Hello. Thank you operator. Warm welcome to everybody, both on the web and on the call. My name is Martin Carlesund. I'm the CEO of Evolution Gaming. With me today, I have CFO Jacob Kaplan. I will start to comment on our performance during the first quarter. I will hand over to Jacob to go through the financials. We will conclude this call around 11:20 AM at the latest, and in the end, there will be possibility to ask questions. Operator, let's get started and please change to the next slide. Well, I think it's much more than fair to say that we have started 2017 in a fantastic way. We have a great momentum. Revenue growth over 60% compared to last same quarter last year.
EBITDA increased 65% and EBITDA of EUR 17 million, and a margin of 43%. I'm very satisfied with that, and we are of course glad to present that. There are a lot of factors contributing to that. I will briefly comment a few. We see a high activity from our operators promoting Live. We continue to see Live as a strategic vertical, growing faster than any other vertical in online gaming organically. We have, we see ourselves as continuously taking market shares through actually growing faster than the market. We see a seasonality of course in online gaming, where Q1 is a strong quarter, and we see an underlying growth of online gaming in general. I also believe that we continuously deliver the best solution, of course.
That's what I'm here for to say, and I really, really believe that. Next slide, please. Another milestone is that we have signed a deal to go into the North American market with BCLC. We will set up our first North American studio in Canada. We will deliver full game suite to them, roulette, blackjack and baccarat, with a minimum of 10 tables initially in the end of 2017. It's a milestone for us to go to the North American and to initiate in Canada. It's a great entry point for us. We're happy with that. Next slide, please. During ICE, we announced that we were going to launch the Dream Catcher. The Dream Catcher is a new game. It's the first of its kind in Live.
We're doing it to attract a little bit softer players, a little bit more of slots players. It's a fun game. It's on all platforms, it will go live during Q2. I'm on a mission together with everyone in Evolution to constantly increase gaps to competition. I think that the Dream Catcher is a way of showing that we are aggressively always trying to develop new things, be in the forefront, and try to do things which have never been done before. The Dream Catcher is a new type of game, never have been seen on Live before. We've had a very positive response from our operators.
We don't know exactly what type of revenue we will get from Dream Catcher, but we're very enthusiastic about how it could proceed by our customers and their players. Hopefully, a good contributor for the coming years. Next slide, please. We also now added an indicator of activity in our network. We call it bet spots, and it's bets placed during the period. We give that to give a little bit more fundamentals to the activity and what is happening in the network. We're working successfully with our operators, getting always the most out of Live, by optimizing bet limits, seeing to that will give the best solutions to any of our customers. This way, we're trying to show that the activity in our network constantly increase in line with our revenues. Next slide, please. We're now presenting the full-time equivalent, FTEs.
We're working with the utilization of our staff, seeing that we continuously efficiently staff ourselves to man all the tables and everything that we do. You can see that in the full-time equivalent, as we are not aggressively growing that in Q1. I believe that this figure will be over time, sometimes we're a little bit up, sometimes we're a little bit down. I feel that the growth that we had last year in the number of tables pushed us a little bit up, and now we're consolidating a little bit over Q1. That, of course, contributes to the very good margin that we have in the quarter. With that, I will hand over to Jacob that will go through the finances.
Thank you, Martin, and hi, everyone on the call. We can go to the next slide, please, operator. As Martin just explained, growth in Q1 was very strong in several ways. This is also reflected in our financial development in the quarter. Revenues grew 16% quarter-on-quarter comparing to Q4 of last year and 60% year-on-year. EBITDA increased to EUR 17 million in Q1, up 31% quarter-on-quarter and 65% year-on-year. We have added new operators during the period, but the growth in the quarter is mainly from existing customers. Among existing customers, growth is quite widespread over all parts of the customer base. Of course, all customers don't have exactly the same growth rate, but we see both smaller operators fairly new to live growing, as well as larger, more established tier one clients.
This is a very encouraging development and something that we're happy with. Margins here illustrated in the slide by the EBITDA margin, also up during the quarter, 42.9% to be precise. It's among the highest levels we've registered in a single quarter. Part of the reason for the high margin in Q1 is a very high payer activity on existing tables. As Martin also highlighted, increase in staff has been limited during the quarter as we've added some tables, but not quite at the same pace as during 2016. Short-term in this quarter, this has benefited margins.
However, over time, we look to continue to grow in number of tables, and we will see fluctuation in margin as adding tables initially drive costs for recruiting, training, some setups, while it takes a few months before the table is fully utilized at the operator site. This was something we discussed a lot last year. Seasonality will play in the number of players or other factors that affect margins. Margins will vary, and we consciously avoid giving any firm guidance on margins quarter to quarter. We reiterate our long-term goal of EBITDA margins exceeding 35%. At the same time, we must acknowledge that while 43% in this quarter is high, 35% would be a disappointing level during this year.
Our rolling 12-month EBITDA margin is 39.5%. I think that might be a better indication of where our own expectations start for the coming quarters. It is a tricky topic, as I just covered, it contains several moving parts. You know, that said, clearly the development in the first quarter also exceeded our own expectations from three months ago. A very positive quarter, strong across the board, I would say, and also reflected in margins. Operator, let's go to the next slide for a closer look at the profit and loss statement in the period. Revenues in the three-month period, January to March 2017 totaled EUR 39.7 million, up 60% compared to the same period last year as I just mentioned.
Moving down to expenses, personnel expenses total EUR 16.4 million. That's up 49% year-on-year, mainly driven by increase in staff. Largest part of that staff is increases in game presenters, but also IT engineers and tech staff have increased between the periods. Depreciation increases 52% year-on-year. Next item, other expenses, that includes rent, consumable equipment, consultants, some advisor costs, also up. Q1 includes roughly EUR 200,000 related to the list change process. Some costs still remain in that process, not of the significance that we will present any adjusted figures based on the list change. You know, some costs in the quarter. Moving down, tax for the period, EUR 1.1 million, equaling a tax rate of 8.1%.
That brings us to profit for the period of EUR 12.7 million, which is equal to an earnings per share of EUR 0.35 per share. For the rolling 12-month period, earnings per share just over EUR 1 per share. We can go to the next slide. Quick look at the cash flow and balance sheet. Our capital expenditure is around EUR 4 million in the quarter. It's a little lower compared to Q4, also seen as a share of revenue. As Martin mentioned at the top of the presentation, we are planning to start construction of our third major studio in Europe this year. Also our first studio in Canada, we'll start work on, and this will affect CapEx some during the year. Expect an increase here in the coming quarters.
Nothing too dramatic, but still it will I think Q1 is low compared to where we'll be during the rest of the year. At the moment, we're not planning to acquire a building as we've done in Riga. No major shifts, but still a little bit up. Operating cash flow is up in Q1, and cash conversion is just under 60%. As you see in the slide, it's a fairly volatile metric quarter to quarter. Q1 2017 is an improvement over the same period last year. This is an area where we have increased our attention and will continue to do so. Quick look at the balance sheet at the end of March shows that we have a strong financial position.
We will distribute a dividend of EUR 45 per share, totaling EUR 16.2 million. I believe that will be on May 3rd, so fairly soon. That was the end of my prepared remarks. I'll hand back to Martin for some closing comments, and we'll take questions after that. Martin, over to you.
Thank you, Jacob. Very good. Looking ahead, coming to the end of the presentation and looking into the future, I would say that we have a continued growth. We believe that we will continue growing at a good pace. I really emphasize Dream Catcher that will be going live. It's a new type of game, attracting new type of players. Very exciting. We will change to the Nasdaq main list during Q2 according to plan. Everything is ongoing with this project. We are planning and projecting to build our next large European studio. In the overall, we are constantly working to take market share, increase gap to competition, and overall the strategic values of Evolution comes first.
We want to do the right thing, we want to continue growing, but we continuously want to be beating better and increasing the gap to our competitors. With that, I would like to open up for questions. Operator, could you please open the call?
Thank you. Ladies and gentlemen, as a reminder, if you wish to ask a question, please dial zero one on your telephone keypads now. Our first question comes from Mikael Laséen of Carnegie. Please go ahead, your line is open.
Yeah, thank you. I have a couple of questions. The first one is about January and February. You state that they were really strong months and I was just wondering how March developed and also how Q2 has started?
Hi, Mikael. Thank you very much for the question. I will try to answer it as good as we can. January, February started exceptionally well. March doing very well. April, too early to comment on that. We have a strong quarter Q1 seasonality-wise, Q2, Q3, little bit weaker. We see we have a great momentum, and Q1 both started and ended well.
Mm-hmm. Okay, okay, good. I have a question also regarding Canada and, how we should think about this in terms of CapEx and operating costs, if this is something that will have a market impact in the second half, how we should think about it?
I think that we shouldn't overestimate the revenue and the result effect of Canada in the short term. It's strategically very important. We will continue to penetrate Canada, the different regions in Canada. When it comes to CapEx, I would be not anticipating any major effects of that. Of course, it's building, but it's fairly handleable due to the size of the studio initially.
Okay. You will grow gradually, I guess, with the number of tables.
I would-
Will you have start-up costs and things like that?
We are estimating or we are planning for 10 tables initially this year. We are preparing for a little bit more than that, maybe aiming towards the double.
Okay. Can you say something about the addressable market? What you're aiming for? What is the potential, maybe if you can, land-based versus online casino, maybe from that perspective, and the live adoption development in terms of where they are in Canada today?
It's a strong, big market in general, but we don't comment on the market potential, as of yet. We don't actually comment on the market in general, so I will refrain from doing that at the moment.
Okay. Okay, fair enough. What do you think about the U.S. market potential entry there, given what you have announced now with Canada?
We have earlier stated that it's more likely that we go in or that we're evaluating an entrance to the U.S. market. We haven't stated anything firm. Of course, with the studio in Canada, we're closing in, and we see also some synergies in the future between a potential U.S. studio and a Canada studio. I would say that we are monitoring, and we are working on a potential evaluation of entering into the U.S. market, same as before. Of course, that is a little bit now closer due to that we are taking the step into North America in general, as you can understand. There has been no firm decisions in regard to any other entries in U.S. or other.
All right. My final question is about Sweden here with the gambling licensing report out and proposal now for 18% tax rates and so on. It would be interesting to hear, I mean, your exposure to Sweden, given the recent events, roughly. Is it 3%, 4%, 5%, or is it significantly more?
We don't comment on our percentage-wise for each market. I would put it like this, that Sweden isn't really a large market for us. That's that. We see a great potential in the proposed legislation regulation in Sweden. That sounds like a very good proposal. It's well-balanced tax levels and so on. Historically, we have also always gained from the regulations. We are very positive. We want every market to regulate. We see that. Of course, there will be some operators taking new revenue, some operators might lose some revenue, and some new will of course enter.
We look very enthusiastically on the potential regulation of Sweden, and we believe that the proposed laws or the proposed regulation is good.
All right. Thank you.
You are welcome.
Thank you. Our next question comes from Martin Arnell of DNB Markets. Please go ahead. Your line is open.
Yes, hello. I would like to ask you on this recruitment of new dealers, which of course, I mean, will vary from quarter to quarter. You have had, like, four quarters with very aggressive recruitment, 200-300 full-time employees quarter- on- quarter, and now it's slowed. Where are you so far in Q2 on recruiting?
I would answer, I will answer it like this. When we went through 2016 and a very aggressive expansion, both in relation to the company size in general, we had a bit of a surplus of game presenters in the company. During Q1, we have now seen to that we get into the right level. That is important not only because of the figures. That's very nice to have right figures in this call. It's also important that everyone working for us are enthusiastic, happy, and glad, and gets to work the right amount of hours that they want to work. We have adjusted that. You can see that as a little bit of a one-time adjustment rather than anything strategic or tactical.
It's just that we trim everything, and this quarter it was time to see that we were in the right balance in total.
Okay, thanks. On the Swedish regulation proposal, you have a positive view, as you stated. What do you think about your, you know, chances to sign up with a Swedish monopoly?
I would put it like this: We believe and we strongly believe that we have the best product when it comes to Live. We are the market leader. We believe that we can provide the best solution for basically any market in Europe. we of course are humble, and we need to do a good job, and we need to be eager. We need to increase gaps to competition, but naturally also believe that we have a good chance of signing potentially good new customers in Sweden.
Okay. Fair enough. Just finally to Jacob on the CapEx guidance. Could you just repeat what you said about CapEx, maybe the year-over-year growth?
Sure. What we said was that CapEx in Q1 is down a little bit compared to Q3, Q4 last year. Given that we are entering building both two larger studios, one in Canada and one in Europe, the expectation is that, you know, we'll probably come back to the levels that we saw during last year, maybe a little bit higher even. We'll probably be able to be more firm on that in Q2. As Martin said, it's no, you know, it's not a dramatic shift. I mean, we have built studio in also during 2016 in Romania and others. It's a little bit sort of where we put existing CapEx.
Still, a little bit up from the Q1 level, which is low. I hope that clarifies it. I mean, we'll know more specifics, I guess, on both the studio constructions as the year progresses and be able to come back to it.
That's great. Are you already building the new European studio?
No. No. That's not started yet.
You don't want to, you know, announce where it is or?
No. To be honest, final decisions have not been made either. We're in sort of late stages there. You know, will happen. We'll start during this year, but no firm response on where and when that'll happen today.
Okay. Thank you very much.
Thank you.
Thank you. Our next question comes from Christian Hellman of Nordea. Please go ahead, your line is open.
Thanks. Most of my questions have already been answered, but let's go back again to the new studios you're setting up. Could you just give some detail on when the main CapEx investments will occur during the year? Are we talking Q3, Q4? I'm thinking both of the one in Canada and also the one in Europe.
Yeah, that. Hi, Christian. That sounds reasonable. I don't have anything sort of, you know, more to add, but sometime, you know, end of Q2 and rest of the year, so that timeframe.
All right. Fairly even during the second half, Q3 and Q4 will both.
Yeah.
Pretty much the same.
I mean, I'm deliberately not being precise here, but that's fair expectation. I mean, I think as the year goes on, probably when we speak in three months, we'll be able to be a little bit more firm on the timing of it and we'll know more then.
Right.
That's kind of an indicator of where our expectations are right now.
CapEx on the side, you also, I guess, need to recruit a lot of new dealers, which you will not be able to capitalize. Those costs will hit the P&L. How should we look upon that in the later half of the year?
I think it will be, I mean, as we grow, as you see sort of looking at last year also, as we grow in number of tables, that drives increase in SG&A and head count and naturally expenses. It will be in line with growth during the year. No, I think it will be sort of very gradual as the year goes on.
All right. Okay. Another question. You're talking about, or you say that you believe that you're outgrowing the market. You grew by 60% in the quarter. Do you have any rough idea of what the market growth rate is? Compare if you sort of to compare these 60% growth that you had.
It's very difficult. I mean, there are different suppliers of growth indicators for the market. Our estimate ranges somewhere around 25%-30% the growth. It might be more, it might be less. It's very hard to say.
Yeah.
We are quite certain that it's the market doesn't grow 60% at least. That's that we are sure of.
Yeah. Yeah.
We've been, you might know, we've been using H2GC numbers for market growth, so in the past. Frankly, we feel that they're maybe a little bit, you know, they're on the low end right now in the current estimate. Like Martin said, maybe 25%-30% is sort of more that's more a gut feeling than any science. We certainly don't see the market growing 60%. That's that one.
Okay. final question from me on M&A. You have been mentioning it in the past on a couple of occasions that you at least sort of you're looking at the opportunities of perhaps doing some M&A in the future. What's your feeling on, on that at the moment?
We are doing everything we can to strategically put ourselves in a better position. That includes M&A. We are actively looking, evaluating and coming quite far in some evaluation processes. We haven't so far come to anything that is that interesting that we have concluded it naturally. Constantly looking onto it. We see that it's an important tool for us for building the company into the future. We're also we're business-savvy people. We want to do the right deals for both Evolution with the right price. We are not like the type of company running head over heels, making acquisition, adding it, moving on. We want to do the right piece at the right price.
That's a bit of a stochastic process, but we do say that we intensively looking and evaluating.
All right. Could you help us understand what type of deal you're looking for? I assume that you want to pay a low price as possible, but I'm talking about product-wise or market-wise. What is it that you're looking for that would co-complement your current portfolio?
We're naturally looking both in the product sphere, quite broadly, anything that would complement us. We're also looking in the tech sphere, anything that would actually substantially enhance our potential to deliver or anything like that. I won't be more direct or precise than that.
Okay, fair enough. I understand. That's it for me.
Thank you. Our next question comes from Rasmus Engberg of Handelsbanken . Please go ahead, sir. Your line is open.
Yes. Hi, good morning, guys. I had just one question really remaining. About your comment about the seasonality, how should we take that? You have historically grown sequentially in the second quarter compared to the first. Is this a caution that you don't anticipate to do that this year? Or are you just telling us that there are seasonality here?
I would go for a little bit later. I would say that we're saying it to actually put some kind of value to the figures for the coming quarters. That one should be aware of that. On the outlook, on the last slide, we see a good growth, and we are doing, I mean, with this report that we have to you now, I mean, we are doing fantastically well. We have nothing that we look upon into the future that changes that or in any way. On the other hand, we as, even inside the company, we're fighting every day to do the best in every aspect. It's difficult to project it's more in a general sense than anything in relates to the company.
Yeah. Also, just is it so over time that you anticipate that you will have a lot of your recruitment in the second and the third quarter sort of ahead of the main season Q4, Q1, or is this just a thing that happened last year?
Thank you, Rasmus. It's a good question. I think that I would put it like this instead, that when we have these large sport events like European Championships or World Championships or Olympic Games or anything like that, the recruitment and the table releases and the investments are pushed prior to those events, like four, five, six weeks before. When we don't have them, these large events in a year like 2017 are not significant in that way, I would say that they are more planned and more gradual linear spread over the year. Not really. I wouldn't say that it's naturally, "Oh, let's go for Q4 prepare and for all in Q3." I would say that it's more evenly spread.
All right. Thank you.
Thank you. Our next question comes from [Judy Shadi] of Danske Bank Markets. Please go ahead, your line is open.
Thank you so much. My question has actually already been answered on. It was on the seasonality aspect which you mentioned in the report, with regard to both Q2 and Q3 having lower activity level and the fact that we don't have a significant sports event. I'm just wondering how much these three factors, lower activity levels, compared to Q1, and then of course not a huge sport event, how much would that weigh on margins? Do you guys feel, are you at ease with the current margins for the remaining quarters? Should we probably have much, you know, some slighter expectations going forward?
We don't guide on the margins in particular, not per quarter. I refrain from comment that with the exception from what actually Jacob stated, that the running 12 months we had 39.5% and our sort of the That's something that we in the lower one would be not too disappointed with. Would we fall down to the 35% level where we actually do guide, we would be very, very disappointed naturally. With that comment is the only we do on when it comes to the guiding on the margin.
Touching a little bit on the like sports event activity and all of that, I think that the large sports events are slightly overvalued when it comes to activity, at least for us, I would say. We don't see naturally that all in the figures. On the other hand, we always see when there are like a Champions League or one single event, we see effects of that. We don't draw any conclusions due to that. We don't have huge sports events that will affect us in any larger way. That's something that we can state.
Our comment on the seasonality, again, is what I already stated before, that it's more that if you would grow 100% in Q2 and 100% in Q1, the Q2 100% would be more worth. It's more like a reflection from our side. Coming into Q2, Q3, we expect a general lower activity level due to seasonality in summer months, simply because customers aren't that active during those months. The most active period are Q4, Q1.
All right. Thank you. We should expect margins to slightly have an uptick in Q4 at least.
Oh, I'll give that to Jacob.
I'll leave it at your interpretation. I mean, we're not trying to be coy on margins at all. It's just that there's a number of moving parts. What you could say, we control the expense side of it fairly well. I mean, the revenue side, you know, the player activity, that's sort of not outside of our control, but it's not directly. I mean, clearly Q1 is strong, both from a growth perspective and a margin point of view. Looking ahead, I mean, we've kind of reached a new level. I think we don't see anything that we, you know, should stop growing. There's a million things that can happen, of course.
You know, as we see it right now, I think we have, you know, good outlook for the rest of the year as well. I can't really say anything about margins specifically in Q4 at this point. I hope that sort of gives you At least some context into how we're thinking and what is the things that do affect margins.
All right. Thank you so much, guys.
Thank you. Once again, if there are any further questions on the line, please dial zero one on your telephone keypads now. We have one further question coming through at this time. It is from Vic Wanick of SEB. Please go ahead. Your line is open.
Hi, guys. Congratulations on a quite insane report. You must be very happy today. I was just wondering in terms of the number of tables, could you give us a ballpark figure where you are at the moment?
Yeah, I mean, number of tables, we've stated, I mean, the annual report states that we're around 300. That's, you know, we don't comment on, we won't report it every quarter, but that's the ballpark figure.
Yeah. I was just wondering because obviously we're looking for sort of an uptick in growth this year, in terms of looking at absolute numbers. Do you also expect to add more tables in absolute numbers as well this year compared to last year?
It really depends. We will add more tables this year, definitely.
Yeah. Looking at in absolute figures, compared to last year.
Uh-
I would answer this like this. We are on the same pace right now as we were last year, during this time. We believe that we will continuously add, even potentially when we close the year, more tables than we did last year, even though last year was something remarkable.
All right. Finally, I also have a question on the Dual Roulette side and the other products. Sort of could you say something about the interest for that product? Is that underperforming the rest of the group in terms of relative growth?
The relative growth of...No, it's not underperforming. The real figures coming out.
Yeah, of course.
From this, it doesn't affect. The growth, I would say is maybe even outperform other parts of the company. It's doing very well. For the land-based bridge, as we call it, or the land-based Dual Play and demand is higher than ever. Demands are higher than ever. We are continuously working on that, and we have a long list of potential clients and installations ongoing. However, the reason why we don't focus on that during this call is that it's naturally we're growing 60%.
The booming when it comes to revenue and result, it's still a very small in that sense. Strategically, very, very important.
The final question maybe then, 'cause we've seen some of your closest competitors like Playtech being fairly bullish on their new sort of in VIP environment and stuff like that. If you're gaining, if you're growing, you know, twice as fast as the market, basically, who's losing market share?
That's a good question. I mean.
NetEnt said as well that they're growing quite, you know, even small figures, but they're growing at a nice pace and Live is in the part as well.
Yeah, okay. It has to. The competitors we have, I cherish them. We are constantly paranoid in being better than any. I can imagine.
I can't comment on their figures. I mean, I can comment on the fact that the market isn't growing with 60%. That I'm sure of.
Yeah. All right. Okay.
What that means for others, I don't know.
Thanks a lot.
Sorry?
Thanks a lot.
Thanks very much.
Thank you. Once again, if there are any final questions, please dial zero one on your telephone keypads now.
We did have one question coming through on the web regarding the Dual Play offering and that being maybe less focused on that in this report, and if that's a coincidence or a trend change by any means. I think Martin answered that there's no trend change in that. Still a very large interest and a positive development, even though it might have sort of fallen out of focus a little bit in this particular report in the quarter. That answers that. I think we have no other questions coming in through the web.
There are no further questions from the phones.
Okay. Thank you very much for everyone participating. I'm very happy with that we have had this first teleconference for Evolution Gaming quarterly report. I look forward to meet you again very soon, if not in person, in this call in the future. Hope that you also were content. Thank you, Jacob, for brilliant performance, of course. Thank you very much. See you soon.