Evolution AB (publ)

Welcome to Evolution Q4 Report 2025 presentation. During the Q&A 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 Carlison and CFO Joachim Andersen. Please go ahead.

Good morning, everyone. Welcome to the presentation of Evolution's year-end report for 2025. My name is Martin Karlsson, and I'm the CEO of Evolution. With me, I have our CFO, Joakim Andersson. As always, I will start with some comments on our performance, and then hand over to Joakim for a closer look at our financials. After that, I will conclude with an outlook, and then we'll open up for questions. Next slide, please. So let's start with the financial and operational highlights in the quarter. Overall, we saw somewhat better performance in Q4 compared to Q3. The net revenues came in at €540 million, corresponding to quarter-on-quarter growth of 1.4%, but a year-on-year decline of 3.7%. Adjusted EBITDA amounted to €341.5 million, giving a margin of 66.4%. Asia turned back to modest growth quarter on quarter, signaling some progress in our hard work to battle the cybercriminality in the region. As pointed out several times before, there is no quick fix to these issues. We constantly adapt and develop our technical solutions to win in the long run. We believe that it's harder to steal our content today than it was a year ago. Latin America, North America and Africa also showed growth, whereas Europe declined both on a year-on-year and quarter-on-quarter basis. Our live revenue declined by 4.5% to €438.6 million, while R&G increased by 1.7% to €75.7 million. I believe our slop brands have great potential ahead. Live is currently affected by both Europe and Asia, while North America and Latin America continue to do well. In the U.S., we believe Live will continue to grow its share of the total online market, and in the quarter, we launched Azugi as the second brand in New Jersey. Talking more about games, our headline title for 2025, Ice Fishing, is gaining in popularity following its launch this summer. More and more players enjoy the fast-paced and highly entertaining format. We have actually seen a doubling over the last three months. It's trending on social media, and at times it has been close to player numbers that we've seen in crazy time. Amazing. And speaking about speed, the quarter also saw the launch of Red Baron, our third crash game that is simple and fun, both for veterans and beginners. Operators and players love it, and the numbers are steadily increasing. Since this year, this is an end-year format of report, let us also quickly zoom out and look at finances for the full year. Net revenues were almost flat, with an increase of 0.2% to €2,067 million. Adjusted EBITDA decreased by 3.2% to €1,366 million, giving a margin of 66.1%, which is just within the communicated range of 66-68% for the year. To conclude the slide, looking at both the quarter and full year, operationally, I believe we did great. The financial outcome could have been better, but given the many challenges we have faced, we still managed to defend our revenue and deliver a solid margin together with a very strong cash flow. We all want to do better, and we look forward to continue our hard work in 2026. Despite what happens around us, it's vital that we stay ahead of the game and increase the gap to competition through expansion and innovation. I'm fully convinced that we have succeeded in that 2025, and even more convinced that we will do it also in 2026. Two weeks ago, we founded ICE in Barcelona, and our roadmap for the year is breathtaking. I will get back to that later. Next slide, please. If we then move on to our operational KPIs, first consisting of headcount and game round index. On headcount, we are growing by 5.8% on year-on-year basis and 3.8% on quarter-on-quarter. And we now see a better, more cost-effective distribution of all delivery. The game-run index can be seen as a general indicator of activity throughout our network over time. For an individual quarter, it can vary a lot and does not always correlate with the revenue development. In the second half of the year, activity went down somewhat connected to our measures in both Europe and Asia. But if you look at 2025 versus 2024, we actually saw a slight uptake of 1.8% for the full year. Next slide, please. At this year, this is the end-year report. We also have yearly KPIs on the customer dependency and number of tables within life. Currently, we have about 870 customers, a number that has gone up during the year, mostly linked to the new relationships and operators in Brazil. We have decreased the dependency on the five largest customers from 46% of revenues in 2024 to 39% in 2025. The largest customer represents about 12% of revenues. The number of tables have increased by 300 during the year, linked to new studio openings in Brazil, the Philippines, Romania, and the U.S. The resource mix have been improving during 2025 and we look forward to further improvements in 2026 and also better supply to market. We will continue to expand in 2026 among else with a new studio in Michigan. Next slide, please. In this report, we're introducing a real breakdown of our revenues based on our customers location. The absolute majority of our customers is based in Europe, followed by North America and Latin America. All of our revenue is regulated as a basic requirement to become a customer with Evolution is to hold a license from an approved regulator. You also see revenue split based on our customers and their players, our customer's customer, which is an estimation based on the IP number of players received from our customers. This is the breakdown of revenue we have included in historic reports. Connected to our customers' players' IP addresses, about 47% of the revenue estimate is regulated. Next slide, please. I will now give a few comments on each of the major regions based on the estimation of revenue based on our customers' IP number. As highlighted in the beginning, Europe declined quarter-and-quarter. We believe that we currently have the most strict ring fencing measures among all providers in Europe and in some market we see that players turn to unlicensed operators instead of the official channel and instead of the regulator and the channelization declined significantly. The current challenge is not the actual ring fencing but instead the channelization decline in some major countries as a result of regulatory measures. Simply put, the players are by the regulation pushed out of the regulated remit and are to a large extent playing on unregulated operators that we don't accept. This is bad for the industry and pushing out the most vulnerable players, but long term we believe that the regulatory scale will find its balance again. If looking beyond short-term performance, we see that players shift more and more towards game shows, and with the best roadmap ever in 2026, aiming at exactly these type of entertaining games, rocket-fueled by Hasbro brands, I really look forward to the development in 2026. Speaking about Europe, we can note that we haven't heard anything from the UK Gaming Commission since last summer in relation to their investigation. We don't know when they will come back, but have been very cooperative and, as already stated, have very strict ring-fencing measures in place since very early last year. For Asia... I've already said that we have made some progress in the cybercrime mitigation. The overall regulatory dynamics continue to be somewhat challenging. But at the same time, we see good development in the Philippines where the regulatory framework is getting more stable. Next slide, please. North America and Latin America both reported all-time high in terms of revenues. Growth-wise, North America has been somewhat modest during the year, and the regulation pace is very slow if looking at the U.S. as a whole. But after year-end, we saw some positive development with an iGaming legislation that was passed in May. The potential in existing market also remains strong, as live casino share has a lot of potential. I already mentioned that the launch of the Sugi as our second live brand initially in New Jersey. Speaking about U.S., we are still working to get the necessary regulatory approvals to complete the acquisition of Galaxy. Only two states remain, where Nevada is one. Nevada recently announced a guideline for licenses that operate in online gaming in other jurisdictions. And I have seen some speculation that this may cause an issue for us to get the approvals. The process is moving forward and we are still within the timeline of closing before 17th of July. And I have no further comments at the time being. Moving on to Latin America, where growth continued to accelerate both year on year and quarter on quarter. Brazil is driving growth as the new regulation is settling in. During the quarter, we also noted that the main competitor in live decided to close down operations in Argentina. We have seen this in several parts of the world in the past, that despite large resources, it's highly complex and expensive to build a live at scale. Next slide, please. Okay, let's take a step back and look at our global footprint of studios. 2026 marks the 20th anniversary of Evolution, and up until 2013 we operated with only one studio out of Latvia. Fast forward to today, we have 24 studios, with the four latest being located in Brazil, the Philippines, Romania and New Jersey. In the very beginning of Evolution's history, it was possible to target several markets from that one studio in Latvia. But as the regulation has evolved, more markets are putting demands on local presence. Even though it requires a large investment, this is great for evolution, as we have an unrivaled experience in building studios with very short lead times. It's a know-how that provides us with a competitive advantage, raises the barriers to success for others, and also speaks to regulators that we can quickly set up operations and offer job opportunities in their local markets. Another aspect of the scale of evolution is that our students are connected in star network and we can use and direct usage independently, creating scalability over all time zones. Next slide, please. I already mentioned the breathtaking roadmap 2026. As you remember, last year we entered an exclusive partnership with Hasbro for online live casino and slot games for Monopoly and other Hasbro game titles. It's an exclusive worldwide deal that covers online content for all our brands in live and RNG, a true milestone that will enable us to bring fantastic games to our players. Two weeks ago, we showcased some of the titles that we will launch during this year at ICE, which is the industry's largest yearly exhibition. Normally, we state that we have one big showcase title, like ICE Fishing last year. But this year, it is impossible to pick one. That's how strong the lineup is. Let me just mention a few highlights from 2026, and let's start with Game Night, which will be the largest game show to date and the feast of bonus games based on Hasbro favorites such as Connect Four and Hungry Hungry Hippos. It will use the largest money wheel in the whole world, but instead of a flapper, it will have a roulette-style bouncing ball and a wheel that is set at 45 degrees angle. The wheel itself is enormous, but so are the hippos. Funnily enough, it will only be the biggest game show for a few months, because later in the year we will launch Monopoly Filthy Rich. This will be a gigantic Hollywood-style game show, in a studio that would make any movie maker jealous, with five exciting bonus game rounds on Monopoly features, plus a super bonus, Monopoly World. Also based on Monopoly is Monopoly Roulette, which will be the only roulette with two bonus games, and Monopoly Rollem, a two-dice game with a Monopoly-style board. We will also launch several new Monopoly titles within the RNG universe, the first one being Monopoly Deluxe from BTG that is already live. In addition to the Hasbro titles, we will launch many other games that will appeal to both traditional players and others. Dragon Dragon, which might be the coolest name ever on the game. It's a simple, fast-paced guessing game where players bet on whether two cards would be yellow, red, or both. In 0-6 Blackjack, the dealer card is 0-6, which provides a more predictable game. From Azugi, we have Arcade Roulette, which is a unique alternative to the classic roulette using a classic claw machine as a very nice piece of engineering, by the way. In total, we have more than 110 new games and RNG releases planned for the year, and I could not be more excited. Our CPO, Todd Horshalter, described this year's roadmap as all about fun, fun, fun. And that is exactly what it is. 2026 will increase the gap to any competitor more than ever. But more importantly, we are creating great entertainment for every single player. And with that, I will hand over to Joakim for a closer look at our financials. Next slide, please.

Excellent, Martin. Thank you. So let's now spend a few minutes on the financial details. I'm now on slide 10 and will repeat a few messages that Martin opened up with. You will on this slide see our revenue and adjusted EBITDA development over time. The full year 2025 has seen a flat revenue development, whilst the quarter-by-quarter trajectory shows a somewhat uneven trend. In the fourth quarter, we are reporting 514 million of revenues, 341.5 million in adjusted EBITDA, and consequently a 66.4% margin. As Martin said, with this quarter, we are ending up at 66.1% in EBITDA margin for the full year of 2025, which is within our margin guidance. Let's go to the next slide. On this slide, we will have a more detailed look at our profit loss statement. I have highlighted a few key takeaways from this slide, and I will comment on them one by one. So first and again, net revenues of 514 million. In this quarter, we have 51.7 million of other operating revenues, which is due to a reduction of an earn-out liability. This is the only amount we are adjusting for when we talk about our adjusted EBITDA and adjusted EBITDA margin. As you can see, and as I have highlighted on the slide, we had similar adjustments also in Q3 and Q4 2024. Moving on to the second highlight, total operating expenses amounted to 215 million, which is 6.3% higher than Q4 last year and up 2.1% quarter on quarter. Despite the costs being slightly higher quarter on quarter, we are beginning to see the benefits of our initiatives to drive operational efficiency. Several initiatives are ongoing when it comes to optimization of our tables and studios, as well as the way we work with our supporting functions. What is important to note is that this is not a one-off cost-cutting project, but something that we will work with continuously. If we then move to the third highlight, it's our profit for the period that amounted to 306.8 million in the quarter. And for the full year, we had a profit of 1.06 billion. Finally, our earnings per share, EPS, after dilution amounted to 1.54 euros. Let's move on to the next slide, where I'm going to show you the development of our cash flow. First, on our left hand side, we have our operating cash flow after investments, which amounted to 262 million in the quarter. One factor behind the relatively low cash flow this quarter was the seasonally weak working capital. While elevated year-end accounts receivable is a recurring pattern, we are actively addressing it and we have seen good progress in January. The graph shows that in-year fluctuations are not unusual. However, the overall more uneven performance on top line in 2025 has driven greater volatility in our cash flow this year. Cash conversion remains solid and was at 82% for the fourth quarter. Then turning over to the other graph and our capital expenditures, we can see that we are slightly up quarter on quarter with a total capex relating to tangible and intangible assets of 38.5 million. That also means that total capex for the year was 134.8 million. Next slide, please. On this page, you will find a summary of the balance sheet for 2025 compared to what it looked like at the end of 2024. The main items that I usually highlight, which are all signs of our financial strength, are the value of the bond portfolio of 104 million, our total cash balance that amounted to 818 million, and the equity position that at the end of the year amounted to almost 4.1 billion. Although a minor point, as mentioned earlier during the P&L review, we have made an adjustment to our earn-out liabilities. Consequently, the other liabilities category on the balance sheet shows a slight quarter-on-quarter adjustment. We continued with the buybacks in the fourth quarter and in total, we invested 93.7 million and bought back 1.6 million shares. In total, we invested 500.2 million in 2025 and got 7.3 million evolution shares, which today corresponds to 3.6% of the company. And when talking about buybacks, we wanted to highlight what a total shareholder remuneration has looked like over the last years. On this slide you will see dividend payments in blue boxes and buybacks in green boxes. There are a few takeaways from this slide, but I would like to point you to two of them. Firstly, as illustrated by the grey bar to the right, we have returned more than 3.5 billion euros to our shareholders since 2020. Secondly, during 2025 alone, total shareholder remuneration amounted to almost 1.1 billion euros, which equates to a yield of 9.3% based on the market cap at year end. With that remark, I will hand it back to Martin.