Operator:
Now I will hand the conference over to the speakers, CEO Martin Karlsson and CFO Joakim Andersson. Please go ahead.
Martin Karlsson (CEO):
Good morning, everyone. Welcome to the presentation of Evolution’s Q1 2025 report. I’m Martin Karlsson, CEO of Evolution, and joining me today is our new CFO, Joakim Andersson, who came on board in February. Great to have you with us, Joakim.
I’ll begin with some comments on our quarterly performance before handing over to Joakim for a deeper dive into the financials. After that, I’ll wrap up with an outlook before we open the floor for questions.
Next slide, please.
Let’s start with the financial and operational highlights of the quarter.
Operational Developments
Two key activities affected our financial results this quarter.
1. Ring-Fencing Measures:
As mentioned in the previous earnings call, we’ve begun implementing technical measures to effectively ring-fence markets with local regulation. These ensure our games are only accessible via locally licensed operators in such markets.
Following our efforts in the UK, we extended these measures across other European markets. This is a proactive move. In markets with high channelization, the impact has been limited. However, in lower channelized markets, we’ve seen a drop in revenue.
We continue to support regulation over time and aim to help regulators where we can, though our role as a supplier has a limited direct impact. Channelization is primarily influenced by the regulatory framework — including tax rates and the complexity of player access. If it’s too expensive or difficult for players, they’ll stop playing. Regulators need to balance this to protect vulnerable players while maintaining access.
2. Addressing Cybercrime in Asia:
We’re continuing our efforts to stop criminal cyber activity in Asia. We’re also investing to meet demand — in Q1, we opened a new studio in Romania to partly offset capacity lost in Georgia. Later this year, we plan to open new state-of-the-art studios in Brazil and the Philippines, as well as a second studio in Michigan. We’re also expanding operations in Malta, Colombia, Argentina, New Jersey, and Philadelphia.
These moves reflect our long-standing commitment to growth and market share — we won’t compromise on our long-term priorities, even amid short-term challenges.
Georgia Update
Operations in Georgia remain stable with no disruptions. We’re not expanding capacity there right now — our aim is to balance capacity better across multiple studios to reduce dependency on any single site.
We’ve also engaged a Big Four accounting firm to conduct a full independent review of our Georgian operations. They had complete access to the studio and reviewed hundreds of documents. Their conclusions were expected:
- Salaries are above local market averages.
- Past work environment issues were addressed promptly.
- Code of conduct violations have been handled correctly.
- Reported strike participation was greatly exaggerated by media.
For us, the strike is now a closed chapter. We’re focused on continuing to provide great workplaces in Georgia and beyond.
Joakim Andersson (CFO):
Thank you, Martin.
Let’s talk financials.
Key Financials – Q1 2025
- Net Revenue: €520.9 million
Year-on-year growth of 3.9%. - EBITDA: Decreased by 1.1% YoY
- EBITDA Margin: 65.6%
This is slightly below our full-year guidance of 66–68%, which we flagged earlier due to the ring-fencing and Asia-related measures.
We still expect H2 2025 to be stronger than H1 and are maintaining our full-year margin guidance.
Segment Breakdown
- Live Segment Revenue: €448.7 million
Growth of 4%. Performance impacted by European and Asian developments. - RNG Revenue: €72.3 million
Up 3.1% YoY, though softer than Q4.
We see more growth potential here — No Limit City had a standout quarter with several strong game launches.
Martin Karlsson (CEO):
Thanks, Joakim.
To be clear, I’m not satisfied with our growth rate — but the decisions we’ve made support long-term improvements. We’re focused on creating more distance from our competition by addressing issues directly and getting better every day. With the best products in the industry, a scalable model, strong financials, and over 22,000 talented employees, we’re in a strong position.
Operational KPIs
- Headcount:
Over 22,000 employees — up 8.4% YoY.
We’re scaling up to meet global demand, especially in Brazil and the Philippines ahead of new studio openings. - Game Round Index:
Up 10.9% YoY.
This metric indicates overall activity across our network. While it doesn’t always track directly with revenue, this quarter’s growth reflects the popularity of our game shows.
Product Pipeline
This is one of the most exciting parts of our business.
We’re in the middle of what we call our “product leap” years — 2024 and 2025. This year alone, we’ll release over 110 new games across our portfolio.
Recent Releases:
- War – Our take on Casino War.
- Racetrack – An RNG game enhanced with a live host.
- Betstacker Blackjack – A unique spin on the classic game.
- Marble Bracket – Launched in April. Simple, fast, and fun. Players bet on marble races. Reception has been outstanding.
Upcoming:
- Super Color – Launching soon. Fast-paced dice game with high multipliers (up to 1000x).
- Ice Fishing – Coming this summer. A live game show with a money wheel and fishing for multipliers — it’s something truly different.
On the RNG side, we released 17 new games in Q1, with 19 more planned in Q2.
Duck Hunters — released in February — has been one of the best-performing games we’ve launched in a long time.
All of this drives player engagement and continues to widen the gap between us and our competitors.
Geographic Revenue Breakdown
- Europe:
Flat YoY, down 6% from Q4. The effect of ring-fencing is visible here. Demand remains strong and we now have a better foundation to grow from. - Asia:
Stable quarter with €201.9 million in revenue, up 2.2% YoY. Underlying demand remains strong — we expect growth to return once cyber issues are resolved. - Latin America:
Strong YoY growth of 15%. Market is still in early stages.
Regulation in Brazil is ramping up despite some initial challenges. Activity is already picking up. - Other Regions (mainly Africa):
Continued solid YoY growth.
A noteworthy highlight:
Revenue from regulated markets is now at 45% of total net revenue, driven largely by Brazil’s new regulation.
Martin Karlsson (CEO):
With that, I’ll hand it back to Joakim for a deeper look at our financials.
Next slide, please.
Joakim Andersson (CFO):
Thank you, Martin. Good morning to all of you on this call. I’m very happy to be on board and hope to see many of you in person at some point.
I’ll now walk through the financial performance in greater detail, starting on page six with our financial development over time. As you can see, we remain on a long-term growth trajectory, but, as Martin outlined earlier, we are currently facing some headwinds.
Net revenue in the first quarter was €520.9 million, corresponding to 3.9% growth year-on-year. On a constant currency basis, we estimate growth at 6.1%, as we continue to face negative effects from currency rate changes.
Reported EBITDA was €342 million in the quarter, resulting in a margin of 65.6%. This is at the bottom end of our full-year forecast range of 66% to 68%.
[Next slide]
Looking at our profit and loss statement in more detail:
Revenue growth this quarter has been relatively low in both Live and RNG segments — 4% and 3.1% respectively year-on-year. We clearly expect more from both categories, and as Martin noted, we’re working hard to resolve the current issues.
Total operating expenses in Q1 amounted to €217.5 million, a 15% increase compared to the same period last year. This reflects our ongoing investments in new products and capacity, which we believe will fuel future growth.
Personnel expenses came in at €119.9 million, up 12% year-on-year, driven by the net addition of 1,686 employees. Other operating expenses totaled €59 million — a 21% increase. This includes a rise in legal costs due to our engagement in more complex global projects requiring external legal advice.
Over time, we expect these cost lines to scale and grow slower than revenue.
It’s also worth noting that, compared to last year, we are operating our studios with a less favorable and more costly resource mix. This is a result of the operational adjustments made following last year’s strike in Georgia. The partial relocation of operations is negatively impacting our cost base and profitability on a year-on-year basis.
We are also monitoring news around potential global tariff changes. Based on what we currently know, we do not expect any material impact on our results.
Financial items were negative €1.3 million this quarter, primarily due to the revaluation of bank balances. The tax expense was €47.5 million, reflecting a tax rate of 15.7%.
All in all, we posted a profit of €254.7 million for the quarter. With 205.6 million shares outstanding, that gives us earnings per share (EPS) of €1.24 — almost in line with the €1.25 we recorded for the same period last year.
[Next slide – Page 8]
Looking at operating cash flow and capital expenditures:
Starting with the graph on the right — capex totaled €33.6 million during the quarter, split nearly evenly between intangible and tangible assets. Of the total, €16.6 million was invested in intangible assets — primarily for game development and platform improvements. Tangible investments totaled €17 million, mainly for studio space, gaming tables, servers, and other technical infrastructure.
You can also see the investment ratio relative to revenue for each of the past four quarters.
As mentioned last quarter, we expect full-year capex to land around €140 million.
Now looking at the graph on the left — operating cash flow after investments came in at €327.7 million, with a strong cash conversion rate of 87%. This marks an improvement both year-on-year and quarter-on-quarter, supported by a reduction in accounts receivable.
[Next slide – Balance Sheet Summary]
Here’s a quick overview of our financial position:
We remain in a strong position, with a bond portfolio of €101.6 million and cash balance of €969.2 million. Total equity now stands at nearly €4.2 billion. There were no material changes in the balance sheet during the quarter.
Our Annual General Meeting is scheduled for May 9. If shareholders approve the Board’s proposal, we will distribute a dividend of €2.80 per share — totaling €572 million — in line with our capital allocation framework.
In Q1, we used our mandate to repurchase approximately 2.1 million shares in the market for a total of €154.1 million. As previously communicated, the Board has decided to repurchase up to €500 million worth of shares in 2025. A new repurchase program will start shortly.
With that, I’ll hand it back to Martin for closing remarks.
Martin Karlsson (CEO):
Thank you, Joakim. Let me summarize before we move into the Q&A.
Financially, it’s been a slow start to the year, mainly due to the continued challenges in Asia and our self-imposed, proactive ring-fencing efforts in regulated European markets. As a result — combined with ongoing expansion investments — our Q1 profitability sits at the lower end of our full-year guidance.
Of course, this isn’t ideal. Revenue growth hasn’t matched the capacity we’ve built. But am I unhappy with the quarter overall? Definitely not.
Everything we’ve done reinforces our mission to widen the gap to competition.
2025 will be another great year for Evolution. We are more paranoid than ever — and that’s a good thing. We’re pushing hard on our product roadmap, and we’re continuing our global studio expansion. Demand remains strong, and we’re well-positioned to capture that growth.
Our upcoming studios in the Philippines and Brazil will be state-of-the-art, built with the know-how accumulated over our nearly 20-year history. On the game side, we’re launching experiences that players have never seen before.
As Joakim noted, we’ll hold our Annual General Meeting next week, where shareholders will vote on our dividend proposal. We remain fully committed to delivering strong returns under our capital allocation framework.
And finally, as always — our ambition is to make Evolution better every single day. There’s no time to waste. We’re already entering May, which practically means Christmas is around the corner.
It’s full speed ahead — and I look forward to what the rest of 2025 has in store.
Moderator:
With that, as an end remark, we’ll move to questions. Next slide, please.
The first question comes from Oscar Ronquist from ABG Sundal Collier. Please go ahead.
Oscar Ronquist (ABG Sundal Collier):
Hey, thank you. Good morning.
Matthew:
Good morning, Oscar.
Joakim:
Good morning.
Oscar Ronquist:
Thanks for taking my questions. My first one is on the ring-fencing in Europe. You mentioned it started in February, and it obviously had quite a big impact on the numbers. Can you clarify — did it contribute for one or two months in Q1?
Joakim:
It’s a good estimate to assume two months of contribution in the first quarter.
Oscar Ronquist:
Perfect, thank you.
And then, I know it’s difficult to pin down exactly, but you had around two percentage points of FX headwinds, and maybe two to three percentage points of headwind from European ring-fencing in Q1. Is there any way to quantify the impact from the cyberattacks so we can better understand the underlying growth in the quarter?
Joakim:
It’s very hard to quantify the impact in Asia. We’ve now had three quarters in a row where we’re essentially flat. If you look back three or more quarters before that, we had stronger quarter-on-quarter growth. Even if we turn things around, it may take a few quarters before we return to that previous growth level. But of course, we aim to have quarter-on-quarter growth.
Oscar Ronquist:
Alright, perfect.
And just again on the cyberattacks — you first mentioned them in Q3 last year, so this is the third quarter they’ve come up. Can you talk a bit about how the situation has developed? Have growth pressures increased over time, particularly as you’ve limited access for some aggregators? Was there an initial headwind that may ease going forward, or has the situation been stable?
Joakim:
We’re seeing good traction from the actions we’ve taken. In Asia, it’s a mix — partially shutting down, partially growing — and right now, the net result is flat. We’re in the middle of that process, and we’re confident that the measures we’ve taken will eventually lead to stronger growth than what we’re currently cutting.
Oscar Ronquist:
Got it. And I suppose there’s no further update on when we might expect quarter-on-quarter growth to pick up?
Joakim:
I don’t have any additional insight on that right now.
Oscar Ronquist:
Understood. That’s all from me. Thank you.
Joakim:
Thank you very much.
Moderator:
The next question comes from Raymond K from Nordea. Please go ahead.
Raymond K (Nordea):
Hi, good morning. A couple of questions from me as well.
Starting with Europe — regarding sales impacted by the ring-fencing — could you provide some color on whether countries with high channelization have had a higher or lower growth pace compared to those with lower channelization? Just trying to understand the underlying growth pace in Europe.
Joakim:
I won’t comment on specific country growth. Overall, we’ve seen a blended growth rate of around 9%, and I wouldn’t say any country stands out in an extreme way. Hopefully, that gives you some color.
Raymond K:
Yes, that was helpful.
Then on Latin America — sales fell sequentially in Q1. Was this in line with your expectations? And what’s behind this development?
Joakim:
Sure. Latin America — excluding Brazil — is doing very well, with strong growth. Brazil, however, is a different story. Regulation just came into force, which caused the market to decline and start growing again from a lower level. That has taken off a bit slower than expected, but our outlook remains unchanged. Brazil is a large market with 230 million people, so the future still looks promising.
Raymond K:
Great, thank you.
And one more on Asia — regarding the technical actions you mentioned. You talked about both shutting down and growing parts of the business, resulting in a flat topline. Could you elaborate a bit more on those technical actions? Is it just about shutting down parts?
Joakim:
We’re working both technically and commercially with our customers in Asia. That includes improving theft detection and prevention, and when we detect theft, we shut down those parts of the business. The remaining areas continue to grow.
Raymond K:
Perfect, very clear. That’s all from me. I’ll get back in line. Thank you.
Joakim:
Thank you very much.
Moderator:
The next question comes from Georg Attling from Pareto Securities. Please go ahead.
Georg Attling (Pareto Securities):
Good morning, Martin. Good morning, Joakim. A couple of questions from me, starting with Europe. I’m trying to understand if the ring-fencing that you’ve implemented — was it done all at once, or should we expect more markets to be ring-fenced?
Joakim:
There won’t be more markets. We’ve essentially done what we intended to do, and it was a proactive move. Most of it happened in early February — so two months of Q1 were affected.
Georg Attling:
Okay, so we should see a new baseline from early February?
Joakim:
Correct.
Georg Attling:
Second question — last time you mentioned Brazil. I know the start was weak, but can you comment on the trend throughout the quarter? Did growth in Brazil pick up toward the end of Q1?
Joakim:
We’ve seen activity increasing, and I’ll leave it at that. I don’t want to get into quarter-on-quarter projections.
Georg Attling:
Understood. Final question on Asia — you mentioned shutting down some aggregators or distribution partners. Could you comment on growth excluding those that were shut down?
Joakim:
It’s a combination of measures, and I don’t want to get into specifics. There’s a lot going on. We are seeing good traction overall, but revenue remains flat — something we aim to change, of course.
Georg Attling:
That’s all I have. Thanks.
Joakim:
Thank you very much.
Moderator:
Please go ahead with your question.
Unidentified Analyst:
Firstly on Europe — growth was notably softer compared to B2C operators’ reports. Regulatory data from Italy and the UK suggest positive and robust growth. Can you share any insights into weaker spots in Europe? I know you won’t comment on specific countries, but where can Evolution improve performance going forward? And when can we expect Europe to return to positive growth?
Joakim:
The proactive measures we took were about building a solid foundation. I’ve been meeting with regulators across Europe. As you noted, we don’t comment on specific countries, but where channelization was low, ring-fencing had a greater impact. Conversely, in highly channelized markets, the impact was lower.
Countries with stringent regulation and significant player migration to unlicensed operators saw more impact. We implemented our actions mainly in early February, so as we enter Q2, we have a new base level from which we expect stronger development.
Unidentified Analyst:
That’s helpful. Quickly on Q2 — can you share any insights into current trading? How should we think about top-line growth for the rest of the year?
Joakim:
We don’t guide on quarterly results. I’ve stated that the second half of the year is expected to be stronger due to the full effect of ring-fencing in Q2. That’s our current view.
Martin (Stockholm):
Hi, this is Martin speaking from Stockholm. Can you hear me?
Joakim:
Yes, loud and clear. Good morning.
Martin:
Thanks. On the UK Gambling Commission review — when do you expect more clarity? Are you in constant dialogue with them? Have you taken all the necessary actions?
Joakim:
Yes, we’ve taken all actions requested and provided all necessary information. It’s a regulatory process driven by their timeline. We’re cooperating well and in frequent dialogue. I can’t say when it will close — it’s not up to us.
Martin:
Do you know anything about the outcome?
Joakim:
No, and I don’t want to speculate.
Martin:
Okay. On ring-fencing — how temporary is the effect? Since regulated operators offering your games should only be a click away, why is there a negative impact in the medium term?
Joakim:
Great question. Let me explain. We’re a technical supplier, so we don’t control channelization — that’s determined by regulatory parameters. If a market imposes high taxes or restrictive rules, players are pushed away from regulated sites.
In such cases, regulators may respond with more restrictions, like investing in enforcement. But players need to want to play on regulated sites — we can’t control that. So even if the regulated option is just a click away, it takes time for players to return.
Martin:
Thanks for clarifying. Was this February action proactive on your part, or were regulators asking for changes after what happened in the UK?
Joakim:
I’ve met almost all major regulators in Europe. This was close to 100% a proactive measure on our part. We want to be ahead of regulatory changes and avoid similar situations.
Martin:
Final question — you reiterated the EBITDA margin guidance. Wouldn’t it have been more prudent to be cautious, considering the early phase of changes in Europe?
Joakim:
When we issue guidance, it’s based on the best estimate for the year. You need a good reason to adjust it. Right now, we believe we’ll reach 66–68% for 2025, so we’re maintaining our guidance.
Martin:
Thank you.
Moderator:
Please introduce yourself with name and company. Go ahead.
Monique (Citi):
Hi everyone, it’s Monique from Citi. I have three questions.
First, on geo-blocking in Europe — how much of the impact comes from simply blocking unregulated operators? Was there also a change in game behavior? For example, were games on unregulated sites played with faster spin speeds or without deposit limits, and now they’re aligned with regulation?
Second, RNG growth slowed to 3% this quarter from 7% last quarter. What are you doing to get that back up? Is it a portfolio issue, a content pipeline issue, or something else?
Third, just to clarify — are there any changes in commission rates or player mix? Or is the slowdown purely due to things like cyberattacks and geo-blocking?
Joakim:
Great questions. On the first — I don’t think slower game parameters on regulated sites are the reason players aren’t returning. The issue is more that games are still available from unlicensed providers, so players simply don’t switch back. I don’t see the regulated play conditions as a material factor here.
Regarding RNG — the slowdown is partly due to ring-fencing. Q4 is typically stronger seasonally, and Q1 less so. We’re also still building our presence in North America. That said, I believe the underlying RNG performance in Q1 is stronger than Q4 and Q3, even though the headline growth was 3.1%.
On pricing — no structural changes in commission rates or player mix. There are no fundamental shifts here.
Monique:
Thanks. Just to follow up — before geo-blocking, were the games on unregulated sites bound by regulated parameters like spin speeds?
Joakim:
Not necessarily. But again, the issue isn’t the play conditions. Overregulated markets see low channelization because players prefer less restricted environments. But this isn’t something that suddenly showed up in Q1 — it’s not a switch that flipped. Our current position is that any player using our products must now be on a licensed platform where one exists.
Monique:
Got it. Thanks.
Moderator:
Please introduce yourself with your name and company. Please go ahead.
Virendra (Alpha Value):
Yeah, hi, this is Virendra from Alpha Value.
Sorry, I couldn’t hear you earlier. Can you hear me now?
Okay, great. I have three questions.
The first is regarding Asia. How far along are you with the actions you’ve taken to address the cyber fraud issues you’ve faced over the past couple of quarters? And have you started seeing any success as a result of the actions implemented a few quarters ago?
Executive:
We are seeing good traction with the actions we’ve taken. These actions are still stabilizing. As mentioned before, we’re reducing both the number of customers and traffic while simultaneously growing, so these effects balance each other out.
I don’t have an exact timeline, but we’re on track and expect to see improvements in revenue as we move forward.
Virendra (Alpha Value):
Perfect. Second question: Do you expect to take any more proactive actions in other European markets? Is that on the horizon?
Executive:
No, I don’t expect any further actions right now. We are following regulations, and they are evolving in Europe. We’ve reached a baseline, and of course, we need to remain adaptable in the future, but at present, no additional measures are anticipated.
Virendra (Alpha Value):
Got it. And one more question regarding business growth. You mentioned that growth in the light casino segment is being driven more by increased commissions per customer rather than by new customer additions. Does this imply that your margins have gone up, or is it just more business from existing customers?
Executive:
That’s a good question. We’ve been working with the majority of the market for years now, so growth is coming from existing large customers growing even larger, rather than from adding many small new customers.
Virendra (Alpha Value):
Yes, but does that mean margins are going up, or is it simply more volume from existing customers?
Executive:
Margins aren’t necessarily going up because of that alone. Margin drivers are more complex — things like resource mix have a larger impact than the specific customer profile. So while volumes might be increasing, it’s not the sole factor affecting margin.
Virendra (Alpha Value):
Perfect. And just one last question — sorry for the long list. Regarding your margin guidance: What would push you to the higher versus the lower end of your expectations?
Executive:
If we get good traction and execute well, we’ll end up toward the higher end. We’re a bit more cautious at the lower end, but confident in our direction.
Virendra (Alpha Value):
Thank you.
Moderator:
Please introduce yourself with your name and company. Please go ahead.
Ed Young (Morgan Stanley):
Hello, it’s Ed Young from Morgan Stanley. Can you hear me?
Executive:
Yes, good morning.
Ed Young (Morgan Stanley):
Good morning. I have three questions.
First, regarding ring-fencing. You’ve spoken in detail about timelines for implementing it in regulated markets in Europe. Can you clarify if there are any regulated markets in Europe where you’ve not implemented ring-fencing? And more broadly, why wouldn’t this approach apply to all regulated markets, including those outside Europe?
Second, on FX — you’ve provided an XFX number in the statement. Could you clarify if this is simply based on the translation of commission revenue earned in foreign currencies, or does it also include a player purchasing power effect, which you’ve referenced in the past?
Third, a question for Joachim — as the new CFO, do you see anything that needs to be done differently from how it’s been handled in the past? And could you talk a bit about what you bring to the executive team?
Executive:
Sure. On the first question: We apply ring-fencing where there is a local license in place. That’s the scope, and we’ve implemented it in almost all such cases. So that’s our approach — ring-fencing is applied where licensing requires it.
Executive:
On the second question regarding FX — the XFX effect you’re seeing is purely from translation differences, i.e., the bookkeeping currency impact. We don’t quantify purchasing power changes, although those effects are real and always present. But what you see in the statement is strictly from currency conversion.
Moderator:
Joachim, would you like to take the third question?
Joachim (CFO):
Thank you. I’ve been on board a few months, still getting up to speed, but my first impressions are very positive. It’s a fantastic company, and I’m excited about what lies ahead.
The team is strong, the processes are robust, and the quality of output is high. It’s clear there’s been great work done already. My predecessor, Jacob, did an excellent job. I’m trying to fill his shoes while bringing my own perspective.
My background includes long experience in public companies. I’m quite structured and process-oriented. I believe in continuous improvement — not revolution, but evolution. I’m looking to improve things a little every day.
Ed Young (Morgan Stanley):
Thank you. Just to follow up on the first question — you said “practically all” markets. Could you clarify the framework you used to decide where to implement ring-fencing? And why wouldn’t you apply the same approach globally?
Executive:
I won’t go into detail market by market, but generally, we implement ring-fencing where there is a local license requirement — that’s the standard in Europe. Other jurisdictions, like the United States, operate differently. For instance, in the U.S., the obligation lies with the operator, not us.
So, regulatory frameworks differ. Europe is moving toward stricter B2B obligations, potentially making B2Bs act more like operators. We’re proactively adjusting in Europe to align with those developments, but it doesn’t always apply globally.
Ed Young (Morgan Stanley):
Okay, that’s helpful. Thank you.
Executive:
Thank you.
Disclaimer
Please be aware that the transcribtion might not be perfect and some minor mistakes might be present.
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