MTG delivers full year guidance and outperforms a weak market in Q4

Organic revenues down 4 percent year on year in the fourth quarter, while market is expected to be down by almost 10 percent. Pro forma group sales up 5 percent for the full year. Marketing investments up from the third quarter but lower than originally planned, which reflected strict focus on healthy levels of return on UA spend. MTG therefore reported an adjusted EBITDA of SEK 299 million in the quarter, with a margin of 22 percent. Full year margin was also higher than expected at 25 percent. The group continues to have a strong balance sheet and bought back SEK 132 million worth of shares during the quarter.

Financial highlights Q4, continuing operations

• Net sales growth of 9 percent year on year to SEK 1,388 (1,272) million driven by positive currency effects, while organic revenues decreased by 4 percent year on year 
• Increased levels of user acquisition spend of SEK 559 (497) million corresponding to 40 percent of revenue (SEK 499 million in Q3)
• Adjusted EBITDA of SEK 299 (378) million with an adjusted EBITDA margin of 22 (30) percent
• Reported EBITDA of SEK 304 (358) million and EBIT of SEK 121 (190) million, including EBITDA adjustments of SEK -16 million of non-recurring bonus structures and SEK 9 million of M&A transaction costs
• Net financial items amounted to SEK -391 (-417) million, mainly related to unrealized exchange rate differences of SEK -263 million, revaluation effects referring to financial liability of SEK -93 million relating to the remaining 23 percent of PlaySimple acquisition and revaluation of earnout liability of SEK -127 million. Realized exchanges difference amounted to SEK 89 million in the quarter
• Total net income of SEK -348 (-365) million and total basic earnings per share of SEK -2.79 (-2.65). Net income from continuing operations amounted to SEK -331 (-315) million
• Cash flow from operations in the quarter of SEK 230 (326) million including a realized FX gain amounting to SEK 89 million
• Cash and cash equivalents at the end of the period amounted to SEK 4,733 (943) million

Financial overview

President & CEO’s comments

Delivering full year growth in a changing landscape

Our 2022 has been exciting and transformative. With the divestment of ESL Gaming, we finish the year as a well-positioned mobile gaming group. The sale enabled us to do several things. We clearly crystallized the value we created in esports and facilitated the creation of the world’s largest competitive gaming group.

We then pivoted to become a pure-play gaming company and ensured that MTG has a strong balance sheet. This means that we retained significant financial firepower for future M&A and we distributed nearly SEK 4 billion to our shareholders. And last, but definitely not least, we have been able to focus on and build out our operating model and strategy as a pure-play gaming group.

2022 was also a year when our industry found itself in unchartered territory. We started the year expecting continued strong growth in the market. It ended, however, with a significant industry decline.

In the fourth quarter, we continued to feel the effects of the ongoing return to a post-pandemic society and challenging comps from the covid-related boost to gaming. We are also still experiencing the effects from the lower marketing efficiency from Apple’s IDFA changes.

We are now facing a global economic slowdown, driven by a challenging macroeconomic environment, which is having an impact on consumer spending. As a result, visibility on the market has been severely limited and the IAP market is expected to have declined by high single digits both in the fourth quarter and for the year. The prevailing market also dampened the seasonal upswing we normally see between the third and fourth quarters of the year.

The fact that MTG delivered 5 percent pro forma sales growth for the full year clearly shows the quality and strength of our gaming studios and our evergreen gaming IPs. It is also within the range of our previously provided outlook for the full year. We also estimate to have gained market share during 2022, as well as in the quarter.

Maintaining a steady operational focus in a challenging market landscape

Our year-on-year sales decline in the quarter was driven by lower sales for InnoGames and Kongregate. It was partially mitigated by growing revenues in PlaySimple, Hutch and Ninja Kiwi.

InnoGames faced a challenging market in the fourth quarter. The mid-core segment, which includes Strategy & Simulation, has been particularly impacted by two factors. The first was the broader slow-down in consumer spending. The second was Apple’s IDFA regulation, which is restricting our ability for effective targeted marketing. InnoGames had planned a strong pipeline of new content updates and releases to mitigate the negative market drivers. Unfortunately, some of those anticipated releases did not perform in line with expectations, and revenues therefore declined year on year in the quarter. We do continue to see established players enjoy the games and spend money. However, this hasn’t been enough to offset the decline, as difficult marketing conditions have reduced their ability to onboard new players. On a positive note, the studio successfully soft launched the browser version of Rise of Cultures in the quarter.

PlaySimple continued to deliver, thanks to the strength of the studio’s casual game portfolio and grew its sales sequentially on an underlying basis. The Anagram games performed well in the quarter, and we successfully launched several live-ops. Word Trip and Crossword Jam peaked at #1 on the Word Game charts on Google Play USA at different points in December. The results also benefited from the fact that marketing for casual games continued to be relatively effective in the quarter. PlaySimple also expanded Daily Themed Crossword into the UK and took the first steps towards localizing the game. The studio also continued to evolve and scale their new games, with the proportion of marketing spend invested in new titles doubling from the beginning of the year.

Ninja Kiwi continued to showcase what a strong, recognizable IP supported by an active player community can do in a weak market. The studio grew its sales year on year thanks to growing third party platform revenues and well received game update in December.

Hutch also performed well, growing sales on the back of key updates for both F1 Clash and Top Drives. Our racing-focused studio is also making good progress on their two upcoming titles and expects to launch them later in 2023. 

Increase in marketing investments, although not to the level originally planned

The group invested a total of SEK 559 million in marketing during the quarter, which amounted to 40 percent of overall revenues. This represented an increase from the third quarter but was still less than we initially wanted to invest in the fourth quarter. PlaySimple managed to significantly increase their marketing spend in the fourth quarter. This means that the main driver of our lower-than-expected marketing spending was InnoGames.

As a result of the lower marketing investment levels, MTG delivered higher than expected profitability both in the quarter and the year. We reported SEK 299 million in adjusted EBITDA for the quarter, with a margin of 22 percent. This also meant that MTG has outperformed its full year margin outlook slightly.

Ongoing buy-back mandate and firepower for future M&A

We ended the year with a strong balance sheet thanks to the divestment of ESL Gaming, with nearly SEK 5 billion in cash and cash equivalents. MTG is well positioned to continue being one of the driving forces of M&A in our sector, as and when we see the right opportunities going forward.

We have also continued to drive shareholder value through our ongoing share buy-back program, which is expected to run until the 2023 annual general meeting.

Looking forward

We strongly believe that mobile gaming will grow in the medium and long-term. MTG has a vibrant and diverse portfolio of IPs and gaming studios, and we are well-positioned to outgrow the market in the years to come. While we remain focused on growth, we also have a strict commitment to financial discipline. Our strategy, and the people who make up MTG, will continue to ensure that we are an attractive home for current and future gaming industry leaders.  

Market visibility remains low. We have only seen limited updated forecasts for the overall market in 2023 so far and we therefore expect to be able to provide further details on our 2023 expectations later in the year. 

Thank you for following our journey and for your support during 2022. We look forward to sharing more of our progress with you in the future.

Maria Redin

Group President & CEO, Modern Times Group MTG AB

Shareholder information

MTG’s Annual General Meeting 2023

The Annual General Meeting will be held on 17 May 2023 in Stockholm. Shareholders wishing to have matters considered at the Annual General Meeting should submit their proposals in writing either by post to the “Company Secretary”, Modern Times Group MTG AB (publ), Annual General Meeting, P.O. Box 2094, SE-103 13 Stockholm, Sweden or by email to agm@mtg.com at least seven weeks before the Annual General Meeting in order for the proposal to be included in the notice to the meeting. Further details on how and when to register will be published in advance of the meeting.

Nomination Committee ahead of Annual General Meeting 2023

In accordance with the resolution by the Annual General Meeting of MTG shareholders regarding the procedure for the Nomination Committee, a Nomination Committee has been convened to prepare proposals for the 2023 Annual General Meeting.

The Nomination Committee comprises:

• Christian Rauda, appointed by EHM Holding GmbH;
• Klaus Roehrig, appointed by Active Ownership Corporation;
• Joachim Spetz, appointed by Swedbank Robur Fonder; and
• Simon Duffy, the Chairman of the Board

In line with past practice, the members of the Committee have appointed Christian Rauda, representing the largest shareholder on the last business day of August 2022, as the Committee Chairman.

Please see the following section on MTG.com for information about the work of the Nomination Committee: https://www.mtg.com/governance/nomination-committee/.

Shareholders wishing to propose candidates for election to the MTG Board of Directors should submit their proposals in writing to agm@mtg.com or to the “Company Secretary”, Modern Times Group MTG AB, Box 2094, SE-103 13 Stockholm, Sweden.      

Financial calendar

Questions?

Anton Gourman, VP Communications              
Direct: +46 73 661 8488, anton.gourman@mtg.com

Follow us: mtg.com / Twitter / LinkedIn

Conference call

The company will host a conference call later today, Thursday, February 9, at 15:00 p.m. CET. The conference call will be held in English. More details on the event can be found when following the link below:

https://financialhearings.com/event/44543

To participate in the call, please follow the link below:

https://conference.financialhearings.com/teleconference/?id=5002365

The conference call is also streamed, giving the opportunity to submit written questions, through the following link:

https://ir.financialhearings.com/mtg-q4-2022

Modern Times Group MTG AB (Publ.) – Reg no: 556309-9158 – Phone: +46 (0) 8-562 000 50

MTG (Modern Times Group MTG AB (publ.)) (www.mtg.com) is an international mobile gaming group that owns and operates gaming studios with popular global IPs across a wide range of casual and mid-core genres. The group is focused on accelerating portfolio company growth and supporting founders and entrepreneurs. MTG is an active driver of gaming industry consolidation and a strategic acquirer of gaming companies around the world. We are born in Sweden but have an international culture and global footprint. Our shares are listed on Nasdaq Stockholm (‘MTGA’ and ‘MTGB’).

This information is information that Modern Times Group MTG AB (publ.) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact persons set out above, at 7.30 a.m. CET on February 9, 2023.

This interim report contains statements concerning, among other things, MTG’s financial condition and results of operations that are forward-looking in nature. Such statements are not historical facts but, rather, represent MTG’s future expectations. MTG believes that the expectations reflected in these forward-looking statements are based on reasonable assumptions; however, forward-looking statements involve inherent risks and uncertainties, and a number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement. Such important factors include but may not be limited to MTG’s market position; growth in the gaming industry; and the effects of competition and other economic, business, competitive and/or regulatory factors affecting the business of MTG, its group companies and the gaming industry in general. Forward-looking statements apply only as of the date they were made, and, other than as required by applicable law, MTG undertakes no obligation to update any of them in the light of new information or future events.

For more information:

Anton Gourman, VP Communications and IR
Direct: +46 73 661 8488, anton.gourman@mtg.com

Follow us: mtg.com / Twitter / LinkedIn

About MTG

MTG (Modern Times Group MTG AB (publ.)) (www.mtg.com) is an international mobile gaming group that owns and operates gaming studios with popular global IPs across a wide range of casual and mid-core genres. The group is focused on accelerating portfolio company growth and supporting founders and entrepreneurs. MTG is an active driver of gaming industry consolidation and a strategic acquirer of gaming companies around the world. We are born in Sweden but have an international culture and global footprint. Our shares are listed on Nasdaq Stockholm (‘MTGA’ and ‘MTGB’).