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Evolution has reported a strong start to the year with a 31.5% year-on-year increase in revenue to €429.6m for Q1 2023.

Topline numbers

Revenue in Q1 2023 reached €429.6m, an increase of 31.5% year-on-year.

EBITDA increased by 30.7% to €300.2m. Despite a slight decrease in the EBIDTA margin from 70.3% to 69.9%, the company’s profitability remained strong.

Profit for the period amounted to €251.2m, up 27.1% on Q1 2022.

The live casino segment saw growth of 36.1% compared to the previous year, generating revenue of €360.1m.

Most notably, however, Evolution recorded a quarter-on-quarter decrease of 4.1% in revenue from RNG games, despite a year-on-year increase of 11.6%, with total revenue amounting to €69.5m in Q1 2023.

Of Evolution’s total revenue, 40% was generated in regulated markets.

News nugget

In Q1 2023, Evolution generated 83.8% of revenue from live casino games and the rest from RNG games. For the first time, the company reported negative growth in the RNG segment sequentially.

“I remain convinced that we can perform better in the RNG area, and we are working hard to improve,” CEO Martin Carlesund said. 

During the earnings call, CFO Jacob Kaplan stressed that Evolution’s message “has been the same since Q1 of last year.”

“We remain committed to reaching double digit growth in RNG, but we have not set the time on that goal,” he said.

“We have also pointed out that the development would not be linear. And sometimes it turns out to be right.

“While we are not surprised by the Q1 results, I must admit they are a bit disappointing compared to our expectation from one year ago,” he added.

Kaplan also said that a lot of work is going on, but it will take some time before the business see the financial results of that work.

“I’m confident we will reach our ambitions, but I don’t see a quick turnaround in Q2 or Q3 2023,” he concluded.

From a regional point of view, Europe reported strong growth of 14% to €173.7m in the first quarter compared to last year.

The region, including the Nordics and UK, represents around 40% of the supplier’s total revenue.

Asia reported strong growth of 49%, with revenue of €154m, and North America reported an even higher growth of 56%, generating €57.3m in revenue.

Latam accounted for 7% of total revenue in the quarter, equivalent to €30m. Evolution believes that this region has great potential and positive momentum.

Carlesund pointed out that Asia was Evolution’s fastest growing region last year, and said it will likely surpass Europe as the largest revenue contributor during 2023.

Best quote

“We are a profitable, strong, all-equity financed company making money at present and we are focused on growing. We will continue to invest, recruit and push for growth even though we currently face a tougher macro-economic climate.”

Evolution CEO Martin Carlesund

Best question

James Walter Clark from Barclays asked a question that is perhaps on the minds of many investors.

For context, Carlesund had said earlier in the call that Evolution is quite happy with its product mix in RNG, despite the sequential revenue decline.

He also stressed that M&A activity is not ruled out, but that it is not the primary focus at the moment.

Clark asked Carlesund to elaborate on the M&A opportunity, adding: “Can we assume that it’s not another vertical such as online sports betting?”

In response, Carlesund pointed to Evolution’s acquisition of Digiwheel, which granted the business access to “phenomenal hardware combined with software.”

“We wouldn’t hesitate if we could find that type of acquisition,” he said.

In response to Clark’s question about whether Evolution would enter additional product verticals, Carlesund replied: “We’re very comfortable where we are with the business.

“We want to be the largest supplier of online casino in the world for the next 15 to 20 years.”

Current trading and outlook

In a note to investors, Paul Leyland of Regulus Partners described Evolution’s RNG performance as “anemic”.

“Evolution has therefore still not worked out how to turn around NetEnt and even a string of better quality slots content acquisitions has achieved nothing more than filling a hole: a tired content library sold at .com prices remains something of a millstone, in our view,” he added.

Meanwhile, Evolution reiterated its guidance for 2023, with an expected EBITDA margin of 68% to 71%, emphasising that its Q1 margin of 69.9% is clearly within the communicated range.

However, Evolution’s performance failed to meet investors’ expectations, and at the time of writing, shares were trading 2.2% lower.

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