Ubisoft Entmt Unsp/Adr

Good day and thank you for standing by. Welcome to the Ubisoft H1 Fiscal Year 2026 Earnings Webcast and Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Yves Guillemot, Ubisoft co-founder and chief executive officer. Please go ahead, sir.

Welcome, everyone, and thank you for joining us today. Before we begin, I would like to start with the reason for the delay in publishing our results. First, we have appointed a new panel of auditors that was approved at the AGM last July. Their position as part of their review of the H1 financial accounts required a restatement of our financial year 25 annual accounts that had been previously approved by our former panel of statutory auditors in May. In this context, we required additional time to finalize our accounts for our board of directors to approve them. Frédéric will walk you through this point in more detail later in the call. The closing of our strategic transaction with Tencent, which will see Tencent become a minority shareholder in our new subsidiary, Vantage Studios, is now imminent, as all conditions precedent have been satisfied. This will mark a pivotal milestone in Ubisoft's transformation, significantly strengthening our financial position by bringing in 1.16 billion of cash. enabling the group to deliver it as planned. It will also empower Vantage Studios to accelerate the growth of our three flagship IPs under a dedicated leadership team. In a highly competitive market, Ubisoft delivered netbooking about guidance on the back of stronger-than-expected partnerships that underscore the appeal and reach of our brands. Our portfolio showed contrasting dynamics this quarter, with softer trends for Rainbow Six Siege, reflecting a phase of evolution for the game in an intense competitive first-person shooter environment, offset by strong performances across the rest of the catalogue. The Assassin's Creed franchise exceeded our expectations, confirming its positive momentum and ability to engage players over time. The Division 2 also continued to perform strongly, benefiting from the momentum of the Battle for Brooklyn expansion, with the Games first semester already exceeding last year's annual bookings. Additionally, the progress we've made in addressing our fixed cost base brings with it confidence that we can continue to drive structural efficiencies across the organization. that together with top-line growth will contribute to ensure a return to strong cash generation in the coming years. Vantage Studio represents a key element of the transformation of the companies toward a new operating model built around creative houses. We will have finalized the design of this new organization by the end of the year. These creative houses will be autonomously efficient, focused and accountable business units, each with its own leadership, creative vision and strategic roadmap. This group-wide transformation reflects our ambitions to renew how we create and operate in order to deliver great games for our players and lasting value for our partners and shareholders. The full details of this new operating model will be unveiled in January. On the innovation side now, we are making great strides in applying GenAI to high-value use cases that bring tangible benefits to our players and teams. It's as big as a revolution for our industry as the shift to 3D, and we have everything to lead on this front. On the player experience side, we are continuing to make progress on groundbreaking player-facing generative AI applications, building on our Neo NPC announcement in 2024. We have already advanced from prototyping to player reality, and we are looking forward to sharing more before the end of the year. On the production side, we now have teams in all our studios and offices embracing this new technology and constantly exploring new use cases in programming, art, and overall game quality. On the transmedia side, we also, after greenlighting the Assassin's Creed live action TV series in July, I would like to highlight the recent success of the animated Netflix series Splinter Cell Death March that premiered on October 14th, obtaining an 86th score on Rotten Tomatoes and landing the daily top 10 across more than 12 countries, including six consecutive days in the U.S. This strengthens our brand's long-term value ahead of the Splinter Cells remake currently in development at the Ubisoft Toronto Studios. Last but not least, I would like to celebrate the successful launch of Anno 117 Pax Romana that expands the city-builder genre. This level of quality, innovation, and sales set the standard against which we want to measure our future releases performance in the coming years. So I will now let Frederic give you details on half-year performance.

Thank you, Yves, and hello, everybody. H1 netbooking stood at 772 million euros, up 20% year-on-year, with 34 million MAUs and 88 million unique users across consoles and PC, slightly down year-on-year when excluding xDefine from the base. Turning to our second quarter, netbooking stood at €491 million above guidance and up 39% year-on-year. The outperformance was driven by stronger-than-expected partnerships, demonstrating the power and attractiveness of our portfolio, as well as the meaningful contribution from live TV and animated series. Excluding partnerships, overall back-to-back performance this quarter was robust and in line with expectations, broadly stable year-on-year, but marked by contrasted dynamics. The Assassin's Creed franchise posted a strong performance in Q2 with both Assassin's Creed Shadows and the rest of the brand's catalog overperforming. In the year to date, Assassin's Creed has generated 211 million session days, around 35% higher than the last two years average. Shadows benefited from the launch of the new Game Plus mode, which was widely anticipated by the community and introduced greater difficulty and new challenges for players. The close of the YG expansion released on September 16th and contributed to re-engaging players. It was praised as a solid addition to the base game, offering new unique boss fights in a beautiful and dark atmosphere. Looking ahead, Assassin's Creed Shadows will reach a broader audience with its launch on the Nintendo Switch 2 on December 2nd. Beyond Shadows, the rest of the AC back catalog also performed strongly, highlighting the strengths of the franchise. Turning to the current quarter, we launched Valley of Memory on November 18, a free major update for Assassin's Creed Mirage, which brought new content and a fresh chapter in Bay Sim stories set in Alura. First feedback from the community is very positive with player activity on Assassin's Creed Mirage doubling following the launch of the update, enabling the game to reach the 10 million player mark. In a highly competitive first-person shooter market, Rainbow Six Siege X continued to attract new players this quarter with acquisition levels twice as high year-on-year and sustained activity levels with unique players table quarter-on-quarter and at double-digit year-on-year. Session days and playtime also increased both sequentially and year-on-year. However, as part of the evolution of Siege and its move to free access, a temporary surge in cheating has impacted activity and player spending versus expectations. With additional resources now in place and further hires planned, the team has identified the main issues and is actively addressing them with a robust plan in place. Having focused most of this year on establishing a new foundation for the game, the team is exploring a new seasonal approach that introduces multiple updates throughout each season, focusing on the core gameplay experience and heavily engaged players. This shift is designed to offer a steadier stream of fresh experiences with more variety, keeping players engaged and supporting long-term franchise growth. The Siege community remains highly engaged and passionate about the game's success. The development team is equally committed to working closely with players to address recent feedback with a strong focus on anti-cheat measures and gameplay balance. As announced at the Munich Major on November 16, starting in Season 4, the team will double the number of anti-cheat updates per week and introduce new prevention solutions. On the balancing front, the team is accelerating efforts in Season 4 with four balancing updates per season, planned for Year 1, aligned with the new content cadence. To celebrate Siege's 10-year anniversary in December, players can look forward to daily rewards and a special in-game event launching mid-December. And trying the catalogue, I would like to highlight a few notable performances. The Division 2 continued to benefit from the momentum of the back toll for Brooklyn DLC released in May, as well as regular content updates continuing to attract new players to the game. Along with rising player numbers, player engagement is up with a record second quarter in terms of session days since fiscal year 21. The game's performance this semester has already exceeded last year's annual net bookings. Avatar Frontiers of Pandera posted a strong performance this quarter on the back of the July salesperson update announcement that was widely anticipated by the community. The game also regained momentum with the announcement of the From the Ashes expansion that will come along with the movie. A Star Wars Outlaws launched from Nintendo Switch 2 in September to strong critical and player reception. The release expanded the game's audience and was praised for its exceptional visuals, technical optimizations, smooth performance and seamless transition to Nintendo's new hardware. Total digital net bookings reached €436 million, up 62% year-on-year, and PRI stood at €323 million, up 110% year-on-year. Both of these metrics benefited this quarter from Tailwind's link to partnerships. Within PRI, mobile amounted to €26 million, slightly down year-on-year. First, you will find our non-IFRS PLL on slide 7 of our presentation. Gross margin was only up year-on-year by more than 3.5 percentage points, which reflects the fact that this semester saw more high margin partnerships than the first semester last year. R&D was down year-on-year, and I will come back to that point in the following slide. SG&A was down 16%, reflecting lower variable marketing expenses due to the absence of major releases this semester, while last year's first half saw the release of Star Wars Outlaws Overall non-IFRS EBIT came back to the positive zone at 27 million euros this semester, which marks a strong improvement to last year's 250 million euros loss. Please refer to our press release or presentation appendix for the full IFRS to non-IFRS reconciliation. Turning now to slide 8, P&L R&D was down year-on-year and mainly reflects lower depreciation of in-house software-related productions. coming from the absence of new AAA releases this semester compared with accelerated depreciation for Star Wars Outlaws and Ex-Defiant last year. For its part, total cash R&D was down 11% or 70 million euros and reflects our continued efforts addressing our fixed cost base. Looking at cash flow statement on slide nine, free cash flows to that minus 251 million euros compared with a negative 126 million euros previous year this free cash flow consumption mostly reflects the following impacts on the one hand a negative 139 million euros cash flow for operations reflecting the fact that we had no new releases this semester which was half the outflow of last year again illustrating a strong improvement versus the year before and on the other hand a negative 102 million euro change in working capital requirements notably driven by trade payables decrease comparing with a significant higher gain in receivables last year, which mainly reflects cash in from Q4 fiscal year 24 partnerships. Net debt to that 1.15 billion euros slightly up versus last year and cash in cash equivalents amounted to 668 million euros down 265 million euros versus last year, mostly driven by their reimbursement of around 245 million euros in debt. The 100, sorry, the 1.16 billion euros Cash injection from the Tencent transaction will deliver the group and stress on its balance sheet. I would now like to provide an update on the continuous progress we have been making on the group's transformation. First, all conditions precedence of the transaction with Tencent have been satisfied, enabling the sale of a minority stake in our new subsidiary, Vantage Studios, to Tencent to close in the coming days. It marks a major milestone in our transformation journey. The proceeds of this transaction will deliver the group on a consolidated non-IFRS net-debt basis while providing enhanced financial flexibility to support our strategic transformation. A new leadership team is being formed around Vantage Studios, including heads of franchises, to drive creative excellence and operational agility across each brand on their path to building annual billion-euro brand ecosystems. Second, we will have finalized by the end of the year the design of our new operating model built around creative houses, independent business units, with the objective of driving stronger creative vision, greater focus, efficiency, autonomy, and accountability. We will unveil the full details of this model in January. Overall, we benefit from a stress-on balance sheet. Our non-IFRS net debt positions stood at 1.15 billion euros at end September, with a cash and cash equivalent position of 668 million euros. The 1.16 billion euros proceeds from the Tencent transaction will enable us to deliver at a group and notably proceed with the earlier repayment of the term loan and TrueShine loans, which have an outstanding principal amount of approximately 286 million euros. Of the 210 million euros, we are due next month. Additionally, we will cancel the Enron revolving credit facility and initiate discussions with our banking partners with the objective of putting in place a new facility designed to support our strategic ambitions. in line with the broader transformation currently underway. Overall, we plan to rely on a very comfortable cash and cash equivalent position at end of March, 2026 of around 1.5 billion euros. Third, we continue to make progress on our new cost selection program, which targets at least 100 million euros in fixed cost savings by fiscal year 27 versus fiscal year 24, versus fiscal year 25, sorry. Thanks to continued discipline in hiring and targeted restructuring efforts, The group's global headcount stood at 1797 at the end of September, representing a decrease of around 1,500 employees over the past 12 months and about 700 since the end of March. Since the end of the semester, the targeted voluntary leave program and their proposed restructuring were introduced at our Nordic studios. Overall, the H1 fiscal 2016 cost base stood at around 701 million euros, a decrease of 69 million euros or 9% year-on-year, including a favorable 19 million euros foreign exchange impact. Out of the 69 million euro reduction, approximately 55 million euros came from lower capitalized investments. Before I turn to the outlook, I would like to cover an IFRS update. As we mentioned, we had to delay publishing our results. Towards the end of the review process of our H1 financial accounts, our new panel of auditors reviewed the analysis that had led to the fiscal 25 accounts being validated by our former panel of auditors in May. It's related specifically to the IFRS 15 revenue recognition of one meaningful partnership in fiscal 25. The new panel of statutory auditors considers that utilization-based payment schedules must now be recognized under IFRS 15 as revenues of our utilization even if the commitments offer. This ultimately led to the restatement of our fiscal 25 account after IAS 8. We then had to assess the impact of this restatement, as well as the implication of this new position on the second partnership book in Q2, along the same initial principles. The combined effect of what I've just described results in the company not complying with its leverage covenant ratio, under certain existing financing agreements at September 30, 2025. However, this is being addressed by the aforementioned actions relating to the concerned debt instruments. The restatement of the prior year financial accounts are detailed in the appendix of our press release, and the IFRS accounting restatement has no impact on the group's non-IFRS indicators, given the firm nature of these amounts, and has no impact on the operating cash flow profile of the group. Beyond the technical retakements, I want to make one thing clear. Our approach to B2B partnerships as a critical complement to our B2C business has always been and will continue to be centered around maximizing the value of our catalog, which we measure in terms of cash flow generation over time. Turning to the full year outlook, the stronger than expected benefits from partnership increases our visibility for the fiscal year in a context where on the one hand, there remains a number of new releases to come by the end of the fiscal year, And on the other hand, Rainbow Six Siege faces an increased competitive FPS environment. In this context, we reaffirm our full year objective with net bookings to be stable year-on-year, non-IFRS sovereign income to be around breakeven, and negative free cash flow reflecting the group's transformation. Following the closing of the Tencent transaction, we expect to maintain a consolidated non-IFRS net debt position of around zero. Looking at Q3, we expect net bookings of approximately €305 million, which will represent a slight increase here and there. Q3 will notably see the release of Hanno 117 packs from Hanna, as well as the Avatar Frontiers of Pandera from the Ashes expansion. Hanno 117 packs from Hanna launched on November 13 and marked a bold new chapter for the Hanno franchise. Building on the series' strong momentum and releasing simultaneously for the first time on PC and console, It showcases impressive scale, striking visual fidelity, and a deep economic simulation. The title has already received strong industrial recognition, including winning Best PC Game at Gamescom, and has now launched to strong critical reception with an 85 Metacritic score, the best score ever in the franchise, which translates into solid consumer spending growth after one week compared to the successful annual 1,800. IGN awarded it a 9 out of 10, calling it a gorgeous antique city builder that is worthy of a standing ovation. For the first time in the series, players can choose their starting province. It is defined by distinct cultural identities and unique gameplay mechanics that emphasize player choice. This innovation expands the game's depth and replayability, laying the foundation for sustained player engagement and a rich post-launch experience. The Avatar Frontiers of Panera from the Ashes expansion is set to launch on December 19. Time to coincide with the theatrical release of Avatar Fire and Ash. This bold expansion sees players embark on the journeys of Solek, a battle-hardened navy warrior who seeks revenge against the Ruslesh Ash Clan. The expansion introduces new visual gameplay set in a ravaged Kingler Forest and unveils a new sub-region known as the Revanes. Ahead of that, a highly anticipated free update introducing a third-person mode will arrive on December 5 and will feature long requested by the community. Together, this content will further strengthen engagement and extend the game's momentum into the holiday season. And for its part, Q4 will see the release of the Prince of Persia The Sands of Time remake, Rainbow Six Mobile, The Division Resurgence, as well as an unannounced title. Beyond Cisco 26, we expect to return to positive non-IFRS operating income and free cash flow generation in Cisco 27. and to see significant content coming from our largest brands in fiscal 27 and fiscal 28. Finally, as always, here are a few fiscal 26 housekeeping items for modeling purposes. The stock-based compensation is expected at around 32 million euros down versus prior guidance and reflecting the lower share price. The non high price net financial charges including foreign exchange is expected at around 45 million euros unchanged versus prior guidance and reflecting a year on year increase primarily attributable to a lower interest income. The non-IFRS tax rate is not relevant in the context of breakeven non-IFRS operating income, and the number of diverted shares is expected at around 132 million, reflecting the fact that with an expected negative net income, the diverted nature of our instruments no longer kicks in. We are now ready to take your questions.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Please stand by while we compile the Q&A roster. Thank you. I will now go to the first question. And your first question today comes from the line of Alexander Petarek from Bernstein. Please go ahead.

Yes, good morning, and thank you for taking my question. The first one would be pertaining to the breach of covenants. So although this is quite temporary, I'd still like to know if there are any of your other debt instruments that don't have these covenants but have a standard cross-default clause. that could be enforced. Is that a risk over the coming days or not? It's just a hypothetical, but I just need to clear that for me. And the second question is, given your below-expectations third quarter, it seems to me that the implied fourth quarter is extremely strong, down only 15% year-on-year, but last year you had the Assassin's Creed Shadows release, which was delayed, and that propped up the fourth quarter quite substantially. So can you help us understand that? how are you going to achieve this super strong fourth quarter? Thank you very much.

Yeah, thank you, Alex. Yes, so that's on your first question. So we are addressing the topic by settling the repayments of our government-based debt through Shrine and Terms Loan. And we are canceling the RCF before building a new credit backup line facility. by repaying 286 million euros in principal amount, keeping in mind that we were anyway preparing to repay 210 million euros that were due in December and 50 million euros in September. So overall, the net acceleration is estimated to be around 25 million euros if we look at the impact on the medium-term cash trajectory for the company. So that has nearly no impact. We don't expect any impact on the overall debt structure and keeping in mind that we will benefit from a very comfortable 1.5 billion euro cash and cash equivalent position at end of March. In terms of Q4, as you mentioned, it will be significantly lower. than the Q4 that we posted over the last two years. And keeping in mind that the shadows only impacted the Q4 last year for 10 days. So this quarter will benefit from a slate of new releases, including the remakes of Prince of Persia, The Sands of Time, Rainbow Six Mobile, The Division Resurgence, and an announced title. We'll have a meaningful contribution of partnerships, B2B partnerships, but to a lower extent Then last year, we expect a strong Rainbow Six Siege that will go through the Six Invitational and starting into the next year. We will have the follow-on sales impact from Hanno 117 and the Avatar expansion. So all this will contribute to the key building blocks of Q4.

Thank you very much.

Thank you. As a reminder, if you would like to ask a question, please press star 1 and 1 on your telephone keypad. That is star 1 and 1 to ask a question. We will now go to the next question. And your next question comes from the line of Nick Dempsey from Barclays. Please go ahead.

Yeah, good morning, guys. So my first question is, have the auditors looked at all of the partnership deals that you have done going back several years so we can be comfortable that what we are seeing here is the final restatement impact? We won't get more, for example, at the full year 26 results. Second question, if I look at the restatement for FY25 and the restatement for the last 12 months period, It seems quite a big difference. I understood something, but can you perhaps explain the difference between those two restatements, given that I thought it related to particularly one partnership deal? And then the third question, in terms of any partnership deal landing in Q4, do you have good visibility on when they land and whether they will land?

Yes, so on the first question, so there is no risk on the prior year financial account. It's, by the way, interesting to have in mind that when you look at the many partnerships that we've been signing over the last seven years, if you look at all the partnerships between the fiscal year 19 and fiscal year 25, all of them have converted into cash. So that traces back to the quality of the earnings and the very strong cash conversion coming from these various partnerships. In terms of your following questions, I understand that you're talking about the fiscal 25 restatement. So it refers to a meaningful partnership. And if you look at the first half of Q26, you see the difference between IFRS revenues and non-IFRS netbooking. And you'll see that also it's driven by the second partnership that I mentioned earlier. And in terms of Q4, so as we said, we've had an increased visibility on these B2B partnerships performance. And so, yes, we have a meaningful contribution as is expected in Q4, but to a lower extent than last year.

But you have full visibility on that landing in that timeframe, or you don't? That was my question.

Yes, we have a good pipeline of partnerships that we are working on. Okay. Thank you. You're welcome.

Thank you. There are currently no further questions. I will hand the call back to you.

So thank you very much for your questions and have a good day or a good evening. Thank you.

Thank you.

Thank you. This concludes today's conference call. Thanks for participating. You may now disconnect.