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

Welcome to Evolution Q2 report 2026 presentation. [Operator Instructions] Now I will hand the conference over to the speakers, CEO, Martin Carlesund; and CFO, Joakim Andersson. Please go ahead.

Thank you. Good morning, everyone. Welcome to the presentation of Evolution's interim report for the second quarter of 2026. My name is Martin Carlesund, and I'm the CEO of Evolution, with me, I have our CFO, Joakim Andersson. As always, I will start with some comments on our performance and then hand over to Joakim for a closer look at our financials. After that, I will conclude, and then we will open up for questions. . Next slide, please. So let's start with the highlights. Net revenues were EUR 517.8 million corresponding to a year-on-year decline of 1.2%, but a quarter-on-quarter increase of 0.9%. And EBITDA came in at EUR 341 million, corresponding to a margin of 65.9%. I'm overall happy with the results in the quarter. Revenue and EBITDA both moved in the right direction. The margin is in line with our guidance and cash flow is strong. The volatility in Asia continues to disturb the overall picture, but we will continue to address cyber crime challenges day by day 1 quarter at a time, and I'm certain that we will eventually win. Europe saw a recovery compared to the start of the year with generally good progress across markets. Latin America continued its strong momentum and North America also shows good growth. Live revenue improved to 0.6% compared to the first quarter, but declined 3.6% on a year-on-year basis, mostly related to Europe. At the same time, R&D revenue showed a strong 14% growth year-on-year, and it can be noted that the North American Slots business performs well at the moment. In the quarter, we've launched a second student in Michigan, which is not only hosting several game shows in the state, but also the is the home of our second live brand. And around the quarter end, we also relaunched a studio in Argentina that we acquired from a competitor earlier this year. On the product side, we have launched the first Citerne Haber partnership so all in all, pretty much business as usual, we keep grinding and moving forward. Next slide, please. Here, we have our operational KPIs, first consisting of head count and the Game Rounds index. On headcount, we are growing 2.8% on a year-on-year basis and flat quarter-on-quarter. As highlighted, we have launched 2 new studios in the quarter and are yet some more launches later this year. With every new studio, we are optimizing the distribution and cost mix, and I'm happy with -- the Game Rounds index can be seen as a general indicator of activity throughout our network over time. It varies between quarters, but for the long-term trend should be increased. A session in general, gets faster with small bets. The uptick in Q2 is satisfied, very well. Next slide, please. Looking at the revenue mix by customer location, it looks exactly the same as Europe dominates the picture, followed by North America and Latin America. As we all our customers to carry license in regulated jurisdictions, all our revenues are regulated. Moving to the revenue split based on our customers' customer, which is an estimation based on the IP number of players received from our customers and purchase third-party information North America and Africa takes a slightly larger part of the mix, whereas Asia has decreased somewhat. The estimated share of stemming from regulated markets continue to increase and now stands at 49%. Next slide, please. Now I'll go through each of the major regions based on the estimation of revenue based on our customers' customer IP number. Europe saw a recovery quarter-on-quarter. The regulatory subjective remains and channelization is very weak in a number of jurisdictions, but we have seen an increasing activity in regulated markets. Are we at an inflection point? It's too early to say, but our strong belief is that the only way to win players to the regulated portion of the market is both a balanced regulation and by offering the best and most entertaining content. In the quarter, the games category did really good and demand for class content is on the rise. We continue to work hard and adapt to both the regulatory and the player needs. Later this year, we launched a new studio in billions in Lithuania. A recurring topic when speaking about Europe has been the license review in the U.K., where we agreed a settlement of [ GBP 4.75 ] million earlier this week. I believe the amount is a bit high in relation to the actual issue but I'm still happy to be able to resolve it and move forward. Throughout the review, we have continued to refine our processes. And as you're all aware of, also imposed the stricter in measures among any suppliers in Europe. I can't stress this enough that the Evolution of oil want to do right. We require all our customers to carry the license needed in a specific market, and we're engaged with the regulators to address issues that arise. Moving to Asia. As already highlighted, unfortunately, we took a step back compared to the previous quarter. We have said it before that this is a capital mass gain and the volatility will remain, but we are not stressed. We know what the share is. We will continue to battle it and we look forward to see where we stand in next quarter. Looking beyond the cybercrime issues, performance in the region was good. The regulated Philippine market is growing nicely and the regular situation in the region as a whole has been overall state. Next slide, please. The strong growth trend continues in both North America and Latin America with an all-time high revenue in both regions. In North America, we have launched MONOPOLY Live in New Jersey, Delaware, Michigan and Connecticut. Originally released in 2019 in Europe, it is 1 of our most popular game shows globally. And with MONOPOLY has a very strong franchise in the U.S., we are excited about to finally bring it to the American audience. After the quarter end, we have also expanded our presence in Alberta in Canada, following the introduction of the regulated commercial market. Speaking of North America, I will take the opportunity to address -- to address Alexi Gaming. As everyone is aware, the outside date of the merger agreement is today, after today, either partner issue to terminate agreement 2 years past, and we have spent significant time, effort and resources handling the administration needed to close the acquisition. I really think that Galaxy is a great company. And we have had a strong commercial relationship with them for many years. But due to its side, the transaction is not significant for Evolution. That means that the outcome has no material impact on our existing business, our U.S. operations or our long-term ambitions. We'll come back in due time on the way forward, and I will not comment it further today. Moving on to Latin America, where growth remains solid. We continue to adapt our products to the local markets. And in the quarter, we have launched a localized version of ice fishing in Brazil. It is hosted by native Brazilian Portuguese-speaking game presenters and stemming from our -- streaming from our Sao Paulo studio. A few weeks back, we also relaunched a studio in Argentina that we acquired, which I also mentioned earlier, from our competitor in Q1. It's our second studio in Argentina, and it will support continued growth in the market. We don't display a separate chart for other markets, which mainly comprise of Africa. It's a somewhat volatile rating quarter-on-quarter, but with a clear positive trend and its revenue contribution is increasingly notable. We have a strong position as a premium lab casino supplier, but R&D is also showing good growth. Next slide, please. I've talked so much about our amazing product road map for 2026. So this time around, I will keep it more consistent. During the second quarter, we launched the first title under our new exclusive global partnership with Hasbro, Monopoly at -- and earlier this week, we also launched MONOPOLY Rob. The initial response from both operators and plays have been very strong, and I believe we are on to something really great. Looking ahead, we have many more titles to launch, but I will speak now on only 1, about only 1 of them. This is actually not related to Hasbro, but the spinoff of our own popular anytime. Starting Mr. Funke and the Disco. As the name just Discobalds will bring a lot of action with the discosmosphere. It will be fun and Grovian Satterleased during the third quarter. that is our major upcoming release. And with that, I will hand over to Joakim for a closer look at our financials. And the next slide, please.

Thank you, Martin. As usual, I will now go a bit deeper into the financials, but let's start with Slide 8 and our revenue and EBITDA development over time. If we look at the data on the far right, we can see the Q2 revenue of EUR 57.8 million, represented by the blue bar, EBITA of EUR 341 million in the gray bar and the EBITA margin of 65.9% shown by the line above. It's another stable quarter that we add to the last few quarters with a small but yet positive revenue increase. Let's go to the next slide. And on this slide, we have a more detailed look at our profit and loss statement. As before, and you're getting used to this, I have highlighted the key takeaways on the slide, and I will walk through them one by one. First, again, net revenues amounted to EUR 517.8 million, down 1.2% year-on-year, but up 0.9% quarter-on-quarter. Notable here is the continued positive development on the R&D side and solid double-digit growth year-on-year at 14%. Second, total operating expenses were EUR 220 million, which is 1% higher than Q2 last year, up 0.2% down quarter-on-quarter which helped us expand the margin slightly quarter-on-quarter. Generally, it feels we are on top of it, and we manage our cost base in a prudent way. Third, with the addition of a positive financial net of EUR 3.1 million this quarter, it all means that the profit for the period amounted to EUR 251.4 million. And then finally, as the fourth highlight EPS, earnings per share after dilution were EUR 1.27 from this quarter and onwards, there will be a noticeable effect in the number of outstanding shares as a consequence of our buybacks. And in this quarter, we bought back 5.1 million shares. Let's move on to the next slide, where I will show you the development of our cash flow. First, on the left-hand side, we show our operating cash flow after investments. This amounted to EUR 258 million for the quarter. The last 12 months cash conversion remains strong and ended up at 86% shown by the line in the same graph. The second quarter is seasonally weak on cash flow due to tax payments or low, I should say, maybe, but we saw good progress and good positive contribution from the ongoing working capital efficiency initiatives. Turning to the chart on the right, which shows our capital expenditures. Total CapEx related to tangible and intangible assets amounted to EUR 34.7 million for the quarter. This remains stable as a share of net revenues, as illustrated by the black line. Next slide, please. Turning to our financial position. And as you can see, there are no major changes compared to recent quarters. We continue to be in a very strong position with total cash of EUR 1.2 billion. And in the quarter, we used EUR 303 million of our cash towards the buybacks, you can also see that the investment in the bond portfolio was repaid this quarter and booked on the cash line. Total equity amounted to EUR 4.2 billion -- sorry, EUR 4.2 billion, and that concludes the financial deep dive for this quarter. Back to you, Martin, for the wrap-up.

Thank you, Joakim brilliant. So let's summarize and then move to Q&A. I am purpose to try to stay to the point -- as much to the point as possible in this presentation. As stated, I believe things are moving in the right direction, and it's very much business as usual in Evolution right now. I'm pleased with the development in Europe, North America and Latin America and Africa and as for Asia, I believe we will come around. What I haven't mentioned yet is the share buyback, which also had begun through by Joakim. It was initiated in May. I know you waited long for the capital allocation decision, and I can assure you that we looked at our options from every possible angle. We're confident that the EUR 2 billion program which, as far as I am aware is the largest ever in the history of Swedish Stock Exchange is the right thing to create engine shareholder value. Operationally, as we move forward, we will minimize time and resource and on things that don't really drive business revenue and cash flow. Our main effort will go even with a stronger focus into building world-leading games and release stores on the largest online gaming network in the world, our OSS one structure. At Evolution, we love what we do, and we do it with passion, and I want to take this opportunity to thank all of you Evolutioners in all parts of the world what a great job you do. So with that, we thank you for listening. And now we open up for questions. And the final slide. Thank you. .

[Operator Instructions] The next question comes from Ed Young from Morgan Stanley. .

I've got to now, if that's okay. First of all, could you give a bit more color on Asia. I appreciate you say it's volatile, but I wonder if you could comment on what you think the background trend is in the industry or the underlying because the revenue has been sort of bouncing around in a range for a while now. Is the right reading of that the market is flat, your growth is underlying flat or the impacts from these kind of volatile issues greater that? I'm just trying to get an idea of the underlying trend when you say that you're confident you'll be able to defeat this in the end. That's my first question, please.

Good morning Ed. Good to hear you. Asia is a large section on earth. It's not -- it's many countries, and they come together something we call Asia. It's not a -- it's much larger than Europe. There are many different countries moving around. I would say that there is an underlying potential growth and the effect that I -- we -- that we see right now is coming from cyber crime. And that is the volatility cost we are focusing to solve that. And unfortunately, it's a little bit up and down step.

Okay. And then second of all, on R&D, we see double-digit growth in the quarter. You called out North America as a good market. I just wonder if you could give a bit more color is there any particular game leases that are going well? Or do you think this is part of the broader commercial OSS kind of effort sales effort that you're making internally? Or is it just North as being a bit and that sort. Just a bit more color behind the growth?

We shouldn't overvalue North America and the comment that I made there is North America in the greater scheme of things, still a small market in comparison to others. We are doing better. We are now slowly building and coming to double-digit growth, which we have that we talked about for a long time, and that took a long time to get there. But we are here now, and it's from the total situation in R&D, not any specific market. We very happy with that, very happy with that.

The next question comes from Martin Arnell from DNB Carnegie.

On my first question, what can you sort of learn from Asia when you were here, like in Q3 last year, you had noticeable issues with the cyber crime and what did you learn there? And any new tools that you can use this time?

We learn a lot all of the time. And Internet in general is moving forward. And I think that we are in the absolute forefront and the cutting-edge possibilities. And even though the volatilities here, I'm quite happy with the situation that we have technically and what we are doing, and I look forward to move forward from here.

And you're not overly concerned that this would be -- get worse before better?

I don't guide on quarter-on-quarter growth for any region. But but the volatility is still here. We're not in a stable situation, as you can see.

And on Europe, I think it was fairly broad-based recovery. Anything you want to highlight that's changed compared to the loss of the results?

No, I think that we are happy -- there are things that make the business that we do a little bit volatile and then things will move around. But we're happy with the recovery and we're growing, and you can also see that from the figures. It's a good quarter in Europe.

And my final question is on the games pipeline. You have released some of the Hasper licensed games, if you can mention anything on the reception so far. But have you tilted the timing for the launch is a little bit more skewed to later in the year? Or are you on track with the release pipeline? .

I think that the reception of the games have been actually very good. And 1 thing that we've learned over the years is that you can see that with ice fishing, which is a tremendous success. So it takes a little while to build that audience that we want to have. So very, very good reception of the games that we're launching. Did we -- are we delayed with the product road I would say that the [indiscernible] road map have been a little bit tilted towards the end all along already when we released it, and we are corresponding it earlier, but it's a little bit tilted towards the end.

The next question comes from Charlie Muir-Sands from BNP Paribas.

I've got a couple, please. Firstly, just on the overall group. I know that you talked about Game Rounds being a long-term directional indicator. But Game Round saw quite a nice pickup quarter-on-quarter, substantially ahead of the revenue growth. I wondered if you could sort of talk about whether there's any sort of particular temporary or permanent mix effects. And perhaps it's related to this I wondered if you can talk about what you're seeing in terms of currency headwinds from end player markets and whether those are starting to ease at all in any of those areas? And then the second question topic is the U.K. You've obviously confirmed the settlement and the financial amount. I just wanted to get clarity that there are no further incremental technical restrictions that you've committed to have to undertake from here? I know you took some actions a while ago. And similarly, also on the U.K. market, whether you've seen any particular change in market behavior since the remote gaming duty tax rate increased in April?

It was a little bit of everything. I will try to remember it. So I mean, we're very satisfied with the Game Round development. As we know, entertainment is important -- shorter pension spend is for the coming generations. So it has to be snap it fun really entertaining content. We can't stay with what the industry did years and years ago and think that everyone will do the same. It won't happen, then we lose it. So Game Rounds will need to increase more than revenue over the coming 10 years. So that you should have in the backlog. Having that said, we're happy with the development this quarter. Yes, Joakim comment on the...

On the FX side, I can pick that up. As you can read in our report in this quarter, it was a little bit less of FX headwinds on the revenue side compared to last quarters. Then if this is kind of a sustainable thing or not. I mean that's something we can't guess on any of us on the call, I guess. But yes, a little bit lesser headwinds in this quarter.

U.K. Gaming Commission. I mean we settled with them. There's no -- there's no changes in our way of doing business in the U.K. for a while and we have no changes coming up. When it comes to the balance of the regulatory situation in any jurisdiction, not in particular the U.K., but as soon as you raise the tax to a certain limit, at certain bar, you will lose. You have seen that in many use such as U.K. and the Netherlands and the channelization reached 50% levels and that is not good. So we need to see to and hope for a better balance in the regulatory, what the regulators do. But it's not for our -- to decide and we just act on the rules that are there, and we are very respectful to those rules, and we understand why they do them and of course, raising the taxes negative for the channelization.

Understood. I'm sorry, just to clarify, when you talked about the 50%, I assume you're referring to the estimates around the Netherlands not to a new estimate for the U.K.?

I didn't refer to any specific country, but if you reach realization of 50%, it's of course, very tough. .

The next question comes from Ben Shelley from UBS.

I've got 3 questions, if that's okay. The first 1 is on Asia. Could you just elaborate more on the cyber crime issues you're seeing in Asia are they affecting player access payments, operator activity or something else? .

It's the same as we commented before, it's simply that the they take our product, make a copy and redistribute it. That's what they do. So they use our product in 1 way or the other, and they redistribute it and resell it, just like they would do with bad comparison, but the handbag or anything else that they would make a copy and sell, they will do the same. .

Got it. Got it. And then just on recent trends in Asia. Have trading trends in Asia improved, worsened or remained broadly unchanged since the end of Q2? .

What? Sorry, what do you mean? .

So trading trends improved in Asia since the end of the quarter? .

I don't comment within the quarter. We are -- the volatility is in the quarter, as you see, and the figures are there, and we look forward to the next quarter. .

Okay. And then just on Europe, Europe's returned to quarter-on-quarter growth for the first time in several quarters. Do you view this as the start of a more sustainable recovery? Or is it still too early to draw that conclusion?

I wish that I had a clear answer to that. I mean I even asked that in the telco like is it an inflection point. I'm happy with it. And I look forward to the next quarter, that's the best Europe. That's the best I can give you on that and better activity, nice to see. .

The next question comes from Nikola Kalanoski from ABG Sundal Collier.