Evolution AB (publ) (EVO) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Evolution Gaming Group Q3 Report 2020. Today, I'm pleased to present the CEO, Martin Carlesund; and the CFO, Jacob Kaplan. [Operator Instructions] Speakers, please begin.

Thank you, operator. Welcome, everyone, to the presentation of Evolution's interim report for the third quarter 2020. My name is Martin Carlesund. I'm the CEO of Evolution. With me, I also have our CFO, Jacob Kaplan. First, I hope you all know, this digital studio on the first and new presentation slide is from our studio in Tbilisi. I will start off the presentation with the quarterly highlights and achievements and give some comments on our new fantastic title that we have released. Jacob will then go through the financials, and I will then conclude by providing some thoughts on the future, followed by Q&A session. The next slide, please. I'm very proud to present the fantastic development of Evolution in the third quarter. It has been a quarter with high, almost extreme operational activity, and the fantastic result is the outcome of all the hard work performed by all of our employees. Simply fantastic team. Without the effort, energy and willingness put down by the EVO team, we wouldn't have this development. The product we launched during the year include new unique targets like Crazy Time and the combination with the continued strong market development and the global demand have contributed to a very high growth rate 2020. In the third quarter, revenue growth was 48% compared to the same quarter last year. We still face challenges due to COVID. And while we are slowly increasing the number of tables, we are still not fully back on the number of tables we operated pre-COVID. Everyone in Evolution strives to make Evolution better every day, and the last quarter was no different, but it was very intense. We launched new nothing but fantastic games, finished construction of 2 new studios, 1 in Pennsylvania and 1 in Lithuania. Both new studios are now live, and I very much look forward to see the full potential of both as we move forward. The launch of Pennsylvania yesterday was clearly over our expectation, but it's, of course, early and too early to draw any conclusions. At the same time, we are now in the initial stages of 3 new additional studios, where 1 of them will be Michigan. The continued, very high global demand for our products creates a high-volume increase in our network. And that, in combination with our constant pursuit of cost efficiency, has resulted in the great results this quarter. Altogether, we reached an EBITDA over EUR 90 million and an EBITDA margin in the quarter of almost 65%. Fantastic numbers, and I'm very pleased with our financial performance. As I said many times before, everything we do is about one thing: to expand the gap to competition and strengthen our market leadership. I think the award Live Casino Supplier of the Year, once again, is a proof that we really are expanding the gap to competition and strengthening our position. Every day, every year, all the time, one focus, to be better every single day. Next slide, please. The acquisition of NetEnt is coming closer every day. And since the announcement of our offer, we have worked hard to make all the necessary preparations. As we have stated before, the offer is conditional upon the receipt of necessary approvals from the relevant competition authorities, among others, the Malta Competition Authority, the U.K. Competition and Markets Authority, the CMA, as well as the competition authorities in Curacao. I'm happy to tell both the Malta Competition Authority and the competition authority of Curacao have announced their approval of the Evolution's acquisition of NetEnt. The process at the CMA is still ongoing. Following customer prenotification discussions with the authority, the CMA's formal procedure was initiated on the 22nd of September 2020. CMA process continues up to the 16th of November 2020. As a result of the timing for the CMA -- of the CMA process, the acceptance period for the offer had been extended up to and including the 20th of November 2020. Other than the extension of the acceptance period, the terms and condition of the offer remain unchanged. Overall, we are moving forward well according to the initial plans. I very much look forward to the closure and see great potential in the combined company and what we can achieve in the future. Next slide, please. Bet spots. As you by now know, it's a good indicator of activity in our network. In the third quarter, number of bet spots from the end users amounted to near 13 billion compared to 5.8 billion same period last year, which is a growth by 122%. In the second quarter, we experienced a strong increase in volume, and this increase of bet spots have now -- have not faded during the third quarter. Instead, we have seen growth in bet spots from the second quarter with 9%. This is partly due to that we, in the second quarter, saw many new players being introduced to Live Casino, which also have given positive effects on the third quarter. But the more significant explanation is that the effect of our increasing range of game show cycles generated high volume of smaller bets. The successful launch of Mega Ball in the second quarter and then even a more successful launch of Crazy Time in the third quarter have found complete in U.K. growth and increased our total market. Next slide, please. The staff and the recruitment of staff is absolutely crucial to our success. Much of the greatness of Evolution is that we have managed to recruit the best talent in our markets. Due to the current situation with us operating fewer tables, the full-time equivalent, FTEs, are low in the quarter compared to before pandemic. However, as you can see, we are scaling back up in all locations, and we have already 1,000 more full-time employees than in July. I expect this increase of employees we saw this quarter continue through the rest of the year. We'll see very high demand tables -- we see very high demand tables and will continue to grow with our clients as fast as possible during the remaining part of the year. Next slide, please. This slide shows the breakdown of revenue by geographic region. The Nordic is stable, albeit our smallest contribution, about 4% of total revenues. Growth has decreased since the same quarter last year, and thus, revenue is 5% lower this year. U.K. is down compared to the second quarter, partly because the U.K. market is slower overall right now. The year-on-year comparison is negatively affected by lower fixed fees, as U.K. companies have moved their billing address to other countries in Europe. Rest of Europe continues to develop well and constitutes about 47% of revenues. The growth rate are -- year-on-year amounts to 41%. As you have seen during the past year, Asia and North America are growing quickly. Year-on-year growth amounts to 151% and 51%, respectively. We see good potential in both these markets and expect a continued high-growth rate going forward, partly due to that we are still a small player in Asia and also the recent regulatory movements in the U.S. These factors that increase the potential in these markets. Other, including South America, Africa and remaining part of the world, showed good growth of 62%. Revenues from regulated markets shows a growth of 12% and constitute 32% of revenues. The decrease in the share of revenue from regulated markets is partly due to that we have operated fewer dedicated tables in the quarter because of the pandemic. A large part of our table fees are in the regulated market category. And due to fewer tables in operations, those fees are lower in Q3, and it also reduces the percentage share of revenue from regulated markets in the quarter. I would also like to give a few short comments on the development in Germany. Germany is on its way to be the next regulated market in Europe. As of July 2021, online casino games as well as other games will become regulated. However, until July 2021, a transition period will take place and several operators will stop offering live casino. We expect this to have a negative effect on our revenue during the transition to quantify the impact on our revenues at this point, but the indication is that the German market is around 5% to 10% of our revenues. Important to emphasize is that the move towards regulation in Germany is positive for Evolution, albeit there will be a nudge in the revenue curve during the limited period of time. In the long run, we expect the German players to return when Live Casino licenses are awarded in July. The regulation of Germany is possible. Next slide, please. New game releases. What a fantastic year 2020 have been for product and innovation. This year, we have so far launched 11 new games in all areas, new features, twists on traditional take against new RNG games and new game shows like Mega Ball and Crazy Time. Crazy Time has been by far our most successful launch since MONOPOLY about a year ago. With the general rollout 1st of July, Crazy Time has exhibited higher traction, and the players have certainly embraced it. Evolution's existing range of game show-style games are continuously gaining more and more attention from a wider audience of players, even though the traditional table games still continue to be our biggest category. Our last game launch for this year will be Craps, and the first player will be rolling the dice in Craps within a couple of weeks. All in all, we continue to widen the gap to competition. Innovation and the best games will always drive Evolution. Next slide, please. In addition to the product development, we are continuing to invest for the future in the 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. However, I'm immensely proud to be able to reveal that the Evolution has taken the next step in U.S. that we have launched our new studio in Pennsylvania. The construction of the studio in Pennsylvania had met many hurdles because of the COVID situation, but we pushed through, and now we are live. Next step for Evolution in U.S. will be a new studio in Michigan, which would be the next regulated market in the U.S. for online casino. We're just starting construction, and we look forward to go live as soon as possible. We have great expectation for our studios in New Jersey, Pennsylvania and the coming one in Michigan. In order to answer up to the high demand of our games in primarily Europe and Asia, I'm also happy to announce that we are live with an English-speaking studio at Kaunas in Lithuania. This studio is a medium-sized studio and has been both advanced and the most efficient deal we ever done. At the same time, we are already now in the initial stages of 2 additional studios to continue to answer to the coming demand. For every new studio that we build or expand, we gain new know-how and experience that can be used in the next project. And that is why the last studio we build is the best 1 ever, always pushing the boundaries. Next slide, please. A small but big change just after the third quarter ended is that we have updated our corporate logo and brand to Evolution. You can now find us on evolution.com. The new branding better reflects the diversity of our operations. Creating the world's best gaming experience in our #1 -- is our #1 mission and continuous evolution, our core. We simply feel great about the new logo. It's very beautiful. We love our new e-mail addresses at evolution.com. It makes a difference. And sometimes these things are not more complicated than that. It makes all of us ever so proud of Evolution and making us want to make just a bit better today than we were yesterday. I'll now hand over to Jacob, and we'll take questions after that. So next slide.

Thank you, Martin, and good morning to all of you listening. Let's take a closer look at our financial development during the period. I'm on Slide #10. I'll start with revenue, the blue bars in the chart. The strong top line trend we've seen all through this year continues in the third quarter. Year-to-date growth is 48% compared to the same period last year. As we discussed in our previous quarterly report back in July, the second quarter of this year was affected both positively and negatively by COVID. We estimated a slight net positive effect in the second quarter. During the third quarter, we have seen sports betting rapidly return, but some of the new players that found our games during the second quarter have supported growth also in the third quarter. At the same time, we've been able to increase table capacity and gradually open more tables. As you see in the slide, the growth trend goes back also through 2019. So while COVID did have some positive effect in second quarter, the underlying trend is unrelated to COVID. Other items supporting growth in the third quarter include new game launches, as Martin just mentioned, Instant Roulette and especially Crazy Time, significantly in this quarter. We also said last time we spoke that we expect the number of tables to be back to pre-COVID levels at the end of the year. This statement is still valid as a best guess today. The new studios Martin mentioned earlier will help offset the fact that the virus is still a factor and limits how we can operate in some of our studios. Moving on to EBITDA, the gray bars in the chart, also very strong in the quarter, EUR 91 million, and an EBITDA margin overall 65%. We stated at the beginning of the year that we aim to increase margin 2020 compared to 2019. The reason for this statement is that we have proven the economies of scale in our operation. And with increasing revenue we did we should be able to increase margins. In addition to this long-term trend, we also have a short-term effect on margins since we operate at less than full capacity in -- especially a number of Blackjack tables. While that leads to losing some players, many players for other games in the short-term and additional players on our scalable games have a high-margin contribution. For the time quarter of this year, we expect margin -- we expect to maintain the high-margin level somewhere in the Q2, Q3 range. We will come back to an outlook for 2021 margins when we report the fourth quarter. By then, we will also hopefully have completed the NetEnt transaction, and we will be able to say something related to the group as a whole. Operator, let's go to the next slide, please. Let's take a closer look at the more detailed P&L for the period. Revenues for the 3-month period, July to September, totaled EUR 140 million. It's an increase to -- of 48% compared to the same period 2019. And for the first 9 months of the year, revenue is EUR 383 million. And as mentioned on the previous slide, also there, a 48% increase from the corresponding period last year. Moving down, personnel expenses totaled EUR 31.5 million. It's about EUR 2 million lower than the same period last year. This is due to the lower number of tables in operation. As mentioned earlier, we are scaling up number of tables, and personnel cost is up a little more than EUR 1 million from the second quarter. And as we increase tables and operating hours going forward, this item will continue to increase. Depreciation, just over EUR 7 million in the quarter, up 11% compared to the same period last year. And finally, other expenses. This includes consumable equipment, communication costs, consultants and royalty fees. The line amounts to EUR 17.8 million. It's up 41% from the same period last year. The main part of that increase is within royalties, which increases as we grow revenues. Summing up, total operating expenses increased by EUR 3.7 million, 7% year-on-year in the third quarter, slightly lower increase than normal. And this is mainly due to the lower personnel expenses in the quarter. Tax, EUR 4.1 million in the quarter. Tax rate, 5%, where we've been. And all of this sums up to profit for the 3-month period of EUR 79.4 million and for the 9 months -- for the first 6 -- sorry, for the first 9 months of the year, just over EUR 204 million. So profit for the period January to September is up exactly 100% compared to the first 9 months of 2019. All this equals EPS of EUR 0.42 per share for the third quarter and for the rolling 12-month period, EUR 1.35 per share. We'll go to the next slide, please, operator. Before I hand back to Martin, a look at cash flow and financial position. Starting to the left in the slide. The chart shows development of capital expenditure. A great part of the bars represent investment in tangible assets. This is mainly our studio construction, just over EUR 7 million in the quarter. Main projects in the period are, of course, the studios in Kaunas and Pennsylvania that we talked about. We will continue to invest in both these studios during Q4 as well as in the Michigan studio. We're still evaluating sites for second studio in Europe, adding more capacity to the network. We'll see how that develops. But we will continue to invest in studios to support future growth. The blue part of the bar is investment in intangible assets. This is related to development of new games and features to the platform. It's just under EUR 3 million in the quarter, more or less in line with previous quarters this year. So altogether, CapEx for the first 9 months is a little over EUR 25 million. This means we are in line with our guidance that CapEx for the year will be up a step from the EUR 30 million of CapEx during 2019. So for the fourth quarter we expect CapEx roughly in line with the third quarter. So we'll be a little bit above the EUR 30 million. In the middle of the slide, we look at operating cash flow. The strong results in the quarter reflected also here and the good cash conversion in the quarter, over 80%. And to the far right on the slide, a look at balance sheet. Maintained a very strong financial position, no major updates since the previous quarter. I'll stop there. That was the end of my prepared remarks. Back to you, Martin, for some closing words, and we'll take questions after that.

Thank you, Jacob. A few words to conclude this report presentation. I said on the first slide, everything we do is about one thing, extend the gap to competition and strengthen our market leadership. This perpetual mission is the common thread in our studio expansion as well as the product development, operational excellence and recruitment and more. I see fantastic opportunity in the U.S. market, with states becoming more and more positive to regulating online casino. The launch of our studio in Pennsylvania is an important step for us. But now I look forward to the presentation when I can present the opening of Michigan for you. For the other states, time will tell at what pace they will regulate. But when they do, Evolution will be there. Of course, for the fourth quarter, my top priority is to close the deal with NetEnt. This is a landmark deal, which will accelerate Evolution's move towards becoming the world leader of the online casino market. The combined product portfolio will include some of the world's most popular casino and online slots and generate revenue upside through cross-selling and improved distribution via both companies' customer bases. I'm coming towards the end of this presentation with a fantastic quarter, revenue growth of close to 50% and EBITDA margin near 65%. We're just in the beginning of Q4, and it has started well. I look forward to seeing what we can do this quarter ever so paranoid, ever so relentlessly seeking new ways on improving. Next time I speak to you, it will be 2021, and I look forward to tell you about the new state of our studios and road map of fantastic games that we will launch next year. Thank you. Now let's move to questions. Next slide, operator.

[Operator Instructions] Our first question comes from the line of Martin Arnell of DNB Markets.

So a couple of questions from me. Just to start with Rest of World, where you have really strong growth in Asia. Is that market share gains or just generally a very strong market? Can you elaborate a little bit on that growth? And also, please help us understand what countries explain the majority of the growth.

The market in Asia is huge. It's like -- it's a lot of country. It's nothing but a huge population. And we often refer to it like being 10, 20x bigger than Europe. Very hard to get back on that, but somewhere around those figures. It's hard to tell if a singular market is growing or not. We are taking market share, but we're still a very small actor.

Okay. Are you planning studios in Asia in the medium term? Or is that further out longer term?

We have no first plan. We operate in the outer Europe and [Technical Difficulty]

Okay. On your studios, you opened Pennsylvania and Kaunas now. Are the construction completely ready? Or do you continue to build at the same time as you go live?

We are continuously -- we -- you can see like we launched and we go into an expansion phase, where we -- in both studios will expand over the coming period. They are ready to serve the public and then comes to expansion where we add tables essentially every month.

Okay. And the capacity increase from Kaunas, I guess it's a medium studio, right? So it's not double-digit capacity you're adding from that door?

I would say it's a mid -- it's not as big as Riga and certainly not as big as Tbilisi, but it's a significant studio.

Okay. And then we -- you have 1 more studio planned in Eastern Europe, right, for 2021? That's correct?

1 more studio planned for Europe, which we count on being coming live 2021, yes.

Okay. And then it's the Michigan project that you have started, right?

And we have Michigan as well coming up where we are moving into construction phase. And then we have an additional studio on top of that, which we haven't placed in the world yet, besides what we had stated that we want to build a studio in Asia.

Okay. And just final 2 questions. Germany, you mentioned it's 5% to 10% of group and that you don't expect the effect -- you expect a limited effect near term. How is that possible when it's 5% to 10% of the group and what we're seeing?

First of all, it's very positive that Germany regulates. In the longer term, midterm, more long term, it's a positive thing for Evolution. That's sort of good to remember. Then in this pre-regulation phase, the regulator of Germany is dependent on that. The operators that want license abandon the market, but there might be others looking at it in a different way or acting differently. That's up to each operator if they want a license or not.

Okay. So is it fair to assume that you will lose half of your German exposure in the very near term?

We have -- it's too early to say. We haven't really made an estimate. I think the 5% to 10% gives you kind of some ballpark number of the total that there will be. So I don't have -- we don't have an estimate of that. It's ultimately going to be up to operator how they choose to act during this period of time.

Okay. And what have you seen so far with only a week or so into this new situation?

Yes. You can actually say it's very early to likely to draw any conclusions on this region. I mean, we'll, of course, know more when we report fourth quarter. Then we'll be a few months into it.

Okay. But you already have some week to look at. So your statement today is based on that, I guess?

Yes, absolutely. Like we said, it's early days. We haven't -- but yes, I mean, we're saying that it will be some form of negative effect. So that's clear.

Okay. And finally, just on your game pipeline for next year. Will you continue this focus in the game show category? Are you continue to focus in that? It seems like a very profitable area to be in. And how should we view your new game pipe and the mix of the different genres?

We are in the creation of the road map for 2021 and even 2022 at the moment. And of course, game shows will be part of that. [Technical Difficulty] make games in combination. There's a lot of exciting things happening. And I'm sure that once you get to the ICE period in time, whenever it will be, we want to [Technical Difficulty]

Our next question comes from the line of Ted (sic) [ Ed ] Young of Morgan Stanley.

It's Ed Young from Morgan Stanley. First of all, can we talk a bit about the bet spots activity? I think most people are probably expecting that to fade quarter-on-quarter. It's obviously growing. Martin, you gave a little bit of color on that. But can you help sort of piece together what are the elements of that -- is sort of a reflection of the game show category, i.e., what extent is that going to be sort of carrying forward Crazy Time, et cetera, having its effect? And what extent is that sort of temporary measures like we saw from Q2 that could fade over time? It is interesting that the revenue growth has obviously held up very well, but it hasn't accelerated like it has historically with the bet spots. Just trying to interpret what that means, if you can give us any color.

First, I would like to take a step back to Q1, and we're coming into Q2 and we're exiting Q1 with a very high growth rate. So we're coming into that. And then we stated that while activity increased in the network, but we also lost a number of dedicated tables. So we didn't maximize the revenue and so on during Q2. And when we summarize, when it comes to COVID, we said like, well, it's maybe not positive, but it's not really, really accelerated. Now when we come into Q3, we continue to see that the players that were attracted by us and come to us during Q2, they stay on. So we see a good growth, but, of course, a little bit slower since they were a bump up during Q2.

Yes. Just that on, I mean, in bet spots, so yes, that it increases so much more than revenue. A big part of that is, like you say, the game show category, which attracts more higher volume but smaller size bets. So that's -- we've seen that all through the last year or so that bet spots have grown a bit faster than revenue. So -- and it's very high numbers these last 2 quarters, I agree on that, but that's basically orders.

Okay. And then a follow-up on the studios, and you've already elaborated a little bit there. You've obviously launched between -- ahead of schedule, Michigan to go, 1 more in Europe and then you've talked this -- the nuance, I get today, is incremental, that third extra studio. I appreciate you haven't said where in the world you'll place it. But can you talk a little bit about what kind of scale you expect that to be? Or what your considerations are at this point for sort of announcing that you want to build up? And/or what kind of time line you might be on the way that Lithuania has probably come on again quicker than might have been expected when you first launched it? So just, yes, some commentary around that, that should be very useful.

We have a very high demand right now. We need to cater for that, and we are growing. So I foresee another European-based midsized studio coming up as soon as possible. That's the third one. And then Michigan, of course, as you know. And then 1 additional 1, which we haven't placed in the world yet. So when I look into the future, we see 3 new studios coming up to cater for the demand that we experience.

Okay. And that final one you haven't placed yet. Do you have an idea of when that might be or what kind of size? Is there a chance it could be another Tbilisi kind of studio or Riga one? Or is it more like to be another kind of midsized one? I'm just trying to get an idea of the shape of what you're looking for.

I would prefer to go into that discussion when we report in the Q4, and it's slightly too early, but it's coming.

Our next question comes from the line of Oscar Erixon of Carnegie.

A few questions for me. So first of all, on Germany, I have to ask, I mean regulation expected now on 1st of July 2021 and live casino licenses as well. Are you confident that it will come into force on 1st of July? And that you will be able to receive licenses from that day?

Yes. We have no other information. But that's -- yes -- I means it's -- yes, that's our plan. But I don't really have much to add.

Got it. And another question there. I mean, you're expecting the impact. Can you say something about sort of mix there going forward? Do you expect new customers, new operators coming in? Or do you expect sort of existing customers that choose to be noncompliant to support growth as customers and end users really seeking out live casino?

I think there will be a lot of new customers that we will, during this period, sign up and that we'll get license, but presumably also some old or existing customers will select to continue with live.

Got it. And turning to the U.S. You mentioned in the report that you expect some more customers in the U.S. ahead. How happy are you with your customer base in Pennsylvania so far? And if you could perhaps just mention a few words on sort of the next key markets as you see it in the U.S. for you?

I would say that I'm very happy with the customers that we have in Pennsylvania, also New Jersey. And we are already on the go-forward in Michigan, and I'm also happy with that.

What's the second part of your question, state beyond the Michigan? Or did I understand it right?

I think that answered the question, but perhaps a slightly longer term, sort of what markets -- what sort of fee markets do you expect to go live within the next couple of years? California, there's some talk of bets for sports mainly, but perhaps if you would suggest.

If you ask me, I want to go live in California tomorrow, but it's a political process, and we don't have really any insight more than what's published. So we will follow the flow. But the important thing is that even if it will take 10 years, we will be there. If it will take 3 months, we will be there. So we look forward to regulation, whatever time span it will take.

Got it. And if you compare sort of Pennsylvania and New Jersey, New Jersey being obviously more developed live casino market. How does the mix between slots and table games compare? And do you expect to grow the table games market a lot in Pennsylvania ahead?

It's a very good question, and I understand why you asked it, and we're also interested in that. And we have said that the Pennsylvania market is bigger than New Jersey, of course. We see more potential in that. But it's a bit too early. The figures will be published. And in a month, we will know more. So I would like to come back to that.

Got it. And a final question for me then. I mean very, very impressive scalability this year. Obviously, partly due to low capacity utilization but also strong growth in Asia and for game shows. So I mean, personnel costs should obviously increase next year. How should one view margins in 2021 compared to this year? Can you keep it up and sort of maintain the new level that you have reached in the past 2 quarters?

Well, we said for the final quarter of this year we think that we will be able to maintain the -- it's a high level now in Q2 and Q3. It's a few points high than what we've been before. So we think we will maintain this level for the end of this year. But then looking into 2021, we'll come back to that at the beginning of the year. And like we said during the prepared comments, hopefully, the group will also be in a little bit different shape, and we'll be able to say something for the whole group at that stage.

Got it. And just one follow-up, if I may.

It's like we said. I mean we have the scalability in what we do. We say that this -- as we grow revenues, we should also be able to increase margins. It's -- that statement, I think, is still there.

Got it. And just a quick follow-up there. I mean you mentioned and report your hectic demand. And this year has been -- I mean, actually, declining number of tables. Do you expect sort of pent-up demand to mean that the number of tables will increase at a faster rate than a normal year, such as 2019, for example?

It's hard to say what the normal year is. But yes, this year has been different in the sense that with the COVID situation, we had to close a lot of tables. And we haven't been able to also reflected in the studio construction, which has also had been on hold or been a lot slower during the cost -- this year than what we have been able to do in the past. So I would say there is a pent-up demand. We also have Uros coming up next year, which is a big event for operators normally. So the outlook is good. We see still good demand. Whether exactly the pace of that, yes, that's always hard to say. But for sure, there's a demand.

Our next question comes from the line of Karen Jugowal (sic) [ Kiranjot Grewal ] of Bank of America.

It's Kiranjot. I've got 3 questions. Let me just run through 1 at a time, I think. Firstly, on Asia, you're pretty small there. There's a lot of other competition. Who are the major competitors? And I know you might not have name, but what's the competition or that product like? We've seen in other parts of the B2B market that the competition can have much lower quality products. So perhaps where you're positioned in that market versus competition?

I would say that, of course, I'm not truly objective, but we have the best product in the world. And also in the Asian market, our product is still disruptive. So the traction we have is based on the product as such. It's like there is a demand for the best product. There are a lot of competitors in Asia when it comes to live. There are -- I don't know, if it's 20 or 50, but there's a lot of them. All different shapes and forms. Typical competitor could be Asia Gaming, which is a large one.

Okay. Do you have a product in local language there?

We support some languages in the Asian region, yes.

Okay. And then on North America, I mean you printed really good growth. But we've seen sort of gaming growth even higher than that in markets like in Asia, as you have achieved through. Just wondering, what are the big sort of net cash use for you guys? Are there any big names left over to sign up for New Jersey? And how are you really thinking about how many people you signed up, the potential customers as a proportion of total market?

I think that there is a number of customers that we still can sign up and get going. I think that the growth in New Jersey is, of course, challenged during this quarter and also last quarter due to COVID. The situation in U.S. have been quite difficult, and we haven't been able to grow in the pace that we want to do, expand in the pace that we want to do. We, of course, as everyone else in the world, have thought a little bit more stable and maybe post-COVID situation where we can fully utilize both our existing base and also the potential in the market.

Just to add on to what you said there, Martin. I mean, Blackjack being the most popular game in the U.S. Live Casino. And that, of course, when we are limited in number of Blackjack tables we can operate, that limits the volume we can do. So that's how we affected them. So we're probably not capturing the -- like you say, that the market as a whole, the total online casino market, including slots, there's even more growth than what we're having right now.

All right. That makes a lot of sense. And then the last question is actually on the EBITDA margin expansion. You've demonstrated sort of amazing margin expansion as a result of two things: reduction in capacity and increase in revenue. I mean why should you go back to having the same capacity as before? Is there -- I mean, are you rethinking the way you're running your studios now? Could you potentially run studios with a lower number of tables? I mean, what's the rationale of continuing to grow new studio?

We have always stated that there would be a trade-off between margin and revenue. We will always expand revenue and go for market share and continue to expand. I mean, a euro earned or a dollar earned is always a euro or dollar earned. So the percentage margin is just a figure. So we want to expand, and we will continue doing so. I think that the margin is a combination of that we work very hard. We are focused on cost. We want to scale. And we are an online business doing online service to our operators. We should be able to have a high incremental margin and a high scalability, and we show that through our margin. I'm happy with what we have achieved now, but I would in the trade-off between margin and revenue go for revenue and market share.

Our next question comes from the line of Li Dunlop of JPMorgan.

I jus wanted to clarify some of your commentary regarding the closing of the NetEnt transaction. Are there other regulatory approvals pending other than the CMA, which is critical for the closing procedures? And what authorities are they? And just can you indicate the level of confidence you are closing by year-end? I understand there may be some assessment of online casinos and the overlaps and whether you think that will ultimately be shown to be a nonissue from a regulatory point of view.

There's only the CMA pending. And we are, of course, waiting for the final, and we stick to our -- to the time plan already presented. We are positive.

Our next question comes from the line of Erik Moberg of ABG.

A question here in regards to regulated markets when we exclude for the U.S. It appears like this part of the business only was up EUR 2 million year-over-year. How should we perceive this side of the business going forward? Is a yearly increase of EUR 2 million fair to assume? Or do you actually think that this side of the business can accelerate into 2021?

I think that with the coming regulation in the U.S., we can experience an acceleration. Also as a state with the COVID situation, we haven't been utilizing the full potential of the market due to that situation over the, let's say, last almost half year.

Okay. Fair enough. But I was talking about the regulated markets when we exclude the U.S. How do you perceive this part of the business into 2021? Do you think that when we exclude for the U.S., still can expect an acceleration into 2021?

The regulated markets are also -- I mean, each market is a little different. You can see U.K., of course, as you see in the region here, is not growing as fast at the moment, but other regulated markets are. Then the share of the total is, of course, depending on how all the other markets grow. So I think we still see that we can grow in regulated markets, definitely. And there will also be more of them. I mean we spoke about Germany earlier. So -- and more states in the U.S. and so forth. So yes, it can still be growth.

Yes, fair enough. But is it more towards, say, EUR 2 million on a yearly basis there? Or do you think that you can go up to, say, EUR 10 million on a year-over-year basis there because you still have some...

We don't comment on alternative TAM or loss. We don't do that.

All right. Fair enough. And in regard to the U.S., obviously, a very strong performance. Yes, it still lags behind the underlying market there. When do you actually think that you will be able to take share from the slots verticals within this region?

I think this is a negative effect also by COVID, as I stated. So I hope that when we come out of that, that we can utilize the market fully.

Yes, fair enough. And in regards to Germany. Is it possible that various black market operators actually gain some momentum during this sort of cooling off period? And this in extension actually result in a relatively neutral effect for Q4? Sort of similar situation once the Swedish market became regulated when various unlicensed operators was able to offset the headwinds from regulation. Or how should we think about this?

First of all, which I commented earlier, when it comes to Swedish regulation, we have a very high channelization. So we don't see any side effect to the Swedish regulation. It's been very successful. When it comes to the regulation in Germany, I think that the cool-off period is, of course, very important for the operators that go for a license because then they state that you have to stay away or do act in a certain way. But then during that period, there might be other operators that don't go for license and abandon the market that they are regulating -- regulation. So -- and we don't know that. That's up to the regulator. We hope that it will be clearly regulated 22 or -- in July next year. And then we will see which operators, and we presume that we will have a lot of new customers at that point.

All right. Fair enough. But percentage-wise of your current German customers, how many of them are actually aiming to get a German license approximately?

That we don't know, honestly. That's right to the operator to decide. You have to ask them on their strategy for the German market.

Question comes from the line of Lars-Ola Hellstrom of Pareto Securities.

So quick questions here to follow-up on some questions already asked. But starting with U.K. Is there positive underlying growth? I know some of the revenues really caters for Malta, but is it positive growth underlying?

How do you mean underlying? Compared -- year-over-year adjusted for the -- it's very -- if it's positive, it's not a lot positive. I mean, U.K. is a tough market at the moment, so.

So not double-digit growth underlying?

We haven't made any comments like that on kind of for this and that. But no, U.K. is not a high-growth market at the moment. It's still potential there. I mean, we can still do market shares on -- it's nothing wrong with the market. It's just right now, we're not -- the market as a whole is not growing, and we're not growing in it.

Okay. And the next, Asia, it's super strong growth, again, really strong even sequentially. Can you give us some more flavor? Is it that you think is penetrating deeper into the Asian market through aggregators, what kind of product is working really well there? Just some extra flavor. Why...

The extra favor, I can get this, that we have the best product in the world and more and more players in all different countries actually experienced that. They want it, and there's a demand for it. We don't do any marketing. We don't do anything, but slowly more and more players embraced our products.

So would it be fair to assume a similar sequential growth in terms of absolute levels going into Q4? I mean now you're taking steps up like EUR 5 million, EUR 6 million every quarter.

It's hard to say. I mean, intentionally, we don't give any guidance on top line. We'll try to grow as much as we can, of course, but no real comment to that.

And also it's now also that the Rest of World or the Other regions, Rest of World starting to get a notable share of total revenue, 10% now, growing super strong as well. What market is it? And is it mostly also from the generic offering that you see the revenue it being from?

Yes. It's -- yes, mainly the generic offering, I would say. I mean, it's 100 or 150 separate countries in that. It's not really much. South Africa is 1 that we talked about in the past, where we're doing really well, the license market with them. And that could be something to mention. But otherwise, it's a lot of small contributions that make it up.

Yes. And then 1 question here for Martin. You say we have very high demand at present everywhere. And can you give some more flavor? I know there is high demand for the products. But in terms of tables, is it the operations want to dedicate more -- in the dedicated environment? Or is it that you want to have generic tables in even more languages to be able to cater the markets globally for the different products? Or how should we see it?

If COVID wasn't here, we would, at the moment, expand absolutely as fast as we can. I need more studio space, more tables, more operative hours. There's demand from dedicated tables. There is demand from generic tables. We need to continue to push forward. You see it while we've launched Kaunas, we're now live in Pennsylvania. I'm talking about 3 new studios to cater for that growth. There is simply high demand. And we're coming out of a quarter, which is the -- has been extremely intense, building 2 studios, going live and doing everything, but we see high demand, yes.

And can you just give some starting point on the Kaunas and Pennsylvania? How many tables are you starting with in each of these studios?

I don't comment on the starting point, but it's low. We always start with a lower set of tables to see that everything gets tuned. And then week per week, we add a seat. But the quality is maintained, the right procedures are maintained and everything. So over the coming, let's say, weeks and months, we will slowly expand. And I stated that the Kaunas studio is a medium-sized studio, which means that it's not as big as Tbilisi or Riga, but it's up there. It's a big studio. And Pennsylvania is, I think, well, 4, 5x bigger than New Jersey.

Okay. And a question here maybe for Jacob in terms of personnel costs, as fees was up, I think, was it 24% quarter-on-quarter by the end. Could you say -- did these people come in late in the quarter? So they maybe didn't have the full effect on cost? And what to expect in employment growth in Q4? Will we be back where we were at the peak levels by end of the Q4 in terms of employment?

Yes. I mean, we said that we expect to be back with the number of tables we had pre-COVID at the end of the year. So we will approach that level towards the end of the year or maybe even be after that. I don't have an exact number for you. But personnel costs will continue to increase as tables continue to ramp up and more hours, of course. So yes, personnel goes up.

Okay. And a question here on Germany. Given that some operators will still be targeting German customers, is it fair to assume that you will operate less dedicated tables for the German market, so it will be more from the generic offerings?

That's a bit too early to say. I expect that we will have dedicated German tables for the -- after the regulation has gone through. But there will also be generic set. I don't see much difference on that market to other markets. That would be the same. And I want to emphasize. I mean, it's positive that Germany regulate. In mid to long term, it's a fantastic market for us.

Okay. And finally, in terms of new products for 2021, would it be fair to assume that you will have a relatively higher share of game show games to be released compared to this year that you see you get so good traction on that you want to release even more game show content?

Coming to it, now we don't know what will happen to ICE. But let's assume that it would have been in the February. Coming to ICE, it's like the Christmas eve for us, where we unwrap all our beautiful games and fantastic games for the next year. And we are in the making of those already now. And I don't want to share the -- it is Christmas eve, so you would already know.

I mean, I think you -- we will continue to do both game shows and also innovations in the table games, same as before. I mean it's -- there's lots to do within both these areas. And we now have the size and development capacity to pursue both. So we will definitely -- it's not -- we're not done with table games by any means.

And we have no further questions on the line. Please go ahead, speakers.

Okay. Thank you very much. Thank you for all questions. Thank you for listening and taking part of this presentation. And see you soon again in February, I guess. Have a nice day.