Ladies and gentlemen, welcome to the Evolution Gaming Group Q2 2018 Report. Today, I am pleased to present CEO, Martin Carlson and CFO, Jacob Kaplan. For the first part of this call, all participants will be in listen only mode. And afterwards, there will be a question and answer session. Speakers, please begin.
Thank you, operator. A warm welcome to everyone on the call and also those of you following us over the web. My name is Matti Carlison. I'm the CEO of Volusia Gaming. With me today, as usual, I have our CFO, Jacob Kaplan.
I will start by giving some comments of our performance in the Q2. I will then hand over to Jacob, who will closely look at the financials. And after that, we will round off with some outlook for the future, followed by questions. Next slide, please. I'm pleased to sum up a good quarter, both on financial strategic level.
I'm truly happy with the performance of our organization. We are ever so paranoid and full of energy and look forward to the second half of twenty eighteen. As stated already in Q1 report, we focus on increasing the gas competition even further and to prepare for being able to cater for the growth in cable, both in short and long term. In this quarter, this was evidenced, but mostly by our progress of our new city in New Jersey, the rapid expansion of Georgia, the very good delivery of North America as well as by the preparations and delivery of the Football World Cup. Let's look
at the
numbers. Revenue growth, plus 40 percent to EUR 59,300,000. EBITDA increased plus 36 percent to €26,200,000 EBITDA margin, 44.2 percent EBIT increased plus 36%. We are happy with the revenue growth, which was supported by the launch of many new tables. The margin has improved compared to Q1, and we reiterate our guidance on the full year with the margin being in line with that of 2017.
Looking at activities in the quarter, the organization worked relentlessly to deliver many new tables ahead of Football World Cup. We're also working hard to deliver our new studio in New Jersey, which will be launched in Q3. The studio will provide a great live casino experience with many games to multiple operators and their end users at launch. I would also like to highlight the agreements with Sandvikild and ATG in Sweden. They were signed after the end of the quarter and marks the strategic importance of life on the reregulated Swedish market.
We are committed and look forward to the reopening of the Swedish market. In June, we were crowned the 9th Casino Supplier of the Year at the EGR B2B Awards, more or less the industry Oscar. We won the award for the 9th consecutive year, which is a great accomplishment. I'm proud of that. I think it sums up our ambitions in a good way.
Throughout our history, we have always strived for Exela and to provide the very best in La Catina. Despite being a market leader, we stay true to our roots and continue to improve our position as well as the industry standard. We don't build the company with a quarterly perspective, but for the long term and to stay ahead of the game now and always. Next slide, please. The best spot is an indicator of activity in the evolution network, and we saw a healthy growth of 62% in Q2 compared to last year.
We also noticed that World Cup contributed in a good way to best spots during the quarter. The activity is also driven by good play numbers of new games, some of them which generate many smaller bets. This is also the reason for the growth of betting sports being higher than revenues. However, over a long time period, the growth in best spots and revenue correlate. Next slide, please.
As you know, our success is built on talent and people, and our recruitment pace remains on a high level connected to the launch of new sales and studios. We have a good recruitment process in place. I'm proud of that, and I aim to be an attractive employer in every market where we operate. I think we are successful, reflected by the many applicants we get for our own positions. Looking at the actual number of employees, we are starting to get close to 5,000 persons in 10 different markets.
Next slide, please. One of the main drivers in NPE numbers is the study in Georgia, which went live in the previous quarter and continues to grow. We are now more than 300 persons in the studio, which we expect to be our 3rd largest studio 2018 and our 2nd largest studio 2019. We have also seen some good progress in the New Jersey in the quarter, where we aim to launch a studio during Q3. The new purpose built live casino production studio will be Evolution's 10th live casino studio worldwide.
It will provide a state of the art live scene story for multiple operators, and we will initially launch 10 online live tables and a wide range of evolution games. We have already signed these with 8 to 8 and Ocean Resort Casino. Further game launches and additional tables include dedicated tables that can be used by operators for live sporting events, promotions and cross promotion of land based casino attractions will be rolled out gradually. Our entry into the U. S.
Markets have been carefully considered long and a long term plan. Back in 2013, Evolution became the 1st light casino provider to gain New Jersey preliminary waiver approval. Now having reinforced our position as light casino market leaders in Europe over the past decade, we feel that 2018 is the right time to launch with a fully fledged studio Geographical breakdown. As highlighted in the last report, our global exposure is increasing, and we are experiencing growth from all over the world, in line with our customers' increasingly diversified geographies. Demand is ever so high in actual numbers.
In this report, we are, for the first time, providing an overview of where the end users are located. Our games can be played in more than 200 countries, but Europe remains our basis of operations, and UK is the single largest market. We are carefully monitoring our operators' licenses licenses, and most operators are licensed in several jurisdictions. And as we stated earlier, we now follow our European license operators into Asia, which also then drives the growth of the rest of the world, together with expansion in North America, initially Canada, but soon followed by New Jersey. Next slide, please.
I touched upon the win at the live casino side of the year in the quarter highlight, but we actually won one more category of the EGR B2B Awards, the multichannel supplier of the year. This was the really tough category to win with 11 other shortlisted companies. The award was thanks to our dual play solution, which allows on premise and online players to play at the same land based label. Throughout our state of the art dual play, established ourselves as the provider of choice for land based casinos that want to take their brand online and support many top notch casinos in Europe and soon in New Jersey. Another example on how we innovate like new lab product, which has become one of the most popular games in the market, invented, created and built by Evolution.
We're truly proud of this development of the classic Ola game, which appeals both experienced players as well as the whole new player group that isn't normal playing TV games. Now I hand over to Jakob for the financial highlights. Next slide, please.
Thank you, Martin, and good morning to all the on call or following with that. Overall, the financial performance in the Q2 is quite strong. A number of metrics are looking better compared to the beginning of the year. As you can see in the chart, it's to the right in the chart, revenues amount to EUR 59,300,000 in the Q2 of this year. That equals 40% growth year on year and 15% growth quarter on quarter, While a lower growth rate compared to what we saw during 2017, it's an improvement from Q1 and definitely in the high end of our own expectations from 3 months ago.
The recently finished Football World Cup was a key event during the quarter. As we have spoken about earlier this year, major sporting events are for us primarily a driver of table sales. It generates some immediate revenue in setup fees for those tables, which are up a little bit compared to Q1. But primarily, the effect is over time when utilization of the newly launched tables increase and operators drive new traffic to their live casino environments. That's when we see the benefit.
As Martin mentioned earlier when discussing best spots, we have had some really good days also for casino volumes in June, and we also indirectly benefit from higher traffic in general for many operators. So the World Cup does support some growth in the quarter, even though the main effect for us is more long term. The gray bars in the chart show EBITDA and amounts to EUR 26,200,000 for the 2nd quarter, resulting in 44% EBITDA margin. As mentioned, we'll have a high pressure on table delivery during the quarter, adding some 350 headcount since the end of March. Together with the building of studio environments and the continued development of the brand new studio in Georgia and also in New Jersey, this altogether drives costs.
The second half of the year, we're expecting a more stable growth in number of tables. Provided good top line development, we expect some further improvement in margins during the second half of twenty eighteen compared to the 1st 6 months of the year. Having said the SIREIT rate, what we have stated in many previous quarters, that margins do vary quarter to quarter. And while we definitely try to be as efficient as possible, we don't stay on margins in the short term. We will prioritize top line growth if there is such a trade off.
Operator, let's go to the next slide, please. Looking closer at the P and L, we can see revenues for, again, for the 3 month period April to June, totaled a little over €59,000,000 For the 1st 6 months of the year, revenues are €110,800,000 That's an increase of 35% compared to the first half of twenty seventeen. Personnel expenses, €24,200,000 in the quarter, that's up 38% compared to the Q2 last year. The increase in staff is mainly driven by the increase in new tables. Depreciation, SEK 4,500,000 in the quarter, increasing 35% compared to previous year.
The other expenses item include rent, consumable equipment, consultants and other advisory costs. It's also up by €3,400,000 compared to the same period last year. So summing up, total operating expenses increased by 43% year on year and 37% comparing to 6 month periods January to June 20172018. Tax for the quarter is €1,600,000 for a tax rate of 7.2 percent, And that brings up the profit book period of a little over €20,000,000 which is equal to an EPS of €0.55 per share and for the rolling 12 month period, €1.96 per share.
We can go to
the next slide, please. Moving on to capital expenditure. As mentioned, investment in new studios have continued in the quarter, mainly related to studios in Georgia and in New Jersey. As we have communicated earlier, we are in an investment state since, let's say, since the end of last year, second half of last year. And in the chart to the left, you can see CapEx as a share of rolling 12 month revenues increasing to 15% in the second quarter, reflecting the high investment pace at the moment.
The New Jersey studio will drive investment in tangible assets also in Q3. Towards the end of this year, we should see CapEx come down in relation to revenue as we have no other studio builds planned right now. That might change, of course, but that's the way it looks right now. CapEx in intangible assets is mainly related to development of new games and features to the platform that's expected to continue to be stable. Moving on to cash flow.
It has improved during the quarter as we start seeing some effects of our increased focus on collections. Accounts receivable in relation to revenue, a metric which has increased during both the Q4 of last year and the Q1 of this year, is now down to a level lower than the Q4. We still need to improve further when it comes to collections, and it will continue to be a focus area. But we are moving in the right direction, and we'll continue to work to do so. To the right in the slide, if you look at the balance sheet, it shows strong, contingent strong financial position.
There's no real big material changes there in the quarter. That was the end of my prepared remarks. I'll hand back to Martin for some closing words, and we'll take questions after that. Over to you, Martin.
Thank you, Jacob. While the end of football world cup now has come, the demand for newspapers remains on a high level for the rest of the year. And in our current stand, we will have more than 500 tables live at the end. It's important to remember that we can leverage each table better over time as they have initially start they have an initial start up period and need to be optimized to perform in their full potential. We will work hard to finalize the New Jersey studio before its launch in Q3 as well as install several dual play tables and RamBase casinos.
New Jersey is still a relatively small market, so we don't expect an immediate effect on growth and earnings at launch. But as always, we expect it to contribute more over time, and we also look forward to the potential opening of Pennsylvania during 2019. You're probably getting tired of me repeating that we will increase the gap to our competitors, but this is still our main focus. We stay paranoid. We continue to innovate the industry, and we continue to make evolution better every single day.
Thank you all for listening. Now let's move to questions.
Thank Our first question comes from the line of Aurora Teixeld from DNB. Please go ahead. Your line is now open.
Hello. So my first question has to do with the FIFA World Cup. You did mention and talk about this a little bit, but the event seemed to be having a big role in contributing to the results of the quarter. And so I was just wondering if you could possibly comment on the revenue and what the development might have looked like disregarding the profit scheme from the World Cup?
I would say that I wouldn't say that the effect of the World Cup is big when it comes to revenue in the quarter. It affects it has an effect, maybe even slightly more than what we initially thought. But player volumes and activity increases more than revenue. So it's hard to quantify it, and the revenue effect is not as big. But the activity and the number of players for the first time coming in contact with Life is high.
Okay. That makes sense. And then my second question is that in the report, you comment on how the regulation of the Swedish market is approaching and how you look forward to working with new as well as existing customers in Sweden. And so I was just wondering if you could comment on how the work with all that existing customers might change and how you plan to reach out to new customers, if you have any new market strategies, etcetera?
I don't see any real big changes in the way we're working with all our existing customers. I expect that there would be a marketing boost or activity in the Swedish market as it regulates. So I don't see any differences there. We will continue providing best solution for all our existing and coming customers. I we are constantly working with any new customers or potential customers in the Swedish market.
And we're very proud of being able to sign Strassberg Speer and APG as one of the or the 2 more prominent customers in the Swedish market. And then we constantly continue to work with other potentials.
Our next question comes from the line of James Goodman from Barclays.
The first one for me was around the country and regional splits that you've given, so thank you for the detail there. Of course, you've given us some insight into the growth rates of those regions as well. And I was wondering if you could comment a little bit further around the growth seemingly in Asia, which is probably over 100% in those numbers and equally on the U. K. Side where growth of around 12% or so year on year would suggest, I guess, some maturity in that market.
But perhaps you could just comment around that.
Yes, just hi, just I think you're right. I mean, the rest of the world region is where we're seeing the most rapid growth at the moment. And as Martin commented a little bit on earlier. As regarding UK, it's still growing, but it's definitely a market that has been a little tougher during, I would say, during this year. Partly it's, of course, that it's also a market that's matured a little bit, but it's I think also many operators are trying to kind of find their way a little bit right now since after the there might have made some changes.
So you're correct in that assessment.
But I
take from that that it's not competitive in the UK, it's a market development?
Yes. We don't see that, that we're losing share in the UK. I mean, it's always difficult with the market share since the settlements of the total market are rough, as you all know. But we have no signs of losing share in UK.
Regulatory activity in UK is very high at the moment, and it affects the market, I would say.
Okay. The other question is on the performance as you went through the quarter. As you said, you're at the end of your own expectations. Was that because of a very strong final month? So if you could comment on the phasing and what that does for the start to the current quarter?
Yes. I think that's what's left here. I mean we have the it was a decent start. And then I would say there's a little bit more of a push from world cup activity than we were expecting. So that's held towards the end of the quarter.
So I said that's about right. No big drama in terms of how this quarter has started. It's still so early, so it's hard to say anything. But it's no nothing that stands out.
Okay. Just on housekeeping. The impact from foreign exchange in the quarter, it looks like about a 2% headwind, if I modeled that correctly.
That could be correct. We've not broken it out specifically. So I think it's about right.
Thank you. Our next question comes from the line of Lars Ola Hellstrom from Rato Securities. Please go ahead. Your line is now open.
Hi, Martin and Jacob. Good morning. Hi. A few of my questions has already been answered. But maybe you can talk us through a little bit of the quarter month by month, April, May, June, how the development was.
Was June specific strong or has it
been increasing? Yes. No, we won't comment month to month. But roughly, like I said earlier, I mean, we had a good start and then maybe the dose at the end for the World Cup was slightly higher than what we had in our own expectations. So good start to finish, good that way.
Yes. And you've seen the UK effect. We have been talking about that earlier. Q3, can you say how it has started? Has the activity among operators remained high in connection to the World Cup finals?
We don't comment on the it's too early for the Q3. We're happy with that from Q2.
Okay. On the table rollout, you can say something about timing. What's most of the tables rolled out ahead of the World Cup? Or has it been rolled out?
I would say that we have had a very high pressure on delivery since basically mid January. And during the period up until the end of Q2, we have more or less delivered as much as we can or for the demand. And so there have been deliveries all through the quarter.
But you still have tables backlog to deliver in all studios?
We see good potential in the tables going live in also H2.
And I also noted on this staffing that it was 350 people. Is that partly already for tables to be launched in Q3 as well?
They asked about this,
yes. Yes.
Okay. Also on the geographical split, I must say, I was quite surprised that the Nordics was only 9% of our total GGR. And then I believe I have overestimated Swedish share. Do you expect when you have signed ATG and you're negotiating with Svenskelspiel, do you expect that Live Casino as a percentage of total casino revenue in Sweden will increase with the rollout of a Leica senior product from for those 2?
We will continue to focus to deliver the best product and to see that the share of Lyle is the absolute highest possible. But I cannot comment on the exact development.
And concerning ATG, will they hold branded tables as well or will they just use generic tables?
We don't comment on the it's too early, and we don't comment on how exactly or how many tables each of our customers have.
Okay. And a question here for both of you concerning the full year margin guidance in line with 2017. The higher than expected commission revenue we've seen during Q2, is that a positive thing for reaching that level on the full year in your view?
We reiterate that we are expecting a margin EBITDA margin in line with last year. We haven't really changed that. We're happy with the momentum in Q2. We're looking forward to the second half of the year.
And finally, about the U. S. Expansion. Is there quite a number of leads of additional operators to sign up for your live casino solution?
We are working with potential customers here in New Jersey, and naturally, we expect to sign up more.
Us. Our next question comes from the line of Oskar Eriksen from Carnegie.
Congratulations on a very, very strong report. A few questions from me. You mentioned in the report that you are continuously, of course, optimizing tables, slipping more over time. And looking at the number of bet spots, can we expect an acceleration of growth as back size increases for new games and you get more players on the new tables that you rolled out quite aggressively?
The tuning in of tables will be constant. And when we add large numbers, they will be it will get more better leverage over time. When it comes to our looking at the second half of the year, we have stated that we expect a strong second half in comparison to the first half.
Okay. Thank you. And I mean looking at H2, which you've said before that should be strong. Is there anything we should think about in terms of differences between quarters? You're rolling out New Jersey now quite aggressively.
And as you said, the revenue per new table should accelerate as well during the year. One thinking in terms of the differences primarily.
I think that when it comes to margin, again, we're seeing a strong development as a result of that. We're stating that we'll be in line with last year. And therefore, we see stronger H2. I think that's the comments on that.
Okay. Fair enough. And also wanted to touch upon the you mentioned that you will have expect to have 500 tables at the end of 2018. Could you give us an idea of how many tips you have now roughly at the end of Q2?
We haven't we don't report the table numbers quarter by quarter. So
we report them annually, actually. Yes. It's a moving material. It would be difficult. So annually, we measure the report on it and the SEK 500,000,000 is sort of an indication for that on the year.
Okay.
I think it also has to be taken over, but it will be over SEK 500,000,000 so Over 500, yes.
But is it fair to assume that it will be quite even across the year? Or is it more in H1, would you say?
We don't we haven't commented that. But the table sales have been positive at 3%. So I won't say anything more than that.
Fair enough. And then finally, the geographical split, which you've discussed a bit already, but 25% rest of world, really a bit surprising to me as well. Could you say something more about the split between different countries and different regions there? Asia, for example, is that I mean, is it 10% of sales or is it 20%? Just a rough idea would be very useful.
We have decided not to disclose individual markets of different reasons, and we've taken the step now to disclose the total split. So we won't comment on a specific region or market in individually.
Individually. Our next question comes from the line of Christian Hellman from Nordea.
The first one on the World Cup. You mentioned that it's been a positive effect during the quarter, sounds reasonable. But just to give us some flavor on that additionally and then some magnitude perhaps, are we talking that it's contributed 1%, 2 percentage points? Or are we talking 4%, 5 percentage points to grow? Just to give us some idea.
The activity in the network has increased a lot. There's a lot of new players coming in. To single out the effect on revenue would be very difficult. But the players naturally coming in from the World Cup is not high value players. They come in for the first time, and it's really important because they will contribute to the growth over a long time for going forward.
But I can't I don't have the exact signal for the revenue, but it's not significant.
Okay. Not significant. And then coming back once again to the market split that you released now. It's very helpful.
Thank you for
that. Coming back to rest of world, just
there was one question about the different regions or markets in that segment. But am I missing something? Is it Asia and Canada? Or is there anything more than Asia and Canada in Rest of World?
I mean, we have, as I said, that there's 200. We're truly will there's a lot of small from a lot of different countries, Asia being a region. And then naturally, Canada is also a portion of that. So yes. I
understand that Canada must be in there. But I mean, then we got Asia and we got, I guess, South America, then we pretty much covered the world. But you have some business also or some revenues from South America then?
There would be limited, but some.
A large, large amount of those 25% must be Asia because you just launched in Canada, I guess. I'm assuming as well. But the question on Asia then, are you going into Asia with aggregators, Asian aggregators? Or are you going through European operators of the go to market strategy in Asia?
We are going with European licensed operators. So that's how we follow them in to Asia, and we don't put boundaries for their expansion into Asia. That's the way we go to market.
Okay. So you don't use any Asian aggregators at all?
We want a European license. So I don't know exactly the term how you define it. But if we need a European, so we follow European license operators. And if there would be an aggregator, we could make a deal with them. But then they have to have European license.
All right. And this the regulated market, the share of revenues, that's declined from 34 percent last year to well, it was up at 35% in Q4, but then now it's down to 31%. It seems to be declining. Could you comment on that? What's the reason there?
Is it growth in Asia, obviously, or
Mainly the declining rate in the UK, that's
declining. Sorry?
It's mainly the declining share from UK that's behind the lower.
All right. But Asia growing, that's not a factor in the regulated market share.
The rest of the world is growing, so that's one factor. But also the effect of the UK market not growing as fast is one effect.
And the UK effect is probably higher
as you see in the figures.
Thank you. There are currently no further questions at
this time. So I will hand
the call back to the speakers. Please go ahead.
Okay. Thank you very much, all of you, participating. I look forward to see you all again. And as a rounding off, I would say thank you for my good question, and we're happy to report. Bye.