Fractal Gaming Group AB (publ)

Hello everyone and welcome to today's presentation of the Q4 2024 report for Fractal Gaming Group. Today we will be presenting the key highlights from our just released Q4 report, focusing on the business status and the financial performance for the fourth quarter, but also to summarize the result of the full year of 2024. Further, we'll also provide insights into our strategic initiatives and the market outlook for 2025. As usual, we are of course happy to answer any questions that you might have either in the end of the call or if you reach out to us individually. We'll start to look at some of the Q4 highlights. 2024 ended on a high note for Fractal, setting a strong foundation as we move into 2025. Our net sales in Q4 was the second highest in a quarter ever, reaching an impressive 205 million SEK, which is an increase of 44% compared to the same period last year. The growth was fueled by our partners ramping up their inventory levels to meet increased sales and in anticipation of ever stronger demand in the coming year. Information about GPU releases as well as strong awards for fractal products by key media were among some key underlying reasons. Our sales out from track partners saw a 12% increase following Black Friday, Cyber Monday, Christmas and other campaign events delivering exceptional sales figures. Q4 had the highest ever recording sales out figure for fractal in a single quarter. With this, we are ending the year with slightly lower channel inventory than normal, but we expect to balance this in Q1 as sell-in from Q4 hits the market. Our EBTA surged to 29 million SEK in the quarter with a margin of 14.2%, up from 8.8% last year. This significant improvement is largely attributed to the increase in net sales. We did however experience a slight dip in our product margin, coming in at 39.1% in the quarter compared to 40.8% during the same period last year. This was primarily caused by a write-off of older products within the water cooler category and should be seen as a one-off event. We ended the quarter with a robust net cash position of 51 million SEK, a significant increase from 8 million SEK last year. Moreover, the reception from our new refined computer share has been very positive during the quarter as availability in the channel has increased. Together with the Scape gaming headset that is targeted to launch in Q2, these products are marking a significant milestone in our growth and brand journey. As we move over to the market development and demand, we see several exciting trends that are driving our growth. Firstly, we are witnessing a significant upgrade demand driven by aging systems. The end of Q4 marks five years since the pandemic driven upgrade boom and many gaming PCs are now reaching the end of their life cycle. This creates a strong need for new hardwares as gamers look to refresh their setups with the latest technology. Moreover, PC gaming demand is also on the rise. Recent data shows that 35% of US consumers that consider to buy tech products specifically plan to buy a desktop PC during the holidays. This was up 9 percentage points from last year and underscores an increasing demand for new hardware, linked to more consumers seeking to enhance their gaming experience. In addition, strong game releases are also driving growth in the market. Titles like Doomed Art Ages and Civilization VII are expected to contribute to the growth of the games market and to further fuel hardware demand. Also, we were thrilled in November that our North and North XL case was awarded Best Overall PC Case 2024 by Gamers Nexus. This proves that North Series continues to set industry trends with its innovative design that is solidifying Crackle's position as a design leader in gaming hardware. Lastly, regarding US tariffs. Fractal's earlier exemption for computer cases is still valid until May 31, 2025. But as of February 4, we have a 10% tariff on all products imported to the US. We see tariffs on our product portfolio as competition neutral because it's affecting the entire industry equally. From Fractal, we have a plan with a mix of short and long-term measures in place to mitigate the effect. But we estimate that the recently introduced 10% tariff will have a negative annualized effect on UPTA of approximately one percentage point. Now with Q4 in the books, let's also take a look at the full year of 2024 and its performance in key financials. We see 2024 as a transformative year for Fractal. Throughout the year, we successfully launched several new products. In addition to new case models such as the Era 2, North XL, and Mood, we expanded into two new product categories, the shares and headsets. The refined share that was launched in the second half of 2024 is still in the ramp-up phase, but it's already delivering strong sales, whilst the Scape headset is targeted to launch in Q2 2025. Moving into the year, we faced very high comparative numbers from 2023. And despite a weaker market environment with delayed component upgrade cycles and external challenges such as the Red Sea conflict leading to longer delivery times and increased freight costs, we achieved nearly 700 million SEA in net sales. Since our IPO, we have maintained an organic CAGR of 14%. Our product margin for the full year was 40.3%, slightly lower than 2023, mainly due to unfavorable currency effects and slightly higher sales discounts. However, lower purchasing prices and freight costs had a positive effect. EBTA amounted to 84 million SEK with a margin of 12%. And compared to last year, it was impacted by lower sales, increased marketing expenses and higher personnel costs. But this is all in line with our mid and long-term strategic growth plans. Finally, our net cash position improved to 51 million SEK, up from 8 million SEK last year, reinforcing our strong financial position, stability and flexibility. Operating cash flow totaled 59 million SEK, primarily driven by the EBTA performance. And with that, we are summing up 2024, and I'm giving the word to Karin that will take us through the financials for the quarter more in detail.

Yes, thank you, Jonas. So let's now take a closer look at our fourth quarter performance, starting with net sales. As Jonas said, we ended the year strongly with Q4 net sales reaching 205 million, reflecting a year-over-year increase of nearly 44%. Since we sell exclusively in US dollars, we also track performance in US dollar terms, where net sales reached $19 million, representing an organic growth of 42%. Q4 2024 was the second strongest quarter in Fractal's history following the record sets in Q2 2023. The campaign period, particularly around Black Friday and Cyber Monday, was highly successful and significantly contributed to our strong sales growth. Our North and North Excel cases were awarded Best Overall PC Case 2024 by Gamers Nexus, a testament to our ability to develop high quality, innovative products that drive demand. Additionally, the refined share launched in the second half of 2024 delivered strong performance in Q4, further strengthening our overall sales momentum. lastly sales out revenue in q4 as reported by our key customers and track partners was the strongest in fractals history and increased by 12.2 percent year-over-year in us dollar terms demonstrating strong consumer demand moving on to the next slide and segment development With a strong ramp up in share sales during the second half of the year, we see a clear shift where shares are increasingly influencing the total sales mix. However, Cases is still our largest product category with 86% of total sales compared to 91% last year. sales of cases increased by 35 percent to 176 million the other product category saw an increase by 140 percent reaching 29 million the overall growth was driven by a number of factors including a strong market than previous water quarters successful campaigns best case of the year awards and strong sales of our refined share the emea region was the strongest performer this quarter with net sales of 112 million representing an approximate 78 percent increase emea's share of total sales was 55 percent up 11 percentage points from previous year Strong sales on Amazon and of the refined share contributed to this growth. In the Americas, net sales amounted to 74 million, an increase of approximately 26% year over year. The Americas share of total sales was 36%, which is five percentage points lower year over year, but remains within historical normal levels. Net sales in the APAC region were 19 million, with their share of total sales at 9%, a decrease of 5 percentage points compared to last year. Moving on to the next slide and product margin developments. In the fourth quarter, the product result amounted to 80 million compared to 58 million last year, and the product margin was 39.1%, which was a decrease of 1.7 percentage points year over year. During the quarter we conducted a one-off write-down of older products within our water cooling category, which reduced the margin by approximately 1.3 percentage points. We also had slightly lower margins in the case category, impacting the margin by 0.6 percentage points. other factors such as currency effects tariffs shipping costs and sales discounts had a combined smaller effect on the product margin resulting in a positive impact of approximately 0.2 percentage points let's have a look at ebta and cash flow EBITDA increased to 29 million in the quarter with a margin of 14.2%, an improvement compared to last year, primarily driven by increased sales. Operating cash flow in the fourth quarter was 17 million, a significant improvement compared to last year. This was mainly driven by stronger EBITDA and positive networking capital, where lower inventory and higher payables contributed positively, while higher accounts receivable due to strong Q4 sales had a negative impact. This improvement in operating cash flow reflects our ongoing efforts to optimize our financial performance and maintain a healthy cash position. Fractal demonstrates strong financial stability and flexibility with net cash growing to 51 million and no utilization of the overdraft facility. This solid financial position allows us to invest in future growth opportunities, innovate our product offerings and navigate market fluctuations with confidence. moving on to the next slide and the income statement revenue in the fourth quarter increased to 210 million representing a 43 percent year-over-year growth goods for resale amounted to 124 million which as percentage of sales was slightly higher compared to last year As previously said, this increase was mainly due to a one-off write-down of older products within the water cooling category. Other external expenses increased to 31 million, primarily due to variable costs, including kickbacks. Strategic hires and annual salary revisions contributed to the rise in personnel expenses. Finance net improved, driven by a favorable US dollar SEC exchange rate and limited costs associated with the overdraft facility. As a result, the profit for the period was 21.2 million compared to 3.2 million last year. With that, we have walked through the financials and I hand over to you again, Jonas.

Thank you, Karin. And so to summarize the quarterly report, we close the year with a strong momentum, reaching the highest sales out ever recorded from track partners. And consequently, our net sales increased 44% in the quarter, resulting in a 9.7% annual decrease compared to the record year of 2023. This despite of the challenges imposed during the year. We have seen the market continue to come back during the quarter and partners have taken action to increase their stock levels following strong momentum throughout the year-end sales and in anticipation of continued stronger demand in Q1. Our product margin decreased slightly but still stands strong over 40% for the full year. Negative effects from exchange rates and slightly higher sales discounts following a slower market in Q2 and Q3 has been partly compensated by lower purchasing prices and reduced freight costs. We are happy to see that the quarterly EBTA margin is increasing year over year, leading to 12% EBTA for the full year. During the quarter, we continue to see very positive reception for our refined computer and gaming share, and we are excited to see the strong interest for the Xscape gaming headset. These launches are driving the shift in Fractal's global position from a chassis to a gaming station brand. Our strong financial position gives us the opportunity to pursue our strategic initiatives, to redefine the gaming station, to elevate brand equity and strengthen our global access. We are committed to advancing our position in the market and expand our presence in both existing and new product categories. We therefore continue to invest in our long term growth strategy to shape the future of gaming. Additionally, we're seeing positive trends for 2025 where new component launches and games releases will support market growth. And Fractal's growing product portfolio fits well into these market needs and offers opportunities for us to capture a broader audience. Finally, US tariffs on products in our portfolio are competition neutral, and we have a plan with a mix of measures to mitigate the effect. But we estimate that the recently introduced 10% tariff will have a one percentage point negative impact on our annualized EBTA. To summarize, we see good potential to drive profitable growth in 2025 and beyond. This will be supported by our new product launches, expansion in new product categories, and increased marketing and channel initiatives. So with that we've taken you through the last report for 2024 and we open up for your questions.