Ladies and gentlemen, welcome to the Evolution Gaming Group Q3 2018 report. Today, I'm pleased to present CEO Martin Carlesund and CFO Jacob Kaplan. For the first half of the call, all participants will be in listen-only mode. Afterwards, there'll be a question-and-answer session. Speakers, please begin.
Thank you, operator. A warm welcome to everyone on the call, also those following up online. My name is Martin Carlesund. I'm the CEO of Evolution Gaming. With me today, I also have our CFO, Jacob Kaplan. I will start by giving some comments of our performance in the third quarter. I will hand over to Jacob for a closer look at our financials. After that, I will round off with some outlook for the future, followed by questions. Next slide, please. The third quarter has been intense with lots of progress and hard work. It started off with the final weeks of the World Cup. Then we have exhibited good demand throughout the period.
My overall view is that once again, we have managed to increase the gap to competition, this time manifested by the launch of New Jersey studio, as well as continued success for our newest game innovations. Let's look at the numbers. We have a revenue growth of 41%, EUR 64.3 million compared to EUR 45.7 million last year. EBITDA increase of 28%. We have an EBITDA margin of 43.5% and an EBIT increase of 27% to EUR 23.2 million. I'm especially happy with the growth. We have reached 500 tables at the end of the quarter, ahead of plans due to the very high demand from our customers. We've continued to see high demand also in the beginning of Q4. The margins were slightly impacted by faster than expected growth in the number of tables. Remember that we always prioritize our long-term goals before short-term margins.
The main highlight of the quarter was the launch of the new studio in New Jersey, of which I'm very proud. It's our 10th studio globally, our second in North America, our first in the U.S. The initial response has been very positive. We will go live with additional operators in the fourth quarter. The outlook for the U.S. in total is of course very positive, as we have said before, it will take time before it reaches its full potential. In the quarter, we have also looked at our future plans for Malta, where in 2019 we need to expand to fulfill the demand for international tables. Next slide, please. Bet spots is an indicator of activity in the Evolution network. We saw a healthy growth of 66% in Q3 compared to last year.
In the beginning of the quarter, the number was supported by the World Cup, the number has stayed on high levels driven by good player numbers and our new games. Next slide, please. As you know, our success is built on talented people and our recruitment phase remains on a very high level. The number in the quarter was mostly driven by new people joining our studio in Georgia. It takes a lot of effort to find the best people, and we continue to refine our recruitment process in all markets with good progress. Looking at the actual numbers of employees, we are now more than 5,000 people in 11 different markets. This is a great accomplishment. Next slide, please. Let's continue with a look at the development of our new studios.
In Georgia, we continue to see good progress and studio will be our second largest at the end of the year. As said, Georgia has been the main driver of employees in the quarter, and in the end of the third quarter, 600 persons were on board, to be compared with the 300 in the end of the second quarter. The New Jersey studio went live in the quarter and initial development has exceeded our expectations. The studio is located in Atlantic City and serves some very strong brands already, like 888, Rush Street, and Hard Rock. We are in discussions with several new operators and expect to be live with more than 5 at year-end. Among our tables, Three Card Poker and Ultimate Texas Hold'em have proven extra popular. We continue to see U.S. market as the long-term project that will support Evolution's growth over time.
New Jersey by itself is relatively small, as more states regulate, the more U.S. will grow in importance. We look forward to the potential opening of Pennsylvania in 2019, and we see the good start of New Jersey as promising for the future potential of U.S.A. in total. During the quarter, we have also looked at the possibilities for expansion in Malta. We see clear increase in demand of tables and services in local languages. Sweden is a typical example where more operators want to expand with Swedish-speaking games when the new regulation starts in 2019. Next slide, please. Our global exposure continued to increase in the quarter, we see growth from all over the world, in line with our customers' increasingly diversified geography.
As you can see in this report's breakdown, the rest of the world areas continues to increase while the U.K. market is under pressure from the latest regulatory requirement. We have around 150 customers today, including several platforms. This means that our games are literally available on thousands of websites in more than 200 countries. Europe remains the basis of operations and U.K. the single largest market. We expect rest of the world to continue increase driven by Canada, New Jersey, and also more European licensed operators going into Asia. Next slide, please. We continue to invest in product innovation, I'm very happy to see the strong and positive response for our new games from our customers and their users. It's clear to us that our new products significantly support growth from all types of customers.
Our most recent addition, Lightning Roulette, continues to prove very popular among end users. It's also gained a great industry recognition as we, after the end of the quarter, won the Product Innovation of the Year award at G2E in Las Vegas. Last year, we won Digital Product of the Year with our Dream Catcher. The Product Innovation of the Year is, however, a wider category and targets both digital and land-based products, which is why we are immensely proud of this award. Looking forward, we have a very strong product pipeline. Our RNG suite has been refined and is currently in testing with four customers. We're encouraged by the operators' demand for these games and look forward to our full rollout over the next quarter. We are also nearing completion of our beta test of Infinite Blackjack.
This game will allow unlimited number of players onto blackjack for a single table. We're especially proud of this game, which has the most technically advanced table we have ever built, but is still providing a simple, pure blackjack experience to end users. I look forward to telling more of this after the rollout. Now I hand over to Jacob for the financial highlights. Next slide, please.
Thank you, Martin, good morning to all of you listening in. We see a continued strong revenue development in this quarter. Year-on-year growth is 40.8%. After a slower start to 2018, the past two quarters have been stronger, with volumes and player numbers picking up. As Martin mentioned, we continue to see growth across all regions, similar to what we saw in the second quarter, even though also as in Q2, the U.K. market in general continues to be tough at the moment. Looking across our different customer types, we see growth in all categories. Customers that are new to the live product normally have a rapid growth trajectory, but we are also happy to see that customers who've been with us for several years continue to grow.
There's an underlying growth in the live casino product, Our market-leading product development makes our offering richer over time and helps operators grow their live business. EBITDA in the quarter amounts to EUR 28 million, for an EBITDA margin of 43.5%. This is a slightly lower margin than our own expectation from earlier this year. The main reason is that the expansion of tables has been faster than expected. Our target of over 500 tables live at the end of the year was reached already at the end of the third quarter. Very positive in the long run, The expansion of tables drives some short-term costs.
We expect good demand for tables also for the rest of the year, and expect to improve slightly on margins in Q4, with the result that the full-year EBITDA margin will be in the lower end of our earlier statement of margins in line with 2017. Still, as you can see in the slide, this year's level, around 44%, is a clear step above where we were during 2015 and 2016. We will try to give continuous guidance of where we see margins in the short term. As Martin also mentioned at the top of the call, we will prioritize top-line growth if there is a trade-off with margins, and you can see that also in this quarter. Let's go to the next slide, please. Walking through the more detailed P&L table, we can see revenues for the three-month period July to September, total just over EUR 64 million.
For the first nine months of the year, revenues amount to EUR 175 million. That's an increase of 37% compared to the first half of 2017. Personnel expenses total EUR 25.6 million in the quarter. That's up 41% compared to the same period last year. The increase in staff is mainly driven by the increase in new tables. Depreciation is almost EUR 4.8 million in the quarter. That's 33% increase from last year. Other expenses, which includes, among other items, rent, consumable equipment, consultant, is up by EUR 5 million compared to the same period last year. Summing up, total operating expenses increased by 50% year-on-year and 41% comparing the nine-month periods January to September 2017 and 2018. We have had a year with three larger studio build projects. That drives spending. Large part of that is capital expenditure, of course, but it also affects the P&L and drives costs there.
The increase in cost during this year is definitely a conscious decision to support delivery of new tables and top-line growth. Moving on in the table, tax for the period is EUR 1.9 million. That's a tax rate of 8.4%. That brings us to profit for the period of EUR 21.2 million, which is equal to an EPS of EUR 0.58 per share. For the rolling 12-month period, little over EUR 2 per share at EUR 2.09 a share. Let's go to the next slide, please. Looking at the capital expenditure to the left in the slide. We've spoken about studio build projects in Vancouver, Tbilisi, and New Jersey and how that drives tangible investments all through this year. In the third quarter, tangible investments are down compared to earlier this year as those projects are completed or going into phases with less investments now.
Level in Q3 is somewhat lower than what I expected three months ago. Reason is that the New Jersey project was completed as planned. I might have had little contingency in my expectation. A couple of other items have been pushed into Q4. For Q4 and the next year, we will continue to have investments both in new studios and existing studios. However, investments as a percentage of revenue, we expect to go lower for the full year 2019, even if the absolute number will be similar to what we have seen this year. The next largest studio project will be the new studio on Malta. Demand for local language tables continues to be strong as more countries regulate, and we have rich capacity in our current facilities. We will also see continued CapEx expenditure in Tbilisi during next year.
Beyond that, it's not specified, but there are a number of projects pending. We are in the process of planning next year right now. I expect we will be able to come back to investment plans when we talk about the fourth quarter. CapEx in intangible assets is mainly related to development of new games and features of the platform. Fairly stable this year. While up a little in the quarter, expected to continue roughly on the 2018 level also 2019. Moving on to cash flow. It has improved during the quarter as investments were lower. We also continue to see effects of our improved collections routines. Accounts receivable in relation to revenue is back to a more normal level after having increased during the first half of this year.
Still room for further improvement. It will continue to be a focus area, but it's at a better level than before. To the right in the slide, a look at the balance sheet. No big shifts during the period. It shows a continued strong financial position. That was the end of my prepared remarks. I'll hand back to Martin for some closing words, and then we'll take questions after that. Back to you, Martin.
Thank you very much, Jacob. I'm very happy with the Q3. Demand for new tables remain high, and we will have more than 500 tables live at the year-end. We are actually already at the level where we thought we would be in the end of Q4, in the end of Q3, and that makes us very proud to be able to deliver that. As we have stated before, each new table can be leveraged better over time. It will be a little bit short-term P&L effect. We note some increase in demand for local languages services, which is why we are prepared to expand on Malta next year. This will likely be in the form of a new studio. With this being said, we expect the investment levels 2019 to be par with 2018 in absolute numbers.
At the end of the quarter, we were approximately 5,300 persons employed in the company. We are well on our way towards 6,000. To find the best talent is crucial for our continued journey. To continue to increase the gap to our competitors is sort of the main task for all of us on board in Evolution. Together, we work to make Evolution and all our customers better every single day. Thank you all for listening. Let's move to questions. Thank you.
Thank you. Ladies and gentlemen, if you wish to ask a question, please dial 01 on your telephone keypads now to enter the queue. Once your name's been announced, you can ask your question. If you think it's answered before it's your turn to speak, you can dial 02 to cancel. Our first question comes from the line of James Goodman of Barclays. Please go ahead. Your line is open.
Yeah, morning. Thanks for taking my question.
Morning, James.
Yeah, morning. It's encouraging to see sufficient top-line demand that you can accelerate your investment program, I think. I guess the market's struggling to answer the question of whether this margin move is purely a consequence of the new table investment or whether there is something else that would mean a like-for-like structural decrease in the margin. If you could sort of confirm that's purely related to the investment, that would be helpful. Related to that is another way to think about this is some commentary around the 2019 revenue outlook that this additional investment might be supporting, maybe in relation to where consensus is currently looking, I think just north of 20% growth.
I would like to comment on the margin. We are constantly trying to increase revenue accounts before margin. Whenever that trade-off, like now when we build more tables than we actually expect, there is a P&L effect. I'm comfortable with the scalability of the company's business model. I'm not worried with the margin going forward. That's the simple answer. What was your second question? Sorry.
It's related to that and maybe some commentary that you can provide at this stage of the year around the sort of minimum level of revenue growth that you're seeing for 2019, given the significant investments that you're able to put into the business at the moment.
We haven't given any specific guidance for 2019 at this stage. Of course, we see continued strong demand, and that's encouraging for the future. In terms of exactly what that means, we haven't given any other guidance.
Okay. Thanks.
Thank you.
Thank you. Our next question comes from the line of Erik Moberg of ABG. Please go ahead. Your line is open.
Hi, guys. Good morning, and congratulations on a good quarter. Just in terms of the rest of the world segment, which 10 operators are the largest contributors to the strong growth?
We don't comment on the revenue split on operators.
Okay. All right. If we look at the Rest of the World Segment, what would you say are, if we put the commission levels in relation to the regulated markets, could you give us some flavor on that?
Actually, also there, as you know, we haven't commented on average commission levels or things like that in the past. Main reason for that is that it's bespoke contracts with each operator, and it's individual contracts.
Okay. My take is at least that Asia should be one of the main driver behind the Rest of the World Segment. Could you give us some flavor on what Asian regions currently are experiencing most rapid growth? Where do you see the highest volumes?
Again, we have moved forward to give the geographical split as you got basically this year. We haven't moved further into that split, splitting out different countries or regions other than what we say.
Okay. In general, what do you see as the largest risk of operating in a gray area market versus in a regulated market?
The most important thing for us is that the operators that we take on should have the proper licensing in Europe. That's where we want them to be licensed. We want the regulatory aspect to be as clear as possible, and the regulator has to see to that each operator is compliant with those rules for that regulation. In the aspect of judging how the operator performs, we leave that to the regulator.
Okay. In general, what type of payment solutions does the majority of your rest of the world customers use? Is there anything you can comment on?
No. Honestly, I don't exactly know.
Okay. Well, that's all for me. Thank you very much.
Thank you. Once again, if there are any further questions, please dial 01 on your telephone keypads now. We have one further question coming through so far. That's from the line of Rasmus Engberg of Handelsbanken. Please go ahead, your line is open.
Yes, thank you. Good morning. As we expect to see some margin improvement in the fourth quarter, can you sort of explain whether that is due to a year-over-year gradual slowdown in expansion, or how does that come about? I guess it has some bearing as we roll into the next year, so to speak.
Seasonality for the fourth quarter is stronger, so that will contribute. However, we see strong demand on all tables coming into Q4, which is very positive. I'm very happy with that. There are similarities to the situation 2016. Not to take that too far, but still.
Why is the margin going to be up in the fourth quarter year-over-year?
We are of course working also on the cost side, seeing to that we will improve the margin also in Q4. I would also expect that the demand and the increase of number of tables will be slightly slower than what we have seen in Q3.
Can you explain this significant expansion in the third quarter at the sort of, I guess it's after the World Cup? Where does that expansion come from? Where does demand for that come from?
It's in Europe, and it's probably a little bit surprising that the continued demand was at that high level, as we also stated. I think that many prepare for new regulations. There is good preparation. We also see that the operators are doing probably on average better.
One final question, I'm just trying to get some sort of guess on the margin for next year. Is it fair to say that even with the strong expansion in Q3, Q2 was sort of the peak expansion in terms of percentage number of tables, and then it's sort of getting a little bit slower in Q3 and Q4, or where was the peak?
Maybe the peak would be Q3, Q2, and we expect a little bit slower maybe in Q4.
Still very high demand.
Yeah.
Yearly normal it's fantastic.
Yeah. Yes. Good. That's all from me. Thanks.
Thank you.
Thank you. Once again, if there are any further questions, please dial 01 on your telephone keypads now. Okay, as there are no further questions coming through at this time, I'll hand back to our speakers for the closing comments.
Okay, thank you very much for listening and taking the time. Look forward to see you again in the next quarter. Thank you.