G5 Entertainment AB (publ)

Ernest Calls presentation for the year-end report 2024. Whilst the AT&T list is loading, I'll just point you to the image that we have on the screen that will be in listen and view only mode during the presentation. And you have a Q&A box where you can type questions or you can raise your hand after the presentation is finished to ask questions verbally. And with that, we're a few minutes behind schedule. And I see that the list has loaded. So I think with that, I will hand over to our CEO, Vlad Sudbo.

Thank you, Stefan. Welcome, everyone, to our earnings call for the fourth quarter of 2024. So let's move on and start with a brief overview of this morning's report. Revenue was almost 280 million SEC, which was about 12% lower than last year in both Swedish kronor and in USD terms. However, the interesting part is that the sequential growth was actually 4% in SEC and 1% in USD from the third quarter onwards. to the fourth quarter, it's worth noting that this is the first lack of sequential decline or a slight sequential growth in USD terms in more than two years. We are attributing it to the improvements we've made to our mature games in the quarter and to the increased growth in G5 store in connection with that. Year over year, our actively managed portfolio of games fell about 9% in USD terms, which is a little less than the rest of the portfolio, showing a more stable performance there, which contributed to the sequential growth. The Jewels family of games was 31% of total net revenue. Sherlock was at 27%. And thanks to the new game features, we saw sequential growth in Sherlock's quarterly revenue for the first time in eight quarters. And in some months of the Q4, Sherlock has actually shown year-over-year growth. So once again, good new features that really contributed to the increased engagement and monetization in our mature games at the end of the year. G5 Store continued to show strong growth and now makes up 19.1%, so almost 20% of our total net revenue. This is compared to 13.2% a year ago. As you know, G5 Store has lower processing fees than the alternatives. They're low single digits compared to about 12% to 30% third-party application store fees. Growth for G5 Store was 37% year-over-year in SEC terms, and it was up 35% in USD terms. Sequentially, we had growth in G5 Store at 90% in SEC, Q3 to Q4, and 13% in USD terms. Another interesting bright spot is Twilight Land, and it's one of our new games that is currently in soft launch mode. After being in the global launch and then taken back into the soft launch mode, it spent there since June last year. And after several iterations and extended scalability testing is finally showing signs of scalability in the market. We are confirming our findings currently. And if everything checks out, the game can be globally launched this year. Our user acquisition expenses during the quarter were at 17% of revenue compared to 19% last year. And again, thanks to G5 Store, our gross margin continued expanding and was at a new record of 69.1% in the quarter compared to 68.1% last year. During the quarter, we also had an extraordinary one-time legal expense of about 5 million SEC, which negatively impacted profitability. The cost was related to an M&A process during the second half of 2024, which continued into Q1 2025. However, this process did not lead to the deal. All in all, EPS was 4.29 SEC for the quarter compared to 1.12 last year, a substantial improvement. Our cash position at the end of the quarter stood at a strong 275 million SEC, a new record, up from 182 million SEC last year. We continue to have zero debt and a solid cash flow, something we are very proud of. Now let's look in a bit more detail at the full year 2024 and the strong finish that we had. So as I mentioned, we finished the year with sequential revenue growth of 4% in SEC and 1% in USD. And again, this is for the first time in over two years. And we are attributing it to the improvements that we've made in our mature portfolio of games. And these features were specifically deployed in the beginning of the fourth quarter. The gross margin for the full year increased to 68.4% from 67.6% a year before, primarily driven by the fast growth of G5 Store. We saw continued momentum with the development funnel during the year. Diligent execution of the development funnel process. And we've actually done more iterations on new games in Q4 than compared to the third quarter. So we are, we seem to be improving the pace and learning to iterate faster on new games. We achieved positive signs of scalability in Twilight Land after a couple of quarters that it was in the soft launch again. And we continued with the integration of AI tools to optimize costs. G5 Store continued to gain traction, obviously, during the year and is now our third largest platform responsible for 16.1% of total net revenue in 2024 compared to 10.2% in 2023. And again, in Q4, it was almost 20%. So it looks like G5 Store is on track to becoming our largest distribution channel in the future, strategically speaking. Very important for us, of course, to build direct relationship with the customers as much as possible. And this will help us continue to expand our gross margin in the future. We saw strong earnings and earnings per share. EBIT was $117 million. It's 5% more than last year. And EBIT margin was 10%. EPS for the full year is SEC 15.22, only 4% down compared to last year. And thanks to our strong performance and taking into account the continued development of the business in the right direction, The board has proposed a dividend of 8.0 SEC unchanged compared to last year and in line with the dividend policy. All in all, we are wrapping up a challenging year, but with a strong finish, a strong balance sheet and strong cash flow while continuing to fund our marketing and development efforts. Let's continue and look in more detail at our record high gross margin. So our own game stood for over 71% of net revenue compared to 70% a year ago, and our actively managed own game stood for 65% of net revenue compared to 63% a year ago. The gross margin rose to a record 69.1% from 67.6% a year ago, primarily driven by fast growth of the G5 store. Monthly average gross revenue per paying user was a new record of 65.7 USD up from 63.2 a year ago. And now let's talk about our operating profit on the next slide. The operating profit, which is EBIT, was 33 million SEC, corresponding to an EBIT margin of 11.8%. Included in this figure was a positive impact in other operating income and expense, primarily related to FX, in turn, mainly related to USD SEC currency pair. So that was an effect of 5.9 million SEC positive compared to minus 14.1 last year. as well as a write-down of 2.2 million SEC, which is also included in EBIT. Adjusted for these items, the EBIT margin would have been 10.4% compared to 7.8% a year prior. So these are comparable adjusted margins, 10.4% versus 7.8%. And that said, we also had a one-off legal expense during the quarter of 4.9 million SEC. And so if we adjust for that expense, which was really an extraordinary thing, the underlying EBIT margin would be 12.2% versus comparable 7.8% last year. So a much stronger result, really. A growth of EBIT in absolute terms of almost 40% compared to Q4 last year. Net capitalization impacted earnings with minus 5.8 million SEC compared to minus 11.9 million a year ago. Now let's turn the page to talk about our cash position. We pride ourselves on having a strong balance sheet. This quarter was no exception, and we achieved a record high cash position. At the end of the period, total cash stood at 275.5 million SEC, up from 182 million a year before. Our capitalization impact on cash flow was 25.5 million SEC compared to minus 25.6 million last year. There was a negative working capital movement of minus 21.5 million SEC. And the total cash flow for the period was 19 million SEC compared to 4.3 million last year. So let's wrap it up with some final thoughts for 2025. As we continue into the year 2025, we will keep our focus on executing our strategy and looking for ways to build the foundation for sustainable growth. We continue to focus on the development of our new games portfolio. During the quarter, we made 23 iterations on different new games. I think there's a total of about nine in the pipeline right now. And we are progressing with our goal of launching one or two games globally in 2025. We are optimistic that operational efficiency is coupled with continued improvement to our funnel development and evolution processes will continue to drive profitability. As you could see from the figures, G5 Store is growing fast and continues to enhance our revenue mix and profitability. We have maintained the UA spend within the 17% to 22% range, which we promised and will continue to do so. We remain committed to strong financial discipline, solid cash flow generation, and we still have zero debt. And thanks to our strong performance, we are proud that the board was able to propose a dividend of 8 SEC per share, corresponding to a total outlay of 62 million SEC. So with that, I'd like to thank the whole G5 team for their outstanding work during 2024, and I look forward to a prosperous future for the company. This concludes our presentation, and let's open the call for questions.

Okay. We have Eric Lawson from SCB. Hello. There you go. Hi, Erik.

Hi, can you hear me?

Good morning. Yes.

Nice. Cool. Yeah, good morning to you too. I have a couple of questions. First off, on this M&A process that you mentioned, I was really surprised by it. I don't know how much you can talk about that one specifically. If you could, I'd be happy to hear some more details. But if not, what's your sort of view on M&A as an alternative to organic growth, generally speaking?

Well, we can't talk about it much, obviously, not about any details. But I think it's, you know, you have to try in order to achieve something. And so this just reflects on what we were saying for quite some time that we are interested in making deals. I think we are in an interesting, in really an advantageous position because we have this strong balance sheet and the reserves and we continue to be cash flow positive and profitable. So we are in a good position to do, to try to find the right targets. and do M&A. So it just basically confirms that we are trying to do that. And we'll keep looking for the right target. On the strategy, again, we don't think that this is necessary or extremely important for us. As you know, from the past that we haven't done many of these deals, if at all. So we are still committed to organic development and on achieving our goals through organic development, but we are looking at opportunities and we think the time is right to be looking more carefully and considering.

Okay, thanks. And would it make sense to assume that you primarily look for games within or companies within the same sort of market segment as yourselves?

We are looking for companies with complementary skills or portfolios, obviously. But I wouldn't say that we have one specific strategy. I think there are several approaches. that could work, whether it's diversification or strengthening of our core business. So we are open to, um, you know, to several different ways of thinking about it.

Okay. Uh, thanks. And, uh, last question, uh, you mentioned some positive science in, uh, on twilight land, uh, And I'm just curious if you could give us an update on what has happened over the last few months and what's left for you really to be able to launch it globally.

Yeah. Well, I really hope to have more information, more specifics on this at the end of the first quarter. But as you know, we launched the game globally in November 2023, a little bit too soon. And then we brought it back to soft launch in June 2024. We started doing more iterations and really focusing on either fixing the game to achieve scalability or really just end the project. And I think the team really pulled together some really, really good improvements. To the game. So recently, at least in accordance with our models that we are building as we iterate on games, we are seeing that we should be able to, with good probability, to recoup expenses on user acquisition in this game, which means that it should be scalable in the market according to our methodology. And we have certainly improved the metrics of the game significantly. substantially compared to the situation in November 23 and June 24. The plan is to continue doing so over the next couple of months to confirm or ideally to confirm our findings or find out if these are the right funds and we can trust the numbers. But if the findings are confirmed, then the game really becomes a candidate for global launch this year. So this is the information that we have, right? So I'm cautious, well, cautiously, but then generally optimistic looking at the numbers that we are looking at. But a couple more months, I think, need to be spent on making sure we've tested it thoroughly, we are certain in our models, and maybe we can even slightly improve the results before we commit to global launch. So I should have much more information by the end of the first quarter. I mean, in the first quarter report.

Yeah, I appreciate the color there. But that was all questions on my side. So thank you.

Thank you. Thank you, Erik. And we also have Hjalmar Ahlberg from Redeye. I think we can hear you now, Jamo.

Yes, thank you. So a question on the kind of development in Q4, going into the quarter, you mentioned in Q3 that October was strong. Could you say anything about the development of December? Was that as expected or anything that deviated there, if you could elaborate?

Yeah, well, it was a continuation of October trends. That's why we highlighted the October, that we saw a situation that was different from previous quarters. And October was the month when we started deploying these new features in Sherlock and Jewels of Rome. And then we saw improved performance of these games during the fourth quarter. which I think resulted also in the overall kind of a change of sequential trend, at least there. So we do have a roadmap of features that we plan to continue deploying in these games. These features that are mini events, they actually need to be implemented in certain numbers, and we haven't yet done that work. So we're going to be deploying more of these in the next quarter or two, both in Sherlock and Jewels of Rome and other games as well. We are cautiously optimistic, seeing the results of the Q4, that this can really improve the monetization and engagement in the games. And yeah, we're eager to really do it and see where it leads us. And then to me, this improvement in Q4 also is a result of the ongoing work that we've done to change the way how we think about supporting our existing games, how we think about the features that we should be implementing. There was a lot of work under the hood of the company to change kind of a product development approach and processes over the last year. So to me, it's really good to see the results of these efforts in the form of these new features that really improve the situation for the quarter. So we'll see how it develops from here.

Right. And interesting to hear about this mini event, another feature. And it sounds like you kind of talked about this now, but that you can do this in other games as well. Even can you do this in very old games and have them coming back to growth? Or what is the kind of, how much can this add growth in existing games?

Yeah, I'm not sure we can talk of really reviving growth in older games. I think also our ability to deploy these in really older games. is limited because it requires having a nice situation with the source code, which we don't always have on really old games. And the scale needs to be large enough in order to justify the effort. But there are certainly games other than Jewels of Rome and Sherlock, games specifically in the Jewels family of games. And hopefully we can find a way to make it work in Hidden City as well. So yeah, there's an interesting... perspective there that this can be taken to other games as well we'll see and we will certainly try and do that because it just makes so much sense if it works in these two games it could perhaps work in other games as well and we'll see we'll see yeah

And then just on G5 Store revenue mix, I think you discussed a bit last quarter that you can go through G5 Store on mobile devices as well. So the kind of growth that you see now, is that the same kind of growth driver or is it more like from mobiles now or is it browser based? If you can give some elaborates on that.

So my impression is that it's the general trend of G5 store expansion, mainly on personal computers. But then these new features that were introduced in the main games really took it to the next level in terms of the acceleration of growth. in two main games, which is Sherlock and Jewels of Rome. We did start the so-called web bank in G5 store for transactions of mobile users within the web bank. However, this still is not very dramatic yet. um percentage or very dramatic share of the total revenue that g5 store brings in so i'm not um i don't i don't think it is uh connected at this point okay thank you very much thank you thank you and if you want to ask a question you can once again you can raise your hand and ask it verbally or you can

post a question in the q&a box. We don't have any questions in the q&a box, which is probably the first time since we moved to this format quite a few years ago.

And maybe there's a glitch.

Maybe there's Yeah, maybe. It seems to be working.

Same here. All right, that's good. Probably.

Well, then, if there are no further questions, then I will hand it back to Vlad for final remarks.

Well, thanks. Thanks for your time and attending the call. And yeah, please enjoy the rest of your day.