course, they're not 100% precise. So there is a little effect on the game round index because we cut a little bit deeper than maybe only exactly the ones that are cyber attacking.

So that has a little effect there. Yes.

Okay. And you're happy, I guess. I mean, it's impressive to see the mitigating actions you've done here with running at 60% capacity in Georgia. Anything other to comment on that? How you were able to mitigate?

I think that that comes through in my comment that the organization of evolution is responding well. I think that we are a company not standing and looking At the sunset, we are actually doing something and wake up in the morning and get things out of the door. And you can see that when we have these challenges, we do things and make it work. So I'm happy without them. And that's my comment when I said like, maybe it's not showing in the financial result, but good quarter, well done to all of the employees of Evolution.

Yeah, thanks. The studio in Asia, this will be your first studio in Asia, the Philippines studio. And I remember we've talked about this several years, right? And you've always been, no, it's too early. And now you're here. So the question is, what's changed? And, you know, do you have an ongoing relationship with the authorities there?

The change is simply that the Philippines regulate and they do it in a good way with a serious regulator and we are then to continue on that market obliged to have a studio in Philippines and after careful evaluation we have taken that step and I see that as the first step now where potentially Just like in Europe, once upon a time where the UK regulated and other countries would follow, I think that we can see the same trend. It could take 10 years, could take 20 years, could take five years. We do not know that, but it will probably say this is the first step. So it's an interesting thing.

Thank you. My final question is on R&D. I remember that you said that's going to be lumpy, the sort of path up to double digit growth. And now you're at almost there. But you didn't say anything on that, Jacob, in this quarter. Is this a new level?

Well noted. It's of course still, it can move up and down. And in all honesty, the comparable quarter here for RNG Q3 2023 is a relatively weak one. It's probably still true that it's not a straight line development. But we started to talk about in the beginning of this year, we looked to do improvement quarter on quarter, and we managed to do that. And I think we continue to have that aim. But yeah, of course, the growth rate can still be lumpy. So that probably should have been in there.

Thank you, guys. That's all for me. Thank you very much. Thanks.

The next question comes from Amar Gulijasevic from Carnegie Investment Bank. Please go ahead.

Good morning, guys. Maybe I'm tired of getting questions on the cyber attack here, but I just want to fully understand exactly how that works. So the way I get it is someone basically immediately broadcasted your feed, intercepted that, but how... Exactly, does that affect in lost revenues for you guys? And how does it affect the game round index?

Simply put, someone else is selling our product.

Okay. It's hard to quantify, as Martin pointed out earlier. But yeah, that simply says, players that would have been playing on our games are not. They are somewhere else.

Okay. And then how much should we read into the fact that you, I think you said something about Q3 being the new baseline in Asia. We shouldn't expect a big bounce back in Q4. Like, okay, now you've solved this issue and we're kind of getting back to...

The comment on the new baseline was in relation to the game round index. We are expecting to grow the game round index from where we are and that doesn't correlate revenue, just to keep those things apart. When it comes to the situation in Asia, The comment I made was that it would probably take a couple of quarters before we get back to the pattern we had before. So, of course, we hope to see a gradual increase and slowly move back, but it won't be a light switch maneuver.

That's very clear. And I just finally touched upon it, Martin. France is potentially working towards regulation here in 2025. Do you have any expectations for this or what are your thoughts?

My thoughts would be that the ghost of France regulating has been around for many years. It's been talking about it for a long time. Now it's a little bit more concrete. It's in the budget and that's great. So that moves forward. France is probably the largest online casino market in Europe. One of the largest for sure. That's not only related to the population. It's just a large market. So that's fantastic. I also reacted to this tax level in France, which I saw was on 55%. So that's on the high side. It's kind of difficult. And they have had tax regimes on others which have been high. But look forward to it. I hope for it. Great market.

Okay, great. Thank you, guys. That's all from me.

Thanks a lot.

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

Morning, everyone. Morning, Monique. The first one is on the cash flow statement. There was 100 million of cash outflow for other financial assets. I just don't know what that relates to, much higher outflows than we've seen historically. The second question I just had was just trying to get an understanding of, so if we think about the studio capacity at the end of the third quarter versus, say, earlier in the year or the end of the second quarter, Where are we in overall studio capacity? Because obviously, we're running at 60% studio capacity in Georgia, but we've also opened studios in Czech Republic and Colombia. So how do those two net out? And then the final question was just on R&G. Obviously, the performance improved significantly in the quarter, and you've talked about how strong the growth has been in North America. But just wondered if you could touch a bit on one-stop shop and how much you thought that had been a benefit to the RNG performance in the quarter.

Okay, I'll leave the cash flow to you. I'll comment on the capacity in RNG. So maybe I can start with the capacity. We are, I mean, in a normal situation, we would be expanding capacity as well as not closing. So right now, even though we are expanding Colombia, expanding Czech, and adding tables and resources into other, we are a little bit behind. So hence, that's why I comment that, of course, we're not serving all of the volume that we want to serve, and we look forward to come back to that. And also that hands again, that's why the game round index is a little bit weaker this quarter. So that's the capacity. When it comes to RNG, I would say, as I said before, it's a systematic and methodically We have been on this for a long time. And one of the really important things that delivers now is the OSS. All of our R&D products go through OSS. It's easy to access for the customers. They get one integration and they have all of our beautiful games. And they can do whatever they like with that. So that's absolutely fantastic. And on top of that, we add functionality. We add spin gifts and other things that are supporting our products. and all on OSS. So OSS is, of course, one important part, but maybe the most important part is still to make the right gains for the market, of course. So I think that we are moving on systematically and methodically on all aspects of that. It's hard to say that it's exactly this one. OSS plays a big role, yes.

Yes, on the cash flow there, it's part of our cash management. We have moved about 100 million to a bond portfolio. So before we have most of our cash on just on account, and now we have put a small portion of it in a bond portfolio. So it's a hold to maturity portfolio, so it will not be sort of market to market, so it won't fluctuate. We will just sort of keep it for the time being.

Sorry, just to clarify, so that 100 million that's been moved to this bond portfolio that you'll hold to maturity, that's just so you can earn a bit more on your cash?

Yeah. Okay, understood. Thank you.

Thank you very much.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you Siri, your fantastic AI voice. We will miss it when we're done with the conference. Thank you very much for listening. Pleasure hearing you all.