Ladies and gentlemen, welcome to the Evolution Gaming Group Q1 2019 Report. Today, I'm pleased to present CEO, Maarten Karlsson. For the first part of this call, all participants will be in a listen only mode and afterwards, there will be a question and answer session. Maarten, please begin.
Thank you, operator. Welcome, everyone, to the presentation of Evolution's first interim report 2019. My name is Martin Kolesund. I'm the CEO of Evolution. And with me today, I also have our CFO, Jacob Trapper.
I will start by giving some comments on the start of 2019. I will then hand over to Jacob to closely look at financials, as usual. And 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 to 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 worked very hard to increase throughput and to develop new fantastic gains distancing our herd from competitors. You can see the numbers on the slide. Revenue growth of 54 percent and marketing to €79,300,000 compared to €51,600,000 in Q1 2018. EBITDA increase of 64%, amounting to €35,900,000 compared to €22,000,000 Q1 2018.
EBITDA margin of 45.3% compared to 42.6 percent same period
last year.
And 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. And 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 network before seen products. As a result, we experienced the operators as a result, we experienced but operated E and C's strong strategic and competitive advantage of having evolution live and
industry's strongest strategic and competitive
advantage of having evolution live and seen better than what we have seen before. We have attempted to capture the most out of that potential growth. When we presented the Q4 result, I talked a lot about new gains that we showcased on ICE. Now I've just started to roll out some of them, and first out was Live Monopoly, and we believe that we are up to 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, Sankars Steel and ATG, have both been off to a great start in the newly regulated environment. Next slide, please. We show the best cost as an indicator of activity in the evolution network.
We had about 5,100,000,000 best 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, and that is a 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 by 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 Q1, we were 4,671 FTEs, which is a bit over 6,400 NPEs, which now also includes about 130 FTEs from Esokin.
I'm extremely proud of everyone working in the Volusia 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, And 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 continued sustainable growth. It's not only important for our growth, it's also a main driver for our customers to be able to continue to grow. Our core laggins, such as roulette and black jack, is immensely important, and we are innovating, reinventing them with features like lightning, increasing quality, perfecting the user experience. But I have talked about that we have been aiming to broaden Live as a segment and attract new software players, and we can see that's 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 had and distancing us even further from our competitors. We are now also seeing how we can expand the total life 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 is which, as I stated, gives us opportunity to attract much larger part of the market and softer players. Using the latest technology, we can mix live R and D elements as well as human interaction and augmented reality.
I would like to encourage everyone to walk around Live Monopoly. You can try it yourself with an operator or search for it on YouTube, and 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 pivot 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, so the players and 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, and 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. Rest of the world has increased in share in this quarter, driven by North America with U. S. A. And Canada, that's part of the expansion, but also traffic from Asia as well as the integration of Esokie.
We see good growth from all Nordics and with good performance also in the Swedish market since the year start, together with the strong performance in Europe in general. We've also seen small ramp up of growth in the U. K. Market, but it's yet too early to say it's a turn the corner. I will now hand over to Jacob, who will guide you through the numbers.
Next slide, please.
Thank you, Martin, and 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 €79,300,000 in the Q1, that's 54% growth year on year. It should be noted that Q1 of last year, Q1 2018 was a weaker quarter, so the comparable numbers are somewhat weaker than normal, which boosts the percentage growth in this quarter.
Q2 of 2018, we had a quite strong quarter supported by the World Cup and so on. So more normal comparables in the quarters to come. That said, Q1 this year is very strong. The €79,000,000 includes €2,500,000 from our acquired Esuvi offering. So also adjusted for acquired revenue, growth is strong at 49%.
Many of our customers have very good momentum in the 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 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 have not impacted Q1, so the current quarter shows there's still solid demand for the core table game offering.
EBITDA amounts to €35,900,000 for a margin of just over 45% Compared to Q4 2018, EBITDA is positively affected by IFRS 16, which moves about €600,000 from operating expenses to depreciation. So adjusted for IFRS 16, EBITDA margin would be 44.5%. However, the increase from IFRS 16 effect is more or less offset by the addition of Esuki, which affects EBITDA negatively by about €400,000 compared to Q4. For the full year, we expect Esugy to contribute to EBITDA slightly. However, will not have the same margin as Evolution of 2018.
On the topical margin, we stated in the Q4 report that we expect EBITDA margins for full year 2019 in the range of 44% to 46%, meaning slightly up from the 2018 level. With a strong start of the year, we definitely hope to see the possibility to end up in the upper end of that range for this year. Still, 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, but 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 and L for the period, we can again see revenues for the quarter at €79,300,000 Moving down, personnel expenses totaled €29,000,000 in the quarter, up 39% compared to the same period last year. Increased in staff is mainly driven by increase in new tables. Depreciation is €5,700,000 in the quarter, including the €600,000 related to leasing contracts that are now booked to depreciation due to IFRS 16 and EUR 0.1000000 related to depreciation on the intangible assets acquired in the SUGI acquisition, altogether an increase of 39% compared to previous year. Other expenses include, among other items, consumable equipment, communication costs, 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 €5,600,000 compared to the same period last year.
So summing up, total operating expenses increased by 45% year on year in the Q1, and that includes EUR 2,900,000 related to Silke. So adjusted for acquired business, the increase is 37% year on year. Tax for the quarter is at €1,600,000 for a tax rate of 5.2 percent. All this sums up to a profit for period of 28 point €6,000,000 equal to an earnings per share of €0.78 per share in the quarter and for the rolling 12 month period, €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 and A. So CapEx in tangible assets, that's mainly on new studios, amounted to just over EUR 4,000,000 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 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 €3,000,000 a quarter. It's slightly lower than that in Q1, but for the year, we expect about the same level as 2018. But boosting the figure in Q4, I should mention, is licenses
for some
of the newly launched games. So that's kind of a one off in Q4. As we stated earlier, or at our last quarterly report or year end report, we expect total CapEx to roughly the same amount in 2019 as 18 in sort of Europe. That will, however, be a lower share of revenue than previous year as we also see in Q1 where investments as share of revenue growth in 12 months is slightly down. The middle of the slide shows cash flow.
Operating cash flow around EUR 23,000,000 and cash conversion for the 12 month period is in a good trend, up to 74%. To the right end of the slide, a look at the balance sheet. Continued strong financial position. The Board is proposing the AGM to pay just over EUR 43,000,000 of the cash as a dividend that equals EUR 1.2 per share and is in line with our policy of a 50% payout. That was the end of my prepared remarks.
Hand the link back to you, Maarten, and 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 Kaita to contribute to growth over time. It's clear that demand for Light 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. And 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, and also the Q2 has started well. We have previously guided on EBITDA margin between 0.4% and 0.6% this year. And 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. And now let's move on to questions.
Our first question comes from the line of James Good from Barclays. Please go ahead.
Yes, morning. And thank you for taking my questions. Perhaps I'll ask them 1 by 1, it's probably easier. Extremely strong quarter particularly given the new games aren't contributing yet. So 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. So anything seasonally we should think about?
I would comment it like we get leverage on the investments that were made in 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. And when I saw them at ICE, Deal or No Deal and Monopoly, they're extremely different to anything that we've seen before. I mean, you mentioned it in the 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 high activity among the operators right now, our customers, to actually launch the games, the monopoly on the coming games. And we 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, very good. I would like, however, to make the markets, even though they are aiming towards a newer pay group and some of the places we call them, they are fantastically popular also by the all of the existing players because they have an appeal and they are new and they add something new to the whole line of Ireland. So they are equally popular and not the already existing players.
Okay. Okay. That's clear. And then finally, I just wanted to ask about the 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 competitive, but just around that sort of exclusivity issue and how that's developing?
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. And we believe that we increased the actually gap to competition by far now with the launch that we do and what we did 2018 and what we did 2017 as well. So we are happy with that continue to fight to be even better this year, next year and the year beyond that.
Okay. Thanks for taking the question.
Our next question comes from the line of Lars Ola Heltzkom from Pareto Securities. Please go ahead.
Hi, guys. Congrats, really strong report. I can start, can you give us some flavor how much Etsugi eventually added to top line?
Yes. So in the quarter, Esuji adds about SEK 2,500,000 to top line and almost $2,900,000 to expenses. So negative EBITDA effect of about $0.4 So that and I think going forward, we more and more integrate the Suzuki. I don't we won't be kind of reporting separately on Suzuki quarter by quarter as I see it. But that's kind of the starting point.
And we'll we look to see that improve during the year. And as we've said earlier, for the full year, it will have a positive EBITDA.
Okay. All regions is growing sequentially and it's 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?
Pre regulation of Swedish market and regulation in particular has been good for us, as we stated over the years. And we see that Swedish market is developing well. We're adding customers and continue to feel that our gains get good traction, yes.
Okay. Moving on to the rest of Europe. I guess a large part of it on the growth is Germany as well as you have included SUGI. But have you noticed any kind of slowdown in the Netherlands? And what to expect from Italy after the marketing ban?
And
yes, any comments on that? Yes. As you know, we don't comment so much on the individual markets. But directionally, I would say, yes, Netherlands may be a little slower and many of the other larger markets doing quite well. So that I think we can see as well in our business.
And rest of Europe or rest of world then, is it mainly related to the successful launch in Quebec?
North U. S. Is growing well. And SUGI's main market the largest market was also U. S, so that I'll add to that.
Quebec, Canada is growing well. Of course, Asia, as I mentioned, is growing well. So I would say traction is good all over there.
Okay. Also on new studios, the new Malte studio, how is it going? When will you start to migrate? And is there any risk for a potential hiccup in terms of efficiency, etcetera?
It would be 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. That will simply stay a little bit longer than where we are right now. But the new studio is planned to start to be launched during Q2 or so and then being coming into full production over the end of the in the end of the year.
Okay. And final one for me. I think it was a question already. But the content deal that Playtech has with G2C, How do you think it will play out? Do you think Playtech will be allowed to power their like casino products on the UVC brands and that you also will be let into the lobby for the Ladbrokes Karel brand?
All competitors we have are good, and we like being in a competitive environment. I can't comment on the deals, but PayTech is doing.
Okay.
And the next question comes from the line of Omer Hansen from ABN. Please go ahead.
Yes. Hello. 2 of my three questions was already answered, but 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 the segment we follow like that. So no comment there.
I would also like to state that these questions are from Erik Moberg, who is unavailable for now. Thank you. Thank you. Okay.
And the next question comes from the line of Richard Ingber from 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 the regulation of the Swedish markets? Or is it due to growth in the U. S. And Canada?
No, mainly Sweden.
Okay, good. That was my first question. And my second question is related to the U. S. Can you please elaborate a bit on the time frame of the Pennsylvania studio and the size of it?
Will it be approximately the size of New Jersey? Or yes, what's your feeling there?
Okay. Time frame of Pennsylvania is it's a very difficult question. A little bit of a judgment for 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, Q2 to Q4 over some time now, and that's the range that I will stay.
So that's the Pennsylvania rollout. What was the second question, sorry?
How do you think how will the size of it be compared to New Jersey Steel?
Yes, exactly. Sorry, I lost that. Yes, Population value or the way the composition is in Pennsylvania suggests that it's somewhere maybe double the size or a little bit more than New Jersey.
Okay. Thanks. That was my
Our next question comes from the line of Oskar Eriksson from Carnegie. Please go ahead.
Thank you. Good morning, guys. First question on the Rest of the World region, which is back to a very strong sequential growth again, obviously driven then by a bit by SUGI, the U. S. And so on.
But can you just elaborate a bit on what drives these larger changes during quarters? For example, Q4 was comparatively weak given the growth rate in other quarters? Thank
you. The numbers in record world is slightly smaller, so the percentage variation of the quarters will, of course, be a little higher. And now we're at the Sogou. We have good traction in U. S.
And also traction in Canada that drives the figure up. And that was strong it's a stronger burden for that. The situation in Asia, which has been questioned there is also we're not aggressively addressing that market. We are following our European operators and simply the figures from the tariffs.
Okay. Got it. And 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.
Monopril Live, it's early days. Of course, good start, great momentum, fantastic. We don't single out any specific market in that way. But of course, then we know that it's, for example, not regulated in Sweden, so we don't have it there. So 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. But then it also attracts new types of players, more game show likes, more entertainment snippets of the players, which then essentially expands our market live as a market that is expanding. And with the new games, we're creating the demand as well as the product at the same time. And now we see how these players actually experience and walks into this new beautiful world, and that's very exciting.
Excellent. And 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, and we know that it takes time for products to get real traction affecting the numbers. So 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.