Modern Times Group MTG AB (publ)

Good afternoon everyone and welcome to the live stream and teleconference to present MTG's results for the fourth quarter and full year 2022. Thank you for joining our first ever live video stream for our results. The event is hosted by MTG's President and CEO Maria Redin and CFO Lasse Pilgaard. There will be an opportunity to ask questions after the presentation, and you will be able to use the questionnaire feature in the video stream or follow the operator's instructions if you are dialing in by phone. I will now hand the call over to our CEO, Maria Redin. Maria, over to you.

Thank you, Anton, and hello everyone, and thank you for joining us today to discuss our Q4 and fall year results. For us, 2022 was a transformative year in so many ways. The sale of ESL Gaming in April has enabled us to become a focused pure play mobile gaming group. We have a clear vision, strategy and one of the strongest portfolios in the industry out there. The sale allowed us to return over 4 billion krona to our shareholders, whilst also retaining a strong balance sheet that enabled us to do further M&A when we see the right opportunities. And when I look back for the year, I'm also proud to report that we finished the year by delivering on our outlook for 2022. MTG reported revenues within the range that we provided, and our performance sales were up by 5% for the full year. We also ended the year with a slightly higher profitability than we expected in our outlook. We had an adjusted EBITDA margin of 25%. Our growth highlights the importance of premium, high quality and evergreen IPs, and also a portfolio that covers both casual and mid-core segments across various popular genres and franchises. However, the mobile gaming industry is currently also facing its first ever global downturn. The trend that we saw in the market during the third quarter continued into the end of the year. The fourth quarter was marked by continued low visibility, and the data that we've seen indicates that the in-app purchase market was down nearly 10% year-over-year, both in the fourth quarter and for the full year. The weak market has affected some of our franchises more than others. Our analysis of the data from Sensor Tower indicates that the mid-core segment, which is the home of our strategy and simulation franchise, was particularly impacted. We also saw the weak environment offset some of the normal upswings that we historically have seen in the Q4. On the other hand, the market and the marketing environment for casual games overall seems to be much more positive. And if you look in the bigger picture, despite the challenging market, MTG outperformed the industry by a significant margin, both in the fourth quarter and for the full year 2022. So let's now look into the sales, and I want to give you some brief comments before we go deeper into our different franchises. We deliver 9% reported growth in Q4, and this is primarily due to strong positive currency effects. Our organic sales when adjusting for currency declined to 4% year-over-year in the quarter and it showed a 3% decline from the third quarter in constant currencies. However, we did see a sequential growth when we were adjusting for the ad platform incentive bonus that we had reported in the third quarter. So by now, it's clear that the market in the fourth quarter has been challenging. And as I mentioned, our market is expected to have declined by just under 10% year over year, both in Q4, but also for the full year. Further, the low visibility that we've been observing in Q2 and Q3 of last year continued. And we also saw the market in Q4 to be nearly flat sequentially. We reported 5% performer growth year over year in 2022. And this was primarily driven by Play Simple, Ninja Kiwi and Hutch. And all the three companies also reported growth in Q4. When we then look at things from a gaming franchise point of view, word game continues to be our largest contributor to our revenues. This partially reflected the fact that the marketing environment seemed to favor casual games, as well as the very active work that we are doing with the live ops and the continued evolution of our games. Franchise revenues grew by 5% year on year at constant currencies, and it was up 10% on an underlying basis from Q3. In reported number, word game revenues were down 5% from the third quarter, and this primarily reflected the platform incentive that PlaySimple received in Q3. Our main titles in the franchise, Word Trip and Word Jam, both grew by double digits sequentially, and this is thanks to ramp up in user acquisition spending and also the content updates I mentioned. And thanks to the increased levels of marketing, the franchise reached a new all-time high level of daily active users in December. The Anagram games continue to be the central drivers of growth for the franchise and revenues from both WordTrip and WordGem specifically. And I'm happy also when I look at it because both WordTrip and WordGem peaked at number one on the World Games chart in December on different points. When we then look at new games, we have also successfully continued to scale crossword, sort of crossword subgenre and crossword explorer specifically, and the game has grown over 80% in 2022. Based on the current performance, we believe that crossword explorer can be a major growth driver for the franchise in the future. We also took the first step towards a localized expansion of our daily theme crossword in the UK, focusing on the games community and the key players. Strategy and simulation, our second largest franchise, had a challenging time. As I mentioned, the mid-core segment that strategy and simulation is a part of faced significant headwinds in the quarter. We do see two main factors here. The first one is, of course, the broader consumer spending. And the second one is the changes that Apple made with IDFA, which do continue to restrict our ability to do effective marketing. We had a healthy pipeline of content updates and live ops planned in the quarter, but that has not been enough to mitigate the downward pressure and the rising CPI levels that we've been seeing. We also saw that some of the content that we released that were designed to improve retention and monetization did not perform in line with our expectations. However, while I think that we have a lot of things to improve, I think it's important to also remember that we do continue to see established players enjoy our strategy simulation games and spend time and money within our titles. However, the challenges as we see it now lies in onboarding new players. Despite the short-term performance issues, we do continue to believe in the quality of the games in this franchise. We did launch a browser version as in-season pass mechanics were added to the Ryzark culture, and this helped drive both revenue growth for the game and player engagement. But this was not enough to offset the revenue decline from the more mature titles. Going forward, we are of course fully focused to ensure that our strategy and simulation franchise return to growth. Our main priority right now is to drive installs, and then of course improve the retention of players, and we are looking actively at all parts of the player journey. We do know that we have a strong portfolio of franchise games, but we also have more work to do to turn this around. So, let's now move to our racing and our tower defence franchise. Both of them grew year over year in the quarter. When it comes to racing, both Formula 1 Clash and Top Drives had had a busy year with some major updates and also well-received game updates driving growth. Franchise revenues increased by 9% year over year at constant currencies, but we were also down 11% from the third quarter. When looking at the sequential decline, that primarily reflects the normal seasonal pattern that we do have in our Formula One Clash, as that is closely following the Formula One season. We continued to work with LiveOps during the quarter, and the two games that benefited from a strong Black Week sales were both Top Drives and Formula One Clash, and having also on top of that seasonal offers. If we look back, top drives have had a tough few quarters, but that turned the trend around now in the second half of the year on back of the improvements that the team has put in place. This together with major updates and changes to the game economy has clearly had a positive impact. Our tower defense franchise continued to showcase the incredible power of the Bloons IP and the passion that the player community has around the game. The franchise had another strong quarter and it benefited from the Steam sale along with a strong performance on Apple Arcade. In addition, the games in this franchise has historically relied on organic and community-driven growth and that continues to benefit the game in the current marketing environment. Bloons BTD6 received another major update in the quarter, and that was with a new boss and other content for the community, all being greatly appreciated. We are also very excited to announce that we're working on the future launch of Bloons TD6 to come on Netflix, and that will be a development that will update you gradually through the year. When they look at Kongigate, they continue to focus on its NFT gaming agenda, and they launched two new games in the quarter, and that was within the Bitverse franchise. The company also had several NFT drops in the quarter, and that generated nearly a million dollars in revenues, despite the negative sentiment around the NFTs and blockchain market that we do see around us. So looking forward then into 2023 and beyond, we feel that we have a very exciting pipeline of new games and updates that we look forward to bring to the market. If we're starting with, we're excited that Bloons TD6 will launch on Netflix. And as I said before, we will come back with you with more information as we have it and when the timing is right. Turning the eyes to Hutch, they are also getting closer to launching two new games. Both games draw on the studio's genre-leading expertise in racing and racing-thin games, and both games are also connected to major global racing IPs. Ninja Kiwi, on their hand, they're working on three new titles and we're hoping to introduce to you them back in 2024. So you'll have to wait a little bit longer to get some data on back on those games. They still have in Bloons Battle 2, which the team continue to work on and doing ongoing improvements. Right now, we are not investing in UA, but hopefully we'll come back to that later in this year. And then we're having InnoGames. They will continue to scale the two live games, Rise of Culture and Sunrise Village, and they do have an active pipeline of both content and updates for both games. We do still believe in the potential of those two games and the development pipeline, but I think it's fair to say that we're not happy with the sequential performance that we saw for Q4 in these games. And then last but not least, Cognitive is also working on a new game, and that game will draw upon a well-known global IP. This is a traditional game, so that is not within their NFT space, and we hope to be able to tell you more as well about that towards the end of this year. If we then look into our daily active users, our total number of daily active users grew by 1%, while monthly active users remain flat on a sequential basis. The performance reflected the growing number of players in our word games franchises, which just about offset the decline in our strategy and simulation franchise. Our average revenue per daily after users increased sequentially by around 1% in constant currencies. And this was primarily improved by the monetization from our tower defense game, as well as our word games and casual games portfolio. Forge of Empire, World Trip and World Jam continue to be our top three performing titles. And these games, if you take it together, represented 44% of our revenues in the quarter. And this can be compared then with 40% as it's set in Q3. The difference between Q3 and Q4 is primarily driven by the platform incentive that PlaySimple received in Q3. I will now hand over to our CFO Lasse who will then walk us through the profitability and the financial dynamics.

Thanks a lot, Marie. So if we turn our eyes to profitability first, we delivered 22% adjusted EBDA margin in the quarter, which took the full year to 25%. This means that we delivered profitability above the updated guidance that we provided in Q3 and basically landed above the 23% to 24% that we guided. Overall, we're happy to have delivered a strong margin in a year with a difficult market condition, as Marie has mentioned a couple of times. The high margin was achieved through a combination of two things primarily. One was that we had lower UA spend as a result of a continued diligent focus on returns where we chose to not scale investments in instance where we basically saw that the threshold for our return was not met. We also achieved this through a strong focus on cost in general. And of course, in a market that is developing as it is, we have also had to be more diligent to ensure that cost is where it should be. When we look at simple cash flow metric, our adjusted EBITDA less CAPEX, we landed at 17% as we maintained similar CAPEX levels as we had in previous quarters. We have, however, started to see slightly higher levels due to increased game development efforts in especially Hodge, as Maria mentioned, in InnoGames, and especially the live games, and in Kongregate on multiple new titles. Just looking at the bridge between EBDA and adjusted EBDA, the two main items that is worth mentioning this quarter was 9 million in M&A costs, which cost is related to multiple different smaller processes, as well as 16 million SEC, bonus in place symbol which stays back to the transaction that we had when we acquired them and basically this bonus will last until 2024 as I mentioned a couple of times. So until then it will be sitting on a liability on our balance sheet and be released after that as the bonus is being paid out. So looking more into UA, we managed to increase our UA investments in the quarter to 559 million sec, corresponding to 40% of revenue. PlaySimple in particular increased their marketing significantly and managed to scale their marketing efforts on the backside of new game launches especially. We had initially expected even higher spend for the quarter, but the challenging market environment for especially InnoGames meant that they chose not to scale their marketing to the planned level, we do continue to see the impact from IDFA, especially in the mid core part of our gaming portfolio, as it is more difficult to find that next download of the next paying players, given that we have less abilities to really target the advertisement versus what we had before. This in result drives higher CPI, so cost per install, and forces us to lower our marketing spend to basically protect the return on our marketing spend, also called the ROAS. So to mitigate this, we are working with the games to change our early game onboarding, the communication in the early part of the game. However, we haven't been fully successful in this yet to fully mitigate the impact. And of course, we are continuing to work on this, but it will be a continued development effort that we need to achieve over the months, quarters, and probably years to come given this regulation. Although we do see an overall negative impact from IDFA on our abilities to scale marketing, we're also really happy to see that the diversified portfolio we have is really coming to its rights. So especially in the Kiwi that is not relying on classical marketing, had a strong quarter and have had multiple strong quarters. You're also seeing that Play Simple that has a more casual portfolio with a broader appeal, so less need for targeted segmentation, is also doing very well in this environment. So turning to cash flow and cash conversion, in Q4 we generated 81 million SEC in free cash flow, which corresponds to 27% cash conversion. The relative low cash conversion in the quarter was primarily driven by the negative impact from net working capital in the quarter, where some of our larger marketing partners, we changed the payment schedules to them. This basically created this one of negative net working capital, And hence, it's not expected to go forward. We are not fully certain either whether the amount is going to be fully reversed, but it's definitely not going to continue as a negative. This means for the full year, we delivered a cash conversion of 46%, slightly below the target of 50 to 60. But again, very much driven by the net working capital for the full year. And given that we don't expect that going forward, we do feel comfortable in the target we've set because if you reverse that total networking capital, we would actually have been at 60%. So again, defending a bit why that seems to be the right target. On cash, we ended up the period is slightly less than 5 billion SEC in cash and cash equivalents and we still have no financial debt outstanding. This creates a continuous strong balance sheet to enable our organic and inorganic investment strategy and to continue to pay off or fund our earn out liabilities. Just on the earn out liabilities, we did a slight increase in the quarter as a result of a very strong Q4 Ninja Kiwi, continued high growth for Play Simple and a strong game pipeline for Hodge.

To wrap it up, our full year results enabled us to deliver sales in the lower end of our provider outlook with profitability that was actually slightly higher than expected. Overall, I would say this showcases the diversity and the strength of our IPs and the games portfolio. To put it on a high level, I mean, we have always been believers that evergreen ISPs, supported by strong player communities, will outperform the overall market. And if you look at our performance in 2022, that also supports this thesis. If we then look at the market and given the expected decline that we've seen, we also believe that we take a significant market share during 2022. And we will, of course, use that foundation to continue to build the group as we look forward now into 2023. We provided you with a long-term outlook and we would say that is remaining unchanged. We believe that the mobile gaming market will be supported by healthy long-term tech, demographic and social trends. And we also believe that we have a well-diversified portfolio of premium assets and IPs with strong player communities. And we believe that we are well positioned, therefore, if you take the IPs, the portfolio and also the people in the group, we believe that we are well positioned to continue to take market share over the medium to long term. Then when we look to the short term, we do feel that it's too early to provide the market with some more information at this stage, and there are many reasons as we look into that, primarily because as we look at the short-term trend, we still have very low visibility. The same one we begin to experience now in the third quarter, we saw continue in the fourth quarter. And we therefore, because of that, expect to be able to come back and provide you with an updated outlook for the remainder of the year as we announce our Q1 results in April. So all in all, as I look back to 2022, it's been actually quite an amazing and exciting year. We've done some significant progress when it comes to our vision and strategy. And of course, even though we're coming far away, there is still a lot of work to be done to ensure that we can deliver and become the gaming village that we believe we can be for the long term. We want to continue to build on the pillars that we announced on our Flow platform, and we know that all our students are fully focused on driving performance in our current games, as well as I also presented you some of those new games that we want to bring to the market, and that should create excitement for 2023 and onwards. And last but not least, we also have significant firepower, as Lasse said, and we believe that there will be opportunities for MTG to be an active driver in the industry consolidation going forward. So having said that, I want to thank you for following our progress, and I do look forward to sharing more updates with you in the coming months. Thank you for listening in, and over to you, Anton.

Thank you very much, Maria, and thank you, Lasse. We are now ready to take your questions. We will first take your questions from the teleconference and then proceed to the online questions. So with that, thank you, operator. We are now ready to take your questions.

Thank you. If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star 5 again on your telephone keypad. The next question comes from Simon Johnson from ABG Sundal Collier. Please go ahead.

Hi, Lasse and Maria. First, I have a question about the lower marketing efficiency experience right now. because of the IDFA changes. In this new normal, what needs to happen for the efficiency to improve again, that would improve the performance of InnoGames. This without considering the weaker consumer right now, because you said these are two different factors. I'm trying to understand when we can see an improvement. You don't provide any guidance here, but have the conditions worsened or improved recently?

Hi, Salman. No, so I think the conditions haven't worsened. I think we're just starting to see a more clear effect of what was actually coming from COVID, you could say headwinds or coming out of COVID, what was coming from macro and what was actually coming from IDFA. And in our previous quarters, we also did say that it was difficult to isolate each effect. And now we can see a bit more clearly what is what in this. And to your question on what actually needs to improve. For us, it's definitely two overall areas that we're working on. One is focused on marketing, where Getting our models trained with the new data of what actually works in post-IDFA, i.e. targeting to a broader segmentation of players where you don't have the same knowledge on what other games are they playing, etc. Understanding those channels that work and the optimization in terms of advertisement is one. Where of course scale in the group helps us a lot because we also have observations from a lot of different genres to pair in. And then the other part, as Maria also mentioned, is to actually work with the games and say, now that a game is less targeted, we need to make sure that even, so targeted to the audience that downloaded it, we need to make sure that a broader segmented audience actually gets playing on the game and sticks with the game. So that's also why I said that there is a new IDFA world that we are adapting to, and hence that's both on the adoption on the marketing side and on our game design and development side. And of course, giving you a specific time horizon is difficult because each of our studios see this differently. For InnoGames, of course, we are working with a lot of things. It's not going to be one thing that fixes it all for every game, but we definitely do see a strong pipeline of different projects where we believe that many of them will have very concrete effect also in the shorter terms. But of course, fully Getting on the other side of IDFA, I think it's difficult to really say when that potentially happens and how does that look like. I think it's just a new normal that we are acting within.

All right, thank you. And you have also said before that you work with applying InnoGames marketing capabilities on Hutch. Could you give an update on how that is developing?

Yeah, hi, I can take that one. No, we're quite excited about that. And I think it's more of the tools as such. So what we've done with the Flow platform is that we elevate the tools that we're having, very specifically Kat and Mappi, which means that now Hutch can actually run marketing in a much more optimized manner. And then we're also having our CMO, Christian Pern, actually being on site. on the grounds to make sure also they know how to best utilize them. So we do expect to see tangible results during 2023 when it comes to this. And of course, it goes very nicely hand in hand also that Touch actually had two games that we are excited to be able to bring into the market this year.

All right, interesting. A last one for me here about acquisitions. I'm wondering what are the valuations of the targets you look for?

uh... currently i would look at the question different to be honest is more what are we looking at that will complement our current gaming village and uh... where we are uh... then you need to look at to see what are the valuation we believe is a right for that asset and have now the market sort of come to terms on what are the new normalization on valuations. We talked about a gap before. So it's more about we want to make sure that we find companies with strong evergreen IPs. Of course, having a strong standalone profile, but more importantly, also have a nice fit to base on where we are, the casual to mid-core genre, that you have a good affinity to the games where we are at. So you can actually leverage that reach because for all the points we just discussed on IDFA, having a relevant reach that you can leverage whether that is for cross promotion purposes or if that is for ad tech purposes we are firm believers that that's going to be even more relevant going forward so that's what we're looking for and then the target needs to make financial sense as well and i think that's where we are closely following the market and where it's going and keep in contact with the relevant parties we believe are interesting yeah yeah i understand it needs to be at the right valuation for you but

I'm wondering what the current multiples are on the private market on this kind of companies.

So, of course, there's not one set of numbers here. And the companies that are doing fantastic and have games that are scaling, working and growing will always be higher than the ones that are struggling in this market, etc. And as you know, we have a model where we're not doing turnaround cases in the sense that we take that IP and run it in a different way. We really back successful entrepreneurs and successful companies. And, of course, there is still... a situation where they don't need to sell. But I think it's fair to say the valuations have approached the public market quite a lot. Of course, on a like-for-like basis, you need to look at cash conversion multiples where private typically don't have a lot of other items than the normal revenue and cost. And in that comparison, we're at least not seeing that significant gap anymore. Of course, there's still a gap and there'll probably always, in this market, at least be some kind of gap, also considering control premiums, etc. But I think it's fair to say that a lot has happened and we, of course, expect that that gap will continue to narrow as time goes by.

All right. But would you say that valuation is more of a problem than finding the right targets right now?

That's a good question. And I think the valuations to last this point has come down. So I think the valuation are being more realistic. And then it needs to combine to say what is then the combined entity? What are you creating? And when is the right timing in that case?

All right. Thank you so much.

The next question comes from Thomas single host from city. Please go ahead.

Yeah, good afternoon. It's Tom here from Citi. Thanks for taking the question. A couple, if it's okay. On the impact of privacy-related changes, I mean, obviously Apple IDFA has had an impact. I'm interested in whether deprecation of third-party cookies on Google when it comes through will make things worse, or should we view it as The majority of this is an impact both for you and for the market is behind us. That's that's the first question. Maybe I'll come back for a follow up.

Yes, and so I hate Tom. Of course, it's a continuous speculation on what will Google do and when will they potentially do it. And I think even in the one year I've been with MTG, it's been postponed a couple of times in terms of a potential thing they will implement. I think everything is pointing in a direction where they will do something at some point and it's likely going to be less effective. uh strong in the implementation than the one apple has done also apple and google looks very different in the way that their revenue and like how important especially the advertisement marketing part is for them and it also looks like apple probably can see now in their numbers at least the activity on their app store relative to the activity on google stores is actually changing or going down relatively that they might have implemented it a little bit too strong. So I think still Google is waiting out and not doing anything until they're forced. And then when they do something, I think they learn a lot from the way Apple did it and probably try and see less impact on their App Store activity. Of course, if and when that happens, there will be some impact on Android. However, we've also seen that a lot of marketing spend has actually been shifted to Android due to Apple, and hence that might actually even it out and create a bit less competition on Android. So it's a lot of speculation, and we don't know what happens in the meantime on platform fees, et cetera, et cetera. So I think we're doing what we can to mitigate current environment, and then we'll have to see what happens with Google.

Very clear. I mean, on the outlook, I completely understand, whilst market visibility remains low, that it makes sense to hold off until you've got a bit more of a sense of where things are settling out. Just to be clear, though, even if we don't know exactly where the market will end up, are you fairly sure 23 will be another year of relative outperformance for MTG?

No, but I think I said it in my outlook. I mean, with the game portfolio we're having and consistently improving in Q1, Q2, Q3, Q4, we outperformed the market. So that is something we are expecting us to be able to continue to do. And we're firm believers that in the mid to long term, the market will come back to growth again because all the drivers are there. I think when we just look to the short term, our visibility on the market is limited. And that's why we would like to sort of wait and come back to Q1. But we still believe that with our portfolio, we should continue to be able to outperform the market. That's fair.

And then, you know, I suppose in that context, though, I mean, obviously a lot of excitement and anticipation around the topic of consolidation. I suppose the question is, know in the context of your your confidence about how performing does it does it matter if you participate in broader consolidation or another way if consolidation happens elsewhere in the market is that is that something that could impact your relative performance do you think or is it rather largely independent

I think, of course, we're always mindful of what's happening around us and I think that it's important to do so. I think what we're very focused on is finding the right target for us. I don't think to consolidate and be bigger for the sake of being bigger is important for us. It's about finding that relevant additional acquisition that has sort of an affinity to where we are today, so you can actually leverage that reach, then I think that we can become even stronger if we actually drive and be part of that consolidation. But it needs to be relevant size that we add into our current portfolio, because otherwise that doesn't make much of a difference for us.

I think, Tom, to your second part of the question on how are we impacted by others' consolidation, I think it's really difficult to tell because if you're looking at historical consolidation, there's been many different structures where some of them have not really been successful because there's been an increased focus on profitability versus growth, etc. And, of course, that will impact a lot how that potentially also impacts us, right? So, again, the market is very big. We're still fairly small in the total market. And hence, we're focusing more on what we do than what others are doing here.

Very clear. Thank you very much.

Thank you.

The next question comes from Rasmus Engberg from Handelsbanken. Please go ahead.

Yes, hi, Maria, and the rest of the team as well. I had a question on strategy. I understand you don't want to guide for the market, which makes sense, suggesting it's still quite low visibility and probably trending downwards a little bit. But in terms of your strategy, you have throughout this year been very cautious with your spending, i.e. prioritising your spending, your margins, rather than growth. What should we make of this going forward, even though we still are in uncertain markets?

No, you're absolutely right. I think, however, if you drill down into the different companies, we've actually been scaling up and scaling down within the different companies. So as Lasse said, I mean, Play Simple has been able to really deliver on the marketing investments in full for Q4. So I think that... Whilst in totality, for example, in Q4, we were not able to spend all we wanted to do. For some of the companies, we definitely did. Unfortunately, for indie games in particular, we didn't. And I don't think we will ever move away from that principle that as we invest a dollar, we want to make sure that more than that dollar is coming back to make sure that we invest it smartly. Otherwise, we will hold that investment, make sure we build the games where we have an interesting pipeline of features for indie games, different games, both to help the sort of onboarding, the retention and the monetization, And as we see that work, we want to scale up marketing again. So I think as much as we want to drive growth in our games, we will always make sure that we are investing wisely. But you need to also remember that within the different companies, we can scale up and scale down and also down to game level. And we do have a lot of games that we actually put quite significant marketing dollars back on.

So in general, would you anticipate that for the first half of the year that maybe that the winners that you've seen in that has driven your outperformance are the ones that you are likely to continue to do so in also the first half of the year, i.e. Ninja Kiwi and Clay Dimple maybe in particular.

I think at least if you, of course, we're not guiding on Q1 here, Rasmus, but if you look at the momentum from Q3 to Q4, we can at least repeat that underlying growth was really strong for Play Simple, both when it comes to DAOs and revenue. And of course, with a lot of marketing spent for them in the quarter, that's normally something that then creates an even higher level of revenue in the months to come. That's how the business model works like. And if you have, for example, in InnoGames, you did see a sequential decline from Q3 to Q4. Normally, there's not a negative seasonality between those two quarters so that you can also make off yourself in terms of what does that mean for the quarters to come.

And just finally on strategy, I mean, strategy is also quite a bit impacted by new games. Is there anything in the pipeline? And could you also elaborate, what are specifically the games that play simple lore? Because I didn't see anything material in the statistics.

If you go specifically on Play Simple, it's a crossword explorer that is the biggest game that they've been scaling up. Then there are some smaller games they've put into soft launch, and then they are coming more this year. I would say if you look at what is truly exciting that we look forward to this year, I think it's the two Hutch games that are two on back of very strong branded IPs, which is also something that we see in this market that if you look at in which areas have we been more successful running marketing, it's really on the casual side with easy onboarding, or it's actually on back of games with a strong IP where you can have a sort of that recognition label to it. And that's why we're quite excited about the two games that Hush have. We're getting BTD6 on Netflix, which is of course exciting. The pipeline that IndieKivi have is quite amazing and they're still working on Battles 2. And then also Kongate is launching a game for 2024, so unfortunately that is still one year to come, but that is also a game that looks extremely promising. And again, it's also back on a very strong brand IP. So there is an exciting pipeline. I would say where we're putting our working gloves on is really on the two InnoGames games, Rise of Culture and Sunrise Village. And there are so many great looking promising KPIs on those, but we need to make sure that we find a way to do better marketing on back of those and improve the monetization as the customers comes in.

All right, thanks. The next question comes from Martin Arnell from DNB Markets. Please go ahead.

Good afternoon, Maria, Lasse and Anton. My first question is, I understand that you don't want to guide for the full year without updated market forecast for the year, but given the visibility right now, can you say anything on how the year has started in terms of organic trends, if you compare to Q4?

I think maybe just adding in the guidance, right? As you said, there's a good reason we haven't chosen to guide yet and the first time we guided was for at least a long time in the gaming part was actually this year and there we also guided April and feels that's the right thing to do again. And of course, I know that everyone had hoped for full year guidance today. I think if you look in isolation on January, as you also know, we can't really comment a lot on what happens outside the quarter. So I think we'll have to leave it with that, unfortunately.

Okay, but I mean, given the low visibility and you know how the co-op has started, you would sort of reduce a lot of certain questions here if you would give any kind of indications.

No, but I think it's fair to say that we have seen no surprises in January. So, of course, we made a plan for the full year and so far in January, we're following that fairly well. So, there's been no market surprises. I think ECPMs are following the typical patterns, i.e. they're very high in Q4 and then they drop or stabilize in the beginning of Q1. We had a lot of marketing spent that we spent on the end of Q4, where we're seeing the customers, of course, coming in in the first two quarters. So we're not seeing anything surprising. I would say from a cyclical point of view, January looks very much like it normally does.

Okay, thanks. That's helpful. And when it comes to your plans for the UAE in the quarter, can you say anything on that? big projects or anything that stands out.

You mean UA spent, so total levels? Yes. So typically, at least if you look at our historical spend in Q1, it's a strong spend quarter, especially from InnoGames and the, you could say, more the mid-core part of our segments. Typically also, we're seeing a Play Simple with low ECPMs give some interesting opportunities still to market. Not as strong as Q4, but still strong. So from an overall yearly cycle, Q4 and Q1 are always the two strongest, and Q2 and Q3 are the weakest. Whether that enables us to fully keep that high level that we saw in Q4, probably difficult to say, but it's still fair to say that Q1 is a strong marketing quarter normally.

Okay, thanks a lot. And just on this networking capital effect in Q4, where you had to pay some marketing to partners early. Can you just elaborate a little bit more on that, Lasse, so that we can understand it a bit better?

Yeah, so basically we had a way of paying our marketing spend. So this is for the traffic that we buy, i.e. our UA, with specific payment terms. And there was a different interpretation on the other side for some specific ones where they believe that that that should be paid a bit earlier. And hence, we changed to that, i.e. that we started paying that slightly earlier. Weather will go back and get those extra days, and we're not talking about long time, but days here means that you're jumping on the underside of a month, and hence, add it into a quarter, and that basically just meant that that we added in an additional, as I indicate, around 100 million SEC into Q4 of spend that normally would have been paid in Q1. But of course, for that to come back as a positive, we would need to go back to the old payment cycle, and that's still what we're evaluating based on how you read the interpretation of the contract, etc. I think the most important thing for your modeling, et cetera, is that it's a non-recurring event. So, of course, the question is, will we get that 100 million back from a networking capital point of view? But it's definitely not something that will be a continued decline when you're looking at 2023. Okay.

Thanks, guys.

Thank you.

There are no more questions on the teleconference at this time. So I hand the conference back to the speakers for any written questions.

Thank you very much. So we have the first written question and I apologize if I said the name incorrectly from Stian Kildall. So first, congrats on solid performance for the quarter. Can you comment on the nature of the M&A candidates that you are assessing, considering the size of your balance sheet and growth ambitions?

No, but I think we never as such comment specifically about M&A targets, but I think we're looking at two different buckets, you can argue. One part is probably the more sizable one where you actually drive that relevant scale, which needs to be sort of adjacent to where we are. So you need to see some sort of overlap of genre where you can actually utilize that traffic and relevance. I think that the other part where we are looking at is game in the early scaling phase, which we call growth investments, which is sort of in the early growth phase, maybe just a single title, but where we can actually onboard them and they can leverage our flow platform and where we can actually utilize those capabilities. And of course, they will not take a lot of that capital that we have on the balance sheet, but could rather be something that is strategic and that is growth driven for us. So really two different types, and that will be very two different size of acquisitions.

And I think that answers the follow-up questions, which is, are there any approximate optimal size of the acquisitions suitable for MTG's new operating model, as well as are you prioritising acquisitions in current priority segments or focus on adding new categories?

I would say adjacent categories is something that is a priority to make sure that we can create a customer journey within our audience reach. I think that is super relevant. I'm a firm believer in cross-promotion. I'm a firm believer on building out ad take, which is something that we're working with Play Simple on. And that's why you need to have that affinity between games. Otherwise, it simply doesn't work. So, of course, going deeper where we stand, broadening where we stand, I mean, that makes a lot of sense.

Thank you very much. And then we have one more question from Dennis Bergen. What factors are supportive to organic growth above market levels, given that you will face tougher comps in 2023 due to PlaySimple's platform migration payments?

I think it's a fair question. And of course, we do realize that given that migration payment that came into 2022, that those comps will be higher and it could mean that some quarters is difficult to achieve because it's sitting in Q1, Q2 and Q3. But still, if you're looking at our ability to outgrow the market in 2022, the market is estimated to decline about 10%. We grew five. That's a 15-point difference. We still believe with the traction that we have in Play Simple, the pipelines that we have in our other studios, that that is achievable. But I think it's a fair call out to say the uncertainty and how far ahead on that ambition will be, will be determined a little bit by that quite significant bonus that sits in the baseline of 2022.

Thank you very much, Lasse. And with that, we have no further questions. Thank you very much everyone for joining us today. We hope that you follow our progress in the months to come and we will speak to you soon again. Thank you.