Evolution revenue up 15.3% but CEO admits results aren't "fully reflecting" performance

Evolution Gaming has recorded a 15.3% year-on-year (YoY) rise in revenue to €508.4m (£428.3m) during Q2 2024, yet CEO Martin Carlesund has admitted he does not view it as a full reflection of the firm’s performance.

Releasing the casino supply giant’s financial results for the three months to 30 June, management said EBITDA climbed 10.9% to €345.8m, with operating profit following a similar pattern as it rose 10.5% to €311m.

Evolution’s EBITDA margin decreased slightly from Q2 2023’s total of 70.7% to 68%, while operating margin fell from 63.8% this time last year to 61.2% for Q2 2024.

When breaking down revenue by vertical, €438.1m of Evolution’s topline figure was generated from live games, the most the vertical has amassed out of the last five quarters.

The fact that live casino games revenue is trending so positively stemmed from increased commission income from existing customers, as per Evolution, alongside new customers entirely, with the supplier’s launch of new games ensuring demand continues to grow.

The remaining €70.3m was attributed to RNG games, which is also the highest amount the vertical has produced in the last five quarters.

In terms of geographics, Asia proved to be Evolution’s highest-earning market yet again, with a revenue total of €200.7m, though Europe followed closely behind with €191.3m.

While there was further growth in Latam, with Q2 2024’s total of €36.6m, the same could not be said for the US where revenue slipped to €60.2m from €62.1m in Q1 2024.

The share of group revenue from regulated markets stagnated at 39%, with €199.4m coming from regulated markets.

Operating expenses increased to €197.3m, rising from €159.6m in the corresponding quarter last year. That rise has been put down to an increase in personnel costs, linked to the launch of new tables as well as Evolution’s overall expansion.

Reflecting on the findings from the most recent quarter, Evolution CEO Carlesund explained there are certain aspects the firm could improve despite demand for its offering being “very strong”.

“I see the financial result in the quarter as solid although not fully reflecting our operational performance,” he conceded.

“There are some clear reasons, one reason being that we had the largest pay-out ever in online casino during the quarter on our Crazy Time game. Large player wins are part of the game and positive for our games’ attractiveness to players, but it does affect us through lower revenue share in the period. 

“We also see somewhat slower development in general in most regions for the second quarter. This is part of the natural variations in our industry.

“With that said, there are of course things we can do to improve as has always been our focus when faced with these periods in the past. The underlying market drivers and demand for our market-leading products remains very strong.”

The Evolution chief discussed the supplier’s performance regionally, praising the growth shown in both Europe and Asia, as well as the Latam region, despite the fact that the Brazilian market is still awaiting regulation.

Alongside the firm’s results, Evolution announced it is to acquire Las Vegas-based supplier Galaxy Gaming for $85m, subject to customary closing conditions, which includes Galaxy Gaming stockholder approval as well as certain required gaming regulatory approvals.

For the purchase, Evolution engaged J.P. Morgan as its exclusive financial advisor and Kirkland & Ellis LLP as legal advisors, while Galaxy Gaming used Macquarie Capital as exclusive financial advisor and Latham & Watkins LLP as legal advisor.

Per the merger agreement, Evolution agreed to purchase all of Galaxy Gaming’s outstanding shares of common stock for $3.20 per share in cash, representing a premium of 124% to Galaxy Gaming’s closing share price on 17 July, 2024, the last trading day prior to the announcement of the acquisition.

Announcing their revenue guidance, the supplier expects $29m-$30m in net revenue and $12m-$13m in adjusted EBITDA for FY2024.

Completion of the transaction is expected to come midway through 2025.

On the deal, Carlesund added: “We are thrilled to announce the acquisition of Galaxy Gaming, which represents a significant milestone in our mission to provide unparalleled gaming experiences to our customers.

“Galaxy Gaming’s exceptional products and technology complement our existing portfolio and strengthen our strategic position.

“Evolution intends to retain the management and employees and also plans to operate Galaxy Gaming as a separate and independent business unit.”

Matt Reback, Galaxy Gaming president and CEO, said the deal gives the supplier the power not only remain independent but grow alongside Evolution.

Reback added: “We believe this transaction represents the opportunity to unite two world-class, customer-focused teams in a way that will benefit all stakeholders.

“This acquisition by Evolution empowers Galaxy to sustain and maintain its independence while continuing to focus on growth and expanding its operations, leveraging Evolution’s operational and financial strength to facilitate product sharing and drive cutting-edge omni-channel innovation.”

The supplier’s Q2 performance was the subject of analysis from Regulus Partners, who claimed: “Evolution’s results have been highly predictable in their broad shape for a few years now: continued but gradually slowing progress in Live, unmet promises to grow RNG,  an increasing reliance on unregulated Asian markets for growth which is not offset by bolt-on acquisitions (this time Galaxy Gaming in the US for $85m). 

“This outcome continues to deliver double digit revenue growth and throws off a lot of cash, but it is not the strategy of diversification and lower regulatory risk that the move into RNG was designed to deliver. Evolution continues to deliver growth, but it is failing to deliver any evolution.”

Off the back of the results and news of the Galaxy acquisition, Evolution’s share price fell 9.5% to SEK1,051 at the time of writing.