Fractal Gaming Group AB (publ)

Hi everyone and welcome to today's presentation of the 2025 Q1 report for Fractal Gaming Group. Today we'll be presenting the key highlights from our just released Q1 report, focusing on the business status and financial performance for Fractal during the first quarter of 2025. We've had a strong start of the year. and a good momentum now when we're moving into Q2. But at the same time, we are navigating an uncertain macro environment that could impact especially the second half of the year. We'll go a bit deeper into that today. And as usual, we're of course happy to answer any questions you might have either in the end of the call or if you reach out to us individually. Starting by looking at the highlights from Q1, we are satisfied that we are able to build on our strong momentum from Q4, delivering a great start of the year driven by our strategic initiatives and an increase in consumer demand. In Q1, we reached an impressive year-over-year increase of 18%, reaching a net sales of 226 million SEK. This is the second strongest quarter for Fractal ever, only surpassed by the record set in Q2 2023. We see strong momentum in all our regions and positive contribution from our strategic initiatives, such as the sales expansion at Amazon that is now a key driver of growth. In total, our sales out from track partners increased by an exceptional 29% and we strengthened our market shares in key regions. Despite efforts to increase our channel stock levels, the high sales out resulted in continued low inventory in the channel at the end of the quarter. Therefore, our order book, together with continued healthy sales momentum, points to a positive sales development also in Q2. But we also see that the challenges in the global business environment could have impact in the second half of the year. Our EBITDA margin went down slightly to 16.5% compared to the same quarter last year, primarily due to increased trade costs and successful efforts to optimize our inventory. We have continued our focus on driving operational efficiency while investing for future growth. Finally, our new refined share was an important growth contributor and we expect upcoming product launches, including our Scape gaming headset that launched in Q2, further accelerate that development. Looking at the gaming market more in general, we are witnessing a significant change compared to 2024. The launch of next generation graphic cards has sparked a much anticipated upgrade cycle in the market, despite early availability and pricing concerns on these products. We believe this will have a positive effect on demand during the coming months. At the same time, growth in the PC gamer base and projected revenue increase highlight the resilience and potential of this sector. Major game releases during the quarter have not only driven engagement, but also reinforced PC's dominance as the preferred platform for gaming. This trend positioned us favorably as we align our offerings with market demands and capitalize on the growing gaming community with a wider gaming station focused portfolio. In Q1, we expanded our successful North portfolio with the introduction of the Fractal North XLRC. Building on the success of previous models, the North XLRC is designed for motherboards with reverse connectors that enable a fully hidden cable build. North has redefined the PC case category with the XLRC catering to gamers who value both functionality and style. The emphasis on clean, minimalist setups reflects current consumer preferences, and our commitment to innovative design continues to set us apart in this market. This launch not only reinforces our design leadership, but it also aligns with evolving tastes of today's gamers, ensuring that we remain at the forefront of the industry. Now it's time to dive deeper into the financials for the quarter, and I hand the word to Karin.

Thank you, Jonas. let's take a closer look at our first quarter performance starting with net sales we started the year strongly with q1 net sales reaching 226 million reflecting a year-over-year increase of nearly 18 percent Since we sell exclusively in US dollar, we also track performance in US dollar terms, where net sales reached 21 million, representing an organic growth of 14%. When we presented our Q4 report in February earlier this year, we noted that Q4 was the second strongest quarter in the company's history. However, Q1 2025 has surpassed Q4, now standing as the second strongest quarter following the record set in Q2 2023. In the second half of 2024, we launched our first new product category, the Refine Share, which significantly contributed to our overall sales momentum in Q1. In alignment with our business plan, we continue to advance our strategic initiatives, particularly the expansion of our product portfolio. During Q1, Nvidia released its new series of graphic cards, which increased consumer demand and drove our growth. not all cards were released in q1 some also launched in q2 which is expected to positively impact sales in that quarter as well in q1 sales out meaning true sales out to end customers increased by approximately 29 a strong indication that our products are well received by customers this has resulted in low channel inventory as we enter q2 which could indicate continued growth moving on to the next slide and segment development we have seen a strong performance in share sales during the first quarter which has begun to notably influence our overall sales mix Despite this shift, cases remain our largest product category accounting for 86% of total sales compared to 93% last year. This shift in product mix highlights the growing importance of our new product categories. Sales of cases increased by 8% to 195 million. The other product category, which includes shares, saw an impressive increase of 147%, reaching 31 million. We observed growth in all regions compared to the previous year, with no change in the proportion of sales between the regions, as the growth was proportional. This growth was primarily driven by increased demand from end customers, but can also be attributed to a strong quarter for Amazon and the successful sales of the refined share. The EMEA region was the strongest performer this quarter with net sales of 113 million, representing an approximate 16% increase. EMEA's share of total sales was 50%, consistent with the previous year. The Americas showed the highest growth, increasing by 19% to 88 million. The Americas' share of total sales was 39%, remaining within historically normal levels. Net sales in the APAC region were 25 million with their share of total sales at 11% in line with previous year. Moving on to the next slide and product margin development. In the first quarter, the product results amounted to 91 million compared to 82 million last year, and the product margin was 40.4%, which was a decrease of 2.4 percentage points year over year. Several factors contributed to this change in product margin. Freight costs had a significant negative impact, reducing the product margin by approximately 2 percentage points. During the first quarter, freight costs were more than twice as high as they were during the same period last year. Only freight to our regional warehouse in the US impact our income statement. Changed product mix also negatively impacted the margin by approximately 1.5 percentage points. We optimized inventory in the quarter by selling older products with lower margins, primarily within the water cooling category. Additionally, the share of shares in our sales mix increased which have a slightly lower average gross margin compared to cases. The currency effect contributed positively to the margin by approximately 1.5 percentage points in Q1 compared to the previous year. As you know, we are to a large extent a dollar-based company as we sell in US dollar regardless of the market and make all our product purchases in dollar, which provides a natural hedge. Approximately 40% of our operating expenses are in US dollar, with the rest primarily in SEK and Euro. Since we report in SEK, our growth is influenced by the US dollar exchange rate. The dollar has been historically high for quite some time and we should expect a short-term negative effect and possibly normalization in the future. Tariffs had a smaller negative impact of about 0.4 percentage points. Fractal's previous US tariff exemption of 25% for computer cases is currently valid until May 31, 2025. During the first quarter of 2025, an additional 20% tariff was imposed on all imports from China to the US. Additionally, reciprocal tariffs of up to 125% have been introduced, but our largest category cases is currently exempt from these tariffs. however our other categories are currently affected and we are reviewing our short to long term strategy to mitigate the tariff costs and to ensure strong development in the us let's have a look at ebta and cash flow ebta increased to 37 million in the quarter with a margin of 16.5 percent during the quarter we continued to focus on streamlining our operations and ensuring good cost control operating cash flow in the first quarter was 73 million a significant improvement compared to last year this was mainly driven by a favorable positive networking capital 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 105 million compared to 32 million last year and the overdraft facility with a limit of 80 million has not been utilized. This solid financial position allows us to invest in future growth opportunities, innovate our product offerings and navigate market fluctuations with confidence. Ahead of the 2025 Annual General Meeting, the Board of Directors has decided to propose a dividend of 1.25 SEK per share for the financial year 2024. And this is the first time the board has proposed such a dividend, marking a significant milestone for our company. It is also a testament to our strength as a growth company, demonstrating our ability to generate value for our shareholders while continuing to expand and drive profitable growth. Moving on to the next slide and the income statement. Revenue in the first quarter increased to 230 million, representing a 17% year-over-year growth. Goods for resale amounted to 135 million, which as a percentage of sales was in line compared to last year. Fractal has a stable product margin around 40%. Other external expenses increased to 31 million. This increase is connected, among other things, to marketing costs. And this is in line with our strategic initiatives to boost our market presence and drive long-term growth. Net financials were negatively affected by the US dollar SEAC exchange rate, as we report in SEAC. however interest expenses remained low as we are in a net cash position and have not utilized our credit facility as a result the profit for the period was 21 million compared to 26 million last year with that we have walked through the financials and i hand over to jonas again

Thank you, Karin. As we summarize the Q1 report, it is clear that we are on a strong trajectory with a sales momentum that is among the best in our history. We delivered the second strongest quarter ever, net sales rose 18% and sales out from track partners grew 29%, all reflecting sustained demand and confidence in our product portfolio and strategic initiatives. Following this situation, our channel inventory is low and we're working with our partners to balance stock levels ahead of unexpected continued demand, supported by key PC component launches and upcoming games titles. Our margins decreased slightly with an EBITDA of 16.5% and a product margin of 40.2%, primarily due to increased freight costs and efforts to drive inventory optimization. The refined gaming share made a notable contribution to our sales success. In addition, the launch of NorthXLRC and continued interest in the Scape gaming headset that will be launched in Q2 are reinforcing our journey to shape the future of gaming. Our strong financial position enable us to drive our strategic initiatives and deepen our market presence, ensuring long-term growth. While global business uncertainties, particularly US tariffs, may impact sales and earnings in the second half of the year, we see this as a competition-neutral challenge. Fractal has a solid short- and long-term plan to mitigate the impact, ensuring stability and adaptability long-term. This includes price adjustments in the market and supply network optimizations, with the target to reduce our China-made US portfolio by 50% by year end, assuming current tariff conditions persists. Despite these external challenges, we remain optimistic about our ability to drive profitable growth in 2025 and beyond. Our confidence is backed by product innovations, expansions into new categories, and stronger marketing and channel initiatives. And with that, we have taken you through the first quarter report for 2025. But we also want to take this opportunity to invite you to join us at Fractals Capital Markets Day on May 15th. This event will provide deeper insight into our strategies for the future and how this connects to our new financial targets. The event is an excellent opportunity to meet our leadership team, engage with our vision and understand how we plan to navigate the evolving market landscape. The link provided here will guide you to the registration page, ensuring you don't miss out on this informative session. We hope to see you there.