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

Good morning, and welcome to the Evolution conference call. [Operator Instructions] Please note, this event is being recorded. We have with us the CEO, Martin Carlesund; and CFO, Jacob Kaplan. I'd now like to turn the conference over to Martin Carlesund. Sir, please go ahead.

Good morning. Welcome, everyone, to the presentation of Evolution's interim report for the second quarter of 2022. My name is Martin Carlesund, and I'm the CEO of Evolution. With me, I also have our CFO, Jacob Kaplan. As usual, I will start with some comments on our performance in the quarter. I will then hand over to Jacob for a closer look at our financials. And after that, we run off our presentation with an outlook for the rest of the year. After that, we're happy to take all your questions. Operator, next slide, please. The many operational deliveries in the quarter are a testament of the speed we are operating. During Q2 alone, we opened two new studios and launched Live on two new markets in North America. Just after the period, we launched a third new market, Connecticut. This is truly a great delivery. The new studio in Spain will, once operating at full capacity, be another midsized studio. The studio will serve multiple markets with local languages to meet demand from our services from operators. Please note that our current studio in Spain will continue as now and serve the local regulated Spanish market. I was personally in Madrid in the end of June, and the new studio in Madrid is a great new addition to the older existing Evolution startup studios. The other studio launch is also midsized and in Armenia. The Armenian studio became our 15th studio and will cover expansion during 2022 and 2023. We have already started the plan for creating studio #16 and 17, also midsized in Europe to prepare for demand 2024 and 2025. The North American market is developing rapidly, and I'm proud and excited that we, in June, further expanded our North American footprint when our Live games made their debut in West Virginia. Yet another step in the U.S. market expansion is that we after the period launched our studio in Connecticut, the company's fifth studio, serving the growing regulated U.S. iGaming market. An additional step for us in North America is the second -- in the second quarter was that Ontario, the largest province in Canada, opened up the market for commercial operators. What make this market special is that the licensed operators in Ontario will have access to our studio network in Europe and therefore also to our full portfolio of Live games. Last, but absolutely not least, we also initiated construction of an additional state-of-the-art studio in New Jersey to cover the demand we see on this market. We look forward to recruiting around 700 new employees in the coming 24 months in New Jersey. All in all, the opportunities in North American market is very promising and I'm -- and it's a confidence, I look forward to our development on this market. We are in investment phase and during the second half of 2022, we will focus on scaling up all new studios and naturally, the effect will take some time to show in the financial numbers. I'll come back to the acquisition of Nolimit later in the presentation, but let's now move to the coming slides and see the sector numbers and products on all our efforts. Operator, next slide, please. After a strong first quarter, I'm satisfied to report a financially good quarter. Let's look at the financials. Revenues increased by 34% to EUR 344 million. EBITDA increased by 36.4% to EUR 238.2 million, corresponding to margin of 69.3%, which is within our guidance of 69% to 71% for the full year. The world is in a difficult situation with war, inflation, cost increases and delivery challenges, but we reiterate our margin guidance of 69% to 71% for the full year 2022. However, as stated many times before, in the trade-off between growth and margin, we will always prioritize growth. Our RNG business amounted to 90% of total revenue in Q2 and Live represented 81%. The momentum in Live is strong and within the vertical, the growth amounted to 36.7% compared to Q2 last year. RNG revenues amounted to EUR 65.5 million, corresponding to growth of 6.1% compared to the combined revenue of NetEnt and BTG during Q2 2021. This is a good growth and in line with our plans going into H2, increased growth within RNG is still high priority. And with a fantastic slots pipeline for the rest of the year, we have higher ambitions for the coming quarters. The goal of double-digit growth remains for our existing RNG business. The growth of Nolimit will be added on top of those ambitions. Despite the macro challenges in the world, Evolution has great momentum, and we are definitely well placed to further strengthening our market share both in short term as well as in long term. The promise we give is that we will continue to invest in our expansion, both in studios and games and never forget that we always need to work hard and become better every single day. Next slide, please. Bet spots is to be seen as an indicator of the activity in Evolution Live network. The positive trend with a strong increase of bet spots continued and accelerated in the second quarter. The number of bet spots from the users amounted to EUR 24.3 billion, which is an increase of 7.5% from last quarter and compared to Q2 last year, growth of 38.5%. We experienced a continued strong increase in volume quarter after quarter, but even so we noticed that bet spots for Live is affected by the game mix where, for example, Baccarat generates fewer bet spots than Roulette. And as Baccarat continues to [indiscernible] grow faster, we also see that affecting the growth of bet spots. During the second half of 2022, we look into different activity measurements for both Live as well as RNG. Next slide, please. At the end of the period, we were more than 15,000 Evolutionaries. Expanding our studio capacity means that we need a high recruitment pace. In the quarter, we increased the number of employees with 956. The increase in staff year-on-year amounted to almost 4,000 employees, corresponding to an increase of 35%. During the quarter, we also reached over 2,200 employees in North America alone. We will continue to increase headcount during 2022, as we expand in our new studios in Spain, Armenia, Connecticut, but also in existing studios. With the fast growth of the company, we need to have an equal high pace in recruitment, therefore, recruitment will continue to be one of our priorities and one of our key processes. We still see a very high demand and will continue to grow with our clients as fast as possible during the remaining part of the year. Operator, next slide, please. Our long-term ambition is to become the world's leading provider in online casino. And with the acquisition of Nolimit City, we add an important piece to achieve that ambition. The deal is a natural step in our strategy to offer our operators the absolute best content in the world. Nolimit is recognized in our industry for cutting-edge technology, a graphically rich play experience and they will be a great addition to the Evolution team. As with all brands, the cornerstone of Nolimit is innovation. Nolimit is a product developer with distinct contact, both in terms of style and store line. They created a uniqueness in the market, innovative games, graphically-rich dark themes, but with a great sense of humor. Nolimit has proven themselves as one of the most innovative slot developers in the online gaming industry, and they certainly stand out in the crowd. With the addition of slots to our product portfolio, at the end of 2020, we took a big step towards our vision of being a global market leader in online casino. Now by adding Nolimit to our portfolio of slot brands, we're adding additional strong IPs and innovative fantastic talent, moving us yet another step towards that vision. Nolimit has good distribution already today. But over time, of course, look to how we can support the growth by distributing their slots through our One Stop Shop and by that, accessing the largest online casino play network in the world. Nolimit revenue for calendar 2022 is expected around EUR 30 million with an EBITDA result of EUR 23 million, and therefore, we expect the deal to be accretive to EPS 2022. We acquired Nolimit with our own cash flow and Evolution, as a company, is completely debt free, both before as well as after this transaction. The transaction is expected to be completed within short, and I'm very much look forward to welcoming the whole team of Nolimit to Evolution and work together and create new innovative games. Operator, let's go to the next slide, please. We continue to widely get to our competitors. No one else has product portfolio to match ours and no one adds as many high-quality games as Evolution. There are more than half of our planned releases for 2022 in the second half of the year and naturally I'm excited about that. About -- among the new games in the third quarter, you see glittering addition to our Roulette family, Gold Bar Roulette. This unique new Roulette puts players in control while offering increased entertainment and rewards. Gold Bar Roulette offers a spectacular environment for superb Live Roulette experience. We will also release Monopoly Big Baller, a bouncing ball game based on world's best known board game Monopoly. This game also builds of our two already popular titles, Monopoly Live and Mega Ball, showing how we can leverage our growing portfolio of hit games and characters. In the coming quarter, we will also introduce Teen Patti, the hugely popular Asian variant of three card poker that originated in India. Evolution's Teen Patti is a world-class easy-to-play poker game stream live to players from a stunningly beautiful studio. In our RNG vertical, with our world-class slots offering an IP, we aim to reach a high growth in the latter part of the year. The main driver to achieve this is by creating great games with superior playing experience. I think that we have a great RNG road map for the rest of the year, but ultimately, players will decide. Bee Hive Bonanza and Cornelius are just two of many new titles to be released during H2. Beyond everything else, our focus has always been to innovate and push boundaries to enhance the play experience. That -- this goes for Live as well as for RNG, and I'm excited about how the new games that we have in line up for 2022 will further confirm this commitment. Operator, let's go to the next slide, please. This slide shows the breakdown of our revenue by geographic region. Our global exposure is increasing, and we are experiencing growth from all over the world in line with our customers' increasingly diversified geographies. Year-on-year, the growth in North America amounted to above 69%, which is the highest growth rate of all regions in the second quarter. In Asia, we saw continued strong growth that amounted to close to 69% year-on-year. We see good potential in both these markets and expect a continued high growth rate going forward. Europe, as a whole, including U.K. and Nordics, for the growth of close to 8% year-on-year. The Nordics and the U.K. are the same size with the year-on-year growth in the U.K. amounting to moderate 2.5%, while the Nordics reached a good growth of 31%. This table does not include the pro forma figures so part of that growth in the Nordics is related to the addition of BTG for the third quarter 2021. The rest of Europe had a moderate growth amounted to slightly above 6% year-on-year. European market is the most mature as we grow fast in other markets to share the total revenue of Europe decrease. One year ago, the whole of Europe amounted to 55% of revenue, and now a year later, it's only 44%. Of course, Europe is still an important market for us, and we feel that there is much we still can do to grow the business here, but the figure shows that the increasing globalization of our customers will take the percentage down. Other, including Latin America and Africa and remaining part of the world shows a good growth of nearly 50% year-on-year. In this market segment, it is LatAm that is the main driver for growth. Revenues from regulated markets shows good growth of almost 44% compared to Q2 last year and is increasing from previous quarter to 43% of group revenues. The increase in the share of revenue from regulated markets is partly due to new regulated markets, such as Ontario and the Netherlands, which contribute to the pace in growing our regulated revenues. I will now pass on to Jacob for a closer look to our financial details. Next slide, please.

Thank you, Martin, and good morning to all of you listening. We'll, as usual, look at a couple of slides with a closer look at our financial development during the period, and I'll start on Slide #9. Revenue amounts to EUR 344 million in the quarter, as you can see to the far right in the chart. That's made up of EUR 278.5 million related to Live Casino and EUR 65.5 million from our RNG games. Live Casino has a year-on-year growth rate of almost 37% and RNG just over 6% year-on-year. For Live Casino, that is a bit lower growth pace than what we have seen during 2020 and 2021. As I mentioned already last quarter, the start of last year 2021 was exceptional with almost 60% growth in Live. Of course, we're happy for that development and would not have it go away, but to illustrate its effect, if Q2 of last year would have had an average growth rate from the previous 2 years, it would have grown around 50%. And if so, this quarter, in comparison, would have been around 45% year-on-year growth. So the comparison does matter. Still having pointed that out, the second quarter of this year is not a very strong quarter for Live Casino. So it doesn't completely change the picture. RNG, on the other hand, has a quite good development in the quarter comparing to the same quarter last year, pro forma, meaning we include Big Time gaming, growth is 6.1%. As Martin stated in his CEO comments, the goal of double-digit growth remains for our current RNG business, will not be a straight line development as we talked about also in previous quarters and will take some time. But the result in Q2 is encouraging and maybe a little better than my own expectations from a few months ago. Many of the structural changes to the delivery of RNG, that we have implemented, are supporting growth. But in the end, as always, it's about creating more really high-quality games. That's our main focus. That acquisition of Nolimit City that was announced during the quarter, expected to close within short. I expect to include that in the third quarter, but there's no financial impact of that in the second quarter. Moving on, EBITDA for the quarter amounts to EUR 238.2 million, giving an EBITDA margin of 69.3% in the quarter. This is in line with our margin guidance of 69% to 71% for the year. We mentioned also when we spoke after Q1 that cost increases were affecting us in several areas. That development has continued, and it does put more pressure on us to be efficient and find savings where we can. We do expect to see continued inflation and cost increases during the rest of the year. But as Martin mentioned, we continue to expand rapidly, and we're not scaling back on those initiatives -- those growth initiatives, even though we face a short-term somewhat tougher economic climate. So cost levels do put some pressure on margins, but we also see good growth opportunities, which can support margin. And all in all, we see that we can maintain our guidance of 69% to 71% for the full year 2022. Operator, let's move to the next slide, please. And look at the P&L in some more detail, let's go through the table from the top. Again, Live revenue, EUR 278.5 million and RNG at EUR 65.5 million in the quarter. It adds up to a total revenue of just under EUR 344 million. This is a growth rate of 34% and there is no pro forma adjustments in the 2021 figures in this table. So that growth number includes some acquired growth from Big Time Gaming. Adjusting for that, pro forma growth would have been 30% for the total group in the second quarter. Moving down to expenses. Personnel expenses amounted to EUR 68.3 million. It's an increase of 33% compared to the same period last year. As you heard, we continue to expand rapidly in -- both in our operations where the majority of our headcount resides, but also we are recruiting in our engineering teams. Depreciation on the next line amount to EUR 23.6 million. That's up 26% year-on-year. And that includes EUR 10.4 million in amortization of intangibles relating to the acquisitions of -- on both NetEnt and Big Time Gaming. Other operating expenses include items such as consumable equipment, communication costs, consultant, royalty fees. This line amounts to EUR 37.4 million in the quarter and is up 23% compared to the same period 2022. Summing up, total operating expenses are just over EUR 129 million for the period, an increase of 28% compared to the reported figures of the same period last year. For the first 6 months of the year, expenses totaled EUR 249 million, which also is an increase of 28% compared to last year. And as mentioned, we do experience some extra cost pressure at the moment, both as [ inflationary areas ] affected us. But the main driver for continued increase of our expenses will be our own expansion. That will be the main part. Operating profit stands up to EUR 214.6 million in the quarter. Financial items include a positive amount of EUR 2.4 million. This is related to currency effects. And tax is at EUR 16.1 million in the quarter. That gives us a tax rate of 7.4% in this quarter and about 7%, I believe, for the year-to-date period. These items bring us to a profit for the 3-month period of just over EUR 200 million. This is [ 8% ] earnings per share or EUR 0.92 per share for the quarter after dilution and EUR 1.83 for the first 6 months of the year. It's an increase of 46% compared to the first half of 2021. We move on to the next slide. Before I hand back to Martin, look at the cash flow and financial position. Starting to the left, the chart to the left in the slide, we see development of capital expenditure. The gray part represents -- the gray part of the bars represents investment in tangible assets. That means our studio construction projects. In the second quarter, CapEx intangible assets is EUR 14.8 million. Activity has been very high when it comes to studio projects and has been for some time. And as Martin said, during this quarter, we reached a number of milestones with our first tables launched in several of these studios that have been under development for a while. We do, however, expect to continue investment at a similar pace in the rest of the year, as we continue to expand in these studios and also new ones. The blue part of the bar is investment in intangible assets and is related to development of new games and features to the platform, amounts to EUR 9.6 million in the quarter. And also here, we expect the pace to be maintained. For the full year 2022, we estimated CapEx of about EUR 90 million at the beginning of the year. And after 6 months, we are just over EUR 45 million in CapEx, so in line with that estimate. As you see in the slide, the pace of investment is higher than during 2020 and 2021 seen CapEx in relation to revenues. And especially intangible assets, the pandemic made it difficult to build and expand as we wanted to. So some catch-up of that we see this year. And as mentioned, we see that pace continuing during the second half. Moving on to the middle -- the chart in the middle of the slide, we show operating cash flow in the quarter. It amounts to EUR 161 million, and operating cash flow in relation to EBITDA on a rolling 12-month basis is on a good level at around 77%. And to the far right, quick look at the balance sheet. We maintained a strong financial position, EUR 294 million in cash at the end of June. That is after EUR 303 million was paid out as dividend in April. And in Q3, we'll finalize the Nolimit City deal, which means an upfront payment of EUR 200 million that then comes out of the EUR 294 billion within short. That was the end on my prepared comments. Handing back to you, Martin, for some closing words, and then we'll take questions. Martin?

Thank you, Jacob. Some closing words from me before we open for questions. Looking ahead to the second half of the year, there is a lot of exciting things ahead of us. Even so, bigger expert than we discuss every day where the world economy is heading, I have no strong opinion on that topic. We will focus on Evolution on the things that we can control. That means every day improving and delivering a better playing experience to our players. But as we have mentioned today, inflation and cost increases are a reality for us in many areas right now and I see continuing -- that continuing during the second half of the year. That said, we maintain our margin guidance for 69% to 71% EBITDA for the year. We are in a strong financial position with good cash flows and we'll maintain our high pace of investments in both studios and products and people. I very much look forward to the continued development in all our new studios as well as expansion in many of our existing locations. The product road map for the second half of this year is simply put very good with many great games coming out to players all over the world. Evolution is well positioned and strong and I very much look forward to the second half of the year. That is the end of the presentation, and I thank you already now for listening. And now we will move over to questions. So operator, will you please turn to next slide and open for questions?

[Operator Instructions] We have a first question from the Martin Arnell with DNB Markets.

I hope you can hear me.

Yes. Hear you loud and clear.

Perfect. So my first question is, I want to know sort of what trends you're seeing in the online casino market given this weaker macro environment? And is there any change in your own market forecasts at this stage?

It becomes a quite speculative answer, but we do not see any drastic market changes right now. We -- of course, inflation will affect, and there will be cost increases and things like that, and we manage that. Usually won't say that the online gaming market is quite resilient to those shifts. We don't see any global changes right now.

Okay. That's clear. And I remember in the last quarter, you mentioned that you are underserving the market. And I would like to know where you are in that context now in this quarter and what you expect to have?

I mean it's a very strong quarter with deliveries, as you can see. We go Live with two new studios in Europe. We opened up the market in Ontario. We opened up the market in West Virginia. We opened up a new studio in Connecticut just after the quarter. So now -- and we're pacing up. And as you see, we reached 2,200 employees also in the North American market. So we're pacing up, clearly. The effects of that will be coming slower, but we are clearly not underserving as much as we did before.

Okay. So you're more on pace now with the demand?

Yes. That's a conclusion.

Yes. Okay. And just you mentioned North America, I think your growth accelerated there. Is that because of the new states, the two ones that you add? Or is that...

Sorry, I didn't get you.

North America. The North America number. The growth performance in North America was a bit better than I expected, at least. And I was just wondering sort of what's driving the acceleration? Is it the new studios or the new states? Or is it New Jersey and Pennsylvania?

It is -- the new studios are just recently opened. So it would be Michigan and Canada that is driving, not Ontario.

Okay. Excellent. And then I have my final question is on this balance between...

We might need to introduce limit on number of questions if you go on Martin, but one final one.

One final one. On this balance, between margin and growth, you say that you will always prioritize growth. And you're still at high growth numbers, but it's fading a bit. So my question is, sort of could you not accelerate the growth with higher cost investments? Or how should we interpret it that our margin guidance is intact despite somewhat lower growth?

In general terms, we will always prioritize growth over margin, if there is a trade-off between those two. The other answer is that in some aspect, it might be hard to analyze our results because it's not a 3-month result. So the trend is, if you look at the global trend, there's plenty of growth in the future for online casino, but how that falls out quarter-over-quarter is more difficult to evaluate. So that's the answer.

We have next question from the line of Ed Young with Morgan Stanley.

My first question is on margin. You said you're not content -- margins for the quarter at 69.3%, and you've reiterated, as you said, guidance. I can see that the employee actually fell per employee 3% in the quarter. So can you talk us how you see wage inflation, where you see it going? And then kind of other drivers of margin of the year? So is your 69% end of your guidance, is that a floor for Q3 or Q4? Or is that very much just a blended year-end outlook...

Okay. Let's say a few things out. When it comes to the quarter, I think that the quarter on an operative and delivery is fantastic. I'm super happy with that. It's great. We did exactly what we did. We're really pushing through. And then I say that financially, it's a good quarter, but not great. Then the margin, in itself, 69.3%, I would say that if I would select, I would always select growth before margin. So the 69.3%, I'm not, in particular, dis-happy with that, I'm not happy with that. So that's in line with our guidance. We say 69% to 71%. So the conclusion that I'm not content with the margin is a little bit -- I want more revenue. I'm not happy. I want more, okay? That's partly personal thing, and I want to deliver more. The margin is okay. It's in the lower range of our guidance, okay. So that's the first ceiling or the first response. What more, please, what is the next question?

Well, I guess what I'm saying is, could you give us any color on where you see wage inflation versus where wage inflation might get to. When you think about -- I obviously understand it's an output of growth on the revenue side partly, but it's also obviously the cost side. I just wondered if, Jacob, if you could perhaps give us any color on seeing in terms of wage inflation, how we should think about modeling that going forward?

Yes. It's -- I mean -- we said in general terms that we do see wage inflation. And wages are increased every year, to some extent, and then maybe a little bit more so this year. And then it varies a little bit between markets. So we haven't -- it's not a hard number. I think you should expect personnel costs to continue to increase, but mainly because we will continue to expand. That will be the main driver. But yes, we do see a bit more -- yes, more increases in wages this year than -- in many markets than what we have done in the past. But this is not really a hard number to give you.

My final one -- well, it doesn't, but you're not going to give me a number, so I'll leave it. My last question was just on kind of the revenue and growth outlook for H2. You obviously, your games -- are skewed to H2. You mentioned a lot of the capacity that came in -- North America came at the end of the quarter. So I appreciate one angle is to normalize the growth rate. It was still a good growth quarter [indiscernible] easier in H2. But how sort of happy do you feel about where the pipeline is and where that -- where we'll see sort of traction of that capacity come in during Q3 and Q4? Is it fair to expect you're more positive on Q2 -- or sorry, on H2 on revenue than you were in H1?

I'm very happy and very excited about the products that we're going to launch for the second half. And we have more than half of the products to launch for the full year. And also to remember is that, I mean, the launch cycle is more towards the end of the first quarter and the second quarter and then onwards. So it's -- we're really just in the -- more or less, in the beginning of the release cycle of new games. So I'm very excited about that. I think that the outlook for the 10 years period hasn't changed. So I'm very happy to look into the second half of this year. Exactly how the quarters -- I mean, that's a difficult question, how the quarters will fall out. We don't have any answer to that one. And we are -- as I said, financially, it's a good quarter, too, but we are not really contempt with it. So of course, we look forward to do better in a lot of different areas.

We have next question from the line of Oscar Ronnkvist with ABG.

So I would like -- I'd like to start with your top line development. You obviously had quite nice sequential growth in the last 2 quarters, while it seems like it slowed a bit in this quarter, even though it still looks okay. But could you give us any comment on to what extent the expected seasonality impact of the sequential growth? And how we should think about H2 then?

There is -- of course, there's some seasonality in there. You can say that the seasonality is strongest in probably in Q4 and then it goes down, down, down during the year. And now it's the worst time of the year and then sort of comes back a little bit slowly. But that is part of that, but I think it's maybe more -- we see these fluctuations from time. If you look at the kind of sequential increase, in the quarter, you're right, both Q1 and Q2 -- Q4 and Q1 of this year were higher steps up. Q3 of last year was, I think, more or less on this level. So we've had these fluctuations in the past as well. So I think it's, like I said, it's maybe not as big as it is. It's a tough comp, but it is not a great quarter for top line development. So it's okay, but we feel we can do a little better.

Okay. And just a follow-up. So in the Q1 report, I think you said that you got into Q2 with a great momentum and you had a really strong growth in Q1, obviously. So should we interpret that slowdown in the latter part of Q2? And then can you share any thoughts on the momentum going into Q3?

We're early in the -- it's a very good question. And we are early in the quarter, and we were early in the quarter last quarter as well. And then it's hard to exactly say what we are, but we are looking into the second half of the year. And I'm really excited and I look forward to that part. We haven't in any particular now commented the Q3 beginning just out of that reason that it's hard to actually know.

Okay. Got it. Last one, just on the cost side. The other OpEx line, did you expect it to be around the run rate at the moment with EUR 37 million? Or is that on the higher or the lower side?

I hand that over to Jacob.

Yes. I mean it's -- we don't really give -- yes, you can see sort of -- we don't give guidance on the margin. We don't sort of break out so there is -- I know I commented on it a little bit specifically in Q1 because it was not slower. So I think over time, you'll see this line increase just like the others with expansion. So it's a little bit more lumpy. So it's probably a little harder to model than some of the others. But -- so no, I won't sort of single it out in any direction other than that. Over time, you'll see it increase as we expand.

We have next question from the line of Monique Pollard with Citi.

Just three for me, please. The first one was just on studio launches. Obviously, you've had West Virginia and Connecticut in the quarter. Are there any more studio launches to come in the second half of the year?

We have -- we haven't communicated any new launches. We will continue now to expand inside the existing studios, and I do not expect any new launches in the second half.

Right. And then in line with that...

I can add a little color. I mean, when we launch a studio, it's with a few handful of tables. And then we continue to invest to expand with more tables. So you can say right now, we have some fixed in studios operational. So the difference between starting a new studio and investing and expanding in one of the existing ones is not that big for us. So when it comes to the CapEx and the pace of investment, that will be on the same level in the second half, even though we might not sort of launch in any new locations.

Okay. That makes sense. And then sort of tied to that, obviously, we've seen strong employee growth. [indiscernible] the growth of the employees that you talked about. And part of that obviously will be those studio launches. Obviously, I understand that you'll be sort of increasing capacity and tables in those new studios. But should we expect that pace of employee growth to moderate slightly in the second half of the year?

It's hard to give any direction in that. But first, during the pandemic, we are -- we had to scale back. We didn't deliver fully to all markets that we should do. So we are still in the catch-up phase. And that, you can see, that's why we're sort of accelerating right now. And we will continue to fill the studios that we have now launched and fulfill those markets. And maybe it's been fairly aggressive, but I wouldn't expect it to go down drastically during the coming -- or the second half of the year, the expansion of our employees.

Okay. Understood. And then the final question was just on the U.K. As you mentioned, we've got about 2.5% growth year-on-year in the U.K. in the quarter. I just wondered what you're seeing in terms of if there's any hesitancy from operators in that market, particularly given the sort of regulatory uncertainty with the white paper not coming out?

Everyone -- I mean, we are not that dependent on the U.K. market. So we are probably more relaxed than a number of operators. But it's a very -- high uncertainty on the market. It's constantly communication and changes. And I think that many operators now is not only trying to be compliant, they're a bit nervous about being compliant, meaning that they don't even dare to do what they are entitled to do because of the situation on the market. I expect that to calm down and be more clear for the future, but how long time it will take to get there, I don't know. The potential of the U.K. market is, of course, much, much bigger than what we see today, but the regulatory aspects are difficult.

We have next question from the line of Oscar Erixon with Carnegie.

Three product-related questions for me, if I may? Starting on the -- very encouraging performance for slots in Q2. Is there any specific games that are performing well? And then I know that you mentioned sort of high growth in H2, I believe. Are you still targeting double-digit pro forma growth in H2? Or is it more geared towards Q4, please?

Okay. The -- I mean, I wouldn't single out any specific game. But if I -- I mean, our XXXTREME Lightning -- XXXTREME series is very good. But I would say that we are now slowly building the right games inside RNG. We're slowly getting it out. We're working on the One Stop Shop. So we're getting there with RNG. So that's the answer. But I wouldn't sort of pinpoint one single game. I think that we're getting -- working nicely. Then we haven't set a time for the double-digit growth. I'm happy with Q2, the growth in RNG. We are on pace to go to double-digit growth. Exactly when that happens, we haven't stated.

Excellent. Very clear. And then on the One Stop Shop rollout and impact -- is it possible to give an update there? Any positive impact synergies here in Q2 driven by the rollouts, given the strong performance in Q2?

The One Stop Shop is being rolled out. We are on pace in Europe and slowly converted. That's, of course, related to the operators. And they should also have resources to change the integration and so on. So that's what we're working on. And then, of course, we're now -- as you know, 100% of the operators in Ontario is using One Stop Shop. And we have the One Stop Shop in Asia, and we are preparing and we are now releasing the first games from Big Time Gaming on One Stop Shop. So we are moving forward and according to plan with the One Stop Shop rollout in the whole world.

Great. And then finally, on the Live side of things, quite positive comments on the recent releases of XXXTREME Lightning Roulette and Crazy Coin Flip. Is it possible to expand a little bit on that and possibly quantify what game has the largest impact and visible cannibalization from XXXTREME Lightning Roulette? And then further, if you could just comment on what games you are most excited about the Live for the second half of the year? Quite a lot of questions there in one, but I hope it would be great to have some color.

I would say that XXXTREME Lightning is one of our strongest releases ever. And then one of the -- that's not like the one, but it's one of the -- it's a fantastic game. It serves the market. It's -- we're very happy with that. Crazy Coin Flip is a completely new game. Attracts lots of players. And it also fills a void in the market, and we did something that is highly appreciated. So we're really happy with that, too. If I look ahead -- I mean, the safe bet to say about new big game is, of course, the Monopoly Big Baller because that's like MONOPOLY, it's a strong brand and we did amazing studio. And it's like -- it's an amazing game. And it's a bouncing ball game, and it serves the market and it's also prepared for different parts of the world, and it's a great game. But equally, I would say that -- the Gold Bar Roulette is a game where you can save parts -- you have much more decision-making as a player. You can save things in your wallet, and you can come back later, and you can play them. And that is a very intriguing and interesting mechanic. And we look forward to also explore that. So those are the releases where I would look forward and also then feel a little bit more flavor to the conflict and XXXTREME Lightning.

That's very interesting. I'm equally looking forward.

We have next question from the line of Georg Attling with Pareto Securities.

Just a question on Asia, where we're seeing quite roughly decelerating growth. Is this like a level that we could expect going forward? Or are you seeing some temporary issues in the market, even though the absolute growth is obviously strong? Will be my first question.

I would say there's no -- there are a few customers. There are a few things. There's a couple of high payout wins, which is fantastic because the player gets some money. And there are a number of different reasons for -- nothing in particular when it comes to the growth in Asia. The outlook hasn't changed. We're still looking in the 10-year perspective. It's like there is great potential in Asia. Exactly how it falls out over the quarters is hard. And now, as you see, had a little bit weaker quarter. But then again, as Jacob stated, I mean, you can look at Q3 last year, and you will see those happening from time to time.

Okay. Great. And then my second question on Ontario. I heard there was some issues with payments in the early parts of the regulation. It's something that you can comment on it, if it's affected you or if you think the rollout in Ontario has started in line with your expectations?

Haven't had any such problems. And no, I would say that Ontario started -- we had very high expectations, we usually have, but they started in line with high expectations and doing well.

We have next question from the line of Marlon Varnik with Nordea.

Firstly, I'm a bit surprised by the strong performance in North America, but also the weak performance in other markets. I know you already touched the North America market already. But can you please comment a bit on the other markets? What's the reason for kind of the momentum slowing down here Q-on-Q growth? Any comments here would be great.

More or less the same answer as last. I mean there's no specific reason here or there. We look forward to the second half of the year. There has been a couple of payouts, a couple of things that has happened during the quarter. And those quarters happened from time to time, and you can look at the other quarters and sequential growth. And it's hard sometimes to -- the every quarter will not be sort of on a line. It's like it will be a little bit up and down. So right now, we have a great momentum in North America. We're very happy for that. And at the same time, a couple of things making the pace a little bit slower for this quarter in other regions.

Yes. And just can you give us an update what's the plan in terms of launching a Live Casino in the South American market? Any comments here?

We are into that. And that's also -- there's a lot of regulatory discussions right now. And we need to have the right setting, but we're on to that. But as I also stated, we don't expect to launch any studio on the second half of this year.

Yes. Clear. And just lastly, I mean beside the macro uncertainty, what's the main risks you see here going forward? And do you find the labor market -- I mean is it -- can you ramp up that as expected? Or is it actually holding some potential growth back? Any comments there?

Yes, it's a good question. It's, of course, a very hard difficult question. But all in all, labor market will be better for us that are recruiting a lot because there will be more people available, but as inflation and salaries go up and the climate is a bit difficult. So I'm not worried about recruitment. There might be some timing when it comes to inflation, goes up and put pressure on wages and salaries. And then before that sort of comes to revenue, it would be a lag. But then we are quite firm as we have stated, that we hold our guidance 69%, 71%, and we are comfortable with that. And so I'm not -- the global trends are what they are, and we are not majorly concerned about those right now. We just need to work hard, be better and keep cost in control. But we don't have any debt, we have a good cash flow, and we will continue to be debt free and good cash flow.

We have next question from the line of Kiranjot Grewal with Bank of America.

I think I will try -- so I know the cost inflation questions come up a few times and the margin question. Let me just try and ask you a slightly different way. I mean this quarter was all about rollout, new studios in West Virginia and even Connecticut rolling out after. Should we assume this was probably the biggest quarter in terms of cost pressures and they should ease going forward despite the cost inflation? And then secondly is on the U.K. That was the softest region in Q2. Could you offer more color here on the softness? Is it a lower spend per head that's happening there? When did you start seeing the softness? And perhaps on cost inflation again, are you seeing similar levels of pressures in all your regions? Or are there some regions you would call out as being worse than others?

You can start, Jacob.

so I think the cost inflation sort of sums up in the margin guidance, which we're maintaining, and then we will see increases in costs, of course. It's -- we will -- we touched on in an earlier question here, we will try to expand as fast as we can. Then sometimes you can't recruit as fast, then we will see a little bit lower increase in staff wages. Sometimes we're successful and then we can increase personnel costs a little bit more. So there's no -- yes, we haven't broken it down into any guidance on the specific lines like that. Other than that, we will try to maintain our pace of expansion, maintain our pace of investment and sort of push forward. The U.K. question, I would say that the softness there has been for a long while. Someone mentioned the white paper, and I think there has been a bit of uncertainty for operators in the U.K. market for quite some time. So it's, of course, a bit unfortunate now that we seem to be waiting for the white paper yet for some more time. I think that would give some clarity and sort of make it clear for operators how they can act. So that's probably hold it back. But nothing other than that, that we've seen. And then what was the third part of your question, repeat that? It was also about cost.

Yes, it was on cost inflation. Are you seeing a similar level of concentration pressure in all your regions? Or is like one region, Eastern Europe, a bit better than North America? How do you see it?

I would put it like this. I mean inflation has been with us during the last 5 years as well. I mean many times, it's like, okay, we didn't have any inflation in Sweden and then no one has inflation. But I mean, if you look at Georgia, they have had 5%, 6%, 7% for the last years. And some months, it's been 8% and 9%. So inflation varies per country, and it will continue to do so, and we need to manage and monitor that. And there is no -- and now it's a little bit high all over the world and pressure on it. But there is no -- we don't act differently. We will continue doing what we're doing and adjust the salaries according to what is possible and be tight on cost. But yes, it varies a little bit per geography.

Ladies and gentlemen, that was the last question. I'd now like to turn the conference back over to Martin Carlesund for any closing remarks. Over to you, sir.

Thank you very much for listening. It's a pleasure answering your questions, and it's an honor to present and look forward to speak to you again in a couple of months. Thank you.

Thank you very much, sir. Ladies and gentlemen, that concludes this conference call. Thank you for attending today's presentation. You may now disconnect.