Thunderful Group AB

Hello and welcome to Fundafold Group Q4 presentation. My name is Simon Jönsson, equity analyst with ABG and I will be the moderator today. First, we'll have a presentation by Anders and Lennart. This will be followed by a Q&A and you can send in your questions in the box below the presentation on the website. With that said, I will leave the floor to you guys.

Thank you, Simon. Good morning, everyone, and welcome to today's presentation of Thunderful Group's financial results for Q4 2022. Today's presenters are me, Anders Mikvist, the acting CEO in Thunderful Group. With me today is also our CFO, Lennart Sparud. And we're also very glad and happy to be standing here in front of the father from Somerville, which was our best top selling title here in Q4. Today's agenda, I will start with the key highlights in Q4. I will then continue with some background of Thunderfall Group and our two segments. This time, I'll also add some reflection on each segment's performance and achievements in the full year 2022. Lennart will then continue and guide you through the financials. And finally, in the events after the quarter, I will briefly present two add-on acquisitions made by two of our subsidiaries at the beginning of this first quarter 2023. So starting with the key highlights, Thunderfall Games delivered a strong quarter with the net sales of 199 million SEK and with EBITDA of 124 million SEK. The net sales from new releases in the quarter was 46% of games total net sales in Q4. Throughout 2022, we've seen increasing net sales from new releases quarter over quarter in every quarter in 2022. The organic growth in Thunderfall Games is 23%. I should mention that most of the revenues are coming from US dollars, so there's some FX tailwind built into that as well. The cash flow from operating activities in Q4 was fantastic at 406 million SEC. So because of the strong cash flow in Q4, the free cash flow was also positive at 196 million SEC for the full financial year 2022. The free cash flow for us is cash flow after investing activities without any adjustments. So this really marks the first year with the positive free cash flow since 2019 in the Consolidated Thunderbolt Group. In Q4, we also closed Jump Ship. We presented the acquisition in our previous quarterly financial update. And now in this quarter, we are pleased to inform that Jump Ship contributed with 75 million SEK in net sales, which is in line with the upfront consideration that we paid of 6 million pounds. In Thunderfall distribution, Bergsal had delivered a strong performance in Q4 with 61 million SEC in EBITDA and with 10% EBITDA margin. The other two distribution companies faced gross margin pressure as a result of the closeout sales performed also here in the fourth quarter. The closeout sales had impact on profitability, but the positive message is that we've completed the closeout sales and we have not performed any inventory write-downs. Both companies are now having a much better structure ahead of 23, and I will talk more about that later on in the distribution segment. So an overview of the entire group's financial performance in Q4 show that we had negative net sales growth of minus 9%, but games delivered 96% positive growth, while distribution had minus 18% negative growth. The adjusted EBITDA was plus 31%, and adjusted EBITDA was plus 41%. Both these profitability metrics saw significant positive impact from games, while distribution had negative profitability contribution. Cash flow from operating activities reached 406 million SEC, which is a year-of-year improvement of more than 2,000%. And pausing here for a while, looking at the graph to the right, it's clear that we've reached our highest EBITDA level in the last five quarters, even though distribution is very far from its historical profit levels. So the EBITDA growth comes from games where we have formed a new structure in 2022. Throughout the year, we've seen consecutive EBITDA growth quarter over quarter in our games segment. I said before that net revenues from new releases have had higher and higher net sales contribution every quarter in 2022. But even without new releases, we have consecutive EBITDA growth every quarter. So before 22, Thunderfall Games was heavily dependent on successful game releases to reach decent EBITDA levels. Now when we've reached a stable EBITDA baseline from our low risk revenue pillars, co-development and partners, we are in a very different situation where we managed to release successful games. So successful game releases can now take Thunderful Games to new levels, as we've seen here in Q4, and it all starts from a much higher and more stable EBITDA baseline. So also spending some time on the black bars, the not so nice development in distribution, We have been talking for a long time about high inventory levels. So finally, now in the second half of 22, we managed to reduce inventory levels with 280 million SEC. This resulted in a free cash flow after investing activities for the whole group of almost 200 million SEC for the full year 22. So this means that cash flow generated in distribution has not only financed all of the investment in games, but was also used to amortize bank loans. The net debt was reduced with 260 million SEK in Q4 and is 180 million SEK lower than what it was at the end of the last year. So, we have now been able to finance all game investments in 2022 with a cash flow from distribution, and we have also been able to amortize bank loans and reduce our net debt. And this is what Thunderfall's equity story was all about in the first place. Use the strong cash flows generated in distribution and invest in games. So let's have a quick look at Thunderfall Group and our two segments. I will also spend some time summarizing the full financial year 22 in each segment and briefly touch on a few initiatives and achievements in both of the segments. Thunderfall Group operates in two segments, games and distribution. While the distribution business covers the Nordics, the games business is global. We are now almost 480 employees. We have 11 internal games in development and 18 games from external developers in our pipeline. Across the segments, we manage a portfolio of around 100 brands, and we've kept our famous Nintendo partnership for more than 40 years. In Thunderfall distribution, this segment consists of three company groups. BergSolar is selling Nintendo products in the Nordics and in the Baltic states. BergSolar's business has been stable in the last years. There is a clear seasonalization toward the end of the year. And BergSolar also has a clear margin mix where software sales have higher margins than hardware sales. Amotoys is our Nordic toy distribution group and is currently distributing around 70 brands, including some of the most popular toys on the market. Amotoys business has had a stable top line over the last four years. And before the pandemic, this was the distribution company Thunderfall with the highest margins. Nordic Games Supply is a Nordic distributor of gaming accessories, gaming merchandise and boxed video games. Nordic Games Supply's business saw revenue growing fast during the pandemic, but the company has seen significant negative growth post the pandemic. And over time, this company group has had the lowest margins of the three distribution companies. As we've now closed the financial year 2022, we've included a slide to compare Thunderfall Distribution's financial performance to previous years. Starting at the top, we have three graphs of company-specific developments in net sales and adjusted EBITDA. Starting from the left, the performance in 2022 was very similar to 2021. Bergsala has been stable for several years and has not been causing the problems we've seen in distribution in 2022. Amatoi's top line, the net sales, has been very stable for four years. But in 2022, we only reached one million SEK in EBITDA when we were reaching around 30 million SEK in the two previous years with similar net sales. The explanation is significantly increased costs for warehouse operations and a need for an extra external warehouse throughout 2022. In Nordic Games Supply, we've seen a clear growth in 2020 and 2021 that was caused by the onboarding of the new distributor brand Razer and the effects from the pandemic. In 2022, we've had a decline accelerating quarter over quarter, and here in Q4, we had negative growth of 40% year over year. As with Amatoys, Nordic Games Supply has been negatively affected by increasing costs for warehouse operations in 2022. Under the three graphs, we have historical snapshots of inventory and development of cash flows for every year since 2018. And already at the end of 21, inventory levels had reached 760 million SEC. The inventory buildup continued in first half of 22, and we were not able to reduce inventory levels until the second half of 22. So here in the second half of 22, we managed to reduce inventory levels with around 280 million SEC. But this graph clearly also tells us that there are further improvements to be made. At the end of 2022, we are in a level somewhere in between where we were at the end of 2020 and at the end of 2021. But net sales in both Amortoise and Nordic Game Supply are similar in the full year 2022 as they were in the full year 2020. So the last graph, cash flow from operating activities in the whole group, showed that we had negative cash flow from operating activities in both the full financial year 2020 and in the full year 2021. This was mostly caused by distribution. In 22, we had small but steady development in each LTM period for Q1, Q2, and Q3. And now finally in Q4, we managed to see a major impact in a 12-month period. So we are glad to see that the overall company group is again cash flow positive, but it's also important to remember that we have initiated a few cost initiatives in distribution. In the previous financial update, I talked about some workforce reductions. In Q4, we've decided to cease our small operations in Germany for Nordic Game Supply, where we have been loss making for quite some time. For Armatoys, we managed to start both inbound and outbound operations from Thunderfall's own warehouse in Jönköping, now here in January. The warehouse move will continue for some time, but we will see significant cost reductions for warehouse operations for both Armatoys and Nordic Games Supply in 2023. So with the reduced inventory levels and the performed cost initiatives, both Armatoys and Nordic Games Supply now have better structures ahead of 2023. Then, it's a question of how the pressure on purchase power for consumers in the Nordics will continue to affect us. So far, we haven't seen much impact in Burgsala or Amatois. But Nordic Game Supply was down more than 40% year-over-year in Q4, even though we did close out sales. So the start in 2023 seems to be going in the same direction, and it's very difficult to give long-term guidance for Nordic Game Supply in these challenging market situations. Moving on to Thunderfall Games. Thunderfall Games is structured around our four revenue pillars. Our co-development pillar currently includes two of the studios, primarily developing games based on IPs from external licensees. This revenue stream contributes with predictable revenues with stable and high margins, but it also contributes with rev shares from the developed games. There is no need for investments in this revenue stream. Our partners activities is where we are helping external game development studio to self-publish their games. As with co-development, this pillar contributes with predictable revenues and with revenue shares from games that our partners self-publish. Also for partners, there is no need for investments in this revenue stream. The IP building pillar is represented by all studios focusing on our own IPs, and this is also where we do publishing. Both of our own IPs, but also when we publish external games and help external studios building up their IPs. This revenue stream is dependent on a high rate of investments, but can generate high profitability levels when published games reach commercial success. Finally, the investment pillar ranges from investments in early prototype game projects to acquisition of larger companies. This revenue stream is naturally dependent on investments, but for game projects, we benefit from revenue shares from the games in which we have invested. For these game projects, we always try to sell in our partners' activities. So looking back at 2022, also for Thunder for Games, there certainly have been a few achievements made. For co-development, the collaboration between our two studios, CodeSync in the UK and StageClear Studios in Spain, have increased over the year. We have managed to grow revenues and EBITDA quarter-over-quarter throughout 2022. We have signed new contracts and increased the number of developers engaged in co-development. For the partners revenue pillar, we have had fantastic revenue improvement in 2022, but it has not been as stable quarter-over-quarter as co-development. We have restructured the organization and recruited new senior staff members. We have leveled up our service offering and have been able to onboard a few new clients. Two of those new clients are Ponkle, the developer behind Vampire Survivors, which has been nominated to Indie Game of the Year here in 2022. We've recently also onboarded GSC Game World, the AAA developer behind the Stalker series. And the team is now working on one of the most anticipated AAA titles for 2023, which is Stalker 2. This also marks the first AAA client for Thunderfall Partners. As for IP billing, our sales contribution from releases in each quarter have increased quarter of a quarter throughout 2022. We've completed organizational changes in our marketing and production team and seen effects from these changes in the second half of 2022. We have now announced some titles resulting in the highest interest we've ever seen before game releases, and we will continue to work as hard as we can to try to maximize the sales potential for these games. Our back catalog sales have been stable in 22, despite the negative market sentiment. The positive development comes naturally as we've been releasing games more frequently in the last two years. So if we summarize all of this, the explanations behind Thunderful Games' consecutive EBITDA growth in every quarter in 2022 are one, the stable revenues from co-development and partners, low-risk revenue pillars with no need for investments, and naturally, these two pillars are also contributing with positive cash flow. And second, the IP building pillar, where we have seen net revenue increase quarter over quarter in 22. And in Q4, we finally managed to reach profitability in the IP building pillar. In fact, IP building was profitable also excluding the successful release of Somerville from Jump Ship. So reaching a much higher EBITDA baseline from our low risk revenue pillars, co-development and partners has really been the achievement of the year in Thunderfall Games. And whenever we have a quarter with some truly successful game releases, as we have had now in the Q4, we will see revenues and EBITDA starting to come up from this much higher EBITDA baseline. So moving on to the releases in games. In Q4, we have released eight games. Three of those games were developed by internal studios and another five games from external studios. The released games have contributed with almost 92 million SEK in net sales in Q4. In descending order, the main contributors are Somerville, Lego Brick Tales, and The Last Hero of Nostalgia. After the quarter, we have released two more games, both coming from our internal studios. Yesterday, Early Morning Studio, our mobile first studio, released Vendir, Plague of Lies. It's the first game released from Early Morning Studio since we bought the studio about a year ago. The title was released globally on Apple iOS and Google Play. And today, Code Sync's VR title, Jurassic World Aftermath Collection, is being released as a day one title to PlayStation VR 2. For the games we currently have in development, we start with this list of games from our internal studios. We currently have 11 titles in development, of which four are planned to be released in 2023. Some key highlights since we presented Q3 in mid-November has been the announcement of SteamWorld Build in late January, This announcement has turned out to be our most successful announcement in Thunderfall's history. Wishlist has been built up fast and we've had more demo downloads than what we've ever seen for any other game in Thunderfall's history. In early February, we also announced CodeSync's Astronimo. It's the first own IP game since Thunderfall acquired CodeSync back in 2020. The game is coming soon to early access. Lastly, Project Cockadon has been added to the internal pipeline since we bought the studio Fitspin after the end of the quarter. I'll give you some more details about that acquisition after Lennart's financial update. For the externally developed games, we now have a pipeline of 18 games. As many as 15 of those games are currently planned to be released in 2023. Some key highlights for the external pipeline since our last financial presentation in mid-November includes Viewfinder, a game announced at Game Awards in December. The game is published by Thunderfall and developed by Sad Oil Studios, a studio in which Thunderfall is minority owner. Planet of Lana is now set to be released in May. Recently, our team posted that the game has reached more than 300,000 wishlists. The last game is a little teaser with project named Raspberry. We still haven't announced it, but the game entered close alpha testing in November 22, and Thunderfall will announce our publishing efforts for this title in the very near future. And now I'm handing over to our CFO, Lennart Sparud, who will guide you through the financials.

Thank you, Anders. And hello, everyone. I will now guide you through some more detailed financial slides. The fourth quarter was a very strong financial quarter for the game segment, but yet another weak quarter for the distribution segment from a profitability perspective. To guide you through the details, starting with net sales development, where we had seen a growth of minus 9% quarter over quarter, reaching 1.2 billion SEC in the quarter. The game segment has a growth of 96% and the distribution segment a growth of minus 18%. For adjusted EBITDA, the growth is 48 million SEC or 41%, reaching 166 million SEC in the quarter. Adjusted EBITDA in the game segment amounted to 92 million SEC, which is 283% above the comparison quarter. On the other hand, the distribution segment showed an adjusted EBITDA growth of minus 41 million SEC or minus 44%. The cash flow from operating activities was far better in the quarter versus the comparison quarter. We reached a positive cash flow from operating activities of 406 million SEC compared to 19 million SEC in the comparison quarter. I will come back to this part later in the presentation. Looking on segment level, for Thunderful Games, we have seen a growth in net sales quarter over quarter of 96%, reaching almost 200 million SEC in the quarter, which by far is the highest net sales in the games segment in a single quarter so far. Organic growth in games is 23%, and growth from companies acquired in the last 12 months is 73%. Breaking down the organic growth, it's mainly CodeSync, RoboTurdy, and HeadUp driving the organic net sales growth in the quarter. And the acquisition-driven growth in net sales and EBITDA is related to the acquisition of Jump Ship in mid-November. For investments in games, we reached total investments of 133 million SEK in the quarter, of which 60% is related to the acquisition of Jump Ship. For development CapEx, we reached 37 million SEK. This is mainly because we have more developers employed compared to the year before, and we are now more than 300 developers in the group. In the distribution segment, we have seen an overall net sales growth of minus 18% quarter over quarter. Breaking down in the subgroups, we see that BergSolar is decreasing with 5%, driven by less availability of hardware compared to the comparison quarter, This is due to lack of components and not logistic obstacles. And yes, it's decreasing with 41% or 160 million sec due to a general lower market demand for game accessories, particularly in higher price categories. Amatois is decreasing with 14%, quarter over quarter, and the decrease for Amatois was driven by better access to products in the third quarter 2022, when the net sales increased by 19% compared to Q3 2021. For profitability measured in EBTA distribution, the segment has an overall growth of minus 39 million SEC, or minus 41%. Verksalas EBITDA delta is up 4 million SEK despite the fall in net sales, and this is primarily due to a high proportion of sales of games, which have a higher gross margin than hardware. In NGS, the EBITDA delta of minus 39 million SEK is primarily explained by lower gross profit and higher logistic costs. And the lower gross profit comes from a lower net sales, but also a lower gross margin as an effect of the structured clearance sales in the quarter. OMO Toys EBITDA Delta is down 4 million SEK, and this is explained by pressure on margins from clearance sales of inventories and continued high logistics overhead. Our short-term view of the demand in distribution indicates continued strong demand for distributed Nintendo products and toys, but far lower demand for game accessories. We have continued to work hard on reducing the inventories levels and we'll continue to do this through this year. The inventory level is 210 million SEK lower than the end of Q3. So total net sales in the quarter are down 9.2% compared to the comparison quarter. The Thunderfall game segment has an organic growth of 23% and an acquisition-driven growth of 73%. As mentioned before, code single robot head and head up is the main driving factor to the organic growth. And the net sales growth in the distribution segment was minus 220 million sec or minus 18%. Net sales in all three companies in distribution was less than in the comparison quarter. As mentioned earlier in this financial section, the cash flow from operating activities was far better in the quarter versus the comparison quarter. We reached a positive cash flow from operating activities of 406 million SEC compared to 90 million SEC in the comparison quarter. Less inventory buildup in distribution contributes with cash flow of 208 million SEC in the quarter. Changes mainly in the distribution segment have produced desired results, but work still remains to optimize stock levels and adapt operations to prevailing market conditions. Even so, it's pleasing that the group once again is reporting positive cash flow. We have just above 700 million SEC tied up in net working capital as per end of December 2022, compared to almost 1.1 billion SEC by the end of 2021. The key driver behind the strong improvement in the cash flow is the net effect in core working capital in the distribution segment, with a net contribution of almost 340 million SEK. By the end of the quarter we had 0.5 billion SEK in total available cash if we include our unutilized credit facilities, compared to 122 million SEK by the end of 2021. Net debt by the end of the year is 118 million SEK compared to a net debt of 377 million SEK by the end of September 2022. The net debt over EBITDA ratio for 2022 was 0.3 times. And that was the end of the financial section.

Thank you, Lennart. So events after the quarter includes two smaller add-on acquisitions made by two subsidiaries to Thunderfall Group. It's only one slide and I will guide you through it quickly. The game developer Studio Fitspin has been acquired by our subsidiary in Germany, which is HeadUp. It's the first acquisition from HeadUp and it was completed here in February. Thunderfall has already published one of the titles that Studio Fitspin has developed, and we are currently engaged in a new publishing contract with the Fitspin team. The new game is planned to be released in Early Access in 2024 and has the project name Kakeron. Fitspin was founded in 2011 and has developed four titles. Currently, all 20 team members are working on the new game published by Thunderfall. The main rationale for this transaction is that we're getting access to the back catalog and the four IPs developed by Fitspin. We already know the team and have high thoughts about the creative skillset and the game being in the development. And Studio Fitspin is EBITDA accretive even without funding from Thunderfall Publishing. The built-in margin that the studio had in our publishing relationship also now lands in Thunderfall's pockets. The second acquisition was made in January by Armatoys, acquiring the inventory and personnel in an asset deal from tech team Scandinavia. Making acquisitions in the distribution segment is not an explicit strategy for Thunderfall Group, but it was an easy decision to make when the opportunity arose to make a direct additional add-on acquisition through an asset deal at the right price and with the right conditions. The operations in tech team will be EBITDA accretive for Amatoys starting already here in Q1. So these two smaller add-on acquisitions prove that we built up an organization from top management to the subsidiaries where managers in the subsidiaries can aim for add-on acquisitions and be fully supported by top management. Over time, this will give our group some extra leverage to grow and find new opportunities. So thank you all for listening in to today's presentation. And we're now handing over to Simon and the Q&A session.

Thank you, Anders, Lennart. I want to start off with some questions from me. And also, again, I would like to remind you, if you have a question, please write it in the box below the presentation on the website. Starting off with games here, you have the four different pillars you talked about. I was wondering if you look ahead, where will the main or which one of the segments will be the main growth driver in 2023?

I'd say that the achievement that we made in 2022 is basically to stabilize the entire Thunderfall game segments. We've done that by reaching a new, higher and more stable both revenue level and also EBITDA level in co-development and partners. Then whether these two pillars will increase significantly or not, it's a little bit based on the type of deals we do and also the type of clients we can onboard, especially within partners. It's difficult to grow very fast within co-development as it requires that you recruit a lot of new talented game developers. But I'd say for 2023, I mean, what we've been working very hard with in the IP building pillar is basically to improve our efforts when it comes to announcing and marketing our games. And now for 2023, I mean, I presented that we have 15 games to be released from the external pipeline. We have a few games from the internal pipeline as well. I mean, what we've seen so far for some of the games that we are releasing in 2023 seems very positive, both in terms of wish lists and also demo downloads so far. So I'd hope that IP billing will be the revenue pillar growing the fastest in this year.

All right. And if we maybe break it down a little bit, just talking about code development, how much is that related to Meta in this case?

I'd say the way we do this now is that both StageClear Studios and CodeSync are working to a large extent in code development. We have a few different clients, but it's really so that Meta is the main client driving most of the top line. I'd like not to go into the split between the different clients, but Meta is the top client, but we have a few additional clients as well.

All right. Is it mainly just development work for higher stuff or is it also that you have or could have upside from game releases, milestones, royalties?

The way we kind of define co-development is not as work for hire because the most common practice is that we always have some kind of revenue share on the games or the projects where we do co-development. So there's always an upside when the games have been released.

All right, turning to Roboteady. Excluding the Pankl deal, how should we view the revenue contribution for Roboteady here in this quarter compared to previous quarters and also heading into this year 2023? And also a follow up on that, how much or how could Pankl contribute?

Yes, with partners is kind of similar as co-development in the way that we have a few consultants where we are basically charging our clients for the services they are providing. But then we also have a built-in revenue share on the games being published by our partners. And this is, of course, I mean, The way this is structured is that our revenues are growing or declining based on the successes from our partners' games performance. But so far, we've had partners with significantly higher revenues for the games than what we've had from our IP building activities. And we've also seen a more stable revenue quarter over quarter for those type of games. But then it's always difficult to guide on the future. But I think what we've kind of proved in Q2, Q3 and Q4 is that Robot Teddy has found a much more stable level than what we've seen before.

All right. If we include Panko, is it fair to assume that, you know, Robot Teddy could maintain a similar level in 2023 for the full year as it did in 2022? on revenue on top line that would definitely be our goal all right yes good also turning to to distribution just to be clear because you had lower sales this year compared to 2020 inventories in relative terms is higher so to be cleared you mean that a normalized level giving given this the current like sales in distribution the inventory should be below 500 million On a normalized level, is that a fair assessment?

Exactly. I think you're pretty spot on there. Inventory levels at the end of a financial year is always based on what we assume to sell for the future, but also that is based on what we have actually achieved in the year. So, I mean, net sales in 2020 and 2022, those two years have been very similar for the two companies with their main inventory problems, all motorists and all the game supply. And then one could clearly see when I presented that graph that we are now on a higher level than we were in 2020, but also on a much lower level than we were at the end of 2021. But there should really be an opportunity to reduce the inventory levels even further and go down to the level we were at at the end of 2020, which was just below 500 million.

And could that happen already in H1 here 2023 or is it mainly like before or heading into peak season here in Christmas 2023?

Looking at that, Allmotos is the company clearly having two seasons, like one spring-summer season and one autumn-winter season. In Nordic Games Supply, just as in Bergstalla, most of the seasonality is towards the end of the year. So typically we have higher sales in Q3 and Q4. So I think it will be struggling to reduce the inventory level as fast now in the first half. But I think, you know, one should really calculate that it will still be going in the right direction, but potentially not as low as what it was at the end of 2020 already in June 2023.

All right, and the reduction here in the quarter of the inventory. Could you give some color on the distribution between... I guess Bergshola didn't have that much inventory going into the quarter. So I guess the main driver was Arma Toys, is that correct? And also what is happening with NGS, are you able to... I know it's tough in this market to reduce inventory, but I think you reduced the purchases also in the summer. So did you or were able to reduce the inventory, I guess, here in the quarter?

Yes, we've had a significant inventory reduction in both AmoToys and Nordic Game Supply. know one must say that it's more difficult to reduce the inventory levels when top line is down 41 year of year as it has been in nordic game supply but we we did changes to the way we buy products starting already in the middle of q3 so we've seen you know inventory reductions also in nordic game supply but I think that is also the answer to why we are still on 650 and not 500. It's basically the reason behind that is that Nordic Games Supply had problems in selling stuff, basically because the market has been in such a decline. So we did close out sales this year that we didn't do in the comparison quarter, but still we are down 41% on top line.

And what about the risk of impairments in the inventory? What is the risk in inventory, basically? Because I guess you could still sell keyboards and mouses and headsets next year.

Yeah, I'd say now it's very, very low. I mean, we've achieved this strength of cash flow here in Q4 without any inventory impairment or write downs of inventory at all in Q3 or not anything in Q4 either. So I think we really show that we can go in the right direction and still keep almost zero EBITDA generation from these two companies while not doing inventory write downs. So I think from a cash flow perspective, we should still be able to improve cash flows by reducing the inventories. And also, as I kind of mentioned before, there have been cost initiatives made in both companies, especially when it comes to logistics, like warehouse operations costs. We really expect them to go down significantly in 2023 versus 2022.

So profitability should improve?

Year over year, yes, absolutely.

Already in H1 here, Q1, Q2 distribution, is it possible?

In first half, 23, yes. Then the split between Q1 and Q2, yeah, a little bit difficult to guide on, but typically Q1 has been a good quarter for Amatois, if you look at a historical perspective.

I know the visibility is basically zero in NGS, but In a longer term perspective, what is like a normalized level of the total top line volumes? Is it still like an elevated market here in 2022? Or can we see this as a kind of a normal level? Because if you look back a couple of years, you have still one more contract, you expanded the business, you brought on Razor, for example. So what is a normalized level in this relatively mature market?

Yeah. It is a difficult question. One can say that, you know, looking back a couple of years in one of the slides I presented here, we had, I mean, decent profitability, even when we had top line of around 500 million SEC. In 2021, we had almost two times of that, 980 million SEC in top line. But I mean, the top line this year has resulted in a negative EBITDA. So we've been by reducing that top line with two, 300 millions. Looking historically, we actually achieved a better EBITDA coming from that. And then again, as you said, I mean, we've onboarded a couple of new distribution agreements, like really major ones in 2019 and 2020. So I mean, right now, nothing is normal in this market. I think we are in a cycle where we, I mean, basically our retailers sold too much during the pandemic. So now there's this refresh cycle. When does consumer need to buy more stuff? And it has obviously not been in the fourth quarter where most consumers have had other priorities. And it will probably not be in the first quarter either. But then... you know, what will happen with the market in Q2 and Q3 and general consumer behavior, that is really challenging to forecast.

Yeah, makes sense. And on Bergsal and Nintendo, I guess we're closing in on seven years on the Switch console. Do you have any idea of when we could see a new generation and what would that mean for your sales? You think would it cannibalize on your current sales or do you think that the hype for Switch has Kind of maybe gone down a little bit. I think it still was the most sold console here in 2022 globally. But how should we view that potential of a new console in coming two to three years?

Yeah, for me, as for most other people, it's very difficult to know when and if Nintendo will launch another console. But then, I mean, kind of as what we saw here in Q4 this year is basically that we had lower top line than in the comparison quarter, but then we had higher EBITDA coming out of that lower top line, which is basically because the mix between software sales, that is games, and hardware sales, so the Switch consoles, was more in favor for the games in this quarter. So we sold more games in comparison to the hardware sales, which is basically what has been driving profitability for us. And I mean, so far this year, we all know that the sequel to Zelda Breath of the Wild, that is Breath of the Wild 2, will be coming here in Q2. And I think, you know, short term, it's really about selling games to the consoles. We've never had obviously a bigger installation base than what we have now and that is something we really saw here in q4 when there are so many good triple a games from from nintendo out there in the stores and the installation base is getting bigger and bigger every year and naturally then there's more customers to sell all these fantastic triple a games too so it's i'd say it's right now it's more about selling games to the existing hardware than having hardware driving driving the profitability going forward.

Can you say anything about the distribution between or the share of software versus hardware sales and how that compares to like two or three years ago for Bursala?

Yeah, it's kind of different quarter to quarter because it's strongly driven by what type of releases. Yeah, I'd say that, you know, our evergreen sales, as we call them, like we're still selling a lot of Mario Kart and Mario Odyssey, for example, like titles coming out in the first two years of Nintendo Switch lifecycle. You know, we're selling more and more Evergreens every year, and that is also a natural progression over time. And as long as Nintendo Switch is the most popular console, we will also be selling more and more of our Evergreen titles.

All right. Jump Ship, you had the release here, Somerville. Could we expect any revenues in 2023, or what are they working on? Any new releases coming up, DLCs or something to drive sales?

Yeah, one can, you know, without guiding too much on that, historically, we've always been trying to sell our PC console games kind of on as many platforms as possible. So far, everyone can see that Somerville has been somewhat limited in the number of platforms where it's been available. So, you know, one of the things we might be doing is getting this game to new platforms. We haven't announced that, but You know, that would naturally, looking at what we've done with our other games, that would naturally be one of the paths we are currently investigating. And then the team has also started working on another title. So yeah, there will be more coming up from Jump Ship also in the future.

And on Ponkel and Vampire Survivor, can you say anything about the revenue model or the contracts with them, with RoboTeddy? Is it mainly going to be royalties on the backlog or how should we view the potential?

Yeah, it's very similar to the other type of contracts that we've had in Robot Teddy. So we are A, invoicing for the services we are providing for the team members we have in Robot Teddy and their skill set and what they are doing to help the company. But then we also have a rev share on basically all sales from that company. And then, I mean, Vampire Survivors has been a great hit. It's a game that... I believe and I think quite many people believe that it will be able to, you know, do other interesting stuff with that type of game. When you have such a strong IP, there's always ways to monetize on that.

And on Robot Teddy, Among Us VR seems to have done quite well in Q4. Any specific contribution from that driving Robot Teddy?

Yeah, I'd say that I think it was after three weeks or something that the developer press released that they had sold one million pieces, which I guess is one of the best selling, you know, titles, VR titles in such a short time period ever. And of course, I mean, I briefly talked about the Vampire Survivor deal before. But of course, that has had, you know, valuable impact on Robothedy as well.

Alright. Lennart, couple of questions on the financials, mainly on the CapEx side and investment side. What can we expect in terms of CapEx going forward, talking about mainly the capitalized development? Is this a base we should expect will continue in coming quarters or are you continuing to expand?

and build more i think this is a like a baseline you can see now i think it's been quite quite stable during the the four quarter quarters into 2022 i think it will it will not decrease i would say rather more likely to increase a bit but we don't see any major changes

Okay, because you have a couple of bigger releases coming up, but you say that you have enough capacity to develop or deliver on the current pipeline. Is that a fair assessment? Yeah. And looking at 23 here, the games you expect to release, can you say anything about the aggregated capex or budget, total budget of those games? to get any kind of indication of what's behind the releases in terms of development.

I don't know if that's information we normally disclose.

I think we've, you know, back in the days we guided quite detailed when it came to the three titles that we had in development at the IPO, the games we released in the second half of 2021 that was Lost in Random, Wavetail and The Gunk. And I think what we used to say is when it comes to the internal titles, we have a few titles with actually lower development budgets than those three games. We have a couple of titles being more or less exactly the same. And then we have one, two titles being significantly higher than those titles. And then from a timeline perspective, it's a fair assessment to say that the first internal game from the Swedish studios coming after these three titles in 2021, which is SteamWorld Build that we now announced, that will mean that SteamWorld Build has a little bit lower development budget than the three games we released in 2021. But it's still been so far very well received after the announcement in January.

So on average, relatively in line with those games you have guided on before. And I believe that was around or between 30 to 50 million per game. Something in that range roughly. All right. That was all the questions. So thank you so much. And thank you to the audience as well for tuning in. And have a nice day. Thank you. Thank you.