Evolution AB (publ)
STO:EVO
Earnings Call Analysis
Q3-2023 Analysis
Evolution AB (publ)
Evolution's Q3 2023 report reveals the company's consistent progress amidst challenges. CEO Martin Carlesund highlighted their success in launching a historic number of games, which is central to their aim of exceeding 100 new game releases within the year. This progress is set against a backdrop of increasing global demand for their Live Casino offerings, which experienced a revenue growth of 24.3% compared to the same period last year. The company is actively working to address the high demand they face, which currently outstrips their supply capacity due to delays in studio expansion and recruitment. Despite these hurdles, Evolution remains committed to substantial investments throughout 2023 and into 2024 to enhance their global studio footprint and game offerings, reinforcing their position at the forefront of online casino entertainment.
Evolution reported a revenue increase of 19.6% to EUR 452.6 million and an impressive EBITDA margin of 70.4%, aligned with their full-year guidance. However, they've acknowledged an adverse impact due to the strengthening of the euro against other currencies, estimating a 6-8 point negative effect on growth. Capital expenditures saw a slight decrease compared to earlier predictions, with tangible asset investments at EUR 100.8 million and intangibles, mainly game development, at EUR 10.9 million. Although full-year CapEx is likely to fall short of the EUR 120 million forecast, investment is expected to escalate in Q4 and into the following year. With a strong cash flow generation of EUR 265 million and a solid cash position of EUR 813 million, Evolution's financial health remains robust.
As Evolution sets its sights on global growth, several strategic moves include the expansion of studio spaces across Europe, North America, and Latin America. The preliminary work for roadmap 2024 is underway, promising to further elevate the gaming experience for new and current players. The company's market share enthusiasm is evident, particularly in highly prospective regions, such as Asia, with a 35% growth rate, and Latin America with an impressive 39% growth in the quarter. Despite slower growth in North America, the CEO remains optimistic about future game launches and regulatory progress. They remain committed to their ambitious pace of recruitment and development, looking to overcome the current demand-supply mismatch with a deeper control and understanding of the challenge encountered earlier this year.
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Good morning. Welcome, everyone, to the presentation of Evolution's report for the third quarter of 2023. My name is Martin Carlesund. I'm the CEO of Evolution. With me, as usual, I have our CFO, Jacob Kaplan. I will start with some comments on our performance in the quarter as usual as well. And thereafter, 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 all of your questions. Okay. So let's begin and move to the next slide. The underlying growth drivers of our business remain solid. There is a global audience for the excitement and entertainment that online casino brings, and we continue to see strong global demand for our games. During the third quarter, we have released more games than in an earlier quarter, and we are on track to exceed our target of 100 new games in 2023. There is more to come in the fourth quarter with games like Crazy Pachinko and Red Door Roulette shown here in the slide, and I'll come back to that in the upcoming game -- for the upcoming games later in the presentation. During Q2 and now also Q3, we see higher demand for Live Casino than we currently can deliver, which is very positive as our games have phenomenal traction on demand. Even so, we need to expand our studio space as well as increase the speed of recruitment. We're addressing this with foot force and at the moment in parallel building new studios in Europe, LatAm and also planning to add new studios in North America as well as expanding existing studios. We have faced some delays in build-out but even more importantly, need to increase the recruitment phase as the new students and more tables get ready to be added to the Evolution network. We are in an investment phase. And we will continue to invest as fast as we can during end of 2023 as well as during 2024. Notable projects this quarter included a new small studio Colombia, which went just after the end of the third quarter, a larger studio also initiated in Colombia as a next step during 2024. We also aim to open 1 new studio in Europe later this year and 3, 4 new studios are planned both in Europe, North America and Latin America for 2024. Now let's move to the coming slides and see the effect on numbers and products on our all our efforts. Let's look at financials. Revenue in the quarter increased by 19.6% to EUR 452.6 million. For the year-to-date prior growth amounted to 26.1%. EBITDA in the quarter increased by 22.1% to EUR 318.6 million, corresponding to a margin of 70.4%. For January to September, we reached a margin of 70.3%, which is in the upper front of our 68% to 71% guidance for the full year 2023. I'm pleased with the margin level, considering the cost levels in the world have increased significantly during the year, our focus on continuously increasing efficiency in our operations as well as good cost control through our organization has helped us achieving this. For Live Casino, we grew revenue with 24.3% compared to Q3 last year, summarizing to total revenue of EUR 385.8 million. In the third quarter, R&D revenues amounted to EUR 6.8 million corresponding to a negative growth of 1.9%, and our R&D business amounted to 14.8% of total revenue. For the first 9 months, though, we grew R&D with 4.9%. Overall, financial results in the quarter is solid. We prefer to concentrate on factors that we have controlled in explaining our results. And in general, we continue with this approach. However, this quarter, the impact from external factors are on a higher level than ever before. So I think it would be wrong not to mention it at all. The strengthening of the euro against most currencies compared to Q3 last year affects our top line growth during this year. Quantifying those effects in the third quarter, we calculated a 6 to 8 points negative headwind on growth from currency effects on revenue when comparing to the same quarter last year. Without this headwind, figures would have been very strong. Now let's move to the next slide. With the fast growth of the company, we need to have an equal high pace in our recruitment and recruitment will continue to be one of our priorities and one of our key processes. At the end of the period, we were close to 18,000 Evolutionars, working hard to delight players every day. Decrease in stock year-on-year amount to 1,900 employees corresponding to an increase of 12%. As said, on the beginning of the presentation, we've not added headcount fully as we would have liked. And together with studio build-out, we are now in a full force focusing on expansion. Hiring and retaining the best people is tough as it's ever been, and we're working with this contingency, identifying inefficiencies, improving our recruitment process. Challenges for recruitment are not new to us. It's just a reality in the business that is dependent on continuous high-influence people. Equally, this is the reason why it's very important to have the right incentive programs in place. Now move to the next slide. The game-around index shows the development of the whole Evolution network and includes all games. It can be seen as a general indicator for activity in our network. Over time, more game round means more activity leads to increased revenue. This quarter, game rounds increased 6% year-on-year, so a higher growth rate than our total revenue. Game run is growing faster than revenues is a development we have seen in the past few quarters, and it's natural as the volume of new players from new regions coming in with the lower bedsides. Looking at the absolute level of the index in Q2 and Q3, you can see some flattening, which, to some extent, reflected what we discussed in the previous slides regarding that we see a higher demand of our products that we currently can deliver. Next slide. Move to products. The rest of our product portfolio is already today and unmatched in Online Casino, and there are many more games to come. This year, we launched a record number of exciting games to inspire our client as well as future players. Let me mention a few of the gains recently and soon to be launched. 2 of the strongest brands in our portfolio are the lighting franchise and Crazy Time. Both will expand in the coming months and even a combination will be added to the product portfolio. This for item for the additions to the Crazy Time family in both of them, we continue to combine the world of live casino and RNG. Rednor lab combines the award-winning lighting or let with accelerating experience of tracts most popular [indiscernible] game, the Crazy Time game is going to be Crazy Pachinko. Based on the resistant bonus with the same name. This new addition to the Crazy Time family really shows the outstanding play experiences that we can create from mixing life and RNG together. Lightning Lotto is not just any game. It's a lagging -- is a bouncing ball lagging that takes the traditional later game players that know unlock this game to new labels. We changed it up with an electrifying twist and 2 ball rowing machines completed with the live game house. It's a fast pace in Mercer's high-energy game that's sure to keep the players on the same. With Evolution players can always find what suits their pace when it comes to gaming experience. The breadth of offering is a major distinguishing factor of Evolution. Remember that an operator normal casino today is not just competing against other suppliers of online casino. It's competing against the rest of the entertainment industry. We, as Evolution need to add products that will go up against streaming services and social media platform for players' time. End-user entertainment is the only true long-term measurement that matters. You need to be able to assure that you constantly increase the entertainment factor and push boundaries to be relevant for the players. Our games are on the edge, immersive, and entertainment constantly develop and move forward and on the player expansion. Innovation and the best game will always drive Evolution. We continue to innovate, substantially enhanced, and refine the player experience. We are currently in full preparation for the road map 2024. And yes, it will be the best router. 2024 is yet another year of the product. Move to the next slide. This slide shows the breakdown of our revenue by geographic region. We have a true global and strong demand for our product, which is also reflected in the spread of revenues over a geographic regions. Europe continues to have a healthy growth. It's amounted to 10% in the third quarter compared to last year. For the first 9 months, the growth amounted to 13%, which is a good sign that we still develop and grow in more actually mature market. In Asia, we saw continued good growth, which amounted to close to 35% year-on-year. We still see rapid growth in Asia, but the growth rate in percentage to continues to come down as our size simply get bigger. Even so, potential Asia remains huge with several billion people population. Also worth mentioning is that earlier this year, the Philippines became the first country in the region to have a regulation for online gaming in place. North America is growing year-on-year by about 9% for the period of 9 months, the growth amounts to close to 26%. The decline in revenue from Q2 is due to step back in R&D revenue, while our live offering has steady growth in the quarter. We're working hard to launch new games in the U.S., and we have a fantastic lineup for games, including Crazy Time, soon to be launched, and I have high expectations that they will perform well. It's a good potential, but there's a long growth runway in the existing states. And over time, we will also see more states to regulate. The North American region is still in its early stage of development. LatAm currently makes up about 8% of our total revenue in the quarter and with the growth in the quarter to close to 39%. We believe it's the region with a great potential and good momentum. In addition to already launched studios studying Argentina, we initiated the construction of the state of the [indiscernible] Colombia to cover the demand we see in the market. We see that the regulatory trend in LatAm continued early this year, a patio for online gambling and also Brazil has taken some steps forward towards the regulated on gaming. It remains the other region, which mainly consists of Africa. It stands for nearly 3.5% of the group revenue and its future growth opportunity for us. Share of revenues from regulated markets continues to be stable as we see growth in all markets and amounted to 40% Q3 2023. With that, I'll hand over to Jacob and move to the next slide.
Thank you, Martin, and good morning to all of you listening. I'll now cover a couple of slides with comments on our financial development in series. Revenues amount to EUR 42.6 million in the quarter. It's made up of almost SEK 386 million, Red Live Casino SEK 66.8 million from our R&D gains. Live Casino is about 85% of our group revenue in the quarter and has year-on-year growth of 24.3% with an increase of EUR 75 million from the same quarter last year and EUR 14 million increase from the previous quarter this year. I'll come back to this slide in a minute, but I'll actually add on the slide to show our live casino development in a slightly other perspective over time. This slide shows the increase quarter-on-quarter for our live casino. The first line is the average increase per quarter during the past 5 years, about EUR 7 million per quarter. It's a period that, of course, includes the pandemic years, but also a few years with [indiscernible]. In this slide, you can see that our increase in the 2 most recent quarters is much lower than the average for this period. As Martin mentioned, we focus our energy on factors that we control in explaining our financial development. And right now, as you also have [indiscernible] mentioned, we're not expanding our table capacity as we would like to, and that's affecting our revenue growth. It's not possible to accept the quantifying the financial effects of this undersupply as we call it. So I don't have strainer to that question. But clearly, it's something that's limiting us at the moment. So that's what we can control and what we worked on, and I'm confident that we will be to fix. But to understand the financial results in the quarter, there are also factors outside our solution to address. And now spend 2 minutes talking about currency rates. I think both Martin and I do have full understanding, if you rather not listen to it. And if you want to do something else for a couple of minutes, please go ahead. But anyway, during this year, we have seen large movements in currency rates. It's understandable as shifts in interest rates on the general economy have also been on levels not seen from [indiscernible]. As a result of this, the euro has strengthened significantly versus most currencies compared to the third quarter 2022. This affects our revenues negatively as players wager and generate gross gaming revenues, GGR in many different currencies with our operators. That GGR is converted to euro and is the basis for our commission revenue. stronger euro means that the GGR generated in local currency, it has fewer euros. We estimate that changes in euro rates affect our total growth negatively by 6 to 8 percentage points in this quarter compared to Q3 last year. This indirect effect that I just described is not captured in the currency effect that is more direct in our accounting, meaning if we convert our non-euro invoicing and our non-euro expenses with another rate from a previous period, that's reported separately. This is very, of course, it's also not a new thing. But during this year, the movements have been larger than what we have seen previously. So that's why I mentioned it today. However, it doesn't change anything. I can adjust the adjustments until I get completely lost and everything actually looks good, except for the fact that maybe it's not good. So despite all this talk of currencies that the increase in the quarter is still EUR 14 million. We need to recruit better. We need to add more tables. We're in a very good position to do so, and that's what we're focused on. All right. I'll now go back to the previous slide and move on to a few comments on our RNG business. RNG revenues amounts to EUR 66.8 million in the quarter. It's a 1.9% decline from the same quarter last year and EUR 2.5 million lower than the previous quarter this year. That really we're not happy with our financial delivery in this area. However, as stated earlier, we're making step-by-step improvements. The output of new games is now a satisfactory level. All our new games are leased on our OS. And the road map ahead is put strong games. Our earlier communicated goals for growth still remain, but we've already moved into what I would call show territory rather than sell. So for the next quarter, some first of all, looking for incremental improvement from where we are today. Also, as I said already in the Q2 comments the last quarter, while it's not growing as we want the RNG business, it's very profitable. We have very good cash generation, and we definitely see a lot of potential in this area going forward. EBITDA for the quarter amounts to EUR 318.6 million, giving us an EBITDA margin of 70.4% in the quarter. We keep our guidance of 68% to 71% margin for the full year that was set at the beginning of this year. And as you can see in the chart, we have been within that range each quarter this year. For the year-to-date period, margin is 7.3%. We're very pleased with the margin level and some of the pressure to margins we saw in the beginning of the year materialized, but have been offset by hard work and a very good cost awareness in all our teams. This next slide shows our pin a little bit more detail, will as usual walk through from the top. In the 3-month period, July, September, live revenue, as we just talked about, SEK 385 million and R&D 167 million. This adds up to total revenue of SEK 452 million. That's a growth rate of 19.6%. That is fully organic, as all the most recent acquisition of Limit City was included also in the third quarter of last year. For the first 9 months of the year, growth in total revenue is 26% compared to the same period last year. Moving down to expenses. Personnel expenses amount to EUR 91 million. That's an increase of 19% compared to the same period last year. We are adding that in many locations. But as we have mentioned certain tanks, we think that we should be able to increase a bit more going forward. Depreciation amounted to EUR 31.4 million. That includes EUR 10.9 million of amortization in intangibles related to acquisitions. Next line is other operating expenses. This includes items such as consumable equipment, communication costs, consultants and royalties. The line amounts to EUR 43 million in the quarter. It's up 4% to the same period of 2022. It's also up compared to the previous quarter by a little over SEK 1 million. Summing up, total operating expenses totaled just over EUR 165 million for the period, an increase of 16% compared to the same period last year. And for the first 9 months of the year, expenses totaled SEK 43 million, which is mainly at 24% versus last year. Operating profit sums up to SEK 27 million in the quarter. Financial items amounted to EUR 5.3 million. This includes interest rate income, interest rate income, which is picking up with the higher interest rates. Financial items also include a negative accounting charge for interest on our right-of-use assets. And also there are FX differences related to intragroup transactions and revaluation of bank balance that's in foreign currency included here. So there's a bit more than just for interest rate income that goes here, but that is the major item of the quarter. Taxes at EUR 19.7 million for the quarter. This is a tax rate of 6.7% for the 9-month period -- sorry, 6.7% for this quarter. And for the 9-month period, the rate is 6.8%. Tax rate for this year will be around 7% of course, in Q4. And from 2024 next year, as has been communicated during probably the past 2 years, tax rate will increase with about 10 percentage points to 16%, 17% as Pillar 2 regime comes into effect. So that's on so know that. We move to the next slide before I hand back to you, Martin. We'll start to the left in the slide with the capital expenditure. The great mark of the bars, that's investment in tangible assets, mainly our studio projects. In the quarter, CapEx of EUR 100 plus is EUR 8 million. It's lower than earlier this year. We have had a slightly lower pace of studio expansion than what we planned at the beginning of the year, but also CapEx can vary quarter little bit depending on how projects develop, but a little bit lower than what we've been earlier. The blue part of the bar is investment in intangible assets is related to development of new games and features to the platform. Slight increased throughout the year. It's at EUR 10.9 million in the quarter. So total CapEx year-to-date is almost EUR 64 million. It's not clear that we will not reach the EUR 120 million for the full year. That was our guidance at the start of the year. We mentioned that it will be stretched already in Q2, but that's not clear. And as you've heard earlier today, we continue to have ambitious stances due to expansion going forward. And I expect some increase in CapEx during Q4 but also going into next year. So we should pick up there. In the middle of the slide, moving on to the next chart, we show operating cash flow, continued very good cash generation in the past period. In the quarter, operating cash flow amounts to EUR 265 million. Operating cash flow in relation to EBITDA on a rolling 12-month basis is still maintained on a very good level, just under 8%. Outside operating cash flow, we had during the period paid the first tranche of the earnout to BTG gaming. In total, that was EUR 67 million, of which EUR 47 million was cash. So including that, cash conversion would be around 75% for the rolling format period. So it's still very good. Finally, to the front line in the slide here, a quick look at the balance sheet, no big changes. We have a very strong financial position, EUR 813 million in cash at the end of September. Out of that current cash balance, roughly SEK 400 million is according to our dividend policy, that's the accumulated dividend so far this year. So that's one you would deliver. That was the end of my prepared comments, Martin, handing back to you for some closing words.
Thank you very much, Jacob. A few words to conclude this report presentation before we open up for questions. Evolution offers an unparalleled portfolio of unique games. So I think the pace for the whole industry with new groundbreaking releases. And currently in full preparation of roadmap 10.4 developments going on, Pulsed and I can assure you, it looks nothing but fantastic. In 2024, we'll take yet another step towards expanding online single to new players and increase entertainment and excitement even further. Investments for the future will continue in form of new studios and in constant innovation of new products and of course, in our people in order to fulfill the worldwide demand. As a leading innovator in online casino, together with a record number of new products released every year, we continue to relentlessly increase the gap to our competitors. We are well in it for a strong last quarter of the year and indeed exciting times ahead. That was my final remarks. And now we'll move to the next slide and your questions.
[Operator Instructions].The next question comes from Martin Arnell from DNB Markets.
So my first question is on this undersupply situation and how can you convince us that this is an issue that you can actually solve during the next year.
Let me comment it like this. It's not changed in a heartbeat. It's -- we were talking about expansion, recruitment, physical buildings, and so on. And this is sometimes hard to manage to time that exactly right. So -- that's what it is. And we're focusing on that. And then we are really, really trying to do it as fast as possible. But we're not in the view that we're convinced that we're going to do it at a certain time.
Okay. And these problems, is it mainly in Europe and its recruitment. Can you explain why is this so difficult? Or is it anything else behind that?
The major hubs are in Europe. We constantly have chances also elsewhere. But right now, we're talking mainly about Europe, the delivery out of Europe. To build out hundreds thousands of square meters with everything that, that is what is needed with all the equipment that is complex task. And sometimes you get delayed just like if you would build your own house or whatever you do. So there are physical parameters, deliveries, suppliers and everything like that. So it's a hard work and then to recruit on top of the thousands and thousands of people into challenge. There is no fundamental things that have changed for us. It's just that, okay, we're a little bit behind right now. We see high demand for our product than we can supply. And my don't forget that, that's a very positive situation that you have a higher demand for something that you can deliver than the opposite. So in all fairness, it's a positive problem.
And if you compare your control of this problem today compared to this spring, do you have a better overview of it now? Or is it sort of getting worse?
We have better right now.
Okay. And these new studios in Europe, 3 to 4, how concrete are those plans? Is that what you're hoping for? Or is it actually sort of -- are you in the contract phase of these studios?
We say 3% to 4% in next year in Europe, Latin America, and North America. I say we will add one more study in Europe this year. All students that are mentioned there are concrete plans.
Yes. Okay. Good. And just final question is on North America. The growth slowdown there. You work to improve that. I noted that you marketed a crazy time quite heavily at Vegas G2E certification process. How is that going? Do you expect it to be closed now or...
I won't give you time, but it's going well.
Okay. So is it only about certification and getting the new games in? Or what else are you doing in North America to improve?
There is, of course, a little bit now. We're getting to R&D delivered and everything there on others, of course, a little bit of a lag to get them certified and regulated and compliant in all 5 states. So there's a little bit lag of that. It's great talking to you, Martin, but I think we might want to -- you can come back later, we need to have a couple of other questionnaires, of course.
That was my final question. And just so you know, I stayed on when you clarify the FX that was very good year.
The next question comes from Oscar Ronnkvist from ABG Sundal Collier. Please go ahead.
So just first of all, just on market share, I think you're mentioning in the outlook statement there that you continue to take market shares and to increase gap to our competitors. I don't know if that's a statement or if that is like for the upcoming few quarters or years. But just do you have anything to elaborate on the last couple of months market share? So you do think that you're still expanding the gap to your competitors? I would let's say, pragmatic for in particular. So I mean, they are growing their player numbers at least pretty fast in Bakatand Blackjack. And also, I mean, in the U.S., it seems like you're growing slower than the market at the moment. So if you could just elaborate on the market shares, please?
First of all, the market share is very -- I mean, I don't have any figures from pragmatic. I can't compare that. And the competition figures are very scarce. So they are -- it's hard to do that. But I know, for example, that we are growing faster than the market as far as I can see in Europe and also in Latin America in total. Then when it comes to North America last quarter, a little bit a and so, but in the year-to-date, it's 26%. Overall, we've got doing very well in Live Casino, and we're pushing forward in R&D.
Understood. Just the next one on the demand here. So for instance, through let, which is, I mean, more scalable than of course, Blackjack, for instance. So if you could see that the demand is very, very strong overall and that there are supply chain or supply issues in some of the markets. Could we interpret that as -- I mean, let's say, Roulette, for example, would still be very, very strong in terms of the actual numbers that you report now? Or is it more like that you also have some challenges in branded tables.
We don't -- I won't comment on the table setup in total. But naturally, the demand on the non-scalable product is much higher -- so that's where the pent-up demand is. But we also have to remember that the player places many games. So each session can take many years. You have to satisfy that. Otherwise, we will end up in situation a little bit where we were during the call with before players into the wrong games.
Perfect. I have one more if that's okay. Just on the weaker macro outlook in general. So I mean, I saw bets on CEO saying that wouldn't be a headwind or they haven't seen it at least. I assume that it's the same for you in macro, just regarding any potential headwinds? And then just on cost of living pressure, would that actually be sort of a net positive for you, people not going to retail casinos and because of the cost of living pressure and maybe staying home and being online instead and going on your types of games.
We haven't seen any general slowdown in the economy. Then however, the interest rate inflation and the exchange rates are affected by the situation in the world, that sort of central banks and finance ministers, we just see that. But we don't have any general headwind due to the situation in the world.
The next question comes from Ed Young from Morgan Stanley.
My first question is on supply. You've always talked about choosing growth over margin. But over the past years, you've obviously exhibited some very good cost control in the face of a lot of different cost pressures. The one thing you haven't mentioned at all in terms of recruitment is around wages. Do you think there's a possibility you've been too restrictive on wages? And actually, you might need to invest some margin into wages in order to solve recruitment? Or do you really think it is all just about processes you talked about so far?
I don't see that we are paying a premium salary for the level of work that we do, and I think that we are in the right level. I don't see that it's the salary level that has created a situation where we are not delivering to the demand market now.
Okay. And my second question was on...
Sorry, sorry. If that would be the case, and what we would have that indication, the statement still stands, we will go for growth and market share before margin. So if I would have a possibility to solve that with investing more money or pay more, we would do that. But I wouldn't do that and waste the owner's money to throw money problem that I don't think is the solution. So the statement still stands, and we would invest this need.
Okay. Understood. The second thing on North America. You've talked a bit about it already. I don't think to labor that, but I know you spent some time there this summer. Could you talk a little bit about more broadly what you've looked at changing that business? What wasn't working correctly or what you hope you've managed to change in that area?
In North America. We have a fantastic good new management in place. I look forward to see what they can deliver. So we made some changes with that. We need to be much closer to the market when it comes to commercial. And we also need to have the gains there to deliver. And now on costed gains flow going in -- out of engineering and product, we also need to get them through regulation and compliance, and there is a little bit of a lag. So we look forward to the coming quarters.
Okay. Final question on capital allocation. Cash bolts over EUR 800 million. I appreciate you said the dividend to be $400 million, but you'll resemble produce 250-ish of cash in Q4 as well. So at what point would the shares now sort of down year-to-date despite the profit growth you've achieved, do you think it will be appropriate for the company you consider allocating some of that capital in the form of buybacks or something similar?
There's no other answer to that than previously. And I'd like to point out that the main way of shifting capital back to owners is our dividend policy, which is 50% of net profit. And beyond that, we have done buybacks in the past, about a year ago, it was the last time. So it is not ruled out in any way, but it's ultimately it's a decision for our Board.
The next question comes from Monique Pollard from Citi.
The first question I had was just on the interest income. Obviously, they explained that there are a few one-offs in there, and it wasn't just the sort of straightforward interest income. Could you just give me an understanding of whether the one-offs will largely drag rather than benefit? Is it -- is the underlying interest income even better than what was reported today?
Yes, they're not one-offs, really you can say that the IFRS 16 charge, that's recurring. So that's kind of component that's there every quarter then. The FX on like what is one of our euro companies hold dollars on the back account that gets revalued. So that is a little bit up and down. In this quarter, it's slightly negative, but the main item there is interest income and it's a little bit higher than the total given these other items. But I wouldn't say they are basic -- it's not big one-offs Yes, that... Did that answer your question?
Yes. Yes. That's clear. The second question I had was just on the FX headwind. So thanks for that detail earlier. Just wanted to understand if there was any sort of transactional FX headwind as well from sort of cap, I understand that you're largely invoicing in your roads, but then you did mention some [indiscernible] invoicing, et cetera, and understanding sort of what the cash impact is of cash sitting in other currencies?
Yes, there's a couple of different components there. I mean what we call the direct FX effect and that we reported every quarter this year, that is if we revalue the invoice or our revenues into non-euro currencies and then the same for our expenses in adipose. That is actually a positive effect in this quarter on the EBITDA level. So you can say our dollar expenses are a little bit less in euros than in this quarter than they would have been valued at the exchange rates from 1 year ago. So that's the more direct component, and that's what we have normally talked about. What we call out with the 6% to 8%, however, that is more indirect, what I tried to explain is that you say that the GGR has generated in local currencies even if it's 1 in euros, it's not captured in that first FX actually talk about. But indirectly, of course, also FX revenues since the amount of DDR varies with Exton. So in that case, the stronger euro will lead to lower revenues for us because we get the lower. So yes, it's a bit of a mess with FX, like you heard before. We try -- we, of course, follow it, but it's nothing that we spend too much time on trying to control. So -- but in this quarter, it's a relatively big headwind. So I think it's right to understand it. But yes, to Hope I answered your question.
Sorry, just to follow up the FX impact this quarter, though, apart from the translational impact that [indiscernible] there wasn't much of the cash impact was minor. I'm slightly go --
Absolutely. That's fair to say absolutely in relation to the 6% we talked about. So yes, but that's my answer. Yes.
Okay. And then -- sorry, just the final question was, obviously, Martin, you've been clear that you're undersupplying the market, particularly in Europe. Are there things that we can be looking at from the outside that give us -- that help us understand sort of how you -- obviously, you understand internally that you're undersupplying the market, but are there things that we can be tracking that help us to see the ways in which you're undersupplying the market and get an indication as to when that starts to ease.
I mean, naturally, we have all the BI and all the data. So we see when the table opens and when we need to add a table and when we do need to have a table and where it's needed and what -- so when we say that we undersupply to the market, or we have a higher demand. I know that we do not add what is needed. That part of base is something that you would not see. It's very hard for you to get that. I don't see how we would get that. So right now, we're understanding. But you can also just notice that the figure 6% to 8% in FX element, it's very large. And the undersupply is mainly, let's say, non-scalable product and much, much less or much less.
The next question comes from Raymond Ke from Nordea.
Two questions from me. First one, you're right in the report that you made progress in R&D despite the decline in growth. Could you elaborate on the difference between how you work with RNG game releases before compared to now?
First of all, we released the right amount of gains during Q3. So we are on track with the release schedule. That's the first quarter we are that. And then, of course, now we need to work with the commercial to see that we get used and handle this higher amount of games that are there. So that we're working on. And of course, there's a little bit of lag in that. And then we have to push those new games over the Atlantic and get them into compliance department and get them regulated and compliant in all 5 states that we're operating right now. So that's how we progress with that. And I would say that there is a -- it's a better quarter 3 than quarter 2. We can see that it's a little bit step forward. And also remember then that the FX effect that we talked about also affected this part of business.
All right. And then regarding the global minimum tax rate of 15% to be implemented in 2024. I assume you talk to tax experts. Do you get the sense that your tax rate is going to end up north of 15%? Or are there caveats that make you believe it can be lowered somehow?
No. I think the basic effect for us is that the tax rate today is effectively 5%, and then that will increase 10% to 15%. So now not all our profits are mob a large share of Serota, -- so pretty much that comes through on the group level. Then, of course, as we grow, I mean we had a trend upwards on tax over the past years. And that's as we establish ourselves in more parts of the world. We, of course, pay tax in all jurisdictions where we are active. So then we'll see. I mean there can be -- like I said, they can be sand, of course, many countries want to remain as an attractive place for investment. So we'll see how things develop. But as a base case now, I would just like we talked about before, it will go up -- will increase 10 percentage points. On 15 month that comes through all the--
The next question comes from Kiranjot Grewal from Buffet.
I just had a couple of questions on the studios. It's great to see that acceleration in the rollout plans. You've been sitting on a pretty large cash path for a while, and we've heard from you that the man is running ahead of what you can manage for a while. So what's been sort of the delay in rolling studios out? Have you been trying to get closer to sign-off before flying them to us?
Have you tried to get closer to...
Signing off on those before flagging the rollout to us? Or were you just not looking for these studios for a while?
When it comes to the undersupply and I'm not sure I completely get the question, but it's the same answer as for it's -- we build studios hundreds and thousands of square meters, and it's quite lengthy. It's an 18-month minimum process to build the studio. So we are constantly in that. And now we are facing a little bit delays in that. We're not getting it even. And then on top of that, we are not recruiting fast enough. I mean don't get me wrong, we are recruiting, but we're not recruiting fast enough. So we need to speed that up. And those 2 come together, and that's why we're under supplying.
Got it. And I think in the past, when we've spoken about struggles of recruitment, you've also mentioned recruiting the right languages in your existing studios -- is this true? And if so, should we expect another studio to come in a major metropolitan city within Europe rather than sort of in Eastern Europe...
I won't comment exactly where, but naturally, we've put the studios where we think we can recruit the nationalities and the persons we need and the volume is there. So we have Madrid and Walton, and we're adding a couple of them in Europe to get a higher pace in delivery.
Got it. And just the last one on studios. Are you planning the large footprint studio sites like we've got in Bega -- or is this going to be much more focused, smaller studios for the language tabs that you have?
I think that medium-sized studios is what we are planning to have. some little bit larger but medium sized. And that I would regard [indiscernible] and upper medium to do.
The next question comes from Simon Davies from Deutsche Bank.
Just one last from me, please. In the U.S., it's obviously been a quiet period in terms of iGaming states opening up, and I'm assuming that must be one of the features behind the stone growth rate. What are your expectations in terms of new state openings over the next 12 to 18 months? Do you -- I presume you have your ear to the ground in terms of later speculation?
Yes. There is always more of a speculation on that. And I think we have stated that it could be 1, 2 a year, but it could also be 3 years without 1 and then it could be 1 year. Right now, there are the usual suspects as before. There is always talk about York. I think that is a little bit more of a dream than reality. There is Illinois, Indiana, and there are a few others bubbling. And it's a political process, and -- and I think that your guess is almost as good as mine, but there are the usual suspects. My view and we had this situation before, Southern Pennsylvania came and outperformed all the others and suddenly it was regulated. So it could be -- the next regulation could be someone that we haven't talked about.
Great. You're not hearing of anything imminent.
Not... No.
The next question comes from Jonas Wartman from Investor.
Good morning, everyone. I think, in my opinion, this quarter was again very good. Honestly, I think Evolution is one of the best business models in the world, and the whole management team is doing a great job. And I think it's quite normal that business figures fluctuate quarter-by-quarter. And therefore, it is almost irrelevant for the long-term success. -- whether margin in the next quarter the 68 or 71 or whether the growth is 25% or 30%. I think the only challenge which has to be addressed promptly is to deliver capacities for the excess demand. The management follows the right strategy to invest heavily in new studios during the coming quarters. Then every customer who cannot be served right now will probably lead to a loss in market share as he is playing with other suppliers. So my first question is -- how long does it take you to open up a new studio -- so from the point of seeing excess demand to build up a studio hiring staff and run it on full capacity.
The lead time for new studio from planning to execution, 12 to 24 months. So they are always intact. We're always working on that 12 to 24 months.
Okay. I see. And my second question is whether the excess demand in Europe can be served through the studios in the U.S. as a short-term solution since there needs to be a studio in every state, there might be excess capacity, which could be used.
Currently, that is not the case, but that is possible even though good thoughts.
The next question comes from James Rowland Clark from Barclays.
Just a few... Hopefully, a few short ones to finish up. I was just curious on your comments about not hiring at a fast enough rate. Could you also just talk about your existing live dealer staff? Are you seeing any change in the churn rate for that sort of for your existing live dear staff count? Or is it the same as it previously was?
I would say that the -- it's getting mathematically lower. So we are -- the service is increasing in general.
Okay. And then could you just elaborate us on the timing of RNG delivering double-digit growth, please? Maybe update us on your thoughts there? I know you've added later games, but perhaps a bit more color on when you think that could turn.
Yes. We haven't set a time line on that. Like I come earlier, I think definitely the ambition is still there. But from where we are this quarter, we're actually 1.9% lower than the same quarter last year. So we'll take it from here, show some improvements from this level. So we haven't set a time line on double digit. But of course, it's absolutely possibility, we still strive for that.
Okay. And my final one is just on the supply of Ss and staff. -- to the market. You've got the slowing revenue growth and it's going to take you a little bit of time to add sufficient capacity to service the demand. How can you convince us that you are holding on to market share or even de gaining market share. Given your earlier comments, you've actually put it in the release that you are taking market share, still you're still ahead of the market. You've got a time lag now where you're not servicing the demand. So how do you sort of corroborate -- or how do you convince us that, that is the case that you're holding market share, you're not quite meeting the demand?
There are other plays... The first comment on that is that you have all our figures and it's very, very hard to actually get figures from anyone. So there, we are blindsided. So the only thing that we can rely to is the little data we have where institute deliver data on Europe, and we compare to that or we'll get sort of some idea on Asia or we look at states in U.S. And that data is also [ vasal ] for you. And that's what we have. So with that data, that's where our statement rests. However, we are not here to convince you of our market share. We only tell that's how we look at it. If we would have all the data we would produce it to...
Okay. One final one, hopefully, it's quick. What do you think the impact is on undersupply in terms of your live dealer growth for the foreseeable future?
We haven't quantified that, but I gave you the indication that it's at least much lower than the headwind in FX rates.
The next question comes from Ali Ganders from Private Investor.
My question is about your long-term product vision specifically about scale of your game show RNG. So this year, we launched [indiscernible], probably the highest budget iGaming project ever. And now that some time has stated since that launch, are you satisfied with the ROI of the project, both in terms of player interest and financial performance also? So do you think the future of Evolution's opportunities in the life sector lies in similar or even bigger projects, bigger budget projects, where you can take advantage of your scale compared to competition? Or is it rather about releasing many numbers of similar to medium-scale game shows...
First answer is that, yes, we are very happy with [indiscernible]. It's a fantastic game, performing very well. Secondly, of course, the size of our network is the biggest online gaming network in the world has the potential to receive these fantastic games that we do when they are -- they get this exposure. So that's, of course, a competitive advantage. And yes, we'd like to release many more entertaining fantastic large game shows.
[Operator Instructions].
Okay. I think that, that was the final question. And it was a pleasure to have you all, and I look forward to see you in the quarter. Thank you very much.