Fractal Gaming Group AB (publ)

Welcome to the Fractal Gaming Group Q3 2025 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. If you are listening to the presentation via webcast, you can ask written questions using the form below. Now, I will hand the conference over to speakers CEO Jonas Holst and CFO Karen and Jim Arson. Please go ahead.

Hi everyone and welcome to today's presentation of the Q3 2025 report for Fractal Gaming Group. In this call today we will walk you through the key highlights from the quarter. We'll focus on our business status, the financial performance and the strategic progress that we have made so far this year. In summary, we are pleased to report that Fractal has maintained strong momentum throughout the third quarter, resulting in the strongest nine month period in our history. We're particularly proud of this development as we, at the same time, continue to navigate uncertainty in the macroeconomic environment, not the least as we look ahead to the final quarter of 2025. Today, we'll discuss both our achievements and the opportunities and challenges that we see on the horizon. And as always, we're happy to answer your questions at the end of the call or individually afterwards. Let's dive directly into the highlights from the third quarter. It's a period that again demonstrates our ability to deliver growth, resilience and innovation, even as the market landscape continues to evolve. We saw continued strong growth in Q3, driven by our strategic initiatives and a sustained increase in end consumer demand. Our team's focus and agility have enabled us to capture opportunities across all regions. Net sales for the quarter reached 181 million SEK, representing a 16% increase year on year with a strong organic growth in US dollars of 27%. The growth was especially strong in EMEA and in general fueled by the successful launch of our Scape gaming headset, which has quickly become a customer favorite. Sales out revenue, our best indicator of true consumer demand, rose by 34%. We maintained balanced inventory in our sales channels and we proactively increased internal stock to ensure that we can meet demand and manage supply chain risks as we head into year end. Profitability remains a core focus for Fractal. An EBITDA increased to 14 million SEK with a margin of 7.6% up from 7.4% last year. Our product margin also improved from 37.8% to 39%. This margin expansion was achieved despite ongoing headwinds from tariffs, currency fluctuations and higher freight costs in the quarter. We managed to offset these pressures through favorable product mix and lower sales discounts, demonstrating our ability to adapt and protect profitability even in a volatile environment. We closed the quarter with a strong net cash position of 36 million SEK, up from 30 million last year. This financial strength continues to give us the flexibility to invest in future growth, pursue strategic initiatives and continue to deliver value to our customers and shareholders. Q3 was a quarter where Fractal not only delivered strong financial results, but also took important steps forward in innovation and operational agility. We launched the Epoch computer case with great reviews and our team has excelled in navigating uncertainty, seize new opportunities and lay the groundwork for continued profitable growth. Turning to product and brand development. As mentioned in Q3, we continue to expand our portfolio with the launch of Epoch, a computer case that blends minimalist Scandinavian design with performance engineering. Epoch features mesh front and top panels and our new Momentum fans that is delivering exceptional cooling and quiet operations. Early reviews have praised the design, thermals and flexible layouts, reinforcing our reputation to drive elegant performance-driven products to the market. We also saw strong momentum from our other recent launches, especially the Scape gaming headset that reached a top three revenue contribution position for us in the quarter. Just as the refined gaming share, Scape has been very well received in the market, and both launches allow us to establish a strong presence in these new product categories. These launches, combined with our ongoing focus on innovation and design, ensure that Fractal remains the brand of choice for gamers who value both performance and aesthetics. Now let's also take a look at the broader market development. The global PC market continues to show positive momentum, with shipments projected to rise by about 4% in 2024, surpassing the previous peak we saw in 2021. This growth is driven by the ongoing migration to Windows 11, the need to upgrade aging systems, and the launch of new, more affordable graphic cards from NVIDIA and AMD. These developments have made advanced features accessible to a wider group of gamers, fueling the upgrade cycle to continue across the industry into 2026. Major new game releases such as Borderlands 4 and Stellar Blade are also driving demand for next-generation hardware. We also continue to see evidence of the shift in consumer preferences. Today's gamer is older and more design conscious. It's a trend that aligns perfectly with our long standing strategy. These market trends reinforce our confidence that Fractal is well positioned to capture the growing demand for premium design driven gaming gear. And with that, I'm handing over to Karin to take us through the specifics and the details of the Q3 financials.

Thank you, Jonas. Let's take a closer look at our third quarter performance, starting with net sales. In the third quarter of 2025, we delivered another strong performance with net sales of 181.4 million, an increase of 15.8% compared to the same period last year. In US dollar terms, we delivered strong organic growth of 26.7% year on year, with net sales reaching 19.1 million US dollar. Because all our sales are denominated in US dollar, currency movements have a notable impact when results are translated into our reporting currency, SEC. The weaker US dollar explains the difference between our strong organic growth in US dollar terms of 26.7% and the growth rate reported in SEC of 15.8%. All three quarters this year have shown higher sales compared to last year, making January-September period the strongest in Fractals history in terms of organic net sales. The strong Q3 performance was supported by continued robust demand for our PC cases, which remain our largest and strongest product category We have a solid product portfolio and we continue to develop and launch successful cases to sustain growth and strengthen our core position in the market. Our new categories, including the Scape Gaming Headset and the Refined Gaming Share, performed in line with expectations and contributed positively to growth. Over time, these new categories are expected to become an equally important contributor to total sales, complementing our core products and further broadening Fractal's position as a premium gaming brand. Another important driver that impacted net sales in the quarter was the continued strong momentum in the gaming and PC segments supported by this year's graphics cards launches and several major game releases confirming that the upgrade cycle within the segment remained strong. As we entered Q3, inventory levels across sales channels had normalized and are now at healthy levels or in some regions slightly low, providing a solid foundation for sustained momentum ahead. Sales out remains at a high level, increasing 33.9% year on year, based on data from our tracked partners, covering approximately 80 to 85% of total sales. We have now delivered yet another quarter of strong growth in sales out to end consumers, a clear sign that our products continue to be well received in the market and that underlying demand remains healthy. Let's continue with our segment and regional performance for the third quarter, starting with the other product category. As I mentioned earlier, our new product categories are becoming an increasingly important part of Fractal's business. In Q3, the other category grew nearly 92% year-on-year to 27.7 million, driven primarily by the Scape gaming headset and the refined gaming chair. Both products performed in line with expectations and made a solid contribution to growth, showing that our expansion beyond cases continues to gain traction. The other category also includes supporting PC components such as fans, power supplies and water cooling. In total, the category accounted for 15.3% of Fractals net sales in the quarter. Up 6.1 percentage points year on year and 4.7 percentage points compared to the last quarter. Turning to cases, sales of cases reached 153.7 million, an increase of 8.1% year on year. Cases still represent the largest share of our total sales accounting for 84.7%, slightly down from last year as new categories continue to grow. Our cases remain the backbone of Fractal's business and we continue to develop and launch successful models to strengthen our position and drive long-term growth in this segment. Looking at the regional performance, EMEA delivered the strongest growth this quarter, up 35% year-on-year, driven by continued demand for our core PC cases and by strong sales of new categories. As a result, EMEA's share of total revenue increased to 59.2%, up 8.4% from last year. Sales out in EMEA grew an impressive 56% year-on-year, confirming that underlying demand remains very strong and that our products continue to perform well in the market. In the Americas, net sales totaled 50.3 million, down 11.9% year-on-year, Sales were affected by higher import tariffs and currency effects, which led to price adjustments during the quarter. These measures helped offset part of the cost impact, but also softened sales temporarily. At the same time, lower discounts compared to last year supported margins, while slightly weighing on sales volumes. The region's share of total revenue declined to 27.7%. But important to notice is that sales out in Americas grew by 14% year on year, confirming continued healthy demand in the region. Finally, APAC grew 18.8% year on year and remains a stable contributor with good momentum across our core channels. Let's move on to product margin. Our product profit increased to 70.7 million, corresponding to a margin of 39%, up 1.2 percentage points from 37.8% last year. The margin improved despite tariff headwinds, mainly supported by lower sales discounts, which contributed about 3.5 percentage points and a favorable product mix within the case category, adding 0.9 percentage points. Tariffs had a negative impact of around 2 percentage points, while freight and FX were minor at minus 0.5 and minus 0.6 percentage points, respectively. Overall, we saw solid margin improvement and continued stability in pricing and mix, reflecting strong operational discipline in a more challenging market environment. EBITDA increased to 13.7 million, corresponding to a margin of 7.6%, up slightly from last year. The improvement was mainly driven by higher sales and stronger product profitability. Operating expenses were temporarily elevated mainly due to strategic inventory buildup in the US ahead of potential tariff increase, which led to higher warehouse costs. These effects are temporary and are expected to normalize as inventory levels decline and tariff conditions stabilize. External factors had a material impact on profitability during the quarter, primarily related to tariff-driven costs and unfavorable currency movements. Adjusted for these effects, the underlying EBITDA margin would have been around 12% instead of 7.6%, reflecting solid operational performance despite the external headwinds. Operating cash flow amounted to minus 28 million compared to a positive 14.8 last year. The decline mainly reflects the inventory purchases made in Q2 with long payment terms and we expect cash flow to improve as inventories decline during the coming quarters. Net cash strengthened to 36.4 million up from last year's level. The position could have been even stronger if not for the temporary capital tied up in inventory, which is expected to be released as stock levels normalize. Despite this, Fractal maintains a solid financial position with strong liquidity and flexibility to support continued growth. As we have already seen across the previous slides, the result in the income statement reflect the solid business performance in the quarter. Total revenue increased by 15% year on year, reaching 183 million. The improved product mix supported margins while higher import tariffs had a negative impact. External expenses were higher than last year, mainly due to warehouse and logistics costs related to the strategic inventory build-up in the US. As previously said, these are temporary effects that will ease as inventory levels normalize. Personnel expenses increased as we continue to invest in our organization. through strategic hires, but also annual salary adjustments to support future growth. Finally, net financials were positively affected by the US dollar SEC exchange rate, while interest expenses remained low, thanks to our net cash position. With that, I hand over to Jonas again.

Okay, thank you, Karin. Q3 2025 was another quarter of strong growth for Fractal, with sales at a high and stable level for the fourth consecutive quarter. Net sales increased by 16%, organic growth was 27%, and the sales out from track partners grew by 34%. All regions experienced increased consumer demand, but we saw especially strong performance in EMEA and especially high demand for the Scape gaming headset. Our EBDA margin was 7.6% and our product margin 39%, with positive impacts from lower sales discounts and a favorable product mix, which helped offset the effects of tariffs and other fluctuations. The launch of Epoch was a highlight, receiving very positive reviews and further strengthening our brand. The underlying market for our products remains robust and is supported by the launch of key PC components and new game titles. We expect the ongoing upgrade cycle to extend into 2026. Practile is well prepared for the final quarter of the year, even as we face very high comparison figures from Q4 2024. Our strong financial position allows us to pursue our strategic initiatives and further advance our market position. While uncertainty remains around the global business environment and especially the US tariffs, we are focused on mitigating increased costs through active price management and ongoing supply chain review. Looking ahead, we remain confident in our ability to drive profitable growth through innovation, design leadership and international expansion. We are committed to creating long-term value for customers, partners, and shareholders. And with that, we do conclude the presentation for today, and we open up for your questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad. To enter the queue, if you wish to withdraw your question, please dial pound key 6 on your telephone keypad. Hello, Jonathan. As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad.

Hello, Jonathan and Karin, can you hear me?

Yes, loud and clear. Now, thank you.

Okay. Sorry, I have some issues here with the Q&A. A couple of questions from me here. So first of all, congrats on a super strong sales out figure, which if I'm not mistaken, is almost matching the previous all-time high from Q4 last year. So even this background, you've had like, I believe, four quarters in a row now with very stable sales out of like between 18 to 20 million US dollars. Do you see this level of sales out as sort of a, quarterly baseline going forward or do you expect this sales up figure to fluctuate more like it has done in the past?

You're right. I mean, it's four consecutive quarters in a row now where we are starting to see that stable development and sales that we have discussed and talked about a lot before. And that has been an ambition for Fractal to deliver. And we see that as a strength and an achievement to now deliver that fourth quarter in the same kind of ballpark. And we believe that that is where we should continue to be and continue to drive that forward as well. Of course, there could always be things that is moving one quarter from the other, as we know. But in general, we hope to deliver and continue a more stable sales and sales out going forward.

Okay, thanks for that. And my second question regards channel inventory. I mean, you had a really strong sales out this quarter, as mentioned, but not as strong net sales. And you state that the inventory levels in the sales channels is on a balanced level here. But that was also stated, I believe, in the last quarter as well. So can you give us a bit more details on the channel inventory situation going into Q4? For example, do you expect sales out to be stronger than net sales in Q4?

Of course, there is a scale and also within the term balanced with upper and lower levels of that. And if you're comparing Q3 versus Q4, it's slightly lower in that sense. But it's all within the sort of the safety margin or the margin where we want to be. So therefore, it's a balance level and how we have it. But yeah, it is a stronger sales out development versus sales in, as we can clearly see. As Karin pointed out, we said it's also partly due to to the price adjustments in the US market and selling there and how that sort of channel dynamic works. So it's slightly different in that sense. There could be some bounce back in that maybe, but not something that will dramatically impact the relationship between sales in and sales out. We continue to have an ambition to have quite stable development in between those two numbers.

Okay, perfect. Thanks for that. And just following up there on the price increases in the US, I believe it was some 10% starting in July. So two questions on this. Firstly, was that only on cases or was it on other product categories? And secondly, how have these price increases been received by the end customer? You speak that it may have impacted the resellers and distributors' willingness buy but uh how has it been received by end customers as well thank you yeah um could you repeat the first part of the question please yes our first part was was the price increase only on cases correct yeah um it's not only but primarily on cases so yes it's it's um

because depending on when different products have been launched and so on, but yes, primarily on the case category, the price increase was relevant for it. Then as for the reception of the increase that we've seen into the market, it was around mid-July that the end consumer price started to move. And we continue to see our market share throughout the quarter as a quite strong indication of how that is received. So we don't see that to be a bigger impact than that. But of course, it temporarily always slows down a little bit the demand. We were happy to report that plus 14% sales out number in Q3 and as Karin mentioned, it clearly shows that there is a strong continued demand of the products and that the price has been accepted on that point.

Okay, sounds positive. And a question about product margin. We noticed a really strong comeback here compared to Q2. However, we're now entering Q4 with Black Week and Cyber Monday, which is, I believe, a discount-heavy period. How does that affect your ambition to continue improving the product margin in the same trajectory?

Well, this is Karen here. Hi, Jacob. It's as you said, I mean, normally in Q4, we have more sales discounts. We have all the campaigns going on, as you said, Black Friday and so on. And we will see more sales discounts for sure than we did. However, we are doing what we can in other ends. The FX effect when it comes to product margin have stabilized significantly. since q2 meaning that we are purchasing and selling within more or less the same range in regarding the us dollar rate which is good and then we don't know what will happen with the currency it moves a little bit like it want to but anyhow right now it feels pretty stable um when it comes to to freight we don't see any big risk there either tariffs is another question what will happen with tariffs we don't know so we assume we continue to have them in the same grade as we did in in q3 so yes sales discount might affect the margin some um but i would i would say um Maybe not that material.

Okay, perfect. Thank you. And I'll continue with another question for you, Karin. You said something about... that the EBITDA margin that it reached 7.6% but adjusted for external factors the margin would have been somewhere around 12%. Are those adjustments mainly on the product margin level or is it also inherent to the OPEX level?

That's a good question. What we can say is that when we came up with the 12%, we included everything, also OPEX. But as you're aware of, down to product margin, it's more or less 100% dollars, which means that our revenue is really hit. by the lower US dollar. However, our OPEX is not 100% dollar. So the majority is SEK and then we have other currencies as well. Of course, also dollars around 30%. But that is also included in the calculation when we say 12% instead of 7.6. Okay.

Thanks for that. And the final question from me is, you mentioned here in the call that Scape reached a top three revenue contribution for you during the quarter. If we compare that to Refine and when Refine was launched, can you say something about how high Refine reached as a revenue contributor after its launch? Did it reach top three as well, or was it lower than that?

I actually don't have exactly that number in my head, so I don't want to go into speculating about that. But of course, Refine also during especially launch period when they come in, it also came in quite high on the list. But Scape is, as we're talking about here, a highlight in that it does drive and exceeds our expectations here in Q3. It's a very positive addition to our product portfolio, just as Refine was a year ago or half a year ago.

Okay, thank you both for all the colorful answers. It was all for me. Thank you.

There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions or closing comments.

Yes. So we have a few questions written and I will read them here. Could you remind us on your current take on the gross margin level here and moving parts going forward? As I dare to say, it was a solid gross margin in the quarter. Well, I just answered that. So I think we can leave that question there. How has the price increase in the US been received by a customer? And what do you think about doing the same thing in other markets?

I mean, as how it was received in the US market, we just talked about, we are happy to see continuous sales growth in the quarter, even though, of course, price increase always puts a temporary dampen the demand slightly. Price increases in other markets or in general is not something that... I mean, there would need to be something driving that move. We continuously, though, look at our pricing strategy and how that looks for each country, each place where we are at. to ensure that Fractal is competitive and to ensure that we have the right offer and value to our customers. So, I mean, our pricing management is always on the table from that point of view. Yeah, but of course, we have a unique situation in the US and that is more where we're talking about this in more explicit terms for a US market.

Yes. So next one, how close are you to relocating production to other countries outside of China and what would that imply for the gross margin?

We are moving along steadily with our project to be able to produce a significant portion of our business outside China. Of course, it does sort of depend on the development of the tariffs and how that lands because we do have compared to during the spring when we talked about this For the first times, we now have tariffs also on other Asian markets, other countries that would be potential locations for production. And we do need to look at the whole picture and what the benefit would be. And determining that to a large extent will be where the US-China relations will land in here in November. And then we can take further actions. on moving, but we are where we need to be, where we want to be.

Do you expect to release a new product category in 2026?

That's a bit too detailed to answer. We'll see what happens. But of course, we have a very active roadmap for Fractal and we continuously bring new interesting products into the market. Innovation, driving, that purpose to redefine the gaming station is core for us. And that's the most important aspect for our strategy. So we always bring new stuff to the market. We'll see what that is during 2026.

Could you give us some insight on how much revenue other-other is during this quarter compared to Q2?

No, we don't go into the split of any of our categories further than what you already have explained here. That escape and refine is what's driving the growth of the other categories. That is the main part of that category now. But of course, it consists of other products as well. And that's important to note. And depending on what's happening with those categories at times, our numbers also fluctuate in the category.

America's sales is down minus 12%, but sales out is up plus 14%. Do you interpret that as the price increase is only affecting your distributors and not the customers? Why is that?

That's a good question, and you're right to point that out, Erik. First of all, the end consumer demand from our customers maintain on a solid and good level and will continue to grow. That's what's most important. But yes, always when bringing a price increase to the market, it comes with negotiations and discussions with our partners in the marketplace. And as we talked about before, there is some uncertainty on the US market when it comes to what will happen to the tariffs. There is a lot of things that will come in November, news and information, And it could be seen as there is a bit of hesitation there to, for example, keep stock on a higher level and so on. So we see a slight difference when it comes to the selling and sales out reaction. But it's with those negotiations that will continue and discussions having with our partners to make sure that we are in the right place here during the fall when potential information will come up.

Good. And the last question, what has driven the almost 2x in net tangible and intangible expenditures? And what we can say is that this is mainly related to tooling. We own our own tooling, so we're not dependent on suppliers. And there can be some time and timing differences when the tooling is affecting our numbers and is definitely related to our development. So it's a mix of things. I think that's the only thing I can say. So that was all the questions for today.

Great. Interesting questions always.

Good. All right.

Thank you all for participating and listening and asking these questions. As always, feel free to reach out to us if you have any follow-ups or you want to get in contact with Fractal. Thank you all.

Thank you.