Hello. Thank you, operator, and very well warm welcome to everybody, both on the web and on the call. My name is Matti Carlison. I'm the CEO of Lucian Gaming. With me today, I have CFO, Jacob Kaplan.
I will start to comment on our performance during the Q1. I will then hand over to Jacob to go through the financials. We will conclude this call around 11:20 at the latest. And in the end, there will be possibility to ask questions. Operator, let's get started, and please change to 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 percent and EBITDA of EUR 17,000,000 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, the BCLC.
We will set up our 1st North American studio in Canada. We will deliver full game suite to them, Rollep, Blackjack and Bakarra, 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, and we're happy with that. Next slide, please.
During my show, we launched we announced that we're going to launch DreamCatcher. The DreamCatcher 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 slots players. It's a fun game.
It's on all platforms, and it will go live during Q2. I'm on a mission, together with everyone in Evolution, to constantly increase gap 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 to be seen never have been seen on live before. We had a very positive response from our operators.
We don't know exactly what type of revenue we will get from DreamCatcher, but we're very enthusiastic about how we 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 best spot, and it's best placed during the period.
We give that to give a little bit more a fundamental to the activity and what is happening in the network. We're working successfully with our operators, getting always the most out of life, BI optimizing that limit, seeing that to give the best solution to any of our customers. This way, we're trying to show that the activity in our network constantly increased in line with our revenues. Next slide, please. We have now presented the full time equivalent left to you.
We're working with the utilization of our staff, seeing that we continuously efficiently start 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 slightly changing over the time. Sometimes, we're a little bit up. Sometimes, we're a little bit down.
And 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 financials.
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 17,000,000 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 1 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 percent to be precise. It's among the highest levels we've registered in the single quarter. Part of the reason for the high margin in Q1 is a very high player activity on existing tables. As Martin also highlighted, the increase in staff has been limited during the quarter as we 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 setup 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. Also, seasonality will play in the number of players or other factors that affect margins. So margins will vary, and same time, we must acknowledge that while 43% in this quarter is high, 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%, and I think that might be a better indication of where our own expectations start for the coming quarters.
It is a tricky topic. And as I just covered, it contains several moving parts. And that said, clearly, the development in the Q1 also exceeded our own expectations from 3 months ago. But 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 3 month period, January to March 2017, totaled SEK 39,700,000, up 20 up 60% compared to the same period last year, as I just mentioned. Moving down to expenses. Personnel expenses totaled €16,400,000 4,000,000. 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 advisory costs, also up. Q1 includes roughly EUR 200,000 related to the lease change process. Some costs still remain in that process, but not of the significance that we will present any adjusted figures based on the lease change, but there's also some costs in the quarter.
Moving down. Tax for the period, EUR 1,100,000, equaling tax rate of 8.1%, and that brings us to profit for the period of €12,700,000 which is equal to an earnings per share of €0.35 per share. And for the rolling 12 month period, earnings per share, just over €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 4,000,000 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 of our 3rd major studio in Europe this year. Also, our 1st studio in Canada, we'll start to work on, and this will affect CapEx during the year. So expect an increase here in the coming quarters, nothing too dramatic, but still it will I think Q1 is a little it's low compared to where we'll be during the rest of the year.
At the moment, we're not planning to acquire building as we have 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 is fairly volatile metric quarter to quarter. But Q1 'seventeen is an improvement over the same period last year, and this is an area where we have increased our attention and we'll continue to do so. Quick look at the balance sheet at the end of March.
It shows that we have a strong financial position. We will distribute a dividend of EUR 45 per share, totaling EUR 16,200,000. I believe that will be on May 3, so in very soon. That will be under 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 DreamCatcher 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. And 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 gaps to our competitors. With that, I would like to open up for questions. And operator, could you please open the call?
Thank you.
Our first question comes from Mikael Lissing of Carnegie. Please go ahead. Your line is open.
Yes, thank you. I have a couple of questions. The first one is about January February. You stated that they were really strong months and was just wondering how March developed and also how Q2 has started?
Michael, 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, a little bit weaker. We see we have a great momentum, and Q1 both started and ended well.
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 on that. Of course, it's building, but it's fairly handleable due to the size of the studio initially.
Okay. And you will grow gradually, I guess, with the number of traders and we will have start up costs and things like that.
I would we are estimating or we are planning for turn tables initially this year. I would we are preparing for a little bit more than that, maybe aiming towards the double.
Okay. And can you say something about the addressable market? What you're aiming for? What is the potential maybe if you can land based versus Sonne and 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. I would rather and we don't actually comment on the markets in general. So I will refrain from doing that at the moment.
Okay. Okay. Fair enough. And what do you think about the U. S.
Market potential into 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. So 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 the we are taking the step into North America in general, as you can understand. But there has been no firm decisions in regard to any other in U. S. Or other.
All right. And my final question is about Sweden here with the gambling and 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 the for each market. But I would put it like this, the Sweden isn't really a large market class. So that's that. So it's not like substantial. But we see a great potential in the proposed legislation regulation in Sweden.
That sounds like a very good proposal that 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. But we look very enthusiastically on the potential regulation of Sweden, and we believe that the proposed laws and the proposed regulation is good.
And our next question comes from Martin Aynel of BNP Markets.
I would like to ask you on this recruitment of new dealers, which, of course, I mean, will vary from quarter to quarter, but you have had like 4 quarters with very aggressive recruitment, 200, 300 full time employees quarter on quarter, and now it's slowed. But where are you so far in Q2 on recruiting?
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 FTE of game presenters in the company. So during Q1, we have now seen that we get into the right level, and that is important not only because of the figures. It's very nice to have right figures in this call, but it's also important that everyone working for us are enthusiastic, adjustment rather
than
anything adjustment rather than anything strategic or tactical. It's just that you trim everything. And this quarter, it was time to see that we were in the right balance in total. Okay.
On the Swedish regulation proposal, you have a positive view, as you stated. What do you think about your chances to sign up with the Swedish monopolies?
I would say, yes, I would put it like this. We believe and are strongly we strongly believe that we have the best product when it comes to land. We are the market leader. We believe that we can provide the best solution for basically any market in Europe. And we, of course, are humble, and we need to do a good job.
And we need to be eager. We need to increase gas competition, but naturally, we also believe that we have a good chance of signing potentially good new customers in Sweden.
Okay. Fair enough. And 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, it's down a little bit compared to Q3, Q4 last year. And given that we are entering building both the 2 largest studios, 1 in Canada and 1 in Europe, The expectation is that we'll probably come back to the level 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.
But as Mark said, it's not a dramatic shift. I mean, we have cost build to do in auto during 2016, I mean, Romania and others. So it's a little bit sort of where we put existing CapEx. Still a little bit up from the Q1 level, which is low. So that's fair.
I mean, we'll know more specifics, I guess, on both the CVO constructions 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.
Okay. And you don't want to announce where it is or?
No. And to be honest, final, final decisions have not been made either. So we're in sort of late stages there, but will happen start will start during this year, but no firm response where and where I'm at as of today.
And our next question comes from Christian Hellmann of Nordea.
Most of my questions have already been answered. But let's go back again to the new studios that you're setting up. Just 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.
Yes. Christian, that sounds reasonable. I don't have anything sort of really much more to add, but sometime end of Q2 and then rest of the year, so that time frame.
All right. But fairly even during the second half, then Q3 and Q4 will both be
Yes. I mean, deliberately not being precise here, but that's a fair expectation. I mean, I think as the year goes on, probably when we speak in 3 months, we'd be able to be a little bit more firm on the timing of it and we'll know more then. So you can still kind of indicate where our expectations are right now.
And 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 and 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 NFTs and headcount and natural expenses. So it will be in line with growth in during the year. So no I think it would be sort of very gradual as the year goes on.
All right.
Okay. Another question, you're talking about 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 compared if you so to compare these 60% growth that you had?
It's very difficult. I mean, there are different suppliers of growth indicators for the market. And our estimate ranges somewhere around 25% to 30% the growth. It might be more it might be less. It's very hard to say.
And we are quite certain that it's the market doesn't grow 60% at least, and that's we are sure of.
Yes. Yes. We've been as you might know, we've been using H2DC numbers for market growth sort of in the past. But frankly, we build up maybe a little bit they're on the low end right now in the current estimates. So like markets that maybe 25%, thirty percent is sort of more our that's more a gut feeling than any science, but we certainly don't see the market growing 60%.
So that's it.
Okay. Final question for me on M and A. You have been mentioning it in the past on a couple of occasions that you at least sort of are you're looking at the opportunities of perhaps doing some M and A in the future. What's your feeling on that at the moment?
We are doing everything we can to strategically put ourselves in a better position. That includes M and A, and we're actively looking, evaluating and being coming quite far in some evaluation processes. But we haven't so far come to anything that is that interesting that we have concluded it naturally. We're constantly looking onto it. We see that it's an important tool for us for building the company into the future.
But we're also a bit we're business savvy bit the savvy people. We want to do the right deals for both evolution with the right price. So 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. And that's a bit of a stochastic process, but we do have to say that we're intensively looking and evaluating.
All right. Could you help us understand sort of 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 complement your current portfolio?
We're naturally looking both in the product sphere quite broadly, anything that would complement us. And we're also looking in the techs where anything that would actually substantially enhance our potential to deliver or anything like that. But I won't be more direct or precise than that.
Our next question comes from Rasmus Enverwey of Handelsbanken.
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 Q2 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, which
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 handed to you now, I mean, we are doing fantastically well. And we have nothing that we look upon into the future that changes that or in any way.
But on the other hand, we as even inside the company, we are fighting every day to do the best in every aspect, and it's difficult to project. So more in a general sense than anything in relation to the company.
Yes. And 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 sports events like European championships or World Championships or Olympic Games or anything like that, then the recruitment and the table releases and the investments are pushed prior to those events like 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 prepared and therefore all in Q3. I would say that it's more evenly spread.
All right. Thank
you. Thank you. And our next question comes from Drew Shiteu 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. But I'm just wondering how much these three factors, lower activity level compared to Q1 and then of course not a huge sport event, how much would that weigh in margins? Or do you guys feel are you at ease with the current margins for the remaining quarters?
Or should we probably have much some slighter expectations going forward?
We don't guide on the margins in particular, not per quarter. So I refrain from comment that with the exception from what actually Jacob stated that the running 12 months, we had 39.5 percent and our sort of that's something that we in the lower one would be not too disappointed with. And when we fall down to the 35% level where we actually do guide, we would be very, very disappointed naturally. So that comment is the only we do when it comes to the guiding on the margin. Talking a little bit on the sports ramp activity and all of that, I think that the large sports ramp are slightly overvalued when it comes to activity, at least for us, I would say.
We don't see naturally that well in the figures. On the other hand, we always see when there are like a Champions League or one single event, we see effect of that. So I don't we don't see we don't draw any conclusions due to that. We don't have a huge portion of that, 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. It's more that if you would grow 100% in Q2 100% in Q1, the Q2 100% would be more worth. But it's more like a reflection from our side. And then coming into Q2, Q3, we expect a general lower activity level due to seasonality in summer months, simply because customers don't aren't that active during those months. And the most active period are Q4, Q1.
All right. So we should expect margins to slightly have an uptick in Q4, at least?
I'll give that to Jacob. And I'll leave it at your interpretation. I mean and I mean, not trying to deploy on margins. Otherwise, there's a number of moving parts. Now what you can say, we control the expense side of it fairly well.
I mean the revenue side, the player activity, that's sort of not outside of our control, but it's not directly. So 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 will we don't see anything that we should stop growing. There is a million things that can happen, of course.
But as we see it right now, I think have a good outlook for the rest of the year as well. So I can't really say anything about margins specifically in Q4 at this point. But I hope that sort of gives you at least a context into how we're thinking and what the things that do affect margins.
All right. Thank you so much, guys.
Thank you. We have one further question coming through at this time. It's from Vik Wennack of SEB.
Congratulations on 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? Yes.
I mean, number of tables, we stated in the annual report that we're around 300, and that's we don't comment on we won't report it every quarter, but that's just a ballpark figure.
Yes. And 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?
Sorry, we will add more tables this year, definitely.
Yes, yes, but looking at in absolute figures compared to last year.
I would answer it 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. And 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 the no, it's not underperforming, but real figures coming out of this It doesn't affect. The growth, I would say, is maybe even outperform other parts of the company. So it's doing very well. If for the land based bridge, as we call it, or the land based UK is higher than ever. Demands are higher than ever.
So 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 on that during this call is that it's naturally in we grow 60% booming when it comes to revenue and result, it's still a very small in that sense. However, strategically, very, very important.
And the final question maybe then, because we've seen some of your closest competitors like Playtech being bullish on their new sort of VIP environment and stuff like that. And if you're gaining if you're growing twice as fast as the market basically, who's losing market share?
That's a good question.
I mean Because Neste said as well that they're growing quite even small figures, but they're growing at a nice pace in Life and Sinoport as
well? Okay. It has to start the competitors we have, I cherish them. We are constantly paranoid in being better than any but I can't comment on their figures. I mean, I can comment on the market isn't growing with 60%.
That, I'm sure of.
Yes. All
right. Okay. And what that means for others, I don't know.
Lot.
Thank you.
We did have one question coming through on the web regarding the dual play offering and being maybe less focused on that in this report. And if that's a coincidence or a trend change by any means. And I think Martin answered that, that no trend change in that, still very large interest and a positive development, even though it might have sort of fallen out the positive little bit in this particular report in the quarter. So that answers that. I think we have no other questions coming in through the call.
And there are no further questions from the lines.
Okay. Thank you very much for everyone participating. I'm very happy with that we have had this 1st teleconference for Evolution Gaming quarterly report. I look forward to meeting you again very soon, if not in person, in this call in the future. Hope that you also were content.
And thank you, Jakob, for bringing the performance, of course. And so thank you very much. See you soon.