Modern Times Group MTG AB (publ)

everyone, and thank you for joining MTG's live stream and teleconference for our fourth quarter and full year 2023 results. The event is hosted by our Group President and CEO, Marie Redin, and our CFO, Nils Møsko. 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're dialing in by phone, please follow the operator's instructions when they are announced. So I now hand over to our CEO, Maria.

Thank you, Anton. And hello, everybody. I'm really happy to deliver on our full year outlook, which is something we also raised in Q3. And we reported now an all-time high adjusted EBITDA with a strong cash conversion. As you may also recall, as we begin this year, the markets were actually quite challenging and we were quite muted on the outlook because we had low visibility. But throughout the year, we focused on our execution and we have now demonstrated two consecutive quarters of organic growth, which is something we're very proud of. The results we present today stem from our strong operational momentum in our companies, engaging content in our games that we relentlessly work on, and a disciplined and conscious approach to our marketing investments. Focusing then in on the Q4, I'm really happy to deliver a strong underlying growth with a very good profitability, which equally has enabled us to kick off 2024 with a very good momentum in the business. We deliver 3% organic growth in Q4, driven by our cashless studio Play Simple, and 7% growth on a comparable basis when we include Snowprint in the like-for-like calculations. Our adjusted EBITDA grew by 47% year over year in the quarter, with a very strong margin of 28%. Q4 and the beginning of 2024 has also been an important part for the evolution of us as a group. In the beginning of the quarter, we acquired Snowprint at the start of October, and we have now fully onboarded the business into our day-to-day operations. We have now also signed a deal which enables our US studio, Kongigate, to merge with Monumental, which is an American game-based developer in Austin, Texas. And I want to just give you some of the highlights of the Kongigate deal with Monumental. As you may know, which we talked about before, is that Kongigate has been investing both in the blockchain and the traditional game development during the last two years. And we all probably follow the Web3 development and the market has become more challenging. And therefore, we also, together with the management team in Kongigate, started to look for a solution where we could enable Kongigate to continue to pursue their vision and ambitions. And we're really happy, therefore, to have found this solution together with Monumental. To give you also some background on Monumental, that is an experienced studio with a strong vision for the future of gaming, which they share together with the Kongate team. The merger, we believe, is creating a powerful gaming company that will help the new and combined team to drive the business portfolio. Our stake in the new business is 30% on a fully diluted basis, and the deal has now been signed and closed, now in Q1, and we will report it as a financial asset on our balance sheet. To also put the transaction and Kongate in context with the rest of our group. If you look at Kongate's revenues, they are reported in other smaller franchises where we also have some of our mature and legacy games. In that bucket, all in all, I would say Kongate represents roughly less than half of the revenues within smaller revenues. And also as an EBITDA contribution, they have been overall margin diluted to us as a group. So if you then exclude congregate revenues, our organic sale would be in approximately one percentage point higher for 2023, while on adjusted EBITDA, they actually would have had a limited impact. They do, however, if we look at the capex level, given the share size of the company, have a proportionally bigger part of our capex. So therefore, going forward in 2024, you should expect that to go down. As we now move forward with the merger, I would like to thank both our North and South American colleagues for their passion, their hard work and their dedication. I wish them all the best of luck going forward. And of course, we will look forward to follow their next part of the journey as an investor. Moving then into our sales for the quarter, we report overall 13% sales growth in Q4 with revenues of nearly 1.6 billion krona. And the revenues were driven by the strong performance of Snowprint and PlaySimple. Our year-over-year growth was 7% on a comparable basis if Snowprint would have been included in each of the periods, and it was 3% on organic basis. Our sales performance in the quarter ensured that we deliver within our full range of guidance. We delivered 2% negative growth, which was within the range of minus 3 to plus 2% for the full year. And if you look at the sequential performance, we said in the beginning of the year that we would come back to organic growth in the second half of the year. And we also sequentially improved our performance, whereas we reported minus 6% growth in the first half of the year. And we're really happy to report plus 2% for the second half of the year. Going then one level down and looking into our different franchises, our organic growth was driven by the World Game franchise, which was up 27% from Q4 2022, and it was up 6% on a sequential basis in constant currency. We're really excited to see Play Simple having continued to drive the performance of established casual titles through the content updates, features that they've been doing, and their overall rigorous execution. The new game Word Search continued to deliver strong growth in the quarter, and I will discuss that in more details later. Sales for the strategy and the simulation franchise was up 30% year-over-year in Q4, and it was up 24% from the third quarter due to the consolidation and the strong growth of Snowprint and the inclusion of 40K Tacticus. When we looked at the franchise on an organic basis, sales were down slightly both year-over-year and from Q3. Forge of Empire did have a weaker start of the quarter, but as the October event, when we tried some new game mechanics, didn't deliver in line with our expectations. On a good note, however, the team did a very strong December event, which for us is a very important section, as that is what's running up to the Christmas event. And that also enables Forge of Empire entering 2024 with a good momentum. InnoGames is further working on new games development, and in particular, their focus on making rework of Rise of Culture into a new type of games, which we hope that we'll be able to share more news with you later this year. Our total defense fragile sales were down in the quarter and also year over year. This decline was mainly a result of Bloom BTT6 not included in the December steam sale as the timing of an update to the game resulted in the sale being moved to January instead of December. The early increased level of engagement we also saw from the update in the end of last quarter with the map editor feature. We were really excited to see the uplift when it comes to the consumer engagement. However, that did not translate into the same monetization as we would have expected. On another exciting part, we did mention in Q3 that Ninda Kiwi had been working with a Chinese developer to bring BlueCD6 to the Chinese market. And we now, during the last quarter of the year, actually launched it. Still too early to see progression, but that is something we will follow throughout this year. Last but not least, our racing franchise revenues, they were down 20% year over year and 8% from Q3. And this is a result from North Top Drive or Formula One Clash this year growing in the quarter. The team at Hutch is working very hard on both titles. We have the upcoming season reset of Formula One Clash coming up now in Q2, and that is something the team is focused on. Every season is a new opportunity, but also on Top Drive, making sure we make the games even better for the customers. On a good note, we launched Forza Custom and we are seeing very healthy growth of this title, still in the beginning of the scaling. However, the team is working very strong on adding more engaging content and live after the game. And we've added marketing gradually through our Q4 and we will continue to ramp it up during this year. Looking then into the nitty-gritty details of the KPIs. If you look at some of the performance KPIs, we continue to evolve our revenue base, and we can see that we're actually shifting, not a lot, but a few percentage points on how we mix the revenues. We had roughly 36% of the revenues coming from in-app purchasing in the quarter, which is up one percentage point from Q3, and it's up four percentage points from Q4 last year. This development reflects the strength and the scaling in our cash flow, portfolio during the last year. Our daily active users were up slightly in the quarter from Q3, and this is primarily because of the consolidation of Snowprint and the strong growth of Play Simple, but also due to the growing number of daily active users in the rating portfolio driven by the new game Forza Customs, which I just mentioned. Looking then into our average revenue per daily after user, that was up both from Q3 this year, but also Q4 last year. And this was driven by two main factors. The first one was the consolidation of Snowprint, as tactics report higher ARCDAO levels than what we have in the rest of the games in the quarter. But also the fact that InnoGames, which we have discussed with you before, continues to perform very strong on the live ops, which also makes sure that we see higher engagement level from our customers and good spending levels, which means again that we are making great game for our customers. With this, I will now hand over to Nils and we'll look more into details of the financial performance.

Thank you, Maria. Let's have a look at the UA spend. Our total user acquisition investments were up from quarter four last year and sequentially from Q3 up to 600 million SEG. This represents roughly 38% of revenue in the quarter, which was down from 40% in quarter four 2022 and slightly higher than the 37% we reported in Q3. Our new studio, Snowprint, is focused on scaling their main game, Warhammer 40,000 Tacticus, and invested significantly in UA during the key period leading up to Christmas. And it's also good to keep in mind that Play Simple had a very high UA spend in Q4 2022, but has now evened out their marketing investments across the year. It's also worth noting that our UA investments are not evenly distributed across the portfolio. Ninja Kiwi, for example, spends almost nothing at all in marketing, while PlaySimple in the casual segment invests the most. We also continue to have a strict discipline around return and spending levels. This means that we will invest more when we see good returns, but hold off a bit when the marketing environment is more challenging, which was the situation for strategy and simulation in this quarter. Let's have a look at the profitability. We report an all-time high adjusted EBITDA of nearly 1.5 billion SEC for the full year with a margin of 27%. This was at the very top range of our full-year profitability outlook, which, as you remember, we also raised in the Q3 report last year. Our adjusted EBITDA grew by nearly 50% in Q4, a year on year, and we delivered a very strong 28% margin in the quarter. The increased profit had mainly three drivers. The first one was the strong growth from PlaySimple combined with good operational leverage across the business. The second one was related to the strong margins at InnoGames. And there are two drivers mainly. One, of course, the lower cost base following the restructuring in April last year, but also the strong delivery on the year end event in Forge of Empires, which engaged established players who also have a higher tendency to play the game on browser, which is a positive sales channel makes impact. The third driver are the contributions from Ninja Kiwi, which continues to deliver high margins with a very lean organization. We continue to have a strong cash flow in the quarter with a cash conversion rate of 58% in the quarter, 59% for the last 12 months. The good operational result flows through and we delivered a cash conversion at the higher end of our long-term outlook range between 50% and 60%. Working capital is flat, and as I said before, we are not buying in capital. These changes are timing driven, whether the payables, receivables are on one side of the month or on the other. CAPEX was lower in Q4 and the full year with 2.7% respectively, 3.6% of revenues. They are at the lower end of our guidance. This was mainly driven by lower CAPEX at Kongregate in the second half of the year, but also the timing of development projects at our studios. It's also important to note, as Maria mentioned, that as a result of Congregate merging with Monumental, our capex levels will be reduced going forward. So overall, a good free cash flow generation we had in this quarter.