G5 Entertainment AB (publ)

Morning, everyone, and welcome to the Q1 26 earnings call for G5. Whilst we're waiting for people to log in, I just remind everyone that you will be in listen and view only mode during the presentation. And then... After the presentation, you can ask questions by raising your hand and we can allow you to speak and ask your questions verbally. You can also during the presentation post questions in the Q&A box and we will answer those in the Q&A section in the end as well. Yeah, with that said, I will hand over to Vlad Suglov, our CEO.

Good morning, everyone. Welcome to our quarterly call. And let's start with addressing the change that you have seen in the report and that we informed you about in the previous quarterly report. We have from the first quarter started to report in USD currency. Previously, we reported in Swedish Krona, obviously. As you know, we are primarily a USD operation with more than 60% of our revenue coming from the US and the majority of the costs are being eliminated in the US as well. We believe that this change will provide a better understanding of our performance over time and will allow us to comment on the underlying performance of the business without using a large number of comparison numbers in different currencies. We understand that this might take some effort to get used to for some investors, but on the other hand, this better represents the business and arguably also makes it easier to understand for a wider audience of investors worldwide. And the second thing that I'd like to address before we dive into the numbers is the press release that we issued this morning. As outlined in that press release, we have stated that what we call a right sizing is going to happen, a program to reduce the staff to approximately 635 employees, more in line with the current size of the operations. It was a difficult but necessary decision for the long-term financial health and focus of the company. We expect that the program will create savings of about USD 6.2 million over the following 12 months when it is finalized. And it is important to keep in mind that such savings will primarily offset the revenue decline as well as an increase in UA investments that we want to have. Now, let's review the performance in the quarter. Revenue was 21.7 million in USD. a decrease of 11% year-over-year and 8% sequentially, or minus 5.5% sequentially adjusted for the number of days in the quarter. We saw a sequential decline across all three main pillars of revenue, Sherlock, Hidden City, and Jewels, Family of Games. This was largely driven by being partly priced out of the highly competitive EUA market during the high season from around mid-October to mid-January, when costs per install, also known as CPI, spiked. At the same time, we continued to see promising signs in the third-party publishing that started to gain momentum in the quarter, both in terms of revenue, the number of games published, and also the number of new games being signed. On the topic of the G5 store, we have reached a new all-time high gross margin of 72.7%, up from 69.7% last year, thanks to the positive development of our direct-to-consumer channel, as well as our webshop for the players on mobile devices. Monthly average gross revenue per paying user hit a new record of 76 USD, a 16% year-over-year increase, reflecting the high quality of our loyal audience. UA was 19% of gross revenue, up from 15% a year ago. We have an ambition to increase UA spend to support our games, specifically outside of the high season in October-January. At the end of the quarter, our cash positions stood at a strong 26.6 million USD up from the fourth quarter, thanks to positive working capital fluctuations. We remain debt-free and continue to have a strong balance sheet, which gives us strategic flexibility. Now let's move on to the next slide, please. Let's talk a bit more about the G5 store and our D2C strategy. The G5 store remains our standout success story and the primary engine of our margin expansion. The G5 store is now our largest source of net revenue if broken down by distribution channel, surpassing both iOS and Google Play. The low single digit processing fees continue to be a key driver for our margin performance, given that third-party app stores typically charge between 12 and 30%. This cost efficiency directly contributes to our improved profitability and the expansion of our gross margin. While third-party mobile store sales declined for G5, G5 store grew 1.3% sequentially in the quarter and 19% year over year. It now accounts for 22.6% of total group revenue. And if we look at net revenue, it's over 25% of that, which is net revenues after the commissions. We have also doubled the share of payments processed from the players on mobile devices directly compared to previous quarter. Such revenue percentage reaching 11% in the first quarter, up from 5.4%. in Q4, and this further reduces our platform fee dependency. We are expanding G5 Store as a distribution platform for third party games. During and after the quarter, we have launched five more games and have signed at least four more games during the quarter. and more games are in the negotiation. So we have really, at this point, a pipeline of games already being released, third-party games already being released in G5 Store, and the pipeline of games being signed up and in preparations for new game releases on G5 Store. Revenue from third party games is already growing steadily and we are on track to make this a significant fourth revenue pillar of revenue if the current trends continue. Let's move on to the next slide. Now let's look a bit more in detail on the development during the quarter. While Hidden City remained resilient down only 5% year over year and 5% sequentially, Sherlock unfortunately saw a 7% decline year over year and a 9% sequential decline. The performance of Jewels games remains a challenge with a 23% decline year over year. And we are implementing changes to address historical game design debt, as we said before, and we expect to make a definitive decision on the future of the Jewels games in the second quarter. As mentioned, our gross margin reached record high of 72.7%, primarily due to the continued growth of the G5 store and direct to consumer payment processing channels. Monthly average gross revenue per paying user reached a new all-time high of 76 USD, 16% year-over-year growth. This reflects the continued trend for the improvement of the underlying quality of the audience G5 store is a key factor, but it's generally higher paying players. Let's move on to the next slide, please. Let's now look at our operating profit for the quarter. Operating profit for the period came in at 0.9 million USD compared to exactly 1 million USD last year. This resulted in an EBIT margin of 4% compared to 4.1% last year. The lower EBIT was positively impacted by foreign exchange revaluations, adjusting for the revaluations. The EBIT margin would be minus 1.2% compared to 9.7% last year. And UA increased from 15% in the previous year to 19% in this quarter. The increased UA budget has a significant negative impact on the EBIT margin, the resulting EBIT margin. and is an important factor to stabilize the performance of our active games in the portfolio. During the quarter, the net capitalization impact on earnings was 0.3 USD, 0.3 million USD, sorry, compared to minus 0.3 million USD last year. Now let's talk about our cash position. We remain debt-free with a strong cash flow Ivan Medennikov – SRA22 Panellist – position of 26.6 million USD, providing flexibility to fund new game development and marketing from our operations and from this cash position that we have. Cash flow was positively impacted by movements in working capital amounting to 3.4 million USD. compared to 1.4 million USD a year ago. Capitalization impact on cashflow was minus 2.7 million USD compared to minus 2.2 million last year. Total cashflow during the first quarter was 3.8 million USD compared to 3.1 million USD last year. Now that's it with the numbers and let's talk about the thoughts for the rest of the year. As we move through the year, our focus is rather clear. First, it's completing the organizational changes to save around USD 6.2 million annually while maintaining product momentum. Continuing to sign and launch high-quality third-party titles on G5 Store to solidify the store as our fourth revenue pillar. Increasing UA investments throughout the year to turn around the top line trend for our main revenue pillars. And moving forward with our two new games in the pipeline towards potential global launch, hopefully before the end of the year or cancellation, depending on the results of the soft launch as it happens. And utilizing agile teams for continuous innovation. That's our new approach with creating smaller teams that come up with new innovative game ideas and test them much faster in the market. We remain committed to financial discipline and generating long-term shareholder returns through dividends and buybacks. I'd like to thank the whole G5 team for their resilience in these circumstances and our shareholders for their trust. This concludes our presentation and I'd like to open the call for questions.

Yes, and as I said, you can ask questions in the Q&A box, or you can raise your hand. We have two here. So I will start with Simon Jensen from ABG. If you unmute yourself, I think you're good to go.