MAG Interactive AB (publ)

Hello and welcome to our Q4 report presentation. Here today to present is me, Daniel Hasselberg, CEO of MAG. And me, Magnus Wiklander, CFO of MAG. And we're going to talk you through some of the highlights from the quarter. And of course, just mention a couple of words about what we're doing here in general. So here at MAG, we make mobile games. We're both developer and publisher of the games. The target audience are casual gamers, mainly in North America and Western Europe, and they're all free to play. And our games have been downloaded more than 350 million times over the last 10, 11 years. Of course, it's a free-to-play company. We're both involved in creating really fun games, but also work with optimization on the data side in terms of improving the products and, of course, working with performance marketing. We are about 100 people at MAG right now, studios here in Stockholm and in Brighton in the UK. And to some of the highlights, so we'll walk you through this over the next 10 minutes or so. So first of all, just want to summarize, since it's a Q4, we have a full financial year. And it's the best year in the company history. So something we're very, very proud of and happy about. So thanks to everyone at MAG for helping to contribute to this. So we ended the year at 287 million in revenues, which is 32% up versus last year. And we also ended up in a profitable year, so that's something we're super happy with as well.

And we will look at our continued growth and our improved margins as well as our opt-out journey which concludes with another strong quarter.

And we'll also talk a little bit about our live operations which are growing in importance for the company and some talk about new games as well. So let's dive into it. So here we can see a picture of our revenues in ArpDAO for the last nine quarters. So I think what this picture tells us, of course, 59% growth year-over-year, which is fantastic. But also, of course, a long-term trend here. We see revenues going up and ArpDAO over for a very long period of time and this is a very orchestrated effort across all the teams to try continuously improve our games and what we see here as well is a very clear seasonal pattern so we always have this kind of q3 to q4 dip in terms of usage so our q4 are june july august which are the summer months so people tend to play less games during the summer And also in the advertising space, it's less appetite for buying ad inventory, which means that the CPM, so the average revenue get from the impressions, go down a bit during Q4. So that combined usually puts a press on our revenues and our lifestyle. We can see this in this picture. Q3 a year ago is a bit different as you all know it was kind of when the pandemic hit and we had a lot of unexpected downloads coming in so higher revenues in DEUs and also slightly pushed down on ARPDAU so that's kind of I think puts this picture into context.

yeah and more of that we're looking at our kpis and first our audience kpis mao and da which see decline year over year we can see that that behind that we have a lower marketing activity we use acquisition this year and we also have an effect from covid where fourth quarter last year was affected by the influx of users in the third quarter so with both of those to contribute to to the decline And of course, as mentioned, we have the ARPDAU improvement of 59%, which we see comes from the switch from QuizDuel to new QuizDuel, which pretty much happened during this year, as well as a growing emergency, adding to an increase of ARPDAU. We also had acquisition activity, adding above average games to the portfolio, and also broadly every game actually improved ARPDAU individually in the portfolio. So that's behind the growth in ARPDAU since last year. And our financial KPIs, seventh consecutive quarter with a plus 20% growth, with a 26% growth to 70 million SEC in this quarter. uh user acquisition is lower as we mentioned we're working actively to to get that back to levels where we want to be and all of this leaves us with a strong 48 million sec contribution uh giving us a positive ebit and a positive cash flow for for the quarter yeah it's fantastic to seek um and if you look a bit longer term here how our

Revenues and EBITDA margins have developed. So this is something that you and I have talked about for several years now, that we want to grow the company into higher profitability. And I think that's what we're looking at here. So a longer trend line, we're increasing revenues and also the strong underlying margins that we see in the business become more and more visible as we grow the overall revenues. So there are always fluctuations in EBITDA margins, especially when you have kind of this UA volumes that go up and down, affect the margins. But I think the long-term trend here is interesting, and that's our continued plan for the future as well, to continue to grow the company's revenues and get the margins continue to go up. And as we talked about last quarter, we also stated kind of a long-term EBIT goal of at least 20%. So that's where we're heading.

um and during quarter we also had some changes in how we kind of classify our products so if we talk about the product mix for a bit here yeah we had a bottom nation during the fourth quarter moved into the evergreen segment that's segment where we focus on sustained and high revenues and sales over time and with high margins so we don't have any or at least low ua support for these games and we expect them to be there for a long time delivering profits to the company for years to come

And at the same time as we kind of started thinking about World Domination more as an evergreen title than a growth game, we also transitioned the game to our live operations team. So that's one single team that manages a number of our products. So already since a couple of years, they've been running World Brain and World Brain 2 in Word a lot. But this year, they also have the responsibility for Ruzzle and now also World Domination. And there's been some great developments in the live operations side of things. So... In Q4 we released a new event engine from our backend and core team. into WordBrain and through using that they've been able to push up their both ArpDAO and revenues quite significantly versus previous years. So it's actually the best Q4 for WordBrain in more than three years. So it's going to be really exciting to see now what we can do with with Brussels and Word Domination also being run in the same way and of course across learnings when you have one team and multiple games. And another effect when we transition a game to live ops is that we have fewer people actively involved in that particular product. So we free up resources to go and work on other projects. So right now we have a lot of focus as a company on developing new games and kind of finding the next hit game for the company. So in Q4 we had four different games out in market tests, some with thousands of players on the Google Play Store and some in more closed environment testing. But really important for us now is to have a high speed in validating ideas and getting the next game out to market. So we know already in Q1 we're going to have additional tests of new products as well. So it's a very exciting point in time for MAG. And what we search for and try to find is these games that can take the same journey as War Domination has done from launching as a new game and then becoming a growth product for the company for multiple years. So War Domination launched slightly more than three years ago globally, and now it's kind of time to move from growth to the evergreen state. And then of course, we have always focused on supporting the growth game. So user acquisition behind word C and growing the other growth games as well is very important for us going forward. And New Quiz Duel, we talk about that game a lot because it's our biggest game in terms of DEUs and want to share some stuff with you regarding what's happened recently and some stuff that's about to happen in the game.

Exactly. And first of all, we have the arena mode, which has been around for a while in the game, but there was work done in Q4, actually launched after Q4. That significantly changed the in-app conversion in the game by tuning the economy, basically, in that mode. That's exciting.

And we also, during Q4, we did tests in Germany. We launched something called Solo Mode. So it means that you have a single-player challenge in the game. You see a picture here in the middle of what Solo Mode looks like. And here we have the full free-to-play toolbox to work with in terms of energy mechanics or using in-game currency to skip ahead or reroll categories and so on. So there's a lot of potential here to kind of build a stronger in-app economy. So version two of the solo mode based on the learnings from this summer are rolling out in Germany this week. And then the plan is to continue to extend that later in the year to more markets as well. And also Quistio Live, which is this game mode we built in collaboration with Primetime, a company we acquired last year. that we had launched before summer, but without cash prices. And now we relaunched it in mid August with cash prices. And what we wanted to see here was kind of increased engagement from the players. So is it exciting to win real money? And I think the answer is yes. We can see the ARPDAU is up quite significantly, thanks to having the cash prices. And we also see kind of a sticker audience. It's fairly stable level now, slightly north of 10,000 daily players. And that's of course a number we want to grow. And I think the most obvious way to grow that is to make sure more people have actually tried the game mode and see how fun it is. And one test we did to expose it to more players was about a week ago we ran a live marathon in the game. So we had six shows running the same day. And then we had more than 50,000 show entries during that day. So some were repeating players playing multiple times during the day, but we also reached a bigger audience. So it's exciting to see this kind of interest in the game mode and we continue to work on increasing the number of involved players. So, summing up, the focus for us as a company now going forward is to leverage this big potential we see from New Quistiole. A massive audience and a great team that's really kind of shipping new stuff frequently now out to the players. So it's a lot of great stuff going on in the game. And then of course the growth games, we have really strong growth products we want to support with more user acquisition and just continue to grow those games. And as we mentioned, live operations is becoming more and more important for us now. We have both Russell and War Domination in that category. And new games. So if you follow us closely, of course, you're going to see more market tests and our ambition for this year is to get new games out globally. So hopefully at least one more game launch and maybe more during the year. That's what we aim for. So with that, I think we're ready to go in to see if we have some questions and also reminding that we always have throughout the day, we'll answer any questions you have on Twitter. So you'll find that in the invite to the meeting. Actually, we show that on the screen as well, how you find us. And we're super happy to take any questions for me or Magnus or anyone else throughout the day. So we'll take a look at some questions here in the Twitch stream. So one is, it's great to see the ARPDAU improvement. Can we expect this to continue? So that is our own expectations that we will be able to continue to improve the ARPDAU. And I think both, I mean, all the stuff that's happening in your quiz duel But also the fact that all new games we do and the newer games in the portfolio in general is above average. So when the mix changes to more new game players, ARPDAU should continue to go up. So we definitely are not happy or content with where we are right now. Happy with the progress, but we have more to do. No new game from MAG in two years since you released World Sea. Can we hope that there can come some new games next year? Or are demands too great? Or why are you slow on launching new games? I think we did launch new Quistio as well. That was in May last year, but it's still more than a year ago. And it is really important for us, this kind of... Discipline to make sure when we launch a game it can be a game that provides value for Mac for many many years So, I mean we Russell is still an important game for us. It's nine years since launch So when we do get these games out with high quality It's it's a huge value for us and we can continue to operate it for many years So the bar is high so you're correct in that sense that the we have very high demands for a game to be launched but I think that's the right way for us to go and that's also because every new game that's actually out live will take some focus from from our teams so we we need to make sure they are great and we can operate them for many years so rather have longer time before between game launches but make them really really great uh but a strong focus for us is as i mentioned to get new games out we really want to release games every year that's our ambition okay Personnel costs in Q4 were down 7 million from Q3. What's the explanation? So you want to take that, Magnus?

Exactly. I think there's probably good reason for commenting on that. So between quarter to quarter, I think there can be several things here to comment on personnel costs. But quarter over quarter, it's mostly seasonal effects, with Q4 generally being lower. And in this particular quarter, we also have a re-evaluation of The social fees on our option programs that kicks in, that has some effect on this quarter in particular. Otherwise, it's just normal seasonal effects in Q4. And then year over year, we also had a change that is worth commenting where in the Q4 last year, we had... the research and development tax relief coming into the fourth quarter, and we have commented on that in the report, how that affects the comparison numbers.

So that could be good to know as well. Good. Can you tell us more about market tests of new games? So yes, what we do here is basically when we have new game concepts, we test them in kind of multiple iterations. So one is, of course, all the internal game testing that's going on, but we also use services where we can reach a limited set of players that we know are fans of particular types of games, so we can get relevant feedback and see how they interact with the games. So we try to do that multiple times during development to be as close to the players as possible. But sometimes you also need to do it at a slightly larger scale. What we usually do is to take the game out on the Google Play Store and acquire hundreds or sometimes a thousand players for a new update, and then we can start measuring data. So that's where it's good to have been around for 10 years. We have a lot of benchmark data to look at to see what should a game look like at this particular point in its development cycle. So we go back and forth with that and I think on a On an accounting side of things, we don't treat this as kind of investments until we've decided we're going to go for a soft launch. And that's when we kind of make it public to anyone outside of the company that this is a game we aim to actually get to market. And then we treat it as an investment. There are no kind of bad surprises that all of a sudden there's a game that's canceled that will hit the P&L because we test this kind of in another way. But when we do go to soft launch, we also send out a press release and tell everyone about it. Okay. We have a question on which games have lost the most DAU during the quarter. So I think in general, it's... Depending on the total DEU, so usually it's a very similar pattern in terms of percentages. So if all games lose, I think we're down 15% if you compare Q3 to Q4. And that's probably relatively across the board. So biggest games lose the most absolute number of players, but it's a similar pattern in terms of fewer installs and slightly fewer play days per player during the summer months. um talk about the ability to invest in ua did you plan to reduce q4 21 or was it due to market conditions and provide an update on Facebook and other algos since the Apple change. So this is, are you seeing the same ROI? So this is, of course, it's a great question and a very relevant one. So what we do is we always aim to maximize our investments in user acquisition. We work with payback windows. We want to see money back in X number of months. And that's kind of based on the lifetime value development of that particular product. So we don't plan ahead and say let's invest 10 million or 30 million next quarter. It's always how can we maximize the amount of money we invest tomorrow and the day after that based on what we see in our prediction models. And on the IDFA side, so Apple's changes to iOS 14, i think we've seen different impact on different networks so some ad networks seem to to handle this effect better or worse and as i pointed out in the in the report as well we've seen facebook being impacted the most and i think you if you follow facebook in the public market you see they also publicly talked about that this is having a lot of impact on us so Of course, they have an enormous and fantastic development team, so we expect them to improve and adapt to this new situation and start working better in the future as well. But that's the network we've seen the biggest effect on, on both sides, both user acquisition not working great and ad monetization not working great either but it's overall it's I think especially on the ad monetization side it's been much smaller effect than we might have expected yeah but the same return on investments this is we work the other way around so we have our target and then we try to invest as long as we can meet the target rather than seeing what it ended up being How aggressive would you consider monetization in QuizDuel currently? It's not very aggressive. I mean, the monetization is still mainly from advertising, so that means that you as a player actually don't have to pay anything to play the game. They are always free to play, but I think in QuizDuel it's actually... less things that people spend money on than in other games but that's something we want to change as well to add more fun things that you as a player think is rewarding to spend money on so hence kind of solo mode for example where it's really fun new way of playing a quiz game but where you also have some free-to-play mechanics How would you handle backlash from members due to previous payment solutions? So this is another good question. So of course, when you introduce new things to a game, you need to do it with care. So for example, one reason for looking more to, for example, arena mode and solo mode for free-to-play mechanics and improved in-game economy is that that's new things that players have not been playing before. Versus going into the classic player versus player mode in new Quistio, which is much more sensitive to change and where you would have to thoroughly A-B test and verify that it's a good idea before you do it. But it's, I think, less controversial to add new fun stuff where you have a different way of progressing, for example. So we're very careful with the audience, for sure. I think that's it in terms of questions here. But as a reminder, feel free to reach out to us on Twitter or through email and just ask any questions you might have on the report. So thank you so much for watching.