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Edited Transcript of EVO.ST earnings conference call or presentation 23-Apr-20 7:00am GMT

Q1 2020 Evolution Gaming Group AB (publ) Earnings Call

Stockholm Apr 29, 2020 (Thomson StreetEvents) -- Edited Transcript of Evolution Gaming Group AB (publ) earnings conference call or presentation Thursday, April 23, 2020 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jacob Kaplan

Evolution Gaming Group AB (publ) - CFO

* Martin Carlesund

Evolution Gaming Group AB (publ) - Group CEO

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Conference Call Participants

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* Erik Moberg

ABG Sundal Collier Holding ASA, Research Division - Research Analyst

* Lars-Ola Hellstrom

Pareto Securities, Research Division - Analyst

* Oscar Erixon

Carnegie Investment Bank AB, Research Division - Financial Analyst

* Rikard Engberg

Erik Penser Bank AB, Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the Evolution Gaming Group's Q1 Report 2020. Today, I am pleased to present CEO, Martin Carlesund; and CFO, Jacob Kaplan. (Operator Instructions) Speakers, please begin.

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Martin Carlesund, Evolution Gaming Group AB (publ) - Group CEO [2]

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Thank you, operator. Welcome, everyone, to the presentation of Evolution's interim report for the first quarter 2020. My name is Martin Carlesund. I'm the CEO of Evolution Gaming. With me, I also have our CFO, Jacob Kaplan.

I'll start off the presentation with the quarterly highlights and achievements and give some comments on our new fantastic titles as we have released and the 2 that will go live in the second quarter. Jacob will then go through the financials, and I will conclude with providing some thoughts on the future, followed by a Q&A session.

Next slide, please. We continue to work ever so hard, and I'm very satisfied to be able to present yet another strong quarter for Evolution. The product we launched so far this year, including new titles in the game show category, in combination with continued strong market development and global demand, have contributed to a very high-growth rate. Furthermore, we also experienced strong results from the investments in increased studio capacity that we have made in the recent years. Those 2 factors, in combination with a constant pursuit of cost efficiency, has had a positive effect on our margin.

While we, as a result of the coronavirus, have operational challenges, of course, demand for our products continues to be strong, and we have been favored by the lack of sports betting games. We now see many new players being introduced to the Live segment. This means that we have very good start of the year as well as the second quarter, naturally still with continuing operational challenges as a result of the coronavirus.

For the second time, we reached a revenue over EUR 100 million in a single quarter. The revenue growth in the quarter was 45%, amounting to EUR 115 million compared to EUR 79 million Q1 2019. EBITDA increase of 79% amounted to EUR 64 million compared to EUR 36 million Q1 2019. EBITDA margin of 55.7% compared to 45.3% same period last year, and an EBIT increase of 89% compared to the same period last year.

I would like to sum this up as nothing but fantastic achievement by all of you working at Evolution. I'm simply very proud of everyone and the way they handled the current challenging situation. I'm glad and I can repeat myself from the Q4 presentation and again say that the profitability is the highest that we have ever reported in a single quarter.

I also would like to note that during the first quarter, the Board of Directors decided to exercise its authorization from the Annual General Meeting 2019 to repurchase own shares such that its holding of own shares does not exceed 10% of the total number of shares in the company. Evolution has, in the first quarter, acquired a total of 338,000 owned shares for EUR 9,854,000. All acquisitions were carried out on the NASDAQ Stockholm Stock Exchange.

Next slide, please. The spread of COVID-19 has put the world in an exceptionally challenging situation. The spread of this -- of the virus has meant operational trials for Evolution as well. Our main priorities are to minimize the risk of spreading the virus and to create a safe workplace for all our employees as well as to maintain the operations for our operators. We follow all the requirements from the authorities in the countries we operate. But in many cases, we have taken more far-reaching own actions.

Thanks to the extensive measures that have been implemented in terms of distancing, change work processes and routines for our employees, our operations have been able to continue without any large negative effect. However, in several of our studios, we operate with fewer tables compared to normal. And our studios in Georgia and Spain have been entirely closed for some time but is now operating again. In these projects, a large share of the traffic has been managed by the company's other studios. To be a global company with 7 different sites has been an important factor in these times. With that being said, our studio in Riga is an important hub for which several of our most popular titles are being run.

Next slide, please. In this chart, you can see the activity in the network, and it has continued to increase. The fourth quarter normally has a strong seasonality and it's satisfying to see an even stronger increase during the first quarter. Demand for our Live Casino games continues to grow in general, and our worldwide demand is increasing, partly as a result of several successful game launches, the number of bet spots from end users amounted to EUR 8.7 billion compared to EUR 5.1 billion in the same period last year, a 71% increase. Revenues on dedicated tables and environments also contributed to the increase as a result of additional customers launching and extending their customized Live Casino environment.

Our customers gain market shares and advantage by using our products together with happy end users and we, with the coming releases of nothing but fantastic and groundbreaking games, the competitive advantage will increase. We can clearly see the audience of live games increased not only to existing players in the online gaming sector but also with completely new player groups attracted by our game shows. This is a clear success of our strategy to drive in Live Casino into softer players, which was initiated over 3 years ago.

Next slide, please. As the company grows, the staff increases and the recruitment of staff is absolutely crucial to our success. Much of the greatness in Evolution is that we have managed to recruit the best talent in all our markets. Success of Evolution Gaming is all because of our hard work in young and talented people with the right winning mindset. At the end of the first quarter, there were more than 8,000 employees and in the slide, you can see that out of those 8,000, there were almost 6,000 full-time employees. As a result of the coronavirus, we will not see the same increase the coming quarter. However, we will continue to grow with our clients, which will mean a higher recruitment phase as soon as the situation with corona is more stable in the world again.

Next slide, please. This slide shows a breakdown of revenue by geographic region. The Nordics is a stable market. And as I have said before, we have had a strong start in the first quarter of 2019, but growth has been moderate to flat in the Nordics from Q2 2019 and onwards. Much has been said about the regulation in Sweden and its effects during the year. From our point of view, we think the regulator has done a good job and at least for live games, which we have a good understanding of, channelization is very high.

U.K. shows a decrease in the year-on-year growth. U.K. is negatively affected by lower fixed fees as U.K. companies have moved their billing address to other countries in Europe. However, revenues relating to player volumes are up compared to the same period last year.

Rest of Europe continues to develop well and constitute about 60% of revenues. Both Asia and North America has grown quickly with 160% and 54%, respectively. We see good potential in both these markets and expect continued growth rate during 2020.

We are especially happy to see the recent regulatory movement in USA, which increases the potential and we get -- and now we get back to that on the coming slide.

Other, including South America, Africa and remaining part of the world, show good growth of about 50%. Revenues from the regulated markets show a growth of nearly 20% that constitutes 38% of revenues. As stated before, Evolution strategy is to be the first Live Casino provider in regulated markets, and we expect this number to grow as more countries regulating their gaming markets.

Next slide, please. For us, 2019 was the year of product innovation, again, if I may say. And I can promise there would be no less of products and innovation during 2020. I know we will continue to innovate in the product area also this year. During ICE in London earlier this year, 12 new titles were announced, of which 2 went live during the first quarter: Speed Blackjack and Lightning Blackjack (sic) [Lightning Baccarat]. And today, I'm happy to announce that on the 23rd of April, we are launching Mega Ball, a lottery style bouncing ball game, including First Person version, the RNG. Mega Ball is our first game in the lottery vertical and extends Evolution's exciting range of game shows and is aimed at the new audience that might not have found live games before. A way for operators to cross-sell and introduce live games to a wider audience. During its beta phase, the game has exhibited a high attraction, which makes the launch very exciting today.

In addition, we will extend our First Person portfolio with 3 more launching -- launches in the second quarter. Another table game will also be launched during the second quarter, Power Blackjack as well as Baccarat Multiplay, which makes it possible to place bets on all our Baccarat tables simultaneously without joining each table separately. All our Baccarat tables are displayed with a video and a small version of the betting grade in single using space, very exciting. It's important to point out that we continue to innovate substantially, enhance and refine the playing experience in table games in our core. Our ambition is to pave the way for the entire industry by launching new groundbreaking products and, of course, continue to increase the distance of our competitors, which we'll do if we continue the path of delivering value to our operators and fantastic player -- experience to our players.

It's also very important to continue to push forward adverse or paranoid during those corona times. Releasing Mega Ball is one example of that. We will all need to be prepared for the time that this will be over. We need to be fast out of our starting block to grasp opportunities which will be there.

Next slide, please. In addition to product development, we are continuing to invest for the future in form of new studios. We continue to stay focused on further strengthening our North American footprint. We have expanded the capacity in New Jersey to meet the growing demand to be able to serve more customers with more games. The construction of a new studio in Pennsylvania continues to -- continues, but with postponed timetable due to the COVID-19. However, our aim is to launch it before end of this year.

Michigan has accelerated its casino regulation process, and we hope that the state soon will be the third regulated market in the U.S. This is very positive, and we expect more U.S. states to allow online gaming in the coming years as well as the positioned -- and we are well positioned to capitalize on the opportunities that will open. It's also important in this context that New Jersey has outperformed our expectations, which shows a good potential for the U.S. market.

I will now hand over to Jacob, who will guide you through the financials. Next slide, please.

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Jacob Kaplan, Evolution Gaming Group AB (publ) - CFO [3]

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Thank you, Martin, and good morning to all of you listening. I'll take you through a closer look at our financial performance during the period.

I'm on Slide 9, titled Financial Development. This slide shows our financial performance for the quarter. As Martin mentioned, the year has started in a very strong way, continuing several of the positive trends that we saw all through 2019.

Revenues in the first quarter totaled EUR 115 million, an almost 9% increase compared to the fourth quarter of last year. We've had a good growth across the whole product portfolio. Our game show games and First Person RNG games are doing really well with very high-growth rates, but also the core table games Roulette, Blackjack, Baccarat are growing very nicely as new players find their way into Live Casino.

Underlying growth was good all through the quarter, but with a boost towards the end of March as effects of the coronavirus development, such as closing land-based casinos and canceling of sporting events took place. This has been short-term positive for Live Casino during the end of the quarter. However, this effect was most visible at the very end. So for the quarter as a whole, it's a limited effect. As we mentioned in the report, while it's still very early in the second quarter, it has started well, with the tailwind of the effects I just described.

EBITDA, the gray bars in the chart amount to EUR 64.1 million, also -- in the first quarter, equaling a margin of 55.7%. We have managed to increase margins steadily during the past 6 quarters. We have proven that we have economies of scale in our business model. So as we grow revenue, we should be able to also increase margin. Part of the very positive margin development is also due to relatively high attention to cost in the organization. Cost awareness is an area where we're never satisfied and always look to improve and trying to stay lean is sometimes difficult, while at the same time, supporting growth. But as we've experienced, it pays off well in the long run.

Looking year-over-year, we did guide in the 2019 year-end report, a couple of months ago, that we expect higher margins for the full year 2020 compared to 2019. And as Martin stated and also wrote in his CEO comments in the report, the strong start of the year supports that guidance.

Bigger margins, I'll repeat the message that those of you who have followed us for some time will recognize, but one that is important for us, our first priority is revenue growth. And should we meet the trade-off between margin expansion and top line growth, we will look for revenue. Examples could be entering a new market or launching a new product line, expanding the new -- expanding the live market. We have a strong position in the market and believe long term our shareholders will benefit from increased size. In other words, we give margin guidance for the year, but see that's our best guess right now for the year. Our margin is a product of decisions that we make in running the business and not the goal in itself that we will sacrifice other things to achieve.

Okay. Let's go to the next slide, please. Taking a look at the more detailed P&L, starting from top to bottom. Revenues for the quarter, again, EUR 115 million. It's an increase of 45% compared to the same period of 2019, and we are pleased with the growth also taking into consideration that Q1 2019 was strong quarter with 54% growth compared to the first quarter of 2018. So strong comparable in this quarter.

Moving down. Personnel expenses totaled EUR 33.3 million in the quarter. It's up 15% compared to the same quarter last year. Personnel costs, mainly driven, of course, by staff -- increase in staff in our operations, but we're also recruiting in other areas of the business as we continue to expand. Year-on-year, we have increased that in both operations and other areas, as you saw in the previous slide. COVID-19 has limited our expansion recently and reduced the number of tables we operate. Those effects were at the end of the quarter. So very, very slight impact in the Q1 numbers.

Depreciation is EUR 7 million in the quarter. It's 22% higher compared to the same period last year. Other expenses, continuing down, include, among other items, consumable equipment, communication costs, consultants and royalty fees, the line amounts to EUR 17.7 million, up 24% from the same period last year. I mentioned royalties. It is tied to some of our games where we pay a royalty in relation to revenue. So the cost item royalty will increase as revenues grow. And it's the largest part of the increase year-on-year in the other revenues -- in the other expenses category in this quarter. So summing up, total operating expenses increased by EUR 7.6 million or 18% in the first quarter.

Tax is up EUR 2.8 million. It's a tax rate of 5% in the quarter. And all this summed up to profit for the 3-month period of EUR 54.2 million and an EPS, an earnings per share, of EUR 0.30 per share, for the rolling 12-month period EUR 0.95 per share, EPS.

We'll move on to the next slide, please. Starting to the left in the slide, the chart shows development of capital expenditure. As we mentioned earlier, the COVID-19 development has affected pace of new studio construction, but we're still doing whatever we can to advance projects and expect progress to pick up as soon as the situation allows. Our outlook for the year is that investments will be slightly higher in euro terms compared to 2019. In relation to CapEx -- in relation to revenue, CapEx will continue to decline.

Staying on the chart to the left, the gray part of the bar shows CapEx intangible assets, meaning investments in our studios. It amounts to just under EUR 5 million in the quarter. The main projects right now, also mentioned earlier, are in the U.S. with Pennsylvania ongoing and Michigan about to start construction. As we had announced, we have scaled down a number of tables in many studios. So right now, there's no shortage of space. However, in our plans for this year is to add 1 to 2 midsize studios in Europe. The timing of those projects are, of course, dependent on the COVID-19 situation.

The blue part of the bar represents investments in intangible assets and is related to development of new games and features to the platform. It's almost EUR 3 million in the quarter, a bit up from the same period last year. In the middle of the slide, we show operating cash flow. It's EUR 35 million in the quarter. Affecting cash flow in this quarter is a buildup of accounts receivable by about EUR 14 million in the quarter. As we grow revenue and the accounts receivable will increase. So part of that buildup is normal. But we have seen payment cycles extended due to COVID-19. And we have worked together with our operators during the quarter. Many of them are facing a challenging time right now. But ultimately, we're not a credit institution, and we will put an emphasis on collections during the coming quarter.

Cash conversion for the 12-month period still on a decent level, but slightly down in the quarter to 72%.

Finally, to the right in the slide, a look at the balance sheet, no major changes during the quarter. Our cash assets have increased to EUR 205 million at the end of March. We are in a strong financial position and have been so for some time. Of course, this gives strength coming into an unexpected situation, such as the one we are in now.

The Annual General Meeting has been postponed until June, as announced earlier, due to COVID-19 and the challenges of arranging an AGM tomorrow, which was the original date. As of today, we expect the Board to propose the same dividend of EUR 0.42 per share as was in the original notice.

I will stop here. I will hand back to you, Martin, for some closing words, and we'll take questions after that. Thank you.

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Martin Carlesund, Evolution Gaming Group AB (publ) - Group CEO [4]

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Thank you, Jacob. A few words to round off this report, and I would like to conclude with, I'm proud of how we have started off the year from a financial perspective, but I'm even proud of how we have handled these exceptional times from an operational standpoint. All employees have shown that they are fast-paced, flexible and that even in hard circumstances they are able to maintain their focus on our given path to continue to increase the gap to competition and to strengthen our leading position.

Everything we do is about that. It's about to extend the gap to competition and strengthen our market leadership. This perpetual mission is a common thread in our studio expansion as well as in our product development, operational excellence and recruitment. 2020 has started well, and in spite of the situation in the world right now, I look forward to the rest of the year.

Thank you all for listening. Now over to questions. Please?

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from the line of Lars from Pareto Securities.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [2]

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Congrats on really strong report once again. I'll start with the revenue during the quarter. Can you give us, was March the strongest month in the quarter? Would that be realistic to assume given the COVID-19 situation?

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Martin Carlesund, Evolution Gaming Group AB (publ) - Group CEO [3]

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We had a great momentum coming into Q1 from Q4, strong figures in Q4, as you know. And I would say that, as we also see in the past quarters, I mean, we are doing very good in that quarter. The last 2 weeks or so is COVID-19 weeks of the quarter, and I would say that they don't have a significant impact on the figures in Q1.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [4]

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Okay. So not a major step-up in the end of the quarter?

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Martin Carlesund, Evolution Gaming Group AB (publ) - Group CEO [5]

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We're looking at the strong start of second quarter, but the 2 weeks don't impact the first quarter that significantly now.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [6]

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And a question here for Jacob. On the personnel costs, it's flat quarter-on-quarter. And part of the reason to the deviation versus minor and consensus estimate. How should we view that? How much is temporary lower personnel cost because I saw that full-time employees grew sequentially, but, of course, you are operating a lot less tables at the time. So how should we view it...

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Jacob Kaplan, Evolution Gaming Group AB (publ) - CFO [7]

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Going forward?

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [8]

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Yes. How much is the personal effect lower in this quarter?

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Jacob Kaplan, Evolution Gaming Group AB (publ) - CFO [9]

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Well, as Martin said, I mean the effect from COVID-19, that is limited in this quarter. It's a little bit, COVID is, of course, there. Going forward, it's difficult to say. Right now, as we said, we're operating fewer tables. We've reduced -- in some instances, terminating probation contracts and sort of the expansion that we were in has paused a little bit, put it that way. But long term, we -- as we outlined, we see good growth prospects. And we will -- personnel costs will continue to increase through the year. But I don't have a number for you for Q2 right now.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [10]

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But would it be fair to assume that personnel costs actually will be lower in Q2 given that you operate -- I don't know how many less tables you are operating. Are you down to below 500 tables or...

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Jacob Kaplan, Evolution Gaming Group AB (publ) - CFO [11]

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As I said, I don't have the Q2 number right now. So I don't want to speculate on that. But I mean, we'll be operating fewer tables. And part of that will be -- it also affects personnel costs. And then -- it's just a couple of weeks into the quarter. I don't want to kind of -- I don't have a view on second quarter right now.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [12]

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Can you give some flavor of how many tables you are operating at the moment?

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Jacob Kaplan, Evolution Gaming Group AB (publ) - CFO [13]

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No, we've said -- we've not given a number. We've said that we have reduced capacity. And it also -- it varies a lot. I mean we adapt constantly to the situation, but it's a reduced capacity right now.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [14]

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Okay. Because I was thinking about this with the case table fees how that would be affected in Q2 as well.

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Jacob Kaplan, Evolution Gaming Group AB (publ) - CFO [15]

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That will be affected. I mean it depends on how long -- that's fair. I mean it will be affected.

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Martin Carlesund, Evolution Gaming Group AB (publ) - Group CEO [16]

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I will make a comment. Of course, it's all depending on how long time this COVID-19 situation continues to be in the world. If it continues for a longer period, you will see effects on -- of course, on staffing or personnel costs as well as you will see effect on dedicated fees. But again, we started -- we just started quarter 2. We have started well and have good momentum.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [17]

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Okay. And on regions, I noticed that the U.K. was down 20% year-on-year. Is there some special event here? Or is it just operators being more focused on compliance? Or is it that Playtech that now is led into the GVC brand is having some negative effect?

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Jacob Kaplan, Evolution Gaming Group AB (publ) - CFO [18]

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A couple of good guesses. All of them wrong, unfortunately. I think the main reason for the drop is that we see operators relocating from U.K. to -- mainly to Malta. So it's where -- the part of revenue that's more fixed that's allocated to their billing address. And when that moves, that -- then you can say, a couple of million have gone from U.K. into the Europe category. That said, even though we see positive in player numbers, you can say, it's a positive trend in U.K. It's not a super growth. I mean we've seen all through last year that it's been almost flat. So it's still a market that's lower growth. But long term, we see good potential there. But that is -- the reason for the kind of sudden difference between Q4 and Q1 is that the operators have moved their billing addresses.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [19]

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Okay. And also on studios, I think you mentioned now in the call, if I was listening correctly, have you started with a Michigan studio and you also said you will build one midsized studio in Europe this year?

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Martin Carlesund, Evolution Gaming Group AB (publ) - Group CEO [20]

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Okay. We have initiated the project in Michigan, meaning we're talking to the regulator and planning. So we're in the planning phase on Michigan. We're in the building phase of Pennsylvania. We're in the investigation and planning phase of 1 till 2 new studios in Europe.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [21]

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And what do you mean by midsized studios in Europe? Is it like a Malta studio or...

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Martin Carlesund, Evolution Gaming Group AB (publ) - Group CEO [22]

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Yes. Something like that, yes.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [23]

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Okay. And the final question for me here. On Mega Ball, you said promising KPIs in the beta launch. If you compare it to other game show concept that has been launched, how is it holding up? What you have seen so far in the beta test?

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Martin Carlesund, Evolution Gaming Group AB (publ) - Group CEO [24]

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I don't want to get into comparing because -- that's, of course -- but it's a fantastic new category. We're expanding again the live segment into new part of the gaming world, attracting new players. And the beta -- it was a strong beta test.

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Operator [25]

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And our next question comes from a caller with an American telephone number ending at 112.

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Unidentified Participant, [26]

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This is [Kasper Shen] from Hong Kong. So I'm an individual investor. And I like to ask for, in the light of COVID-19, a lot of sports betting events and land-based casinos have came to a halt. Has there been additional operators contacting Evolution for solutions given the rise from the lockdowns? Or is there any plans or marketing outreach to operators to close deals and partnerships such as integrating land-based casinos or dedicated tables to cater customer or branding that customer retention of different operators?

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Martin Carlesund, Evolution Gaming Group AB (publ) - Group CEO [27]

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My answer to that would be rather than -- right now, the land-based casinos have a very difficult time to handle operations and the cost base and everything like that, as the casinos in many aspects are shutdown. What will happen, though, and what we see and what we get contact about is that now many land-based casinos that have earlier seen online as a threat turns towards that it's an opportunity. And if they would have had online in this situation that they would have -- that they have now, they would have been able to maintain operations and actually give players the experience and player opportunity. So I would say that the effect of COVID-19 is an opening of the online market where earlier land-based casinos were reluctant.

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Unidentified Participant, [28]

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Okay. Have there been additional contacts from those land-based operators? Or has Evolution has been contacting or doing some marketing to those operators to see if they need Evolution's solutions?

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Martin Carlesund, Evolution Gaming Group AB (publ) - Group CEO [29]

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We're in constant contact with basically all major operators, both land-based and online. So there's no major difference there.

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Operator [30]

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And the next question comes from the line with the telephone number ending 973.

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Oscar Erixon, Carnegie Investment Bank AB, Research Division - Financial Analyst [31]

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It might be me, Oscar Erixon from Carnegie. A few questions from me. First of all, do you expect the strong momentum here in March and April to be of temporary nature or will it create a lasting effect also after the COVID-19 situation? I heard you speak of very strong customer intake in Q1 and Q2. So could you please elaborate on the lasting effects, please?

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Martin Carlesund, Evolution Gaming Group AB (publ) - Group CEO [32]

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We have fantastic products. Of course, I'm happy to introduce that to a lot of new players that haven't seen it before, and I hope that some of them will remain. However, what level and so on is very difficult to say.

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Oscar Erixon, Carnegie Investment Bank AB, Research Division - Financial Analyst [33]

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All right. And you also seem confident in the margin target or rather in improving the margin from last year of 50%. And given close to 56% EBITDA margins in Q1 and strong momentum in Q2, is there any reason to expect lower margins for the rest of the year?

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Jacob Kaplan, Evolution Gaming Group AB (publ) - CFO [34]

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We haven't -- I mean, the guidance that we've given, as I said, is that we see that we will increase margins year-over-year and it's a good start. We're not guiding on the margin from quarter-to-quarter. It's -- as we grow, we should be able to increase margin, but it can vary, of course, quarter-to-quarter. So I won't say anything about margins in Q2 specifically.

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Oscar Erixon, Carnegie Investment Bank AB, Research Division - Financial Analyst [35]

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Okay. Great. And the final question from me. You might have answered this already, but is the studio in Spain now fully up and running with tables, which is mainly the more First Person games? And also, how are the discussions with authorities in Riga and Tbilisi are proceeding?

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Martin Carlesund, Evolution Gaming Group AB (publ) - Group CEO [36]

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Spain is operative, so it's fully operative, so that's good. We are in constant discussions with all basically authorities and -- in Riga and in Georgia and in Malta. I would say that we're in a good situation right now. Of course, the world is in a place where things change, but we're in a good position. We're taking measures, and we're actively doing more than what is demanded of us and constantly talking as the largest employer in many of these -- or a few of these countries, we have a lot to both give and to take from the authorities.

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Oscar Erixon, Carnegie Investment Bank AB, Research Division - Financial Analyst [37]

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Great. And actually one more question from me. Given the situation in Georgia and what you had to do there, scale down the operation a bit, can you please elaborate on the number of employees compared to average in Q1 and how it was going into April?

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Martin Carlesund, Evolution Gaming Group AB (publ) - Group CEO [38]

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We don't comment on the number of employees per month. I'm sorry, you have to wait for that until Q2, but we have terminated probation employees in Georgia as well as in Latvia and that is sort of an adjustment. You have to be on to your figures, and that's an adjustment for the expansion, which is pushed a little bit forward, and we will then come into the recruitment period as soon as we're released out of the corona situation. So a bit like that.

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Operator [39]

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(Operator Instructions) And we have one more question from telephone line ending with 442.

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Rikard Engberg, Erik Penser Bank AB, Research Division - Research Analyst [40]

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I guess it could be me, Rikard Engberg of Penser Bank. I have one question. Could you please shed some light on the Paddy Power deal signed last year and how that is going?

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Martin Carlesund, Evolution Gaming Group AB (publ) - Group CEO [41]

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It's going according to plan. We're happy with the cooperation with them. As we stated before, it's a strategic and very significant deal. But however, it won't affect the figures as we are that large as we are right now, so -- but it's going well.

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Operator [42]

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And there is one more question, a follow-up from Lars, Pareto Securities.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [43]

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Just a follow-up here on Georgia. When you reopened the studio, you said that you operated on a limited capacity. What does that imply? And where are we now? And what do you expect in Q2? Will we be back -- when will we be back to normal?

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Martin Carlesund, Evolution Gaming Group AB (publ) - Group CEO [44]

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I'll take the last part first. I mean it's almost impossible. We're in constant discussion with the authorities and the government actually in Georgia on all levels, and they are very cautious. And exact time when we can resume operation fully is not -- I don't know, but we are working on to expand it. And right now, we are very limited in capacity in Georgia. So it's up and running, but very limited.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [45]

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Okay. And a final question here for Jacob. Considering that you are evaluating possible new studios in Europe, is there any change on the CapEx guidance for the year, would you say?

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Jacob Kaplan, Evolution Gaming Group AB (publ) - CFO [46]

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I would say that's included. The CapEx guidance for the year, as we've stated now, is that we see that we will be slightly higher in absolute euro terms than 2019 and that includes that. We'll see -- I mean it will develop quite a lot. It all depends on kind of how long the current situation is. Even though we are pushing projects ahead and actually are moving, it's, of course, the pace is affected by the virus situation. So the guidance for the year, as it stands today, that will be slightly higher than the last year in CapEx.

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Operator [47]

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Okay. And the next question comes from the line of Erik Moberg, ABG.

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Erik Moberg, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [48]

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Just a question regarding the rest of Europe segment. Could you perhaps elaborate a bit on the drivers behind the strong growth from this region? I mean the amount of regulated revenues, the share of regulated revenues is decreasing. I just had a hard time understanding the true drivers behind this segment. Could you perhaps elaborate a bit on what countries are growing in the most rapid -- at the most rapid rate from this region?

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Martin Carlesund, Evolution Gaming Group AB (publ) - Group CEO [49]

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We are launching 12 new products this year, launching 10 products last year. They are fantastic. And in spite of the situation with COVID-19, it actually introduces our very good products to new players. And as I said, we, of course, hope that they will be staying there and continue to play them. But I would say that the driver for our growth, independent of market, is the good product that we launch and by launching them, increasing the gap to competition and continues to expand the live segment. That's the major driver for growth.

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Erik Moberg, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [50]

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But what 5 countries are growing at the most rapid rate from this region?

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Martin Carlesund, Evolution Gaming Group AB (publ) - Group CEO [51]

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I think that we have taken over the years good steps towards being disclosing more and more when it comes to geographical split. And lastly, we actually expanded the geographical split to what we have now, also including HR number. And I'm very happy with that. And in the future, we will look into maybe taking further steps. But right now, we haven't done so.

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Erik Moberg, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [52]

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Got it. But I assume it's unregulated markets, that's growing the most rapid from this region because when you sort of back all you, it appears that it's predominantly unregulated market that is driving this region. Is that correct?

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Martin Carlesund, Evolution Gaming Group AB (publ) - Group CEO [53]

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We are growing in all markets. I think that Europe is growing very nicely right now, for example. U.S. is growing fantastically, Asia as well. I see growth in all markets. It's very good. And that's again due to the good products and the increase of the gap to competition.

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Operator [54]

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And there seems to be no further questions at this time, so I hand it back to the speakers.

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Martin Carlesund, Evolution Gaming Group AB (publ) - Group CEO [55]

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Thank you very much for listening. This time, we need to say something to round off, and it's an exceptional situation in the world. Most important among everything is that we stay healthy and we do what we can for all employees. Again, we want to say that I'm impressed by the work that all employers and everyone in Evolution is doing. I'm very, very grateful to have a fantastic talented team, pushing forward towards our goals even during these circumstances that we have right now. Without them, we would be nothing. So thank you very much for listening. And yes, stay safe. It's probably the right thing to say, those days.