Earnings Call Transcript - EVO Q1 2023

Operator, Operator

Good morning, and welcome to the Evolution Q1 2023 Earnings Call. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Martin Carlesund, CEO. Please go ahead.

Martin Carlesund, CEO

Good morning. Welcome, everyone, to this wonderful day and presentation of Evolution's report for the first quarter of 2023. My name is Martin Carlesund. I'm the CEO of Evolution. With me, I have our CFO, Jacob Kaplan. I will, as usual, start with some comments on our performance in the quarter, where after, I will hand over to Jacob for a closer look at our financials. After that, I will round off our presentation with an outlook for the rest of the year. And we are, after that, happy to take all of your questions. Okay. Let's begin, operator. Next slide, please. 2023 started in a high tempo and we continue to see strong worldwide demand for our products. There is a slowing of the general economy in large part of the world, but we continue to attract new players and grow in all our markets. As we have said in earlier quarters, it's reasonable to assume that the general slowdown of the economy also affects us on some level. But we cannot say that we see any clear signs of a slowdown in our business. Of course, we are supported by the fact that we have come into the new year with a fantastic pipeline of new games and a strong momentum from 2022. I want to mention some of the operational highlights in the quarter. The opportunities in North America continue to be very promising, and we continue to expand our offering in both RNG as well as Live Casino. We have now rolled out RedTiger timed jackpots in Ontario, Quebec, as well as in Connecticut and Michigan. And just a week ago, also in New Jersey, with the remaining states of the U.S. to follow. RedTiger remains the only game supplier to offer timed jackpots in the U.S. This unique state-of-the-art progressive jackpot mechanic for online slots allows operators to set progressive jackpots that are guaranteed to hit before a certain time. It's a feature that has been widely popular in other regions, and we are excited to bring it to the North American players. Furthermore, in Q1, we launched Mega Ball with the British Columbia Lottery Corporation, with the other Canadian lotteries to follow. Mega Ball was our first bouncing ball game a few years ago, and we have now added more games in the category. Mega Ball appeals to players all over the world and is an example of how we extend the product portfolio to include something for everyone. The focus to bring all of our fantastic products to each state, regulated or regulating, in the U.S. continues, and we are constantly investing, building, and working with all regulators to achieve this. Also in Europe, we are off to a fast start of the year. I'm very happy that we have agreed to launch our games with Sky Betting & Gaming in the U.K. I have known the people at Sky for many years. So we are happy to finally bring our games to their players. I mentioned the development in LatAm several times in the past years. And it continues to be a rapidly developing region that is in focus for us. We have had a local organization there for some time, and we are also exploring opportunities for expanding our presence with local studios. In the first quarter, the transition to the new Smart Lobby was completed for all our customers. Our new lobby is incredibly well received, and the data from it has been strong. Players can favor games, search without a sale, sort by table, filter by native languages, speed tables, or limits. All in all, we make it easy for the players to quickly get what they want and also discover new games. Now let's move to the coming slides, and I'll see the effect on numbers and products for all of our efforts. Operator, next slide, please. We continue the good momentum from 2022 and have seen a strong start to 2023. The combination of global demand for our product and the constant pursuit of cost efficiency, hard work and high ambitions of all employees sums up to the fantastic numbers. Operationally, it has been a very hectic quarter, and I'm pleased to see the financially strong results we present today. Revenues increased by 31.5% to EUR 430 million. EBITDA increased by close to 31% to over EUR 300 million, corresponding to a margin of 69.9%, which is within the guidance of 68% to 71% for the full year. I'm happy with the margin in this quarter as it is a result of the high demand for our products in combination with the fact that we constantly work hard on cost efficiency. We show that we are able to increase efficiency and strengthen the margin from Q4 2022 even in the very difficult circumstances as we see in the world today. Live Casino delivered good growth of 36% compared to Q1 last year. RNG revenue amounted to EUR 69.5 million with a growth of 11.6% in reported numbers. The growth in the quarter compared to the combined revenue evolution and no limit for Q1 2022 pro forma growth amounted to 0.6%. As earlier communicated, we have a target of double-digit organic growth of RNG. As we stated already at the end of last year, the path to our goal within RNG will not be aligned here, but we look forward to 2023, where we will double the releases of our NetEnt brand, add new bonusing tools for slots, and increase the distribution of slots through OSS. Increased growth within RNG will remain a high priority throughout the year. All in all, I'm very pleased to be able to present yet another very strong quarter for Evolution. We're definitely well placed for strengthening our market share and continue to widen the gap to all our competitors. But as always, we need to work hard and become better every single day. I constantly also want to remind you that all numbers you see are the creation of thousands of fantastic Evolution employees, working hard and a little bit better every day. Next slide, please. As we grow our business, we also expand the headcount. In this quarter, the increase is about 300 net, a bit smaller addition than what we saw per quarter in 2022. Increase of headcount can be a little bit lumpy. We added a lot of staff in Q4, so we are benefiting some from that also in Q1. The increase in staff year-on-year amounted to close to 3,000, corresponding to an increase of 21%. We will continue to increase the number of employees during 2023 as we expand in our studios, and we will continue to consider diverse strategic advantage and a key asset. It is a condition of Evolution's operational excellence. I'm proud of all employees and the work ethos they show in their daily work. They make up a fantastic company. Next slide, please. The game rounds index shows the development of the whole evolution network and includes all games. A game round, as I pointed out earlier, is what it sounds like, one round of a game. Even so, I want to reiterate that one round of Roulette, one round of Baccarat, and one spin of a slot, all count as one game round. Also important to note is that there are differences between games since one hand of Blackjack takes a longer time than one spin of a slot as well as that each game round of Blackjack typically carries a higher bet compared to the slots game. And as a result, all game rounds are not equal in value. In the chart, the index value for game rounds from Live and RNG are weighted according to revenue contribution. This gives us a joint index that includes all games based on equal revenue contribution. With this as a backdrop, we need to know if the true activity and entertainment of a player comes from a game round. And a healthy increase of close to 70% we see in Q1 2023 is very good. Operator, next slide, please. As a group, we are committed to creating the best gaming experience for every player in online casino. For 2023, we are planning to release over 100 new games across all categories. Our roadmap this year is nothing but fantastic. Another year of the product. We need to constantly increase the entertainment factor and push boundaries to be relevant for the players in 10 years from now. The online casino industry needs to understand that doing and delivering the same as today in 10 years will not be satisfactory for a much more fluent, younger online generation. Evolution knows this, Evolution acts on this, Evolution gets energy from this. Evolution constantly moves forward towards the future. We do not stand still and wait for it to happen. During the first quarter, we released 18 RNG games, which is similar to last year, and we will see a ramp-up of release in the second half of 2023. During Q1, we presented 2 of our big Live games this year, even though both will be available to play first in the second quarter. Extra Chilli Epic Spins is a unique online game that brings together Live and slots in the game show-style game, created around a hugely popular slot Extra Chilli from Big Time Gaming. It's a fresh way to enjoy slots, adding a community feeling, social aspect, and we are excited to see how it is received by players. I think it is a theme that we will explore further in the future. In 2017, we launched the first ever game show in online casino: Dream Catcher. It was the first attempt at a Live game that would appeal to players who were not in traditional table games. We wanted to increase the entertainment. We wanted to expand Live to other players within online casino, and we wanted to expand Live to new players outside classic online casino. After that release, Deal or No Deal, Monopoly Live, Mega Ball, Monopoly Big Baller, and of course, CrazyTime, and a few more games that have reshaped the gaming industry and made it more fun. That is something to be very proud of. We have learned a lot developing game shows, and we have had a few failures, too, that's all part of the process. We've now taken all of that knowledge and put it to work on our late subscription, Funky Time. It's the most complex game that I think anyone has ever seen in the gaming industry, and it's going live in May. The game is built around our own patent technology, the DigiWheel. There have been hundreds of persons who have worked on bringing this game to life, and additional dozens of people who contributed to the concept in various ways from bonus works, the master sign, the studio, the DigiWheel, and all the magic it does. We're very excited about Funky Time, and I think it will be a wonderful complement to Crazy Time and the rest of our family of game shows. Our group's product roadmap for this year is the strongest one ever, with great variety and innovation amongst existing releases from all our brands. Needless to say again, but I am very excited about the new games that we have in line for 2023, the second year of the product. Operator, next slide, please. This slide shows the breakdown of revenue by geographic region. From this quarter, we have made a change to better reflect how we work with the different regions. As mentioned earlier, LatAm is a region that has seen a strong development during the recent year and we now break out as a separate region in the table. We also grew the U.K. and Nordics into Europe that better reflects our current structure for addressing the region. We have a true global demand for our products, which is also reflected in the spread of revenues across the geographic regions. Now let's look at the development in the region. Europe reported strong growth of 40% in the first quarter compared to last year. As a whole, it represents some 40% of total revenue. Europe overall is a more mature market in comparison to some of the other regions, but there is still much development and we see that it has large potential for Evolution in the future to come. It's great to see the quarterly growth rate improving during the past quarters, but I don't expect we return to the growth rate in the region from 3 or 4 years ago. Asia has been our fastest-growing region in the past years, and we're likely to pass Europe as the largest region during this year. It reports strong growth of 49% compared to last year. That said, I expect the growth rate in Asia to come down as our size simply gets bigger, even though the potential in the market is very large. North America grew 56% in the quarter. And as I mentioned at the top of the call, there is much going on here. We have little impact on the political process for further regulation in the U.S., but we foresee that new states will regulate in the coming years, which again will expand the market further. And LatAm currently makes up 7% of the total revenue in the quarter, and we believe it is a region with great potential and positive momentum. The other region, which mainly consists of Africa, stands at nearly 3% of the group revenue, and it's a future growth opportunity for us. Share of revenues from regulated markets amounted to 40% in Q1. With that, I'll hand over to Jacob. Next slide, please.

Jacob Kaplan, CFO

Thank you, Martin, and good morning to all of you listening. Now for a couple of slides with a closer look at the financial development. I'm on Slide #8, titled 'Financial Development.' Revenue amounts to EUR 429.6 million in the quarter. That's made up of EUR 360.1 million from our Live Casino business and EUR 69.5 million from our RNG games. Live Casino has a very strong start this year, as Martin mentioned, continuing a nice momentum from 2022. Year-on-year growth is 36%. Growth in Live Casino has been quite broad-based on most metrics. Looking at products, both recently released games from 2022 contribute, but also the big traditional table games like Baccarat, Roulette, and Blackjack show very nice growth. Similarly, as you saw in the previous slide, year-on-year growth is widespread across most regions, naturally with varying pace of growth. But the shift into online casino and Live as a central part of the user experience online is widespread. We think we have a long runway for growth and see good opportunities in many areas. However, as we have pointed out also during last year, we do expect growth rates to continue to slow down as our base continues to increase. That is to be expected. RNG revenue amounts to EUR 69.5 million in the quarter. It's a step back from Q4 and only very slightly up compared to pro forma figures for the first quarter of 2022. Our message has been the same since Q1 of last year, that we remain committed to reaching double-digit growth in RNG. We have not set the time on that goal. And we have also pointed out that the development would not be linear. Sometimes it hurts to be right. So while not surprised by the results in Q1, I admit it is disappointing compared to my expectations from 1 year ago. As Martin pointed out, lots of work is going on, but it will take some time before we see the financial results. So I'm confident we will reach our ambitions, but I don't see a quick turnaround in Q2 or Q3. EBITDA for the quarter amounts to EUR 300 million, giving us an EBITDA margin of 69.9% in the quarter, well within our guidance of 68% to 71% set at the beginning of this year. The margin level in Q1 is a step-up from Q4. Growing revenues is, of course, a large part of that increase, but also our whole team has shown great awareness to cost during the past two quarters. Our cost base naturally increases as we grow, but we are now spending deliberately and where it makes a difference. So going forward, we maintain the 68% to 71% range as guidance. And I'll take the opportunity to remind you that margins can still vary both up and down quarter-to-quarter. The increase of inflation levels since have leveled off in several markets at the start of this year, but we're still talking about 10% or even higher increases in price levels in many markets. So cost increases will continue to affect also us. But overall, we are very happy with the improved margin in the quarter. Please take us to the next slide, operator. This slide shows our P&L in more detail. From the top, again, we have Live revenues of EUR 360 million and RNG at EUR 69.5 million, and growth rates of 36% and almost 12%, respectively, compared to the reported figures in Q1 of 2022, but that includes acquired growth related to RNG. So growth versus comparable business is 0.6% as discussed on previous slides. Total revenue, EUR 429.6 million. That's an increase of over EUR 100 million compared to the first quarter of last year. Moving down to expenses. Personnel expenses amount to EUR 82.9 million. That's an increase of 31% compared to the same period last year. We have increased headcount by about 20% since last year. So compared to the first quarter last year, there's an increase in cost per headcount. And this is due to slightly less overstaffing, but also wage increases and the mix of staff between regions payroll. The depreciation amounts to EUR 28.7 million. That is up a little over EUR 6 million compared to the same period last year, but more or less in line with the previous quarter. Depreciations include EUR 11 million in amortization of intangibles related to the acquisitions of NetEnt, Big Time Gaming and Nolimit City. Moving on, other operating expenses, that includes items such as consumable equipment, communication costs, consultant and royalty fees. The line amounts to EUR 46.5 million in the quarter. It is up almost EUR 13 million or 38% compared to the same period in 2022, but also here flat compared to the previous quarter, Q4. Summing up, total operating expenses totaled just over EUR 158 million for the first 3 months of this year, an increase of 32% compared to the reported figures of the same period last year. Operating profit sums up to EUR 271.5 million in the quarter. Financial items include costs related to the right-of-use assets according to IFRS 16. And also on this line, we have currency-related effects from revaluation of balances on bank accounts in non-euro currency as well as some intragroup loans. That also ends up here. Tax is at EUR 18.9 million, and the tax rate is 7% in the quarter. These items bring us to a profit for the 3-month period of EUR 251 million, equaling an earnings per share of EUR 1.14 per share for the quarter after dilution, and that's an increase of 26% compared to Q1 2022. Operator, let's go to the next slide, please. Before I hand back to Martin again, a look at the cash flow and financial position. Starting to the left on the slide, the development of capital expenditure. The gray bars represent investment in tangible assets, which is mainly our studio construction project. In this quarter, CapEx intangible assets amount to almost EUR 11.5 million. We continue to invest heavily in current studios, although in this quarter the amount is not lower than previous quarters. This is more due to the timing of projects and how they progress rather than any slowdown in the actual pace of work. The blue part of the bar is investment in intangible assets, and it's related to the development of new games and features to the platform. Relatively stable in the past 4 to 5 quarters and amounts to EUR 10.7 million in the 3-month period. In total, CapEx is EUR 22 million, so slightly lower than what our guidance of EUR 120 million for the full year would imply. We are, however, expecting investments to increase during the second half of the year, so I will keep the estimate of EUR 120 million for the full year for now. In the middle of the slide, we show operating cash flow in the quarter. It amounts to just over EUR 221 million. Operating cash flow in relation to EBITDA on a rolling 12-month basis is maintained at a very good level at around 75%. And to the far right of the slide, a quick look at the balance sheet. We have a very strong financial position, no debt, and almost EUR 760 million in cash at the end of the period. Since then, however, since the end of the period, EUR 426 million has been paid as dividends. So the balance is lower today. That was the end of my prepared comments. I'll hand back to Martin and then we'll take questions after that. Martin?

Martin Carlesund, CEO

Okay, we're on the last slide, #12. Thank you, Jacob. A few words to conclude this report presentation. 2023 has started with a high intensity and full-speed goal. We have entered the year with good momentum and equipped with a fantastic product portfolio and talent. I look forward with enthusiasm to the rest of 2023. We will release a record number of new innovative, exciting, and fantastic products, exciting games to inspire our current and solid future players. Take yet another step towards expanding online casino to new players and increase entertainment and excitement even further. It's, as always, hectic times at Evolution. But remember, demand for our products is a global phenomenon and we will continue to invest in products to the capacity, and of course, in our people in order to fulfill the worldwide demand. In any trade-off between market share and margin, we will always opt for market share and revenue. I can promise you that we will relentlessly continue to push boundaries as paranoid as ever, also 2023. Thank you all for listening, and we'll speak in a couple of months again. Now let's move to questions. Next and final picture. Thank you.

Operator, Operator

Your first question comes from Martin Arnell from DNB Markets.

Martin Arnell, Analyst

It looks like a good quarter in Live. And I was just wondering on the Asia numbers and Baccarat in specific. What is the driver of the very strong performance in Baccarat that we've seen in this and also in the last quarter? Is it the focus that you had in 2021 on the Baccarat games, and are they sort of still paying off? Or can you give any flavor on that?

Martin Carlesund, CEO

Baccarat is the main game in Asia as a region as well as Roulette is the main table game in Europe and Blackjack is the main table game in North America. So as Asia continues to deliver, it will grow. And we have the best Baccarat product in the world, and of course, any changes with it from day one have paid off, but we continuously develop the Baccarat again.

Martin Arnell, Analyst

Okay. And can you share any light on why Asia seems to have picked up in the last 6 months?

Martin Carlesund, CEO

I think that's a quarter-on-quarter analysis and it will always fluctuate. I think that we have good momentum actually in all markets, and it can come out a little bit. I don't know if I could use the word 'lumpy' over the quarter, but it was a little bit like that. So I think that the momentum is strong and has been strong.

Martin Arnell, Analyst

And if you look into North America, what do you see as the main driver of growth in the coming 12 months in that region?

Martin Carlesund, CEO

Of course, then it comes to the question that in 12 months if other states would regulate. And if we set that aside because that's a political process we don't know. And if that happens, that will, of course, drive growth. But we need to continuously invest in products and release all of our beautiful products to the North American population. And then we are on to that and working constantly on that. So that's the main driver, of course. We need to see that we fulfill all the demands that are in the markets in the right way in respect to that. That will also drive the growth. And then as we have seen in Europe, the share of Live will, of course, slowly increase also in that market.

Martin Arnell, Analyst

Okay. So you expect to be able to grow at this pace or high double-digit even without more states in the coming 12 months?

Martin Carlesund, CEO

We don't guide on growth in separate markets.

Martin Arnell, Analyst

And just final 2 questions. Firstly, you commented that you expect growth to slow because the base gets bigger. Do you see that quarter-to-date in April? And secondly, what would you like to do with the big cash position aside from payout to shareholders?

Jacob Kaplan, CFO

On the first question, we have noted for some time that growth rates, while very strong in percentage terms, are gradually decreasing compared to last year, and I anticipate this trend to continue this year. Regarding our cash position, it is currently a bit lower than at the end of the previous period due to the dividend. We expect to maintain good cash flows, with a significant portion of capital being returned as dividends, as our policy dictates that 50% of net earnings will be allocated to dividends next year. Additionally, there is still potential for share buybacks, which the Board may approve as they have in the past, though we don’t currently face a continuous market issue. We have also engaged in mergers and acquisitions opportunistically over the past few years, but I want to emphasize that our primary growth strategy remains organic, and there has been no change in this approach over the last three years.

Operator, Operator

Your next question comes from Oscar Ronnkvist from ABG.

Oscar Ronnkvist, Analyst

So first, I just wanted to get a sense of the underlying RNG growth here, the pro forma RNG growth and the game releases, as you say that you remain committed to the 10% growth. So just in terms of timing, can you share any thoughts on when we should expect that to pick up? Because I think it's quite driven by the game watchers. Is that correct?

Martin Carlesund, CEO

Yes, I understand your question. And we are in an increasing release pace right now. So we look forward to having a better release plan in the second half of 2023, and that is, of course, not a light switch move, so it will gradually over the year. But as I stated on the call, it's right, the first quarter 2023 is about the same level of releases as earlier.

Oscar Ronnkvist, Analyst

Okay. Perfect. Then just on the Live Casino growth pace, as the former analyst asked as well. So just in terms of the pace run rate, are you seeing any slowdown in Live Casino market growth? Or I mean, is your stellar growth driven by you still grabbing market share in, for example, Asia? Or is it purely driven by the Live Casino market still growing?

Martin Carlesund, CEO

I would say that in Asia, for sure, it's driven by market share. I mean, that's been the growth path for a long time. In Europe, we have a large market share and we continuously grow and we see a good quarter now. But there, probably the market is catching up a little bit. Some markets are a little bit moving forward and so on. So it's a little bit varying depending on what market. I mean in U.S., we are on Live more or less alone. So that's also a different situation.

Oscar Ronnkvist, Analyst

In Latin America and Asia, can we expect a greater share of Live compared to the overall online casino market? Or is that segment more established as well?

Martin Carlesund, CEO

It's very hard to say in those countries where the numbers are not really displayed or public. So even I would find it difficult to know that. I mean, we share our numbers, but in Latin America, no one else does.

Oscar Ronnkvist, Analyst

I have one final question regarding costs. We observed a slight sequential increase in costs this quarter. Can we anticipate any further salary pressures at these levels? It appears that salary expenses haven't risen significantly in relation to the number of employees this quarter when compared to Q4 and Q3 last year. What is your perspective on salary pressure? Additionally, what other cost items are experiencing inflation pressures, considering that the sequential cost increase this quarter wasn't substantial?

Jacob Kaplan, CFO

No, that's true. We are experiencing cost increases across many categories, including wage increases. Some of this impact was felt as we hired new employees during the past year, and the salary review typically takes place this month, so the full effect will not be seen in the Q1 numbers. This will contribute to the overall increase we expect in the coming years. Personnel costs are not adjusted just once a year, as we continuously hire, meaning some effects will manifest gradually. Last year, we also discussed that coming out of 2020 and 2021, we had to alleviate some cost pressures and expenditures on extraordinary items while our business was growing rapidly, necessitating expansion in various areas. By the second half of 2022, we noticed a return to the cost awareness we had before the pandemic. Additionally, with costs, many factors come into play, and some aspects can fluctuate. We will continue to increase our cost base this year, and we don't anticipate fixed costs. Ultimately, this is reflected in our margin guidance for the year of 68% to 71%. Overall, it was a good quarter margin-wise, partly due to the team's strong awareness of costs and careful spending, which is encouraging.

Oscar Ronnkvist, Analyst

Just one follow-up: should I expect a bit more sequential growth in costs from Q2? Also, can you comment on the margin guidance? It’s early in the year, but last year you indicated a lower margin early on, starting around Q2. Do you anticipate it could be at the higher end this year due to a strong start, or is it too soon to determine?

Martin Carlesund, CEO

We don't guide on the guidance. So we are like on 68% to 71%. I'm happy with 69.9% in the quarter. That's a good figure. But the figure is not important. The importance is that we have good traction and we work with the cost. And I see traction on that. But we will expand. We need to continue to push forward. We're going to build studios in Latin America and in Europe and potentially even in the U.S. So it's like constantly in a trade-off between margin and revenue or market share; we'll go for margin and revenue share. But we're in a good place when it comes to the margin, 69.9%.

Operator, Operator

Your next question comes from Ed Young from Morgan Stanley.

Edward Young, Analyst

My first question is on North America, please. As you say, the quarter-to-quarter progression is always a bit lumpy. It's good year-on-year growth, but less so to the quarter-on-quarter. You made the comment there, Martin, around Live penetration will grow slowly over time. And why should Live penetration grow slowly? What are the constraints on being able to grow the Live market? And could you potentially give us where you estimate Live penetration is in the U.S. right now?

Martin Carlesund, CEO

The second question was on studios. You mentioned the expectation for studio growth. I appreciate you're also growing capacity in your existing studios. I understand that. But do you have a view of how many studios you might be adding during this year?

Jacob Kaplan, CFO

The third of all, just to come back on the personnel costs, Jacob, you mentioned a few different factors there. I wonder if you could elaborate a bit because the higher employee cost was down sequentially in Q1. I just wondered if you could talk about what exactly has driven that? It's a little bit surprising to see, quite impressive to see how could we see that develop through the remaining quarters on a per employee basis and what are the drivers of that?

Martin Carlesund, CEO

It's a bit of a memory challenge, but I'll do my best. I'll start with the question. Why does the share of Live in the market grow a bit slower? One reason is that table games can be intimidating. If you go to a land-based casino, you may hesitate to join in because your actions affect other players. As a result, many people opt for slot machines instead, which feel less intimidating when you're playing alone. It takes time for someone who starts with slots to transition to Live games. However, once they do try Live, they find it to be a much more engaging and enjoyable experience. Therefore, even though the Live product takes time to grow, we're seeing more people eventually come to it. This growth can be influenced by several factors, including trust and comfort with the product, which requires marketing and education. This process takes time, similar to what we've observed in Europe and other markets. Currently, we're in the lower growth range, perhaps around 12% to 15%, but this can vary by state. The potential for growth is definitely there.

Jacob Kaplan, CFO

Number of new studios...

Martin Carlesund, CEO

We're growing. We will add a couple of studios in Latin America and a couple in Europe. We just launched a new studio in New Jersey, which looks great and is actually our third one there, and we're expanding in that area. We might even add more in North America, although it may take some time in another state. Essentially, we will add studios in all markets as quickly as possible.

Jacob Kaplan, CFO

On the personnel cost or employees, that was the third question. And I think you're right. I mean, just sort of the gross numbers, so you take personnel costs over the employees or the headcount at the end of the quarter, year-on-year it's up a little bit. The reason for that is partly the wage increase, but also the mix between regions. And then, compared to Q4, as you said, it's actually a little lower in Q1, which I agree. It's a little bit surprising maybe, but also there, these factors play in a little bit how we grow in certain regions. The additional headcount in this quarter was, as Martin pointed out, a little lower than what we've seen during last year, partly because we added a lot of staff at the end of Q4. So that number also moves a little bit. But going forward, we haven't given any guidance on the per employee, per headcount cost. But personnel costs in general will, of course, continue to increase.

Operator, Operator

Your next question comes from Kiranjot Grewal from Bank of America.

Kiranjot Grewal, Analyst

I have a few questions. Regarding RNG, can you explain where the product is currently available? I would have expected strong presence in faster-growing markets like North America, Latin America, and Asia to support growth. I'm trying to understand what's hindering that growth. I appreciate the new regional disclosures as well. Looking at the other category, I see it's quite small now, but it seems to have weakened, considering it’s a new segment. What exactly is included in that, and what factors are causing this softness? Should we expect this to persist in the future? Returning to Asia, the segment has increased about 50% year-over-year. What are the key regions contributing to this growth? Is it due to market share gains or the arrival of new customers? Are your B2C operators expanding in those areas, and is that contributing to the growth? I’m interested in understanding the potential sustainability of this growth moving forward.

Martin Carlesund, CEO

RNG is not growing faster in North America primarily due to regulatory requirements that necessitate each game to be certified in every market, which takes a considerable amount of time. This process relies on regulators and external certification institutions, causing delays. We are making efforts to release more games, but these regulatory factors limit us. Additionally, we are in the midst of rolling out all our games into OSS, which also presents some limitations. Overall, we are still releasing a similar number of games as last year, but we anticipate a gradual increase towards the end of the year. When we examined the geographic regions, I am pleased with the results and glad that you are too. The other region primarily includes Africa, along with some countries in the Middle East and possibly New Zealand that do not fit into specific categories. The performance in these areas has been weaker, but they represent a smaller portion of our business. Africa faces challenges such as internet connectivity, which we need to address. Initially, we often see fluctuations quarter-over-quarter. Our market share growth in Asia comes from capturing business from competitors rather than from an overall market increase. We have strong traction in Asia due to the superiority of our product. That sums up my comments on the matter.

Operator, Operator

Your next question comes from Monique Pollard from Citi.

Monique Pollard, Analyst

Three questions from me, if I can. The first was just, do you have any sense of how fast the slots market, RNG market is growing globally? Or if you have a sense of how fast your big competitors or what you see as your big competitors growing in that market? I'm just trying to get a sense of the current environment for RNG versus your sort of medium-term plan of double-digit growth. The second is just on the cash utilization. Obviously, you touched on that before. You said, M&A was possible, but not the big focus, talking about your 50% payout ratio and buybacks. But would you consider the M&A on the RNG side? And then just on Asia, I just wondered if you were able to give any color of whether you've signed any meaningful clients recently, or if it's more on the consumer spend side in market that is driving that strong growth in that region?

Martin Carlesund, CEO

I believe most of these factors are related to my area. Assessing the underlying growth of RNG globally or by region is quite challenging. While a few institutions are attempting to analyze this, I often find their conclusions to be incorrect. They make a good effort, but it's a difficult task. The online casino market in Europe is likely growing at a rate between 5% and 20%, varying by market conditions. The U.S. continues to experience growth, and you can track those numbers. Asia appears to be more stable as a larger gaming market, while it's tough to provide any insights on Africa. Regarding mergers and acquisitions, we are selective and seek opportunities that strategically enhance our value. We do not pursue growth or market share for the sake of it; instead, we aim to add value. Currently, we have an appropriate product mix in RNG that we need to leverage. Although we are exploring options, I wouldn't say there are any significant new operators in Asia; it seems to be more of a stable business environment with typical market share growth.

Operator, Operator

Your next question comes from James Rowland Clark from Barclays.

James Clark, Analyst

My first question is on the European growth rate, which you've mentioned, has improved there. Are there any markets that you would call out that are helping to drive that? I appreciate you said it's not really a market share gains market. It's more about the market overall itself, so any particular countries that you would call out?

Martin Carlesund, CEO

I wouldn't highlight any specific markets. It's spring in Europe right now, and we had a strong quarter.

James Clark, Analyst

Okay. And then in the U.S., again, you mentioned one of the drivers is iGaming legislation. Any states that you're looking at or particularly interested in at the moment that you expect legislature to realize? You know it is sometimes politics, but where are you most optimistic?

Martin Carlesund, CEO

It's the usual suspects, and we are quite defensive right now, but it's Indiana, Illinois, and New York. And then suddenly it can be someone completely different, and that goes faster, but I have no real fundamental direction on that.

James Clark, Analyst

Okay. My final question is about mergers and acquisitions. Following up on what Monique asked, you mentioned that you're satisfied with your product mix in RNG and your technological capabilities. Can you elaborate on the M&A opportunities you see? If you're happy with RNG, is there room for M&A? You also stated that you don't want to buy market share, so what kind of M&A opportunities are you pursuing? Can we assume it won't involve entering another product vertical like online sports betting?

Martin Carlesund, CEO

I think we don't discuss it much because it's not significant in size. However, when we acquired DigiWheel, it was to obtain a remarkable piece of hardware combined with software that we could leverage. The result of that is Funky Time, which is the most advanced and exciting game we've ever created. Whatever players think about it will be seen later, but we needed it, and we purchased it. We also used it to extend our reach into the land-based market with DigiWheel, which will generate revenues over the next 10, 15, or even 20 years; just don’t calculate the net present value of that. We would eagerly make that type of acquisition again if we found something similar, as it would be incredible.

James Clark, Analyst

Okay. And the sports betting point, you wouldn't be looking at experiencing another product vertical, we can assume?

Martin Carlesund, CEO

We're very comfortable where we are with the business and business in online casino. We want to be the largest supplier of online casino in the world for 10, 15, 20 years to come. We're happy with that place.

Operator, Operator

Your next question comes from Marlon Varnik from Nordea Markets.

Marlon Varnik, Analyst

Just a follow-up question here on studios. How is the ramp-up of studios going? I remember you mentioned that Jarvan was going slowly before? And what's causing the potential problems in this ramp-up here?

Martin Carlesund, CEO

It's always progressing too slowly. It's the current situation, and we need to increase our pace. However, I believe we are improving, especially with Jarvan, which is showing good growth. We need to expand by adding more studios and increasing our capacity. There's nothing specifically causing the slow progress, but we always strive for more.

Marlon Varnik, Analyst

Yes. Okay. You also mentioned that you expect a couple of new studios in LatAm. Can we expect anything already during the second half of 2023? Any time frame you can give here would be appreciated.

Martin Carlesund, CEO

I understand that you want it. And the problem is that I can't give it to you right now. As soon as I have a good and valid timeframe, I will share it.

Operator, Operator

Your next question comes from Simon Davies from Deutsche Bank.

Simon Davies, Analyst

Just two quick ones from me. Firstly, in terms of disclosure, obviously, you absorbed Nordic and the U.K. within Europe. Can you give us a breakout in terms of how those two markets performed in the period? And secondly, the EUR 3 million-ish FX hit, which were the big currency moves that impacted that?

Jacob Kaplan, CFO

We do not provide a breakdown of individual regions, so we won't separately identify the Nordics and the U.K. going forward. They are included as part of Europe, and the trends in those regions have remained fairly stable over the past year. Regarding currency effects, we have included that information in the report, which we haven't done before. We typically don't focus heavily on currency impacts, but moving forward, you will have that data. If the quarter had used the same foreign exchange rates as the first quarter of 2022, EBITDA would have been EUR 3 million higher this quarter. However, we view this as just one of many external factors affecting us, and we don't emphasize it too much. The currencies that were most significant recently include the U.S. dollar and Georgian lari, but our primary exposure is to the euro, both for revenue and expenses, which is why currency hasn’t been a major topic for us in the past. You will have that data moving forward.

Operator, Operator

This concludes our question-and-answer session. I'd now like to hand the conference back over to Mr. Carlesund for any closing remarks.

Martin Carlesund, CEO

Thank you very much for participating. And it's a pleasure to have you and look forward to speaking to you in a couple of months again. Thank you. Bye.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.