G5 Entertainment AB (publ)

Morning, everyone. We'll give it a minute or so to just see that the attendee list has loaded properly. I see people kind of flowing into the meeting. We'll just give it a few seconds and see when it kind of stops. It seems to have stabilized. Well then, welcome everyone. As usual, you will be in listen-only mode in the beginning of the, during the presentation. And then when we get to the Q&A, you can either raise your hand and ask a question verbally, or you can post a question in the Q&A box and we'll read them up and answer them accordingly. And yeah, with that, I will hand over to our CEO, Vlad Sugdoval.

Thank you, Stefan. And very good morning, everyone. And welcome to G5's Q3 call. We'll take about 10, 15 minutes to run through the presentation of the results, and then we'll open the line for questions. And you can type your questions into the Q&A box. You can find one. So I'll start a brief overview of this morning's report. Revenue was 270 million SEC, which was 17% lower than last year in Swedish kronor. and 14% lower in USD terms. Our active games also fell by about 14% in USD terms, with monetization metrics actually improving year over year. Active games are the games that are our own, which are actively managed and thus receive regular updates, as opposed to the small portion of games we have in our portfolio in what we call a harvest mode. Um, monthly average gross revenue per paying user was continuously strong at 64.9 USD. Um, G5 store, a big bright spot. for us continues to show strong growth and now makes up 17.1% of total net revenue versus 12.1% a year ago. As you know, G5 store has low processing fees, lower than alternatives, alternative stores that we use, which charge an average or anywhere between 12 to 30%. And growth for G5 store was 22% year over year in SEC and 26, sorry, 27% in USD terms. And sequentially G5 store grew 6% in SEC and 8% in USD terms, Q2 to Q3. So quite impressive growth year over year, but also sequentially. And obviously it helps expand our gross margins because the store fees are lower in G5 Store. Our UA was 19% of revenue versus 19% last year. So about the same level. And again, thanks to G5 Store, our gross margin increased to an all-time high of 68.8% compared to 68.1% last year. We also launched an interesting new initiative that we call G5 Store WebBank for our mobile audience, which allows people who play on mobile devices to make payments to G5 directly through G5 store web interface rather than through the platform shops. It is off to a good start, and we just launched it a couple of weeks ago. And in the future, this can also contribute to the expansion of the gross margin if we're able to get more revenue flowing through that monetization channel. Earnings per share was 3.14 SEC for the quarter compared to 3.83 last year. Our cash position at the end of the quarter stood at a record high 246 million SEC compared to 184 million SEC last year. We have zero debt and a solid cash flow, something we are very proud of. Now let's look at the strong performance and gross margin of Q3. Our own games stood for over 70% of net revenue during the quarter, basically on the same level as in the third quarter last year. Active games made up 63% of the quarter's revenue in line with the 63% in Q3 last year. So no changes there. Gross margin, again, came in at an all-time high of 68.8%, rising from 68.1% the year before. And this is primarily driven by the fast growth of G5 store. And monthly average gross revenue per paying user was strong at 64.9 USD compared to 63.2 one year ago. Let's continue with G5's operating margin. Our operating profit or EBIT was 22.9 million SEC compared to 22.3 million a year before. This gave us an EBIT margin of 8.5% in Q3. And during the quarter, EBIT was negatively impacted by some revaluations related to FX, primarily from SEC USD exchange rate, but it was a small amount. And at the same time, net capitalization impacted earnings with minus 5.4 million SEC compared to minus 13.1 million a year ago. Now let's talk about our cash position. We pride ourselves, of course, on having a strong balance sheet and this quarter was no exception. Movement of working capital was positive 27.2 million SEC compared to a negative last year of minus 17.5. Our capitalization impact on cash flow was minus 25.5 million SEC versus minus 27.5 million last year. And the total cash flow during the third quarter was 53.3 million SEC compared to 9.7 million last year. Total cash at the end of the period stood at a record high, 246 million SEC, up from 184 million a year before. And you can see that even if we adjust for the movement and the working capital, it still remains a record amount for the third quarter. So let's start to wrap it up. And... have a look at some final thoughts here. So we continue to focus on the development of our new games and active portfolio. And we are optimistic that our operational efficiency and strategic adjustments will continue to drive profitability. We now have 30 game ideas in pre-production and early development stages. In the quarter, we made 14 iterations on various games. some have moved in the funnel and some have been further refined in order to progress to the next stage during the quarter we stopped the development of one game meaning one of the games in the soft launch but at the same time we filled up the pipeline with a new game and so there's a lot of work ongoing with regard to a new product portfolio a lot of internal iterations a lot of design testing, trying to converge on a game or several games that we could launch globally. Another point, as you can see from the figures, G5 Store is continuing to grow fast and continues to drive higher margins, something we expect to continue in the future as well. We are also optimistic about monetizing our mobile audience through the G5 Store web bank. It's a little early, but we'll have more information on how that goes the next quarter. We have maintained In the range, we have announced 17% to 22%, and we intend to continue to do so. We retain a strong cash position. We are profitable, cash flow positive, and we have zero debt. With the strongest September to October revenue increase that we've seen since 2020, we see positive momentum going into the seasonally strong Q4 range. and Q1 and obviously a very welcome sign for us. Um, and that I would like to thank you and, uh, thank all involved, uh, teams at G5 for the hard work on our new games and our existing portfolio. And, uh, I look forward to the prosperous future of the company and, uh, thank you for, for following G5 and, uh, connecting to our call today. So this is the end of the presentation. And let's open the line for questions. Stefan, do we do like voice questions and then?

Yes, let's. I see we have already here. We have Zalma from Red Eye. You are...

on mute now you can speak yes thank you um yeah maybe start with the the interesting uh thing that you ended with we heard that the revenue growth was was uh substantially in october um can you can you give some flavor on that i mean was it some specific game in a specific region or anything you can you can add on that yeah so um

Usually before COVID, we had this normal situation where October would sequentially be quite stronger than September, where at whatever level September was, then October would be stronger. And then somehow after 2020, that didn't happen in any of the consecutive years. And then we saw this this year. I tried looking into where exactly it happened that I couldn't locate it. So it looked more like a broader among pretty much all games. maybe with a little bit more in our own games. So I wasn't quite sure what to make of it. So it looks broad-based, basically. And we'll see if that continues. But September wasn't abnormally small or anything like that to preempt a question, which may have been asked already, yeah. So it is encouraging, but it's still early days of November, of course, but it's an interesting development.

All right. And in terms of a UA, do you see kind of improving returns or anything like that, that is helping as well?

Not necessarily. So, you know, it's interesting. We see a bit of a divergence internally. in terms of user acquisition, because we, you know, with G5 Store becoming a bigger and bigger channel for the company, we sort of allocate more and more of the UA budget to G5 Store, which improves its growth as well. And then it's a slightly different situation with mobile. So we've seen those differences. We haven't really seen any big, big differences in terms of day-to-day performance. But I know on the user acquisition team level, they usually take into account kind of a more difficult situation in user acquisition towards the end of the year, especially this year with election and then going into kind of high season. But for them, it's like a usual situation at the end of the year. I haven't heard of anything special happening.

And in terms of G5 Store there, I mean, I think you maybe kind of answered this now, but is it driven by new players coming directly to G5 Store or is it mainly like old players that move over to this channel?

Yeah, it's a mixed bag. We see that G5 Store certainly attracts players who are more comfortable playing on their personal computers and they have a lot of experience with casual games, but also with our games and PC is their preferred platform to play. So there is, there's that. And, and then there is, there's also audience that we acquire rather than we cross sell or cross promote from, from other platforms and other distribution stores. And rather than just, you know, when we try to educate players that this option is available. So there's a paid part. There's a part that looks very organic, basically players finding us in the Internet through the search terms. And then, as I mentioned, there is a third category. Well, it's basically a very loyal audience. that is comfortable enough and prefers to play directly from the source, especially if they're comfortable with personal computers.

And as a final one on the development funnel, do you still believe that one game can be released this year globally?

We certainly have interesting games in the pipeline right now. I cannot guarantee that we will have a game out uh, in global launch before the end of the year. Um, but these one or two games per year that, that we've said, wait, we hope that you understand that this is kind of an hour average expectations and it may be maybe one year, there's nothing, but then a little bit more next year. Um, so there are certainly interesting games in the pipeline that, that I am very, a very kind of optimistic about, and I like the development there. Um, so maybe we do it, um, in the first quarter next year, for example, or in the first half of the next year, but not at the end of this year. All right. Thank you. Thank you, Hjalmar.

Thank you, Hjalmar. And then we have Simon Jansson from ABG.

Anyone? Yes, you're allowed to speak. Good morning, guys. Thank you, Stefan. I hope you can hear me. So first, just to follow up on Hjalmar's question. Would you say that October is also strong compared to previous months? I mean, July, August, etc. I'm just trying to understand if there was any temporary effect comparing with September or something like that.

Yeah, there was no temporary effect with September. So September was pretty much, you know, we were more or less flat the months that you mentioned. And so October is a kind of a positive development from that platform. So that's why we thought it's newsworthy.

Yeah, okay. Excellent. Thank you. And also, I'm wondering if the improving trend you have seen here in October is something that you have heard or seen among other market participants and a few peers? Or is this something you have sort of... Oh, sorry. Okay.

Yeah, sorry, I started answering too early, but this month is not very heavy on industry conferences, so we didn't really have a chance to discuss this, so I honestly don't know.

Okay, cool. Finally, I mean, talking about the overall market trends and conditions, especially for releasing new games and scaling new and existing games. Do you think that marketing and marketing conditions is still difficult or has anything changed or is anything currently changing, you would say, in the market environment?

Well, I think my view of this probably hasn't changed much in the last couple of quarters. You know, it is hard to say that, you know, that situation is so terrible and you can't achieve success while this year is the year when, uh, you know, some games are basically setting records for the revenues, um, ever created by, by a new game, uh, on mobile. Right. So we, we have successes in front of us and we can look at these successes and, uh, kind of admire these successes. Um, However, this success seems to be very concentrated in a small number of products and companies. And then for the rest of the market, the situation is quite a bit different. And yes, I think it's a little bit harder than before to market games, a little bit more difficult maybe with niche games, you know, but... I think everyone is more or less in the same situation and you know, people get by and manage and we can, and we can see that there are success cases, even in this new environment. So my view is that we just, we just need to keep working to keep thinking and solving it and improving our marketing and coming up first and foremost with, with some new and interesting games that are, can stand out in the market. And through that, they can be scalable even in more challenging marketing environment. That's my idea, at least.

Makes sense. Thank you. maybe one more from me in terms of like how the consumer is doing in general. I mean, if you look at other industries, other consumer related industries, it's still very tough out there. So I'm wondering if you have seen any kind of change or, you know, shifting in how your consumers are paying and spending money or the average player spending less or, you Do you see that maybe there are fewer that spend more or something like that?

Yeah, well, if anything, our monetization metrics are going up, right? But since our overall audience was rather declining recently, we're not sure if this is because of improved purchasing ability or because we're just people who pay less fall off, basically. And then we have a better golden cohort, so to speak. And then average metrics look better. But this development in October is interesting because it coincided a little bit with certain fiscal changes and should I say monetary? But nonetheless, so it might be that this had some effect, even if psychological, right? If people start expecting better financing conditions in the future, But, I mean, it's merely a speculation on my behalf. It's hard to say. And we're certainly not in a position to try to make conclusions about the economic situation of our users. Although I'll think about it. Maybe we'll run some, you know, economic survey on our players. But we haven't thought about it yet.

Okay. Makes sense. Thank you, guys. That's all for me.

Thank you, Simon.

Thank you.

And then we have Kristoffer Kjellbred. Let's see if I butchered that last name. I lowered this one. Okay. So maybe not then. Unfortunately, I have some issues getting this Q&A box working, but I think, Vlad, you could see it. Let's see if we have any questions in there.

Yes. So first question is from Eric Larson. And the question is interesting comments on October performance. Did you see any impact on UA from the US elections? I haven't heard from our UA team anything about it, but also they are aware that this is supposed to be a tough season to acquire. But I think they were deploying their acquisition budget slightly on the lower side in October. Maybe because of that. So that's what I know. Then we have a question from anonymous about whether September was abnormal or normal in terms of revenue. So as I mentioned, there was no deep or anything that made October kind of just returned to normal. So it was more of a pattern of sequential growth from a level that's been normal for a while. Next question that I see here from Mr. Ferte. Are your games located in the cloud? In a way, yes. The progress that the player creates within our games is stored in the cloud. And they do have by default an account created for them. we try not to force them to actually register with their email or something. It's like a soft registration process. But at any moment in time, they actually have their progress stored in the cloud. And if they're sophisticated enough to actually put in an email or at least remember a login and password that's provided to them, They can easily transfer progress from one platform to another. There's very little technical competence required. It happens automatically if you grasp the concept of an account with a password. We're trying to make it even easier for them. And a lot of people actually do transfer their progress between platforms so they can take their progress with them. Or you can even play our game On a computer, when you're at home, and then on your iPhone on the go, when you're commuting, you can just continue playing. You don't need to do anything to synchronize your progress. It's going to be automatic as long as you're logged in into the same account on both devices. So that's how it works. And it also makes it easy for us to create solutions like G5 Store and G5 Store Web Bank, because then the purchases also happen in the cloud and you don't really need to be in the app to make a purchase. You can be in G5 Store Web Bank interface. It's actually store.g5.com. You can try it for yourself if you just go to this URL, store.g5.com. And if you play any of our games... and you log in into that store, you can make purchases into your, into our games directly from, from the web interface. And it works both on PC and on your iPhone, and then you can play anywhere. So it's, it's kind of similar to, to what other companies have, obviously in the field, we were a little bit late to launching this web bank. Uh, but what we, we did it now. And that's, that's a good development. Um, Next question is from anonymous attendee. And the question is, is there some reason that you would like to have a larger cash position today than a couple of years ago, better possibilities to make acquisitions, etc? Or is it more an effect of the strong cash flow? It is certainly an effect of a strong cash flow. Even though we've made quite a few buybacks this year. And obviously we paid a large dividend in second quarter. Still, we generate a solid cashflow that over the course of the year, at least, and expected to continue is actually higher than our EBIT. And so that is what's happening. And it's good to have a flexibility and have some extra capital in a situation where we need to finance marketing and evolution and development of new games. And, you know, in case of any opportunities arise, having sufficient capital to pursue these opportunities seems like a wise position to be in. And then Christopher actually wrote that he still have questions. He lowered his hand a bit too quickly. Maybe we can...

Yes, let's invite him on. Kristoffer, now you're invited to speak. Maybe it was I who fat-fingered your raised hand before, but now you're live.

Can you hear me? Yes, we can. Yes, excellent. All right. So I'm a private investor. So I'm also an owner in the company. Admittedly, haven't been for terribly long. So my questions, when I've gone through reports, I haven't been able to find very good answers to these questions, but you may have answered them elsewhere. So please pardon. First off, I was wondering, what is your long-term vision for the company? Where are we in five, 10 years, would you say?

Well, the vision is that we operate a portfolio of games and we do our best to evolve these games and we do our best to try to create new games that would be popular and successful and hopefully more popular and more successful than our previous games. And then we launch new games sort of on a platform of our existing audience and our existing portfolio. Our games tend to have very strong longevity. If you look at our biggest games, Some have been developed four years ago and launched four years ago, but some have been launched almost 10 years ago now. So there's a very long tale of sales, very long tale of operating these games as services and continuing to generate profits over the years. So we aim to, you know, we know our audience pretty well. And we aim to deliver games that will take us to the next level. And speaking of where this level can be, we can see that there are substantially larger companies that achieve substantially higher revenues with the games in similar genres to us. So we see... ourselves as not a very small company, but also certainly not a company that is too large to expect to be able to not be able to find a game that changes our situation substantially. So what we dream about is finding a game that can create an opportunity for the company to grow substantially, not unlike what happened between 2015 and 2020, when there were specific games that sort of propelled the company to the new platform. So we're working towards repeating that situation, essentially.

Very well. So I think we have a strong position in the niche of Women 35+. Do you foresee that this will continue to be sort of the main area we're playing, or do you have ambitions to expand it?

Well, I think all companies in the games industry, they tend to find their audience and really focus on their audience, right? You don't expect companies making first-person shooters to start suddenly making hidden object games for women and vice versa. So I think our area of concentration will still be there, but we will also try to expand into more more gender-neutral genres, so to speak. Match 3, on average, is probably more like 50-50 rather than 70-30 male-female. And so our ambition is to try to go there and try to find and make successful games that would be more generally appealing. But we certainly want to stay within the area of casual.

Yeah, that's good. So when I've compared and admittedly done limited comparisons with, for instance, Hidden City of Sherlock with a couple of the other games, such as Jude's Journey from Playtika. The latter seems more, somewhat more Polish, seems like they have a stronger story, things like this. My hypothesis is it shouldn't be terribly hard for us to sort of build to the same level of Polish, but I was wondering what's your ambitions and what's kind of your benchmark in the market? What are we aiming for, if you will?

Well, here's the problem with these comparisons. I mean, when you know that June's Journey is the biggest game in Hidden Object, and then you start comparing it to other games, then you basically spot differences. And you think that these are positive differences since this game sells better. The truth is, or the difficulty is, is that if I showed you... If you never looked even in the structure of the market and I showed you June's Journey and some other game, not even G5's game, but some other game that's there on the application store in the same genre, and you would play both, you probably wouldn't be able to guess their sales numbers. So the secret of success of these games, it's kind of at the same time on the surface, But it's also not. It's kind of like with movies, you know, like you compare two movies and you say, oh, this one's more polished. Right. But that you look at that as a consumer. That's your impression as a consumer. What goes into creating a movie that really, really sticks. And it's hard. it's kind of hard to really quantify from the consumer's view. So to answer your question, we do have a methodology that we are evolving as any company out there, trying to understand what drives the success. And we have certain methodology which looks at certain KPIs and analyzes these KPIs and works towards improving these KPIs. And our ambition is to find games that would be leading games in the genre. And, you know, we achieved it on a couple of occasions. We were number one in hidden object games by the size of the market, by the size of the market share. We're currently not, but We're still trying and we have our way of thinking about it. And our game, Sherlock, for example, launched in 2020, achieved really good results in this market. So we're not, you know, we are, we have a decent chunk of the market and the niches that we are in. And I think it shows that we have certain understanding of how these games are made. Um, and we will, we will continue to pursue, um, our thoughts on how we can, how we, how can we do it better? So I, I, I was, you know, I just think the, the simplicity of your suggestion that we just, you know, it shouldn't be terribly difficult to do a little bit better. It shouldn't be, but, but I think it's also, you know, um, might not really help, because it's a very subjective view of the end user, what is polished, what is not, and what really drives the scalability of the game.

MARTIN SPLITTENBERG- Yep, makes sense. Is the shift in terms of resources and reallocation of resources out of Russia still ongoing?

MARTIN SPLITTENBERG- It's happening. Relocations are still happening. It will, you know, and relocations are happening from not only, well, anyway, within Europe, basically, we see people moving out of Ukraine and trying to settle in a place. And then we obviously have people who moved out of Russia and then they're trying to settle in a certain place. And then they sometimes relocate to other countries later. But it is certainly ongoing. Yeah.

Yeah, I can only imagine that poses some challenges in terms of resource use and perhaps ongoing processes, development funnel, things like that.

But it's a great exercise in remote work.

Yeah. Would you say the slump in sales that has been for the past year and a half or thereabouts, would you say that's... primarily due to, for instance, the shift away from license games, some changes to the development funnel, organization challenges with the whole, what we spoke about with the relocation of resources, or is it more of a market change, would you say?

You know, we saw the change in the direction of the revenue pretty much at the same time as other game companies and basically coming out of COVID and then with the wave of inflation, I would say that was the point where it all began. And then from there, I know for some companies out there, the drop in revenue was very dramatic. We are sort of in the middle there and we are doing pretty well, I think, still holding to the users that we have and maintaining profitability, all things considered. I think there's certainly this macro aspect, but another thing is that our portfolio is more mature now, and we certainly need new games to maintain interest of our audience. In absence of new games that can bring in new audiences, we have our reliable, tried and tested mature games, which will continue driving in revenues and they will obviously fluctuate in line with the macro situation. So if there will be an upturn in the overall market, we would probably see that in the sales for a mature portfolio as well, as we saw during the upturn in the whole market during the COVID years. So there's that dependency, but also on top of that, we obviously need to launch new scalable games to compensate for the gradual decline in the revenue. But the good news is that through this process, we can stay profitable and we have the funds to continue doing the marketing and the development of the new games and still be profitable while doing it.

Thank you. Last question. Given the current conditions and pricing of the company, would you expect to continue the buyback of shares?

Well, we take it on an ongoing basis. We have a mandate from the board to continue with the buybacks. It's good to have extra capital on the account for the opportunities that may arise. We just paid the dividend in the second quarter. And yeah, we'll consider buybacks, certainly. We've been doing quite a lot of buybacks over the last few years, and we intend to continue doing it.

Very well. Thank you very much, Vlad.

Thank you, Christopher.

Thank you.

Okay. No one else had raised their hands. I don't know. Do we have any new questions in the Q&A box?

There is a question, actually. And the question is, if there are opportunities on the market, do you prefer to buy assets, games, or hire the team behind the game? Well, I think it's difficult to, to give those very general, uh, answers, but, uh, in, in my view, I mean, team generally team in mobile games is, is a, is a, is a liability in itself, right? So the, uh, even a team with an idea, it's a liability, um, and for that liability, you get a chance to see if their idea is worth it, right? And it costs hundreds of thousands, if not millions of dollars to find out. So I generally think that buying a game with the team makes a lot more sense than just hiring the team behind the game. And if we're speaking about a team that has, accomplished something, they've made a game, for example, and then you just hire them, but the game stays elsewhere. Well, if that game is a success, someone else may take over, will take over and run with this success, but the team would have to create the game from scratch. And, you know, in the market, which is so dynamic, it can be different to just go and create a hit after hit after hit when you have a hit you know, a great thing has happened and you better focus on scaling that as much as possible. And just taking the same group of people and telling them we'll now make another game, it's not guaranteed to create a hit. We had that situation, right? We have all the people who created all the Jewels games and Sherlock as well, but it's kind of difficult to do it predictably over and over again. It's a very tricky process. So yeah, it's a long question, long answer to a short question. But I would say buying a game makes more sense. All right, since we don't have any more questions,

Yeah, no, if there's nothing else, yeah, I think we'll wrap it up here.

I'll stop sharing. Any final remarks, lad?

Well, just thank you for following us. I appreciate you connecting to our call on this news busy morning. And have a very good day.

Thank you all.