We’ve just reached 700 subscribers! A big thank you to everyone who has supported us so far!
On another note, these quarterly result commentaries are a new format for us, so let us know if you find it useful / if there is anything else you would like to see in the future.
Introduction
Evolution AB, a leading provider of live casino and slots systems, has released its Q3 2024 financial results, showcasing resilience amidst operational challenges. This commentary provides an analysis of the company's performance and strategic developments.
For the complete analysis on the company, check out our full write-up here:
Financial Highlights
Net revenue: €519.4 million (+14.7% year-over-year)
Live Casino revenue: €446.9 million (+15.8% YoY)
RNG revenue: €72.5 million (+8.5% YoY)
Adjusted EBITDA margin: 68.5%
Other operating revenue: €59 million (non-recurring item related to reduced earn-out liability)
Operating profit: €378.2 million (+32% YoY, including non-recurring item)
Earnings per share: €1.57 (after dilution)
Geographic Performance
North America: 18% growth, driven by new game launches and expanded partnerships
Europe: 11% growth, supported by the new Czech Republic studio
Asia: 17% growth, remains the fastest-growing market despite cyber-attack challenges
Latin America: 9% growth, with expectations for further expansion as Brazil anticipates regulatory changes in 2025
Operational Developments
Entering the quarter, market sentiment was low, with Evolution’s valuation reaching a peak free cash flow yield of around 7%—a price-to-free cash flow ratio near 15—prior to the earnings release. This marked an unprecedented valuation level for Evolution. With this backdrop, we were keen to assess how the company addressed its ongoing challenges before considering adding to our position. The quarter’s primary challenges were:
Labor Disruptions in Georgia: Operations at the Georgian studio dropped to 60% capacity due to strikes and unlawful actions by certain union activists.
Cyber-Attacks in Asia: Evolution encountered sophisticated cyber-attacks targeting its video distribution network, impacting revenue.
Evolution’s response has been commendable. To minimize disruption in Georgia, the company tapped its global studio network to offset lost capacity, showcasing the adaptability and resilience of its operational model. This swift resource reallocation helped reduce customer impact and maintain service standards.
For the cyber-attacks, Evolution promptly implemented countermeasures and is ramping up its defences to avert further incidents. The company’s proactive approach highlights its technological agility and commitment to safeguarding operations and customer experience.
New Studios
Evolution continues to execute its global expansion, opening new live casino studios in Colombia and the Czech Republic. The Colombian studio will serve as a regional hub for the expanding Latin American market, while the Czech studio will cater to European demand and add capacity.
New Games
The quarter also saw the launch of “Lightning Storm,” Evolution’s most advanced game show yet, along with the acquisition of Arcadia Gaming Solutions. This acquisition enhances Evolution’s technology stack, allowing players to interact with physical arcade machines via mobile devices.
Outlook
Evolution remains positioned for further growth, with several strategic initiatives and new markets on the horizon. Planned studio launches in Brazil and the Philippines for 2025 align with the anticipated regulation of Brazil’s gaming market and mark Evolution’s entry into the Asian market. These expansions are set to tap significant growth opportunities in both regions.
Product innovation remains central, with a major showcase planned for ICE in January 2025, where Evolution will reveal its “most exciting roadmap ever,” signaling a strong pipeline of games and features. This focus on innovation aims to bolster growth and reinforce Evolution’s leadership in the industry.
In North America, Evolution is advancing its market reach, expanding live casino offerings across U.S. states, and partnering with Atlantic Lottery in Canada. Additionally, the standalone launch of NetEnt outside New Jersey will broaden its portfolio for U.S. operators. The RNG segment is also showing renewed growth, up 8.5% in Q3 2024, with positive momentum in North America likely to continue as new tools and features are introduced.
As Evolution addresses operational pressures in Georgia, it has reallocated resources to other studios to support future growth and reinforce network redundancy. Although cyber-attacks in Asia may weigh on near-term growth, Evolution’s strengthened defences are expected to enable gradual recovery over the coming quarters.
Conclusion:
This quarter posed considerable challenges for Evolution, yet the company showed resilience and the strength of its scalable model. Despite over 55% of expenses being personnel-related, Evolution managed selective headcount reductions while still achieving revenue growth, highlighting its operational flexibility.
Management’s decisions and Evolution’s ability to address operational issues without sacrificing growth reflect solid fundamentals. Given the company’s performance amid adversity, we plan to slightly increase our position, confident in Evolution’s long-term potential and its capability to manage short-term challenges.
With management’s solid performance this quarter and the stock still trading at an attractive ~6% P/FCF yield, we’ll likely be adding slightly to our position in the coming weeks. Be sure to subscribe to stay updated on all our buys and sells.
If you liked this article and are interested in the other types of companies we invest in, check out or most recent portfolio update here:
Have a great weekend.
The S.C. Team
Disclaimer: The content provided in this newsletter is for informational purposes only and does not constitute financial, investment, or other professional advice. While we believe the information to be reliable, we cannot guarantee its accuracy. The opinions expressed are those of the author and do not necessarily reflect the views of Schwar Capital. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. The author may or may not hold positions in the stocks or other financial instruments mentioned. Always do your own research or consult with a qualified financial advisor before making any investment decisions.