Geographies also seem to continue in their familiar story: Core markets in Europe and Asia continue stagnating while lukewarm incremental growth in the peripheral markets of Americas and Africa is falling short in keeping the total numbers up.

Europe

Company’s original market remains a cautionary tale for how Evolution can give back years of growth even as the category leader in Live Casino innovation.

However, company’s performance in its other markets may be heading in a markedly different direction at the moment.

A Question of Measurement

Let me start with a disclaimer: I personally abhor constant-currency adjustments for companies with significant emerging market exposures. In an interconnected global economy, I can see no discernible value in measuring sales growth in local currencies if it shows no corresponding impact when measured in a reserve currency. (I know that not everybody thinks like me on this.)

Having said that, if you wholly owned a company with the following geographical distribution, in which currency would you measure the business?

For the first time in its history, Evolution generated more than 2/3rds of its sales from outside Europe. I believe that many investors would primarily measure such a business’ performance in U.S. Dollars, especially for the sales originating from outside Europe.

Tracking geographical sales at historical USD exchange rates returns a quite different picture of growth.

Asia

North America

LatAm & Africa

Decline or Growth?

In some sense, Evolution is growing at double-digit percentages everywhere except in Europe where it is declining at double-digits.

Core Sales

The company’s core business is either consistently shrinking or pivoting back to growth depending on which reserve currency you reference.

Profits

Unfortunately, what is inescapable is that the profits have not been growing for 18 months now.

Any net sales growth seems to have come at the cost of profitability.

The reason for this margin decline can be explained by Evolution’s studio network architecture. In simple terms, Evolution runs two types of studio networks with wildly different economics:

1. Core Network: Evolution streams from its large studios in Eastern and Southern Europe to players across Europe, Asia and Africa. This is where the business model’s amazing profitability lies. Thousands of paid presenters can address markets with billions of people.

2. Local/Regional Networks: In North and Latin Americas, Evolution operates studios that serve anything from single states to groups of countries due to location and language requirements. Naturally, this type of networks has a more limited operating leverage for profitability.

The above classification is admittedly an oversimplification as there are numerous exceptions in both groups (like Canada, Colombia and the Philippines to name a few). However, it explains how margins can keep falling when growth comes from markets with local networks while the markets served by the Core Network stagnate as a whole.

Table-level Economics

One piece of good news for the margins is that the presenter-level sales productivity has stabilized and is slowly rising in North America where Evolution employs a fifth of its total workforce and the vast majority of its local network workforce.

However, the productivity for the whole company is in steady decline.

What seems to have changed is the declining per-head economics in the core markets, explained by the decline in Europe and the slowdown in Asia.

Regulatory Questions

Evolution depends on its core (and lately troubled) markets in Europe and Asia for over 70% of its sales and probably even more of its profits.

The company’s long-term prospects in these core markets are liable to be shaped by two regulatory questions:

1. Will UK (and Netherlands and other regulated markets in Europe) stop discouraging players from regulated online casinos?

   1. Will legislators walk back from overly burdensome regulations?

   2. Will regulators force other licensed suppliers to follow Evolution’s ringfencing?

2. Will Nevada’s ban on effectively supplying the bulk of Asian markets have an impact on business either by raising the regulatory bar for the other U.S. states or by Evolution’s entry into the state by acquiring Galaxy Gaming?

Disclaimer: This is not investment advice. Please read the full disclaimer in the About page.

If 2024 year was the most difficult year until then, 2025 may very well prove to be the best of the years to come for the foreseeable future.

New World vs the Old

Evolution is facing a clear bifurcation of fortunes in its markets: Sales from the (in iGaming industry standards) older markets in Asia and Europe face stagnation and even decline. In the meantime, North and Latin Americas as well as the emerging Africa continue to provide much a needed growth.

I prefer to follow the regional growth trends in the local reference currencies. This is Euro for the European region and US Dollar for the rest of the world.

New World: North America

New World: Latin America & Africa

Old World: Asia

As more time goes on, it becomes more apparent that the real headwind against the growth in Asia is player-side saturation rather than piracy, in my opinion. After all, when asked directly, the management admits that they don’t know Evolution’s market share in Asia and hence can’t estimate a true financial impact of piracy. This ambiguity plus the prolonged slowdown suggests that the demand growth for Evolution’s products is likely much lower than it was just a few years ago.

In his earnings call remarks, CEO Carlesund noted that the company sees a player shift toward game shows. This could possibly be taken as a sign that Evolution is facing increasing competitive pressures on its traditional table games, a category with lower barriers-to-success and a particular popularity in Asia. Another possibility is simply that the demand in Asia is maturing just as the demand in Europe did (but hopefully without a similar ringfencing needed for a long while.)

Old World: Europe

As feared, ringfencing seems to act as a fundamental barrier to growth and a base for further decline.

Outlook: Managed Decline

Management has guided for a clear shift in their focus for expansion away from Europe (which also serves Asia) and toward the Americas. Here, it is important to put things into perspective. Europe and Asia currently provide roughly 3/4ths of Evolution’s sales. Moreover, there is a fundamental difference in profitability between the business models of the old and the new worlds: For most of the Old World, Evolution streams from a few central studios in Eastern and Southern Europe to numerous markets. On the other hand, major markets of the New World limit such operating leverage by requiring local studios (by location in the US states and by language in Brazil). Thus, it is likely that the Old World offers much higher profit margins on those sales by design.

It is difficult to imagine a realistic scenario where growth in the New World markets would compensate for a decline from the Old World. This imbalance could be a serious obstacle against stable earnings for years to come.

Losing Big Customers

At first look, Evolution’s lessening dependency on its top customers reads like very good news after years of intensified concentration on a few customers.

However, how this lessening happens matters. In this case, it has largely happened by declining sales to top customers. In 2025, sales to top-5 customers declined by a whopping 15%.

Operating Leverage in Reverse

Finances

Tax Limbo

Over the last 2 years, Evolution has accumulated roughly €200 million of “ghost taxes”, incurred on the income statement due to the Pillar II minimum tax scheme but not actually paid in cash.

Theoretically, 2024’s top-up tax should be paid in 2026, but management was non-committal in their comments on if/when/how payments are to be made. If this €200 million is to be paid, it should be further deducted from cash-based metrics. If not, that would unlock the reserved cash to be allocated.

Cash: Sources vs Ambitions

The end of the seemingly endless growth and the uncertain outlook could force the company to face some hard choices with its cash allocation that it could avoid in the past.

Result

Note: All figures exclude accounting-only revenues from earn-out reductions and their effects.

Disclaimer: This is not investment advice. Please read the full disclaimer in the About page.

From its founding in 2006 until 2023, Evolution grew at an incredible pace.

Most of this time, Evolution had the best games, an outstanding execution and the largest scale, as it still has today. However, that extraordinary growth was mainly made possible by the continuous arrival of new players to online casinos.

Running out of Blue Ocean

That chain of net player growth seems to have been broken in the last two years.

There are a few ways to explain this:

1. Most people in the world (outside China) have already been exposed to online casinos by 2023 thanks to:

   1. easy global access to offshore casino sites that arguably offer a superior player experience with few regulatory restrictions on KYC, deposits or game mechanics

   2. mainstream awareness about online casinos due to post-COVID marketing boom (with ads, affiliates, influencers and spam)

   When offered casino-style gambling, only a certain portion of people tends to be interested in partaking. That demographic may have largely been on-boarded by online casinos by 2023 one way or another, regardless of local regulatory conditions.

2. Most remaining pockets of potential net player growth (especially those with meaningful per-capita discretionary spending power) are inaccessible for large and visible suppliers like Evolution that have to maintain their licenses and reputations with various regulators who increasingly look at suppliers for enforcement.

3. Newer forms of online gambling (such as prediction markets and various crypto schemes) gain shares of online gambling spend, especially with younger generations.

This has left the owners with a peculiar company: excellently run but with few growth opportunities and ever-present risks. Those risks which have always been lingering used to be more than compensated by the enormous upside potential of the opportunity set. Not as much anymore.

On the one hand, other than its speed, Evolution’s market-forced maturation is nothing out of the ordinary. Every company grows and, then, matures at some point. So, it would not be unreasonable to accept the company as it is today: a mature best-in-class of a moderately cyclical sector with a conservative financing focused on steady shareholder returns. (Even a share cannibal.)

On the other hand, I can think of no other blue chip champion with so much of its consumer sales channel outside local legal frameworks. Simply put, the long-term survival risk of the business model takes up too much headspace for a slow-and-steady long-term ownership, in my opinion.

Is it possible to return to growth?

No prognostication of doom would be complete without a call for salvation. And, here is mine.

The Opportunity

Let’s start with a thought experiment. If we were to conduct a global survey and ask the following questions to the common person on the street, what would the responses will be?

Question #1: Are you aware that it is possible to bet on sports online?

Question #2: Are you aware that it is possible to play casino games like roulette, blackjack and baccarat online?

Question #3: Have you heard of Crazy Time? (Alternatively: Explain what a game show is and ask whether they are aware of such games.)

My guess is that you would get a positive responses of over 90% for the questions #1 and #2. I would also guess a low single digit percentage rate of yes to the question #3.

There are many forms of gambling in the world, both online and offline. Some people bet on sports. Some play table games or slots. Others play bingo. Some pay in to prize drawings. Some buy scratch cards or lottery tickets. Not every player is interested in every game type. Different types of gambling have different cohorts of potential players, and game shows are likely to have substantially distinct populations of potential players from casino-style games and sports-betting.

The unfulfilled opportunity arises from the fact that game shows are not (and will never be) overly marketed in the mainstream by those that are traditionally tasked with marketing: the operators. The typical operator mainly markets sports-betting in the mainstream with the hope of channeling some players to their more profitable casino sections. When marketing to already-gamblers, casino-style table games are also marketed to gain players from online or offline competitors. However, it is in no operator’s economic interest to dedicate a major portion of mainstream (aka the most costly type of) marketing to game shows due to a simple factor: Game shows are proprietary to their suppliers. It would be akin to expect Aldi or Walmart to market Coca-Cola. Sure, those chains would like consumers to visit their stores to buy Coca-Cola, but spending hugely to market a branded product available in all major competitors do not make economic sense as a priority.

Finally, my idea rests on one big assumption: There is a huge number of people out there who would never be interested in either sports-betting or casino games but would potentially love playing game shows. These potential players do not and will never know that their favorite game even exists, unless Evolution figures out a way to let them know.

How-to

Firstly, my assumption on potential game show demographics and their distinctiveness from casino games and sports-betting should be easy to study for a company of Evolution’s resources. (I personally suspect a big untapped potential among older women.)

As for marketing, I can think of endless ways how Evolution could create awareness of its game shows in the mainstream public. There are traditional ways like ads, billboards, sponsorships, celebrity collaborations, product placements. And, there are guerilla marketing tactics, numerous smaller-scale localized events. Then, there could also be wholly new, not yet invented ways. Just as an example, imagine Evolution’s lobby to host one-off time-exclusive events like comedian shows or boxing fights, similar to how Las Vegas draws in players.

The critical point in how to execute marketing successfully is taking it seriously. Just as I have no idea which game release by Evolution will eventually lead to the greatest success, I have no idea which marketing strategy would result in the best returns. As an investor, all I can say is that good products and good marketing can have great ROI with Evolution’s business model.

If the company decides to explore this opportunity, it would surely need a visionary leader to see it through. A second Todd Haushalter but for marketing, if you will.

Challenges

Any unproven opportunity comes with risks and challenges. Here are a few I can think of:

1. Marketing would bring an immediate hit to the margins. An imaginary €100 million annual budget means an immediate 5% reduction of the margin figures, regardless of whether it will bring satisfying future returns. Here, I hope that the management’s mantra of prioritizing growth over margins prevails.

2. Returns of any mainstream marketing campaign is likely to be difficult to measure, especially with any immediacy. Even though a long-term view is necessary, waste of capital is definitely a significant possibility.

   “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”
   — John Wanamaker

3. Gambling products are not ordinary products and come with various restrictions for different venues and localities. Obviously, Evolution is bound to maintain its high compliance level, and this will limit its possible marketing tactics.

4. The last but, in my opinion, the most critical challenge in pursuing this strategy for Evolution would be building the right team for it. Even though Evolution enjoys the biggest scale of resources among its competition, I expect that - just as in product development - dedicating large resources won’t guarantee results, especially in such a novel product category.

Finally, I will end with the response I received from CPO Todd Haushalter after I personally pitched him an overview of this idea: “I would do it if it was just my company.”

Disclaimer: This is not investment advice. Please read the full disclaimer in the About page.

Evolution has reached a point in its growth story that I wouldn’t have originally expected it to reach before late 2030s at the earliest.

Quarter in Charts

For the quarterly results, I will mostly let the charts and quotes speak for themselves.

Geographies

Asia

Unstoppable piracy and the India ban contributed to the most drastic quarter-on-quarter fall in Evolution’s primary market.

Europe

After ring-fencing the European regulated markets, the long-term headwind to Evolution remains the scenario where white markets get squeezed by governments and black markets receive the sustainable growth without Evolution.

North America

Latam & Africa

Management Capitulation

Evolution’s business model runs largely on fixed costs and non-recurring sales. What does this mean in practice? For any significant time period, the company commits to a base of fixed costs for a certain studio capacity and hopes that players will continue to return to its games and generate satisfying amounts of commission revenue for the company.

Among those fixed costs, personnel are the defining source of expenses, since Live Casino means employing actual human presenters 24/7.

Until this year, Evolution reduced its workforce on two occasions, and never for the lack of growth:

1. in 2020 due to COVID measures in studios

2. in 2024 due to the labor strike in Georgia

So, this quarter marks the saddening occasion that the company committed to a downsized workforce for the first time, apparently as management capitulated to an outlook of low-to-negative growth.

In fact, in terms of internal job positions, the downsizing was in effect for the last two quarters.

In parallel to the post-2023 slowdown, Evolution has been unable to reach its original €140 million CapEx guidance in both 2024 and, now, 2025. If anything, the investments seem to be in a slight downward trajectory.

Management seems to be prioritizing margins against (what in their eyes seems to be) an inevitable sales slowdown.

Outlook

Evolution has historically grown primarily by additions of new player cohorts rather than per-player spending trends. In the last couple of years, an apparent saturation of market demand following the post-COVID boom and the stricter regulatory trends are putting pressure on both of those factors.

Where to go from here?

From here, a shareholder could possibly expect two ways forward for a successful future:

1. An eventual re-acceleration of total iGaming demand in EVO-addressable markets

2. A re-thinking of the go-to-market strategy by the company

Personally, I believe that the second way is what one should expect from a proactive management. I have publicly shared some parts of my thoughts on how such a re-thinking could be realized.

Whatever the future may bring, one thing seems certain: The beginning phase of Evolution’s development is behind us. Time will tell how the company will manage its transition into a more mature business and market.

Disclaimer: This is not investment advice. Please read the full disclaimer in the About page.

KPIs below High-Water Mark

Evolution’s revenues and EBITDA recovered slightly in the quarter, yet they remained below Q4’s high-water mark. In fact, sales grew at its slowest pace of just 3% over previous year.

However, below this picture of a slow recovery after a sharp decline lies more complicated dynamics. Some of the company’s segments are performing surprisingly well, while others are underperforming and even further declining.

Due to their market size and profitability, Asia and Europe will likely continue to determine Evolution’s overall financial performance for the foreseeable future. These were also the two markets that were struck with headwinds lately, namely piracy in Asia and ring-fencing in Europe.

In Q2 2025, Europe and Latin America performed below their high-water marks from Q4 2024. So much so, growth in Asia, North America and Africa was not enough to compensate for them.

Post-Slowdown Winners & Losers

As you may already be familiar, I have a pet theory that Evolution has been caught up in an overall iGaming slump since mid-2023 following the post-COVID boom. (As it follows, the more recent Asia cyberattacks and European black market exits only exacerbated the already critical headwind for Evolution.)

If this theory holds any truth, it would be useful to inspect how Evolution’s different markets have been performing over these two years of slowdown.

Comparing this quarter to the one just prior to the slowdown gives some striking insights. Since the slowdown:

• North America grew at a faster pace than Asia.

• Africa contributed more incremental revenue than Europe.

• Majority of incremental growth came from regulated markets.

Winner #1: Asia

The big news of the quarter was that Asia returned to growth after a year of stagnation.

The incremental amount of growth at the beginning of this return was also not insignificant.

As a side note, management confirmed a critical aspect of their countermeasures against the cyberattacks.

As I theorized back in February, Evolution seems to have designed its game stream architecture in such a way that the company supplies its real-time game feeds globally and quickly with a somewhat opaque awareness of its complete downstream in unregulated markets, as designed to limit regulatory liability. While great to sustain a high growth in extra-regulatory markets, this arrangement means that the company doesn’t have precise control on all users and any blocking to counteract estimated pirates potentially also blocks some legitimate demand.

Winner #2: North America

North America has had a great growth run especially in the last one year.

Considering Euro’s appreciation over the last year, Evolution’s year-on-year growth rate in USD terms is currently approaching almost 30%!

Winner #3: Africa

Despite its small size, Africa (largely constituting the “Other” geography in reporting) is distinguishing itself as a hidden champion among Evolution’s geographies.

In Africa, South Africa particularly seems to be a major source of growth.

Loser #1: Europe

As I feared, Evolution’s exit from thriving black markets in parts of Europe caused more than a one-off drop (even when considering the full 3 months impact of this quarter vs. last Q’s 2 months).

According to one estimate, Evolution lost 14% of its potential revenues in the market due to the ring-fencing.

Here is a further though experiment: Evolution is currently regulated as a licensed supplier in 10 main markets in Europe1. These countries make up roughly 1/3rd of European GDP. If we assume that blocking non-locally-licensed operators in these markets can cause an immediate 14% hit to Evolution (not considering the future lost growth opportunities), one can start comprehending the long-term risk in Europe if regulators continue singling out Evolution for enforcement.

Loser #2: LatAm

Brazilian regulatory opening at the beginning of the year seems to have come with a big disruption and, subsequently, disappointment.

Since Brazilian regulations require Live Casino games to be either presented in Brazilian Portuguese or muted, regulatory opening excluded the majority of Evolution’s tables. Evolution’s just launched studio in Brazil will hopefully recreate a lot the games (and game shows!) locally, but this may take time.

Loser #3: RNG

Despite all management comments and excuses in the last 4 years, Evolution’s RNG segment remains in its uncanny holding pattern.

Assuming an RNG-heavy growth in North America and Nolimit City’s apparent popularity, I fear to imagine how Evolution’s NetEnt, Red Tiger and Big Time Gaming studios (with a total acquisition cost of almost €2.5 billion in dilution and cash) have performed in their traditional markets in the last few years.

The Question of Margins

Evolution’s studio expansion during the slowdown naturally brought down the profit margins.

The proportion of sales spent on personnel is as high as it has ever been post-COVID.

Despite the low hiring in the quarter, management seems to target hiring in low “resource mix” countries like Brazil, Colombia and Philippines.

For the year, it seems to be sufficient for the management to just reach the bottom of their 66-68% EBITDA margin. However, if their lower resource mix is realized and growth returns to company’s sales, Evolution’s margins can easily rise from the current trough over the coming years.

As for the good news, Evolution is distributing almost all of the free cash flow of €1.1 billion it has collected in the last 12 months as buybacks and dividends. You don’t see a company every day where shareholders enjoy a FCF yield = Earnings yield = Shareholder yield.

Looming M&A Deadline

To be able to close its Galaxy Gaming acquisition, Evolution needs to get all necessary regulatory approvals by January 18, 2026. If not, Evolution will be required to pay Galaxy a termination fee of 5 million dollars.2 The acquisition was originally guided to be closed in mid-2025. However, management now targets the second half of 2025 for the closing date due to the hassle of “a lot of states, a lot of licenses, a lot of administration”. This sounds like cutting it close, but Galaxy Gaming has extensive regulatory relationships with its 131 licenses worldwide, including licenses in 28 U.S. states, as it likes to boast.

Disclaimer: This is not investment advice. Please read the full disclaimer in the About page.

David Barbato was kind enough to host my ramblings on his YouTube channel.

Below is a small recap of my main points. I hope that things go well from here and I do a 10 year retrospective, too!

I believe that an observation period of 5 years begins to give an early indication of how a business is actually performing. The last 5 years have certainly been colorful and instructive for Evolution.

Evolution’s business model is positioned in such a way that it reaps most rewards at the highest stickiness while avoiding the biggest hassles and expenses of the ever changing landscape of online casinos. The key to its durable success is that the players tend to favor Evolution’s games.

Until recently, this was a business that was organically growing at incredible rates with a seemingly unlimited runway and a surreal after-tax profitability.

As to my personal story with the company, between 2020 and 2022, I accumulated shares into an inadvisably large chunk of my portfolio at around 40-50 run-rate P/E through the ups and downs of the stock price. Note that that the company was doubling its EPS every year or two around that time.

To this day, I have never sold a single share and am facing a not-so-pretty total return on my investment, especially compared to the opportunity cost. However, I have also enjoyed returns that are not financial in nature. I used the company as a deep learning experiment to gain invaluable experience in following a public company as closely as public filings allow and in breaking into a completely foreign industry as an outsider. My knowledge of the company let me interact with investors, analysts and institutions of much higher caliber than mine.

Before going into what went wrong, it’s important to underscore what went right: It turns out, a lot! Most of my bear cases for Evolution from the early 2020s did not actually materialize.

Nevertheless, the company is currently facing significant challenges in ways and scales that I had not expected.

The sources of these difficulties can be grouped into two:

1. Post-COVID boom in iGaming gave way to a post-post-COVID slowdown and sobering of market demand and regulations

2. Evolution became too big in its space

The result of these, as seen today, is close-to-zero growth…

And, even the apparent start of a decline after the peak.

One obvious lesson one could draw from this story is to never pay 40 P/E for a company. Although the painful journey down from those valuations is probably forever etched into my muscle memory, I refuse to take that simplistic lesson.

The lessons I did draw:

1. Regulations are, ultimately, politics. Sin sectors, even at unyielding public demand, can be irrationally regulated longer than one can expect for any other technological trend.

2. For the foreseeable future, online casinos will remain a largely opaque market as a whole globally. Market share is the ultimate measure of any company’s moat, and this will remain unknowable for Evolution. This means that, whenever the company announces disappointing results, its shareholders will lack that concrete data that can act as the North Star during times of turbulence: Do the consumers in the market prefer our products over the competition?

3. Gambling is becoming available on everybody’s phones 24/7. What can be a bigger blue ocean? It turns out that even the most obvious-sounding emerging growth trend can hit a period of slowdown.

4. When the tailwinds are blowing at historic speeds, it is easy for a management’s execution to look like magic. To be fair, Evolution’s managers executed through the high-growth years superbly and in a way that probably outperformed most of the competitors. Yet, the skills required to handle a high-growth rocketship differ from those required for a maturing giant of a still-emerging industry. Time will show the management’s skills for the latter.

And, what happens from here on?

If the business has truly peaked and it’s only downhill from here, then the investment returns will probably follow the business results down that hill.

However, the company’s shares trade at a relatively low multiple of its cash profits, and the company returns almost all of those profits to shareholders. If the company just stabilizes both of its earnings-movers of Asia and Europe, there could be moderately satisfying returns from here for the shareholders. If the company further manages to hit one of its prospective gold mines (a return to fantastic growth in Asia or a mainstream Live Casino boom in the USA) successfully and sustainably, those returns could be more than moderate.

Only time will tell.

Disclaimer: This is not investment advice. Please read the full disclaimer in the About page.

The company is publicly listing today. You just need to have a quick look at its prospectus, and Hacksaw’s basic financials scream for further attention.

Hacksaw’s quarterly growth definitely reminds of a younger Evolution AB.

Moreover, Hacksaw manages this growth at higher margins than Evolution ever had. Hacksaw operates at an EBITDA margin of 86% (Evolution’s all-time-high: 71%, now at 66%), an operating margin of 84% (EVO ATH: 64%, now 58%) and net income margin of 80% (EVO ATH: 60%, now 49%).

Regardless of sector, there aren’t many companies in the world with such figures.

How to surpass a clumsy giant

While Evolution was on an acquisition spree of RNG studios that peaked by the time of their acquisitions, Hacksaw was operating on a beast mode developing its tech platform and games portfolio.

The resulting growth (or lack thereof) after the completion of Evolution’s acquisitions tells you which approach has succeeded.

Hacksaw has already reached more than 60% of Evolution’s RNG revenues. How long will it take before it’s the bigger RNG supplier?

Business Model

Hacksaw generates 96% of its revenues from slot games, with the rest coming from niche products of instant win games and scratch cards.

It is impossible to understand Hacksaw’s story without mentioning RGS, its tech platform. The company seems to have operated with a great engineering discipline and centralized all of its game development on top of a common development library, runtime environment and distribution platform. For the Evolution shareholders out there, RGS is akin to One-Stop-Shop on steroids. Unlike OSS, RGS does not only unify integration for the operators but it also unifies game development, as such that an older game can be easily updated with a newly developed feature or customized to new regulations thanks to a common standard tech platform. In its prospectus, Hacksaw defines itself as “first and foremost a [sic] RGS platform as opposed to a game studio”.

Segments

Hacksaw’s sales come in two segments:

1. In-house game studios (the company operates two internal studios) that develop games on top of RGS and earn a take-rate from the GGR they generate for the online casino operators. On average, this segment is launching 4 new games per month and generates 95% of Hacksaw’s system GGR (and a similar majority of its revenues).

2. OpenRGS, where third-party game studios develop and release games using Hacksaw’s signature tech platform (currently one game per month). Hacksaw earns a commission from the revenues these third-party games generate. (Take rate on take rate, if you will.)

Customers

Hacksaw’s games reach 9 million players via 3,000+ operator brands, 1,000+ of which connect via aggregators.

Hacksaw’s top-5 customer concentration seems to be trending down towards 51%, while Evolution’s (with 11 times as much sales) concentration is rising to 46%.

Games

With a small team of less than 80 developers, Hacksaw has been releasing a commendable amount of games compared to the much larger Evolution.

But, the real difference in game quality shows itself in the below cohort chart of Hacksaw’s game releases.

Each generation’s successful games seem to retain their activity base for years (with no sign of a limit on their lifetime yet), while new successful games keep coming out with additional and durable revenue streams. (I can’t help but wonder how such a graph would look for Evolution’s RNG games, where the company keeps coming out with hundreds of games without a growth in the overall segment.)

By measuring the above chart, we can also have a guess on how Hacksaw’s “mid- to high single digits” take rate may have evolved.

As customers’ GGRs grow substantially, it is common for suppliers to apply discounted take rates. It seems that Hacksaw only needed a slight reduction and kept its take rate rather steady over the last few years.

The company’s top game accounted for 14% of bet volume, and the top-5 games accounted for 38%.

Profitability

There are a few factors that explain Hacksaw’s unusually high margins, compared to Evolution as a yardstick.

Personnel

Live Casino games and RNG games come with a variety of different advantages over each other. One obvious advantage of running an RNG game studio is that you don’t need a lot of employees and, therefore, fixed costs. An RNG game needs to be developed once and doesn’t need dedicated employees during its lifetime, whereas a Live Casino game can only be run by a team of studio personnel.

Hacksaw builds its average game with a team of just 2 developers in 22 weeks. Once a game is developed, there isn’t any significant cost to keep it running. For an externally developed game, any commission comes as pure profits.

This helps explain how Hacksaw generates 12% of Evolution’s profits with an organization that is less than 1% of Evolution’s size.

Re-investment needs

RNG games’ lack of physical studio means that Hacksaw does not need to re-invest significantly. Any capital investment is mostly just capitalized developer work time used to build the IP. So, Hacksaw’s CapEx percentage of revenues is almost at half of Evolutions’s.

Furthermore, management claims that all CapEx investments are made for expansion rather than maintenance. How many companies do you know where Operating Cash Flow (less leases thanks to IFRS) is equal to Free Cash Flow?

Taxes

Despite being registered in Sweden, Hacksaw is operationally based in Malta and guides for a 5% tax rate, a level Evolution used to enjoy.

Although I am not a tax expert, I assume that Hacksaw may continue to keep such low tax rates as long as it doesn’t cross the 750 million euro revenue threshold of Pillar II (more than 4x from today’s levels).

Cash

High-margin and asset-light, Hacksaw has been a cash generation machine for its shareholders.

Outlook

The company sees many growth opportunities:

• Successful game releases (thanks to its “push-and-pull” player loyalty strategy)

• RGS flywheel: more games and better analytics → more value for operators → more distribution → more third-party developers

• Expand game portfolio from signature high-volatility to medium/low volatility games

• Acquire new operators as customers (Target: 10 new customer/jurisdiction per month)

• Regulated market openings

• New verticals (lotteries & live casino)

Geographically, North America seems to be regarded as the largest growth market for slots.

Finally, Hacksaw sets ambitious financial targets for the 3+ years horizon:

1. Revenue growth over 30%

2. Operating margins above 80%

3. 75% of profits returned as dividends and buybacks

Risks

Immediate Risk: Slowdown

Hacksaw’s growth seems to have hit a plateau in the first 2 months of its current quarter.

If revenues end up growing “45-50 percent year-on-year” in Q2 2025 as management expects, Hacksaw may be currently facing a quarter-on-quarter revenue decline.

This obviously makes the timing of the IPO more curious.

Medium-term Risk: Regulatory Backlash

Hacksaw geo-blocks US-sanctioned countries. Moreover, the company also has its Chief Compliance Officer and its Chief Legal Officer report directly to the CEO. (A hierarchy that Evolution has only recently established.)

However, Hacksaw may have some regulatory oversights that have caused Evolution plenty of headaches in the recent past.

Due Diligence

Although Hacksaw does due diligence checks on its direct customers, the company seems to avoid the responsibility of checking its indirect customers.

Hacksaw already estimates that 1/3rd of its revenues come from aggregators who re-sell Hacksaw games to other operators. As Hacksaw’s size and visibility increases, I think that it is likely that the company will discover that not checking its indirect operators is not viable anymore.

I also found it curious that the company’s discussion of due-diligence criteria do not mention the operators’ licensing status, as far as I can tell.

Black Markets

Hacksaw estimates that only 12% of its revenue come from regulated markets via locally licensed operators. This figure is not directly comparable to Evolution’s share of regulated markets (currently at 45%), since Evolution counts all revenues from regulated jurisdictions including not locally licensed operators into their figure. (Hacksaw counts just the white market, while Evolution counts white and black markets combined.)

However, given that North America makes up 15% and Europe makes up 55% of Hacksaw’s revenues, Hacksaw may have substantial dependence on local black markets.

Again, as Hacksaw’s size and visibility increases, the company may find itself in the crosshairs of regulators, just as Evolution recently did.

Long-term Risk: Ultra-Commoditization

Unlike in Live Casino, there are already tens of thousands of slot games in the market.

Some commoditization of slot games could be helpful for Hacksaw, as it would make its efficient tech platform a bigger difference maker for its internal games as well as for third-party licensees. However, beyond a certain point, the future trends could challenge Hacksaw’s profit growth:

1. Insourcing: Many big operators already have their in-house slot studios.

2. Piracy: Unlike Live Casino, it is technically much simpler and already prevalent to pirate slot games. If and when Hacksaw’s games present a big enough profit pool in an unregulated market, what is going to stop the piracy?

3. Generative AI

Disclaimer: This is not investment advice. Please read the full disclaimer in the About page.

Dear Jens von Bahr and Martin Carlesund,

I would like to firstly thank you for building Evolution into the innovative and best-in-class company that it is today. For the last 5 years, as a shareholder, I had the pleasure of witnessing the company rise up to numerous challenges and use them as opportunities for improvement.

I am writing to you now because I humbly see such an opportunity.

Challenges

• COVID-19 and its aftermath undeniably brought a big tailwind for the whole online gambling sector, and Evolution took maximum advantage of the opportunity in the Live Casino field. Having said that, I believe that you would also agree that this particular tailwind has recently given way for a period of slowing growth in the overall demand.

• Evolution has grown both in the regulated and yet-to-be-regulated markets of the world and become the foremost online casino supplier. This success unfortunately also brings attention of some regulators who may see an apparently easy solution to their incapabilities by forcing restrictions on the company. As such, Evolution is exiting European sales channels which will undoubtedly be filled by smaller or less scrupulous competitors.

• Live Casino as a category and Evolution’s game shows in particular still have low consumer awareness, especially in the United States where the company sees a large potential and is justifiably investing ever so much in capacity build-out.

Opportunity

I believe that it is the right time for Evolution to build a consumer marketing division with a potentially high budget ceiling and a Chief Marketing Officer that reports directly to the CEO.

Why

• Even as a B2B business, Evolution is unquestionably a consumer products company.

• In the past, Evolution’s extra efforts in innovation and quality have secured its Live Casino games to grow faster than the Live Casino’s market share in iGaming. Today, Evolution itself may have reached the size limit that the iGaming market can support within its traditional dynamics. Only by thinking beyond the traditional B2B outreach methods can Evolution surpass this sizing limit, while retaining its purely B2B business model.

• Evolution’s already ongoing consumer marketing experiments via Spin Gifts and Livespins Bet Behind show that the company management sees a need for further consumer outreach, too.

• Evolution should not limit itself to the B2B marketing channels (like the ICE exhibition or industry publications) for its big new game releases. Can you imagine Apple market its new iPhone just to electronics retailers or Hollywood producers market their upcoming films just to theater owners?

• A historic hit like Crazy Time which has proven itself basically by word-of-mouth should be given more exposure than just the front-page displays of casino operators.

• Class-leading regulatory compliance should not only be taken as a competitive disadvantage that limits growth. As a most compliant supplier, Evolution is also most favorably positioned to be the most promoted supplier. In fact, Evolution’s successful outreach and popularity can be an asset for regulators with their channelization.

• Evolution has the scale and resources that no other competitor can economically match. Why not use this advantage to widen the competitive gap further with celebrity collaborations, event/team sponsorships, product placements, advertisement and more?

• Traditionally, iGaming marketing has been mostly done by casino operators. However, no particular operator brand can match the global availability of Evolution’s portfolio of games. Hence, Evolution will have a much higher marketing efficiency than any market-limited operator. (If BetMGM hires Taylor Swift, they would only get a fraction of her global marketing value. Unlike any particular casino brand, Evolution has global brands and sales channels.)

• Any success in marketing its games will help Evolution in customer acquisition, retention and pricing power.

• One limitation of Evolution’s business model has been that the company is unable to re-invest the overwhelming majority of its profits for future growth. With a watchful eye on long-term returns as well as legal, regulatory and public relations risks, consumer marketing can create a whole new re-investment opportunity to accelerate the long-term profit growth.

I hope that you will seriously evaluate this proposal and decide on the best course that will serve the company and its shareholders.

Sincerely,

Ali Gündüz

6 May 2025, Stockholm

Still, I was not expecting it to happen so soon or so drastically. For the first time in Evolution’s public history, both overall revenues and Live Casino revenues as well as EBITDA and last-twelve-months earnings-per-share declined quarter-on-quarter.

Growth Bottlenecks

While no geography provided a significant QoQ growth, there was a slight decline in Latin America and a major drop in Europe.

Evolution seems to be at a particular market position where it is facing multiple growth headwinds simultaneously.

Bottleneck in Unregulated Markets: Asia

It has now been one year since Evolution’s main growth engine hit a sudden wall.

The company is still in the process of blocking potential pirates from its network.

The fact that the evident effects of the video stream piracy (and the efforts to counteract them) have endured so long means that the return of this crucial source of profits is now a show-me story rather than a tell-me.

Bottleneck in Regulated Markets: European Black Market

In response to the UK regulator’s investigation of Evolution, the company has proactively exited from various black markets in Europe by ringfencing.

Adjusting for the fact that the measures were active in only the last 2 months of the quarter, Evolution’s sales declined 9% from Q4 to Q1 in Europe. With this, the company gave back 1,5 years of growth in the market. (To give a further comparative sense of the loss, the adjusted decline is nominally worth the last 2,5 years of incremental growth in North America.)

As CEO Carlesund warns, all impacted players will not simply switch to locally licensed operators after Evolution’s exit.

As things seem right now, black markets inside regulated European markets are likely to continue to thrive while Evolution will be permanently excluded from the growth in the exited channels.

I see only three factors that can possibly limit Evolution’s long-term disadvantage from exiting the black markets:

1. Regulators rationalizing their responsible gaming restrictions

2. Governments effectively blocking player access to black markets

3. Evolution increasing its branding power on the consumer preferences

Only one of these factors is likely and in the company’s control, I believe

Regulated Markets in Europe, North America and Latin America

Obviously, the locally licensed operators in Europe did not immediately receive the black market activity abandoned by Evolution.

In Latin America, Brazil provided disappointing results following its much-expected regulatory opening at the beginning of the year. Although this market provides a nice incremental optionality, Latin America’s to-date market size, discretionary spending power and lack of casino gambling tradition make me doubtful that the market will ever provide more than a sliver of the company’s profits. (This is more a comment on the size of opportunity in Asia, Europe and North America rather than a derision of opportunities in LatAm and Africa.)

North America is where Evolution has been executing close to flawlessly on B2B relations in Live Casino. European ringfencing impact makes me wonder whether Evolution has a similar time bomb in the US in the form of sweepstakes. Company’s future prospects will be determined by two main factors, I believe:

1. Regulatory openings and restrictions in US states

2. US consumer adoption of Live Casino in general and Evolution’s game shows in particular

Again, only one of these seems to be in the company’s control.

Sales from Regulated vs Non-regulated Markets

Sales from regulated markets now make up 45% of Evolution’s overall sales. This is the highest portion of such sales since the start of the Asian demand boom in 2019.

Quarterly results showed a jump in sales from regulated markets and a big drop in sales from non-regulated markets.

To be honest, the underlying reason for the move is not completely clear to me. The ring-fenced exit in European black markets should, by definition, affect as a decline in regulated market sales. The fixed fees to operators in exited black markets, the blocked-off Asian sales channels and the regulatory conversion of Brazil revenues may have made the difference here. I’d welcome any clarification on this.

RNG

As a collateral damage of the European ring-fencing, RNG continued its disappointing stagnation.

Rapid Expansion

Evolution continued its laudable post-Georgia expansion at an increased pace.

High Expansion + Negative Growth = ?

The answer is lower profits at lower margins.

Company’s operating margins have hit their post-COVID lows.

In the quarter, Evolution generated the lowest amount of “gross” profit per employee since 2021.

Both before-tax and after-tax profits declined compared to any period from last year. Company’s net income gave back the last 2 years’ worth of growth.

Compared to 2 years ago, Evolution’s Q1 earnings grew just 1% while the diluted EPS grew 8% thanks to buybacks.

Nevertheless, last-twelve-month EPS declined quarter-on-quarter.

Capital Allocation Outlook

At a conservative estimation, almost all of Evolution’s cash flow for the rest of the year seems to be reserved.

Closing of the Galaxy Gaming acquisition has been pushed from mid-2025 to the second half of 2025.

Bonus Update: Margins vs America

Last year, I estimated that Evolution’s low margins and wide expansion in North America meant that “any slowness in international sales growth leads to a sudden decline in margins”. This quarter showcased exactly that scenario: Year-on-year, North American revenues grew by 15% while Asia and Europe were largely flat. This resulted in EBITDA margins falling from 69% to 65.6%.

So, I find it useful to update that thesis with the 2024 numbers.

As Evolution continues to expand its studios in North America faster than the demand for them, average employee ends up generating less revenue. Yet, at a slight change of pace, the recently increased sales growth in the geography resulted in a slower decline.

The slowdown in international sales growth (against a renewed international expansion drive) resulted in some deterioration in the company’s operating leverage outside North America as well.

A set of very rough assumptions shows that Evolution could still be clinging to above 70% EBITDA margins outside North America while dropping nearer to 50% inside North America.

As I argued in my original piece, Evolution’s lower-margin expansion in the US could be very much worth the cost and effort. However, unless the growth in Asia (and now Europe) returns, the company faces the prospect of lower margins in the coming future.

Annual General Meeting 2025

I am in Stockholm for Evolution’s AGM on 9 May.

Don’t hesitate to say hi if you see me! 👋

Disclaimer: This is not investment advice. Please read the full disclaimer in the About page.

Global iGaming statistics are famously inaccurate due to the opaqueness of the unregulated sales channels. However, it is clear that Evolution has been successfully defending its market share lead in the Live Casino space despite the many challengers. On the other hand, it is also clear that the company’s €2+ billion foray into the RNG field has lost large swathes of the market to the competition over the years.

Between 2021 and 2024, Evolution released 321 new games in RNG and 55 new games in Live Casino. In return, the company’s sales in Live Casino have more than tripled while any organic net growth in RNG has been minuscule at best.

Management Shake-Up

New senior executive with a familiar name

Evolution seems to have replaced its Chief Strategy Officer in the last month. The new CSO, Jesper von Bahr (a relative of the founder?), also acts as the secretary to the board.

An interesting detail, sure to cause speculation regarding future relisting and M&A scenarios, is that his latest position is listed to be based in the US.

A Tighter Circle

The senior executive team has been shrunk from a 5-person group that included head of product as well as head of human resources to a 3-person one where CEO Carlesund is joined solely by the new CFO and CSO.

All other 14 heads of various departments are included in the extended management group that responds to this tight circle.

Corporate chart update

Evolution’s governance structure has also been significantly overhauled.

Company’s structure has been critized for not having its legal department answer directly to the CEO. With its new governance chart, Legal & Compliance now reports directly to the CEO instead of the CFO.

Additionally, Product and Operations divisions have been separated. A new division for Property & Studio Development has also been created. All divisions answer directly to the CEO.

These changes hint that CEO Carlesund wants a more direct hand at areas (such as regulatory compliance, studio management and expansion) that Evolution has had hiccups recently.

A flat board

One area of governance that did not see significant reform has been the imperfect board structure.

Regarding the board committees, an obvious concern is that the compliance committee includes prior expertise in neither gaming or nor law.

Capacity Ups and Downs

Disclosures in the annual report suggest one market where Evolution may have down-sized and another where it up-sized beyond expectations.

Georgia

Back in October 2024, Evolution Georgia declared that it has set an overall capacity of 6,500 personnel as its downsize target from a high of 8,000. However, one table in the annual report suggest that the headcount in Georgia may have dipped below 5,900 by the year end.

Spain

Interestingly, possible good news regarding expansion can be gleaned among the disclosures about collective employee agreements.

By the end of 2024, Evolution’s headcount in Spain may have tripled to almost 1,400 employees in less than two years. If so, Spain now hosts Evolution’s 4th biggest studio after Georgia, Latvia and Malta.

Recruitment Drive

Below are my personal estimations for Evolution’s rough hiring levels for some of its studios.

Executive Pay Down, Worker Salaries Up

In 2024, Evolution paid less to its executives and more to its common employees. Now, this is a sentence you don’t read about a large corporation every day!

The company paid a record low portion of its revenues for senior executive compensation last year.

The stock-based incentives (mainly targeted at executives) also continue to not cause a large dilution.

On the other hand, inflation as well as the disruption in Georgia that caused both expansion in costlier markets and a lower ratio of game presenters (85% in 2024 vs 87% in 2023) resulted in higher salaries both nominally and as a percentage of revenues.

The average full-time salary that Evolution pays to its common employee reached its record high in 2024.

Problem Gambling

Suspected incidents of gambling addiction on Evolution’s games rose by a whopping 114% in 2024.

On the detection side, the company says that it employs a more sensitive AI and a 60% larger moderator team. Better detection is meant to increase the amount of detected incidents, after all.

Furthermore, when compared to the number of played game rounds, the growth in detected incidents is closer to 64%. Even more meaningfully, detected incidents per player accounts rose by 36% which could reasonably be explained by improved detection capacity.

Various Tidbits

1. In 2024, Evolution earned €1,288 million of “real” pre-tax profits. On this profit, the company incurred €66 million of regular taxes (5.1% tax rate) and €129 million of Pillar II top-up taxes (10% tax rate).

   

2. Despite the eventual top-up taxes, Evolution channeled 94% of its revenues through the low-tax jurisdictions of Malta and Curaçao.

   

3. Company’s legal team grew from 120 to 130 people. They now also have a dedicated (but not public?) email address for reporting compliance breaches.

4. The useful life of some tangible and intangible assets have been increased considerably.

   1. Servers and network equipment from 2-5 years to 7 years

   2. Patents from 5 years to 5-8 years

   3. Platforms from 3 years to 3-10 years

   4. Proprietary software from 3 years to 3-10 years

   

5. South Africa seems to provide a pocket of high growth for the company. In 2024, Evolution’s revenues derived in South African Rand (ZAR) grew by 52% on euro basis. Those revenues now make up 1.1% of all revenues and 29% of the revenues from the “Other” geography. Half of the growth in the “Other” geography came from ZAR-based sources in 2024.

   

6. Currency breakdown may give a rough idea on how the US/Canada split in the North American revenues looks like.

   

7. Management is now confident enough to assert that Evolution is serving most major operators everywhere.

   

Disclaimer: This is not investment advice. Please read the full disclaimer in the About page.

Contents

1. Shareholder Returns

2. New Incentives

3. Board Weakness

4. Shareholder Proposals

5. AGM Week

Shareholder Returns

The simplest stuff first: The company will pay the proposed dividend of €2.80 per share in 20 May.

More interestingly, the board aims to cancel all shares that the company currently holds, equivalent to 3.5% of all shares. Unlike previous years, the board is not leaving even a single share in its treasury for corporate purposes. This could indicate that the buybacks are likely to continue shortly after the Q1 earnings with the remaining €350 million budget.

New Incentives

Longer term shareholders may remember the troubles surrounding the last stock-based incentive program for 2023/2026. In 2023, that program was cancelled and rewritten twice, once for being too lavish (5 million warrants) and once for losing too much value (due to the stock price dropping from ~SEK1,400 to ~SEK1,000 in a few months).

That 2023/2026 program is currently also the only active incentive for the management and will gain value only if Evolution’s stock price appreciates well above SEK1,300 SEK (i.e. 75% above today) by November 2026.

Now, the board proposes a new incentive program for 2025/2028. It is scaled down to 2.05 million warrants that correspond to a maximum dilution of 1% or €4 million (less than 1% of 2024’s personnel expenses.)

Similarly, the employee coverage has also been limited compared to the previous incentives.

The threshold price (above which the warrants will start gaining value) will be calculated as 30% above Evolution’s average stock price traded between 2-8 May, a period starting 2 days after the company’s Q1 earnings release.

Board Weakness

It is a common complaint among some shareholders (including me) that Evolution’s board composition is not as beneficial as it could be. Other than the founders, the board does not emanate significant expertise in guiding a large public company in the gaming, entertainment or technology space. In fact, the board has also recognized this situation last year and committed to finding valuable new blood by this year.

Unfortunately and despite contacting the largest shareholders, the board seems to have failed in recruitment and has pushed their objective until next year.

The nomination documents also confirm the case that Kenneth Dart (the newly arrived yet likely largest shareholder) does not intend to seek board appointment despite the open call.

It can be argued that Evolution’s board is suffering from a lack of constructive membership where the biggest outside shareholders (mainly Dart and the big institutions) are not taking an active role and the main weight still seems to be carried by the founders. Under the current circumstances, I personally see two ways forward to recruit value-adding board members:
1) smaller yet enthusiastic shareholders
2) luminaries in related industries.

Fortunately, solutions to either way may actually be found in this year’s shareholder proposals.

Shareholder Proposals

A New Candidate

Unlike most of the biggest shareholders, a smaller shareholder has put his hat in the ring.

I happen to know Gabor and think that his unconventional background, experience in the gaming sector and truly deep enthusiasm for the company would make an excellent addition to Evolution’s board.

Road to America

Another smaller shareholder, Jaswinder Kaur Nagra, seems to have come up with a most colorful and ambitious set of proposals. You can read them yourself and make up your mind.

Below are my humble comments:

• Proposal #1 and #2: I find the idea of a domicile and primary listing move very intriguing. Although Evolution remains a culturally Swedish company, it is no longer a mainly Swedish-owned one.

  

  Jaswinder points to the USA’s competitive corporate tax rate as well as better alignment with capital markets and government support as reasons for such a move.

  I think Philip Morris International could provide an apt example for Evolution in balancing this move. PMI is a US-domiciled company that until recently did not have any sales in the US and remains operationally headquartered in Switzerland. Thus, PMI has a great access to the US capital markets while keeping its distinctive international character.

  

  An immediate benefit of this setup is that neither the US-based nor international investors pay a witholding tax on dividends (35% in Switzerland and 30% in Sweden).

  

  By policy, Evolution distributes half of its profits as dividend. The dividend corresponds to almost 30% of its revenues! The difference between a 30% and 0% witholding tax on that dividend for the majority of its investor base would make a big difference in the long term.

• Proposals #5: I disagree with using buybacks as a tool to shape the company’s stock price. I don’t think that Evolution should try to act as the market maker for its stock. Buybacks should be treated as a long-term investment opportunity by the management.

• Proposal #6: Although I am not against leveraged buybacks in principle (I am a Domino’s shareholder after all!), I disagree with it for Evolution for now. As a long-term shareholder, I would rather trade the possible leveraged investment efficiency for the company’s guaranteed long-term durability, due to Evolution’s specific position.

AGM Week

I will be in Stockholm for the week of the AGM in 5 - 9 May. See you there!

Disclaimer: This is not investment advice. Please read the full disclaimer in the About page.

The most difficult year

2024 (including the first few weeks of 2025) was possibly the most difficult period in Evolution’s publicly listed history.

1. Company’s tax rate was more than doubled

2. Its mega studio responsible for close to half of the company’s profits was thrown into turmoil and forced to downsize

3. Company’s most lucrative market responsible for half of its extraordinary growth mysteriously came to a sudden halt

4. For the first time, a US regulator has requested an upfront accounting of the company’s sales channels in all international markets without point-of-consumption licensing

5. The UK regulator has started investigating Evolution for supplying into the country via operators that lack a local point-of-consumption license

6. Beloved CFO of 8+ years announced an unexpected resignation with a hasty handover period

Big Picture

Over the last five years, Evolution grew its revenues by over 5x, profits by over 7x and EPS by over 6x.

However, it’s hard to look at the annual values and not notice a big change in growth over the last year in which the profits grew by only 2%!

Earnings per share rose slightly faster due to buybacks.

Choosing a beacon through the storm

On the one hand, companies, especially in young industries, routinely rise and fall. In such cases, no valuation discount based on an assumed earnings stream can provide a true margin of safety for investors. After all, the world doesn’t owe any company a minimum level of profits in a future year X.

On the other hand, every great business occasionally goes through rough patches. It is the human nature to overly concentrate on the bad news as the market’s perception becomes more pessimistic.

Which of these is the case for Evolution? In such extreme uncertainty, I prefer to focus on a single business metric as a clarifying yardstick and see which external factors are likely to truly determine its future path the most. (I am focusing on external factors because I believe that the company’s internal execution and management are fairly good.) The metric of my choice: profit growth. I believe that this is the measure that could possibly let me focus on a single business result, ignore the stock market’s not-completely-irrational mood swings and still come to a satisfactory investment result on a long term.

What really matters

I have picked three active headwinds as well as three areas of dormant risks on Evolution’s future profit growth prospects. My intent, as a shareholder, is to have a set of factors to keep an eye out for, as we get further company results in the future.

Active Headwinds

Note that the first two of these three big factors are not even under the company’s direct control.

Headwind #1: iGaming slowdown

As most areas of entertainment, gambling is evolving into an online activity, and Live Casino is its most promising segment. Evolution’s organic growth in the segment also seems to confirm this view.

However, both the rate and the incremental additions to the company’s segment sales seem to be quickly slowing down.

Moreover, amid the usual quarterly fluctuations, a significant and consistent change of tempo seems to have happened in mid-2023.

One way to interpret this sudden shift is that the post-COVID boom in player demand (and the concurrent gold rush by suppliers) seems to have come to a saturation. Since I don’t see a competitor surpassing Evolution in a sudden and drastic way neither in my anectodal observations nor in the few pieces of tracker data I have come across, I assume that Evolution’s slowdown is happening as a part of the iGaming market’s overall slowdown.

To get a sense of the slowdown’s scale, we could have been seeing low-twenties percentages of growth, instead of the low teens, right now, if the post-COVID boom was still progressing.

I am finding it difficult to imagine that the current market slowdown will be permanent. Evolution is also very well positioned to be a primary beneficiary in the case of an iGaming boom in most markets. However, being too early is also not easily distinguishable from being wrong. Just ask the e-commerce and telecom suppliers of the dot-com bubble.

Headwind #2: Tax hike

Evolution’s tax rate has more than doubled. Yes, it has been communicated well in advance. And, yes, I have beaten this dead horse more than once!

However, just as a dollar of investment return is worth the same regardless of the thesis’ originality, the introduction of a perpetual headwind is just as powerful regardless of the novelty of the insight.

Evolution transformed its business in the post-COVID period by boosting its operating leverage not only due to the surge in player demand but also by focusing on more scalable games, such as game shows. The Pillar II tax hike seems to have reversed a majority of the company’s post-COVID profitability gains.

As a side note, Evolution’s cash flow metrics, such as free cash flow, remain somewhat misleading, at least until the first Pillar II top-up payments start in 2026. Evolution used to pay 2/3rd of its incurred income taxes in the same year (natural for a fast growing company). However, despite the slowing growth, the company paid out just 1/3rd of its incurred taxes in cash in 2024.

Headwind #3: Piracy

The growth in the company’s highest sales and profit growth market came to a complete stop by the end of the year.

Asia is not only Evolution’s biggest market…

It is also the market that supplied half of the company organic growth over the last five years.

Management’s Q4 comments as well as my conversations with them made the nature of the “cyber attacks” clearer in my understanding. Although the company refuses to provide many technical details, unlawful developers seem to have gained access to Evolution’s Live Casino video feeds (and possibly the games’ real-time meta data?) and built pirate games with separate betting systems on top of them. Although pirating seems prevalent for slot games including those of Evolution’s RNG studios, Live Casino was a much harder technical challenge that seems to have been cracked this year. Evolution’s Live Casino feed is meant to be directly and instantaneously distributed to millions of players. However, most of the identifying information of those players (beyond IP addresses) is not accessible by Evolution. Moreover, a player’s operator (who is supposed to gate-keep access) may not even be Evolution’s direct customer but a downstream actor with an aggregator in the middle, as is popular in the unregulated Asian markets. The wide-reaching yet opaque nature of the Live Casino downstream, especially in unregulated markets, makes it a big technical challenge for Evolution to secure its games against piracy without impeding legitimate users. Moreover, Evolution’s eventual development of a solution to the current attacks is liable to not be the end of the story, but just the beginning of it.

As is the case with other forms of IP piracy, Evolution will likely need to play an ever escalating game of whac-a-mole against the infringers in all unregulated markets that supplies the majority of its growth (as well as the black markets inside regulated ones), especially with the possible amounts of profits involved.

Dormant Risks

Risk #1: Focus on regulated markets

Do regulated markets lower margins?

It has been argued that Evolution’s inevitable shift to regulated markets will bring down its profitability. On the face of it, the company’s shift to unregulated markets indeed coincides with higher margins.

However, the share of company’s sales from unregulated markets does not seem to have a strong correlation with its margins.

You know what has a strong correlation to the margins in the same period? The production scale of the company’s proprietary games.

Evolution’s profitability has risen as the company kept utilizing more personnel per game, both on the development side to create more sophisticated games as well as on-camera due to game shows’ higher personnel intensity compared to traditional table games.

As a rule of thumb, it can be assumed that more sophisticated games are more scalable and create more revenues per table.

A shift to regulated markets does not seem to necessarily bring lower margins, as long as the market’s scale is available. (The US with its state-by-state supply rules bring their particular economics whose effect I will try to address in the next risk section below.)

In fact, even the original example of Playtech doesn’t show a significant margin deterioration while it shifted its international focus away from unregulated markets to regulated markets.

Shifts inside regulated markets

Evolution’s regulated market sales include some amounts of black market channels. However, starting with the UK, European regulators seem to have started requiring Evolution to block this sales channel.

What management means with restricting (or ring-fencing) the Internet seems to be to block Evolution’s video streams to a whole country’s IP address range, then whitelist particular locally-licensed operators and only stream to that country’s players who are verified by those operators.

Many European regulated markets seem to consist of large portions of black markets due to misguided regulations. So, depending on how widely and effectively regulators enforce their supplier compliance, Evolution could lose, keep or even gain significant market share in those markets.

Risk #2: Resource mix

Evolution’s studio supply went through a big whiplash in the year.

• Georgia studio expanded quickly in H1 and then downsized to pre-2022 levels in Q3.

• Company has been scrambling to add studio capacity in other international locations.

• In the mean time, the US studios that serve limited-scale markets continued their hiring pace.

Despite the mid-year turmoil, Evolution ended the year with a respectable headcount increase.

There seems to be two open questions regarding the expansion:

1. Can Evolution make up for the lost supply potential after the expansion freeze in Georgia?

2. Can the company keep its operating leverage after a more expensive personnel base internationally outside Georgia as well as in the US states?

Can Evolution acquire enough resources?

The company seems to have done a good job on expanding its international studio capacity outside Georgia. Excluding the largely isolated North American studios, Evolution’s ex-Georgia headcount may have increased by almost 40% between 2023’s average and 2024’s year-end.

At first glance, the company’s net headcount increase in 2024 seems relatively muted compared to the previous years.

However, these results hide the huge impact of the early ramp-up and the subsequent downsizing in Georgia during the year. As a sign of the overall expansion activity during the year, Evolution’s CEO has commented that 2023’s table count of 1,600 would have increased to 1,900 in 2024, instead of the year-end result of 1,700, if it wasn’t for the Georgia downsizing. This hints that Evolution gross hirings were probably much higher than what can be discerned by the year-end figures.

Additionally, the simultaneous capital investments were at an all-time-high during the year. The increased capex in relation to hiring numbers can probably be attributed to bigger-scale game productions and the opening of disparate studios all over the world.

In fact, a common question among shareholders in such a capital-light and high-return business is whether Evolution is investing all it can into its business. While the expansion hiccup in Georgia and the current slowdown makes it hard to measure conclusively, the ratio of incremental Live Casino sales to previous-year capital investments hint that there is currently no obvious under-investment inside the company.

As for external investments, company’s track record has shown that outsized acquisitions of inorganic revenue growth have not worked well for Evolution.

Will the new resource mix support the profitability?

Despite the acquisitions of relatively expensive workforce in the US and ex-Georgia Europe, Evolution’s quasi-gross profitability per employee (sales less personnel expenses) is yet to show a weakening of the company’s legendary operating leverage.

Still, the company paid a slightly higher portion of its revenue to its employees which coincided with a slightly lower operating margin in the year.

And, the management is guiding for slightly lower EBITDA margins (66-68% instead of 69-71%) for 2025.

This is an area that bears watching. However, I am currently not very concerned due to three assumptions:

1. Company’s studio network infrastructure is truly global and flexible. For example, management has hinted that they may be turning the quickly expanding Colombia studio into a global hub of Spanish and English language tables.

2. The growing scale and scalability of Evolution’s proprietary game line-up should be able support its operating leverage at slightly higher wage costs.

3. The US expansion is bringing incremental profits and benefits without a downside to the profit growth. Possibly lower margins in the US does not limit or harm Evolution’s future prospects.

Risk #3: Customer concentration

Evolution’s customer concentration has increased greatly in the last three years.

However, the big increase in concentration has emerged among the customers #2 through #5, rather than with the customer #1. Over three years, the average of customers #2, #3, #4 and #5 grew their revenues to Evolution by almost 6x and their share of Evolution’s revenues by almost 3x.

In the meantime, the average revenue generated by smaller customers (customer #6 to #800) didn’t move much.

In 3 years, over 70% of Evolution’s growth came from its top-5 customers. A small positive is that the peak concentration happened in 2023, not 2024.

Another way of looking at this is that Evolution’s top-5 customers are growing at multiples of the rates of its smaller customers.

Why should you care about customer concentration? Two reasons:

1. Does Evolution truly control its destiny with its cutting-edge products or does its growth actually depend on the marketing efforts of its big operators?

2. Will Evolution be able to keep its pricing power if so much of its business depends on just a handful of customers?

What we don’t know is the type of these customers. Unfortunately, the company is tight-lipped about who those top-5 customers are. And, the opaqueness of the unregulated markets (especially in Asia) make it close to impossible for me to guess the nature of these customers with confidence.

If these top-5 customers are mostly aggregators that resell Evolution’s games to operators in unregulated markets, the risks in question should be very small, I believe. After all, aggregators and operators in unregulated market tend to be largely interchangeable from the players’ perspective. However, on the other extreme, if these top customers are actual operators in regulated markets where operators may earn a higher stickiness with players, Evolution’s dependency risk definitely increases.

Capital Allocation

Having gone through all of the possible risks and headwinds above, I would like to close up this annual review on a more positive note: the gushing cash flow to Evolution and what the company does with it.

As can be seen below, almost all of the cash generated by business operations is being returned to shareholders.

Considering the company’s announced allocation plan for 2025 (€140 million capex, ~€570 million dividend and €500 million buybacks) and rough guesses on the accruing Pillar II top-up taxes as well as the traditional next-year dividend reserve, Evolution does not seem to have left a large amount of unallocated cash for big acquisitions or additional buybacks in 2025.

Disclaimer: This is not investment advice. Please read the full disclaimer in the About page.

Growth Sources

Europe and North America provided almost all of the growth over the previous quarter.

On the other hand, company’s traditional growth engine, Asia, completely stopped its incremental growth.

Maybe even more abnormally, all of the quarterly growth came from regulated markets, and the company’s revenue from unregulated markets actually declined.

Both year-on-year rate of growth as well as the quarter-on-quarter incremental revenue ended up smaller than the same quarter last year.

RNG Growth, Finally

After over 2.6 billion euros of acquisitions and 4 years of efforts, Evolution’s RNG segment finally grew beyond its post-acquisition high mark.

RNG segment’s share of the company revenues seems to have stabilized over the last year.

Expansion

Studio expansions seem to have continued at a decent rate in the quarter.

Profitability

Despite one-off bonus reductions in personnel expenses, Evolution’s operating margin declined in quarter likely due to high consultation costs as part of other operating expenses. (I can’t help but wonder whether these technical and legal consultations are related to Asia cyber attacks or European regulatory troubles.)

Evolution’s average employee continued generating close to record high revenues.

Interestingly, the company’s incurred tax rate fell slightly below the Pillar II minimum of 15%.

Results for the shareholder

Next: You can find my review of Evolution’s FY2024.

Disclaimer: This is not investment advice. Please read the full disclaimer in the About page.

Unlike the previous two years, Evolution did not reveal a “biggest production ever” type of game this year. (Check out Todd’s comments below on when to expect the next big game!)

As always, Twitter offers a great overview of the product releases. Speaking of which, I am grateful to FlössösMadrid for being a great companion in many company visits during the exhibition.

Industry Observations

As a fan of informed oversimplifications, I like to mentally group Live Casino suppliers into four:

1. Product Leader: Evolution

2. Aggressive Marketer: Pragmatic Gaming

3. Legacy Networkers: Playtech, Light & Wonder, Aristocrat

4. Also-rans: Everyone else

It was revealing how their differing strategies were also reflected in their stands:

1. Evolution’s stand was almost completely dedicated to introducing their games, with a relatively small private meeting area. On the acquired products side, the company didn’t showcase land-based DigiWheel products like the last year but had a Livespins streamer’s booth instead.

2. Pragmatic had the hands-down best marketing where one could physically go through their latest (Crazy Time “inspired”) game show, play games to win various prizes, ride a motorcycle simulator and virtually design a dedicated live dealer studio.

3. Playtech had close to no iGaming products on display aside from a single screen and dedicated all of its stand to meeting areas. Aristocrat went one step beyond and made its stand appointment-only. Seemingly foolish at first glance, these choices actually fit the companies’ strategy of focusing on exclusive relationships with select operators in regulated markets. Interestingly, Light & Wonder chose to locate its stand not in the iGaming but in the land-based suppliers hall, which signals where their ambitions still lie.

4. A year-to-year changing set of hopeful Live Casino suppliers dotted the show floor. I couldn’t spot some suppliers which I was hoping to see and found many that I didn’t even know existed. The standard (and arguably the only viable) strategy for smaller scale suppliers seems to be to build a portfolio of traditional live dealer tables and then showcase game show prototypes as their upcoming line-up. On the one hand, most of the promoted games and interfaces were quite nice-looking, a significant step-up from the games I used to look up just a few years ago. On the other, the demo displays of most suppliers I tried showed significant video streaming hiccups. The needed investment and expertise to reach the base level of quality in security, video feed and studio management that is expected by players still seems out-of-reach for most suppliers. Furthermore, the disappointing growth of last year seems to have hit the outlook of these smaller-scale suppliers, too. One medium-sized supplier who boasted 250 tables and ambitious international expansion plans last year updated me this year with only 200 tables and a halted expansion.

Conversations with Evolution’s Management

You can find the main points from my imperfect recollections of my conversations with the management below.

CEO Carlesund

• Our competitors focus on relationships and are busy wining and dining their prospective customers. Instead, we relentlessly focus on our products and you can see it in our stand. In the end, it all comes down to what the players prefer. The rest tends to fall into place from there.

• We have executed very well on the product side. But, there are many things to improve in promotions/marketing to the players.

• We are expanding studio capacity everywhere simultaneously.

• We currently don’t do it but have the capacity to stream even from the US studios internationally. The higher wages wouldn’t matter if the incremental user is coming at no extra cost.

• Philippines is a test case for Asian regulated market openings. Locally, there are a lot of moral connotations around gambling that affect the politics around it. We are progressing extra carefully.

• The Philippines studio is meant only for the local market at the moment.

CFO Kaplan

• Decision to leave the company came due to personal wish to take a break from years of intense quarterly pace.

• Evolution reports regulated vs. unregulated segments purely based on the player location that Evolution guesses from its video stream. If Evolution generates revenue from a player located in a regulated country via an operator without a license in that market, it still counts towards regulated market revenue in its reporting.

• Asia cyber-attackers stole Evolution’s video feed and put their own betting systems on it. Attacks didn’t generate revenue for Evolution. Counteracting the attacks by putting too many restrictions risks blocking legitimate customers.

• Don’t expect severe consequences from the Swedish financial regulator investigation.

• IP Blocking: In the US, operators are responsible for geo-fencing by IP blocking. Evolution can apply IP-blocking by blocking whole markets and then whitelisting only locally licensed operators. Evolution will do this if European regulators require.

CPO Haushalter

Probably due his relatively clear area with little compliance risk, Todd Haushalter (along with the North America CEO Jacob Claesson who was unfortunately not present) remains the Evolution executive who most openly shares their insights. As in our previous meeting, Todd was very generous with his time and feedback.

Biggest Game Ever

Ali: This year’s game releases seem more incremental compared to the previous two years. Has Evolution reached the limit of its ever increasing scale of big games?

Todd: We are currently developing our biggest game yet. We are planning to release it next year. It will have a light-hearted theme like Crazy Time and mass appeal.

Crazy Time Opportunities

Ali: I feel like Evolution holds a golden ticket with Crazy Time in the US. It is Evolution’s biggest hit even after many years, and it should present a huge opportunity in the US market. Am I being too optimistic?

Todd: Obviously, opening a new Crazy Time in every state is a hassle, but we have great initial results.

Ali: Is Crazy Time’s international success transferable to the US?

Todd: It is certainly possible. As an example, Lightening Roulette is already very popular in the US, partly surpassing our regular roulette.

Ali: Here’s my pitch: Why not invest in creating a top-notch (and possibly long-term) presenter team for the Crazy Time in one of the US states, and then stream internationally from there? In addition to their native language advantage, Americans tend to make great entertainers.

Todd: It is an interesting idea. Either way, it will need some time. If you compare today, our Latvia-based presenters are performing very well, and our US presenters are still to catch them. In a similar vein, we even consider celebrity appearances in our games. Theoretically, if Taylor Swift visits us and turns the wheel in Crazy Time, we probably couldn’t handle the demand in our network.

Ali: Sounds like a good problem to have.

Todd: True.

Ali: It is funny that Crazy Time’s official copy, Crazy Time A, is also on the top-5 game charts. Why is there a Crazy Time A?

Todd: Yes, I find it funny, too. We initially released it to de-risk our operators (due to possible win concentrations). Additionally, Crazy Time is too important for us. If our Latvian game goes offline for any reason, we wanted to make sure that we could continue offering the game from Romania. Having multiple variants also lets players play multiple wheels simultaneously.

Virtual Sports

Ali: For your newly released Race Track Live, have you considered giving the horses distinct names and looks that players could maybe grow attached to?

Todd: We have actually already implemented this in the game. The horses even have their own characters and running styles. We have left it to players to recognize them.

Ali: How about making the graphics 3D photo-realistic instead of 16-bit and maybe present the races like realistic TV segments?

Todd: Quickness of each round makes such a presentation a little unpractical for the player to follow.

Ali: How about applying such an idea to football or basketball?

Todd: I have seen similar ideas tried by suppliers. We need to check with operators for possible demand and also check the performance of Race Track and a few other sports-themed games of ours.

Two Risque Ideas

Ali: I am going to pitch two ideas that may be a little too aggressive.

Todd: Let’s hear them.

Ali: I have noticed that last year’s big Lightning Storm release had slightly darker and more adult feel and theme than your usual games.

Todd: That’s true.

Ali: Will we ever see an Evolution game show based on Nolimit City IP or styled similarly?

Todd: I wouldn’t mind seeing the Live game version of Nolimit’s Mental or Tombstone.

Ali: My second idea actually originates from a scandal that you may be aware of: The Counter-Strike skin gambling. Would Evolution ever run a game where the payouts are digital goods rather than money? For example, Valve (Counter-Strike’s developer) could welcome a solution where all gambling happens in a clearly regulated and safeguarded venue.

Todd: We could be open to such ideas. However, Evolution will never do B2C. So, we would need partnership from the holder and operator of the IP. For example, we would need a call from Take-Two if they want to have an official GTA casino tie-in. Obviously, we would also need to figure out how to calculate the betting value to calculate Evolution’s take-rate from.

Multiple Presenters

Ali: Have you considered having multiple presenters interacting with each other in a game?

Todd: We are open to that idea and occasionally consider how to apply it. We encourage our presenters to hang out and chat with each other during shift handovers. We also did Blackjack Party. We also do virtual crossovers between our game franchises. There have been occasions Gonzo or the Monopoly Man visits the Crazy Time.

Ali: Would margins be an issue in having multiple presenters?

Todd: No. Per month, a game show may generate $10-20 million in GGR, of which $1-2 million comes to Evolution. For this, we may be paying monthly running costs of $25,000. Doubling that cost would not be an issue.

Avatar Baccarat

FlössösMadrid: Last year, you announced Avatar Baccarat where a 3D character is overlaid on a live dealer. Why haven’t you released it yet?

Todd: We are having difficulty with hands. Cards can occasionally disappear and reappear while being handled by the dealer.

Land-based Products

Ali: What can DigiWheel and Evolution do to get more traction in land-based casinos?

Todd: Large-sized land-based suppliers are copying our products. You may have noticed that we have recently sued Light & Wonder for taking our product and copying it in a land-based product. It may make sense for us to partner with a medium-sized land-based supplier.

Ali: In land-based products, does Evolution’s bigger opportunity lie in recreating a local instance of an Evolution game (a self-contained game setup) or in streaming games from Evolution’s studios into a cabinet?

Todd: In a local instance.

Game Show Rights

Ali: BetMGM has recently purchased the rights to “Family Feud” and “The Price is Right”.

Todd: That deal has come before us and we have passed on them.

Ali: I can’t imagine BetMGM to run a Live Casino game show internally. So, my question is: Would Evolution ever create and run a custom game show exclusively for a big operator?

Todd: No, we would not.

International Game Development

Ali: Would you consider having a game development team in the Philippines for Asia-specific games?

Todd: I don’t think we need it. We constantly scour the world for locally popular games and see if we can develop on them. For example, we have developed and are releasing the Super Color Game specifically with the Philippines market in mind.

[2025-01-28] EDIT: added the International Game Development discussion with Todd

Disclaimer: This is not investment advice. Please read the full disclaimer in the About page.

I presented my thesis of ownership to a few friends last month. The following is a summary of that presentation.

Thesis

I think that the company can grow its EPS in a fashion halfway similar to its past decade.

Business Owner’s Overview

The company has 4 channels of income:

1. Retail sales from company-owned stores in the US

2. Royalties and fees charged to franchisees in the US

3. 50/50 profit share from the supply chain of food and equipment sales in the US and Canada

4. Royalties and fees charged to the international master franchisees

These channels come with wildly different levels of profitability. Retail sales from the company-owned stores are largely “empty calories” while a royalty check from a master franchisee is almost completely pure profit.

Therefore, I consider the company’s revenue by itself completely devoid of any useful signal. Instead, this is how I assess the company’s overall performance:

I take the Domino’s system sales as the true top-line figure.

From this top-line, DPZ effectively earns a surprisingly consistent yet slowly increasing 10% commission on US retail sales and 3% on international retail sales as its main gross profit sources.

Finally, despite rising corporate expenses and interest payments, an ever increasing portion of the gross profits flow to the owners’ bottom line.

Despite successfully supporting an innovative brand, product line and tech stack, the corporate expenses needed for that support is increasingly becoming a smaller portion of the system.

And, just in case there is any doubt: Yes, those earnings are based on real cash flows.

Can the EPS grow further?

The future of the company’s EPS growth depends on how you answer 3 questions:

1. Can DPZ grow domestically? 🇺🇸

2. Can DPZ grow internationally? 🌍

3. Can DPZ handle its debt? 🧨

Can Domino’s grow domestically? 🇺🇸

Incredibly, USA makes up almost half of the world’s pizza market.

Although the US makes up just under half of Domino’s global retail sales, DPZ sources 75% of its gross profits and over 60% of its operating profits from the country.

Domino’s has been THE pizza brand in the US for many decades now. Yet, the company managed to double both its market share and retail sales in less than a decade. And, it still barely makes up just a quarter of the market.

The company is counting on 3 main initiatives for continued growth in the US. Their common theme is the view that convenience, consistence and value will create ever growing demand from consumers.

Initiative #1: Carry-out

Carry-out has been a big growth category for Domino’s with a huge room for even further growth.

It’s a more profitable yet harder-to-scale sales channel. As a restaurant, you don’t incur delivery costs but have to be close to the customer.

Initiative #2: Fortressing

Domino’s has been dividing its restaurants’ service areas for a denser coverage efficiency with great results.

As you can guess, this has also been part of the secret sauce behind the recent carry-out success. As the company found out, the promise of a faster and more consistent service generates new demand from consumers.

One could expect the individual restaurant franchisees to be the losers in this area shrinkage. However, owning a Domino’s restaurant remains a license to print money.

Almost all franchisees originate from inside the Domino’s system (many of them as former kitchen and delivery staff) and run no other franchises. Considering that the average restaurant has a just 3 year payback period and the average franchisee owns 9 restaurants, the culture and incentives seem pretty well aligned in the system.

Initiative #3: Technology

Domino’s runs an in-store and consumer-side tech stack that is unrivaled in the pizza category, with very few equivalents even in the general restaurant sector.

US Growth Potential

The company justifiably expects the next few years to be similar to the last few.

Marketing Machine

Before moving on, I’d also like to mention that I see the current CEO, Russell Weiner, as a not-so-secret weapon for the company’s future success, especially in the US where DPZ runs the marketing. Weiner was the chief marketing officer that led the company's iconic "pizza turnaround" campaign back in 2009. Domino’s has had very effective marketing campaigns since he became the CEO in 2022.

The company’s US marketing specializes in turning consumer negativity on its head whether it’s the inflation, shrinkflation, tipping fatigue or simply not liking Domino’s.

Can Domino’s grow internationally? 🌍

Domino’s Pizza’s international system (run largely by its master franchises) has had a great growth track record.

The international system includes a diversified portfolio of restaurants growing both in the developed as well as the developing markets.

As a whole, developed countries come with hundreds of millions of consumers with purchasing power but (compared to the US) less developed pizza delivery markets.

Developing countries come with lower per-restaurant retail revenues, from which DPZ charges its 3% commission. (After all, one can buy a pizza from Domino’s for as low as $0.60 in India.) But, Domino’s is also positioned as the unrivaled pizza leader in these countries with huge populations and rising purchasing power. If operated well, Domino’s will likely never run out of growth runway in my lifetime.

Having said this, the international system’s growth story became murkier recently, with disappointing results from store openings in the developed countries with Japan and France as primary pain points.

I still think the company’s cancelled international growth guidance provides a valuable outlook if taken as a rough sketch.

The specific growth figures may get pushed to later years. However, with so many growth opportunities in so many markets where Domino’s is still a small player, it’s hard (but not impossible!) for me to imagine a decades long scenario where Domino’s doesn’t succeed internationally in the aggregate.

Can DPZ handle its debt? 🧨

Thanks to its highly profitable and growing business, Domino’s earns enough cash flow (green area in the chart below) to re-invest in its business, pay a growing dividend and buy back a decent chunk of its shares. But, the company doesn’t stop there in its capital allocation.

Domino’s has leveraged a significant amount of debt (red areas above) between 2015 and 2021 to supercharge its buybacks. As a result, the company almost halved its share count over a decade.

If we subtract the annual growth rates of gross profits and operating profits from the EPS growth rate, we can roughly calculate how much of a role the operating leverage as well as the financial leverage played.

It is clear that the financial leverage played the biggest role in Domino’s Pizza’s rocketing EPS growth.

Furthermore, the temporary dip in 2022 exemplifies how leverage accentuates underlying results not only on the upside but also on the downside. A scenario in which the Domino’s brand and system slowly deteriorate can bring catastrophic results for the shareholders pretty quickly.

Although the amount of debt increased greatly in the last decade, the similarly increasing profits meant that the company’s leverage ratios didn’t rise in a similar magnitude.

Management is running a play book that looks rational but may not be to everyone’s taste.

Even more importantly, the company has been able to enforce this allocation policy not only during the “fun” times of levering up but also on the way down on the face of higher interest rates.

The company faces large maturities in the coming few years, but I currently don’t doubt its ability to refinance.

In the end, Domino’s Pizza’s allocation policy is a great example of how investing and portfolio construction are matters of personal choice and circumstance.

My approach: I don’t run debt in my personal finances and, so, welcome positively skewed opportunities like DPZ where I can have a limited-liability exposure to leverage on top of a growing, highly profitable and capital-light core business as a part of my portfolio.

This will not be true or preferred for everybody.

Disclaimer: This is not investment advice. Please read the full disclaimer in the About page.

What is newsworthy is the nominal amount and the makeup of it in the last 6 months:

• Quarterly incremental revenue is the lowest in the post-COVID era. (So, this is not a case of large numbers begetting smaller relative growth rates.)

• Asia is no longer the growth engine making up for the other markets.

• If anything, Americas and Europe are making up for the disappointing Asia sales.

Slowdown clearly came from Live Casino and from Asia.

On the back of Nolimit City’s apparently successful game launches, Evolution’s RNG sales in the quarter actually came close to breaking free from the €70±3 million euro interval in which they have been languishing since the acquisitions.

In fact, for the first time in Evolution’s history, the organic RNG growth rate was higher than Live Casino on a quarter-on-quarter basis!

In its annual report, Evolution characterizes Live Casino as a low-barrier-to-entry but high-barrier-to-success business. Along with the countless other challenges it is successfully overcoming, the company seems to be facing two barriers before its growth can return to its prior pace.

Barrier #1: Asia Slowdown

After providing the majority of the organic growth in the past 3 years, Asia has become Evolution’s biggest market at the start of this year. However, compared to both the market’s size as well as the company’s established share in it, Evolution’s growth in Asia seems to have come to a sudden stop in the last 2 quarters.

In Q2, management described the situation as “nothing outside the usual cycles within the sector”. This sounded plausible, especially given the large nominal growth in the prior quarter.

In this quarter, however, the company detected large-scale cyberattacks, where unauthorized operators seem to have accessed and distributed Evolution games.

The announcement seems to imply that the attacks themselves prevented Evolution from generating revenue. But it may be important to note that both the earnings report as well as the prepared statements mention the negative impact both after the description of the attacks and the corresponding countermeasures.

I can’t help but wonder whether these “attacks” were sources of some revenues in the past and have just come to a halt. (Maybe via an authorized operator/aggregator giving some unauthorized operators access to Evolution’s betting system?) If this was partially a factor, government crackdowns on shady operators and payment facilitators earlier in the year could be having ripple effects on Evolution’s growth in the region.

Regardless of the exact nature of the attacks, it may take the some time for the insatiable demand in the market to find its way to Evolution.

This comeback is probably a question of when, not if. Nevertheless, Asia remains an opaque market where even the management may not have clear visibility.

Barrier #2: Post-Georgia Supply Bottleneck

In case you haven’t heard: Evolution has been having some labor disputes in its biggest studio for a little over a quarter.

Thanks to its regulations, educated youth and low local wages, Georgia had been the backbone of Evolution’s studio expansion to serve the post-COVID boom in demand.

Thanks to the local subsidiary’s public records, we can see that the country provided a low-cost, high-margin international expansion opportunity in parallel to the company’s high-cost, low-margin North American expansion.

Evolution built a 600+ table megastudio with a tangible capex of just €30 million.

Let’s make a few back-of-the-envelope guesses to describe how good of a deal this has been: In its operating history, the Georgia studio probably handled hundreds of billions of euros of player bets (a multiple of the country’s GDP). From this volume, operators probably generated 10+ billion euros of gross gaming revenue. From these operators, Evolution probably earned a billion euros of operating profit. Not bad for a 30 million euro facility!

However, too much of any good thing can turn into a bad thing: Prior to the strike, Evolution depended on a single studio for half of its international capacity outside North America. Probably for a somewhat similar proportion of its profits, too.

And, so, the decision to downsize the Georgian studio in light of local instability naturally brings out a critical question: How will Evolution serve the already under-served international demand?

A temporary solution has been giving priority to tables serving high value players.

Additionally, Evolution also seems to have made admirable progress in expanding and diversifying its international capacity during the year. In the last 3 quarters, the company may have increased its international workforce outside Georgia by a third.

Obviously, some of this international expansion comes from the increased pace of hiring for the new studio spaces in Latin America. But, it is notable that management stressed that the capacity in Latin America can be routed to other markets. As the company was so far mostly routing European capacity to its other regions, this is both a novelty and a natural result of its sophisticated network infrastructure.

The little big news

The biggest piece of non-financial news for me from this quarter was the brief mention of plans for a Philippines studio.

To give context, Philippines have been on iGaming news a lot this year due to the revelations of various kinds of criminality that the China-facing supplier/operator/facilitator organizations called POGOs brought to the country under a loose licensing scheme. As mentioned in relation to the Asia market, the government has recently banned and is in the process of dismantling them.

Evolution is already Philippines’ first properly licensed Live Casino supplier. In the earnings call, management noted that a local studio will be opened due to regulatory necessity. This implies that the initial plans call for a relatively small operation serving the local market.

Nevertheless, Philippines could make a very interesting candidate for Evolution’s long-term studio expansion. Its population is 20 times of the combined populations of Georgia, Latvia and Malta that hosted almost 80% of Evolution’s headcount outside North America in 2023.

After Singapore, it is the most English-proficient country in Asia. As the POGO experiment showed, the country has good access to the speakers of Asian languages which may be harder to find in Eastern Europe. Beyond being a deep pool of recruits, Philippines are also the first Asian market to regulate iGaming, and a successful story there could make Evolution the regulatory golden standard for the whole region. Furthermore, establishing a closer contact to regional players and a local game development team could greatly aid Evolution’s efforts to develop Asia-targeting original games. Possibilities here seem endless.

And, at this point, they are only that: possibilities.

Margins

Both the pre-tax and post-tax margins have been on a slump this year. After all, the strike-related supply bottleneck and the Asia slowdown have emerged on top of the low-margin North American expansion.

As previously hinted by the chart of headcount numbers outside both North America and Georgia, a significant international expansion seems to be underway. Even though its numbers have not been enough to counteract the sudden Georgian downsizing in the net headcount results, the tangible investments imply significant studio expansions outside Georgia.

For its average employee, Evolution both paid a record-high salary and generated record-high sales and “gross profit” in the quarter.

The increase in average personnel expense probably came as a result of the increasing North American headcount against the Georgian downsizing. The Georgian downsizing and Evolution’s prioritizing of high value tables also explains the sudden jump in per-employee performance. If Evolution succeeds in its international expansion plans, the per-employee performance metrics can be expected to go down in the immediate term. Not every performance dip is a bad thing!

As US revenues grow, Evolution’s tax rate is slowly increasing from the Pillar II minimum of 15% nearer to 16%, as signalled in the annual report.

Cash Pile: Solved for Good

Although the tax hike, the North American expansion and the Asia slowdown have been doing their best to keep the EPS flat this year, it has been a joy to watch Evolution take advantage of the stock market and buy back its shares.

The Capital Allocation Framework announced in the previous quarter has been a huge win for the shareholders in the long term. I personally consider the allocation of excess capital a solved issue at Evolution.

Unless management deviates from its tradition of preemptively reserving cash for upcoming dividend payouts, I think the next buyback program could come into agenda by Q1 2025.

Disclaimer: This is not investment advice. Please read the full disclaimer in the About page.

Europe pretty much did not grow. North America shrank. But, probably the biggest surprise was the small growth in Asia. Latin America was the one bright spot.

Latin America seems to have also provided this growth in regulated markets.

Focusing on the organic Live Casino side of the business makes the disappointing growth clear.

RNG is not yet showing any external signs of growth, despite the seemingly popular Nolimit City releases.

Low growth seems to have also come with low margins.

Evolution’s operating margins (i.e. even when disregarding the tax hikes) have hit 3-year-lows this quarter.

Let’s dive into what may have caused the dip in profitability.

The missing margin

Since the primary costs of Evolution’s main business of Live Casino are the personnel expenses, this area should likely give us hints for the underlying causes to most margin shifts.

Personnel expenses that Evolution spends per employee have stayed remarkably stable over the last few inflationary years, but with a very slight increase in the last couple of quarters. A much bigger shift seems to have been happening in the amount of sales the company is generating from its average employee.

This means that the company has been losing on the pseudo-gross profits it generates per employee.

I can see two approaches to asses this decline.

Approach #1: Temporary cost of investing for the future

Evolution has just concluded a very large and seemingly overdue expansion phase in its studio capacity. It takes some time for the incoming capacity in headcount and tables to get into full gear and produce the record-breaking profits of the future.

For example, back in Q4 2022, the big expansion then had also caused a temporary dip in Evolution’s operating margins. The returns on that expansion have likely been very favorable for the company with even higher profitability in the following year.

Approach #2: US is hurting the long-term operating leverage

Evolution has been expanding in the regulated US states well beyond the sales growth those markets have provided so far. (In 2023, North America provided roughly 10% of Evolution’s annual sales growth but made up over 40% of the company’s net hiring.) What makes US peculiar compared to Evolution’s other big markets is the limited scalability afforded by the state-by-state studio infrastructure. With the addition of the local popularity of the unscalable traditional blackjack, this reduces the amount of sales (and operating leverage) the company can generate from its average dealer in a US state.

Note that the amount of revenue Evolution generates per its average North American employee (not adjusted for full-time equivalent) has been significantly declining over the past couple of years.

If we crudely separate the company into two parts, Evolution International and Evolution North America, we can see the sales-per-employee have been increasing internationally almost as fast as they are declining in North America.

A further crude assumption of evenly distributing cash-based operating expenses shows how big of a margin difference this can lead to.

It is then conceivable that an Evolution live dealer in Eastern Europe may be generating close to double of the profits generated by a dealer in the US.

This divergence in profitability was initially not a big deal, since the North American operations were a small part of the global studio capacity. In simplistic terms, European and Asian profits were covering up the lower returns in North America. However, now that North American studios have grown to a substantial part of Evolution’s fixed cost base, any slowness in international sales growth leads to a sudden decline in margins for the company. Considering that the company plans to surpass 4,000 employees in North America by year’s end (compared to 3,349 by the end of 2023), North American margins can decline even further if the second half of 2024 produce results similar to the first half.

To put things into perspective, this doesn’t mean that Evolution’s expansion in North America is hurting the company:

1. The company is earning dollars of profits that it wouldn’t have earned otherwise by staying out of North America.

2. It is keeping oxygen from the Live Casino market for any local champion to sustainably develop in or a competitor to profitably expand to.

3. It is developing relationships and mind-share with the American regulators and consumers which can lead to prestige and “soft power” in other parts of the world.

4. It keeps holding the primary option call on the profits of an eventual US iGaming boom.

However, it also means that Evolution is likely to face margin headwinds in the upcoming years unless Asia returns to its highly profitable growth trend.

Capital Allocation

Evolution made three important announcement regarding the allocation of its capital.

Galaxy Gaming

This acquisition is somewhat comparable to the Big Time Gaming acquisition in that Evolution is buying a feature (Megaways in Big Time’s case and side bets in Galaxy’s case) supplier to game creators. Compared to Big Time, Galaxy Gaming comes with the additional valuable relationships to regulators and land-based casinos in the US that Evolution doesn’t have a previous contact with.

Compared to Big Time’s 2021 purchase valuation of 16x EBITDA, Evolution is buying Galaxy for 10x 2024 EBITDA. To play out the bull case, we can take a Galaxy shareholder’s view of 80% operating margin potential which leads to the purchase price’s being equal to just 5x potential operating income.

Capital Allocation Framework

Evolution’s announcement of a comprehensive Capital Allopcation Framework completely overlaps with my pitch to management at the last AGM. (I had asked for an explicit and predictable policy of what to do with the excess cash rather than just one-off buyback decisions. Though, I doubt I was the only one.)

It is good to see that the board and the management is open to shareholder suggestions.

On the technical side, it is notable (and apt) that dividends are conditioned on net income while excess shareholder distribution is conditioned on cash at hand. It is also nice to see that buybacks are not left as the only mechanism for the excess cash distribution and special dividends will be preferred when the stock’s valuation is deemed too high to create shareholder value.

Buybacks

The latest 400 million euro buyback plan equals to roughly 2% of shares at the current price. One slight adjustment to the previous buyback plan is the inclusion of stock markets outside Sweden (think EVVTY in the US) as a potential source of purchase.

Cash Outlook

Evolution distributed roughly 560 million euros as dividend in 2024.

Given the above cash inflows and uses for the year, I am expecting neither a big dividend raise next year nor an additional buyback plan this year.

Bonus feature: Do Game Rounds predict anything?

I have always been puzzled about how to use the Game Rounds index (or its previous incarnation as bet spots) as an input for analysis. Now that some time has passed since this metric’s introduction, I wanted to see if trends in rounds precede trends in sales.

As far as I can see, growth in rounds is vaguely correlated with the growth in revenues. But, one does not seem to precede the other in a predictable way.

Disclaimer: This is not investment advice. Please read the full disclaimer in the About page.

Q4

Three factors seem to have played key roles in determining the company’s operational profitability:

1. Brown-Forman’s depletion volumes hit their 3 year lows.

2. At the same time, company’s pricing seems have reached a local peak on USD basis.

3. Brown-Forman has been investing in its own distribution networks in various large and small international markets. The idea is that the company will be able to improve its reach to retailers as well as consumers much further than a 3rd party distributor would be incentivized to. Japan and Italy are two major markets where Brown-Forman is in-sourcing its distribution network. However, this move also is also bringing initial setup costs as well as permanently higher expenses from running a bigger organization. Consequently, SG&A expenses reflect this change.

The outcome of these factors has been disappointing profits from operations.

FY2024

On an annual perspective, Brown-Forman’s all four main product categories lost volume compared to the previous year.

In the last 5 years (from FY19 to FY24), company’s net sales grew by more than 25%, but its operational “core” profits grew less than 4%.

Company’s operational profitability hit 15 year lows this year. One would need to go back to FY2009 to find lower operational margins.

Earnings

One good news — at least on paper — have been the record high EPS of $2.14. However, it is important to note that this number includes Brown-Forman’s sale of its vodka and wine businesses in the year. One-off gains from those dispositions made up close to 20% of the EBIT. In a simplistic view, EPS from business operations could be taken closer to $1.75.

Products and Markets

During the past financial year, one can point to the following product categories and markets as the highlights and the low-lights in generating growth.

Product low-lights: Jack Daniel’s (including the Honey and Fire flavors as well as the Gentleman Jack premiumization) & Tequila brands
Product highlights: Jack Daniel’s Apple, Woodford Reserve, Old Forester, New Mix Tequila RTD

Market low-lights: USA, Australia & UK
Market highlights: Germany, Emerging Markets, Travel Retail

It’s not hard to see that the recent declines have hit Brown-Forman’s three most critical segments of USA as well as the Jack Daniel’s and the tequila brands.

Management foresight & execution

Management’s growth outlook for FY24 has been reduced step-by-step every quarter during the year.

Outlook for the organic sales growth started the year at 6% and was reduced to 0% by Q3. Nevertheless, the company even missed this target and ended the year at -1%.

Outlook for the organic operating income growth started at 7% and was eventually reduced to 1%. Company missed this target as well and ended the year with -2%.

My conclusion from this recent track record is that Brown-Forman’s business is going through a (hopefully temporary) upheaval which the management calls “normalization” and doesn’t seem to be able to forecast into the near future accurately. Hence, in my opinion, the FY25 growth outlook of +3% is not yet a reliable target.

Disclaimer: This is not investment advice. Please read the full disclaimer in the About page.

Todd Haushalter

Evolution’s Chief Product Officer was very generous with his time and I got to spend close to two hours with him.

On a personal level, Todd impressed me in two aspects. The first, probably predictably, is that he is a very smart guy laser-focused on the product. The second is how open he seems to receiving ideas as well as sharing his thought process and expertise, not only with a clueless shareholder but -more importantly- with other employees. If I had to guess, I’d say that his conduct probably has a lot to with Evolution’s product-obsessed culture which will hopefully be carried on beyond his term.

Some tidbits from our conversation:

• Evolution has matched its R&D capabilities across its main studios and Todd has moved his base of R&D from Riga to Malta. He leads the global R&D efforts with frequent teleconferencing and a lot of traveling.

• Innovating in RNG mechanics is hard. Players seem to prefer the basic wheel mechanics over anything new.

• Game show category in the US is very promising. Lightning Roulette, “if you count it as a game show”, has been very successful. Crazy Time is still at the very early stages of market reach, but its per-player metrics in New Jersey are even better than the rest of the world.

• The VR experiment with the Gonzo’s Treasure Hunt failed because the user funnel was very inefficient. (Who would want to input their login credentials into an online casino with a VR headset?)

Product Pitch

Not to waste my chance with the person-in-charge, I pitched a few product ideas for Evolution. I’m sharing these with the hope that the feedback I received from Todd may be useful in understanding how he approaches product development.

Idea: Tiktok-like lobby with infinite scrolling of Evolution games
Todd: Main challenge is the games’ loading times.

Idea: Tinder parody by NoLimit City with left/right swipes (instead of vertical rolls)
Todd: It needs to have interesting consequences of choosing left vs right swipes

Idea: Asian game shows in local languages
Todd: We have a similar game called Imperial Quest.

Idea: Stock Market adaptation for crypto trading
Todd: We should!

Idea: Smart TV support for games
Todd: Challenge would be getting app support on smart TV platforms. Screen mirroring already solves this.

Industry Observations

I also had the opportunity to make a few observations regarding the iGaming market at large and Evolution’s place in it.

Malta Expansion

Following up on Evolution’s lackluster expansion in Malta in 2023, I was alerted to the recent local news. It seems Evolution has recently launched new studio space in Malta and intends to increase its local workforce of 1400 by 50%.

Slots

Industry consensus seems to hold Pragmatic as the leader in the slots space, both in means of products and promotions. Evolution is not regarded as a good performer since its entrance into the RNG space.

Regulated vs Unregulated Growth

Across geographies, the regulated iGaming industry seems to be increasingly critical of regulations whether in newly opening markets like Latin America or markets where regulations are getting more restrictive like in Europe. Due to these obstacles combined with the local jurisdictions’ perceived lack of power on stopping offshore payments, the industry consensus seems to expect that the majority of upcoming iGaming growth to come from unregulated sources globally.

Brazil

The country has no tradition of land-based casinos. It will take some effort on game suppliers’ part to adapt games and educate users. Pragmatic’s slot games (particularly the Fortune Tiger) and Evolution’s localized live tables are seen as promising efforts.

Evolution the Incumbent

Among some competitors and industry insiders, Evolution seems to have the image of a slow incumbent that lacks the “hunger” to pursue all possible avenues of products and promotions. On the product side, the criticism includes not pushing the envelope in its famous RNG franchise releases and not expanding into new product verticals (like sportsbook, poker, bingo) organically or by acquisitions. As for promotions, Evolution is criticized for not using the full force of its scale in its budgeting for flashy player promotions or big-time sports sponsorships.

Disclaimer: This is not investment advice. Please read the full disclaimer in the About page.

Please note that I’m sharing the below recap from my imperfect recollection, so take them as my perception of the general character of the management’s responses. In case of any difference to official disclosures, feel free to disregard my depictions.

Conversation with CFO

Question: In the last quarterly call, you mentioned that there are some uncertainties to Evolution’s tax liabilities arising from Pillar II. Is there uncertainty regarding the amount of taxes Evolution will pay? Do you foresee tax relief from jurisdictions like Malta or a change to the the group’s structure?

Answer: The tax uncertainty involves the exact mechanisms of Sweden’s tax collection, rather than the amount of the tax. At the moment, we are not expecting a significant revision to the company’s tax outlook due to any other jurisdictions. We do not consider moving out of Sweden.

***

Q: Will top-up tax payments always come due at a 2-year delay to accrual even after 2026?

A: It’s not clear yet.

***

CFO: bet365’s 90 million users look like a very interesting target for Evolution.

(My personal observation: I get the feeling that the company expects a gradual ramp-up of sales through bet365 rather than a sudden jump.)

Q: What can be done to incentivize operators who have Evolution games but frequently promote competing suppliers’ tables to give a better positioning to Evolution games?

A: We use a variety of tools available to us. OSS (One Stop Shop) will also be helpful.

***

Q: Are Spin Gifts the first time Evolution is paying for player promotions out of its own pocket?

A: Yes, I believe so.

Q: Will Spin Gifts have a significant financial impact on Evolution?

A: It’s not out of question, but a popular promotional tool would be a good problem to have.

***

Pitch: As a gambling sector company, Evolution is likely to regularly trade at valuation discounts to its potential. This creates a long-term value creation opportunity not available to many other high margin companies. Evolution already has an explicit capital allocation policy regarding dividends. The company (and its long-term shareholders) would benefit from an additional commitment in its official policy that the board will regularly consider opportunistic buybacks with cash not needed for CapEx, dividends or acquisitions.

A: It sounds alright and will be taken into consideration. However, it should also be kept in mind that dividends are distinctive as a traditional shareholder return policy for Swedish companies.

***

Q: In 2023, you seem to have waited for 2024's dividend to accumulate first and then decided on a buyback budget later in the year with the already collected cash not needed for the dividend. Is this the timing of decisions we should expect in the future as well?

A: That is how it happened last year, but it doesn't have to happen in the same order this year. We may as well decide on a buyback program earlier.

CEO Presentation and Q&A

CEO Martin Carlesund made his presentation to shareholders in Swedish, so I could only get a general sense of it from the slides in English. The gist of it seemed to be: Evolution stands at the early stages of a tremendous global trend. The company is working tirelessly to improve itself and is the best equipped one in the world to excel at game and studio development.

***

Q: 2023 results showed a very slow hiring in Evolution’s main hubs in Georgia and Malta, unlike the company’s other European studios. Should we consider those two hubs as “mature” now or was it a temporary slowdown?

A: Sometimes, certain studios hit a limit to the number of possible hires in their local workforce markets. We support this with opening and hiring in other countries, such as the current ones in Europe as well as the one we are opening in Czechia due to regulatory reasons.

Q: Asia is an obviously very important market, and Evolution keeps releasing local language games for this market. Do you foresee a recruitment bottleneck in finding dealers who speak Asian languages in Europe? What is to be done?

A: We always work to find solutions as needed.

[2024-04-29] EDIT: added the buyback timing question to CFO

Disclaimer: This is not investment advice. Please read the full disclaimer in the About page.