Evolution AB (publ)

Good morning, everyone. Welcome to the presentation of Evolution's full year 2024. My name is Martin Karlsson, and I'm the CEO of Evolution. With me, I have our CFO, Jacob Kaplan. I will, as usual, start with some comments on our performance in the quarter we're after. I will hand over to Jacob for a closer look at our financials. After that, I will round off the presentation with an outlook for 2025. And then we will open up the poll for all of your questions. Next slide, please. I'll start with an update on some of the key events in the quarter. Overall, we see a very good momentum in our business in North America, Latin America and Europe, while we are still hampered by the cyber attacks and fraud in the Asian region. We have launched several countermeasures that improve our situation, but growth is clearly affected in quarter. I said already in Q3 that we expected it would take a couple of quarters to come to terms with the situation, and we are in that process right now. Despite the current headwinds in Asia, we continue to see strong global demand for live casino, and I've expanded our studio network throughout the year, so also in Q4, and we end the year with over 1700 tables. During the year, we added over 300 tables in our global network. However, we also reduced capacity significantly in the Georgia studio, so net increase of capacities around 100 tables during 2024. Since a few months back, the situation in our Georgia studio is good, and the strike itself is not a factor anymore. We continue to develop the studio together with our employees, closely monitor the situation in the country, and are not planning for an increase in capacity. The regulatory environment in our industry is evolving. Step by step new countries introduce national legislation for online casino. Latest addition is Brazil with a regulated market open now in January. This development is a driver for long term growth as it clarifies how B2C operators address the market and also attracts new end users. Also markets with existing local regulation develop continuously as political positions evolve and practice in the market develops. As a B2B provider we hold licenses in certain markets and naturally we need to develop with the shifting regulatory landscape. In the past quarter we have introduced additional technical measures that aim to more effectively ring-fenced markets with a local regulation and ensure that our games are only available with locally licensed operators from markets where such license exists. As we look into 2025, we see that the underlying market trends are strong. Development of online casino in general and live casino in particular is still in the early stage in many regions. And we are in prime position to seize that opportunity and will continue to expand and invest for increased market shares and growth. However, until we see improvement in Asia, our expectation on margins is slightly lower than our current level. Right now, we estimate the EBITDA margin for full year 2025 in the range of 66 to 68%. We have a very good scalability in our business model and longer term, there is a good opportunity for higher margins. For this year, given our focus on expansion, slightly more expensive resource mix, current situation in Asia and a strengthened focus on regulated markets, we see an effect on margin. We're making steady and good progress in our RNG offering. This quarter, year-on-year growth is 6.7% and it is the fifth consecutive quarter with incremental revenues increase. However, we had even more ambitious earn-out targets and we adjusted earn-out forecast for BTG in Q3 and no limit city in this quarter. This is reflected in the 91 million euro in other operating revenues in the quarter. In July, the board published an updated capital allocation framework, and in line with that framework, the board of directors have proposed a dividend of €280 per share for 2024. And in addition, the board intends to repurchase shares for up to €500 million during 2025. Our business encompasses many different areas, each of them important on its own, right? but the core of evolution is to create truly fantastic playing experiences, simply deliver great games. In the debate of many other topics, I'm sometimes afraid that it gets lost. We're now halfway through what we call product leap years, that started 2024. The launches this past year have been spectacular and I'm very excited to show parts of our roadmap in last week's ICE for 2025. I dare to say that our roadmap 2025 is as strong as today. I'll come back to some highlights later in the presentation. We also, during 2024, initiated more focused attention to protect our IP rights as well as patents. We have also strengthened our patent portfolio even further. I foresee that this will, in a longer time perspective, show good results. it is our nature to never give in to challenges but rather face them head on and although the final quarter as well as the full year has posed some challenges i'm immensely proud of however everyone at evolution has used all the innovative power and determination to be able to make evolution a little bit better every day next slide please Let us then have a look at the financial highlights. For the fourth quarter of 2024, Evolution reports a total operating revenue of €625.3 million with a growth of 31.5%. But if we look closer, that entails net operating revenue of €533.8 million corresponding to year-on-year revenue growth of 12.3% and added to that, other operating revenue of €91.4 million entirely attributable to reduced earner's liability. The adjusted EBITDA margin comes in at 68.1% in the quarter and 68.4% for the full year, as previously communicated, and not slower than expected at the beginning of the year. Our live segment continues to perform well and comes in at Euro 4.59.5 million, corresponding to a year-on-year growth of 13.3%. RNG revenue totals at 74.4 million, growing year-on-year by 6.7%. I'm very pleased by the continued momentum for RNG and very much look forward to what 2025 can offer. As per usual, much remains to be done. But in the face of the challenges in 2024, I am pleased, but never content. And we continue to push for growth in 2025. Next slide, please. As visible here, we have picked up momentum in recruitment and we are working to meet demand through expanding studios and filling them with dedicated, enthusiastic people to deliver the best gaming experience on the market. It's important to note that we managed to regain good to strong levels of recruitment and we increased in headcount, even though the effects of downsizing in Georgia is still visible. We have good expansion in the newly opened studio in Colombia. Major studio projects 2025 will include Brazil and Philippines, and I expect to open three to four new studios during 2025. We're also now using our large-scale footprint to reshuffle our operation to reach an optimal setup at the same time as expanding. I expect to see those effects in the second half of 2025. Next slide, please. This slide shows our game round index. It can be seen as a general indicator of activity throughout our network over time. In Q3, we saw a bit of a dip in the activity, mostly attributable to the situation in Georgia and also Asia and actions that we have taken there. The situation we saw then was more reflecting capacity issues and external factors than the underlying demand. However, as you can see, activity is slowly improving in Q4, even though we can increase even more to come back to the longer term. Next slide, please. As mentioned on the top of the presentation, the product leap years are off to a great start 2025 and we are with full force continuing to push the envelope for new games and playing experiences. During 2024, we released our biggest game to date, Lightning Storm, alongside several thrilling games that players have already taken to heart and that are performing strongly. Some of the more important games released in 2024 is continuously growing its momentum. With that said, in 2025, we raise our already high ambitions by adding 110 new games to our portfolio, while never compromising the unique quality and innovation which is the Evolution trademark. But also 2025, we will also direct a number of games for different markets, for example, specific RNG games for USA. The past week, we showed part of our roadmap at ICE in Barcelona. It's the strongest roadmap we have ever created. And I would like to mention a few highlights. No Limit City has a great momentum and the team creates, in my opinion, the world's best slots 2024 and the roadmap for 2025 looks amazing. Marble Race, probably one of the more requested games during the past years. The live race between marble balls with gravity deciding the outcome is a pure, exciting betting event. This is our first instance of marble racing, and I think it will appeal to a wide array of players, almost as fun to watch as it is to bet on. It's a great game. Racetrack builds on the success of mixed live and RNG games like Stock Market. This is a classic horse racing RNG game that brings you the nostalgic feeling of being in the 80s arcade. NetEnt released the strongest game since we acquired NetEnt in Q4, and with new user interface and features, together with very exciting roadmap 2025, it has a lot of potential. Casino War, Evolution's version of the classic Casino War game, set in a battleship-inspired studio, another direct, simple to understand playing experience that will have an audience across all regions. What do you get if you combine the elegance of a classic roulette with the most exciting bonus round in the company? Fireball roulette. The game built on the fireball bonus round in our Lightning Storm game and will for sure be one of the most anticipated releases of the year. Big time gaming continues to innovate and we look forward to several groundbreaking releases during 2025. Red Tiger will direct a number of releases towards the North American market, and we look forward to continue to build momentum for RTG in USA. 2025 will be a year that further solidify our unique market position and our commitment to transforming this industry. With talent, hard work, innovation and resilience, we will continue to disrupt, develop and deliver for all our stakeholders. Next slide, please. Our offering has a truly global audience and the demand is growing on all markets in different two levels of maturity and all regions are showing stable development apart from Asia right now. The North American momentum from Q3 continues into Q4 with growth of 19% year on year in the fourth quarter. Live Casino continues to do well and with land expansion in all studios and partnerships such as newly communicated FanDuel extension and new agreement with Atlantic Lottery, we come into 2025 with good momentum. R&D also shows a positive trend and we see results of incremental improvements made over the last year. I very much look forward to see what the region holds in 2025. Europe is performing steadily and maintain growth around 10% year-on-year as in previous quarters this year. Latin America has growth of 20% year-on-year in the fourth quarter and is an exciting region with much development at the moment. The Brazil market regulated in January is still early has been a bit slow the first couple of weeks, but I expect the market to grow momentum as the year goes on. Our upcoming local studio will be important to meet the demands in the region. To cater to our Spanish speaking demand and also English, we will also expand our table capacity in Colombia, a studio that also can support operators outside the region. Asia has 11% growth year on year, but it's flat since previous quarter as mentioned. We will see issues with the cyber attacks hijacking our product and we estimate to solve them within a couple of quarters. We will continue to deploy full force in countermeasures and we are implementing changes that make it more and more difficult to take advantage of our system in an unintended way. I reiterate that, as we stated in Q3, it will take a few quarters before we have come to terms with the problem, and we are in that process right now. Other regions, mainly consists of Africa, is showing good year-on-year growth in the quarter, even from lower levels. The share of revenue from regulated markets increased from 41 to 41% in Q4. With that, I hand over to Jacob for a close look at our financials. Next slide, please.

Thank you, Martin, and good morning to all of you listening. We'll have a couple of slides for a closer look at financial development during the period. Net revenue in the fourth quarter of 2024 amounts to 533.8 million euro for a growth rate of 12.3% compared to the fourth quarter of 2023. Revenue in the quarter is made up of 459.4 million euro from our live casino games RNG offering. In the comparison to Q4 2023, there's a negative effect from changes in currency rates estimated to about 4% on the total. As you've seen earlier in the presentation, the quarter also includes other operating revenue related to a reduction of earn-out liability of 91.4 million euro in the quarter. That's excluded in this slide, so revenues and EBITDA here are comparable over time. Leif Casino revenue in the quarter of 459.5 million euro is equal to a growth rate of 13.3% year on year. Leif Casino is impacted by the situation in Asia, as Martin covered on the previous slide. However, the underlying development of the global market is very good in our view, with good traction for new products and active operators. R&G revenue amounts to 74.4 million euro. That's an increase from the previous quarter and 6.7% growth year on year. Slightly lower growth rate than in Q3, but the third quarter was against a somewhat weaker corresponding quarter in 2023. We are pleased with the development in R&G and we're seeing the effects of the improvements we've talked about during the past years. The better release tempo, improved commercial presence, clear benefits of OSS, all things that contribute to the growth. We will continue to make improvements. One change for 2025 will be more games tailored to regional preferences, as Martin mentioned also. EBITDA in the quarter totals 363.6 million euro for an EBITDA margin of 68.1. For the full year, adjusted EBITDA margin is 68.4. And as we concluded already last quarter, the full year margin is slightly lower than our guidance from the beginning of this year, or beginning of 2024, I should say. For 2025, we expect EBTA margin in the range 66 to 68%. Forecasting margin is not an exact science. Our current view is based on that we see opportunities for long-term growth and believe that it's right for the company to continue to invest and expand to capture that growth. For 2025, the expansion will come with a resource mix that's a bit more expensive than in recent years. Also, right now, we have a situation in Asia affecting growth and we're also expecting some limited effect from the ring fencing of locally regulated markets in Europe. Altogether, until we see an improvement in the Asia region, our expectation on margins is slightly lower than our current level. As Martin mentioned earlier, and as we have shown in the past, there is scalability in our business model, and longer term, there are still very good opportunities for higher margins. But right now, given focus on expansion, we expect a step lower margin during 2025. I'll go to the next slide. So a little closer look at the P&L, starting with revenue. For the three-month period October to December, live and R&G revenues increased about 13 and almost 7%. That's fully organic growth. Further to the right in the table, comparing the full year 2024 to 2023, we can see that we have added about 265 million euro in net revenues. The past two, three years, we have added around 300 million in revenue per year. And the reason for the lower level, lower absolute addition 2024 is the slowdown in Asia, as we discussed earlier. All the other regions are performing really well, including and improving R&D business. Net revenue growth for the full year is 14.7%. Other operating revenue is a new line item this year, and we see it now for the second quarter in a row. Even though it's a non-recurring item, it refers entirely to reduced earn-out liability. And in this quarter, it's related to the No Limit Safety acquisition, and in Q3, it was related to the BTG acquisition. As mentioned earlier, No Limits City show really good performance right now, and we're extremely pleased with that position and the addition that it's had to our team. The earn-out targets were ambitious and the delays to OSS, among other things, play into the development. Hence, the earn-out period has been extended, but the total will be lower than forecasted at the time of acquisition. Moving on down to expenses, personnel expenses amount to 109 million euro in the quarter. That's a 16% increase compared to the same period last year, but a slight reduction or level with Q3 this year. Q4 includes a one-off reversal of bonus provisions as targets were not fully met for this year, and that offsets an underlying increase in headcount, which is picking up after a drop in Q3, as is on the previous slide. We expect to continue to increase staff during 2025 as we ramp up newly opened studios and also expand in several locations. Depreciations amount to 37.3 million euro, up 8.6% compared to the same period 2023, and that includes 11.4 million euro in amortization of intangibles related to acquisitions. Other operating expenses, the next line includes cost items such as communication costs, consumable equipment, consultant, royalty fees. The line amounts to 61.2 million euro in the quarter. It's up from 44 million euro the same period 2023. It's a line item that is a bit lumpy. Royalties, consultants and legal fees, I would say stand out a little bit, all significantly up compared to the fourth quarter of last year and also up compared to previous quarter this year. Summing up, total operating expenses, total 207.6 million for the period. It's a 20.2% increase compared to last year. Operating profit is 417.6 million euro in the quarter. That includes 91 million euro non-recurring other revenue. So, comparison to last year is not like for like in the slide here. The main parts of financial items are interest rate income in the quarter and revaluation of bank balances, and there's also IFRS 16 lease cost that's booked here. Altogether, it amounts to 7 million euro in the quarter. Tax is at 48.3 million in the quarter. That's a tax rate of 14.4%, comparing which is tax exempt, and tax rate for the full year 2024 adjusted also for non-recurring other operating revenues is 15.1%. 2023, our tax rate was 6.7%, so a significant increase this year due to the introduction of Pillar 2. The tax rate increase has offset much of the pre-tax profit growth this year. We will always look to maximize after-tax earnings for our shareholders. For 2025, tax rate is expected to be 15 to 16%, so level with 2024. These items bring us to a profit for the three-month period of 377.1 million euro, equal earnings per share of 1 euro 83 euro cent per share for the quarter after dilution. And the 12-month period EPS amounts to 5.91 euro per share. EPS for 2024 would be 5.22 euro, which is a 4% increase compared to 2023. with that i'll move to the next slide look at cash flow and financial position and we'll start to the left this shows capital expenditure we are in a heavy expansion phase this year and that's also reflected in our capex level which is up compared to 2023 as you can see in the slide 2023 was the year when we did not manage to fully expand as we had planned and this year we make up for some of that In Q4, CapEx intangible assets total 15.5 million euro. It includes expansion in existing studios and also several new projects, as mentioned. And the blue part of the bar represents investment in intangible assets, and that's development of new games and features on the platform. CapEx in intangible assets total 20 million euro in the quarter. Total CapEx in the quarter amounts to 35.5 million euro and 136.7 million euro for the full year. It's a little bit higher than my estimate from the beginning of the year of 120 million euro. For 2025, we expect total CapEx of about 140 million euro. Moving on to the chart in the middle of the slide, showing cash flow in the period. We can see operating cash flow after investments of 294 million. Cash conversion, operating cash flow in relation to EBITDA, very good level, over 80% for the rolling 12-month period. At the end of December, accounts receivable is up a bit compared to the end of the third quarter, mainly due to some payments coming in right after year end. So in January, accounts receivables look more normal. on the right hand side of the slide a summary of our balance sheet at the end of the period strong financial position remains as we spoke of last quarter we have added an investment grade bond portfolio to our cash management structure this is now shown on a separate account in the balance sheet you see it here as financial assets it's about 100 million euro at the end of the period the cash balance was 801 million euros so 900 million total including the bond portfolio In line with our capital allocation framework and dividend policy, the board proposes a dividend of 2.8 euro per share. It's an increase from 2.65 euro per share last year and will total about 578 million euro. The board also announces that we will repurchase shares for 500 million euro during 2025. All this in accordance with the capital allocation framework published earlier this year. So dividend and repurchase of shares will return just about 100% of excess cash for the year during 2025. That was the end of my prepared remarks. I'll hand back to Martin for some closing words and we'll take questions after that. So Martin, over to you.

Thank you, Jacob. So now to a few closing remarks before we take all of your questions. I know I've said it already today, but it's worth repeating. We have the strongest roadmap of game releases ever set for 2025. We believe this is a key cornerstone to our success to continue to give players an exciting and flawless playing experience in all our games and to provide new exciting games that can entertain larger audiences. Equally, we are in the beginning of the online casino expansion in the world as well as that we are on our way to reach new player groups. Demand for our products are very strong and I really look forward to 2025. 2024 was a big investment year for Evolution that will continue into 2025. We will keep on expanding our student network and investing for future growth. Brazil and Philippines are major projects 2025 but I expect a total of three to four studios going live in 2025 as we continue to build scale and diversify operations. In the summer of 2024 the board of directors clarified our capital allocation framework and capital returns announced today total almost seven percent return on current valuations. Evolution remains profitable, strong and an all equity funded company. The fact that we have managed to carry out an ambitious growth agenda and maintain game release pace, meanwhile distributing significant cash back to owners and facing several challenges is a real testament to the well-oiled machinery that is Evolution. I'm proud to be able to lead such an amazing organization of innovators and game creators, and I look forward to bringing even more force into growing in 2025. Thank you. With that we move to the last slide and open up for questions.