Ladies and gentlemen, welcome to the Evolution Gaming Group Q1 2019 report. Today, I'm pleased to present CEO Martin Carlesund. For the first part of this call, all participants will be in a listen-only mode. Afterwards, there will be a question and answer session. Martin, please begin.
Thank you, operator. Welcome everyone, to the presentation of Evolution's first interim report 2019. My name is Martin Carlesund. I'm the CEO of Evolution. With me today, I also have our CFO, Jacob Kaplan. I will start by giving some comments on the start of 2019. I will hand over to Jacob, who closely look at financials as usual. After that, I will round off with some comments on what we see ahead, followed by questions. Next slide, please. It's a pleasure to present a strong start of 2019. Last year, we worked extremely hard with expanding our operations to meet high market demand, and we can now see how this pays off, both in terms of growth and profitability. We also work very hard to increase throughput and to develop new fantastic games, distancing us further from competitors. You can see the numbers on the slide.
Revenue growth of 54%, amounting to EUR 79.3 million compared to EUR 61.6 million Q1 2018. EBITDA increase of 64%, amounting to EUR 35.9 million compared to EUR 22 million Q1 2018. EBITDA margin of 45.3% compared to 42.6% same period last year. Finally, an EBIT increase of 69% compared to the same period last year. Live Casino really is the strong vertical of online gaming right now. As the market leader, we continue to innovate to take the whole market forward. On top of that, we are expanding the market in itself with new never-before-seen products. As a result, we experience that operators even see stronger strategic and competitive advantage of having Evolution Live than what we have seen before. We help them to capture the most out of that potential growth.
When we presented the Q4 results, I talked a lot about new games that we show-casted on ICE. Now we've just started to roll out some of them. First out was Live MONOPOLY. We believe that we are onto something great based on the initial response from the players. I will talk more about this later in the presentation. However, it is important to note that the new games have not yet made any significant contribution to growth. In the quarter, we also went live with several new clients in several markets. Our clients in the Swedish market, Frank & Fred and ATG, have both been off to great start in the new re-regulated environment. Next slide, please. We show the bet spots as an indicator of the activity in the Evolution network.
We had about 5.1 billion bet spots in the quarter, which is equivalent to an increase of 64% compared to last year. The reason for the growth being higher than the revenue is that our latest games attract smaller and more numerous bets. That is the proof of that our strategy to expand to new play types, which I will talk more about soon. Next slide, please. We are a business built of thousands of young Evolutioners, and we continue to recruit more talented people every day in order to keep up with the market demand. At the end of the first quarter, we were 4,671 FTEs, which is a bit over 6,400 employees, which now also includes about 130 FTEs from Ezugi. I'm extremely proud of everyone working in the Evolution family and the hard work carried out each day.
We all share the winning mindset and want to improve constantly. A great culture is the key when growing at the such pace that we are doing. We always try to improve ourselves as an attractive employer. Next slide, please. 2019 is the year of innovation. This year, we will launch in total 10 new games, which is a record number and a key driver to continue sustainable growth. It's not only important for our growth, it's also main driver for our customers to be able to continue to grow. Our core Live games such as Roulette and Blackjack is immensely important, and we are innovating, reinventing them with features like Lightning, increasing quality, perfecting the user experience. I have talked about that we have been aiming to broaden Live as a segment and attract new softer players, and we can see that happening now.
We are clearly getting traction in other parts of the market. Slots players and players from other segments are now starting to play Live to a much higher extent. We're not only reinventing the games we have and distancing us even further from our competitors. We're now also seeing how we can expand the total Live segments with completely new games. Players love our games, and new player categories are beginning to see great amusement in live game show-like games. The traction and expansion into other parts in total online gaming market gives us growth opportunities and new market shares. With this market expansion, we see potential in further growth. Next slide, please. Our game shows are something new in the industry. With them, we have invented a new vertical, which, as I stated, gives us opportunity to attract much larger part of the market as softer players.
Using the latest technology, we can mix live RNG elements as well as human interaction and augmented reality. I would like to encourage everyone to watch a round of Live Monopoly. You can try it yourself with an operator or search for it on YouTube, then you will really understand the many levels of entertainment. Not only will we be able to reach many more users with these games, we will also distance Evolution even more from any existing competition. You won't find any games alike, any other Live Casino provider, and the titles like Live Monopoly, Deal or No Deal that we are launching are exclusive to us. I'm very excited, as you can hear. However, it will take time before the new games generate substantial income. First, operators must launch the games to the players, then the players need to find them.
Nevertheless, we are confident that our game shows, as well as all other launches this year, will underpin Evolution's status as the true innovator of the industry. At this point in this presentation, I would like to say that we are ever so paranoid. Innovation is key, 2019 is the year of innovation. We're stressed about how we can do better and how we can constantly improve. We will fight every day to become better. We simply need to make Evolution better every single day. This is the true core nature of Evolution. Next slide, please. Let's have a quick look at our markets. The rest of world has increased in share in this quarter, driven by North America with USA and Canada. That's part of the explanation, but also traffic from Asia, as well as the integration of Ezugi.
We see good growth from all Nordics and with good performance also on the Swedish market since year start, together with the strong performance in Europe in general. There also seems small ramp up of growth in the U.K. market, but it's yet too early to say it's turned the corner. I will now hand over to Jacob, who will guide you through the numbers. Next slide, please.
Thank you, Martin, good morning to all of you listening in. We're now on slide titled Financial Development. As Martin pointed out at the top of the call, 2019 is off to a strong start. Revenue amounts to EUR 79.3 million in the first quarter. That's 54% growth year-on-year. Should be noted that Q1 of last year, Q1 2018, was a weaker quarter, the comparable numbers are somewhat weaker than normal, which boosts the percentage growth in this quarter. Second quarter of 2018, we had a quite strong quarter supported by the World Cup and so on. More normal comparables in the quarters to come. That said, Q1 this year is very strong. The EUR 79 million includes EUR 2.5 million from our acquired Ezugi offering. Also adjusted for acquired revenue, growth is strong at 49%.
Many of our customers have very good momentum in their Live Casino offerings right now, leveraging investments made during last year. We have added new tables and environments also during Q1, but at a somewhat lower pace than during 2018. There is no event comparable to World Cup this year, but still we see a very good demand for tables for the rest of the year. Martin also mentioned our upcoming new game launches. They will be very interesting to follow, but they've not impacted Q1. The current quarter shows there's still a solid demand for the core table game offering. EBITDA amounts to EUR 35.9 million for a margin of just over 45%. Compared to Q4 2018, EBITDA is positively affected by IFRS 16, which moves about EUR 0.6 million from operating expenses to depreciation. Adjusted for IFRS 16, EBITDA margin would be 44.5%.
The increase from IFRS 16 effect is more or less offset by the addition of Ezugi, which affects EBITDA negatively by about EUR 0.4 million compared to Q4. For the full year, we expect Ezugi to contribute to EBITDA slightly, will not have the same margin as Evolution of 2018. On the top-line margin, we stated in the Q4 report that we expect EBITDA margin for full year 2019 in the range of 44%-46%, meaning slightly up from the 2018 level. With the strong start of the year, we definitely spoke to the possibility to end up in the upper end of that range for this year. As always, when discussing the margins, we remind that they do fluctuate quarter-to-quarter, and again, we will continue to prioritize top-line growth or revenue growth over margins when there is such a choice.
Good outlook also for margins for the rest of the year. Operator, let's go to the next slide, please. Looking at the more detailed P&L for the period, we can again see revenues for the quarter at EUR 79.3 million. Moving down, personnel expenses total EUR 29 million in the quarter, up 39% compared to the same period last year. Increase in staff is mainly driven by increase in new tables. Depreciation is EUR 5.7 million in the quarter, including the EUR 0.6 million related to leasing contracts that are now booked to depreciation due to IFRS 16, and EUR 0.1 million related to depreciation on the intangible assets acquired in the Ezugi acquisition. Altogether, an increase of 39% compared to previous year. Other expenses include, among other items, consumable equipment, communication cost, consultants, and still some smaller leasing contracts that still remain here.
Although most of the larger contracts have been affected by the IFRS 16. The line is up by EUR 5.6 million compared to the same period last year. Summing up, total operating expenses increased by 45% year-on-year in the first quarter, and that includes EUR 2.9 million related to Ezugi. Adjusted for acquired business increase is 37% year-on-year. Tax for the quarter is at EUR 1.6 million for a tax rate of 5.2%. All this sums up to a profit for the period of EUR 28.6 million, equal to an earnings per share of EUR 0.78 per share in the quarter, and for the rolling 12-month period, EUR 2.61 per share. Operator, let's go to the next slide, please. Cash flow and financial resources. To the left in the slide, we have a chart showing capital expenditure.
This chart excludes M&A, CapEx in tangible assets, that's mainly our new studios, amount to just over EUR 4 million in the quarter. As we have stated earlier, main projects for 2019 are the new studio in Malta, further expansion in our Tbilisi studio, and later this year, also a studio in Pennsylvania. Investments in intangible assets is mainly related to development of new games and features to the platform. Fairly stable each quarter, as you can see in the slide, at around EUR 3 million a quarter. It's slightly lower than that in Q1, but for the year, we expect about the same level as 2018. Boosting the figure in Q4, I should mention, is licenses for some of the newly launched games. That's kind of a one-off thing in Q4.
As we stated earlier, at our last quarterly report or year-end report, we expect total CapEx to roughly the same amount in 2019 as 2018 in sort of EUR. That will, however, be a lower share of revenue than previous year, as we also see in Q1, where investments as a share of revenue rolling 12 months is slightly down. The middle of the slide shows cash flow. Operating cash flow around EUR 23 million, and cash conversion for the 12-month period is in a good trend, up to 74%. To the right in the slide, a look at the balance sheet. Continued strong financial position. The board is proposing the AGM to pay just over EUR 43 million of the cash as a dividend. That equals EUR 1.2 per share, and is in line with our policy of the 60% payout. That was the end of my prepared remarks.
Handing it back to you, Martin, then we'll take questions after that.
Thank you, Jacob. As already stated, we will have most of the new games to be launched ahead of us. We look forward to this and expect all titles to contribute to growth over time. It's clear that demand for Live Casino continues to be high. Consequently, we'll continue to invest to meet the demand. Investments will take place in all studios, but we will, as highlighted in the last report, also open a new studio in Malta, a new one this year. As mentioned earlier by Jacob, we will start to build a new studio in Pennsylvania later this year. We're off to a good start of 2019, also the second quarter has started well.
We have previously guided for an EBITDA margin between 44% and 46% this year, based on performance so far, we currently see good conditions to finish in the upper end of this range. By leveraging on our investments made 2018 and with all the game launches, I'm certain that we also this year will be able to fulfill our mission to constantly increase the gap to competition. Thank you all for listening. Now let's move on to questions.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad now. Our first question comes from the line of James Goodman from Barclays. Please go ahead.
Yeah, morning. Thank you for taking my questions. Perhaps I'll ask them one by one. It's probably easier. Extremely strong quarter, and notwithstanding the commentary around the Q1 comparative, it looks like a very unusual step up from Q4 of last year, particularly given the new games aren't contributing yet. Really my question was, is there anything seasonally we should think about as we go through the year? Because even running the current run rate into Q2 would be around 35% growth. Anything seasonally we should think about? Thank you.
I would comment it like we get leverage on the investments that were made 2018, and there is nothing particularly seasonally affecting it. It's just normal.
Okay, that's good to know. I was personally pretty struck by the new games when I saw them at ICE, Deal or No Deal and MONOPOLY. They're extremely different to anything that we've seen before. You mentioned it in the pre-prepared remarks, but these are relevant, I think, very much to new players, and I'm just curious what you're seeing in terms of operator activity to actually target a wider audience for those games, because clearly they have interest beyond the usual sort of slot or Live Casino players.
We see a high activity among the operators right now, our customers to actually launch the games, Monopoly Live and in the coming games. Of course, they want to capture the full potential, so we see how it's spreading out in other parts where we usually are not present, and that's very good. I would like, however, to make the remark that even though they are aiming towards a newer player group and on softer places, we call them, they are fantastically popular also by all of the existing players because they have an appeal, and they are new and they add something new to the whole live environment. They are equally very popular among the already existing players.
Okay. That's clear. Finally, I just wanted to ask about one of your main competitors, which when they last spoke to us, talked a little bit about relaxing some of their exclusivity. They've also signed a big content agreement with a customer subsequent to that as well. Any thoughts you have, not specifically on that competitor, but just around that sort of exclusivity issue and how that's developing? Thank you.
I believe in competition, and I think that competition is good. It makes you be on your toes, and you want to do better every day. We believe that we increased the actual gap to competition by far now with the launches that we do and what we did 2018, and what we did 2017 as well. We are happy with that and continue to fight to be even better this year and next year and the year beyond that.
Okay, thanks for taking the question.
Our next question comes from the line of Lars-Ola Hellström from Pareto Securities. Please go ahead.
Hi, guys. Congrats. A really strong report. I can start. Can you give us some flavor how much Ezugi eventually added to top line?
Yes. In the quarter, Ezugi adds about EUR 2.5 million to top line, and almost EUR 2.9 to expenses, negative EBITDA effect of about EUR 0.4.
Okay.
I think going forward, we would more and more integrate Ezugi. We won't be kind of reporting separately on Ezugi quarter by quarter as I see it. That's kind of the starting point, then we look to see that improve during the year. As we've said earlier, for the full year, it will have a positive EBITDA.
Okay. All regions is growing sequentially and is also accelerating growth. Starting with Sweden, have you noticed that operators is increasingly pushing the Live Casino product, and that you have not been affected by the lower player value seen in the market?
Reregulation of Swedish market and regulation in particular has been good for us. We stated over the years, and we see that Swedish market is developing well. We're adding customers and continue to feel that our games get good traction, yes.
Okay. Moving on to the rest of Europe, I guess a large part of the growth is Germany as well as you have included Ezugi. Have you noticed any kind of slowdown in the Netherlands? What to expect from Italy after the marketing ban? Yeah, can you comment on that?
Yeah. As you know, we don't comment so much on the individual markets. Directionally, I would say yes, Netherlands may be a little slower and many of the other larger markets are doing quite well. That, I think we can see as well in our business.
The rest of Europe or rest of world, is it mainly related to the successful launch in Quebec?
Both U.S. is growing well, and Ezugi's main market, the largest market was also U.S., so that add to that. Quebec in Canada is growing well. Asia, as I mentioned, is growing well. I would say traction is good all over there.
Okay. On new studios, the new Malta studio, how is it going? When will you start to migrate? Is there any risk for a potential hiccup in terms of efficiency, et cetera?
Let's start with the last. There is always risks in any big projects. I don't think that they would result in any hiccup. They will simply stay a little bit longer where we are right now. The new studio is planned to start to be launched during Q2 or so. Coming into full production over the end of the year.
Okay. Final one from me. I think it was a question already. The content deal that Playtech has with GVC, how do you think it will play out? Do you think Playtech will be allowed to power their Live Casino products on the GVC brands? You also will be let into the lobby for the Ladbrokes Coral brand.
All competitors we have are good, and we like being in a competitive environment. I can't comment on the deals that Playtech is doing.
Okay.
The next question comes from the line of Eva Hansen from ABG. Please go ahead.
Yes, hello. Two of my three questions was already answered. The last one was, looking at your split for the rest of Europe, how much does various Bitcoin casino contribute to this segment?
We haven't broken that out. It's not a segment we follow like that, so no comment there.
Okay, thank you very much. I would also like to state that these questions are from Erik Moberg, who's unavailable for now. Thank you.
Okay.
The next question comes from the line of Richard Ingber from Danske Bank. Please go ahead.
Hi, guys. Great report. I have two questions. The first one is related to the growth in regulated markets. You increased from 30 percentage points to 34. Is this mainly due to regulation of the Swedish market, or is it due to growth in the U.S. and Canada?
No, mainly Sweden.
Okay, good. That was my first question. My second question is related to the U.S. Can you please elaborate a bit on the timeframe of the Pennsylvania studio, and the size of it? Will it be approximately the size of the New Jersey or yeah, what's your feeling there?
Okay. Timeframe of Pennsylvania. It's a very difficult question. A little bit of a judgment call because it varies from time to time. The best guess we have right now is that it will open up during 2019. It's been varying from, let's say, the Q2 to Q4 over some time now, That's the range that I would take. That's the Pennsylvania rollout. What was your second question? Sorry.
How will the size of it be compared to the New Jersey studio?
Oh, yeah, exactly. Sorry, I lost that. Yeah. Population value or the way the population is in Pennsylvania suggests that it's somewhere maybe double the size or a little bit more than New Jersey.
Okay, thanks. That will be the last for my questions.
Just as a reminder, if you do wish to ask a question, please press 01 on your telephone keypad now. Our next question comes from the line of Oscar Rönnkvist from Carnegie. Please go ahead.
Thank you. Good morning, guys. First question on the rest of the world region, which is back to very strong sequential growth again, obviously driven by a bit by Ezugi, the U.S. and so on. Can you just elaborate a bit on what drives these larger changes between quarters? For example, Q4 was comparatively weak given the growth rate in other quarters. Thank you.
The numbers in rest of world is slightly smaller, so the percentage variation of the quarters will of course be a little higher. Now we're at Ezugi. We have good traction in U.S. and also traction in Canada that drives the figure up, and that is a stronger third for that. The situation in Asia, which is then questioned, varies also. We're not aggressively addressing that market. We're following our European operators, simply the figures from there varies.
Okay, got it. Then a few questions on the product. First of all, MONOPOLY Live seems to have been a huge success, which is good to see. Can you elaborate a bit on the types of customers and also what markets, if any, it has been the most successful in, if there are any differences there? Thank you.
MONOPOLY Live, it's early days, of course, good start, great momentum, fantastic. We don't single out any specific market in that way. Of course, then we know that it's, for example, not regulated in Sweden, so we don't have it there. It's not an option for all markets. When it comes to the players, as I stated earlier on the call, it attracts also many of our already existing players that really likes and loves the game. Then it also attracts new types of players, more game show likes, more entertainment, different types of players, which then essentially spans our market. Live as a market is expanding, with the new game, we're creating the demand as well as the product at the same time. Now we see how these players actually experience and walks into this new beautiful world, and that's very exciting.
Excellent. Then finally from me, the upcoming game launches here, which I guess are included in the positive guidance for the margins. Would you say that these new products need to perform well in order to continue on this very strong growth trajectory in Q1 and also the margin guidance?
We are cautious, we know that it takes time for products to get real traction affecting the numbers. I would say that we are cautious with the effects on the result in 2019.
Okay, great. Thank you very much.
Thank you.
As there are no further questions, I'll hand back to the speakers.
Thank you very much. If that was all questions, I would like to conclude and finish this call, and thank you all for listening.
Thank you.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.
Thank you.
Yeah.