MAG Interactive AB (publ)

Hello and welcome to the presentation of MAG's Q2 report. It's December to February we're going to talk about today. And here to present is me, Daniel Hasselberg. I'm the CEO of MAG. And me, Magnus Eklander, I'm the CFO of MAG. So the highlights of this quarter that we really want to talk about today is the positive soft launch we've seen for Crossell so far. So this is a game that we soft launched in December, so just before Christmas break. So we're going to talk about that today, how that's going and the future of that soft launch. And also the fact that we have a strong underlying profitability in the business, we're generating cash similar to the same pace as last quarter. So we're going to get to those highlights. And then after the presentation, we have a Q&A session here and also online during the day, you can ask any questions. And we'll do our best to answer everything. But yeah, a few words about Crossell. So this newly soft launched game, it's a multiplayer crossword game. And so you play against an opponent on the same crossword board and you try to score the best and win the game and the rewards you get, you use to progress in a kind of visual meta game, go to different locations. And when you complete locations, you get more rewards and so on. It's basically to keep you engaged over a long period of time. And this combination of a multiplayer crossword game with a decoration meta is something that doesn't exist in the market. And we think it's a really exciting thing to get through to players. We also see super high engagement in terms of daily play time and all the kind of the early metrics you want to see from a game. But I want to talk also about kind of what's happening now during the soft launch. We've been out for a few months now. So what have we been doing? It's a lot about obviously like getting more content out to players. We are optimizing the events in the game and adding new functionality. But it's also a lot about the marketing optimization. So testing different ad creatives and messaging and see what really resonates with different types of audiences. And also on a more technical level, optimizing for different marketing algorithms. So you can have something that targets purchasers or ad revenues or a certain action happening in the game after X number of days and so on. All these needs to be tested and optimized and so on. It takes a while. And what we're sharing today is basically that so far so good. We see good performance of the product and good performance of the marketing for the first part of the game. So what we need now is basically more time. We'll add more content, fine tune the events and also follow the performance of the traffic that we're getting into the game so we can build these long-term lifetime value curves that we use and for the kind of predictive modeling of return on advertising spend. So what we need to see before we get to full on launch is how do these cohorts of players kind of develop and behave over a longer period of time so you can build confidence in marketing spend. So the next couple of months is gonna be super exciting and see if the game continues to perform well and that the tests we're doing, that they work out well or if we need to go back and kind of retune things and so on. But it's super exciting time in the new games department.

And looking at the product mix on the right hand side as always we have our 100 million or so annual run rate of the older part of the portfolio and our focus work-wise is mostly on the upper half here where we have the evergreen type titles and the live ops team focusing on maximizing the value out of the existing audience we have there usually without support from marketing and to bring out the value over time of that part of the portfolio.

Yeah and on like the steady part like we talked about these 100 million of yearly revenue run rate. The left part is where we have more of the fluctuations. So if you compare to a year ago the top line revenues is down quite a bit and it's very much related to word seed where we spent much more user acquisition a year ago and unfortunately not as much this quarter. So it's very helpful for the profitability but it's not helpful for growth obviously. So that's where we see the kind of the ups and downs and revenue is happening in the growth part of the portfolio. So it's a lot about word seed and a lot of focus right now is to get word seed back on a growth track to invest more in marketing and make that game grow again. And there is stuff we can control optimizing LTV and so on optimizing ad creatives finding new channels. And there's also some stuff that it's out of our control which is basically how much is the competition spending to reach the same audience and so on. And as we mentioned in the report the key thing for us here is to stay disciplined. So we'll always look at is this campaign profitable right now we need to optimize for that profitability. That means kind of volumes go up and down. But the exciting part here in this picture is of course, Crossell that we have a new game that we can talk about that we know what it is and that we can kind of really work on getting up to that upper left corner in this picture to be the next growth game that can help mag row the UA investments and overall revenue and long-term profitability. So that's a lot of focus here, getting word seed up to growth again and getting Crossell up to being a fully launched game.

So switching to our KPIs and starting out with the audience part and we'll see the effect from the lower UA year over year where we go from 41 to eight million in the quarter. And that's in this context effecting the Dow numbers which is effected by the lower number of new users coming in simply speaking. But despite that we see a stabilizing effect on Dow and even the slight higher DAO in this quarter compared to Q1. So it's also a stable stabilizing effect. The lower UA also affects up down with a lower influx of the higher value users we had coming into word seed in the same quarter last year. So that's effecting the up down number although we see some stabilizing effects there as well in the more sort of stable version here. And switching to our financial KPIs, we again see effect from the UA with net sales being down but also contribution being significantly higher than a year ago and that in turn leads to solid profitability numbers both EBIT and EBITDA. And we're showing the adjusted versions here because we have significant non-recurring effects from the R&D claims that we're talking more about in the report. And they're effecting EBIT and EBITDA. And if we look at the cash part, we also have an effect from the burnout payments connected to the probe acquisition. There's lots going on in this report in that respect but clear from all of that cashflow is solid and strong from the quarter at 10 million and we're ending the quarter at 110 million SEC cash balance.

Yeah. And then we look at kind of longer term picture in terms of revenue and profit margin. We've come back to this every report when we talk about it because it's so important to understand the dynamics here. So you can clearly see when the top line started to grow when we had much more user acquisition opportunity around words specifically and how that at the same time created downward pressure on the profit margins because you spend more than you get back in that particular quarter. And now we have kind of the opposite effect. So UA is lower than profit margins come back and you see more of the kind of steady state-ish level of profit margins. So 25% plus EBITDA margin is normal when we don't invest heavily in growth. And yeah, this dynamic is part of the free to play business model basically. So it's all a matter of payback times on UA spend that will control how this fluctuates. And of course the size of opportunity we see in the market was quite extraordinary around word see the amount we could invest a year ago. Looking more at kind of our long-term and kind of the growth strategy of MAG as a company, we have these three cogs here and one is expanding the portfolio. So that's obviously what we try to do here with Crustle get it through a soft launch and hopefully to a global launch of this game. But also the kind of the inorganic opportunities around building the portfolio. And here we have this kind of the cash generation you talked about like adding 10 million of cash to the bank account on a quarterly basis gives us more and more dry powder to use for M&A. So looking at potential games or studios to acquire to compliment the stuff that we're doing internally with new game development is of course really important. And we've done that many times over the last 10 years and we're still actively looking.

Yeah, and this picture is really remind us of how the growth engine works. And so we come to the UA where obviously we're at the low level now and we're working to bring that up again to high levels. Both from the new game and M&A department of things but also from trying to unlock volumes by improving our existing games like board C and unlock more volumes again. And finally the right hand side of this picture improving games also means direct effects on revenue. So it all comes together as a growth picture.

And yeah, looking a bit ahead, we're happy with the stable performance of the live games as we saw the DEUs actually grew from 1.1 million to 1.2 million for Q1 to Q2 despite the low UA spend volumes. So it's a very solid game portfolio. So that's good to have like as a backbone of the business. But of course we wanna grow and make this a bigger and even more exciting business opportunity. So there are multiple things we talk about. One is kind of the previous picture, but more detailed. We're now working on developing new kind of game core mechanics that we'll be able to run in different ways. So we described this a bit in the last few reports that we have this kind of modular way of making games that we're moving into. So meaning that the meta game or the core mechanic of the game and so on, we wanna have them as puzzle pieces we can move around. And that means that new core mechanics we're developing can run as events in QuizDuel and WordC and generate improved art and engagement in the audience, but also could end up being standalone new products. So it's kind of multi-use of the things we're developing which is a really exciting new way of working which kind of de-risks a new development and increases the potential value of everything we do. So there we have a few different kind of puzzle game mechanics we work on with classic like match three and stuff that are known to be strongly monetizing stronger than word and trivia games are historically or on average. So adding those to our games have a high chance of kind of upping the art for us. And then of course the soft launch of Cross Also this is super exciting to see can we continue to build on what we've seen so far into the soft launch and get this to a game where we can confidently market it at scale globally. So that's kind of where we wanna take us over the next few months. I think that concludes the kind of the reporting part of this presentation. So we're gonna have a look and see if we have a couple of questions we will respond to here during the video stream. And as I mentioned at the beginning of this call that we'll also check in online on X aka Twitter and see if you have any questions coming in there throughout the day we'll just get at it and try to respond as best we can. So here is a question about the expected contribution of Cross All in the portfolio. So this is basically a question regarding like what do we think the potential is of new games that we launch? So for me, this is about kind of we can look historically what has the good performing game done from launch to later stage in its life cycle. So we expect a game to surpass 100 million of yearly revenues during the peak years which is usually the year two, three, maybe four of a game and lifetime do at least 500 million of revenues. And of course the important thing here is also the UA that we can have the margin want to which is basically invest a dollar and get one and a half or two dollars back over a certain period of time two, three years and so on which would give us the profit margin that we want. So the short version of the Cross All contribution is that we want to make this a game that could over a number of peak years do at least 100 million Swedish a year in revenues. Okay, so that was it for the live questions coming in. So we'll take a look at X and see what we have that we can respond to online throughout the day. Thank you so much for watching this video.