Strong sequential growth and healthy margins in Q2 support full year outlook

Thu, Jul 20, 2023 07:30 CET

MTG reported solid operational momentum in Q2 and is on track to deliver on the full year expectations. PlaySimple and Ninja Kiwi continued their strong sequential growth, while InnoGames maintained the positive dynamics we saw towards the end of Q1. As a result, group revenues grew 9% sequentially in constant currencies. Revenues were up 6% year over year in reported currencies and down 2% in constant currencies. Total UA (user acquisition) spend amounted to 39% of revenues in the quarter, driven by continued high marketing levels in our Word Games franchise. Despite these high marketing investment levels, the group reported adjusted EBITDA of SEK 397 million in Q2, with the margin increasing to 27%.

Financial highlights Q2, continuing operations

Net sales increased by 6% year over year to SEK 1,458 (1,379) million and were down by -2% year over year in constant currencies
User acquisition spend of SEK 563 (500) million corresponding to 39% of revenues (SEK 537 million and 41% in Q1 2023)
Adjusted EBITDA of SEK 397 (357) million with an adjusted EBITDA margin of 27% (26%)
Reported EBITDA of SEK 345 (361) million and EBIT of SEK 222 (158) million
Net financial items amounted to SEK -86 (157) million of which net interest amounted to SEK 40 (9) million and other financial items amounted to SEK -126 (148) million including discounted interest on earnouts of SEK -51 million, gain and loss from financial assets and liabilities of SEK -52 million, and unrealized and realized exchange rate differences of SEK -23 million
Total net income of SEK 57 (6,746) million and total basic earnings per share of SEK 0.47 (61.57)
Cash flow from operations in the quarter of SEK 260 (268) million including a realized currency exchange gain amounting to SEK 16 million and cash conversion of 53% in Q2 and 42% for the last 12 months (July 2022 to June 2023)
Cash and cash equivalents at the end of the period amounted to SEK 3,871 (8,182) million. In addition, the group has SEK 118 million in long term bank deposits
Full year outlook maintained: We expect sales within the range of -3% to +2% adjusted for currency effects, and adjusted EBITDA margin for the year to be within MTG’s long-term outlook of 23-25%

Financial overview

(SEKm)	Q2 2023	Q2 2022	H1 2023	H1 2022	FY 2022
Continuing operations
Net sales	1,458	1,379	2,764	2,736	5,537

EBIT	222	158	344	244	558
EBITDA	345	361	590	600	1,229
Adjusted EBITDA	397	357	620	699	1,373

Net income	57	254	82	143	252
Basic earnings per share (SEK)	0.47	2.47	0.67	1.45	2.70
Diluted earnings per share (SEK)	0.47	2.46	0.66	1.45	2.69

Discontinued operations
Net income	-	6,492	-	6,288	6,223

Total operations
Net income	57	6,746	82	6,431	6,475
Basic earnings per share (SEK)	0.47	61.57	0.67	58.56	56.26
Diluted earnings per share (SEK)	0.47	61.42	0.66	58.41	56.06

Growth, continuing operations
Sales growth	6%	70%	1%	73%	41%
Changes in FX rates	7%	9%	7%	8%	9%
Sales growth at constant FX¹	-2%	61%	-6%	66%	32%
of which organic growth	-2%	-7%	-6%	-8%	-4%
1) Pro forma growth in Q2 2022 was 7 % and 5% in FY 2022

President & CEO’s comments

Positive business momentum drives strong sequential growth

I am happy to share that we performed strongly in the second quarter. Four of our five game studios grew sequentially and we are on track to deliver on our outlook and expectations for the full year.

We reported SEK 1,458 million in revenues in Q2 delivering 9% sequential growth in the quarter. In constant currencies On a year-over-year basis, revenues were up 6% in reported currencies, and down 2% in constant currencies.

PlaySimple delivered another outstanding quarter with both year over year and sequential growth, thanks to the successful scaling of its new games and the strength of its overall portfolio. The newly launched game Word Search continued to be our standout performer, supported by healthy growth from Crossword Explorer and a successful increase in ad monetization from several of our well-established casual titles. The new games now represent approximately just over 10% of Word Franchise revenues.

Ninja Kiwi also delivered a strong Q2 with sequential growth, driven by a well-received major update to Bloons TD6 in April, immediately followed by a Steam sale. The studio also successfully launched Bloons TD6 on Netflix in June and is working towards a launch of the game on consoles in the near future.

Our year-over-year revenue decline in constant currencies in Q2 was mainly driven by lower sales for InnoGames. This reflected tough comparative figures in Q2 2022, as studio revenues were still elevated by the post-Covid market environment. We are therefore happy to report that InnoGames grew sequentially from Q1 to Q2, with June revenues being slightly up year over year as the studio continues to transform its business and reinforce its focus on key titles. This growth was attributable to initiatives in the studio driving higher monetization from existing players, especially Forge of Empires, which successfully compensated for the continued structural headwinds from a difficult marketing environment for Midcore games, which makes it harder to find new players in this segment.

Hutch launched the new F1 Clash season and the annual reset to the game’s economy in May. The immediate revenue uplift was not as high as last season, but we are still optimistic when it comes to the longer-term positive effects on retention, based on the adjustments to the game’s economy implemented by the team post launch. The longer-term effects of the update are still to be evaluated. Hutch also continued to work towards the launch of its two new games and announced in June that they are collaborating on a new mobile game together with Turn 10, the Microsoft-owned studio behind the Forza franchise.

Kongregate continued to invest both in new upcoming Web2 titles and in the development of our NFT gaming portfolio, with an active calendar of in-game events for their current NFT games. The studio also added 26 new third party games to the Kongregate.com portal during the quarter.

Delivering increased margins while maintaining high investment levels in user acquisition for our Word Games

Our studios invested a total of SEK 563 million in user acquisition in the quarter, corresponding to 39% of our total revenues. Our UA spend in the period was driven by PlaySimple, which continued to successfully scale its fast-growing new games and invested in marketing in the US to capitalize on the strong momentum for our Word Games, while InnoGames invested less in UA year over year. It’s worth noting that the market environment in Q2 last year enabled higher levels of UA spend for our new Strategy and Simulation games. We continue to have strict return-on-investment criteria for our UA spend to ensure the continued long-term health of the group and our overall player base.

We reported adjusted EBITDA of SEK 397 million in the quarter, up significantly from SEK 357 million in Q2 last year. The group therefore reported a margin of 27% in the quarter, up slightly from 26% in Q2 2022. The margin improved by approximately 7 percentage points from Q1, driven primary by three effects: proportionally lower UA spend, the one-off reversal of an incentive program in one of our studios and a reduction in operating costs driven mainly by the lower cost base in InnoGames after the restructuring announced in April and the fact that PlaySimple’s sales are increasing due to successful scaling of their games.

We delivered a cash conversion of 53% in Q2 and 42% for the last 12-month period. The cash conversion in the quarter reflected the continued strength of our games portfolio and relatively low CAPEX levels in this quarter, offset by SEK 40 million of restructuring costs in InnoGames. The cash conversion levels for the last 12-month period reflected the fact that the cash for the platform incentive payment was received by PlaySimple in Q2 last year as well as negative net working capital effects in Q3 22 following positive effects in Q2 last year.

A strong balance sheet and healthy cash flows support strategy and shareholder value creation

MTG has a strong balance sheet and healthy operating cash flows, and we continue to see future M&A as an important avenue of growth and value creation. We believe that such future M&A will help us increase our relevant scale, which will enable us to drive shareholder value by exploring synergetic strategies through our Flow Platform.

At the same time, we recognize that we also have the opportunity to use our balance sheet to continue delivering shareholder returns. MTG intends to continue to repurchase own shares in line with the authorization granted by the AGM in May. The launch of a new share buyback program requires us to cancel 6,520,000 of the B shares we hold in treasury. We expect to receive the authorization to do so from the Swedish authorities in the mid August.

Looking forward

The second quarter clearly demonstrated the momentum we have within the group. Our Word Games franchise once again delivered outstanding results, and our Tower Defense games continue to showcase the strength of a community-driven global IP. I am also proud of the progress and momentum in Forge of Empires. We have more work to do with the current games in our Racing franchise, but I am excited by the new games in the pipeline and the recent partnership between Hutch and Turn 10 studios, which again shows our ability to work with major global IP holders.

The market performed slightly better than expected in Q2, and we are happy to note that both our own performance and the market environment continue to show positive dynamics.

Thank you,

Maria Redin

Group President & CEO, Modern Times Group MTG AB

Outlook for 2023

MTG reiterates its outlook for the full year 2023.

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

Financial calendar

The group will report its financial results for the third quarter of the year on October 25, 2023.

Questions?

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

Conference call

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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 July 20, 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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