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Edited Transcript of LEO.ST earnings conference call or presentation 7-Nov-19 8:00am GMT

Q3 2019 LeoVegas AB (publ) Earnings Call

STOCKHOLM Nov 8, 2019 (Thomson StreetEvents) -- Edited Transcript of LeoVegas AB (publ) earnings conference call or presentation Thursday, November 7, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Gustaf Hagman

LeoVegas AB (publ) - Co-Founder, President & CEO

* Stefan Nelson

LeoVegas AB (publ) - CFO

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Conference Call Participants

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* Hjalmar Ahlberg

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Lars-Ola Hellstrom

Pareto Securities, Research Division - Analyst

* Martin Arnell

DNB Markets, Research Division - Analyst

* Oscar Erixon

Carnegie Investment Bank AB, Research Division - Financial Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the LeoVegas Q3 Report 2019 Conference Call. (Operator Instructions) I also must advise you that this conference is being recorded today. And I would now like to hand the conference over to your first speaker today, Gustaf Hagman. Thank you. Please go ahead, sir.

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Gustaf Hagman, LeoVegas AB (publ) - Co-Founder, President & CEO [2]

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Thank you, and good morning, everyone, and warm welcome to our quarterly presentation for the third quarter of 2019. Together with me here, as always, our group CFO, Stefan Nelson. Good morning Stefan.

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Stefan Nelson, LeoVegas AB (publ) - CFO [3]

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Good morning, Gustaf.

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Gustaf Hagman, LeoVegas AB (publ) - Co-Founder, President & CEO [4]

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So Q3 highlights then. Our revenues during the third quarter amounted to EUR 88.2 million, and that's an increase of 13%. Excluding the U.K., our organic growth was 27%, which shows a stable underlying growth in general for the group. We had about 50% from locally regulated revenues. Our depositing customers were 334,042, which is 5% higher than last year. New depositing customers, 135,019. And finally then, a strong EBITDA of EUR 12.7 million, corresponding to an EBITDA margin of 14.4%. And compared with Q3 last year, we delivered an EBITDA growth of over 40%, which clearly shows that our efficiency efforts are generating positive results throughout the group.

And this is our quarter revenue since the launch of LeoVegas back in 2012. Q3, as you can see, was a bit slower quarter. This is mainly due to payment issues in Germany and the closing of Switzerland, and were down versus Q2, but are growing year-on-year. And I'd like to mention that LeoVegas has grown year-on-year every quarter since we started LeoVegas.

And our product mix looks like this. It's actually equal as last quarter with Casino Classic, which is basically our slot games, 74%; our Live Casino, 17%; and the Sport stands on 9%. And all these numbers are out of gross gaming revenues.

So let's have a look at some business update. I believe we continue to operate in a bit difficult environment, but also we'll [aggregate] the regulatory complexity in several of our main markets. But this is a short-term challenge, but it's also raising the barriers to succeed in sector which benefits established companies such as LeoVegas. So all in all, we believe that's good for us. And we're building LeoVegas with a long-term perspective. That is important to remember when the industry encounter these short-term challenges.

Now at the end of today has a more balanced revenue mix across our markets and brands, which then contributes to greater stability in our business. Meanwhile, we continued our efforts to execute on our strategy of innovation, expansion and sustainable profitability.

I'd like to share some examples here on what we've done and have delivered so far on our strategy. In 2019, we launched 5 new markets, being Spain, Chile, Peru, Brazil and Japan. And these new markets will enable us to grow even further and continue the strategy to have a balanced and healthy revenue mix in the company. At the same time, we launched GoGoCasino, a brand that is growing very rapidly and have delivered overall expectations. GoGo will expand in more geographies during next year as well. And given our multi-brand strategy, we will add more brands going forward, and we are currently working on our next brand that will be launched in a few months.

We continued to deliver on our promise to be king of casino and drive innovation within our industry. An example is our recommendation engine, which is live now, and recommending games for individual customers, which is built on our own algorithms. And earlier this year, we migrated our tech stack into the Google Cloud, which makes us faster and more reliable.

Continuing on the business update here. As mentioned previously, LeoVegas delivered solid growth despite the tough external environment and increased tax. One example of that is that we are flat on headcount, but at the same time, we are taking down the costs. The blue line here is personnel cost or expense ratio to revenues. And as you can see, that trend is in the right direction. Overall, we will improve further on the cost side, and we will continue to focus on profitable growth.

Let's have some market comments here. I'll start off the Nordics. The Nordics stands for 44% of the group revenues, which is EUR 37.8 million. In Sweden, we continued to gain market share in Sweden. And we got our license extended from 2 years up until 5 years, and that's very good for us. But we also think that channelization is an important topic, and we also believe it's significantly below the target of 90% in the Swedish market. But in general, I'm satisfied about our development in Sweden, and that we managed to navigate quite well despite this challenging environment. Other Nordics, solid growth and solid development, mainly in Finland and Denmark where we have both really strong performance during the quarter.

Rest of Europe. The rest of Europe stands for 42% of the group revenues, which is up EUR 36 million. Our U.K. business is profitable, which is a strong sign. But the Royal Panda brand had a weak quarter in U.K., which offsets some gradual improvements for other brands. In Spain, we had a really successful launch in Spain that actually surpassed our expectations. Italy. Really strong core in Italy as well. We're gaining and taking market share in Italy. And then in Germany, where we're not able to use one of the most important payment solutions in Germany.

Rest of world. Rest of world stands for 14% of the group revenues, which is EUR 12.5 million. We launched Japan during the quarter, and we see good growth in all other markets.

So around a couple of kind of words around Authentic Gaming and LeoVentures then. I'm very happy that we managed to sell authentic gaming to Genting. Genting is one of the largest land-based casino operators in the world, and we're looking forward to continue that cooperation with Genting. The sale price was EUR 15 million, and we will gain the report -- and the gain will be reported in our Q4 report. LeoVentures then. After the sale of Authentic Gaming, we continue to grow our existing portfolio companies, CasinoGrounds and Pixel.bet.

And also current trading. October ended up with EUR 26.5 million in revenues and a growth of 1% compared to October last year. The payment situation in Germany continued to have an impact in October, but the main explanation was an extraordinarily low gaming margin. If we would have had the same margin as our 24-month historical average, our revenues would have been more than EUR 28.5 million and a growth of over 9% for October. And as you know, gaming margins that swing month by month, but they are naturally normalized over a quarter. And we're already seeing a higher growth rate in November so far with normalized gaming margins. But don't get me wrong, we're not happy with October numbers. We are, of course, aiming higher. But we also know that the fourth quarter is a very strong quarter, and we see a good build up for good growth even this year.

And then I would like to remind about the dividend as well. We have a semiannual dividend policy and the next one is to be paid out this 6th of December of SEK 0.60 per share. And to be able to be part of that, you need to be a shareholder by the last trading day of November.

And with that, I leave to Stefan to run some business KPIs.

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Stefan Nelson, LeoVegas AB (publ) - CFO [5]

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Great. Thank you, Gustaf. Yes, turning towards the numbers. We start by looking at our customer base. Our new depositing customers saw small decrease in Q3 versus last year and the prior quarter. And meanwhile, our returning depositing customers increased by 12% year-on-year and also saw a small increase quarter-on-quarter, which means that in total, our depositing customers were up by 5% versus the last year and approximately flat quarter-on-quarter.

The closure of Switzerland and the payment situation in Germany had an impact on depositing customer growth quarter-on-quarter. Underlying trends remain positive, and we are seeing increasing retention rates for the existing players, which we think is primarily thanks to our focus on product and customer experience, which is paying off.

If we go over to the average spend per customer and looking at the player value, our average deposit per customer -- depositing customer increase by 3% year-on-year, but was down 4% versus Q2. Also, the average NGR increased 6% year-on-year, but was down 7% quarter-on-quarter. And if we look at the trends in player value versus last year, the player value increase is primarily due to higher share of recurring depositors and also larger share of casino players versus last year. But if we look at the trends in the short-term, we have a slight seasonality, we think, but more importantly, the slight geographical mix shift with the closure of Switzerland, not less than also with the German situation, which had somewhat of a negative impact in Q3. Long-term, we don't see any changes in the trends with a somewhat lower share of high-value players. And we don't really see any reason for the current levels to fluctuate that much. Although quarter-on-quarter, they will obviously be a bit less than that.

Next page. Game margin and hold levels. No drama here. The game margin in Q3 was -- saw a minor increase versus Q2 at 3.7%, which is in line with our historical average numbers. The casino margins were below the average, but total group margins were instead supported by a higher Live Casino margins. Hold in Q3 was slightly down from 32% to 31%, but it's still in line or slightly above the long-term average levels. However, and also regarding to Gustaf's previous comments, we have, as he said, seen a significant drop in the game margins in total levels in October. Long term, however, we seen a reason for the Hold margin levels to deviate from historical patterns.

Next page. This leads us to our group's deposits and NGR. And our deposits were up 9% from last year, but down 4% from Q2, which you might recall was an all-time high for the group. Our NGR increased 11% versus last year, but was down 7% versus Q2. And Q2 NGR was also an all-time high. As implied in the previous pages, the main difference in NGR between Q3 and Q2 is the lower player value sequentially.

And that takes us to our marketing KPIs. If we look at the marketing, it decreased slightly versus Q2 in Q3. And this is somewhat less than we planned for ahead of the period. And as we talked about before, first of all, our marketing is, of course, partly a variable costs and the lower spend this quarter is related to sort of the dip in Germany and also lower affiliation costs than we expected. We are, as before, focusing a lot on ROI, and we continue to gradually improve our effectiveness. And I think it's also fair to say that we are increasingly [talking] our negotiations with our marketing partners. And we do turn down that we don't see are good enough. In several markets, not least the regulated ones, we do expect prices for affiliations to go down probably the prior years.

And finally, a short look at our customer acquisition cost. It is up 1% year-on-year and the minor increase, I would say, versus last year, that we have a higher share of casino players in our industry base than the prior year. So good.

Going to the financials and starting off with our EBITDA headline numbers. I think this is one of the numbers we're most happy about in the quarter. Our EBITDA was at EUR 12.7 million, as Gustaf said, with a margin above 14%. And this means a 40% EBITDA growth year-on-year and even if we adjust for the IFRS 16 effects, the underlying growth is about 30% year-on-year. Adjusted and reported EBITDA were the same during the period and the IFRS 16 accounting principle that was introduced in January has added EUR 0.9 million in EBITDA when compared to last year.

Next page. If we kind of dig in a bit more in number of what's driving our profits. If we look at the lower EBITDA in Q3 versus Q2, of course, this primarily reflects a somewhat lower revenue base sequentially. Meanwhile, our costs remain under good control. And if we look at cost of sales, it's lower, but slightly higher in relation to revenues if we compare to Q2. And that is due to some cost of temporary nature of about EUR 0.6 million relating to technology glitch. So I would say that this is nothing that we would see again. Our marketing spend decreased, as I said, slightly. Personnel expense meanwhile decreased both in absolute and relative terms as of Q2, and this relates to efforts we are doing and have been talking about before and optimizing the organization. And finally, we're also seeing lower operational expenses, which we said, reflects the results of the efficiency efforts we're doing.

And if we look quickly at the EBITDA to net income slide, I think what we want to highlight is that the reported EBITDA is at EUR 6 million compared to -- sorry, our reported EBIT is at EUR 6 million compared to EBITDA EUR 12.7 million. But this number includes amortizations we make every quarter of EUR 4.1 million related to our previous acquisitions. Our adjusted EBIT, adjusting for this amortization is at EUR 10.2 million, which I think better reflects the underlying performance of the business.

And then my final page, looking at our cash flow. We have a strong cash generation in Q3. The cash flow from operating activities before changes in working capital amounted to EUR 12.1 million, and that's of course driven by the underlying EBITDA result. Meanwhile, the changes in working capital resulted in an additional cash inflow of EUR 5.1 million in the period. If we look at Q3, we made another bank loan amortization of EUR 10 million in the quarter. And all in all, this leaves us with cash position at the end of the quarter of EUR 53.7 million, which includes player liabilities, while our remaining debt -- bank debt is at EUR 80 million. So we think that we have a solid and improving cash position.

With that, I'll leave the word back to Gustaf.

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Gustaf Hagman, LeoVegas AB (publ) - Co-Founder, President & CEO [6]

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Thanks, Stefan, and let's summarize then the third quarter of 2019. Our revenues were EUR 88.2 million, that's a 13% organic growth. And our EBITDA was very strong at EUR 12.7 million, 14% margin and 40% year-on-year. Sweden is performing very well. We are gaining market share, and we also see good growth in most of the markets. We had some payment challenges temporarily in Germany, which affects the new customer experience. And Authentic Gaming was sold for EUR 50 million on a debt-free basis. And October revenues were EUR 26.5 million, unusually low gaming margin, but the underlying activity remains solid for October. The normalized margins, we would have had EUR 28.5 million and a 9% growth. And going into the start of the Q4, we see a good build up for a strong Q4.

And with that, we'll [leave] for the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we have questions that came through, sir. Your first question comes from the line of Martin Arnell.

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Martin Arnell, DNB Markets, Research Division - Analyst [2]

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So my first question is maybe a tricky one for you, but how should we view your efficiency improvements here? Is that you executing on sort of marketing ROI? Or is it a defensive move here, which could hurt your sales growth going forward?

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Stefan Nelson, LeoVegas AB (publ) - CFO [3]

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Thanks, Martin, Stefan here. I think our efficiency effort's kind of our heart of everything we do in all sort of items. Both internally, where we're kind of streamlining, optimizing the organization and our direct costs, we are negotiating basically everything we have and using our pricing power on our size to gain better than we did, which we should have, of course. In terms of marketing, that's the same, of course, where we are always evaluating the efficiency of our marketing. Of course, when we have a bit more, let's say, turbulent markets regulatory wise, et cetera, we need to be comfortable that we will gain good ROI. And that means that we are always calibrating what is the right investment, and of course, also being tougher towards our working partners. I think this is a natural evolvement in the industry when we are paying tax and we have different movements in the industry. I think with that said, we will never stop working as our new business was always done successfully, basing everything we do on ROI assessment and the lifetime value we expect to achieve. So that does not change.

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Martin Arnell, DNB Markets, Research Division - Analyst [4]

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Okay. And so it's not sort of -- the trading in October and the outlook here is not sort of impacted negatively by your marketing strategy in the quarter?

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Stefan Nelson, LeoVegas AB (publ) - CFO [5]

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No, I don't -- no, I don't think so. Of course, I mean, this is maybe a theoretical answer, but of course, if we spend x million euros more, we will probably get some more revenues as well. That's how it works. But that revenue would probably not be able with sufficient returns and sufficient profitability and then we rather choose not to. Of course, we are a growth company and intend to invest in order to grow, but we will not do that at the expense of having a good profitability. So it's a bit theoretical, but for sure, of course, if we would invest much more marketing, we would probably have a higher top line. But we don't think that is creating value if it's not including the P&L. Does that make sense?

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Martin Arnell, DNB Markets, Research Division - Analyst [6]

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Yes. And what about the outlook for customer acquisition costs into next year? What do you think is going to happen to that KPI?

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Stefan Nelson, LeoVegas AB (publ) - CFO [7]

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That's a great question. But I think in general, we don't want to see a much higher cap than we have today. The cap would be higher if we see that the lifetime value is higher, of course. So I mean, for us, it's always about ROI. But hard to give a guidance, but it's nothing -- I think we will be disappointed if the cap starts to go back to the previous levels.

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Martin Arnell, DNB Markets, Research Division - Analyst [8]

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And your cash flow improvement in the quarter. I mean what's behind it apart from the earnings improvement? Can you comment a bit on the working capital management? Is there anything specific that you've done? Do you expect more in the future?

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Stefan Nelson, LeoVegas AB (publ) - CFO [9]

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I think it's fair to say that this was the extraordinarily strong movement in working capital. But as you see in other quarters, we've had a similar movement in the other direction. I think we're getting better and better every day at working capital management. I do think we have -- we can improve a lot, but that's something that takes time. With that said, sometimes things happen on the right side of the quarter and sometimes they don't. So I think that this number, I don't think we should see that often this strong. But in general, I think our working capital should be fairly stable over time.

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Martin Arnell, DNB Markets, Research Division - Analyst [10]

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And final questions from me. Just three ones on the regions. First, Sweden. Where do you see the channelization yourselves? Secondly, the U.K. Were you profitable in the U.K. at the start of the year? And then thirdly, rest of world. Except from Japan, the launch there, what else is going on in that region?

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Gustaf Hagman, LeoVegas AB (publ) - Co-Founder, President & CEO [11]

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All right. When it comes to the channelization in Sweden, we strongly believe it's around 75% to 80% when it comes to our sector, the casino part of the industry. I think the Swedish kroner are measuring the entire market, and that's how they come up with the 90%. But I also saw something yesterday supporting our view, which is down to 85%, at least the last numbers. So this is, of course, a huge problem. It creates uncertainty in the market and also the play protection side is not working with unlicensed casinos, of course. So that's a problem. And I really hope that the government will look into that more.

And second question, around the rest of the world, yes, well, we see improvements in most parts of rest of world. And we are looking at the new countries, of course, as you saw on the launch of new markets, Chile, Brazil, Peru, et cetera. So of course, there's a lot of things happening all the time. But when talking about the expansion, we could also talk about GameGrounds, which we are about to launch later this year or beginning of next year. So it's happening on both -- sort of expanding within geographies, but also in new brands.

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Martin Arnell, DNB Markets, Research Division - Analyst [12]

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Okay. And just -- and on the U.K., were you profitable there a year ago or at the start of the year?

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Stefan Nelson, LeoVegas AB (publ) - CFO [13]

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We don't really comment on quarterly results on EBITDA line per quarter. We did it this time because we think that there's been a lot of concern regarding the U.K., and we wanted to [left] out of a level of profitable business. So I think we'll leave it at that.

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Operator [14]

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And your next question comes from the line of Lars-Ola Hellstrom.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [15]

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It's Lars-Ola here. To start with the trading update on October, EUR 26.5 million, is that including revenues for Authentic Gaming as well?

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Stefan Nelson, LeoVegas AB (publ) - CFO [16]

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Yes, that's including Authentic Gaming. Authentic Gaming will be deconsolidated 1st of November. But the revenues are not that big either.

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

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Yes. But it's fair to assume that it's -- I think you wrote EUR 1 million per quarter, so 1/3 of that?

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Stefan Nelson, LeoVegas AB (publ) - CFO [18]

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Yes. That makes sense.

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

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Yes. And would it be fair to assume that November and December would be a stronger month even adjusting for the game margin in October, if we follow a normal pattern?

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Gustaf Hagman, LeoVegas AB (publ) - Co-Founder, President & CEO [20]

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Yes. Well, yes, definitely. We'll see a good build up for November and December and also the start on November has been good. So it's in more normalized margins. And it's quite natural. December used to be one of the strongest months in the year.

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

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So what I'm trying to say, that you see growth from an adjusted level month-on-month from EUR 28.5 million, then you see a month-to-month growth? The trend is for growth now in November?

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Stefan Nelson, LeoVegas AB (publ) - CFO [22]

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Yes. I think -- I mean, without guiding, I think that we would be disappointed with the number for both November -- and December has always been the strongest month of the year. And I think also that our other KPIs are evolving in the right direction, which is basically how we base our assessment, total deposits, new players.

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

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Okay. And getting back to the main headache for the last year, U.K. is it still the KYC issue that is the main issue while we continue to see quarter-on-quarter drop even? It seems like it must be 15%, 20% down quarter-on-quarter in the U.K. Is that the main issue? And I guess, am I right if I assume now that U.K. is not more than 11%, 12% the group revenue? I can do that calculation.

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Gustaf Hagman, LeoVegas AB (publ) - Co-Founder, President & CEO [24]

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Regarding U.K. then, we have -- well, a [state full] of -- for the LeoVegas brand, LeoVegas.com and for the Rocket X brands as well, they are actually growing in the U.K. But then the Royal Panda is the headache for us during this quarter. And the reason for Royal Panda is that because we took over the control of Royal Panda quite late in the acquisition, wasn't [there enough], and hence Royal Panda is a few months behind the other brands in the group. So that's the best answer I can give you, actually.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [25]

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So you're saying that LeoVegas and the Rocket X brand is growing sequentially?

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Gustaf Hagman, LeoVegas AB (publ) - Co-Founder, President & CEO [26]

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Yes, they are.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [27]

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Okay. And that leads me down to the other markets in the rest of Europe. So that sounds like that the effect in Germany from the withdrawal of PayPal has been larger than expected. And when do you expect that effect to diminish? You wrote in the report that you will see it in Q4. But how do you think it will play out, and when can we get back to strong growth again?

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Stefan Nelson, LeoVegas AB (publ) - CFO [28]

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Good question. I think this is a very specific situation where the loss of the payment provider has hit a certain part of our player base. We basically lost a substantial part of our player base that just use this payment solution. However, the other -- the remaining part of the player base has continued strong development and kind of same growth trajectory. So I think you could say -- I can say it in Swedish, (foreign language). You would get a kind of a onetime hit, but we stayed at the kind of trends for the rest of the business that are growing. So we hope to -- of course, we lose kind of maybe 6 to 9 months of growth in Germany, where we'll start over again from a lower base. But the underlying trends remain positive. So while it's of course, negative, not just in the short term, and we don't think we will just catch up with what we did in a month or 2, but we have the same trend and that means that it's still growing and a very good marketplace but from a lower base line.

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Gustaf Hagman, LeoVegas AB (publ) - Co-Founder, President & CEO [29]

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I mean -- we don’t look at Germany as a declining business. We should look at it like a step down, and now we are taking sort of growth from that step. And we already see that. So it's over 6, 9 months ago in Germany. That's where it is.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [30]

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Can you give us a figure quarter-on-quarter drop in Germany on revenue level?

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Stefan Nelson, LeoVegas AB (publ) - CFO [31]

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Well, I think -- I mean, I think you could say that we have lost about 20% to 30% on most of the KPIs. So EUR $1 million, EUR 1.5 million per month and lower. We need to fight back.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [32]

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Okay. And I guess Germany then is the main reason why the RDCs was declining quarter-on-quarter?

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Stefan Nelson, LeoVegas AB (publ) - CFO [33]

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Yes, absolutely. Absolute down. While Switzerland is also [risen]. Otherwise, our industry base is up.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [34]

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Yes. And Netherlands, you had no revenue at all or close to none in Q2? Or has there been an effect as well?

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Gustaf Hagman, LeoVegas AB (publ) - Co-Founder, President & CEO [35]

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We're not elaborating specifically on different countries like that. It's still revenues from Netherlands, but yes.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [36]

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Yes, I'm just trying to clean out what is the temporary effect and try to find a core of LeoVegas growth.

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Stefan Nelson, LeoVegas AB (publ) - CFO [37]

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But -- let's look at -- Netherlands is a fairly small market for us. And of course, we're not sensing that market actively in any way. So it's -- I wouldn't say that this has an impact on our business right now.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [38]

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Okay. And on cost of sales, you said there were some temporary high -- temporary effects on cost of sales higher. Is that a new payment method in Germany? Or what is it?

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Stefan Nelson, LeoVegas AB (publ) - CFO [39]

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No. To be fair, the temporary high is a technology glitch that has an impact on the payment for a very little bit amount of time. It's a onetime hit that we took. And it's nothing that's affecting us. But it cost us about slightly more than EUR 600,000 during the quarter. So...

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [40]

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Yes. And will that be normalized now in Q4 or...

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Stefan Nelson, LeoVegas AB (publ) - CFO [41]

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Absolutely. This was a one-time. So I mean, if you want to adjust it, you can do it because this...

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [42]

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Yes. Okay. And on the OpEx level, personnel and other. Do you think that you can do even more on the cost side? Or is this the level from which to grow?

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Stefan Nelson, LeoVegas AB (publ) - CFO [43]

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Good question. I think, I mean, our main objective here is to grow scalable, right? So the more we grow, probably the more the cost will go up. But for now, we don't see any reason to expand or -- our stock base. We're kind of -- we're optimized in certain areas and that frees up resources to invest in other areas such as product and technology where we might want to grow a bit. So if you look at other costs, I think, maybe the low-hanging fruit is behind us. But there's always more to be done. And primarily, it's that to keep that cost as stable as possible as long as possible, that is...

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [44]

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Okay. And a final one for me, which markets are the main reason for the lower marketing spend that you planned for? And which market do you see potential to be able to ramp up marketing? I know you're targeting good ROI, but there has to be opportunities as well.

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Stefan Nelson, LeoVegas AB (publ) - CFO [45]

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Good question. I mean one, just to be -- we don't want to go in too much a detail and tell our competitors what we plan to do. But one market that's we're definitely invested less than we planned for is Germany.

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Gustaf Hagman, LeoVegas AB (publ) - Co-Founder, President & CEO [46]

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And as you can see from [investigations] also in Sweden, we are doing less marketing in Sweden. This means that political environment right now.

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Operator [47]

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And your next question comes from the line of Oscar Erixon.

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Oscar Erixon, Carnegie Investment Bank AB, Research Division - Financial Analyst [48]

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A few questions from me, although most have been answered already. But can you please elaborate on the payment solution situation in Germany? I mean you lost a key payment solution now. Do you see a risk for other payment options being eliminated?

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Gustaf Hagman, LeoVegas AB (publ) - Co-Founder, President & CEO [49]

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No, not really. This is an extraordinary situation, where you have one payment solution taking a policy, some kind of policy from the U.S., which is a problem, of course. And during our 7 years, we have not been aware of that or seen in any of our markets before. So it's -- and it's actually affecting the entire industry, so it's not only LeoVegas. You can read about it with all our friends and colleagues and competitors as well. And right now, there is, of course, an intense work going on to get those customers on-boarding other payment solutions.

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Oscar Erixon, Carnegie Investment Bank AB, Research Division - Financial Analyst [50]

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Got it. In the U.K., you already discussed quite a bit, but Royal Panda specifically. You are a couple of months behind there, as you said, compared to the rest of the brands. When do you expect to be back on track there and back to sequential growth or at least stability for Royal Panda?

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Stefan Nelson, LeoVegas AB (publ) - CFO [51]

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That's a good question. I think -- I mean, we are doing a lot of structural efforts as well in the business to kind of streamline and also to get all the policies and procedures aligned. So we don't want to give any guidance, but I think it's at least encouraging as Gustaf pointed out, that the 2 assets where we have kind of had the longest control, and we have kind of come to targets also and are looking better than they have in quite some time.

I think also, given that the volatility of the U.K. market, it's probably [the industry's trust] to be -- to up on the long-term prospects. And again, Panda is in tough situation. So we will have to come back to that.

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Oscar Erixon, Carnegie Investment Bank AB, Research Division - Financial Analyst [52]

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Yes. And speaking of the U.K., I mean, you probably saw the news this week with some PMs in the U.K. calling for a maximum cap of GBP 2 for online casino. What is your view for -- on that -- or that going through, the possibility of that going through? But also the impact that it would have?

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Gustaf Hagman, LeoVegas AB (publ) - Co-Founder, President & CEO [53]

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Okay. So I think it will take some time, a couple of years before such a thing will go through. And of course, the larger operators in the U.K. will fight that and they have their other arguments. But if it happens, it will have an impact. It will, yes. And it will probably shelf 10%, 15% of the business, so to speak, for everyone in a couple of years' time.

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Oscar Erixon, Carnegie Investment Bank AB, Research Division - Financial Analyst [54]

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Okay. And one final question from me. You talked about channelization, which I think all gaming companies disagree with the regulator. Do you think they're doing enough to improve channelization? And what methods would you choose to improve it?

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Gustaf Hagman, LeoVegas AB (publ) - Co-Founder, President & CEO [55]

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Okay. You could go on the revenue, right?

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Stefan Nelson, LeoVegas AB (publ) - CFO [56]

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Yes. Well, I think they're doing -- of course, they're doing and they're thinking about it. And I know that this is a high topic for them, of course. And it's just a matter of putting pressure on suppliers, payment solutions and other sort of stakeholders in the industry in order to have everyone not accepting unlicensed gaming companies in the Swedish markets. Otherwise, there will be black market, which is not good for anyone and particularly not the players.

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Operator [57]

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And we will now take our next question, and this comes from the line of Hjalmar Ahlberg.

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Hjalmar Ahlberg, Kepler Cheuvreux, Research Division - Equity Research Analyst [58]

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Just one more on the personnel cost. I mean you're already asked a bit on this, but it looks like personnel, employee was pretty much unchanged, but the cost per employee was down significantly. So is that the way to see it? Or anything else impacted that?

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Stefan Nelson, LeoVegas AB (publ) - CFO [59]

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Well, I think we haven't talked that much about it before, but of course, when we're doing kind of optimization efforts, there are obviously always some kind of onetime costs that we've seen in prior quarters. I think that Q3 is a more clean quarter in terms of personnel expenses. Then Q3 is usually slightly lower costs due to kind of vacation periods, et cetera. I can't guarantee that the costs will be as low as Q3 in Q4. But I think we're more of at a kind of -- we don't have any kind of specific, let's say, kind of costs related to optimization, maybe the difference between Q2.

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Hjalmar Ahlberg, Kepler Cheuvreux, Research Division - Equity Research Analyst [60]

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Okay. I see. And maybe a bit where you came in, you're saying that your core brands are doing a bit better. But Royal Panda is suffering. So what's the plan going forward? Do you want to remain with all brands? Or do you want to change the portfolio? Or can you say something more about your status there?

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Stefan Nelson, LeoVegas AB (publ) - CFO [61]

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I think we'll come back to strategy when we have enacted a new setup in place. But I think we're working with kind of streamlining the organization and aligning both technology and procedures and operations, which makes us more effective and more profitable. That I can tell you that.

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Operator [62]

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And no further questions that came through at this time. Please continue, sir.

Sorry to interrupt. We have a follow-up question that just came through, and this comes from the line of Lars-Ola.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [63]

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If you can just break up Germany a bit between PayPal customers and other customers. Can you say something about how much of the business does that earlier was on PayPal? And can you say something about the growth rate in the other part of the German business?

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Stefan Nelson, LeoVegas AB (publ) - CFO [64]

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I think I answered another question by that fair assessment, it's about 20% to 30% impact on most of our KPIs from this. We don't, as you know, comment on a country basis normally. I understand the need to be a bit more granular to explain, but I think what we can say is that we don't see any shift in the growth trend for the remaining quarter. This is a very specific player base that is very dedicated to one payment solution and that's what impacted. So we don't see any other impact on our KPIs for our majority of players that are using other solutions.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [65]

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And the final question for me, concerning U.K. and Royal Panda. The quarterly revenue can't be -- it must be less than EUR 1 million per month in U.K. now considering how it's been performing weak over the last year. So it must be quite a small business today?

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Stefan Nelson, LeoVegas AB (publ) - CFO [66]

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Not that you -- I assume that you have your master model in front of you, but we don't comment that specific, as you know, on prices and brand.

I think we have some questions from web as well, if they are no more on the telephone conference or -- operator?

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Operator [67]

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Yes, sir, no questions over the phone lines. You may continue.

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Gustaf Hagman, LeoVegas AB (publ) - Co-Founder, President & CEO [68]

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Okay. So we got a couple of questions online here. And the first one is with (inaudible). So when can we expect the launch of LiveCasino.com? Well, it could be expected to be launched during Q1 next year. That's an easy answer to that one.

And then we have from our former CFO, Viktor here. What market are you the most optimistic about in the next few quarters?

Well, actually, we are a bit optimistic about our larger regulated market. It sounds like we're not maybe, but both Sweden, I would say, U.K., we see good signs. And also in Germany, but from a lower level of course, but we are optimistic about it -- and then Spain had a really good start. And Italy is doing well. So there's good signs out there, definitely.

And the second question from you, Viktor. Is there has been some large changes in the -- it's really hard to read this. Has there's been some large changes in international investor base over the last years? And do you think the big movements out of the share is done? Or should we expect more spending pressure going forward?

Well, there is, of course, some of the institutional investors have left, yes. But there are other investors coming on, bringing on as well. So it's hard to say about the share price. Anything about share price.

And then we have another question here about, what will you do with the funds received from Authentic Gaming? Will there be a higher dividend as well?

Okay. So given the sale of Authentic Gaming and also the solid, actually, underlying business, it's -- I think it's likely that the Board will propose a higher dividend for 2019. But as you know, this is, of course, up to the Annual General Meeting next spring. But I also would like to mention that the sale of Authentic Gaming strengthen our balance sheet and enable us to act proactively to consolidate the market if the opportunity arises, of course.

And the other questions here. Your share price has been up and down in the last couple of years. What's your view on that?

Okay. Thank you for that high-level question. I get this question actually from time-to-time and always try to answering by taking a step back, looking at our revenues and our EBITDA for like 3, 3.5 years ago when we IPO-ed LeoVegas. So that's why I know these numbers. Back then, we had about EUR 29 million in revenues and EUR 4 million in EBITDA per quarter. And today, we are reporting, as you know, EUR 88 million of revenues and close to EUR 13 million EBITDA. So all in all, we are 3x the size compared -- as a company compared to then. And today, also, the company has a much more balanced revenue mix with more markets, more brands. So we're a lot stronger than we were back in 2016. So that's all I can say about that. I can't mention anything about the share price. We have to leave that to the markets. But the company is a lot larger today, 3x.

Any more questions? No, it looks like everything. So if there's any -- no more online questions, we -- I think we'll close the session by that. And I would like to add, thank you, everyone, for listening in to our Q3 presentation. Thank you, everyone.

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Stefan Nelson, LeoVegas AB (publ) - CFO [69]

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Thank you.

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Operator [70]

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Thank you. That concludes our conference for today. Thank you all for participating. You may now disconnect.