Good day, and thank you for standing by. Welcome to the Ubisoft H1 Fiscal 2024 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Mr. Yves Guillemot, Co-founder and CEO. Please go ahead.
Welcome, everyone, and thank you for joining the call today. Ubisoft delivered an excellent second quarter, well above target. Activity was mostly driven by the performance of our back catalog, thanks in particular to the remarkable growth of Rainbow Six Siege. In an overall competitive environment for first-person shooters, I want to pay tribute to the exceptional level of commitment from our teams, who have done amazing work on this game to develop top quality content across all platforms. The signing of new partnerships also contributed to the overall quarter performance, confirming once again that Ubisoft is one of the most sought-after partners in the industry, with highly recognized brands and assets. We are also pleased with the sales momentum demonstrated by our two new releases, which mark the successful return of Ubisoft's IPs among the major game launches of the industry.
The Assassin's Creed Mirage and The Crew Motorfest teams, respectively, led by Ubisoft Bordeaux and Ivory Tower, have done a wonderful job to prepare the release of these new opuses, and the response from the community and fans has been fantastic. October saw the finalization of a major agreement with Activision Blizzard, which will grant Ubisoft the perpetual streaming rights for Call of Duty and all other current Activision Blizzard console and PC titles, as well as those releasing over the next 15 years. The cloud gaming market has strong potential, and Ubisoft can play a leading role in its realization. This deal will enable us to deliver even more experiences to more players across the world than ever before. One of the cornerstone-- It is one of the cornerstone of our strategy.
Looking ahead, in the context of a dynamic premium console and PC market, our current positive momentum builds confidence for the rest of the year as well as the next fiscal year. We're excited to bring our future lineup to players and to deliver on our strategy and continue reaching larger audiences and building an increasingly recurring business, thanks to major brands and live services. I will now let Frédérick detail our H1 performance.
Thank you, Yves, and hello, everybody. We delivered a record H1 and Q2 performance. H1 net bookings reached EUR 822 million, up 18% year-on-year. In terms of activity metrics across console and PC, unique active users stood at 94 million, slightly up, while MAUs at 36 million were slightly down year-on-year. On the engagement side, session days were up this semester, driven by an increase in the intensity measured as session days per active player. Our Q2 net bookings came out at EUR 555 million, up 37% year-on-year, well above the guidance of around EUR 350 million.
Around half of the overperformance this quarter reflect the underlying strengths of both our new release and our back catalog, as well as, to a much lesser extent, the higher-than-expected pre-shipments, driven by our decision to release Assassin's Creed Mirage one week earlier than originally planned. The other half of the overperformance reflects our capacity to monetize our back catalog and its high-quality brands through partnerships, with a view to increasing the audience penetration. This quarter was marked by the successful launch of The Crew Motorfest, the highest-rated title in the series. The game set a record for the franchise in terms of total unit sales through, overall consumer spending, and season pass adoption rate for the opening week. Since its release, it has outperformed The Crew 2 in terms of acquisition, activity, and monetization metrics.
Assassin's Creed Mirage was released on October the 5th, and therefore generated pre-shipments that were booked in Q2. The game's release was successful and met with a very positive community reception, thanks to a back-to-the-roots experience that celebrates and builds on the 15-year legacy of the franchise. Players praised the return to stealth and parkour gameplay and the carefully constructed and beautifully rendered ninth-century Baghdad city. During its first week, the number of players was in line with past successful launches, such as AC Origins and AC Odyssey. It was also the biggest Ubisoft n ew Gen launch, New Gen launch in terms of unit sales during the period. To date, the game is performing in line with our expectations. These two successful launches took place in a growing and competitive market with numerous high-quality new releases.
The performance of our titles in this context provides comfort on our visibility for the remainder of the fiscal year, and again, highlights the relevance of our strategy to focus on our major brands and long-lasting live games. Back catalog in Q2 was up 80% year-on-year, mostly explained by an underlying overperformance, as well as by our capacity to increasingly value and monetize our IPs through partnerships. Rainbow Six Siege posted a remarkable performance this quarter. In the context of diverging trends in the competitive first-person shooter market, net bookings were up high double digits, notably reflecting the successful year eight, season three release. This growth is notably driven by session days, which benefited from a very strong increase in intensity. Overall, this has led to net bookings being up around 50% year-on-year in the first half for the game.
This sustained and strong comeback reflects the team's attention to improving the quality and frequency of new content, as well as its care in providing a healthy playing environment. We have also observed overperformance across our big brands, such as Assassin's Creed, that benefited from the positive AC Mirage launch dynamics, as well as Far Cry. Total digital net booking reached EUR 475 million, up 25% year-on-year. PRI stood at EUR 387 million, up 44% year-on-year. Within PRI, mobile amounted to EUR 45 million, compared to EUR 153 million in Q2 of last year. That included the first revenue recognition linked to the mobile licensing partnership. Excluding this one-off element, casual mobile was up more than 35% year-on-year, notably reflecting the strong performance of Colibri Games.
Let me now go into the details of our first half earnings. First, you will find our non-IFRS P&L on slide six of our presentation. Gross margin was firmly up year-on-year, notably reflecting the higher levels of PRI. R&D was down versus H1 of last year. I will come back to that point in the following slide. SG&A was down 5%. This reflects a 14% decrease in the structure cost, representing a EUR 30 million decrease, that was partially offset by higher variable marketing expenses due to the larger new release schedule versus a year ago. Please refer to our press release or presentation appendix for the full IFRS to non-IFRS reconciliation. Turning now to slide seven.
P&L R&D was down 11% year-on-year, or EUR 51 million, mostly reflecting the fact that H1 of last year was impacted by the consolidation of four projects, as well as accelerated depreciation linked to additional development time we had provided to some of our games. For its part, total cash R&D was down 7% or EUR 46 million. Looking at our cash flow statements on Slide eight, free cash flow stood at -EUR 284 million, versus -EUR 110 million in H1, fiscal year 2023. This variation mostly reflect the following impacts. On the one hand, a EUR 297 million unfavorable move in change in working capital requirements. This notably traces to the new release late in Q2 of this year, impacting trade receivable, as well as to an unfavorable variation in other liabilities.
As a reminder, the change in working capital requirement in H1 of last year benefited from the unwinding of the, of the EUR 130 million increase in trade receivable at end of March 2022, versus March of the previous year, as well as a significant deferred revenue impact linked to the AC Jade partnership. And the other EUR 104 million improvement in cash flow from operation, driven by the increase in net income. Overall, the cash inflow, the cash outflow this semester results from a usual pre-release cash consumption pattern, ahead of delivering a meaningful lineup with strong cash inflows expected over the second half of the year. Non-IFRS net debt stood at EUR 881 million, up versus last year, and cash and cash equivalent amounts to around EUR 1.3 billion.
We continue to expect to generate positive cash flow from our operations this fiscal year. I would now like to provide an update on the cost reduction plan. This quarter, Ubisoft proposed to consolidate the Hungry Shark franchise at the Ubisoft Barcelona Mobile Studio, and has engaged consultation regarding the proposed closure of the Ubisoft London Mobile office. With the continued tight control on recruitment, as well as targeted restructuring, the total number of employees worldwide stood at 19,410 at the end of September 2023, compared to 20,729 at the end of September 2022. During the same period, employee retention has improved.
Overall, the cost reduction plan is well on track, with the total H1 fiscal year 2024 fixed cost base of around EUR 0.8 billion, down 7% year-on-year, representing a decrease of around EUR 65 million. On the free-to-play side, we continue to make progress this quarter as we iterate and learn. Rainbow Six Mobile soft launched in Mexico and Canada at the end of August and helped us gather valuable feedback as the team prepares to expand to additional geographies in the coming months. Also, we were happy to have The Division Resurgence showcased at the Apple keynote in September, and to be able to share the game's high-quality graphics with a wide audience for this event. Regarding XDefiant, the latest tests confirm very high appraisal of the gameplay proposition.
We are, however, taking the time to make sure the experience will be stable and enjoyable for all players at launch. This is in line with our iterative approach, and as a reminder, we expect small profit impact from our free-to-play releases in fiscal year 2024.... Looking at Q3, we expect net bookings of approximately EUR 610 million, which will represent a year-on-year decrease of around 15%. However, Q3 of last year saw the recognition of the nice milestone related to the Assassin's Creed Jade licensing partnership. Excluding this impact, Q3 will be up around 30%. The quarter will benefit from the release of Assassin's Creed Mirage, Just Dance 2024, and Avatar: Frontiers of Pandora, as well, as well as the VR game, Assassin's Creed Nexus, and additional content across several of our live games.
We have a performance in Q2 that I described earlier, combined with the current positive momentum of Ubisoft IPs, gives us confidence in the rest of the year. We can therefore confirm the guidance of strong top-line growth and non-IFRS operating income of around for approximately EUR 400 million. Without releasing the other large game we had initially planned to release in Q4 fiscal year 2024. This other large game will launch in fiscal year 2025, so as to maximize its value creation. The lineup for the remainder of the fiscal year includes on the premium side, Assassin's Creed Nexus VR, Avatar: Frontiers of Pandora, Just Dance 2024 Edition that was released two years ago, Prince of Persia: The Lost Crown, and Skull and Bones, which is set to release in the fourth fiscal quarter.
On the free-to-play side, Rainbow Six Mobile, The Division Resurgence, and XDefiant will also launch later this fiscal year. Before I open it up to questions, I would like to take this opportunity to once again thank Jean-Benoit Roquette for the exceptional impact he has had at Ubisoft over the years. As some of you know, he has decided to move on after a remarkable 17-year tenure as head of investor relations at Ubisoft. We wish him all the best in his next adventure. I also have the great pleasure of announcing that Jean-Michel Bonamy will be joining as VP Investor Relations. Jean-Michel, who is with us today, brings with him a wealth of very solid and extensive investor relations experience, notably in CAC 40 media companies such as Publicis. We are now ready to take your questions.
Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We will now go to your first question. Your first question comes from Nicolas Langlet from BNP Paribas Exane. Please go ahead.
Yes. Hello, good afternoon, everyone. I've got three questions, please. To start with Rainbow Six Siege. If net bookings is up 50% in H1, it means it was up well above 50% in Q2. Can you give us a bit more detail on that? Anything specific that caused the spike in engagement? Is it better monetization or player acquisition? What trend have you included in your guidance for that game in H2? First point. Second point, on the deal with Activision Blizzard, you are supposed to make an upfront payment for the deal in H2. How large could it be? Is it below or above EUR 50 million? I think that would be helpful. Also, what sort of payback period are you looking for this initial payment? Last question on the Q3 guidance.
Back catalog usually generates EUR 250 million per quarter, which means you only assume EUR 360 million for the three new games. Are you specifically cautious on Avatar or Just Dance 2024 to have such a low guidance for Q3? Thank you.
Thank you, Nicolas. So you're right on Rainbow Six Siege. We reported a very strong 50% growth in H1. So the point is that we had indeed a high double-digit growth in Q2. And the reason for that is follows strong momentum sustained momentum over the nine months. And what caused this strong performance is a combination of higher quality of content, more frequency, as well as a strong and positive playing environment that is proposed to all players.
One big driver of this overperformance is the fact that intensity, so the number of sessions per player, has significantly increased, and that's why we're so happy with such a performance, nearly eight years after the launch of the game. It's helped by more players as well, coming to play the game. Indeed, and on your question on the monetization, the monetization is very healthy and sound. On the Microsoft, as you know, we don't provide detail on the transaction, but yes, it's ahead of EUR 50 million. We are very confident that it will be a very profitable transaction. On Q3, we're coming with good visibility on our new releases.
We, as you noted, have the pre-shipments of AC Mirage that impacted Q2, so that will come... we won't come in Q3. And we are factoring good visibility on Just Dance 2024, Avatar: Frontiers of Pandora. We have also a good momentum from our current or recently release, and as we said, we have a good momentum on back catalog.
... Okay, and maybe to come back on the first answer on F6H, what are you expecting for H2? Is there any reason why the momentum should slow down materially compared to what we have seen in Q1 and Q2?
So, as we said, we have in Q2 the contribution of partnerships. For Q3, as we mentioned, we are factoring a 30% growth versus last year, excluding the recognition of the licensing agreement. So it's a strong momentum that we have versus last year.
Yeah. Okay. And on the licensing with Microsoft, roughly, what sort of payback are you expecting? Is it three, five, or more than five years?
It's difficult to give you an answer yet. What we see is that as it is a long-term deal, we expect it to be really profitable for the company.
Yeah.
Yeah, we will have different ways to monetize. So first, we'll bring the games sort of subscription offer, and we will also have the possibility, of course, to license this right out to any platform that we want to get access to this games in streaming.
It will help our subscription to be on more platforms as well.
Indeed.
Okay. Okay, thanks, thanks a lot.
Thank you.
Thank you.
Thank you. We will now go to the next question. Your next question comes from the line of Nick Dempsey from Barclays. Please go ahead.
Yeah, good evening, guys. I've got three questions. First one, the partnership or partnerships that you're referring to, which is around EUR 100 million of benefit in the quarter, if I'm working with half of the incremental back catalog. Is that a single partnership or more than one? Does it relate to a mobile game, like we've seen before? Should we expect anything more from this partnership effect in the coming quarters? That was one question. Second question: yeah, when you look at consensus net bookings for full year 2024 of EUR 2.12 billion, 22% growth, is it fair to say that now, with the delay of one of your games, your definition of strong top-line growth is quite a lot lower than consensus' definition?
The third question, when we're thinking about Q4, we know we have Skull and Bones. We'll have some follow-on sales from Avatar, ongoing sales from your other games, but surely it would make sense for us to think about net bookings in Q4 being a reasonable amount lower than those in Q3. Is that correct?
Hello, Nick. So on the first question, we're talking about different partnerships across different platforms. So yes, we're talking several of them. On your second question, we confirm that we expect a strong growth. So we won't comment on the sense, we confirm that we expect a strong growth over the fiscal year. On Q4, what we can say is that we expect a strong quarter because we have the combination of the launches of Skull and Bones. We have the launch of Prince of Persia: The Lost Crown. We will have the impact of the Q2 and Q3 launches, so Avatar, Just Dance, The Crew Motorfest, Assassin's Creed Mirage and Assassin's Creed Nexus.
We expect, of course, the maintenance of a strong momentum on the Back Catalog.
And also the free-to-play revenue.
You're right, we will have the impact of the free-to-play games by the end of the year.
Okay, just to come back on the first question, are we done with partnership benefits? Was that a solely Q2 effect, or could we get some more partnership benefits in the second half?
You know, we've been signing a regular flow of partnership every semester over the last years. So, we of course include our partnership in the quarterly guidance when it's already agreed and signed. So you can expect that this trend that is here to stay for the future years as well.
Okay. Thank you.
You're welcome.
Thank you. Once again, if you would like to ask a question, please press star one and one on your telephone keypad and wait for your name to be announced. We will now go to the next question. One moment, please. Your next question comes from Mike Hickey from The Benchmark Company. Please go ahead.
Hey, Yves, Frédérick. Good evening, gentlemen. Thanks for taking our questions here. Just two from us. The first one on Rainbow Six Mobile, looks like you've completed the soft launch you said in Mexico and Canada. I'm just curious if you could share with us, the feedback you got from that process and how it sort of shapes the development of the game and your launch plans, moving forward. And then the second question, you know, there's pretty good evidence now that we've seen some pullback in consumer spend, and I think there's clear evidence we've seen it over the last year plus in the video game industry.
So just curious, your updated thoughts as you see your product in the channel, how it's performing, and if you're seeing any incremental pressure or not, I guess, from any sort of consumer pullback. I'm kind of curious your perspective on that across sort of the three main areas: mobile, live service, and premium. Thanks, guys.
Yeah. Thank you, Mike. So, on Rainbow Six Mobile, the soft launch, we... Yes, we started the soft launch in two big countries, so Canada and, and Mexico, and the soft launch continues as we speak today, and we've been getting good feedback that we incorporate to further optimize our KPIs as we prepare to expand the soft launch into more countries until we launch the game worldwide by the end of the fiscal year. On the consumer market, what we see on the console and PC for premium games is that the market is currently dynamic and growing. We have-
September was particularly good for the market, and we see a good positive trend. Now, on mobile, there's more pressure.
Yeah, on the console and PC premium games, we see that there is a good benefit from the installed console base. The pricing is also sound, and the quality of the product coming to market also very good.
Nice. Just one quick follow-up on Rainbow Six Mobile: Do you guys anticipate that game's release to be, an additional, driver on Rainbow Six Siege in terms of, potentially expanding the franchise's TAM and adding, new players eventually to your core live service? Thanks, guys.
Yes, for sure. That's the goal. We want to make sure that brand becomes bigger in more countries, and we expect the mobile version to be strong in countries where PC and console are not as strong. So like this, the game can be recognized worldwide, in fact.
Looking at what competition did on similar type of approaches in the past, it can benefit also to the console and PC game on the mature market, because players would be happy to experience the game in different devices. So yes, we expect it can also bring good benefit on the console and PC game.
Yeah, because it makes the brand bigger in all those territories, so it helps really the sales of the other formats, including PC and console.
Nice. Thanks, guys. Good luck.
Thank you.
Thank you.
Thank you. Once again, if you would like to ask a question, please press star one and one on your telephone keypad. We will now go to our next question. The next question comes from the line of Brian FitzGerald from Wells Fargo. Please go ahead.
Thanks, guys. A couple questions. First, with your net bookings coming in at EUR 200 million above your guide, what drove your decision to maintain full year outlook and still pushing out a title in next year? Are we thinking that shows a high level of confidence in the performance for your two H releases? A more nuanced one, it's just within ad-supported hyper-casual games or just ad-supported games in general. Have you seen any pullback or pausing of budgets from advertisers, given the unrest in the Middle East? We heard some of those themes coming out of Meta and Snap and Comcast. I'm trying to get a gauge for are we seeing some ad budgets pause? Thanks.
Thank you, Brian. So on the, on your first question, yes, what we can see is that, the fact that we have a, a clear, and strong overall, performance in the second, quarter, and also looking at the trends that we observe with the underlying business and that we can project into the second half of the year, that allows us to, to confirm the outlook with, with confidence. And, we see that now, again, with stress in fiscal year 25 as a result of that. On the... Your second question, we have not seen, a specific, shift in, in ad, in ad budget. We just have looked at, strong performance on our side from our Colibri Games, but we have not, observed a specific shift.
It's a bit small for us to actually see a huge trend on that. So we didn't look carefully at that. It's possible it's happening, but we didn't see that in the Colibri game, for example, which is actually growing quite a lot. So we can't give you a clear answer on that.
Very fair. Thanks, appreciate it, gentlemen.
Thank you.
You're welcome.
Thank you. Once again, if you would like to ask a question, please press star one and one on your telephone keypad and wait for your name to be announced. We will now take your next question. And your next question comes from the line of Eric Sheridan from Goldman Sachs. Please go ahead.
...Thank you so much for taking the questions. Maybe if I could ask two bigger picture ones. With the closing of the Microsoft Activision deal, any updated thoughts about the way the management team is thinking about industry structure and potential blurring of the lines between distribution and content longer term, in terms of aligning your assets and broader industry growth? That'd be number one. And number two, you know, earlier this year, you introduced Ghostwriter and talked about the convergence of AI and creativity. Any updated thoughts on that as a broad theme, the convergence between AI and creativity, and how we should be thinking about product or platform roadmap there? Thanks so much.
So on the first question, what we see is that the sales transaction confirm a strong interest from big platforms to video game content. And we see that the video game industry is perceived more and more as the leader in entertainment. So that's all good for the overall industry. And we see the confirmation of platforms or entertainment players that want to get access to high-quality IPs translate into a good value partnership or acquisition to the benefit of the video game players.
What we see is more and more video game brands become big media brands, and we think it will continue to grow. It's due to the fact that when players play on games, they spend a lot of time on those games, and that really creates those brands with a broader community than what other forms of entertainment can bring. So we see more and more the capacity for the video game industry to create brands that will be on more media. So it's a good trend for the industry, and that will push more and more players to look at those entities, to make sure they have a good control of the brand creations, in fact. So that's for the first one.
On the second one, we are working very hard in the company to take advantage of the new possibilities that come with the AI. What we work on very hard is the possibility for NPCs, Non-Playing Characters, and worlds to be more alive and more reactive and more intelligent. That will give the possibility for players to interact with the world better. We expect also that we will be able to give more tools for players to actually create content, and be even more part of those games.
Thank you.
Thank you.
Thank you. Once again, if you would like to ask a question, please press star one and one on your telephone and wait for your name to be announced. And one more reminder, if you'd like to ask a question, please press star one and one. Thank you. We will now go to our next question. And the next question comes from the line of Nick Dempsey from Barclays. Please go ahead.
Yeah, guys, just one more question. In terms of the Activision Blizzard deal, is it possible that you could sign some deals with partners related to the Activision Blizzard content in the short term, in the next couple of years, and therefore, that we would see a notable revenue benefit upfront from that? Or do we need to wait until streaming is larger before we begin to see the impact on your numbers?
So first of all, the first focus will be to bring Activision games on our subscription platforms, and together with our streaming platform partners, to allow for players to enjoy the Activision game, the Call of Duty games, through our subscription offer. And separately, yes, we have the possibility to license the rights out to any platform that will be willing to get access to these games, and that can happen in the short, medium, or longer term.
Thanks.
Thank you. We will now go to our next question. The next question comes from Brian Fitzgerald from Wells Fargo. Please go ahead.
Thanks. I just had one follow-up. You know, we understand you've made some meaningful developments around Rainbow Six Siege, and that drove strong growth. Curious if that contributed to the decision to push XDefiant, perhaps given the concern that it could be perceived as, you know, another live services-driven first-person shooter and perhaps would cannibalize Rainbow Six. Was that factored into that decision process on XDefiant?
No, not at all.
Not at all.
Not at all. These are really different experiences. Rainbow Six is really a tactical types of game. XDefiant is an intensive arena types of games, so they play on different segments.
Even if we see a combination from time to time, but in the decision-making, it's really making sure the game is of very high quality and that we can install them on the market for the long run.
Got it. Appreciate it.
Thank you.
You're welcome.
Thank you. This concludes the Q&A. I will now hand the call back for closing remarks.
Thank you very much for all your questions, and have a good day or good evening. Thank you.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.