Good morning, and welcome to the Evolution Q1 2023 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Martin Carlesund, CEO. Please go ahead.

Good morning. Welcome, everyone, to this wonderful day and presentation of Evolution's report for the first quarter of 2023. My name is Martin Carlesund. 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, where after I hand over to Jacob for a closer look at our financials. After that, I will round off our presentation with an outlook for the rest of the year. And we are, after that, happy to take all of your questions. Okay. Let's begin, operator. Next slide, please. 2023 started in a high tempo and we continue to see strong worldwide demand for our products. There is a slowing of the general economy in large part of the world, but we continue to attract new players and grow in all our markets. As we have said in earlier quarters, it's reasonable to assume that the general slowdown of the economy also affects us on some level. But we cannot say that we see any clear signs of a slowdown in our business. Of course, we are supported by the fact that we have come into the new year with a fantastic pipeline of new games and a strong momentum from 2022. I want to mention some of the operational highlights in the quarter. The opportunities in North America continue to be very promising, and we continue to expand our offering in both RNG as well as Live Casino. We have now rolled out RedTiger timed jackpots in Ontario, Quebec, as well as in Connecticut and Michigan. And just a week ago, also in New Jersey, with the remaining states of the U.S. to follow. RedTiger remains the only game supplier to offer timed jackpots in the U.S.…

Thank you, Martin, and good morning to all of you listening. Now for a couple of slides with a closer look at the financial development. I'm on Slide #8, titled financial development. Revenue amounts to EUR 429.6 million in the quarter. That's made up of EUR 360.1 million from our Live Casino business and EUR 69.5 million from our RNG games. Live Casino has a very strong start this year, as Martin mentioned, continuing a nice momentum from 2022. Year-on-year growth is 36%. Growth in Live Casino has been quite broad-based on most metrics. Looking at products, both recently released games from 2022 contribute, but also the big traditional table games like Baccarat, Roulette, and Blackjack show very nice growth. Similarly, as you saw in the previous slide, year-on-year growth is widespread across most regions, naturally with varying pace of growth. But the shift into online casino and Live as a central part of the user experience online is widespread. We think we have a long runway for growth and see good opportunities in many areas. However, as we have pointed out also during last year, we do expect growth rates to continue to slow down as our base continues to increase. That is to be expected. RNG revenue amounts to EUR 69.5 million in the quarter. It's a step back from Q4 and only very slightly up compared to pro forma figures for the first quarter of 2022. Our message has been the same since Q1 of last year that we remain committed to reaching double-digit growth in RNG. We have not set the time on that goal. And we have also pointed out that the development would not be linear. Sometimes it hurts to be right. So while not surprised by the results in Q1, I admit it…

Okay. We're on the last slide, #12. Thank you, Jacob. A few words to conclude this report presentation. 2023 has started with a high intensity and full speed goal. We have entered the year with a good momentum and equipped with a fantastic product portfolio and old talent. I look forward with enthusiasm to the rest of 2023. We will release a record number of new innovative, exciting and fantastic products, exciting games to inspire our current and solid future players. Take yet another step towards expanding online casino to new players and increase entertainment and excitement even further. It's, as always, hectic times at Evolution. But remember, demand of our products is a global phenomenon and we will continue to invest in products to the capacity, and of course, in our people in order to fulfill the worldwide demand. In any trade-off between market share and margin, we will always opt for market share and revenue. I can promise you that we will relentlessly continue to push boundaries as paranoid as ever, also 2023. Thank you all for listening, and we'll speak in a couple of months again. Now let's move to questions. Next and final picture. Thank you.

[Operator Instructions] Your first question comes from Martin Arnell from DNB Markets.

It looks like a good quarter in Live. And I was just wondering on the Asia numbers and Baccarat in specific. What is the driver of the very strong performance in Baccarat that we've seen in this and also in the last quarter. Is it the focus that you had in 2021 on the Baccarat games, and are they sort of still paying off? Or can you give any flavor on that?

Baccarat is the main game in Asia as a region as well as Roulette is the main table game in Europe and Blackjack is the main table game in North America. So as Asia continues to deliver, it will grow. And we have the best Baccarat product in the world, and of course, any changes with it from day 1 has paid off, but we continuously develop the Baccarat again.

Okay. And can you share any light on why Asia seems to have picked up in the last 6 months?

I think that's a quarter-on-quarter analysis and it will always fluctuate. I think that we have good momentum actually in all markets, and it can come out a little bit. I don't know if I could use the word lumpy over the quarter, but it was a little bit like that. So I think that the momentum is strong and has been strong.

And if you look into North America, what do you see as the main driver of growth in the coming 12 months in that region?

Of course, then it comes to the question that in 12 months if other states would regulate. And if we set that aside because that's a political process we don't know. And if that happens, that will, of course, drive growth. But we need to continuously invest in products and release all of our beautiful products to the North American population. And then we are on to that and working constantly on that. So that's the main driver, of course. We need to see to that we fulfill all the demands that are in the markets in the right way in respect to that. That will also drive the growth. And then as we have seen in Europe, share of Live will, of course, slowly increase also in that market.

Okay. So you expect to be able to grow at this pace or high double-digit even without more stakes in the coming 12 months?

We don't guide on growth on separate markets.

And just final 2 questions. Firstly, you commented that you expect growth to slow because the base gets bigger. Do you see that quarter-to-date in April? And secondly, what would you like to do with the big cash position aside from payout to shareholders?

On the first question there, it's something that we've pointed out for some time. And I think we also see that growth rates, even though fantastically it is strong or in percentage terms sort of gradually lower to last year. And I expect that also this year. So that's that statement. The cash position, as I said, it's a bit lower now than what it was at the end of the period due to the dividend. We hope to have continued good cash flows, and the main part of shifting capital back is dividend. I mean, 50% of net earnings are -- that's the dividend policy. So you can say, significant part of the current cash will be dividend next year. And then, of course, the other options are, there is still opportunity of buybacks, which is something that the Board has to mandate for and have used in the past as well, but we do not have a continuous problem in the market right now, but that's an option. And then we have also made some M&A in the past years. And that's a bit opportunistic. I mean that might happen, but it's not that we -- our main growth strategy is not through acquisition. It's definitely organic. So there's no change there in what we've said in the last 3 years.

Your next question comes from Oscar Ronnkvist from ABG.

So first, I just wanted to get a sense of the underlying RNG growth here, the pro forma RNG growth and the game releases, as you say that you remain committed to the 10% growth. So just in terms of timing, can you share any thoughts on when we should expect that to pick up? Because I think it's quite driven by the game watchers. Is that correct?

Yes, I understand your question. And we are in an increasing release pace right now. So we look forward to having a better release plan in the second half of 2023, and that is, of course, not a light switch move, so it will gradually over the year. But as I stated on the call, it's right, the first quarter 2023 is about the same level of releases as earlier.

Okay. Perfect. Then just on the Live Casino growth pace, as the former analyst asked as well. So just in terms of the pace run rate, are you seeing any slowdown in Live Casino market growth? Or I mean, is your stellar growth driven by you still grabbing market share in, for example, Asia? Or is it purely driven by the Live Casino market still growing?

I would say that in Asia, for sure, it's driven by market share. I mean, that's been the growth path for a long time. In Europe, we have a large market share and we continuously grow and we see a good quarter now. But there, probably market is catching up a little bit. Some markets are a little bit moving forward and so on. So it's a little bit varying depending on what market. I mean in U.S., we are on Live more or less alone. So that's also a different situation.

All right. But in Latin America and in Asia, can we expect increased share of Live in terms of -- or in relation to online casino in total? Or is that more mature as well?

It's very hard to say in those countries where the numbers are not really displayed or public. So even I would fight to know that. I mean, we share our numbers, but in Latin America, no one else does.

Okay. I see. Just the final question I have on costs. So we saw just a minor sequential increase in cost this quarter. So can we expect any more salary pressures from these levels? Because it doesn't really seem to be the case that salaries have increased that much or salary expenses in relation to number of employees in the quarter just really comparing to Q4 and Q3 last year. So how do you see salary pressure? And also, what other cost items are you seeing the inflation pressure because of the growth in -- sorry the cost increase sequentially wasn't really that big in the quarter?

No, that's true. I mean, I think we see the cost increases are, as we talked about last year, really across many categories, so sort of across the board, including increase in wages. So we've seen some of that go through as we hired people, of course, during the year, last year, and of course, the salary review itself is typically sort of happening now this month. So that is not -- the full effect of that is not in the Q1 numbers. So that's part of the increase that we'll see in the years to come. But you can say when it comes to personnel costs on the total level, that it's not just adjusted once a year. You sort of -- we hire people continuously. So some of that effect will come gradually. I think, as we mentioned, we talked about it also last year, where coming into 2022, or sort of rather coming out of 2020 and '21, we have, due to the pandemic and the sort of special circumstances around that, we had to release a bit of pressure on the cost side and the spend on some extraordinary items. And at the same time, the business grew rapidly. So we also needed to expand in many areas. And then through 2022, I should say, maybe second half of 2022, we felt that we gradually sort of came back to the type of cost awareness that we've had within the company prepandemic. So I think that's a little bit part of it. Then with cost, it's also so many factors, and some things are a little lumpy here and there. So we will, of course, continue to increase our cost base through this year. So we're not expecting set cost in any way. So I think, ultimately, it's reflected in the margin guidance for the year of 68% to 71%. That's how we see it. But it's a good quarter margin-wise and part of that is that the team has really shown great awareness to the cost side and sort of spend money, but carefully. So that's good.

All right. So just one follow-up there. So do you expect -- or should I interpret it as we could expect a little bit more increase or sequential growth to pick up in costs from Q2 maybe? And if you want to -- like any comment on the margin guidance because I mean it's early in the year, of course. But last year, you pointed towards the lower end of the margin in quite early stages or at least from Q2 and onwards. So could you comment anything on the range, if you expect it to be sort of in the top because of the strong start to the year? Or is it too early to say?

We don't guide on the guidance. So we are like on 68% to 71%. I'm happy with 69.9% in the quarter. That's a good figure. But the figure is not important. The importance is that we have good traction and we work with the cost. And I see traction on that. But we will expand. We need to continue to push forward. We're going to build studios in Latin America and in Europe and potentially even in U.S. So it's like constantly in a trade-off between margin and revenue or market share, we'll go for margin and revenue share. But we're in a good place when it comes to the margin, 69.9%.

Your next question comes from Ed Young from Morgan Stanley.

My first question is on North America, please. As you say, the quarter-to-quarter progression is always a bit lumpy. It's good year-on-year growth, but less so to the quarter-on-quarter. You made the comment there, Martin, around Live penetration will grow slowly over time. And why should Live penetration grow slowly? What are the constraints on being able to grow the Live market? And could you potentially give us where you estimate Live penetration is in the U.S. right now? The second is on studios. You mentioned the expectation for studio growth. I appreciate you're also growing capacity in your existing studios. I understand that. But do you have a view of how many studios you might be adding during this year? And then third of all, just to come back on the personnel costs, Jacob, you mentioned a few different factors there. I wonder if you could elaborate a bit, because the higher employee cost was down sequentially in Q1. I just wondered if you could talk about what exactly has driven that? It's a little bit surprising to see, quite impressive to see how could we see that develop through the remaining quarters on a per employee basis and what are the drivers of that?

Okay. It's a little bit of a memory question to remember. But I will do my best. I'll go first. Why does share of Live in the market grow a little bit slower? Or why doesn't it just happen at once? One answer to that is that any table game has a bit of an intimidation factor. If you're going to a land-based casino, it's a bit -- are you going to sit down and you affect other players a little bit. And not all do that. So many end up with a slot machine. So the slot sort of comes first. If you're alone, it's not the same intimidation. Then Live and online comes and it takes a while before the person that then start playing slots comes over to Live and experience that. But once they come over to Live, it's a much richer, happier, more entertaining product. So over time, more and more persons comes out. That's why it takes a while for the Live product to grow. That growth has a lot of parameters. It's trustworthiness, you need to be comfortable, you need to see it, you need to -- so it's a little bit of marketing, a little bit of understanding, a little bit of everything. And that takes a while. Just exactly as we've seen it did in Europe or in other places as well. So that's a little bit to growth. Where are we right now? We're in the lower range, let's give it 12%, 15%, something like that, I would, and we've stated that, and that's just a little bit of rule of thumb, different in different states and so on. But it has potential. That was the first answer. The second question was...

Number of new studios...

Number of new studios we're growing. I mean, we will add studios in Latin America, a couple of them. We will add studios in Europe, a couple of them. We just went live in the new studio in New Jersey, a fabulous, great looking studio in New Jersey, the third one actually, and we're expanding there. And we might add even more in North America, even though another state might take a little while. So I would say that we are -- we will add studios on all markets essentially as fast as we can. Now I guess...

Personnel cost or employees, that was the third question. And I think you're right. I mean, just sort of the gross numbers, so you take personnel costs over the employees or the head count at the end of the quarter, year-on-year it's up a little bit. The reason for that is, it's partly the wage increase, but also the mix between regions. And then, compared to Q4, as you said, it's actually a little lower in Q1, which I agree. It's a little bit surprising maybe, but also there, these factors play in a little bit how we grow in certain regions. And the additional head count in this quarter was, as Martin pointed out, a little lower than what we've seen during last year, partly because we added a lot of staff at the end of Q4. So that number also moves a little bit. But going forward, we haven't given any guidance on the per employee, per headcount cost. But personnel costs in general will, of course, continue to increase.

Your next question comes from Kiranjot Grewal from Bank of America.

Just a few questions from me. On RNG, could you sort of elaborate where the product is available at the moment? I would have thought there would be good exposure there to the faster-growing markets, such as North America, LatAm, Asia, that would be supporting growth. So just trying to understand what's holding that growth back. Thank you for the new disclosure on the regions as well. Just looking at the other category, I know it's very small now, but that looks like has weakened just as it is a new segment. What's in that? And what's driving this softness? Is that something that should sort of remain going forward? And just to go back to Asia. The segment is up maybe 50% year-on-year. What are the key regions driving this growth? Is it also just market -- is it market share? Or is it just new customers coming in? Are your B2C operators expanding in those regions? Is that supporting that growth? Just want to see how sticky that could be going forward.

Okay. RNG first, why isn't it growing faster in North America. While we really -- I mean, we have games, why aren't we releasing in a faster pace? There, it's a lot of regulatory requirements and you need to certify and see that each and every game is regulated and certified in each market. That takes time. And it's not our time, it takes the regulators' time and the external certification institution and that piles up. So we're pushing quite hard to get out more. But that is, let's say, a limiting factor in some aspects. We are also in the middle of the rollout of all our games into OSS, but that is also a little bit of a limitation. But main, as I stated before, is that we are still releasing in the bulk about the same games as we did last year. And we will see a gradual ramp-up a little bit better but towards the end of the year. So that's the comment on the RNG. When it comes to the other -- now we have -- when we broke out the geographic regions, which I'm very happy with and I'm happy that you are happy with it. The other is mainly Africa. There are a couple of other Middle East and maybe New Zealand as well type of countries that doesn't fall into any particular region. So mainly Africa and other. Softness in that. It's a smaller part of the business. There are challenges in regions like Africa, both Internet connectivity and so on. And we need to work at that. And in the beginning, everything is usually a little bit changed -- quarter-over-quarter, it can be a little bit up and down. What's driving the market share in Asia? Our growth comes from that we take market shares from others. I don't see that Live is growing in that sense. I think that we take market shares and we will continue to do that. We don't split out the different markets, but we have good traction in Asia with taking market share simply because we have a better product. Now I think that was it. I think that was it.

Your next question comes from Monique Pollard from Citi.

Three questions from me, if I can. The first was just, do you have any sense of how fast the slots market, RNG market is growing globally? Or if you have a sense of how fast your big competitors or what you see as you big competitors growing in that market? I'm just trying to get a sense of the current environment for RNG versus your sort of medium-term plan of double-digit growth. The second is just on the cash utilization. Obviously, you touched on that before. You said, M&A was possible, but not the big focus, talking about your 50% payout ratio and buybacks. But would you consider the M&A on the RNG side? And then just on Asia, I just wondered if you were able to give any color of whether you've signed any meaningful clients recently, or if it's more on the consumer spend side in market that is driving that strong growth in that region?

I think most of these are my place. I would say, to judge the global or per region underlying growth of RNG is very hard. There are a few institutes trying to do that. And usually, the only conclusion I can draw from it is that they are wrong. They try to do the best, but it's very hard to do. The underlying online casino in Europe is growing what percentage, very hard to say, probably between 5% and 20%, but depending a little bit on markets. U.S., of course, continues to grow. You can follow those figures there. Asia, more stable. It's a large gaming market, more stable. Africa, another very hard to say. I couldn't give you any sense for that. When it comes to M&A, we always consider, we look for -- we are very particular. We want to have something that adds value strategically. We do not go for buying growth or market shares, of course, and we want to add it. Right now, of course, we're looking -- we have the right product mix in RNG. We need to work with that. So of course, we're looking, but no, I wouldn't see that. Asia, there isn't any major big operators added or it's more business as usual and market share growth.

Okay. So more market share growth than it would be necessarily sort of spent ahead meaningfully changing?

Yes. Yes. Yes. Correct. But you can also look at it -- I will make one comment. You saw that we're adding Sky. And if you go back 10, 12 years, that would impact our figures today, it doesn't impact cost of the size. So adding -- we are dominant enough in -- we're on all markets and no, it's market share growth.

[Operator Instructions] Your next question comes from James Rowland Clark from Barclays.

My first question is on the European growth rate, which you've mentioned, has improved there. Are there any markets that you would call out that it's helping to drive that? I appreciate you said it's not really a market share gains market. It's more about the market overall itself, so any particular countries that you would call out?

I wouldn't call out any specific. It's a little bit -- it's spring in there right now for Europe, and we did a good quarter.

Okay. And then in the U.S., again, you mentioned one of the drivers is iGaming legislation. Any states that you're looking at or particularly interested at the moment that you expect legislature realize. You know it is sometimes politics, but where are you most optimistic?

It's the usual suspect, and we are quite defensive right now, but it's Indiana, Illinois, New York. And then suddenly it can be someone completely different and that goes faster, but I have no real fundamental for any direction on that.

Okay. And my final one is just on M&A, just following up on what Monique just asked. You sort of said you're quite happy with your product mix in RNG and also your technological capabilities. So can you sort of elaborate on where you see the M&A opportunities? If you're very happy with RNG, then is that space for M&A that -- you also mentioned you don't want to buy market share. So what is the sort of M&A opportunity that you're looking at? And can we assume it's not into another product vertical such as online sports betting.

I think that -- we don't talk too much about it because it's not of the size. But when we acquired DigiWheel, we did that to get that phenomenal piece of hardware combined software that we could use. And the fruit of that is Funky Time, which is the most advanced and the most thrilling game that we have ever made. Whatever the players think of it, that's later to be seen, but we needed that and we bought it. And then we used that to penetrate also land-based with the DigiWheel, which is revenues to come from 10, 15, 20 years ahead, don't calculate net present value of that. But that type of acquisition, we wouldn't hesitate if we could find that type. That would be phenomenal.

Okay. And sports betting point, you wouldn't be looking at experiencing another product vertical, we can assume?

We're very comfortable where we are with the business and business in online casino. We want to be the largest supplier of online casino in the world for 10, 15, 20 years to come. We're happy with that place.

Your next question comes from Marlon Varnik from Nordea Markets.

Just a follow up question here on studios. How is the ramp-up of studios going? I remember you mentioned that Jarvan was going slowly before? And what's causing the potential problems in this ramp-up here?

It's always going too slow. It's like -- it's the state of things, going too slow. We need more speed. But I think we're doing better and better in, for example, Jarvan, and it's growing nicely. We need to add more studios, more capacity, and there is no, in particular, thing that makes it go low, but we always want more.

Yes. Okay. You also mentioned that you expect a couple of new studios in LatAm. Can we expect anything already during the second half of 2023? Any time frame you can give here would be appreciated.

I understand that you want it. And the problem is that I can't give it to you right now. As soon as I have a good and valid time frame, I will share it.

Your next question comes from Simon Davies from Deutsche Bank.

Just 2 quick ones from me. Firstly, in terms of disclosure, obviously, you absorbed Nordic and the U.K. within Europe. Can you give us a breakout in terms of how those 2 markets performed in the period? And secondly, the EUR 3 million-ish FX hit, which were the big currency moves that impacted that?

Yes. On the first part of the question there, I mean, we don't break down any of the regions really. So we won't single out Nordics and U.K. sort of going forward. They are sort of part of Europe and so there is no sudden change in -- the trends that you've seen in those regions in the past year or so I think are relatively stable still. So that's valid. But they will be included in Europe. On the currency question, it's that, yes, we have included that in the report. We actually haven't had that before. I mean that we don't put a lot of focus on the currency effects ourselves, but you will have that number going forward. So if the quarter would have been consolidated with the same FX rates as the first quarter of '22, then yes, it would have been EUR 3 million higher EBITDA in this quarter. But it's just 1 of -- as we see, it's 1 of many external factors that affect us and we will not -- yes, we don't put too much weight on it. As for the currencies that were most expensive, I would say U.S. dollars and Georgian lari are the ones that we have a little bit, but mainly we are in euro, both when it comes to revenue and expenses, and that's also why the currency has not been a big topic for us also in the past. But yes, you'll have that going forward.

This concludes our question-and-answer session. I'd now like to hand the conference back over to Mr. Carlesund for any closing remarks.

Thank you very much for participating. And it's a pleasure to have you and look forward to speak to you in a couple of months again. Thank you. Bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.