Modern Times Group MTG AB (publ)

Good afternoon, everyone, and thank you for joining MTG's live stream and teleconference for our first quarter results. This event is hosted by our Group President and CEO, Maria Erdin, and CFO, Lasse Peelgaard. After the end of the presentation, there will be an opportunity to ask questions. If you're watching the live stream, please use the questionnaire feature in the video stream to submit your questions. If you are joining us today by phone, please follow the operator's instructions after the presentation is finished. I now hand over the word straight to our CEO, Maria.

Hi everyone, and thank you for joining us. Our performance in the first quarter and the dynamics that we see for the rest of the year underscores our conviction that you need a strong, diversified portfolio of evergreen IPs to drive long-term sustainable growth. On top of that, we believe more than ever in creating relevant scale through a synergetic approach. This will enable us to accelerate growth and create incremental value over time with the help of our group initiatives. Looking into this quarter as a group, we do have a quarter with two quite different stories. On one hand, we continue to have underlying strong performance in our world games and our tower defense franchise. We saw positive underlying growth and good momentum from both PlaySimple and IndieKiwi in Q1. On the other hand, IndieGames had a tough start of the quarter It followed sort of the similar trend that we saw in Q4, but it had encouraging positive momentum during the second half of the quarter. They also in the quarter or end of the quarter actually announced a strategic reorganization in early April to reposition the studio for future opportunities. Play Simple, in particular, continues to deliver stellar underlying results. Their established games continue to perform, but what we're really excited about are the two new games, Crossword Explorer and Word Search. Both titles are scaling rapidly, and they now represent nearly 10% of the world franchise revenues. And to add to that, as we went into the quarter, we didn't really know what to expect when it came to the CPM levels. But we're really happy to see that PlaySimple actually managed to maintain stable levels in Q1. And that's actually quite unusual as we normally see a decline coming in from Q4. InnoGames continue to face a challenging environment coming out of Q4, and we're still affected by low visibility, Apple's IDFA changes, and the macroeconomic uncertainty. And this together with some underperforming events in the quarter led to a really tough start of the year. We did, however, on a good note, start to see gradual improvements in the performance of the strategy and simulation franchise during the second half of Q1. And also we saw the same strong performance continue throughout April. And that led to better monetization of existing users and key events helping reactivate all players. We also saw the first sign of an improved marketing landscape for these games and genre. Looking for the group, our revenues were down 4% year-over-year to 1.3 billion krona in reported currencies and down 11% excluding currencies. The decline mainly reflected two factors. The first one was the in-game revenues were down quite a lot year-over-year because of the continuous softer sales in the first half of Q1. and as I mentioned just before. The second was that PlaySimple booked the first out of three payments for their platform incentives last year, and that means that they're facing inflated cons year-over-year. This payment impacted the year-over-year revenue decline in Q1 by roughly five percentage points. Looking at our adjusted EBITDA, we reported a margin of 20% in Q1. And I think it's worth noting that our underlying margin would have been slightly up year over year if we exclude the platform incentive payment that I just mentioned. And also when taking into account the change to our adjustments to the EBITDA margin that we adopted in Q2 last year. Our margin performance reflected a blend of some effects. We had an underlying high profitability in InnoGames, and even though they had lower sales in the quarter, they actually invested less in marketing, especially then in the first half, combined with a high underlying profitability for Play Simple due to the strong underlying performance. The underlying results were somewhat upset by ongoing investments in the Web3 initiatives that we're doing in Kongate, as well as investment in Hutch making new games. Let's then take a closer look at our sales. The group sales were down 4% year over year in the quarter, and that is despite the 7% boost from positive currency effect. However, while we do have many things to work on, and we'll touch upon some of them later, we're also excited about many things in the quarter, As I mentioned before, I play Simba Continue, its strong performance in Q1, and the growth really comes through successful live ops within the Enneagram franchise in particular, combined with the fact that they now have two new games that they are rapidly scaling. Similarly, Ninja Kiwi's flagship title Bloons TD6 continues to prove well in the quarter. And even though the sequential sales performance was down because of the successful Steam sale they had in Q4, Ninja Kiwi really showing what a strong IP can do to revenues. And also in the beginning of the quarter, they actually now launched a successful update to the games, and that was followed by a successful Steam sale. Hutch revenue reported a slight decline in Q1, and that is really driven by closing down some of their catalog games. You should remember that Q1 is also normally a seasonally slow quarter for Hutch because they need the Formula One racing season to begin to do the annual reset of the Formula One Clash. But on a positive note, Hutch did have larger than unusual sales when the Formula One season started in March, even though not having done the reset yet, which is really testament to the popularity of the IP. As I mentioned earlier, InnoGames had a challenging time in the first half of the quarter, but they really saw improved performance towards the end of the quarter in Forge of Empires and also going out of the quarter. And this is really encouraging and is really driven by several successful events now in March and in February. After the quarter-end is announced, InnoGames announced a strategic reorganization in early April, and the leadership team wanted to make sure that the company is moving forward faster, becoming more agile, and of course also then adjust the overall call space. And that is really to better reflect the current market and the performance. The goal is to enable core teams to be faster and be more efficient in the work to drive the current games and to also accelerate the development of the new games. Unfortunately, this reorganization also means that InnoGames had to part with 75 colleagues, which is of course always a very difficult thing to do. So let's now look closer to the franchises. As I mentioned before, WordGate has continued to do really strong, and it's now been the largest in our portfolio for five sequential quarters, and it's reporting growth strongly every quarter. Franchise revenues increased by 6% sequentially, but were down year over year by 7% in constant currencies. The decline reflected the platform incentive that I just talked about before as well. But the sequential growth came from both established and new games. The team has had an ambitious content pipeline that focused on ad revenue optimization and also improving retention in key titles like DTC, WordTrip, and WordJam, and that comes through LiveOps and both in-game content. We're also very excited, as I said before, to see the double-digit sequential growth of the new titles Crossword Explorer and Word Search. These games now represent close to 10% of the franchise revenues in March, and we're also able to successfully scale up marketing behind these games. The strategy and simulation franchise did have a tough start of the year, but it did demonstrate possible momentum towards end of the quarter and also going into April. Franchise revenues were down 9% sequentially and 21% year-over-year in constant currencies. The biggest driver of the decline were the lower revenues from Forge of Empires and Elvenar. Forge of Empires did have successful events in February and March, which managed to reactivate all players. We are seeing encouraging signals of momentum in Forge of Empires, with our events successfully executed, reactivating older players and also increasing revenues from the established players. The team also continued to develop Forge in the quarter with several exciting content updates, including improvements in particular in the early game experience. The new games of Indie Games which we talked a bit about Rise of Culture and Sunrise Village grew in the quarter but at low levels. Neither game has really managed to scale successfully and Indie Games is taking action to change the trajectory. For Sunrise Village we do have a pipeline of new content that is expected to deliver improvements throughout the year and for Rise of Culture the team is working on a larger revamp of the game two years later this year. Both these updates are expected to take the games to the next level of scaling and as we see that we continue to put more marketing behind them. The racing revenues were down 3% year-over-year and 23% from Q4 last year in constant currency. Formula One Clash follows its normal seasonal pattern with sales down sequentially while the game teams get ready to launch the 2023 season reset. And keep in mind that the season reset is coming as the Formula One racing season starts each year, so for this year we expect it to come in May. The game did, however, experience a boost in performance, and we saw all players reactivating when actually just the Formula 1 season started already in March. Top Drives continues to perform well, and this is thanks to the work done by the team last year. The game's first ever TV ad also went live in February, and given the success of that, we are now also looking into the possibilities of adding TV ads for Formula 1 Clash. Our tower defense franchise continued to showcase the power of the Bloons IP and the passion of the player community. The franchise had another strong quarter with revenues growing 5% year over year. While sales were down 14% sequentially, we need to remember that this was predominantly driven by the strong seam sale that we saw in Q4 last year. The latest highly anticipated update, 36 from Bloons TT6, was launched now in April, and that was also now followed by another successful Steam sale here in April. The update that we did included a brand new tower, map, and other key features. IndieKiwi games also continue to perform well on third-party platforms like Steam and Apple Arcade, And this, we're adding more and more platforms to ensure that the title and the game are exposed to broader player audiences. What is exciting to us is that Ninja Kiwi is working now on a version of Bloons 2D6, both for Xbox and PlayStation, which will be an exciting development because it helps players to experience this IP on platforms outside of mobile. And when it comes to batteries too, which we talked as well about quite a lot last year, we're working to improve that. And as we see improved performance, which we're hoping towards the end of the year, we will then start scaling marketing in the future. Last but not least, I want to talk a little bit about Kongigate, and that continues to invest in the development of the Web 3.0 gaming. And they also have the portal Kongigate.com, where we now publish five games from external developers in Q1. The Bitverse games report an increase in engagement with the NFTs every week in the quarter. But despite that, Kongigate's portfolio still experienced a decline in revenues year over year. Bringing new games to the market is a priority for us, and that's also why I'm really excited about the two games I mentioned before, Play Simple's new titles, Crossword Explorer and Word Search, which both shows very strong traction in the quarter, which enabled us to scale up marketing. When it then comes to the established games, Play Simple had a busy quarter with a wide range of new features for both the Anagrams and the Crossword franchise games. Looking onward then to Hutch, of course, what we're looking forward first and foremost is a season reset of Formula One Clash, which now takes place in May. But further, the team is also working on developing two new titles based on both international license brands, which they expect to at least have one launch coming in this year and possibly also two. Both these games, as we do early retention data testing, are looking very positive. Looking down a little bit further out on the time zone, Nida Kiwi has three games in the pipeline. This is both games within the existing, but also totally new IPs, and we're very excited to see these hopefully reach the players in 2024 and 2025. Kongreat, on their behalf, is also working on a new traditional title based on a major global entertainment IP, looking to soft launch it early next year. And InnoGames is, as I also previously mentioned, focused on the work to improve both Rise of Culture and Sunrise Village. They have a clear plan for each of these games for the year, and we are excited to look forward to see the improvements come through so that we can scale marketing further. They are also aiming above and beyond what they're doing in the mobile version of it to also launch Sunrise Village in the second half of the year. Our total number of daily active users and monthly active users were down in Q1. This is mainly because of the challenging environment in attracting and retaining players in our mid-quarter segment. But we have, however, seen a very positive momentum in our casual player base. And this is, of course, thanks to the fantastic performance from the PlaySimple's gaming portfolio. And that is almost offsetting the overall decline in DAO and MAO for the quarter. Our average revenue per daily active user was up by 8% year over year, and this is mainly due to a high proportion of veteran players in our mid-core games. Our top three performing games in the quarter were still Fort of Empires, World Trip, and World Jam. Together, they represent 44% of our revenues in the quarter, compared to 46% in the fourth quarter. Now, I'll hand over to Lasse, who will discuss with you our profitability and financial performance.

Thank you, Maria. So, our adjusted EBITDA margin landed at 20% for the first quarter of 2023, which equals just above 1.3 billion SEK. If we talk a bit about the margin and compare that to the first quarter in 2022, in 2022, we had similar marketing spend as a percentage of revenue. However, in Q1, we also had basically a positive impact from the platform incentive payment in Play Simple, as Maria has mentioned. And also in Q1 2022, we did not adjust for incentive costs in the same way that we're doing now. Now, as you know, we are only adjusting for the non-recurring items. So if one were to correct those two, or you could say exclude these two effects in the comparison numbers back in 2022, our underlying margin would have been 19%. And hence, year over year, we are up one percentage point. This underlying improvement reflects margin improvements in both InnoGames and Play Simple. offset by lower margins in Kongregate and Hodge as a result of new game investments in both of those companies. The increased investment level in our new games also reflected in our capex levels, which equaled 5% of revenue for this quarter. And as a result, we saw a simple cash flow margin, i.e. adjusted EBITDA less capex for the quarter at 15%. On the bridge between adjusted EBITDA and reported EBITDA, we had non-recurring bonus items related to the Play Simple transaction of 13 million SEC. We've had that in every quarter the last five quarters now, and as you know, it's going to last until end of 2024. We also had 5 million SEC of transaction costs that we adjusted for. Maria will later today comment on our full year outlook, including for the margin. However, I just wanted to note a couple of things when it comes to margin developments Q1 versus the coming quarters and what you should expect to see. We are seeing that margins will be higher than Q1 driven by three different factors. One being that, as you know, marketing spend is typically higher in Q1 compared to Q2 and Q3. This, of course, depresses margins in the first quarter. Second factor is that we expect continue to increase every quarter from here on a sequential basis throughout the year. That also will help support margins. And three, we have already taken action to reduce our cost base and generally are very cautious on our operating expenses across all portfolio companies where the visibility is low. If we're then moving to UA spend, If we look at the total spend level for the quarter, we ended up at 537 million SEC that we were able to scale within the robot thresholds that we have. This represented 41% of revenue and is similar to what we did in Q4 and Q1 last year as a percentage of revenue. Q1 should therefore be seen, at least we're seeing it, as a quarter with strong use acquisition spend and we are very happy to report this and see that we are able to start scaling again after having had some quarters where we weren't able to scale to the level that we wanted to. The quarter did, however, start with difficult market environments, but towards the end of February and March, the market did become better and we were able to start scaling marketing. This goes very much across all portfolio companies, but was very strong effect in especially InnoGames. Because if you look at Play Simple, the scaling did also happen throughout the quarter, but was more, you could say, linearly distributed across the different months, and especially the new games are making up majority of their scaling. And to give you some kind of idea, approximately 20% of our total spend in Play Simple was actually going to their two new titles in the month of March. In InnoGames, as mentioned, we maintain similar absolute marketing spend levels as we had in Q4, which reflects a more cautious approach to investing in the new games. However, we still believe this is at healthy absolute levels. On a year-on-year basis, our decline in total marketing spend was mainly driven by InnoGames because they had this extraordinary high spend level in Q1 2022, where they were coming out of elevated COVID levels, but also were just in the early life cycle of scaling new games, which we're not doing to the same level. level anymore. Generally, we are happy to see the improved marketing environment as we generally want to increase marketing spend at the lower thresholds that we are working with. The strong investment levels we see today create comfort for future revenues and profitability and also the outlook that we are presenting today. But of course, we are cautious that this is only one, one and a half months of observations in the quarter, but we still believe that the market is improving when it comes to marketing spend. So looking at our ability to convert profits into cash, we delivered another quarter in line with our long-term guidance. Cash conversion ended up at 51% in a quarter where we had high marketing spend, which typically impacts margins and bonus payments in headquarter impacting networking capital in Q1, as it also did last year. The latter was somehow helped by a partial reversion of the payment terms to marketing partners in Play Simple and interest rate gains at group level on our cash deposits. We also had a small negative net working capital contribution in InnoGames due to payment timing that will be reversed in Q2. We made the final cash earn-out payment in the quarter to Ninja Kiwi, which reduced our earn-out liabilities with 463 million SEK. We have also done a similar update to our... Sorry, we have also done a smaller update to our earn-out liabilities in the quarter, which increased the liabilities with approximately 100 million SEK. And this is very much due to the strong continuous performance that we're seeing in Play Simple. Remember now, the earn-out liabilities are only related to Play Simple and Hodge. We had end-of-period total discounted earn-out liabilities of approximately 2.4 billion SEK. Our end-of-period cash position equaled just around 4 billion SEK versus 4.7 billion SEK end of last quarter. The earn-out payments, the share buy-back program, and the payment to play symbol related to the minority shares explains this development. So with that, I'll hand it back to Maria, who'll take you through the outlook.