Modern Times Group MTG AB (publ)

Good afternoon everyone and welcome to the conference call to present MTG's results for the third quarter of 2022. The call is hosted by MTG's President and CEO Maria Redin and CFO Lasse Pilgaard. There will be an opportunity to ask questions after the end of the presentation. Please use the questionnaire feature in the video stream or follow the telephone operator instructions if you are dialing in by phone. I now hand the word over to our CEO Maria.

Thank you, Anton, and welcome everyone. Looking into Q3, we're very happy to see that MTG returned to organic growth in the second half of the year. Organic sales were up 4% year-over-year in Q3, and this is thanks to the continued focus in LiveOps in our franchises and efficient marketing, and this combined with our ongoing work on scaling new titles. Even though we're happy to deliver organic growth, our overall sales increase in Q3 was lower than what we initially expected in the beginning of the year. And this reflects the continued low visibility on the market, along with the wider economic uncertainty that we see around us. If you're looking at the growth expectations throughout this year, it's really come down as we gradually progressed. And most recently, in September, Sensatower revised the forecast for the fall year 2022 from plus 5% growth to a year-on-year decline of 2%. Well, of course, this isn't what we would have wanted. And our growth continues to demonstrate the quality of our games and our ability to take market share in the current market, which really again, highlights the strength of our portfolio and the people that we have within the group. Further in the quarter, with the strengthening of the dollar versus the Swedish kronor, we have benefited significantly from a positive current effect. This primarily because of the revaluation of our cash deposits, which are reported in krona but sit in our accounts in dollars. We delivered high profitability in the quarter with an adjusted EBITDA margin of 27%. This was a tangible increase from the levels we saw in Q2 and is driven by the underlying organic growth in our business, along with our strict focus on profitable marketing investments. Our balance sheet continues to be in a very strong position and of course it's boosted further by the realized and unrealized currency exchange in the quarter. And on back of this, the board yesterday announced a new 400 million krona share buyback program. The program is planned to run until the AGM next year and we will begin buying shares already tomorrow. We now enter the Q4, which is for the gaming industry the most important quarter for the year. We have an exciting pipeline of new content updates and in-game events ahead of us. Our plan is to continue to invest in marketing and to ramp up the investment levels if we see the potential to do so in an efficient way with a good return potential, which is the policy and a rigid approach that we've done throughout the year. If we then turn to the next level, I think it's fair to say that the market conditions has changed, but we are very proud and we feel that we delivered a solid quarter in a market with low visibility. Our performance sales were up 6% year-over-year in Q3 and reported sales up 31%, boosted on top of the reported growth by positive currency effects. Starting from August, all of our companies are now part of the organic growth revenues. The underlying performance was mainly driven in the quarter by IndieGames and Hutch returning to organic growth in Q3, as well as the continued high growth levels from PlaySimple. On an annualized basis, our performance revenues were up 9% year-over-year, driven primarily by the strong performance by PlaySimple and IndieKiwi, both acquired in 2021. And then when including the foreign exchange gains that we've had and looking at our reported sales, sales were up 65% year-over-year for the same period. Organic growth was up 4% year-over-year in the quarter, and we do expect to have grown our overall share in the declining market. If we then move to the next page and look deeper into our key franchises. At the Capital Markets Day, we introduced a new reporting structure, which we updated in June, and now report our franchise revenues on a quarterly basis. And when you look at the number you see on this slide, you should know that they're calculated in constant currencies and a pro forma basis in order to give you a fair picture on how we actually develop within our franchises. And if we then look at the different franchises, the word game continues to be our largest franchise after taking over the strategy and simulation genre during the first quarter of this year. Our revenues from this franchise grew significantly in the quarter and year over year compared to Q2 and is really driven by successful user acquisition investments in the quarter, as well as a lot of new features within the different games and anagrams in particular. The Stratian Simulation franchise is our most mature gaming property, and it continues to deliver steady performance. Forge of Empires, which is our largest individual title, launched several in-game events during the quarter, but growth was somewhat dampened by the structured decline on the browser gaming side. It is important to note, however, despite the longer-term dynamics of browser as a platform, this continues to be a preferred way of playing for many of our dedicated long-term players. And we do see a big value in the opportunity to have a cross-platform play for them. And because of this, we are also planning to launch a browser version for Rise of Culture now in the fourth quarter. Further in InnoGames, we also continue to invest in the scaling of Rise of Culture and Sunrise Village during the quarter. And even though some in-game events and updates didn't perform as expected towards the end of the quarter, the games overall progress well in the quarter. Q3 was also a good quarter for our racing franchise, and this can mainly be attributed to two things. First and foremost, a combination of successful and well received updates for the Formula One Clash and also top drives that drive further customer engagement and monetization. And on top of that, we also improved our marketing efficiency through the work that the marketing team at Hutch had done together with our central team within MTG. I will come to the Flow Platform later in this presentation, but it's really great to see the Flow Platform come to life at Hutch as they're adopting several of the cloud-based systems that we're now offering in our service on the cloud. Finally, on the franchises, the Tower Defense franchise, it continues to be one of our strongest and most recognized global IP. Franchises revenues were flat year over year and down slightly versus Q2, and this mainly because of a very successful steam sale last year in the same quarter. And with Steer, we're expecting to hold the same sale now in end of October. If you look at the Blue and CD6 players, they were also treated to significant content update during the quarter and on back of this Ninja Kiwi also raised the prices for the game to actually reflect the enhanced content and the richness of the game. If we then drill further down and looking at our games IP, our gaming portfolio today contains a very healthy mix of well-established and fast-growing games. While the vast majority of our revenues come today from our 50 plus live titles, we are committed to both launching more new games across our franchises over time, as well as scaling our current games to bring in players who are more engaged over the long term. We continued to invest in our five soft launch and full commercial launch IPs during the quarter, with Rise of Culture and Crossword Explorer being a full commercial launch and thus being the most significant growth drivers of our new games. We reported sequential growth for all our five new games in the quarter, but a small month-on-month decline in September in a market where we did have low visibility and we also been more cautiously driving new investments in marketing. But also a small part of the performance was also driven that we found a bug in one of the most recent updates in Rasa Culture, which the team now have addressed, but it gave a short-term decline in revenue. As to the other three games, Battles 2, Sunrise Village and Lost Survivors, the marketing has been scaled down and the team is rather focusing on improving the gameplay and the player experience in order to boost the game's key performance and monetization metrics. Positive is, in all three games we really enjoy strong retention data which is the most important fundamental to any new game. In addition to the games we're scaling, our students are working hard to make sure we have a healthy new games pipeline to enter the soft launches. And we do expect some exciting updates and launches to come in the next three to six months. And these include, for example, a browser version, as I just mentioned, of Rise of Culture, and that should come towards the end of this year. And Play Simple, who has already Crossword Explorer in commercial launch. They will also have up to three new titles moving into soft launch. And Concrete is also set to expand their NFT initiative by launching two new games in the Bitware universe, as well as Blood Vessels, which is examples of our early testings going into the NFT universe and seeing how that can over time play an important part in gaming. But that's not all. If we then extend the timeline, our studios also have some very exciting games in the pipeline. There are tides on the horizon from Hutch and Konged for both next year, and then in the key, we started several developments of games that will go live in 2024, which means that we have very healthy balance between games in live mode, early rows, and also in development. And on top of this, of course, a relentless focus on live ops and existing IPs and franchises continues. Turning on to the next page, I'm really happy to see the progress on our build up on our flow platform and operating model. In the environment that we're currently experiencing, having strong franchises that you can build upon is critical. And it also enables us to double down on live ops in games with established player bases. We are really focused on building a global village for game makers that shares a common belief on driving growth and also therefore show a shared common layer of capabilities which will help all our game makers to accelerate their growth and evolution. We call this common layer the Flow Platform, and I previously mentioned it talking about Hutch. And there are four key areas that we want to drive progress across our different gaming studios. And these are the BI and analytics, marketing and user acquisition, cross promotion and ad monetization. The Flow Platform itself was only announced in June this year, but I'm proud to report that we are really making significant progress. Our CMO, Christian Pern, who was appointed earlier this year, has been moving really fast and he already has a small team in place and now in the second quarter. And this team has been working very closely with the market team at Hutch, as I mentioned, to help the studio to accelerate the execution on its user acquisition initiatives. And the team has also been executed on the wider flow platform roadmap and has achieved several important tangible milestones for us. One of the most important part, which is the foundation for a lot of things that we want to do, is to launch a central business intelligence framework. And we have almost finished the onboarding of all our students onto that. And by having this, it really enables us to have a common approach to data, which over time will enable faster and more efficient resource allocation and decision making across a group. Our marketing efficiency tools that we developed also at InnoGames have now also been redeployed into the clouds and onboarding of our companies is also on progressed in this part. And I would say, even though we're doing great progress, this is still only the beginning for the platform, but we're seeing the clear benefits of having this common layer and we will continue to develop this initiative across all our four pillars as we progress going forward. We're then moving into looking into our MAU and the DAO and the diversification. As we talked about before, our acquisition of PlaySimple last year has really enabled us to achieve two things. The first one is to diversify our revenue mix. And the second one is to provide our gaming studios with access to world leading in-app advertising expertise. The more diverse that revenue makes is fantastic because it does provide us with increased resilience in the current uncertain market environment. And it also offers us opportunities to implement incremental revenue streams in our games, which we see now in the recent game launches for InnoGames as an example. And looking then in our revenue mix in the quarter, it has been relatively stable this year. We had 61% of the revenues from in-app purchases in the quarter compared to 28% from advertising and 11% from third-party platforms. If you then look at user developments, our monthly and daily active users have declined slightly from the second and first quarter this year, which to some extent is part of the normal seasonality pattern. Above and beyond this normal seasonality pattern, there are two other drivers that I just want to highlight. We did see in the beginning of the year a temporary boost in usage, primarily from Battles 2 and Rise of Cultures, which has some high promotions and early hype. And this has now been staggered down and normalized from the normal customers that we see on a long-term retention basis. And also when you take this combined with Kongate that has started to actually scale down and closing down some of the legacy games portfolio, meaning also that is negatively impacting our daily and monthly active users. So overall, while we're not happy to see the down decline outside the normal seasonality, the bigger part of the decline is actually representing lower value customers. But having said that, we are of course monitoring the overall install trend and paying customer conversion to make sure that we're adapting and seeing if there are any changes to the normal pattern of our customers in the market that we see around us. So with that said, I would like to hand over to Lasse who now will comment on our profitability, user acquisition and financial position.

Thank you, Maria. And as you can hear from Maria, the fairly strong commercial performance that we've had, both sequentially and year over year, has enabled us to deliver a strong quarter when it comes to adjusted EBITDA, in total 374 million SEC and a margin of 27%. That's approximately one percentage point higher than last quarter, which is enabled by a strong FX. but also keeping UA and other OPEX items fairly constant between the two quarters. If you look at then the growth rate in that adjusted EBITDA, it corresponds to a 10% year-over-year increase, so a little bit more than we've done on revenue. And on a sequential basis, it's 5%. As you can see here on the slide, we've also started to report on simple cash flow metric, which is adjusted EBITDA minus CAPEX. So the margin you have here, we believe this is a strong indicator of profitability in the group. And with 23% delivered in Q3, and as you can see on the previous quarters around the same level, we are demonstrating a very high degree of operational cash flow from the business. And that is even remaining at a 35% UA spend as percentage of our revenue. We believe that these results reflect a strong performance across the portfolio, where focus on profitability keeps being important in an environment with less visibility. As a good example, and we've discussed this before, Ninja Kiwi maintained a very high EBITDA margin again this quarter, and year-to-date they are now a little bit above 60% for the full year. commenting a bit on the right hand side of this slide on the differences between reported and adjusted dbda for the quarter there's two corrections or items that i would like to just call out the first one is the 29 million which is the non-recurrent bonus structure so as part of finalizing the full equity bridge and closing the the last items of the play simple transaction we did a correction of additional 10 million sec which is basically reflecting an under accrual of the bonus program Referring back to this liability of 200 million SEK that we took over as part of the acquisition. In the previous quarter, we had 15 million here. We also have about 15 million every quarter going forward for the year 2022, 2023 and 2024. That's the only real item we're not adjusting for when it comes to LTIP. We've also done a reversal of a capitalized expense in InnoGames. This is basically due to the fact that we chose to discontinue development of a fairly early game as it was not showing sufficient operational metrics to allow long-term scaling monetization. This is of course also in a combination with the other games and the strong portfolio that they have. So turning towards UA and deep diving a bit more on that, we were able to do another 35% of revenue. So in total, we landed at 499 million sec for the quarter, maintaining very high levels as we've done in the previous quarters as well for this year. And just to recap a bit, at the Capital Markets Day, we guided a long-term spend level between 39% and 42%, although with variations in the quarters, which is really what we're seeing now. We do expect to increase investment significantly into Q4 this year. However, given the low short-term visibility that do exist in the market, there's some uncertainty on whether we actually can reach that high level that we originally planned while maintaining the profitability requirement that we have. But I would say even with this uncertainty taken into account, we do in all scenarios expect that Q4 will be the strongest quarter when it comes to investments, also beating the levels that we saw in Q1. We have mentioned this a couple of times in terms of the visibility. So I think I just wanted to highlight a couple of more insights on what is actually the uncertainty that we're seeing in the market when it comes to UA and how we're navigating it. Because we do actually see relatively low CPMs right now. going into Q4 historically and normally Q4 is a very strong month and that means advertisement is more expensive to buy. That's a positive for revenue coming in through IAA but also of course making it more expensive to acquire new customers. We are not seeing that uptick yet, which of course is creating the same dynamic in our portfolio, some very interesting potential marketing opportunities that, coupled with new smartphone releases and also new game updates that we have, it potentially from that angle can look like a very interesting quarter when it comes to investments. And that's also why we have a plan to invest quite significantly in the quarter. But of course, the other side of the equation is looking at what's the lifetime value of the customers that we are getting in. And that's probably where the uncertainty is higher and where we are more, I would say, cautious and aware on what is happening day to day. We are always adjusting our models. So whatever marketing we are spending now is based on what we've observed in the market the last three to four months. But of course, we don't know what the future brings in terms of potential recession and how that further could hit the numbers. And that's, of course, why we are being even stricter on the profitability requirements to make sure that we have some buffer in the way that we spend our money. So I would say on top of this, Maria already mentioned the Flow Platform as an important tool, and especially when it comes to UA investments and capital allocations, it is really extremely important. It enables us to do effective allocation between the games, between the companies in the group. which is in this environment extremely important, but it also enables us to across the games look at trends that are changing so that we can quickly react to basically changes in patterns when it comes to monetization opportunities. So jumping to cash flow from operations, we again have had a really strong quarter when it comes to that. So cash flow from continued operations before taxes and changes in working capital accounted to 445 million sec for Q3 and now 1.132 billion sec year to date. The change in working capital in the quarter is mainly related to the one-off payment in Place Simple dating back to Q2, and hence you should not expect further impact from this going forward, given that Q3 was the last quarter that we saw revenue recognition from this bonus. Free cash flow before earn-out payments ended at 134 million SEK for the quarter and 500 million SEK year-to-date, reflecting a 53% cash conversion for the first nine months. Year-to-date, the group has used 317 million SEK to fund earn-out payment and hence delivered a free cash flow after earn-out payment of 253 million SEK. At the end of the period, we had 4.695 billion SEC in cash in MTG. And on top of that, we have 407 million SEC sitting in long-term bank deposits. So a total of 5.1 billion SEC. We're currently carrying no debt other than earn-out liability, which totals almost 2.6 billion SEC as per the end of the quarter. And as you know, we've included a table in the document where you can see this. Just one note on the earn out debt, because it has increased due to revaluation of the FX as majority of the liabilities are sitting in dollar or currencies highly correlated with dollar. This effect is approximately 138 million, so an increase of liabilities on that. That's something we do every quarter. But of course, this quarter, given the SEC to US dollar movement, it has been bigger. However, in the quarter, we further had a number of positive FX effects as the proceeds from the ESL divestment is sitting in US dollars in our bank accounts. So specifically, we saw on unrealized FX effects, 269 million SEC. And if you then net out the 138 on the earn out liabilities, you get to a 131 million positive contribution. On top of that, we also had a realized FX difference of 95 million sec, which is boosting the cash flow from operations further. So that's why if you compare the 445, well, we actually report in our report, you would get to a higher number. But here we are showing it without that swap. But of course, if you were to add that swap in, our cash conversion, or sorry, the FX difference in our cash conversion for the quarter would become 61%. And year to date, it would become 62%. so in totality for the quarter just to finalize on the fx effect from deposits if you look at it from a net net point of view we have basically increased our net cash position with 230 million sec and again i think one of the questions that could come is how much dollar versus sector we have and we are carrying majority of the cash position that i just mentioned is sitting in dollar the only thing that we've sold is to cover our share buyback program that was initiated communicated yesterday and to be initiated tomorrow. So given the strong cash position and the committed undrawn RCF of one billion SEC, we are in a really strong position to do further M&A and at the same time allow further distribution to shareholders as we communicated last night. And of course, we're really happy to see that. So I think with that, I'll give it back to you, Maria, to comment a bit on the outlook.

Thank you, Lasse. So if you then look to the full year 2022, we are seeing fast change in market around us and The most updated data according to Sensor Tower is now implying a decline of 2% for the gaming market full year compared to where we were in the beginning of the year and expect a growth of 5%. So as we look into the short-term future, visibility and uncertainty is clearly remaining quite high. As a consequence, we are also adjusting our full year revenue outlook, and now we expect to deliver in the range to 5-6% revenue growth for the full year 2022, and that is of course implying us still growing our market shares quite significantly. At the same time, we are also reiterating our adjusted EBITDA outlook, and we continue to expect a margin ambition of between 23-24% for the full year. We are now going into the seasonally important Q4, which Lasse just mentioned, and we would like to ramp up marketing. However, we will always maintain our strict commitment to make sure we deliver marketing efficiency and the healthy returns on the money that we invest in. That also means that there could be a potential overperformance on the margin outlook, depending on what we see in the marketing environment now in the last quarter of the year. And especially, as I said before, November and December are the two most important months. So while the short-term visibility remains limited as I just said, we firmly believe in our long-term outlook and the strength of our portfolio in the gaming market in its totality. We believe that gaming is one of the most relevant entertainment segments that you find around us and it is well positioned to outgrow other forms of entertainment over time. And really the drivers behind it is a cause of it. If you look at the underlying dynamics, 90% of the teenagers and nearly 50% of the adults play games regularly. And there are 3 billion gamers worldwide and that is expected to grow. And 50% of those 3 billion gamers are spending money in the games and content and they play regularly. So despite the current short-term limited visibility, both the in-app purchases and the in-app advertising market are predicted and continue to grow in the next five years. And if you look at our position within it, we feel very strong when we look at our games pipeline, when we look at the franchises we're having and the game makers and people we have in the group. So in addition to that, and Lasse just mentioned, we continue to believe that M&A will be an important part of our growth and the current climate, of course, that is interesting opportunities that we can find. But also from a timing point of view, it is challenging to some extent because there are big discrepancies between public and private multiples. So we're not in a rush, but we're having several interesting conversations. So in the meantime, as we just mentioned as well, we have a strong balance sheet and we are in a good position then to continue to return value to our shareholders. And we're doing that short term by initiating our share buyback program. So before we move to the end of this call, I just want to wrap up and briefly summarize our position. We feel very proud about delivering our organic growth in Q3, and we are doing it thanks to our ongoing focus on live ops, profit marketing investments, and we feel that MTG has significantly outgrown the overall game marketing Q3, just like we've done in the previous quarters this year. We delivered also higher than expected adjusted EBITDA margin while maintaining the stable levels of marketing investments along with a very strong operating cash flow. On back on the strong balance sheet and our commitment to deliver shareholder value, the board of directors announced yesterday the third share-by-back program for the year of in total 400 million to be started tomorrow. With that, I would like to say thank you to all of you listening in on the progress of our company and on building of our gaming village. We also look forward to sharing more news of you in the future. And I really also hope to see many of you. And I would like to remind you also that we are hosting the Game Makers Day in London on the 30th of November, which we are very excited about. This will be a fiscal event where guests will have the opportunity to hear directly from our gaming company leaders about the franchises and also the future initiatives that we have within these franchises. We will, of course, also host a stream to the event for those of you who cannot make the trip, but we hope to see as many of you there as possible. So by that, we're now ready to take your questions, and operator, please go ahead.

Thank you. Ladies and gentlemen, if you have questions for the speakers, please press 041 on your telephone keypad. Thank you. We have a question from Dennis Bergerin from Carnegie. Please go ahead.

Hi, Maria. Thanks for taking my questions. So could you perhaps provide some comments on the development throughout the quarter? And perhaps if you also could give an indication of how much you think you outgrew the market in Q3. And then a follow-up on that. Given that you referred to the 10% performer guidance in July, is it reasonable to assume that the visibility has decreased month by month since then?

Yeah. Hi, thank you for the question. I would say probably we saw a little bit different growth between the three different months, but also the three different months has different seasonality impacts. And also you need to be mindful that depending on which market you are in, the holiday seasons are some in July and some in August. So I would say of the three ones, I would probably say that July was one of the stronger quarters. And then you saw a mixed bag between companies in August and September. So I wouldn't say that there was anything that was totally accelerating in September, if that's what you're after, you obviously draw the mixed bag between August and September. And if we then look in then forward and also exact market share, it's always difficult to say how much market share did we actually gain in the quarter because there's no precise data. I mean, we, of course, follow the data points that we see from Sensor Tower very closely. And of course, that is implying a double digit decline. We could demonstrate a 6% performer growth and 4% organic, which we're very happy with when you see the market trends that you're seeing around us. If you're then looking forward into the full year, I mean, the sensor tower update implies a negative 2%. I'm not sure if the visibility has gone worse or better. I think the macro we have around us, we are very mindful around. We're very humble about how that could potentially impact our customers so that we always track and follow our data very closely. I think that we do that even more so now, to be fair, to see if there are any trends to be picked up. November and December, as I said, are the most important months. So of course, we would like to see that scaling up both from a sort of a CPM levels when you can look at Play Simple and the ad revenues, but also when you look at InnoGames and they have the Christmas calendar in December, which always makes December being their best month of the year. So therefore, of course, we are mindful about how market develops, but I think the range that we gain, we feel good about as we see it right now.

Thank you very clear and also thankfully the comments and slide on the UA investments. As a follow up on that, would you be able to comment on the level to the changes you've seen on CPMs year over year? And generally, how do you think about the market development from an IAP versus IAA perspective so far?

So on your first question, typically what we see is that as you come into October, the CPM level starts picking up. What I mentioned is that that hasn't happened yet, and that means the current CPM level that we're seeing in October is actually comparable to what we've seen in the last couple of months, but that pickup normally would now start to happen and we would come to an elevated level. We're not seeing that yet, and that basically means it's likely that that pickup will of course come the closer we come to Christmas, but maybe it's not going to end up as high. And that means Q4 compared to previous Q4s could look fairly attractive. So that's also another way of saying, if you look at CPI levels in Q2 versus what we, or let's say Q3 versus what we're seeing right now and going into Q4, those are unchanged. But if they end up being unchanged for the full quarter, that is actually a fantastic marketing quarter then for Q4. So that's how you should think about it when it comes to in-app advertisement versus in-app purchase games you're more on the LTV side of the curve right when we are talking about marketing effectiveness and there I think as Maria said we would like to see of course from an IAA revenue point of view that optic because that supports both the cohorts you're getting in a valuable but also our general revenue coming from Play Simple And then we do expect as we come closer to Christmas that we will see a uplift in our IAP revenue in those games. But again, there's seasonality in each of the games because you have, for example, Formula One with Hodge where the season is ending mid of November. And that means they're going to be strong up until then. And their Christmas is not great. But for example, InnoGames, which do Christmas events, is great.

Perfect. Thank you.

Thank you. Ladies and gentlemen, let me remind you, if you wish to ask the question by phone, please press 01 on your telephone keypad. Thank you. Ladies and gentlemen, there are no further questions. I will now give back the floor to Mr. Hamilton. Please go ahead.

Hi, everyone. Before we close on the call, we have three questions through the web chat. They come from Martin Arnell at D&B Markets. So let us start with. So why do you think that the mobile market is deteriorating so rapidly right now? How resilient do you think it can be in a recession? And can you help us understand why NTG should outperform the market in Q4 and 2023?

Thank you, Martin, for your question. It's a good one. And I think there are many factors that is impacting the current gaming environment. That doesn't mean that we are not firmly in the long term. So you need to depict the different pieces for what they are. So you have both a post-COVID new sort of engagement norms, I would probably call it. You have the IDFA that has also impacted how we can do marketing. And I think that's where we come out in a good way on our end, that we have strong systems and we can also collaborate as a group. And of course, now you're also getting the macro into the mix. So if you take those together, I think that is probably what is driving the development this year, because you come from really elevated levels in the last two years before that. Then, of course, the question is, of course, what's the new norm? And I think that if you look forward in the mid-term, I think that you have amazing drivers to really argue for the long-term sustainable growth within mobile gaming. I mentioned it, there are three billion gamers out there and there's a whole new generation of gamers that is coming out that will spend money. Those gamers that are in there, 50% of them actually game regularly and they spend money in the games. So we do believe that this is one of the most relevant entertainment tools out there. It doesn't matter whether you look at your kid's mind on 9-11 or if you sit on the bus and you see sort of the 50 year old man playing sort of games on his mobile phone. It is there and I don't think it's going to go away. Then you, of course, can discuss how is gaming faring in a recession? And in all honesty, gaming in its current shape and form has never gone through a recession. But when we look at it, there are several factors actually talking for mobile gaming. I do believe, and that's why we're very humbled that, I mean, The macro environment is what it is. It's going to cause many of our customers to have less disposable income, which is something that is mindful about. And we also need to deserve their airtime and their dollars spent. But if you take that aside, I mean, the entertainment that we are providing is actually relatively inexpensive entertainment, readily available. And often what you see in recession is that you actually spend more time at home. and then we can actually offer entertainment on any device you want in that essence in a relatively inexpensive way and some of our games is actually 100 ad funded which means that as long as you are happy to see our fantastic ads then you can actually have fully free entertainment so i do believe compared to many other industries that gaming is actually quite well situated going into this of course being humble about the market environment in its totality

Thank you, Maria. So following up then the next question also from Martin was, what was the main drivers of inner gains in Hutch returning to organic growth? And how sustainable do you think the turnaround is in Hutch in particular?

So I think that The difference is somewhat different between the two. So let's start with Hodge. Hodge always have strong quarters in Q2 and Q3. And if you look at them sequentially, they've done very well between Q2 and Q3. But also if you look at the scaling of the games versus last year, especially Formula One has done very well. That's not the same as saying then every quarter is going to be the same kind of growth going forward because of the seasonality and the fact that Q4 and Q1 is the slower quarters for them. We believe a lot in the games that is there. We believe in Formula One and the update that then will happen next year and the fact that that will grow again. Quite structural things are being done and has been done to top drives to get that back. But that's probably the one where it has been dragging for the year. And given that that's now more stable, we still need to make sure that we see real growth for that because we believe the potential is significantly bigger than where we are now. And then I think most importantly, if you look at the pipeline of new games that Maria was also mentioning and commenting on, I think the most significant one that we have today, also backed up by some very interesting partnership and licenses, is in Hodge. And that means for the long term, we really believe that Hodge will grow and deliver the expectations that we had initially. So that was Hodge. On InnoGames, it's also very much due to the year over year for them. To be fully transparent, if you look at it from a sequential point of view, they are flat-ish between those two quarters. And hence here, I think we more need to look at when is the next level of UA spend and features coming into the new games to drive that growth because we have Forza Vampires, which is the majority of the revenue still. We're doing a lot of structural things there to especially improve early monetization so we can get more customers and more paying players into it. But Forza Vampires will not be a growth driver. The new games will be. And hence with the browser versions of the games coming up, quite deeper monetization features and generally more investments into those games as we look ahead. We believe also that you could say organic or reported, however you define it, for InnoGames will be realizable and realistic for the years to come.

Thank you, Lasse. Now moving over to Play Simple, and we have several questions that I will collate. So what about the outlook for Play Simple? Can you explain how you think about Play Simple for 2023, given some tough comps in 2022 versus 2021? So how should we think about next year? And how much can Play Simple help carry the overall group in terms of organic growth?

Yeah. No, but it's a great question and I think also it's fair to say if you look at our 9% sort of year-to-year growth, a lot of that comes from Play Simple and also aided by Ninja Kiwi. So Play Simple have had an amazing growth, but it's also had a very strong growth on back of having really good anagram franchises in particular, but also having the crossword franchise. So even though we don't expect, if we look forward, I think it's unreasonable to expect the same growth levels in absolute numbers. But the fact that Play Simple is going to continue to be a growth drive for the group, I think that is fair to say. The one thing that is, of course, outside a little bit of our control is How will the CPMs for next year develop? I mean, long term, we feel very confident about the growth within the advertising market online, but the short term, there is limited visibility. But it is simply an amazing company. We are really impressed by the team. They're extremely data driven in the way that they are enhancing their franchises and extending them. And they also have a very interesting pipeline on new games, which I mentioned on the games update. We both believe there is growth in the existing live franchises, but we also look forward to see them putting more of their titles into soft launch and hopefully over time also into full commercial launch.

Thank you, Maria. So a question from Per Johansson. Of the parts of the business that have had lackluster organic growth in 2022, can you maybe comment on which of those parts you have the most visibility on improving for 2023? So which parts of the business have before maybe slightly less? What's the visibility for 2023? comment on why you have that visibility and what specifically has been done in 2022 to improve performance and if you see any signs already in Q3 and into Q4 on sequential improvement.

Yeah, so of course, it's a difficult question because what you're basically asking is for the games that hasn't been performing well in terms of contributing to growth this year, where do we feel comfortable that there will be growth next year? And I think I probably commented on Hodge. We haven't been satisfied with the overall growth for 2022, so I would put them in that bucket. But we have a, I believe, fairly strong roadmap for next year and especially the year after if you look at the launch dates that we expect and the subsequent revenue that that will drive. I think it's the same also, again, the answer for InnoGames also become relevant again, because here we would also have liked to see higher year over year growth from InnoGames. And it's also one of the reasons that we are now coming out with an outlook of 5 to 6 versus 10. But a lot of the potential and the scaling of their new games, we still believe are intact. They needed more features before we really put the monetization behind it. And those will be delivered end of this year, beginning of next. And that allows us further scaling from there. I think we've been really happy with Ninja Kiwi, especially also with the profitability. They have a good roadmap next year. And I would also argue, yeah, well, Maria commented on Play Simple and how we are seeing that. And then lastly, if you look at Kongregate, of course, given the idle decline that happened this year and there's game genre, there's also a fairly significant roadmap of new games to ensure that they do well next year.

Thank you, Lasse. Now, our next question comes from Rasmus Engberg at Handelsbanken. So how do you see 2022 compared to other years? We started the year with a very ambitious UA spend, which didn't really materialize. Is this rather a normal or stable margin level?

I think it's not correct to say that it didn't realize because if you look at what we've done year to date and with the guidance that we gave in terms of UI spend for Q4, we could still land in the interval that was provided as part of the Capital Markets Day. We will likely be in the low end of that interval if you look at the full year, not towards the higher, but it's still within that. And again, with that plan, our margins would also very much live up to where we expect it to be when we started and guide it for the full year. There's a lot of other things that hasn't panned out as we expected, especially when it comes to the softer market. And if you look at the absolute amount we'll spend, it will be lower because we have made adjustments because revenue is lower. So I think in general, margins are fairly representative for what we also would believe in the long run and hence also within the long-term guided margin levels that we have provided.

Thank you. Then we have two follow up questions from Per Johansson. So first, following up on Hutch, what kind of growth do you expect for 2023? Is it more in the range of zero to 5% or more to 10 to 15%? Is there anything you can comment on that?

No, so we haven't guided yet for 2023.

And we will not guide per company. Perfect. And then the second follow up question is the cost gain for inner games. How do you see that developing in 2023 versus 2022? Given that they have had slower growth than expected? Can that cost be optimized? Or are you okay if they grow that cost base?

So again, I think we're not commenting on how they will look next year and the investments that we will do in terms of the cost base. So we're always looking at what are the games that are profitable and then of course, we aligning the organization to that.

Thank you. Now, moving on to a question from Tom Singlehurst at Citi. Can you talk a little bit about the potential for M&A? Are you seeing multiples for private companies coming down now that access to capital is more scarce?

Yeah. No, I would say it's a fair thing to say that multiples are coming down, but it's always a question of from which level do they come down from. So whilst we are actually entertaining a lot of discussions and speaking to interesting parties in the market, it is, as I said, it's a timing game. So whenever we look at transactions, it needs to fit both operational sense, strategic sense, and then financial sense. And I would say even though the multiples on the private market has come down, I don't think they come down to the same levels that the public has been. So of course, there's discrepancy there. And for us, our job is to drive shareholder value creation. And that goes for short term and long term. So that is, of course, difficult discussions that you're having. So therefore, as we said, We continue to believe M&A is an important part of our strategy and we will continue to execute on that. But we're going to be very rigid to do that and remain the same focus as we always done. And we are not in a rush. So when the time is right, you will see us hopefully to deliver on a value creative acquisition. But the time needs to be right.

Thank you, Maria. And then we have the last question. So given that your own stock is so cheap, and you have a few very high quality assets that you know better than any target you could look at as an acquisition, how do you view buying back your own stock versus buying a very high quality asset from maybe 10 to 13 times EBITDA that maybe before that was even more expensive?

No, I mean, I think I just touched upon that. We are sort of launching our third share buyback program for the year, which is a way that we want to give value back to our shareholders in a direct means. So we're doing yet another 400 million share buyback. And the limitation that we're having is a 10% of our own shares that we can hold in treasury. So that's very simple math provides a $400 million number. So that we are mindful about. And I think that we are executing on that part. And But when it comes to M&A, I think it's important to know this way. You never start and stop M&A. If you want to be active in the market, you need to be out there. You need to meet companies. You need to learn about companies and you need to continue to expand your own strategy. So we are doing that in parallel. But you should hopefully feel good that we will always make sure that we have a very rigid approach to M&A. And as I said, each and every target needs to meet our criteria when it comes to operations, strategic and financial sense to drive value creation.

Thank you very much Maria. So we have no further questions. I would like to thank everyone participating and the team helping us do the call and we will close down for today. Thank you very much.