Thunderful Group AB

Hello and welcome to Fund the Full Group Q3 presentation. My name is Simon Jönsson. I'm an equity analyst with ABG Sundahl Collier. Today management will hold a presentation of the report which will be followed by a Q&A session hosted by me. If you have any questions, please type them in below on the webpage. We will make sure to bring them up later. And without further ado, I will leave the floor to Martin and Annette.

Thank you very much, Simon.

Thank you. Good morning. My name is Martin Walfish. I've been with Thunderful for about two and a half months, but I have almost three decades of experience leading games companies. So today I'm here together with Annette, my CFO, and this is the agenda we're going to go through. So we're going to focus first on the key highlights for Q3, then a brief section of an introduction of Thunderful, a bit of a deep dive into the financial details of the Q3 by Annette. Then I'm going to share a few CEO reflections and a few key takeaways, and then we move on to the Q&A session. So if we look at the Q3 key highlights, we just released a report this morning and we have a total net sales of 626 million SEK, of which distribution stood for 536 million SEK and games stood for 90 million SEK. We're happy to announce that we had good and improved profitability in the distribution segment, primarily driven by Arma Toys and Barry Sala. New releases in the game segment contributed 19 million SEK to the net sales. So we have an adjusted EBITDA of 83 million SEK and adjusted EBITDA of 49 million SEK. Our cash flow from operations amounted to minus 62 million SEK and the negative cash flow was primarily impacted by a decrease in accounts payable. We made a total of 83 million SEK of investments, primarily in games development and publishing rights. The earnings per share for Q3 was 35 EUR. Moving on, sharing a few comments on the Q3 highlights. I want to divide it into the distribution segment. Arma Toys had a really good quarter with its best Q3 ever and one of its absolutely best quarters ever. Barry Sarlat performed really well thanks to really good sales of high margin products. Nordic game supply is unfortunately underperforming, primarily due to lower demand in the market. After the quarter, we sold off some of NGS's product portfolio to another distributor and who also took over some of the external suppliers that NGS has been working with previously. In mid-September, we were joined by a new executive vice president of distribution, so he has just started, and he is now assessing potential improvements that we can do on the distribution side. In the game segment, I want to split it up into two different areas. We have game production. In Q3, we have increased investments in capitalized game development. Our studio in the UK, CodeSync, keeps delivering on co-development projects and they're also continuing their good collaboration with Meta in 2024. We have a recently joined VP of studios who have started to look into the segment and the production area and is doing a bunch of improvements. We are looking closely at improving the green light process so we are more careful and determined when we do investment decisions. We have also set up a centralized production services team that is helping both internal and external studios to improve their production efforts and quality. And then we have uncovered some historical production issues that we are working with and improving. After the quarter, our studio in Karlshamn, the station, completed the SteamWorld Build Gold Master. So it's all ready for release on December 1st, as previously announced. On the publishing side, in Q3, we had a launch of Viewfinder, which was the only major launch in the quarter. We've unfortunately had continued weaker development on the partners revenue. But I'm glad to say that our new VPs of marketing and VP of partners who both joined in the summer are also already starting to implement some good improvements, focusing on doing better sales forecasts and working more closely with different key performance indicators. optimizing our back catalog sales and also moving into doing more market research and making sure that we have a better idea of how to pick and also publish the games in the best possible way going forward So for those of you who are not very familiar with Thunderful, a few slides just give an introduction to the group. So we are just about 500 employees today. We have 10 internal game studios that are working on 14 different games. We have 18 different games in the external publishing pipeline. So 18 games we're working with external developers. and the revenue for the last 12 months was just above 3 billion SEK. We are working closely with a bunch of different partners, Nintendo most prominently on the distribution side. We have been distributing Nintendo products since 1981, so a very successful and ongoing collaboration. We're also the distributor in the Nordics for Squishmallows, which is a very big brand. If you have kids in the Squishmallows age, then you've definitely heard about this. Our internal IP SteamWorld that I already mentioned is our main IP that we own and have built from scratch. So we're continuing to work with that. And as mentioned, we're working also very closely with developing games with Meta for their various VR efforts. So the distribution segment contains or consists of Amo Toys, that is our toy distributor in the Nordics, Berisala, as I mentioned, the Nintendo distribution in the Nordics and the Baltics, and then Nordic Game Supply that distributes PC and gaming accessories and peripherals. In the game segment, we have, as mentioned, 10 different game studios across Europe, primarily in Sweden, UK, Germany and Spain. And we've divided the game segment really in four different revenue streams. So IP building is where we invest in game projects, both internal and external. Co-development is when we work with external partners like Meta to do games together with them. Partners is where we help primarily indie developers, smaller developers, but we help them with their publishing effort. and get a part of their revenue share as the upside for us. And investments, of course, is when we invest both in acquiring studios, but not least also acquiring IPs that we can continue to build and nurture in the coming years. So looking a little ahead in Q4, December 1st, as mentioned, we have SteamWorld Build launching. So we're very excited about that. That's the first new SteamWorld game coming out since 2019. We also have a new SteamWorld game planned to come out next year. So the idea going forward is to have one new SteamWorld game coming out each year. And then, of course, in addition to that, have add-on packs and DLCs. for the existing launched SteamWorld games. Also very happy with our collaboration with LEGO and with Meta. So we are launching LEGO BrickTales VR later this year in December. In 2024, we have Planet of Lana that was launched this year, but we have versions coming out for Switch and PlayStation 4 and PlayStation 5 coming next year. And Replaced is also another title that I think looks fantastic that is coming up next year. And we, of course, have more titles to be announced. Oh, yes, and of course, I want to mention Super Mario Bros. Wonder that was launched a couple of weeks ago in Q4, which is obviously a huge title for Nintendo and for us as well.