Q1 operational performance encouraging as we look forward

Wed, Apr 26, 2023 07:30 CET

During the first quarter MTG saw strong continued underlying growth from PlaySimple and Ninja Kiwi, with stabilization and early signs of recovery from InnoGames, who despite a significant YoY decline saw encouraging improvements in the second half of the quarter. Revenues were down 4% year on year in reported rates
(-11% in constant FX) due to elevated comparison numbers in Q1 2022. Total marketing spend amounted to 41% of revenues in Q1, reflecting an improving marketing landscape in the second half of Q1. The group reported adjusted EBITDA of SEK 263 million in the period, with a corresponding margin of 20%.

Financial highlights Q1, continuing operations

Net sales declined by 4% year on year to SEK 1,306 (1,357) million and were down by 11% year on year in constant currencies
User acquisition spend of SEK 537 (576) million corresponding to 41% of revenues (SEK 559 million in Q4 2022)
Adjusted EBITDA of SEK 263 (342) million with an adjusted EBITDA margin of 20 (25)%
Reported EBITDA of SEK 245 (239) million and EBIT of SEK 121 (85) million, including EBITDA adjustments of SEK 13 million pertaining to non-recurring bonus structures and SEK 5 million pertaining to M&A transaction costs
Net financial items amounted to SEK -61 (-122) million
Total net income of SEK 24 (-315) million and total basic earnings per share of SEK 0.20 (-2.62)
Cash flow from operations in the quarter of SEK 262 (79) million including a realized FX gain amounting to SEK 66 million and cash conversion of 51% in Q1 and 60% for the last 12 months (April 2022 to March 2023)
Cash and cash equivalents at the end of the period amounted to SEK 4,019 (894) million
Outlook of full year sales to be within the range of -3% to +2% when adjusting for currency effects, and adjusted EBITDA margin for the year to be within MTG’s long-term outlook of 23-25%

Financial overview

(SEKm)	Q1 2023	Q1 2022	FY 2022
Continuing operations
Net sales	1,306	1,357	5,537

EBIT	121	85	558
EBITDA	245	239	1,229
Adjusted EBITDA	263	342	1,373

Net income	24	-111	252
Basic earnings per share (SEK)	0.20	-0.77	2.70
Diluted earnings per share (SEK)	0.20	-0.77	2.69

Discontinued operations
Net income	-	-204	6,223

Total operations
Net income	24	-315	6,475
Basic earnings per share (SEK)	0.20	-2.62	56.26
Diluted earnings per share (SEK)	0.20	-2.62	56.06

Growth, continuing operations
Sales growth	-4%	77%	41%
Changes in FX rates	7%	6%	9%
Sales growth at constant FX¹	-11%	71%	32%
of which organic growth	-11%	-9%	-4%
1) Pro forma growth in Q1 2022 was 10 % and 5% in FY 2022

President & CEO’s comments

A quarter with two stories

We are happy to see that our studios PlaySimple and Ninja Kiwi continued their strong performance into the first quarter of 2023. InnoGames experienced a significant year on year decline in revenues, as they are coming out of challenging post-covid comparison levels from last year and had a difficult start to the year. We did however see a gradual improvement in their performance during the quarter.

InnoGame’s performance during the first half of Q1 was characterized by the same low visibility they experienced in Q4, driven by ongoing challenges from Apple’s IDFA changes, the post-pandemic normalization of our markets and overall macroeconomic uncertainty. In the second half of the quarter we saw encouraging improvements in the performance of our events, as well as in the mid-core market more broadly, leading to both better monetization of existing users and a better marketing landscape.

When we look at our operations as a whole, our combined performance and market dynamics make us increasingly confident in our ability to return to growth towards the second part of the year. The outlook we are presenting today reflects this confidence.

Our revenues were down 4% in reported rates and 11% year on year in constant currencies in Q1 to SEK 1,306 million. The decline reflected tough comparison numbers in Q1 last year, driven by two major factors. Firstly, InnoGames’ revenues declined year on year, due to the combined impact from continued softer sales in the first half of the quarter, and the fact that their revenues were still elevated coming out of the pandemic in Q1 last year. Secondly, PlaySimple booked the first part of its platform incentive bonus in Q1 last year as revenue, which affected the year-on-year decline in revenues by five percentage points.

Hutch’ revenues were down slightly year on year in the seasonally weaker first quarter. The studio is getting ready to launch the season reset of F1 Clash and continues to work on its exciting pipeline of new games. Kongregate’s sales were also down year on year, primarily due to lower revenues from their traditional portfolio.

Improving marketing environment enables profitable scaling of UA

We delivered adjusted EBITDA of SEK 263 million in the quarter, down from SEK 342 million in the first quarter of last year. The group’s reported margin was 20% in the quarter, compared to 25% in Q1 last year. Our underlying margin would have been up slightly year on year on a like-for-like basis if we were to exclude the previously mentioned platform incentives. Our margin performance reflected higher underlying profitability in InnoGames and PlaySimple, offset by ongoing investments in Web 3.0 by Kongregate and investments in new games by Hutch.

Our studios invested a combined SEK 537 million in user acquisition during the quarter, corresponding to 41% of total revenues. Our user acquisition spending was driven by successful scaling of the new games in PlaySimple, even though overall levels were lower than in Q1 last year, when InnoGames were still seeing elevated user acquisition spend levels at the tail end of the pandemic and were scaling the new games, Sunrise Village and Rise of Cultures, more significantly than what we are doing now.

The group also delivered a cash conversion of 51% in Q1, and 60% for the last twelve-month period with the 12-month number being elevated by the previously mentioned platform incentive fees.

Healthy underlying operations and strong pipeline of content for the coming quarters

Our studios are focused on growing their games through live-ops, content updates and a pipeline of upcoming new titles.

PlaySimple continued its strong performance in Q1 and their games have ensured that the Word Games franchise has been our largest one for five quarters in a row, reporting strong growth every quarter. The studio continued to scale key games successfully in Q1 and PlaySimple’s player base grew both year on year and sequentially as a result. We also saw impressive growth and very positive performance indicators from the new titles Crossword Explorer and Word Search in the quarter.

Ninja Kiwi’s flagship title Bloons TD6 continued to perform well, and the studio is ready to launch the game on Netflix later this year. The studio also had a major update and a successful Steam Sale for Bloons TD6 just after the quarter ended.

The first quarter is normally not as strong for Hutch, as they need the Formula 1 season to begin, in order to deliver the annual reset of F1 Clash. However, the kick-off of Formula 1 in March did bring a significant number of previous players back to the game. Hutch is also working on the upcoming launches of two new games later this year and early testing is showing positive performance indicators.

InnoGames continued to deliver updates and content to Forge of Empires and key in-game events in February and March showed good traction for the game. In early April the studio announced an organizational realignment to boost the company’s future viability and competitiveness. This will see the company optimize its organization to accelerate the development of new games, while refocusing the teams working on current live titles. Unfortunately, the changes also meant that the studio decided to make 75 roles redundant.

We have also started to build up a central team in PlaySimple that will drive our group-wide ad tech and cross promotion initiatives, based on some of the strong foundation PlaySimple has built over the years. This will enable MTG to improve our monetization from advertising in games and improve our marketing efficiency through cross promotion.

Strong balance sheet enabling M&A and continued distributions

We continue to have a strong balance sheet thanks to the successful divestment of ESL Gaming in April 2022. M&A remains one of the key elements in our growth strategy. We continue to believe that future additions to our gaming village will enable us to increase our relevant scale and build a synergetic gaming company. Our ambition is to utilize our balance sheet for future acquisitions if we see the right opportunities and the right pricing environment.

We believe that M&A can, and will, go hand in hand with shareholder value creation, as evidenced by our ongoing share repurchase program, which runs until the 2023 AGM. MTG’s Board of Directors has also proposed that the AGM authorizes the Board to resolve to repurchase additional shares in 2023 if they find it appropriate.

Looking forward

We are happy with the strong underlying performance and momentum of our Word Games and Tower Defense franchises. Our Racing franchise is also set to continue growing thanks to live-ops, new content and new upcoming games. We are also happy to see the performance of our Strategy & Simulation franchise begin to improve. The game teams have a rich pipeline of content planned for our players this year. We’re also excited by the strong continued performance of our new word games, which demonstrate our ability to successfully scale new IP.

The second half of the quarter provided us with encouraging signs of positive momentum, especially in Forge of Empires which executed successfully on several events. When we look at the combined trajectory of our business this year, we expect our positive momentum to continue in each of the coming quarters of this year, bringing us back to organic growth in the second half of 2023.

We have a lot of work to do, especially on our new games in the Strategy & Simulation franchise, but we feel confident that InnoGames has a clear roadmap for how to improve their new games and grow existing ones.

And last, but not least, I’m excited to continue growing the Flow Platform and to evolve the ad tech and cross promotion pillars to benefit all our portfolio companies.

Thank you, and we look forward to sharing more updates with you going forward.

Maria Redin

Group President & CEO, Modern Times Group MTG AB

Outlook for 2023

MTG expects the overall market to decline slightly for the full year 2023 but for overall market dynamics to become more favourable towards the second half and end of the year. We also currently expect the positive momentum seen at the end of the first quarter to continue into the second quarter and beyond.

Taking these market considerations into account, we expect our full year sales to be within the range of -3% to +2% when adjusted for currency effects. We also expect our adjusted EBITDA margin for the year to be within our long-term outlook of 23-25%.

Shareholder information

MTG’s Annual General Meeting 2023

The Annual General Meeting will be held on May 17 2023 in Stockholm.

All information relating to the Annual General Meeting, including the notice, the Nomination Committee's proposals and related materials has been published at www.mtg.com.

Financial calendar

Item	Date
Q1 2023 Interim Financial Results report	April 26, 2023
Annual General Meeting 2023	May 17, 2023
Q2 2023 Interim Financial Results report	July 20, 2023
Q3 2023 Interim Financial Results report	October 25, 2023

Questions?

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

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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. CEST on April 26, 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

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