Earnings Call
Evotec SE (EVO)
Earnings Call Transcript - EVO Q1 2022
Operator, Operator
Dear ladies and gentlemen, welcome to the Evolution audio call for the teleconference Q1 2022. Today, I'm pleased to present CEO Martin Carlesund and CFO Jacob Kaplan. Speakers, please begin.
Martin Carlesund, CEO
Good morning. Welcome, everyone, to the presentation of Evolution's report for the first quarter of 2022. My name is Martin Carlesund, and I'm the CEO of Evolution. With me, as always, I have our CFO, Jacob Kaplan. I will start with some comments on the performance in the quarter, after which 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 then we are happy to take your questions. However, before going to the next slide, I want to comment on the pictures you now see. This photo was taken 3 days ago, and it's one of our latest astonishing studios. It's the studio for the coming product, Crazy Coin Flip. Crazy Coin Flip is a world-class mash-up of a beautiful RNG slot, and a superb live game with a fantastic user experience. The game provides the best of both in a format that has never been seen before. A great experience for our end user is always what comes first for Evolution. Next slide, please. As always, life in Evolution is intense, and we are at an exceptionally high pace and deliberate. The great result in the quarter is an outcome of all the hard work performed by all our employees. We are in an investment phase with a full focus on further increasing our competitive edge and preparing for our future growth. This is done by expanding studio capacity, maintaining a clear focus on product innovation and end-user experience, as well as the never-ending work to improve our operational excellence. To keep pace with demand, we are expanding in current studios and building 3 new studios at the same time: 1 in Madrid, 1 in Armenia, and the latest one in Connecticut. The brand new studio in Madrid is going live today as we have this meeting, actually. It's very exciting. Connecticut and Armenia are planned to go live in the near future. The opportunities in North America are very promising, and we will continue to substantially invest in that market. In the quarter, we launched Lightning Roulette in New Jersey, subject to necessary regulatory approvals in other states. Our aim is to have Lightning Roulette tables in each of the states that we are live with Evolution Live products. In Ontario, we are live with only the Ontario market since October, but since the beginning of April, we are also live with all commercial operators. Worth mentioning in relation to the first quarter is the renewal of our existing agreement with FanDuel Group to become a new selected provider of live casino across the entire U.S. We have great momentum in North America, and March was a new record month for Evolution, and we are all well prepared to continue that development. Last quarter, I spoke about our one-stop shop enabling our operators to reach all our content through one seamless back end that will enable a much faster rollout of new products. I can, as an example, mention that all operators on the newly opened Ontario market reached all Evolution products through OSS. OSS is also making it easier for operators to access and handle the products. During the second quarter, Evolution is launching a new fantastic lobby. I cannot express my excitement for the new lobby; think Amazon, Netflix, and you're getting close. It's powerful, seamless, beautiful and is going to make end users very happy. The lobby is smart, powerful, and personalized and already in April, we are starting to roll out, with the general rollout scheduled for sometime in June. Evolution has a game development hub in Ukraine. We all know the situation there. They primarily work with slots. Since the war began, all our efforts have been focused on the well-being of our local team. Evolution strongly condemns Russia's unprovoked attack on Ukraine. Evolution has no offices of customers based in Russia, and the direct financial effects of the war at this stage are not material to the group. At the beginning of the pandemic, our studio in Georgia was temporarily closed during limited periods, and a large share of the traffic was transferred and managed by Evolution's other studios. All studios in Evolution are interchangeable and can be used to offset one another. In the same way, we have been able to move a large part of the development in our Ukrainian engineering hub to one of our 10 other hubs across Europe, but also reallocating as many developers as we can out of Ukraine. To be a global company with sites across multiple territories is an important risk-reducing factor. Now let's move to the coming slides and see the sector numbers and products of all our efforts. Operator, next slide. We continue the momentum from 2021 and have seen a very strong start of 2022. Operationally, it has been a very good quarter, and I'm pleased to see the strong results we present today. Revenues increased by 39% to EUR 327 million. EBITDA increased by 43% to EUR 230 million, corresponding to a margin of 70.3%. This is within our guidance of 69% to 71% for the full year. In my view, we can manage the guided margins for 2022 despite the cost increases we see worldwide, both in services and products. However, as stated many times before, in the trade-off between growth and margin, we will always prioritize growth. Live casino delivered satisfactory growth of 44% compared to Q1 last year. RNG revenue amounted to EUR 62.3 million with a growth of almost 2% compared to the combined revenue of NetEnt and BTG during Q1 2021. This is in line with our base case expectations. However, we do have higher expectations for growth going forward. Moving forward into 2022, the path to growth within RNG is a high priority. The lineup of upcoming slots is strong, and I feel confident that performance within this vertical will increase and contribute more significantly to the overall results from both brands by the end of the year. All in all, I'm very pleased to present yet another very strong quarter for Evolution. We're definitely well placed to further strengthen our market share and continue getting ahead of competitors. But as always, we need to work hard and become better every single day. Next slide, please. Bet spots is to be seen as an indicator of the activity in the Evolution Live Network. The number of bet spots from the end users amounted to 22.6 billion, which is an increase of 8% from last quarter, a very strong increase. Compared to Q1 last year, that's a growth of 31%. The fourth quarter normally has strong seasonality, and it's satisfying to see that we can continue to increase the number of bet spots at such a high pace during the first quarter. We can also note that the comparison in 2021 was affected by the high network activity and game type changing activities from the players due to the COVID lockdown. As long as we continue to create great games that are exciting and relevant, the new phase will be attractive to our type of incentives and the player base will increase. At the same time, I know the new players that have been introduced to Live Casino over the past year continue to accelerate the long-term growth. Next slide, please. Expanding our studio capacity means that we need a large recruiting base. In the quarter, we welcomed more than 900 new employees net. The increase in staff year-on-year amounted to 4,115, corresponding to an increase of 40%. We will continue to increase headcount during the year, and as we open our new studios in Madrid, Armenia, and Connecticut, as well as expand in existing studios, the fast growth of the company necessitates a similarly high pace in our recruitment. Therefore, recruitment will continue to be one of our priorities and key processes. At Evolution, diversity in all forms is considered a competitive advantage and an asset. We have more than 100 nationalities represented in Evolution, and for the company as a whole, 59% of the managers across all levels are female. These numbers are a testament to that equality and diversity are integral to the day-to-day operations and a key component of the company's business success. At the end of the period, we were more than 14,000 Evolutioners. The Evolution family consists of super talented people with a winning mindset who want to attract the best talent and put a lot of resources into being a modern and fair employer, which is an ambition I believe we are fulfilling. Next slide, please. In February, we hosted an online event to share our plan for 2022 and showcase 25 new online casino games from across all our brands. I'm excited to tell you that so far, over 30,000 industry people worldwide have watched this film on the different platforms it has been published. Our group's product roadmap for this year is the strongest one ever, with great variety and innovation among the existing releases from all six of our brands. This year, across the group, we will present more successful additions to the bestseller game concepts such as our Lightning family along with collaborations with famous entertainment brands and unique clients for live and soft games. Needless to say, I'm very excited about the new games we have lined up for this year. As a group, we are committed to creating the best gaming experience for every player in both licensed laws. Crazy Coin Flip is one example that I mentioned earlier, and you saw on the first slide. Another game that we will launch in the quarter is Super Unload the Heart. It's a world-class online version of the traditional Indian car game streamed from our beautiful Indian team studio for a truly centric gaming experience. For those of you who liked Lightning Roulette, I recommend our newest addition to the Lightning family, Extreme XXXTREME Lightning Roulette; it's an exciting expansion of our award-winning Lightning Roulette. This is likely the most dramatic and exciting version of Roulette ever seen in the world. All our RNG brands have a strong lineup for operators and players coming up this year, which will help us achieve our aim of double-digit growth in RNG. In addition to new titles, an important part of product development is constantly improving the gaming experience in our existing games. Recently, several of our first-person games have undergone some striking design improvements for an even more realistic 3D animated gaming experience. As I stated in the beginning, this is the best form of our portfolio, and I'm very excited about the rest of 2022. Next slide, please. This slide shows the breakdown of our revenue by geographic region. We continue to see increased demand for online casino across the globe. In 2021, we expanded the number of tables by over 300. However, demand is so strong that we're underserving the market. In Asia, we saw continued growth, amounting to 94% year-on-year. North America is also growing fast, with the year-on-year growth amounting to 70%. We see good potential in both these markets and expect a continued high growth rate going forward. In Asia, we have been successful with daily content, and especially our variations on Baccarat have been well received by players. In North America, we look forward to the opening of our fourth studio, and we have high expectations for the entire market. Worth noting is that we are not dependent on new regulated states for our growth in the U.S. We still see great potential in already regulated and open states. European markets, in general, have slower growth than the North American and Asian markets due to both regulatory changes as well as their more mature state. One year ago, the whole of Europe amounted to 60% of our revenue; today, that number is 47%. The Nordics and the U.K. are similar; with year-on-year growth in the U.K. amounting to 1.9% and in the Nordics amounting to 33%. The rest of the year had a more moderate growth of 4.5% year-on-year. Other regions, including South America, Africa, and the remaining parts of the world, show good growth of almost 8% year-on-year. The share of revenues from regulated markets amounts to 4% in Q1. I will now pass on to Jacob for a closer look at the financials.
Jacob Kaplan, CFO
Thank you, Martin. I'm on Slide #8. Revenue amounts to EUR 326.8 million in the quarter, as you can see in the graph. That's made up of EUR 264.5 million related to our Live Casino product, and EUR 62.3 million from our RNG games. Live Casino continues to develop really well, as Martin also described earlier. And compared to the same quarter of 2021, Live Casino increased over 44%. That's very good against the first half of 2021, where we had almost extreme growth in Live Casino. This quarter's growth rate also compares well to the pre-pandemic growth rate from 2019 and earlier. RNG revenues increased 1.8% compared to the pro forma figures for Q1 2021, which included Big Time Gaming in the comparison quarter. Compared to the previous quarter, RNG revenue is lower, partly due to a strong Q4 and generally high payer activity around year-end with Christmas promotions and the like. But of course, we would also like to do better in the RNG area. We mentioned last quarter that our ambition to reach double-digit growth remains even though it will not be reached in the next couple of quarters. We have lots of work going on, as you just heard in the RNG area, and I'm convinced that this will pay off in the long run. But we have a couple of tougher quarters ahead of us in the RNG area, as I see it right now. Total revenue growth compared to Q1 2021 is 39%. Q1 2021 includes NetEnt for the full quarter as they came into the group in December of 2020. EBITDA for the quarter amounted to EUR 229.7 million, giving an EBITDA margin of 70.3% in the quarter. This is in line with our margin guidance of 69% to 71% for the year. We do see cost increases in many areas right now, both due to our high activity level, and we also see price inflation in most markets right now. This does drive costs, and we will have to manage that. Our main priority remains supporting growth. So growth of our margins will continue to be our priority. All that said, however, we do maintain our margin guidance unchanged. Operator, let's move to the next slide, please. This slide shows our P&L in a bit more detail. Here, the 2021 figures do not include any pro forma adjustments. From the top, we have Live revenue again, EUR 264.5 million and RNG just over EUR 62 million. That's a 44% growth rate, which is fully organic for Live Casino. You can see there's a 19% growth rate in RNG compared to the reported figures of Q1 '21. So that includes the acquired growth. Total revenue of EUR 326 million, that's an increase of EUR 90 million compared to reported revenue in Q1 last year. Moving down to expenses. Personnel expenses amount to EUR 63.5 million, an increase of 30% compared to the same period last year. It's also up a notch from the previous quarter, Q4. We are expanding in all areas, recruiting heavily both within our operations and in engineering. We expect to see some higher wage increases this year in many markets compared to the previous year. So that's a point of pressure there. Depreciation amounts to EUR 22.6 million. That includes EUR 10.4 million in amortization of intangibles related to acquisitions of NetEnt and Big Time Gaming. Moving down to other operating expenses, which include items such as consumable equipment, communication costs, consultants, and royalty fees. This line amounts to EUR 33.6 million in the quarter. It's up 25% compared to the same period in 2021, but down compared to the previous quarter Q4. In hindsight, I can conclude that Q4 did carry a few extra expenses that tend to come in at year-end, and this quarter might be a little bit on the low side. Looking at our run rate, I would say it's probably somewhere in the middle of this quarter and Q4. Summing up, total operating expenses totaled just over EUR 119 million for the first 3 months of the year, an increase of 27% compared to the reported figures in the same period last year. Operating profit stands at EUR 207.1 million for the quarter. Moving down to financial items, this includes a positive item of EUR 5 million related to the completion of the compulsory buyout of the remaining NetEnt shares that did not come with the original share offer a year ago. When arbitration was completed earlier this quarter, the amount paid was lower than what was in our acquisition analysis. Since the final period since the acquisition has passed, the correction of goodwill is now over the P&L. Therefore, we have a EUR 5 million positive item on financial items. Tax is at EUR 13.7 million for the quarter, resulting in a tax rate of 6.5%. These items bring us to a profit for the 3-month period of EUR 197.7 million, amounting to an increase of 50% compared to the first quarter. All right, we can go to the next slide. Operator, we can move on. Cash flow and financial position before I hand back to Martin; we'll have a look at that. Starting from the left in the slide, we have capital expenditure development. The large part of the bar represents investments in tangible assets, which are mainly our studio build projects. In the first quarter, CapEx and intangible assets is EUR 14 million. As mentioned earlier, activity is very high regarding studio projects, and we expect to continue that high pace throughout this year. We mentioned projects in Madrid, as well as the one in Connecticut among the larger projects right now. In Madrid, we are excited to have our first table live today, but investment will continue as we expand and build out capacity gradually in all these projects. The positive side effect of expanding networks for studios is that today's network of existing studios is more resilient than ever before, and the tendency on any single studio is continuously decreasing. As Martin mentioned, that's something we see as very positive and something that will benefit operators. The blue part of the bar in the chart represents the investment in intangible assets related to the development of new games and features to the platform, totaling EUR 7.1 million in the quarter. As we've mentioned before, investment in games will continue at a very high pace. We have a record number of games coming out this year. That will also continue. Overall for the full year 2022, I estimate we would have CapEx around EUR 90 million; we were at roughly EUR 60 million for 2021. During 2020 and '21, especially, we faced challenges, particularly in intangible assets due to difficulties in building during the pandemic. Hence, we have a catch-up effect this year, but of course, our growth warrants the continued investment in studios and engagement. Moving on to the middle of the slide, we see operating cash flow at over EUR 209 million, and cash conversion on the rolling 12-month basis is just over 80%. Now, focusing on the far right of the slide, we have EUR 439 million in cash at the end of March. Since then, EUR 303 million has been paid out as dividends for 2021 earlier in April. Currently, we have a reduced cash balance, but with strong cash flows, we maintain an overall very strong financial position.
Martin Carlesund, CEO
Thank you Jacob. A few words, next slide and of course, the outlook for 2022, actually, not 2021. You can see that there's something wrong with that slide. If you find it, you send the mail and you get a prize. A few words to conclude this presentation. This year will be the year of product and innovation. We have entered the year with good momentum and equipped with the expanded product portfolio in Thailand. I look forward with enthusiasm to the rest of the year. We will release a record number of new innovative, exciting, and fantastic products. Exciting games to inspire current as well as future players. It's hectic times, as I started this presentation with. But remember, the demand for our products is global, and we will continue to invest in products, capacity, and of course, in our people to fulfill the worldwide demand. We relentlessly continue to push our boundaries, and we are as paramount ever. Thank you all for listening, and we'll speak again in a couple of months. Now, let's go to the last slide and questions.
Operator, Operator
The first question is from Martin Arnell, DNB Markets.
Martin Arnell, Analyst
I hope you can hear me.
Martin Carlesund, CEO
Yes. Very well.
Martin Arnell, Analyst
So Martin, I noticed you mentioned that you're sort of underserving the market. When do you think that you will be out of such a situation and actually be on par with the demand?
Martin Carlesund, CEO
I don't have a clear timing for that. But I think that as we grow continuously and expand the market, I believe that we will be underserving the market for quite some time going forward. But right now, it's a bit too high. We need to expand a little bit faster during the...
Martin Arnell, Analyst
Madrid is open today. Is the launch for the first year planned for the near term? Also, when do you anticipate Connecticut Live will be operational?
Martin Carlesund, CEO
I think that in the near future, and I don't want to pick a date for either Connecticut or Armenia right now, but it's in the near future.
Martin Arnell, Analyst
Okay. And looking at your activity in April, do you see any change of trends compared with Q1?
Martin Carlesund, CEO
I have stated that we are very happy with the momentum during Q1. I focused on the fact that we have the best product roadmap ever, and we're going to release a lot of products. We're happy with the momentum coming out of Q1.
Martin Arnell, Analyst
Okay. And how many of these games do you have left to launch for the rest of 2022?
Martin Carlesund, CEO
We have a roadmap consisting of 88. I didn't do exact math, but we are just at the beginning of the release period right now.
Martin Arnell, Analyst
Okay. Then North America, it's Ontario and you're going to launch in Connecticut. You have the Lightning Roulette game. Do you expect any change of the growth rates during the coming quarters in North America?
Martin Carlesund, CEO
We don't guide on the growth rate going forward. We are very happy with the growth rate that we have right now. I think that we have great momentum. There's more to do, expanding in all studios, and we will continue expanding as possible through Q2 and onwards.
Martin Arnell, Analyst
Okay. And I saw that you commented in the media here this morning that you had concluded the internal review. Can you comment a bit more on that, please?
Martin Carlesund, CEO
Yes, I think that we commented that already earlier. When this report was created, of course, we review everything internally, and we prepare ourselves to hand over any information that is requested. We found a lot of things that we could do better, as we do in all areas every day. We are happy with that result and move on from there. We have a good relation with the regulators around the world.
Martin Arnell, Analyst
Okay. And has that impacted the business, your conclusions and your actions? Has that had any impact on the business in the last 2 quarters?
Martin Carlesund, CEO
As stated before, no material impact.
Martin Arnell, Analyst
Okay. I'm curious about the improvements for consumers and operators. How would you summarize them?
Martin Carlesund, CEO
The consumers will find it intuitive. It will be something that when you come in, you will know exactly what to do. I think it's similar to how Amazon works; it will be a major step forward for user experience in selecting and finding games.
Jacob Kaplan, CFO
The EBITDA margin—did you expect to reach above 70% already in Q1 when you set that target for 2022? It was a full year guidance, 69% to 71%. As we said then, we saw that we were close to 70% coming out of Q4. So we didn't have a kind of quarter-by-quarter agenda. I think that like we said, we see that, that guidance still stands. So we're not ahead of plan or anything like that.
Martin Arnell, Analyst
Okay. And your cash position? I think you have EUR 440 million. Just curious, you did some buybacks in Q1. How are you thinking about M&A possibilities, potential to add a new vertical in the long term—or what's stopping you from those initiatives?
Jacob Kaplan, CFO
Yes, as I mentioned there, since the end of the period here, we have made dividends of a little over EUR 300 million. So cash balance is lower, but cash flows are good. We will be in a cash position. Again, I don't see that there's a material change to our strategy there. We have said before that we will — we evaluate and look at M&A opportunities. But the primary growth basis that we see is organic growth, and dividend growth is no change. I don't know if you want to add something, Martin, maybe on the...
Martin Carlesund, CEO
We are aiming and moving, and we want to be #1 in our markets around the world, as you all know. We're constantly looking at what this could actually unlock and enable us to move quicker on that path. So we're always looking, but we want to find the right opportunities.
Edward Young, Analyst
I've got just three questions, please. The first is on your comments on diversification of supply. You're saying the ability to shift the supply of your services from your 15 different studios. If I look at your two main competitors in Europe, one of them has almost all their tables in one location, while the other just has one location. So is this just about business resilience? Or are you also finding it competitively helps you win contracts with operators?
Martin Carlesund, CEO
I think the one key—it's a good question. The one key learning that we all did from the pandemic is that resilience and the ability to shift capacity from one place to another is important in the new world because you never know what’s going to happen. Our network allows us to interchange the tables between different studios. Now it's also important to remember that there are different types of tables or products where Crazy Time could be one and a single bucket is another, and they have completely different intensities and setups. Even though one studio could consist of many tables, it doesn't mean that it's a larger part of the business. So it's all interchangeable, and we work to make it like that. I see that as a competitive advantage and also a security for all the operators.
Edward Young, Analyst
Understood. And looking at the North America market, you mentioned the contract with a provider, which I think you described as being the selected provider. I think that's also translated as an exclusive provider. Do you think that's an exception in the market? Or do you think there's a chance that other major operators would look to strike similar kinds of deals?
Martin Carlesund, CEO
I think we've been living in a world where there's been exclusivity, and we have been blocked out from some customers to some extent. But I believe it will probably ease. In total, I believe in competition, I believe in an open market, and we need to move forward. We need to have the best product and get better every day. However, some arrangements with others could potentially form a kind of partnership, which gives some kind of preferred situation for a period.
Edward Young, Analyst
Okay. And then the third one, I just wondered if you could help us with Canada. You mentioned extensive casino services to providers in Ontario. Could you perhaps help quantify what kind of impact that could look like in Q2 and onwards, given you think you've launched pretty successfully at the start of the period?
Martin Carlesund, CEO
We're very happy with the launch to rely on the first day with all operators that have the live plans. It's a great market. I think it was very well handled by the regulators and lotteries. We see good potential in the Ontario market going forward.
Edward Young, Analyst
Okay. Perhaps if I could just come back on that. I think it's fair to say you're serving that market from the European studios—existing studios. The supply is already there. Demand, I guess, should be fairly quick. Should we expect an acceleration in North American growth in Q2 over the previous quarter? Is that a fair assumption?
Martin Carlesund, CEO
You are correct that we are supporting from most of the European network. However, Ontario as a market is just one singular market, and I don't think any market in North America as a single one should be overvalued. It is a great market, and we will see good expansion there.
Oscar Ronnkvist, Analyst
All right. So the first one, sorry if you need to repeat yourself here, but one year ago in the Q1 conference call, you wouldn't revise the margin guidance. You said there was room on the upside, which eventually turned out to be the case. As I know, every year, the reported margin has exceeded your initial expectations. As a third of 2022 has passed, did you have any additional comments regarding how we should think about the current margin guidance for 2022?
Jacob Kaplan, CFO
Yes, it will be a little bit—we won't say there's room on the upside today, so it's the guidance of 69% to 71%. We think that incorporates some of the cost increases we see in many areas, as we mentioned. So no.
Martin Carlesund, CEO
I can also add that we are in an unstable situation in the world. The inflation is rising quite a lot, and there's a war going on. We're very happy to maintain the guidance of 69% to 71% given these circumstances coming out of the pandemic.
Oscar Ronnkvist, Analyst
Okay. Just a follow-up. Would you say that before you made the margin guidance, your growth expectations; are they now higher than the initial margin guidance when it was set?
Martin Carlesund, CEO
The margin guidance of 69% to 71%, we were happy with that, and that's the best guidance we can offer at this time. Now we're standing in Q1, and one quarter of the year has passed. We maintain that, indicating it's a good guidance, and there are three quarters left to come.
Jacob Kaplan, CFO
As a reminder, we have said so many times, our main priority is always trying to maximize growth. We provide fair assessment for margin expectations but it becomes a meta discussion to compare before and after.
Oscar Ronnkvist, Analyst
All right. Got it. So next one, regarding the lockdowns in Asia and the Russian invasion of Ukraine. One might think that one—the first one had a positive impact on your growth and the second one had a negative impact. Just to give you an example, the Asian part looks like the Baccarat tables are going quite strong at the moment. Could you comment on the impact you think these two events have had on this quarter's top line growth?
Martin Carlesund, CEO
Regarding Russia, we don't have any customers in Russia, and it's not a large market for us. For the Asian lockdowns, we haven't made any assumptions about them. We have good momentum there, as reflected in our growth. We've maintained that for quite some time, and I see great expansion going forward as well.
Oscar Ronnkvist, Analyst
Okay. Just a final one on cost here. The personnel costs increased quite a lot from Q4, but also the other operating expenses decreased significantly from Q4. You said that Q4 was high on the other operating costs and Q1 here was on the low side. How should we think about personnel costs going forward, especially in the sequential growth context?
Jacob Kaplan, CFO
On personnel costs, we’ll continue to recruit and adapt. There’s no specific low or high spending target, just the form of growth we’ve seen. More tables, more staff, and more engineers will affect personnel costs. As for other operating costs, there are many items involved, and there may be a bit of fluctuation in the coming quarters. Overall, our margin guidance can give you an idea of how we see cost development.
Monique Pollard, Analyst
I have just a couple of questions. The first one just on Russia. I don’t see your Russian revenue exposure. I know you don't have customers there, but your Russian revenue exposure was low single digits previously. I just wanted to understand exactly how that has altered in the quarter, or if that Russian revenue has been roughly maintained through the quarter and how we could expect that to evolve through the year.
Martin Carlesund, CEO
When it comes to Russia, it’s lower now than it was before. So it’s coming down. That’s the comment on that. We monitor any sanctions that may come and what actions we will take regarding this.
Monique Pollard, Analyst
Secondly, on the RNG growth. I just wanted to understand if you're still confident to achieve double-digit growth in RNG at some point this year or if that could flip into 2023 given that you just mentioned the next couple of quarters would be more challenging on the growth side for that division.
Martin Carlesund, CEO
That's clear; that's our ambition. That's what we're heading towards. Exactly what time frame, I already stated that we are at the base case. We are on base case for RNG growth. We are satisfied, but we need to take another step.
Oscar Erixon, Analyst
A couple of questions from me, starting with the U.S., also growing rapidly in North America, and new U.S. states aren't necessary for continued high growth, as you mentioned, Martin. But can you talk about the timeline for the Connecticut Live Casino launch—coming Q2 or Q3? Also, on new states, what do you see for 2023 since 2022 seems to lack new states, as far as I can tell?
Martin Carlesund, CEO
We very much look forward to Connecticut as a new state. And of course—and I stated—I don't want to give you the date for Connecticut, but it's in the near future. Our studio is nearly ready, and we’re finalizing now. When it comes to new states, that's a bit like predicting weather as there are movements happening in New York.
Oscar Erixon, Analyst
Understood. That's very helpful. And then on the U.S. again, can you say something about the processes for getting more Live Casino games licensed? Do you expect it to accelerate in 2022? Or will it continue to be the bottleneck and not going as fast as you would have liked?
Martin Carlesund, CEO
The first answer is very simple; it will never go as fast as I want it to. That's a reality. We need to move that. Licensing and approving new games requires working closely with the regulators. It’s an ongoing process that ultimately depends on the regulators. We are doing everything we can to establish a connection and expedite our games to launch, and I'm hopeful we can release more during 2022.
Jacob Kaplan, CFO
Compared to a year ago or so, I would say it’s a good process, but it takes time. We need to continue that work, and we hope it will eventually yield results.
Martin Carlesund, CEO
It's a good process, and we're making progress but not fast enough.
Oscar Erixon, Analyst
Understood. And then on Latin America—it has seemingly grown strongly for you and also for European operators in the region. What are your thoughts on the development there? What do you say about the plans and potential?
Martin Carlesund, CEO
If we put timing aside, I think long-term, there is phenomenal interest and potential in that market. It's beginning to move with Argentina, Colombia, and now discussions are happening about Brazil, among others. However, each of the regions may pose some regulatory challenges. In the next 10 years, I believe Latin America will become a major market for Evolution.
Oscar Erixon, Analyst
Perfect. And then a final question here. It seems like operators heavily reliant on regulated European markets are seeing clear post-COVID effects while other markets are performing well. Do you see a similar pattern? To what extent do you view it as more of a regulatory element in certain European markets?
Martin Carlesund, CEO
I believe the situation in Europe primarily has to do with regulatory aspects more than the COVID or post-COVID situation. Some operators are facing difficulties obtaining licenses, while some markets may not issue licenses like Germany. Our stance as Evolution is that we haven't seen a significant impact from a pandemic perspective.
Kiranjot Grewal, Analyst
Firstly, I know you mentioned you're happy with April performance to date; however, there are quite a few concerns regarding broader economic performance across Europe. Are you seeing or do you expect to see any impact from a tougher consumer environment?
Martin Carlesund, CEO
The situation in the world is very unstable at the moment. We have had no material effects from that in Q1. We're happy with our strong figures and the almost 9% growth. Going forward, we guide on the 69% to 71% margin, and we expect a positive impact as we release new products. What happens in the world remains unpredictable.
Kiranjot Grewal, Analyst
Okay. Can I dig into the RNG performance a little bit? RNG pulled back. I know you have a pipeline of new games going forward, but can you comment on why we had that pullback in Q1? Are you losing market share, or will the game launches be enough to get you back?
Martin Carlesund, CEO
We have a good roadmap for 2022. We were aware of mild figures in Q1, and we are excited to strengthen that through the remainder of the year. Our ambition to achieve double-digit growth remains firm; indeed, we are working towards that.
Kiranjot Grewal, Analyst
Perfect. And just the last one—you've gone live in Ontario. Are you able to comment on the size of the boost we should expect rolling in from that launch? I know you're live with lotteries, but now that the bigger players are back on, what should be the growth expectation?
Martin Carlesund, CEO
I think it's a fantastic market. We went live on the first day with all operators, which is something I’m very proud of. We'll see good potential and growth illuminated by the fact that we'll continue expanding. However, I wouldn’t place too much emphasis on one single market altering the overall landscape.
Rikard Engberg, Analyst
I have one question regarding the development in bet spots and headcount. Given that you grow the headcount more than the bet spots year-on-year, do you think you will be able to accelerate the growth in bet spots over the coming quarters?
Martin Carlesund, CEO
It's a good question. If you look at the comparison figures for Q1 2021, there was a big bump from COVID. Now we're missing those, leading to a stronger comparison. We saw an increase of 8% in bet spots, which is healthy. We expect to match better capacity with demand.
Rikard Engberg, Analyst
Good. And a follow-up question. If you observe the growth from Q3 last year to Q1, is the growth driven by increased capacity or is it due to higher activity in the network?
Martin Carlesund, CEO
Predominantly due to game-type shifts and higher activity rather than just capacity expansion.
Simon Davies, Analyst
Three quick ones from me, please. Firstly, a number of tech companies are talking about a war for talent. Are you seeing any signs of increasing staff churn rates? Or are you finding it more challenging to fill job vacancies?
Martin Carlesund, CEO
We have already stated that we want to recruit 1,000 engineers in the coming 24 to 36 months. That's a significant number of engineers across our different 10 hubs. There’s of course competition for the best talent—always a challenge. We expect to get the right people rather than just the high quantity.
Jacob Kaplan, CFO
As you know, we haven't broken down the regions into individual countries. Therefore, I have nothing specific to point out.
Simon Davies, Analyst
And the second question is about the Asian market, which has seen very strong growth. Can you identify any key markets within that that could perform particularly strongly?
Martin Carlesund, CEO
I think that we have a multifaceted Asian market; we've seen strong growth across a number of sectors and segments. We won't identify individual countries in this setting, but we see potential across the entire region.
Simon Davies, Analyst
The last question was just on the competitive environment. We've seen Playtech and Pragmatic increasing live casino capacity. Is there any evidence that they're competing more aggressively on pricing? Are you observing any pricing pressure in negotiations for new contracts?
Martin Carlesund, CEO
We have a favorable price position for our incredible products. We see so much value delivered year in and out. While there’s always some negotiation with every customer, I wouldn’t describe it as pricing pressure impacting our overall profitability.
Marlon Varnik, Analyst
Can you hear me?
Martin Carlesund, CEO
Yes. We can.
Marlon Varnik, Analyst
Just a follow-up question here on studio openings. I think, take Peru, for example, with the live casino studio. How do you assess the growth possibilities here in South America with the live casino opening, and why is it not a more immediate step?
Martin Carlesund, CEO
We will expand into South America and open studios where we already have. We will do it in an appropriate manner, with the right quality and location. We're working on it and currently seeing very good development and negotiations with various clients. I look forward to updating you when we have more news regarding the studio openings in Latin America.
Marlon Varnik, Analyst
Clear. And another follow-up question here. Given the pent-up demand you see, have you encountered any supply chain problems in the quarter that have dampened growth in these regions; for example, materials like dice for tables and so on? Any comments here would be appreciated.
Martin Carlesund, CEO
We have faced challenges, as many companies around the world have. Semiconductor shortages are one issue. Sometimes containers are delayed or misplaced. We’re managing to navigate through these challenges.
Marlon Varnik, Analyst
And given the supply chain issues, are there any specific regions affected more than others? I would assume North America here.
Martin Carlesund, CEO
I believe that it's globally challenging. It doesn't seem to be region-specific. The market for suppliers is worldwide. If you send something through North America or Europe, it's generally about the supply chain and not restricted to one region.
Marlon Varnik, Analyst
And lastly, a more broad question here. Given the past two years, the share of sales from unregulated markets has slightly decreased despite strong growth in Asia. Based on what you see today, with more markets regulating gaming, is the trend of decreasing unregulated sales share something you would expect to continue?
Martin Carlesund, CEO
On regulation, yes, in the long term, much more of the revenue in online casino will be from regulated markets. Countries will continue to regulate their gaming laws. It's a matter of time, rather than anything. Although the timeframe could vary from 1 year to 10 years, we expect this trend to continue.
Operator, Operator
There are no further questions. I hand back to you, speakers.
Martin Carlesund, CEO
Thank you very much for your time. It was a pleasure to talk to you and answer all your questions. I hope that you have a great day and see you all soon in a couple of months.