Asmodee Group AB (publ)

Good morning, everybody. This is Thomas Kogler. I'm CEO of Asmodee. I am thrilled to present Asmodee's first interim report as an independent company following our successful listing on Nasdaq Stockholm last Friday. Today, I am pleased to be back in Stockholm alongside our CFO, Andrea Gasparini. I will begin with a brief overview of our quarterly highlights before handing it over to andrea who will take you through our financials after that i will return with some concluding remarks before we open the floor to questions so the third quarter was an eventful and milestone filled period for us in october we participated in essen spiel 2024 the world's largest tabletops game convention where Asmoday has the most significant presence, spanning over 4,000 square meters, This allowed players to experience close to 90 showcased games through an impressive 65,000 demo sessions held over four days. In November, we successfully hosted our first Capital Markets Day here in Stockholm, making a key step in strengthening our investor relations. And in December, we issued a 940 million in senior secured notes and continued advancing our listing readiness efforts. In terms of products, the third quarter was also marked by several successful releases on top, obviously, of a very strong performance of our long sellers. Those include the Lord of the Rings Duel for Middle-Earth, in partnership with Middle-Earth Enterprise, part of Embracer, Lego Monkey Palace, Star Wars Unlimited Set 3, Twilight of the Republic. As mentioned during our Capital Markets Day, we continue to leverage our IPs in other forms of entertainment, specifically movie and TV shows. Our great werewolves of Miller's Hollow IP saw two great successes. Netflix released a movie on the IP that achieved 40 million views by the end of December, while Canal+, French pay TV, successfully launched a TV game show based on the same IP. which reached 10 million views, driving a significant sale increase in France for the tabletop game in the quarter. Moving on to the highlights of the quarter, of this third quarter, where we saw net sales just shy of 430 million euros, an all-time record-breaking quarter. This reflects sales growth of 11.3%, of which 12.9% relates to organic growth. The growth was primarily driven by games published by Asmodee Studios, long sellers and new releases already mentioned in the previous slide. The adjusted EBDA increased by 12% to close to 90 million euros and was positively impacted by a more favourable product mix, partly offset by higher operational expenses. We deliver over the period a strong cash flow above 70 million in line with seasonality and a cash conversion on adjusted EBDA of 81%. Following the end of the quarter, we received, as expected, a 400 million euro capital injection from the Embracer Group. 300 million euros of the proceeds have been allocated to repaying gross debt, whilst the remaining 100 million euros will further strengthen our balance sheet and support the resumption of our acquisitions agenda. Adjusted for the capital injection, our net debt on adjusted EBITDA after M&A commitments would have been around two and a half times. In terms of full year management expectations, we still expect for the full year low single digit net sales growth and adjusted EBITDA and adjusted EBIT broadly in line with the previous year. in terms of percentage. I will now hand over to our CFO, Andrea Gasparini.

Good morning, everyone, and thank you, Thomas. Moving on to sales for the third quarter, where net sales amounted to Euro 429 million, an increase of 11.3% compared to the same period last year. Organically, sales increased by 12.9%. Last year, disposal of miniature market had an effect of minus two points, impacting the other items. And the impact of change in exchange rates was 0.4%. Splitting the games by publisher, we saw games published by Asmodee Studios increased by 29.1%. Games published by partners increased by 4.8%. And others decreased by 32%. The strong sales growth in games published by Asmodee was, as already mentioned by Thomas, primarily driven by new sales based on third-party IP supported by Star Wars Unlimited, where the last year had no sales, LEGO Monkey Palace, Lord of the Rings Duel for Middle-Earth, as well as pillar games such as Catan and Double Spotted. Within games published by partners, we saw a rebound in sales for distributed lines following headwinds faced during the first half of the fiscal year. Thanks to strong new releasings such as Scarlet and Violet, Surging Sparks for Pokémon, Foundations for Magic the Gathering, Emperors in the New World for One Piece, Trio and Bomb Buster from Cocktail Games, and heat stairs in the nordics we saw solid growth across both tcg and board games categories and this strong performance in q3 brings the year to date back on track to deliver low single digit on a year-to-date basis sales amounted to 1 billion 27 million an increase of 1.7 percent Compared to the same periods last year and organically sales increased by 3.3%. This is a great achievement and we are proud of the work made by the teams across all of our operations. We saw an increase in adjusted EBITDA of 12% up from €80 million to €89.3 million the same period last year. This corresponded to an adjusted BDA margin of 20.8% compared to 20.7% prior year. The increase in adjusted BDA was driven by higher gross profit from a favorable product mix, where games published by Asmodee have higher margins than partner published games, as well as higher volumes. The higher gross profit was partially upset by higher investment in marketing to drive long term growth, which include marketing campaigns and presence in key events such as Spill SN and Pax Unlimited Fairs. Higher royalty costs, which are variable and in line with sales development. Higher shipping costs due to higher cost per container. and ramp up of costs connected to becoming a standalone listed company. Items affecting comparability of 29.4 million, of which 28.6 million are related to listed process, also have been adjusted in our adjusted BDA. We also see 11.3 million of implementation cost of the bridge loan and revolving credit facility impacting the financial net in the quarter, so below the adjusted EBITDA in our P&L. The costs mentioned above related to the listing and refinancing are a reflection of the listing project being made in conjunction with implementation of our new long-term financial structure. Moving on to the cash flow, where the cash flow after tax and capitalized lease payment amounted to 72 million during the third quarter. This corresponds to a free cash flow conversion relative to adjusted EBITDA of approximately 81%. For your information, starting from Q1 2025, we are planning to introduce quarterly free cash flow disclosure to provide a greater visibility in our cash generation and financial performance. Year-to-date the free cash flow after tax and capitalized lease payment of euro 100 million 102 million corresponding to a free cash flow of 54 percent. Year-to-date free cash flow compared to last year was favorably impacted by higher adjusted EBITDA, offset by movement in working capital where last year working capital benefited from an exceptional inventory unwinding following the high inventory build-up during the post-COVID period. Looking at movement in working capital this year, this is pretty in line with the seasonality with the inventory reduction following the peak season, which has started as of end of Q3. And end of December, the increase in trade receivables and trade payable is still there, thanks to strong sales during the Q3. It should be noted that capital expenditure amounted to between 14 and 15 million in Q3, less than 2% of net sales in line with our CapEx Lite business model that we've described previously. Finally, net debt and balance sheet. So the net debt before M&A commitment was driven by the issuance of the 940 million senior secured notes in Q3, replacing the bridge facility established in April 2024. We have also access to 150 million revolving credit facility, totally undrawn as of today. and the ratio of net debt to adjusted EBITDA before and after a net commitment stands at 3.6 times and 4.2 times respectively. The capital injection from Embracer Group of €400 million was received on January 24 and €300 million has been allocated to repaying gross debt and the process is ongoing and should be finalized in the coming days. Net debt on EBITDA adjusted for capital injection before and after M&A commitment should land at approximately 2 and 2.5 times respectively. We have also included some further details in appendix with respect to the evolution of the net debt. And with that, I will hand over to Thomas.

Thank you, Andrea. So as a conclusion, as you have seen, we have delivered solid double digit growth in sales and profit. We have continued our strong cash flow generation and cash conversion. Our long-term financing is in place, strengthening our balance sheet. We had our first successful media developments with partners on Asmodee IPs in a quarter. Now, what do we look forward to? A strong product catalog and a strong pipeline of novelties. and we really believe we are well positioned for long-term profitable growth now being listed on nasdaq in stockholm and with this great picture from the nasdaq listing from last friday i am now opening up opening up the floor for questions

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Jacob Edler from Danske Bank. Please go ahead.

Hi Thomas and Andrea and congrats on the listing and a strong quarter. I have two questions on my side. The first one is on the outlook statement. So you state that you expect margins largely flat on adjusted EBITDA and EBIT for the current financial year with one quarter left. Considering the seasonality, you probably already booked somewhere between 80 and 85% of full year EBIT already. margins are up some 1.4 and 1.6 percentage points year to date so it seems quite the guidance seems quite conservative for q4 and and possibly a quite potential you know drop in the margin can you maybe just walk me through that outlook that's that's the first question

So, thank you, Jacob, for this question. So, for Q4, first, it should be noted that last year, as previously communicated in the Q4-23-24 by Embracer, Asmoday profitability at adjusted EBIT level grew by 50% year over year with improved margin. and also a strong product mix impact with the release in Q4 of Star Wars Unlimited. So in terms of comparability, this will be an anniversary quarter, the Q4, which will compare to that one. Secondly, we will start in Q4 absorb the cost for being a standalone listed company. This has very little impact in Q3, but it will start ramping up in Q4. Third, as communicated, we have also reinforced, strengthened our marketing spend to normalize level, where last year in Q4, those investments were relatively minored in the context of some savings plans that were ongoing at the group level.

Okay, that's very clear. Just one follow-up there. I mean, because now you have set four, right, on Star Wars in March, if I'm not mistaken. Should we expect that to have then, I guess, lower margins than set one? I understand the other two points you mentioned as well.

No, it's not a question of margin. It's just that we will be anniversaring a quarter that had already significant revenue from Star Wars Unlimited. So I would say the increment provided by Star Wars Unlimited Set 4 versus last year will be a bit more limited. Also, as Andrea said, we are in the investment phase on Star Wars Unlimited to make it a very long-term product. The organized play in TCGs is extremely important and is ramping up since Q3 and then much faster in Q4 and leading to the Galactic Championships in July next year in Las Vegas. So it's still an investment phase for Star Wars Unlimited to install the product for the coming years.

I see. Perfect. Then my second question, just looking on your own published products, it grew 29%, great performance. I'm just trying to understand, are you able to add any flavor on how the catalog of pillar brands was growing if you were to exclude the big successes here in Lego, Star Wars, and Lord of the Rings?

um so obviously we do not disclose details uh between novelties and uh and existing products but it's clearly a mix of the two as andrea has mentioned we had a very good performance on ketan we had very good performance on spotted very good performance on the azul line so we have a lot of I would say, legacy lines or very long-term selling that have been contributing a lot to the growth quarter on quarter. And then combining it with the few new releases that we have mentioned several times, this has led to the impressive 29% year-on-year growth on the published games.

Perfect. Thank you so much for your answers.

The next question comes from Eric Larson from SEB. Please go ahead.

Good morning. I hope you're all good. I have a question on gross margins. So 47 here this quarter looks very strong, at least versus 45 last year. And I understand that the mix is a factor here. But I just want to understand if this level we're seeing currently, does that stand out from a historical perspective?

Hi Eric, thank you for the question. I think that if we take some step back and look at what we've delivered over the last two years and what's going on this year, the evolution of gross margin pretty much reflect our strong commitment on both the distributed line and the published line and the margin improvement over the nine months this year is mirroring the very strong performance of the published game. So as we've said and described, this is positive to our business, both in absolute value and also in percentage of sales.

All right. And then you mentioned some of these offsetting factors to the improvement, since we didn't see the same expansion on EBITDA level. So I'm just curious, to what extent is this royalties, to what extent is it marketing? Which one is the primary offsetting factor, if you could say that?

Yeah, so in the quarterly bridge of a BDA, you see an increase in operating expenses of $17 million. uh around 40 percent of that 17 million uh relates to uh what we've sold so it's it's royalties and and and shipping impact royalties is a variable cost as a percentage of sales and shipping is related to volumes and as i said before a higher cost per container which which is three to one uh this year compared to uh compared to last year so it's also an increase in the rate Then within the 17 million, 30% is marketing, as we said, what we believe is a sustainable run rate level to invest in our games. And then the remaining is cost related to other operating expenses and the preparation for becoming a standalone company.

Perfect. Thank you very much. That's all for me.

I'm not sure we have further questions, at least for now, in the queue. Oh, yes, we still have.

The next question comes from Rasmus Engberg from Kepler-Chevreau. Please go ahead.

Yes, good morning, guys. Welcome to being a listed company. With that, I have two questions. Firstly, with regards to costs relating to the listing, do you think that there will be further costs coming in Q4?

Hi, thank you for the question. So, in Q4, what we expect is to have additional costs related, as I said before, to the repayment of 300 million senior security notes. So this will come with additional fees. It represents 2% of the amount that will be reimbursed. So 2% of 300 million. It will impact the net financial in the P&L. And there could be some other minor costs as well impacting the net financial in Q4, but the bulk of what we expected is already loaded into in the year to date P&L.

Okay, right, thank you. And a second question just on a more bigger level, sort of higher level. The US business that you operate is different to the European business. I assume it's probably more own games than distribution almost. How do you see that developing going forward? Is it scope to have that approach to European business in terms of split and scale?

Thanks, Rasmus. It's an excellent question. As you've very well noted, effectively, our US business has historically been built more on games published by the group. However, in the past five to six years, we have also slowly been building the capabilities in order to be able to have a model, I would say, that is leveraging everything we're able to leverage in the more mature markets in certain European countries. And that does include significant investments for us to go what we call direct to hobby building sales and logistics capabilities over the past years this is very important because it opens up for the team the ability to strengthen the catalog with games published by partners which the team has been starting to do quite actively in the last two years but we are still in early days And secondly, in the US, we were absolutely not operating on the trading card game market, which has now changed in this year with the launch of Star Wars Unlimited and Alter. So I would say that we are moving towards a model that's a bit more close to what we have in Europe.

Thank you. Thank you.

The next question comes from Martin Arnell from DNB Markets. Please go ahead.

Good morning, guys. My first question is on the resuming of your M&A agenda going forward and the deal flow that you're working with. give some comments on what you're doing and if it's mainly distribution or publishing new geographies and how you view the deal flow. Thank you.

Thanks, Martin. I know there is a lot of interest around us resuming our M&A agenda. We are also obviously very excited about this perspective. However, I would just like to remind everybody that it's an engine, so it takes a bit of time to reignite all of this and to go through acquisition processes. Clearly, so our pipeline, the market remains very fragmented. So lots of opportunities out there. Our pipeline is quite active as we have and quite wide or deep as we have indicated during the capital markets day. In terms of priorities, to answer your question, I will reiterate what we said at the CMD. Our priority is to do what we call bolt-on acquisitions. So it's acquisitions that are on the lower side of size, acquisitions that are easily to integrate within our, I would say, growth platforms either in our publishing organization or in our route to market organization for the distribution and at this stage we already have a quite strong i would say global geographical presence so priority will most likely be around student publishing studios also creative capabilities and intellectual properties however obviously on a case-by-case basis we would also consider acquiring distributors either to enter into new territories or strengthen our local presence thank you that's very clear um and my second question is

In the past weeks you've met a lot of investors. What are the main learnings from your side and is there anything that has surprised you in terms of feedback?

It's been a very engaging few weeks, month also, I would say, because we have been engaging more and more with investors since the Capital Markets Day, ramping up also through our bond financing process and then the investor conference in Copenhagen at the beginning of January. Finally, our our roadshow. I have to say that we felt a very strong support from investors, especially very strong interest from long term investors, which is very important to us because we are a long term growth company. As we have seen in our past history, long-term past history, if you stick with Asmodee for sufficient time, you will not regret it or you will benefit greatly from it. Sorry, it's my French way of someone sometimes downplaying. Having said that, I think it becomes quite clear that there is a lot of understanding of our dual model of the combination of the publishing capabilities and the distribution capabilities. I think that's something that's a great success following the capital markets day that investors understand that both the combination of both is a huge strength to the business. And lastly, I would say the fact that we are also being listed with a much stronger balance sheet than what was expected, I would say six months ago is a clear plus for investments, for investors, sorry, and their engagement alongside Asmodee.

Thank you, guys.

The next question comes from Simon Baker from Bernstein. Please go ahead.

Yes. Good morning. Taking my questions. So two questions, please. One is, in your opening remarks, you refer to a strong product catalog and pipeline. I just wondered whether you could add a little bit more color on what that means sort of year on year for the year about to start next year. And also, at this early stage, you could give us a little bit of a guide in terms of the phasing of some of the pipeline that we are to expect. That's the first question. And secondly, sorry to come back to the M&A, Thomas, You did, in the 100 million euros that's earmarked, I think previously referred to some of that being for earnouts for the M&A commitments. Could you give us a sense as to how much of that would be left of the earnout commitments for these? Thank you.

Yep. So on the strong product catalog and the pipeline, again, our performance is largely driven by the performance of the existing products. That's why we talk about the existing catalog. They did say we're less a novelty-driven company in terms of successfully delivering our upcoming quarters. But obviously the question of what's also new up and coming, I would say a long slide, the slate of very strong releases that exist from partners on trading card games. And of course, the further installing of Star Wars Unlimited in the upcoming quarters with the the future releases of sets 4 in this fiscal year, 5, 6 and 7 in the next fiscal year. We have a very exciting second game in the LEGO product line, Brick Like This, a much more low price point mass market game. We have a quite exciting, I have to say, Game in the Lord of the Rings universe combining the pandemic game mechanic with the touch of legacy. For those that don't know, it's where the game evolves. You alter the game at every game you play. Super exciting called Fate of the Fellowship by our studio BIG. We also have some exciting launch in the Azul lines from Nextmove with a two-player game, Azul Duel. I'm quite excited about the Catan 6 edition that will be released in Q1 and throughout the entire year. And our friends at Exploding Kittens are releasing their first board game, card game, but a real exploding game that we are looking forward to. On top of that, I mean, there is numerous other new releases. Again, Asmodee, it's a lot of small things that make big results. On the second question, maybe Andrea, you want to take it on the M&A commitments?

Yeah, sure. Hi, Simon. On the M&A commitment, I think you can find some additional information about timing of the cash out of those commitments in the report. We have a note describing the payment to be made within the year and in more than one year. The big amount is still more than one year considering the Q3 cutoff as of end of December. Beyond December in one year, the big cash out component will be the put and call agreement that we have on some activities in the US. So we expect to have those cash out at the end of the calendar year 2025, which will, in that case, be probably the Q4 of the current fiscal year.

That's great. Thank you.

So I think we do not have anybody else in the queue for all questions. Maybe we can take one question from the web.

So I think that there is a question on the, when do you expect to see your rating get upgraded? What's your anticipated timing? How many notches do you anticipate based on your discussion with the agencies? So indeed the discussions with the three key agencies took place around December in conjunction with the implementation of the bond. We've issued the rating on B2 for MUDEs, B on Standard & Poor's, and WB- on Fitch. The discussion with the agencies was very transparent in terms of plans towards the potential deleveraging of Asmodee. with the capital injection on 400 million, out of which 100 million will remain in the balance sheet. So we are not expecting any short-term change in the ratings due to this new landscape and the new balance sheet at Asmoday. We do not have exact timing for an upgrade, even though it's to be noted that the three ratings came out with the positive outlook. So I think that both rate agencies and Asmodee, we are aligned on the fact that we want to deliver strong results, strengthen the track record of organic and acquisitions in the coming years. So we at Asmodee, we are running to achieve the medium term financial targets.

uh and then we hope that will be also a positive impact on on ratings we have a second question which is could you elaborate more on your dividend policy um so as we've announced um we aim at considering uh paying off dividends to shareholders once we have reached our uh target of uh two times leverage um however very clearly this will be um i would say a trade-off because it's only on the excess cash meaning that it will be after m a and investment in the business obviously in conjunction with the board deciding how we make the best use of our cash to create shareholder value between investment, M&A and for the excess cash, possibility dividends. We have another question from Kai Eric. I think I've heard you say Pokemon has a three-year product cycle, is next fiscal the third year? And historically, how much difference has been seen between year two and year three? So you are correct in the fact that Pokemon is usually in a three-year cycle. We are 2024, so they are aligned on the calendar years and not our fiscal year. 2024 was the second year of Scarlet and Violet. 2025 will be the third year leading into a new generation at the end of 25, early 26. And it's true to say that there is usually some, I would say, Slightly lesser sales in the second year out of the three, but we do not provide details to which extent. We also have a question. If tariffs from the U.S. are enacted, how will you be affected? Do you have local production of your sales there? Or are you importing the games from Europe? So we are manufacturing in a quite balanced way in Europe, in the U.S., and in China. Tariffs have been announced but are still not completely clear in the sense that the exact product categories impacted have not been yet published to my knowledge by the US government. So in the case we are impacted on the main flows which are US to China, and to a lesser extent on, I would say, the retaliation tariffs from Canada to US. We have options to move production around with production partners all around the globe. We have also ability to move certain elements in our supply chain to limit the impact. And then I would say that in the end, we will also see with our manufacturing partners and with our retail partners on how we can mitigate all of this to limit the impact. But exposure remains relatively limited for asthmatics. The second question is also related to Terry, so I just understood it and I think for now it was the last question. So unless we have any people manifesting themselves over the phone or adding written questions, we'll give it a couple of seconds and then if not, we might close the call. Okay, I do not see any movements. So in that case, so before we close, I would like really to thank our new shareholders. Welcome on the ride. Obviously, our team members, they've been amazing in Q3 from obviously those that are used to shining in the creative and in the sales and also the people in the warehouse we do not talk enough about them but we have a lot of people that are highly contributing to the success day by day obviously the players that trust in our games our retail partners and our business partners for their unwavering support our strong quarter strong performance this quarter reflects really the quality of our product portfolio and the strength of our teams as i said in a solid market it's worth noting we remain focused on executing our strategy and create long-term shareholder value so thank you for joining us today and we look forward to seeing you in