Evolution – 2021 Q3 Earnings Results
Evolution released its earnings results for 2021 Q3 on 28 October 2021. Revenue grew a whopping 97% y/y, with strong demand globally, and with its Live segment growing 53%, outpacing even the pre-pandemic growth rates.
With the operating leverage, EBITDA grew even faster at 113%, hitting an EBITDA margin of 69.9% (even though headcount increased significantly by 66% to support the expansions), due to very strong execution which was a positive surprise to even the CFO (although he noted that that margin level is not the ceiling yet due to the inherent operating leverage of the business).
Significant expansions are ongoing globally to cater to the strong demand from customers, and massive exciting product launches are ready for next year, now that the company has revamped and integrated seamlessly the products and technical systems of its newly acquired subsidiaries.
What else can we ask for from this company that has been a ~80 bagger in a short 6.5-year period since its IPO? Here are our key points from the earnings results and call!
Revenue grew 97% y/y, from EUR 140m to EUR 276m in 2021 Q3.
On revenue by segment, Live Casino grew 53% y/y, from EUR 140m to EUR 215m in 2021 Q3, due to strong demand from the market from most regions globally. This 53% growth is higher than the pre-pandemic growth rate levels (38% in 2018, or 49% in 2019), showing that many of their newer players are staying in the network.
RNG revenue was EUR 12m in 2021 Q3. There was no RNG revenue a year ago, as it is made up of NetEnt which was acquired in December 2020, and Big Time Gaming (BTG) which was acquired in 2021 Q3.
If we look at the pro-forma figures for those newly acquired entities, RNG revenue grew at a low rate, at 7.9% y/y. The NetEnt and Red Tiger brands grew only 3% y/y, as this year the company was focused on revamping and integrating their businesses, both on the technical systems and also on the product roadmap. This low growth was in line with the company’s expectations, and Evolution’s ambition for its NetEnt and Red Tiger brands is to deliver stronger growth moving into 2022.BTG, which is also part of the RNG, contributed EUR 10.6m in revenue in 2021 Q3, having grown at a fast rate of >30% y/y, with growth coming from both the continued success of the Megaways Game Mechanic, as well as increased volume of play on the BTG games.
On revenue by geography, Europe still made up most of the revenue, at slightly over half (51%), followed by Asia and then North America.North America grew the fastest y/y at 247% (to EUR 32m), as the online casino market continues to develop rapidly in both the US and Canada (with both the RNG and Live Casino operations going well for Evolution in Michigan, Connecticut, etc).In Canada, Evolution went live in the newly regulated Canadian Ontario market in late October 2021, after a successful launch together with the OntarioLottery and Gaming Corporation, OLG. The Ontario market is exciting, with a huge population of close to 50 million people, surpassing the size of any U.S. state where iGaming is regulated, so the potential is huge.The high revenue growth rate in North America is followed by:
Nordics at 236% (to EUR 20m);
Asia at 120% (to EUR 77m), with management expecting continued strong growth there as Evolution is still a small player there;
UK at 101% (to EUR 19m);
Other countries at 70% (to EUR 26m); and
Rest of Europe at 57% (to EUR 103m).
Operating expenses grew at a lower rate than revenue, at 84% y/y, from EUR 56m to EUR 104m in 2021 Q3.On the expenses breakdown, personnel expenses grew 64% to EUR 52m, as it grew its headcount significantly in line with its expansions to 12,289 employees. This was a 66% (or 5k employees) increase from the 7,395 a year ago, or a 9% (or ~1k employees) increase from the 11,311 a quarter ago.Meanwhile, D&A and impairments grew 193% to EUR 21m, partly due to the increased expenses from the consolidation of NetEnt and BTF. The other operating expenses (which include consumable equipment, communication costs, consultants, royalty fees, etc) grew 77% to EUR 32m.
Due to operating leverage as the company scales, operating profit (EBIT) grew faster than revenue, at 106%, from EUR 84m to EUR 172m in 2021 Q3.
EBITDA also grew very fast, at 113% y/y, from EUR 91m to EUR 193m in 2021 Q3. This translates to an EBITDA margin of 69.9%, higher than the 64.8% a year ago and the 68.0% a quarter ago. This high 69.9% also exceeded the company’s previous guidance for 2021 of 68.0%.
For the remaining points of this earnings summary, check them out at our Multibagger Research Series (linked below).
For our free analysis of other high quality companies, check them out at our free Research Series (linked below).
For our summary analysis of the company, check out the video below.
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