Evolution AB (publ)

Welcome to the Evolution Q3 Report 2025 presentation. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now, I will hand the conference over to the speakers, CEO Martin Carleson and CFO Joachim Andersen. Please go ahead.

Good morning, everyone. Welcome to the presentation of Evolution's report for the third quarter. of 2025. My name is Martin Karlsson and I'm the CEO of Evolution with me our CFO Joakim Andersson. As always we will start with some comments on our performance in the quarter and then I will hand over to Joakim for a closer look at our financials. After that I will conclude with an outlook and then we will open up for your questions. Next slide please. So let's start with the financial and operational highlights in the quarter. And I would like to start by taking the bull by the horns and address the bad performance in Asia. This has been a recurring theme over the past quarters, but unfortunately this time it looks a bit worse. We were, as you remember, very cautiously optimistic about the reminder of the year in the last report. And there is really nothing that doesn't say the Q4 could be better. However, we are experiencing a lot of volatility, which makes the near-term performance hard to predict. At this stage, we want to be realistic and keep expectations low. So what are the main reasons behind the Asian development? First, it's the cybercrime activity that continues to hurt us. Every day and around the clock, we do everything that we can to mitigate the issues. However, some measures do impact also the end users, and this is what makes it tricky. At the point in time within the quarter, we did too much, causing loss in revenue. On the other hand, if we do too little, we lose to the pirates. Towards the end of the quarter, we found a better balance, but it's still volatile. We do constant security updates to our core to increase protection. We will continue to adapt the changes that are working and to fine-tune the methods that are working well and explore completely new actions as well. I ask for continued patience on this, but rest assured that is a top priority. Additionally, in Asia, the newly regulated markets Philippines is volatile, which often is the case when operators and players adapt to the new framework. There are also other markets such as India that show signs of moving towards regulation, which creates a higher level of uncertainty than before. And to clarify with showing signs, I mean that The current heated debate and quick and not widely acknowledged political decisions is something that we often see in the very beginning of potential regulation. Over a longer period of time, it will likely not be noticeable, but on a quarterly basis, it will cause variations like the one we see now. With the context of Asia in mind, let's look at the overall numbers. Net revenue came in at 507.1 million, corresponding to year-on-year decline of 2.4%. EBITDA amounted to 336.9 million, and the EBITDA margin came in at the 66.4%, which is within the range of our full-year margin target of 66% to 68%. What stands out as positive in the quarter is the performance in Europe, which is back to growth quarter-on-quarter compared to the first half of the year. We saw the full effects of our protective ring fencing measures in the second quarter, and this provided a new foundation for growth. Worth mentioning is also that we got recognition for our ring fencing from one of the largest regulators in Europe, where we were pointed out as one of the best B2B suppliers. I'm happy with the progress in Europe in this quarter. North America also performed decently, and Latin America is stronger than what we have seen earlier this year. Our live revenue declined by 3.4% to 431.7 million, while RNG increased by 4.2% to 75.5 million. It is actually the first time that RNG outperform live in terms of growth. Our studios have worked hard, and especially No Limit City has performed great in this quarter. To further strengthen our portfolio, we have launched a completely new brand, Sneaky Slots, from scratch, and it will be very exciting to follow that progress going forward. On live, growth is held back by Asia, but we continue to see good growth in the rest of the world. In both North America and Latin America, live is still in early days and gains considerable attention from operators and players alike. The opening of our new studio in Brazil has been a true success. On the game side, our highly anticipated ice fishing title has finally seen the light And reception has been great across our market. It is mirroring the trend of faster and shorter forms of entertainment that are widely consumed in channels like TikTok and Reels. And it is needed as indeed a much faster experience than, for example, Crazy Time. Another great thing is that expansion of ice fishing to other studios would be fast compared to the more massive games like Lightning Storm. With its success, we will definitely explore more opportunities in the speed game show arena going forward. To conclude the quarter, overall revenue is not where I want it to be, but when opening the lid, it's clear that the development comes from one out of four regions. The development in Europe, North America, and Latin America is overall good and also supports the margin, together with our clear focus on cost efficiency. Next slide, please. If we then move to our operational KPIs, consisting of headcount and game-run index. On headcount, we are growing 4.2% on a year-to-year basis, but we have actually decreased 2.7% quarter-on-quarter. The slowdown is to some extent reflected in the revenue. We don't hire unless we grow, but looking at recruitment pace within a full year, there are sometimes fluctuations based on temporarily slower high pace in recruitment. As we plan for more studio expansion over the next years, the long-term trend is that we will see continued increase in the number of evolutionaires. The Game Round Index can be seen as a general indicator of activity throughout the network over time, as you know. And for an individual quarter, it can vary quite a lot and does not always correlate with the revenue development. However, as you also can see this quarter, it actually shows a decrease. Next slide, please. Innovation and quality will always be our signature when it comes to our game portfolio. And I am ever so proud of the continued delivery on our product roadmap for 2025. During the quarter, we released Ice Fishing, which I have already talked about, and also Dragon Tiger Phoenix, Super Speed Dragon Tiger, both the latter are based on a popular Dragon Tiger, a straightforward card game that now has been elevated with a new excitement. Rules are simple and gameplay is quick. In Dragon Tiger Phoenix, the Phoenix is introduced as the third legendary card and the players simply bet on which card that will win or if it will be a tie. Another very exciting release is the Sneaky Slots brand, which joins our portfolio that already includes No Limit City, Red Tiger, NetEnt, and Big Time Gaming. We have created Sneaky Slots from scratch, leveraging all our know-how that we have within R&D and using our one-stop shop and global sales network to further boost its launch. Sneaky Slots will fill the gap between No Limit City and NetEnt in terms of game style. And selected releases will use X mechanics from No Limit City that we know that the players love. First title was released was Nip Tak, which will be followed by a new title every month until year end. Among upcoming releases, we have Red Baron, a mix of live and RNG where the goal is to cash out before the Red Baron flies away. The longer you wait, the higher the potential. Another release is Insurance Baccarat, which is an exciting variation of the classic Baccarat that adds a unique insurance feature to protect the stakes. Once summarizing the year, we look back at over 110 releases, which is a truly great achievement. And as time flies, there's now only three months left until ICE, as always, will showcase the most exciting titles for 2026. I can promise that Todd and his team are ready to take entertainment to yet another level. Next slide, please. Okay, let's look at the geographical breakdown. As already highlighted, I'm pleased to see that Europe grows quarter on quarter with the revenue amounting to Euro 182.2 million. We have talked a lot about ring fencing this year, and you probably remember that the effects on revenues were a bit larger than we had anticipated. It is a price that we have to pay to stay ahead of the regulatory curve. But with that said, we have a new base to grow from, and despite the summer without any major sports events, development has been overall good. I should also mention the dialogue with the UK Gaming Commission, which continues, and we are yet to receive the conclusion of its review. What I believe is important to note is that we have been very cooperative and also responsive to various requirements that the Gaming Commission has put upon us. We still have to wait for the outcome, but I truly believe that we have the most sophisticated compliance framework among all providers targeting the UK. Moving on to Asia, where I have already provided the context for the bad development and revenue decline of 9.6% quarter-on-quarter, Even though the market in the Philippines has been volatile, our newly opened studio has been off to a great start. A while ago, there was some media noise on our studio partner losing its B2C license, but it has nothing to do with us or our studio. Everything is working as it should. We did, however, suffer some building damage in the 6.9 magnitude earthquake that struck Sibiu in the beginning of October. our greater to our great relief no employee was hurt and operations continued even though that is secondary when people's lives are on the line next slide please on the contrary from asia north america is thanks to its regulation more predictable and stable quarter on quarter growth is modest but on the positive side On the positive side, the operators continue to invest heavily in live casino solutions and environments. Year-on-year growth is 14.5%. To meet the demand, we have launched our second live studio brand, Esugie, just around the end of the quarter. And we are planning to open a second studio in Michigan during the first half of 2026. I would also like to highlight that we, after the quarter, have launched Crazy Time in Connecticut. Great. Very, very good. Also, while speaking on North America, I would like to mention something on sweepstakes, as it has been a topic of discussion during the quarter. Sweepstakes is a popular product in the US, and we offer it in states where it's not prohibited or in any way under regulatory scrutiny. Sweepstakes is a very small part of our total revenue, but we believe it has some potential. And as you know, as the market leader, we want to offer a great variety of content. In the quarter, a city attorney in Los Angeles made a personal interpretation of the California law, and as our strategy is that we don't offer sweepstakes where there are regulatory uncertainties, we pull this from the market. Simple as that. I'm also quite certain that you will ask us about the completion of the Galaxy gaming acquisition. We're still awaiting some regulatory approvals, but believe me, but we believe we'll be able to close the transaction before year end. However, it's a regulatory process. It's not completely in our hands. Moving on to Latin America, where growth is picking up with 6.4% year on year and 5.9% quarter on quarter. The new regulation in Brazil seems to be done with its initial teething problems and operator and players are becoming more active. Our new studio in Sao Paulo, Brazil, has developed nicely during the quarter and will expand as we move forward. Now I will hand over to Joakim for a closer look at our financials. Next slide, please.

Great. Thank you, Martin. And good morning. As usual, I will now zoom in on some of the financial highlights this quarter. Let's start on slide seven, where we have the financial development For the ones that are following us and are used to our format, you will note that we have added the revenue split by regulated and unregulated on this slide. Let's start there. As you can see on the line, regulated revenue is up to 46% of the total this quarter. And even if this will fluctuate between quarters as revenue mix shifts, the longer trend is clear. The portion of regulated revenue will continue to go up. To the left, as mentioned by Martin earlier, we had net revenue of 507.1 million this quarter and EBITDA margin of 66.4%. What is not shown on this graph is that we now year to date are at 66.0% in EBITDA margin, making it within the expected range of 66 to 68% for the full year. As you can see from the chart, our growth has clearly tapered off and even become negative. And this is not something we are happy about. And we can assure you that we are doing whatever we can to reverse that trend. Let's go to the next slide. And here we have our profit and loss statement. A lot of numbers on this slide. So I have highlighted the key takeaways and I will comment on them one by one. So firstly, again, we had net revenues of 507.1 million, which is down 2.4% year on year and down by 3.3% quarter on quarter. Secondly, total operating expenses amounted to 210.5 million, which is 5% higher than Q3 last year, but more importantly, down 3.4% from last quarter, which is good evidence of our efforts adjusting the cost base to the weaker revenue momentum. We are not only trying to work smarter and be more efficient, optimizing how we use our studios and tables, but we are also taking some broad-based cost cutting measures, which would continue for the rest of the year and into 2026. Thirdly, our operating profit amounted to 296.6 million in the third quarter. And finally, EPS after dilution amounted to 1.25. To be noted, the profit for 2024 includes 59.7 million of other operating revenue. related to reversal of the earn-out liability. So to make it comparable with this year, you should probably adjust for that. Let's move on to the next slide, where I'm going to show you the development of our cash flow. First, to the right, our capital expenditures. And as can be seen in the graph, we are down quarter on quarter. The total capex relating to tangible and intangible assets of 29.8 million. With that, we are likely going to be slightly lower than the full year forecast of 140 million that we announced in the beginning of the year. If we then look left, our operating cash flow after investments amounted to 342.1 million in the quarter, which corresponds to cash conversion of 83%. With that, we are back on track after a seasonally and unusually weak second quarter. The change in working capital was positive 35.2 million this quarter, meaning a swing back from the weaker number last quarter, which is good and in line with our expectations. Then finally, for me, some brief comments on our financial position on the next page. On this page you will find our summary of the balance sheet for the third quarter compared to what it looked like at the end of last year. The main items that I usually highlight which are all signs of our financial strength are the value of the bond portfolio of 103.2 million, our total cash balance that amounted to 656.4 million and the equity position at the end of the quarter which amounts to 3.8 billion. We have continued with the buybacks in the third quarter, and in total, we invested 187 million and bought back 2.5 million shares. In total, we have now used 406.5 million of this year's mandate from the board of 500 million. And following the release of the Q3 report today, we'll be back in the market with an aim to use the full mandate before the year ends. With that, I will hand it back to Martin for his closing remarks.