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Evolution AB (publ)
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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. [Operator Instructions]
Speakers, please begin...
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, whereafter 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, a superb live game with fantastic user experience. The game provides the best of both in the format that have never been seen before. A great experience for our end user is always to what comes first for Evolution.
Next slide, please. As always, life in Evolution is intense, and we are an exceptional 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 full focus on further increasing the gap in competition and to prepare for our future growth. This is done by expanding studio capacity, 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 as well as building 3 new studios at the same time, 1 in Madrid, 1 in Armenia and the latest one in Connecticut. The brand new studio Madrid is going live today as we have this meeting actually. It's very exciting. Connecticut and Armenia is 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 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 [indiscernible] since October, but we are since beginning of April, 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 a 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 not express my excitement for the new lobby, think Amazon, Netflix and you're getting close. It's powerful, seamless, beautiful and who made the end users very happy. The lobby is smart, powerful and personalized and already in April, we are starting to roll out, and the general rollout will be somewhere 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 is not material to the group. At the beginning of the pandemic, our studio in Georgia was temporarily closed during limited [indiscernible] and large share of the traffic was transferred and managed by the Evolution 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 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 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 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. And my view is that we can manage the guided margins for 2022 despite the cost increases we see for all over the world, 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 the 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 high priority. The lineup of coming slots is strong, and I feel confident about performance within the vertical will increase and that we will see stronger contribution to the overall results from both brands at the end of the year.
All in all, I'm very pleased to be able to present yet another very strong quarter for Evolution. We're definitely well placed to further strengthen our market share and to continue to get 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 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, very strong increase. And compared to Q1 last year, a growth of 31%. The fourth quarter normally has a strong seasonality and its 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, 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 during the recent year, continue to accelerate the growth in the long term.
Next slide, please. Expanding our student capacity means that we need a high recruiting base. And 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 we expand in existing studios with the fast growth of the company, we need to have an equal high pace in our recruitment. And therefore, recruitment will continue to be one of our priorities and one of our key processes.
At Evolution, diversity in all forms is considered 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, diversity are an integral part of 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 resource in being a modern and fair employer, which is an ambition, I think we are fulfilling.
Next slide, please. In February, we hosted an online event to share our plan for 2022 and to showcase 25 new online casino games from across our all our brands. I'm excited to tell you so far, over 30,000 industry people worldwide have watched this film on the different platforms it's been published. Our group's product road map for this year is the strongest one ever with great vanity rarity and innovation among the existing releases from all of our 6 brands. The year -- this year across the group, we will present more successful addition to the bestseller game concepts such as our Lighting family and making collaborations with one famous entertainment brands and new unique clients for live and soft. Needless to say, I'm very excited about the new games that we have lined up for this year.
As the group, we were committed to creating the best gaming experience for every player in both license laws. Crazy Coin Flip is one example, which I already mentioned earlier, and you saw on the first slide. Another game that we will launch in the quarter is an example of a game with a [indiscernible], 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 truly centric gaming experience. For those of you that liked Lightning Roulette, I recommend our newest Lightning family addition, Extreme XXXTREME Lightning Roulette, it's an exciting expansion of our award-winning Lightning Roulette. This is probably 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 in the year, which will move on towards our aim of the double-digit growth in RNG. In addition to new titles, an important part of the product development is constantly improve 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, is the best form of our, and I'm very excited with 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 with over 300. However, demand is so strong -- however, the demand is so strong as we're underserving the market. In Asia, we saw continued growth, which amounted to 94% year-on-year. North America is also growing fast with the year-on-year growth amounted 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 the 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 as well as 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 the both regulatory changes as well as that they are more mature. One year ago, the whole of Europe amounted to 60% of our revenue, today the number is 47%. The Nordics and the U.K. are the same sites with the year-on-year growth in U.K. amounted to 1.9% and in the Nordics, amounted to 33%. The rest of the year had a more moderate growth of 4.5% year-on-year. Other, including South America, Africa and remaining part of the world, shows a good growth of almost 8% year-on-year. Share of revenues from regulated markets amounts to 4% in Q1.
I will now pass on to Jacob for a closer look at financials.
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 gains. Live Casino continues to develop really well, as Martin also described earlier. And compared to the same quarter of 2021, Live Casino increases 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, include Big Time Gaming in the comparison quarter. Compared to the previous quarter, RNG revenue is lower, partly due to a strong Q4, 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, that 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, of course, 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 cost, 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. And 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. And here, you can see there's 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 Q1 last year. Moving down to expenses. Personnel expenses amount to EUR 63.5 million, is an increase of 30% compared to the same period last year. And it's also up a notch from previous quarter, Q4. We are expanding in all areas, recruiting heavily both within our operations, but also within -- on the engineering side. And I think we do expect to see some higher wage increases this year in many markets compared to previous year. So that's, yes, some 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 other operating expenses. That includes items such as consumable equipment, communication costs, consultants, royalty fees. This line amounts to EUR 33.6 million in the quarter. It's up 25% compared to the same period 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. So 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, EUR 207.1 million in the quarter. Moving down 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. And since the final period since the acquisition has passed, the correction of goodwill is over P&L. So a EUR 5 million positive item on financial items.
Tax is at EUR 13.7 million for the quarter. That's a tax rate of 6.5%. And these items brings us to a profit for the 3-month period of EUR 197.7 million, equaling [indiscernible] per share for the quarter for Evolution. [indiscernible] an [ increase ] of 50% compared to 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 to the left in the slide, we have development of capital expenditure. The great part of the bar represents investments in tangible assets, which is mainly our studio build project. In the first quarter, CapEx and intangible assets is EUR 14 million. As mentioned earlier, activity is very high when it comes to studio projects right now, and we expect to continue at a high pace during this year.
We mentioned projects in Madrid, the one in also in the Connecticut among the larger projects right now. And Madrid, we'd love to see that we have our first table live today, but investment will continue also 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 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 is the investment in intangible assets, and it's related to development of new games and features to the platform with EUR 7.1 million in the quarter. As we've also mentioned before, investment in games will continue at a very high pace. We have a record number of games coming out this year. That also will continue. So for the full year 2022, I estimate we would have CapEx about EUR 90 million.
So during -- if it is a step up, we were at roughly EUR 60 million for 2021. And during 2020 and '21, especially, I would say, especially in the intangible assets, also back at the pandemic did make it difficult to build. So some catch-up effect of that this year, but also, of course, our growth warrants the continued investment in studios engage.
Moving on to the middle of the slide, which show operating cash flow. Very good in the quarter over EUR 209 million and cash conversion on the roaming 12-month basis is just over 80%. So the far right on the slide, a quick look at the balance sheet, EUR 439 million in cash at the end of March. Since then, EUR 303 million has been paid out as dividend for 2021 earlier in April. So right now, we have a reduced cash balance. But with strong cash flows, we maintain an overall very strong financial position.
That was the end of my prepared remarks. I'll stop here. I hand back to you, Martin, and we'll take questions after that.
Thank you Jacob. A few words next slide and, of course, the outlook for 2021 -- 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 on current as well as future players. It's hectic times as I started this presentation with. But remember, demand for our product is global, and we will continue to invest in products to the capacity and of course, in our people in order 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 the last slide and questions.
[Operator Instructions] The first question is from Martin Arnell, DNB Markets.
I hope you can hear me.
Yes. Very well.
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?
I don't have a clear timing for that. But I think that as we grow continuously and expand the market, I think 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...
And Madrid is open today, the other one start -- year 1 launch, is that for the near term? And also could you comment on when you expect Connecticut Live to be open?
I think that in the near future, and I don't want to pick a date on it, neither for Connecticut or [indiscernible] right now, but it's in the near future.
Okay. And looking at your activity in April, do you see any change of trends compared with Q1?
I have stated that we are very happy with the momentum during Q1. And then I focused on that we have the best product road map ever, and we're going to release a lot of products and we're happy with the momentum coming out of Q1.
Okay. And how many of these games do you have left to launch for the rest of the 2022 where you are now?
We have a road map consisting of 88. I didn't do exact math, but we are just in the beginning of the release period right now.
Okay. Then North America, it's Ontario and you're going to launch in Connecticut and you have the -- you have the Lightning Roulette game. Do you expect any change of the growth rates during the coming quarters in North America?
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.
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?
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. And of course, we found a lot of things that we could do better as we do in all areas every day. So we are happy with that result and move on from there. And we have a good relation with the regulators in all over the world.
Okay. And has that impacted the business, your conclusions and your actions. Has that impact -- had any impact on the business in the last 2 quarters?
As stated before, no material impact.
Okay. And this new lobby, I'm curious about what are the sort of -- if you would summarize the improvements for consumers and the operators, what would you say?
The consumers will be -- it will be intuitive. It will be something that when you come in there you will know exactly what to do. As stated, I think a little bit like not thinking it a little bit like Amazon, it would be a major step forward for the user experience and selecting and finding the games.
Okay. And just to add 2 more questions just before I let the others. 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%. And as we said then, we saw that we would -- we were close to 695 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.
Okay. And your cash position, I think you have EUR 440 million. And 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 sort of what's stopping you from those initiatives?
Yes, as I mentioned there, since the end of the period here, we have made the dividend a little over EUR 300 million. So cash balance is lower, but cash flows are all good. So we will be in a cash position. Again, I don't see that there's a material change to our strategy there. We said before that we will -- we, of course, evaluate and look at M&A and the opportunities there. But the primary growth is the basis that we see organic growth and dividend growth is no change. I don't know if you want to add something, Martin, maybe on the...
We are aiming and moving, and we want to be #1 in our markets around the world, as you all know. And we're constantly looking at what this could actually move up and enable even quicker on that path. So we're always looking, but we think we want to find the right -- so just a comment on M&A.
The next question is from Ed Young, Morgan Stanley.
I've got just 3 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 2 main competitors in Europe, one of them has almost all their tables in one location, more than just has one location. So is this just about business resilience? Or are you also finding it competitively helping you win contracts with operators?
I think the one key -- it's a good question. The one key learning that we all, I think, did from pandemic is that resilience and we can shift capacity from one place to another. It's important to the new world because you never know what's going to happen. And now we also have a horrible world.
So we are in fact a network where we can interchange the tables between the different studios. Now it's also important to remember that there are very much different type of tables or type of products where Crazy Time could be one and a single bucket is another, and they have completely this intensity and completely different setup.
So even though one studio could consist out of many tables, it doesn't necessarily mean that it's a larger part of the business. So it's all interchangeable and that we work to make it like that. And I see the competitive advantage and also security for all the operators.
Understood. And looking at the North America market, you mentioned there the contract with [ Sander ], 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 kind of structure of deals? I appreciate there are already existing customers, every major operator has already existing customer. But is there a chance they move to that kind of structure? Or do you think the Sander was an exception of some kind?
I think that 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 -- and it will probably ease. In a total picture, I believe in competition, I believe in an open market and we need to move forward. We need to have the best product. We need to be better every day. But then, of course, there are elements where you do something together with someone and there is forming some kind of, okay, partnership or whatever you want to name it. And in those periods, you might have a preferred situation in one way or the other.
Okay. And then the third one, I just wondered if you could help us with Canada. You mentioned extensive casino services to providers -- to operators in Ontario. Could you perhaps help quantify what kind of impact that could look like in Q2 and onwards given you think to have launched pretty successfully at the start of the period?
We're very happy with the launch to rely on a 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 also lotteries. We see good potential in the Ontario market going forward.
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 on the previous quarter? Is that a fair assumption?
You are correct in the -- that we supported from most of the European network. However, Ontario as the market is one market, and I don't think any market in North America as a single one should be overvalued. But it's a great market, and we will see a good expansion there.
The next question is from Oscar Ronnkvist, ABG.
All right. So the first one, sorry if you need to repeat yourself here, but 1 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. And in addition here, I know that every year, you -- the reported margin has exceeded your initial expectations. So as 1/3 of 2022 has passed, did you have like any additional comment regarding how we should think about the current margin guidance for 2022?
Yes, it will be a little bit -- we won't say room on the upside today. So it's a -- the guidance is in that range, 69% to 71%. And we think that incorporates some of the cost increases that we see in many areas, as we mentioned. So no.
I can add -- I can also add that we are in a situation in the world which is unstable. Inflation is increasing quite a lot, and there's a war going on. We're very happy with maintaining the guidance of 69% to 71% given these circumstances coming out of the pandemic.
Okay. Just a follow-up. So would you say like before you made the margin guidance, your growth expectations, are they now higher than the initial margin guidance when it was set?
The margin guidance of 69% to 71%, we were happy with that, and that's the best guidance to give at that time. And now we're standing in Q1 and the 1/4 of the year has passed, and we maintain that it's a good guidance and there's 3 quarters of the years to come.
As a reminder, we said so many times, our main priority is always trying to maximize growth. And we do give some -- it's our fair assessment of where we are on the margin where we think we can end up, but it becomes sort of a meta discussion what was before and after and so forth. So I would just say that right now, that's our view. You see the numbers, and we're within that range. So I will leave it there.
We're not trying to communicate in code, like to say one thing and mean another. Or I see sometimes in the comments like yes -- or sometimes they -- we don't -- it's not our intention to always move one way or the other. We will just try to call it as it is.
All right. Got it. So next one, in terms of the lockdowns in Asia and the Russian invasion of Ukraine. So one might think that one -- the first one had a positive impact on your growth and the second one, a negative. Just to give you an example, the Asian part looks like the Baccarat tables are going quite strong at the moment. So could you comment on the impact you think these 2 events effectively had on this quarter's top line growth?
The only comment I would say that Russia, we don't have any customers in Russia. We don't have any direct operators there, and it's not a large market for us. When it comes to Asian lockdowns and effects of that, we haven't really made any assumptions out of that. We have good momentum in Asia as we see in the growth. We have had that for quite some time, and the market is large, I see great expansion going forward as well.
Okay. Just a final one on cost here. So obviously, the personnel costs increased quite a lot from Q4, but also the other operating expenses decreased quite a lot from Q4. And you said that Q4 was a bit high on the other operating costs and that Q1 here was on the lower side, and we should be thinking like in the middle of that range going forward on the run rate. So how should we think about the personnel costs going forward and the year -- or sorry, the sequential growth here?
On personnel costs, I think the -- that's -- we compete to grow from this level. We'll continue to recruit, continue to adapt. So there's no -- that's kind of normally what we've seen through the years. As we expand and grow and more tables, more staff, more engineers, more administrative staff, that will affect personnel costs. So that's how we see that.
And like I said, other operating costs, that's a lot of items that go in there. And yes, I'd say maybe a little bit on the low side this quarter and then it was a little behind in the previous quarter. So yes, somewhere in the middle there would be sort of a run rate thinking about it going forward. But yes, we'll see. Like I said, it is a lot of moving parts in that, so we'll see where it ends up. But all in all, I think the margin guidance sort of gives you an idea of how we see the cost development right now.
Next question comes from Monique Pollard, Citi.
I've just got a couple of questions. The first one just on Russia. So I don't see your Russian revenue exposure. I know you don't have customers there, but your Russian revenue exposure was low single digit 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.
And then secondly, on the RNG growth. Just wanting to understand if you're still confident to achieve the double-digit growth in R&D 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.
When it comes to Russia, it's lower now than it was before. So it's coming down. That's the comment on that. So that's the situation there. And we, of course, monitor any sanctions on whatever would come and what we will do and talk to regulators regarding this.
When it comes to the double-digit growth, that's clear, that's our ambition. That's what we're heading. We're going there. Exactly what time frame, I already stated that we are in the base case. We're not under the base case or we're on the base case. We're not really content when it comes to the development in RNG, but it could be much better or better. But we are on base case. Exactly when we reach double-digit growth, I will need to come back to that.
The next question comes from Oscar Erixon, Carnegie.
A couple of questions from me, starting with the U.S., also growing rapidly in North America and new U.S. states as not necessary for continued high growth, as you mentioned, Martin. But can you talk a little bit about the time line for the Connecticut Live Casino launch coming Q2, Q3? And also, I mean, on new states, what do you see here for, I guess, 2023 since 2022 seems to be lacking new states as far as I can tell?
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 in the near future. That is as close as I can get to you today. So in the near future, we'll afford to go live in Connecticut. We're in -- the studio is more or less ready, and we're building now. So we're finalizing now.
When it comes to new states, that's a little bit like what weather will be tomorrow because, of course, now there's movement in New York. We may center and talk to them about it, and there might very well be regulation in New York. But that could take anything from -- absolute minimum 9 months, up to 1, 2 years, we don't know. So that's the situation. And then the talks about Illinois, Indiana, but there might be something else coming up in between that. So it's very important to predict political process, of course, we monitor it, and we help in any way we can. But it's hard to actually decide or know when it will happen.
Understood. That's very helpful. And then on the U.S. again, I mean, can you say something about how the processes of getting more Live Casino games licensed are going? Do you expect it to accelerate in 2022? Or will it continue to be sort of the bottleneck and not going as fast as you would have liked?
The first answer is very simple. It will never go as fast as I want it to. So that is like -- so that's clear. I'm really, really -- we need to move that. But then to put the games and hopefully we get more games -- new games out, it's an indication for us. We need to work with the regulator. There are all different moving parts physically and [indiscernible] and that's something that is continuing. We work with all regulator right now -- regulators in the United States right now to license and educate and get our games live. So that's how we do it. And that's again a process that is, in the end of the day, in the hands of the regulator. So we work with them and try to do it, and I hope to be able to release more games during 2022.
But I think we can add, maybe compared to a year ago or so, I would say it's a good process, but it's a process that does take time. So we'll continue to work and if it will happen, but it will...
It's a very good process, and we're moving forward rapidly but not fast enough.
Understood. And then on Latin America, it seemingly grew strongly sequentially for you and also for European operators in the regions and you mentioned in the comments as well. What do you say about the development there? What is your capacity? What do you say about the plans and the potential?
If we put the timing aside and I think long term, it's a phenomenal interest, phenomenally interest in market, actually great potential. And it starts to move with Argentina, Colombia and now talks in Brazil. And there are provinces and regions and a little bit of challenges when it comes to regulatory aspects. But because each of the regions or products that maybe want to regulate on that. But it's a phenomenal market. I mean if we go out 10 years, I think that Latin America would be a good market and a large market for Evolution.
Perfect. And then a final question here. It seems like operators with high relation to regulate the European markets are seeing sort of clear post-COVID effects while other markets are performing well. Do you see the same thing in terms of post-COVID, will you view it as more of a regulatory element in certain European markets?
I would mean to work that the situation predominantly in Europe has to do with regulatory aspects more than the COVID or post-COVID situation. There are headwinds or difficulties when it comes to certain markets in Europe. It can be -- some operator doesn't get a license. Some markets doesn't issue the license like Germany does. And there are strong elements of imports in U.K. and France. So I would say that as first in Evolution, we do not look at it and have not looked at it on this COVID bump up and bump down.
Of course, it's there, but we also stated that as the network activity went up, the capability to deliver, the deliver capability went down. And it's netted off as neutral. And then on the other side, it's a neutral when the capability goes up and the delivery -- maybe the network activity from each state is down, but it's come down neutral. So we don't really look at it in a pandemic perspective.
The next question comes from Kiranjot Grewal, Bank of America.
Firstly, I know you mentioned you're happy with April performance to date, but there's quite a few concerns on border economic performance across Europe. Are you seeing -- or do you expect to see any impact from a tougher consumer environment? So that's the first one.
The situation in the world is very unstable at the moment. And we have had no material effect of that in Q1. We're actually pushing forward in great figures. And we're very happy with the 7 point -- 70%-plus margin and the almost 9% growth. Going forward, we guide on the 69% to 71% on the margin, and we see that will come in to Q2 with a great momentum, and we have fantastic releases of products. Then exactly what happens in the world and what a crazy person, horrible person like Putin does will affect the whole world and also if that happens, and then I have no prediction on that.
Okay. And can I just dig into the RNG performance a little bit? RNG pulled back. I know you've got a pipeline of new games going forward, but are you able to 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?
We have a good road map for 2022. It leans a little bit towards the end of the year. We knew that already we have a little bit softer figures in Q1. We look forward to strengthening that through the year. Our ambition to double-digit growth is firm, and we are working towards that. Exactly when we can reach that level, I don't want to say that. And we are on the base case for us when it comes to RNG. So we are okay, satisfied, good, but we need to take another step.
Okay. 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 be rolling in from that switch on? I know you had -- you were live with lotteries as well. But now that the bigger players are back on, what should be the bump up?
I little bit answered this, and I will answer it the same way that, I mean, it's a fantastic market. We went live on the first day, and I'm very proud. Everyone did a fantastic job in evolution to do that and achieve that. And we see potential and it will grow fantastically well. But not one single market in the U.S. will sort of change the total of the North American market. So I wouldn't overvalue that. There's more states. We're doing well. We see good potential, growth is continuing and I'm very confident about that in a good way.
The next question comes from Rikard Engberg, Erik Penser Bank.
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 with all the coming quarters?
It's a good question. The comparison figures, you have to look at the comparison figures for Q1 2021. And then you see a big bump up caused by the COVID. And now we're missing those, so the bump up was 100%. So that's -- if you instead look at the actual growth in bet spots, you get a bit of a different picture, and also look at the growth from Q4 to Q1 with a plus 8%. So we are refrained from those...
Okay. Good. And a follow-up question. Given the -- if you look at from Q1 -- from Q3 last year Q1, the growth that you see is less due to increased capacity. Or is it due to higher activity in the network?
Predominantly game-type shifts and higher activity more than capacity.
The next question comes from Simon Davies, Deutsche Bank.
Three quick ones from me, please. Firstly, a number of tech companies 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?
Second question, Asian market, very strong. Can you identify any key markets within that, that could perform particularly strongly? And the last one was just on the competitive environment. We've seen Playtech and Pragmatic increasing live casino capacity. Any evidence that they're competing more aggressively on price? And are you seeing any pricing pressure in negotiations for new contracts?
So recruits come up. We have already stated earlier that we want to recruit 1,000 engineers in the coming 24, 36 months. That's a lot of engineers in all our different 10 hubs, and we will add more. And there is, of course -- I wouldn't maybe call it a war. I would say that there is a high competition to get the best people, and we are aiming to get the best. So that's always challenging. And we want to get the right people than the right number of people. So that is all challenging, but our goal is firm. What...
As you know, we haven't broken down the regions into individual countries. So really nothing to point -- to sort of call out there. And that's -- and I think then you one was around price pressure, if...
I think that we have a huge problem with the price in total when it comes to Evolution, and that is it's partly low for a fantastic product that we have. And I think that we have so much value constantly year out and year in. This year, [ ATH ] product, and I'm actually serious that we have so much value these years that sometimes the price tag along with that value added.
So -- and having that said, it's always a negotiation with each and every customer. And whatever entry point you have on time, it's always hard to change it, and we value all our customers that have been with us and it's our negotiations. But I would say that it's not a common cost pressure or price pressure. I would argue that we should have a bigger, broad product.
The last question is from Marlon Varnik, Nordea Markets.
Can you hear me?
Yes. We can.
So just a follow-up question here on studio opening. I mean, 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 it might be a later thing to do?
We will expand into South -- Latin America, and we will open studios where we already have. We will do it in the right way and with the right quality and the right site. And we're working on it. And right now, we have very good development and negotiation with a lot of different customers there. So I look forward to coming back to you on opening of studios in Latin America.
Clear. And another follow-up question here. I mean, given the pent-up demand you see, have you seen any supply chain problems in the quarter that has dampened growth in these specific regions, for example, materials like dices for tables and so on? Any comments here would be appreciated.
We have had challenges as many other companies in the world, of course, we declined. And it comes down the -- semiconductor is something that are hard to get. Sometimes all the containers are instead of being where they should be, they are in China or elsewhere. And sometimes you have to use supply to carry things over. But it's a constant challenge in the world right now.
And then when it comes to any gaming equipment and licensing and regulatory aspects and supply set like it was always a bit very challenge also in those areas. But all in all, we are progressing, we're doing right and continuously getting a little bit better every day and a little bit faster I also hope every day.
And given this, I mean, are there any specific regions that are relatively more affected? I would assume as we do, for example, North America region here.
I think that it's -- no, I would say no to that. It's that -- the market for certain suppliers are worldwide. And if you send it through North America or you send it through Europe or anywhere else, usually, it's more the supply chain that is difficult. No, I wouldn't single out anything.
And lastly, more broad question here. I mean looking at the past 2 years, the unregulated share of sales has slightly decreased despite the very strong Asian growth soon. Based on what you see today with more markets regulator like casino, is the trend of unregulated share of sales decreasing, a trend you expect to continue? Any comments here would be appreciated.
On the regulatory, yes, in the long term, much, much more of the revenue in online casino with the regulators. Countries will regulate. So that is a matter of time rather than anything else. So -- but it will take anything from 1 year to 5 years to 10 years, that we do not know. And we also have to remember that the regular COVID situation in Europe, which is the more mature online market, is quite new. I mean, many of the countries in Europe is regulating 2020, 2021 and 2019.
So also Europe was in an unregulated era for a very long time. And the other parts of the world will be in that era for also a very long time. And we are worldwide, we will transition through this like we did in Europe. So in the long term, it will go up, not to 100%, but it would go up. But then on the other hand, we also know that land, they still stand for, I don't know, if it's 85% or 88% of the total casino revenue today. But it's predominant on all markets. So as this regulation proceeds, more and more of that revenue will also come into online. So it will take some time, but it will go up.
There are no further questions. I hand back to you, speakers.
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.