Good day and thank you for standing by. Welcome to the Ubisoft Q3 full year 2022 sales conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Yves Guillemot. Please go ahead.
Welcome everyone, and thank you for joining the call today. The beginning of the year offered a striking confirmation of both the great appeal of the video game industry and of the scarcity of high-quality assets. The multiplication of platforms offers great opportunity for IP creators like Ubisoft. With our long-term approach and appetite for taking creative risk, we have developed internally some of the industry's strongest proprietary brands, as well as the industry's deepest and most diversified portfolio. Along the way, we have also built the most significant production and creative capabilities, cutting-edge technologies, and a strong community of engaged players. This makes us exceedingly confident about Ubisoft's future and our capacity to take full advantage of our industry's powerful momentum.
Looking forward, with the unmatched production scale and creative firepower, we have increasing access to all distribution venues, platforms, geographies, and business models, leveraging the strengths of our brands. We are currently working on the significant expansion of our portfolio with ambitious roadmaps for our biggest franchises, notably Assassin's Creed and Rainbow Six. We are also developing powerful new brands and the opportunity to significantly expand our audiences through free-to-play, which is very important for us. Alongside our investments in promising new technologies, this will drive double-digit top line growth over the coming years. We could not be prouder of our team's amazing work and what is the richest pipeline of games in Ubisoft's history. I will now hand over the call to Frédérick.
Thank you, Yves, and hello everybody. Q3 net bookings came out within our guidance range at EUR 746 million, down 25% year-on-year with 38 million MAUs. The quarter was marked by another very solid performance from our back catalog, up 10% year-on-year and up 37% compared to Q3 fiscal 2020 or up 33%, excluding the mobile reclassification. While our new releases did not reach the high end of our expectations, our Q3 performance is once again a demonstration of the robustness of our model. It is based both on our new releases, continuously feeding the deep and diversified stream of revenues from our back catalog and on our capacity to leverage the strengths of our brands. As we continue improving our games play time per player, we are seeing each title's revenue stack on each other year- after-y ear.
Players continue to have a great time in Far Cry 6, which ranked in the top five released games in calendar 2021 across Xbox and PlayStation and its post-launch content. Play time per player is now up 45% when compared with Far Cry 5, while PRI per player is up 30%. Riders Republic garnered strong reception from the press and the community with play time per player and PRI up 60% and 4x respectively versus Steep. Similarly to what we achieved with For Honor and The Crew and in line with our live service strategy, we expect Riders Republic to be a very long and profitable seller and add a new layer to our recurring revenues for many years. Just Dance 2022 continues to leverage the Switch momentum and deliver the third consecutive year of strong performance.
The studied back catalog dynamics were driven by our deep portfolio of games and live services, highlighting its recurrence and resilience. The main contributors were Assassin's Creed Valhalla and Odyssey, Brawlhalla, The Crew 2 and Far Cry 5, Ghost Recon Breakpoint, For Honor, Immortals Fenyx Rising, Mario + Rabbids Kingdom Battle, Rainbow Six Siege, and Watch Dogs: Legion. Assassin's Creed Valhalla posted a remarkable performance in Q3 with overall engagement now up more than 30% when compared to Assassin's Creed Odyssey. This stellar performance, coupled with a stronger post-launch program, delivered impressive life-to-date net bookings and PRI growth of respectively over 70% and over 80%. Turning to Rainbow Six Siege, the game recently passed the 80 million player mark, adding 10 million players over a year and continues to be one of the biggest multiplayer shooters on the market despite intense competition.
Total digital net bookings reached EUR 530 million, down 10% year-on-year, and PRI stood at EUR 187 million, down 14% year-on-year. The back catalog portion of PRI was up this quarter. For its part, mobile bookings amounted to EUR 49 million, slightly up year-on-year. Turning to Q4, we expect to deliver very strong year-on-year growth with very dynamic back catalog trends, high quality new releases, partnerships against last year's Q4 easier comparison base and significant post-launch delivery throughout our brands. Rainbow Six Extraction was released on January 20 and reached more than 5 million unique players to date, bringing in Siege's engaged fans and new players to the franchise, as well as a significant number of reactivated lapsed franchise players.
An innovative Buddy Pass system that allows players to let their friends play free for up to two weeks will continue to fuel the game's growth along with the title's inclusion in Game Pass. There is more to come for Extraction players post-launch, which will be revealed during the Six Invitational broadcast tomorrow. The long-running RTS franchise, The Settlers, is coming back to PC on March 17, challenging players to explore new lands, build cities, and train an army, all while managing a growing medieval economy. Q4 will also be marked by strong content delivery across our brands. On March 10, Ubisoft Sofia, the team behind Assassin's Creed Rogue, will be bringing the highly anticipated Dawn of Ragnarök expansion, Ubisoft's biggest ever expansion that will leverage the game's very strong momentum. We are also bringing the Ezio Collection to Switch, further extending the audience of the franchise.
The Far Cry 6 post-launch content this year will be bigger than what we delivered last year with Assassin's Creed Valhalla, Watch Dogs: Legion, and Immortals Fenyx Rising combined. Finally, the Rainbow Six Siege Six Invitational is back to its usual February pattern. Players will have a lot to look forward to with the most ambitious year of new features and content to date, starting this quarter with the first season of year seven. Today, we confirmed our fiscal 2022 targets of slight to slightly down net bookings and non-IFRS operating income targets of between EUR 420 million and EUR 500 million. To be noted that we are currently operating in the lower end of our targets. Turning to fiscal 2023, we are planning to come with a strong new release lineup next fiscal year.
It will notably include the releases of Avatar: Frontiers of Pandora, Mario + Rabbids Sparks of Hope, and Skull and Bones, which are all progressing well, as well as more exciting games. Ubisoft continues to progress towards its ambition to extend its brand's reach to a significantly larger audience through free-to-play across all geographies and platform. The test phases for these games are ongoing and will inform their release schedules. We are now ready to take your questions.
Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, please press the pound or hash key. Please stand by while we compile a Q&A queue. The first question comes from the line of Ken Rumph from Jefferies. Please go ahead.
Hello, everybody. Thanks for taking the question. Could I start just with a question on the guidance and your comments at the end there about operating, I think you said, at the lower end of the range of guidance. Given that you've got good visibility now with Extraction behind you and one major event still to come, probably in Ragnarok, should we take it that you're effectively narrowing the range to the lower half? Or do you still believe that anywhere between EUR 420 and EUR 500 is still possible? Maybe if I could ask a second question.
Yes, Ken.
Yeah. No, go ahead. Please go ahead. Yeah.
Yes. Yes, Ken, on this point, we indeed have a very strong growth expected in Q4. It's right to say that we are currently anticipating to be in the lower end of the guidance. We still can achieve the high side of it, because we have a lot of content to be released and upside is possible. But it's fair to say that for now the forecast is in the lower side of the guidance.
If I could ask a question, I guess, for Yves, perhaps also personally, you describe the strength of the assets and team and pipeline at Ubisoft in the context of obviously, as you say, industry events, the M&A that we've seen. Two questions on that. Firstly, you talk about access to distribution channels. Are you confident that you will, if the kind of consolidation we've seen continues, still have access going into the future? What conclusion should we draw from the fact that the value of those assets, as you described, are more highly valued than ever before? You know, they're being more highly valued than ever before. Is that therefore a moment to sell? Over to you.
Yeah, sure. Yes, we will continue to have access to all those platforms because all the platforms need great content. If we are continuing to do great content like we do today, we will be able to access all those platforms. If we look at Nintendo, which is the platform on which Nintendo is publishing a lot
We are the number one third-party publisher on it. It's because Nintendo is interested in everything we do, and we are even developing games with their brands. The collaboration exists and it's very fruitful. Now, on your second question, you know, we have always taken our decision in the interest of our stakeholders and, you know, which are our employees, players and shareholders. Ubisoft can remain independent. We have the talents, the industry and the financial scale and a large portfolio of powerful IP that you saw in the press release we did. Our IPs are sought after by the biggest global players in entertainment and tech.
Having said that, if there were an offer to buy us, the board of directors would, of course, review it in the interest of all stakeholders.
Okay. Thank you very much.
You're welcome.
Thank you. Next question comes on the line of Charles-Louis Scotti from Kepler Cheuvreux. Please go ahead.
Yes, good evening. A couple of questions from my side. Can you give us more details on the amount of the down payment that you received from Microsoft to include the Rainbow Six Extraction within their Game Pass? Is it substantial, and should we expect the net bookings coming from these games to be lower in the future? Also your full year EBIT guidance is, the range is quite wide. What explains this big difference between the lower end and the upper end, whereas you have only one big launch, Dawn of Ragnarök expansion, before the end of the fiscal year?
My last question, as some of your competitors are being taken over by bigger conglomerates and the industry is shifting gradually to, well, a subscription-based business model, do you think that not being part of a big conglomerate or a console manufacturer's platform, it could be a disadvantage for you in the future? Thank you.
Yes, thank you, Charles-Louis Scotti. On the partnership with Microsoft, of course, we can't disclose any detail for competitive and confidential reason. What we can say that it's another very good example of a high-value partnership. In that case, we wanted to value the whole Rainbow Six brand. As you know, Siege was already part of the program on console. We renewed it on console and extended it to PC, and we wanted to have Extraction and Siege together. That, again, a great example of valuing the Rainbow Six franchise. It's a meaningful partnership, and it's been impacting Q3 and Q4. It's also interesting to see that as part of this announcement, we mentioned that Ubisoft Plus, our subscription program, will be made available on the Xbox platform.
That will be good news to extend our subscription offering beyond our PC platform and beyond Stadia and Luna.
That would give us a way also to make our games played by more people because they will have access to all those games actually.
It was also, of course, in doing so, one way to de-risk financially the Extraction project. In terms of the EBIT guidance, yeah, we maintain it as it is. We have important content to come in the next 6 weeks. As we said, we have the most ambitious expansion ever in Ubisoft's history with Ragnarok. As you know, Assassin's Creed Valhalla is doing a stellar performance, so we are building on the great momentum. So far, the expectation from players since reveal of that expansion are very strong. So we see a very good momentum in terms of potential performance. We're also coming with The Settlers. That is a new release in March.
We are coming today with a significant launch on Switch with The Ezio Collection. As you know, Ezio is an iconic character from the AC brand, so it's a great opportunity to extend the audience of AC on the mainstream Switch platform. We have very meaningful post-launch content coming across all our brands and starting with the beginning of Year 7 on Rainbow Six Siege. That will be the biggest year since launch in terms of content and features. We are coming with big content on Far Cry 6, on For Honor. We are announcing tomorrow post-launch content also on Rainbow Six Extraction that will revive the good player base that we had so far.
Yes, still a lot to come, and that's why we believe it was relevant to maintain the EBIT guidance unchanged. I mean, it's good to know that for the first time in the Assassin's Creed brand, a game passed the $1 billion consumer revenue. And it did that during the December month. It's also something new for a brand like Assassin's Creed to reach that level of revenue.
On your last question, as you've mentioned, there is a very strong appeal of,
Of our IPs, vis-a-vis all the tech and platform players across the whole industry. We see that our focus in creating high quality content, high quality IPs, very strongly engaged communities. Behind that, the biggest workforce of the industry that combines creative power, strong engineering, quality, and investment in technology is the right setup to be able to serve all the needs from our big platform asking for our content.
Thank you very much, Virginia.
Thank you. Next question comes from the line of Omar Sheikh from Morgan Stanley. Please go ahead.
Good evening, everyone. I've got three questions as well, please.
Good evening.
Maybe first of all, on the guidance. Frédérick, maybe if you could just elaborate a little bit on what exactly you need to do in order to get to the top end of the guidance to get to EUR 500 million of EBIT. You've mentioned the releases that you've got in the pipeline, but is there anything on the cost side that we should take into account there? That's the first question. Secondly, on Microsoft, you mentioned that there's gonna be an impact from the agreement with Microsoft in both Q3 and Q4. Could you maybe just elaborate a little bit on that?
I mean, it'd be great if you could just walk us through exactly how you're planning to account for the payments that you're gonna receive from them, and maybe even just give us some color on whether you expect more impact in Q3 versus Q4, for example, on the net booking side. So that's the second question. Finally, useful to have the update on the future releases on triple-A for fiscal 2023. I noticed you didn't mention anything about the free-to-play or mobile efforts that you have, in particular the Tencent game that you've been developing for the last three years. Could you just maybe give us an update on the plans for free-to-play and mobile next year as well, please? Thanks.
Yes, hello, Omar. Thank you for your question. On the guidance, as I said, we have very strong growth expected over the quarter that is mostly driven by the back catalog. Not only the dynamics of the back catalog that we've had so far against a lower comparison base of last year, if you remember, but also with the content that we're putting to market in the next weeks. We also have good new release slates of high quality together with, as we said, enhanced by the partnership with Microsoft. We are also coming with a very meaningful post-launch content across all our new releases that will be bigger than what we had last year.
Of course, to get to the high side of the guidance range, we need to get to the top of our ambitions, primarily on the expansion of Ragnarök as well as on all the content that we're putting in terms of post-launch, including the Ezio Collection on Switch. Of course, as we mentioned before, the high side of the range has become more challenging. In terms of Microsoft, yeah, we'll repeat what I've mentioned before. The partnership combined Rainbow Six Siege renewal and extension as well as putting Extraction as part of the launch across console and PC. The impact has been meaningful across Q4 and Q3, across both games.
As for fiscal 2023, so on the free-to-play side, we are progressing well for all our games. As you know, we're bringing very high quality content, primarily on the shooter segment. This is a great opportunity for the long term that Ubisoft can do it in an organic manner, while others will spend billions of dollars in M&A to go there. As we mentioned before, we need to go through each testing phases before we announce the release date for any given game. We expect some of these free-to-play to come in fiscal 2023.
Okay, very clear. Thank you very much.
You're welcome.
Thank you. Next question comes from the line of Matthew Walker from Credit Suisse. Please go ahead.
Thanks a lot, and good evening, everyone. Okay, the first question is, you know, in a consolidating industry, I guess I'm just wondering why you guys haven't had an offer given the embedded value in your IP. Is that because, in order to be acquired, you have to signal that you want to be acquired, and that you haven't done that? If somebody did go for that route, how would you extract value for all the stuff in terms of free cash flow that you've spent on building up free-to-play and mobile, which I guess, as you point out, the other companies haven't done. How would you extract value for that? The second question is on PRI, which looked pretty weak.
You said you'd added 10 million players to Rainbow Six, but, you know, the revenues for PRI are significantly lower than last year. Can you just explain that, and do you think that PRI will grow again year- on- year in fiscal 2023? Then the final question was on Assassin's Creed. There was some stories out, saying that you were turning an expansion pack into a new game, but maybe a smaller one than usual. You haven't flagged Assassin's Creed in fiscal 2023. Should we expect a proper larger, you know, on the scale of Valhalla in 2024 or not? Thank you.
Thank you, Matthew. On your first question, you know, we will not speculate on why people will not have made any offer. What is interesting-
If any offer were made, actually.
Absolutely. I can't comment on that any further. What we can say is that, as we mentioned, we have high value assets. We have the scale to remain independent and create a very meaningful value in the future because we have scale in terms of production workforce as well as engineering, technology, IPs, and strong engaged communities. That's why we are able to serve so many platforms today with such high quality content and with good favorable terms for publishers like Ubisoft. Now, of course, we won't speculate any more on any potential interest in buying Ubisoft.
In terms of what we're doing in free to play, it's very clear that we've seen big multiples from companies that were willing to diversify and go to free to play. What we're doing is consistent with our historical DNA. It takes time, but it's a major opportunity to bring triple A type of content from our core IPs on a big segment that is the shooter segment, and to do it in an organic manner that can allow us to unlock massive audiences and continue our journey towards more player engagement, more recurring revenues, over time.
Also, more on mobile, which has a bigger potential for the brands we own.
The PRI is down versus last year for the very reason that, as you remember, last year, we had a very meaningful strong impact from live services on Assassin's Creed Valhalla at the time of the launch over the quarter. What is interesting to see over the last quarter is despite Rainbow Six Siege, as expected, has been the stronger pressure from a competitive point of view. The overall back catalog PRI has had a solid growth. That confirms the strong resilience and recurrence of our recurring revenues from the back catalog. Moving forward, it's too early to talk about fiscal 2023. What we can say is that we expect a very strong growth on the PRI side in Q4.
As your question relative to risk, I think what we can say here is that we won't comment further on the rumor. What we can say is that back to our comment in October, we have a very strong roadmap on the AC franchise for the years to come, with very meaningful content coming every year. We reaffirmed our focus on delivering high-quality narrative. Today, as Yves mentioned, we are very happy to celebrate a stellar performance from Valhalla so far. The momentum has been great, and that's why we are so happy about putting Ragnarök to market very soon. We are really focused on delivering the second great year of post-launch content on such a great game.
I just had one very tiny technical follow-up, if I could, which is, with Microsoft, do you put that revenue into PRI, or do you put it into product sales?
It's primarily product-based.
Product-based. Thank you.
Thank you. Next question comes from the line of Doug Creutz from Cowen and Company. Please go ahead.
Hey, thank you. You just alluded to the fact that you expect strong PRI growth in fiscal Q4, and just looking at my model, it seems to suggest that you're expecting to see a record quarter for PRI in the history of the company. Obviously, you've got Ragnarök coming, which should be pretty big, and you mentioned you have a lot of content for your other franchises coming, which suggests to me that it's not necessarily been launched yet. How should I think about your ambitions for all that in the context of a release slate in February and March in the industry that looks a lot more like what you'd expect to see in October, November than February, March? I could list all the games that are coming out over the next six weeks, but I'm sure you're aware of what they are too.
Could you just talk about how you think about, you know, all these content drops and how you make sure players are aware of them in the context of such a heavy release slate for this part of the year? Thanks.
It's true to say that Q4 this fiscal for us is an ambitious quarter. We have historically done great in this quarter. Yes, there is a number of good quality games put to market. What we could see with Ragnarök is that on the back of such a great momentum from Valhalla, we've seen a very strong player engagement since reveal in December, and that was confirmed and measured and tracked again last week when we released our trailer, and we see strong engagement on the pre-order side as well.
What we have seen is.
Okay, thank you.
Generally, when there are lots of content on the market, actually, all the games sell very well. It's also something to consider because people play all sorts of games, and when there are good creations coming on the market, they also tend to try them and play them a lot.
Yes. The sales we clear are more vertical during this quarter than during the pre-Thanksgiving season.
Okay, thank you.
Thank you. Next question from the line of Nick Dempsey from Barclays. Please go ahead.
Yeah. Good evening, guys. I've got three questions left. Just first of all, on the revenue or net bookings guidance range for FY 2022. I mean, to my mind, there isn't a lot of difference between flat and slightly declining. If we're talking about being in the bottom end of that range, could slightly declining be minus 3% or 4%, something in that sort of range, or would that be definitely more than a slight decline? Second question: when I think about non-IFRS operating income margins in FY 2022, they've got support from strong back catalog, no free-to-play games, and I guess decent margin of some of that Game Pass upfront payments.
When I then sort of flick to FY 2023 in my model, you've got a bunch of free-to-play games which are unlikely to be profitable straight away, Skull and Bones needing heavy marketing and no Game Pass upfront amounts. Why shouldn't I assume a clear step down in my margins between FY 2022 and FY 2023? The third question, just on those free-to-play games in FY 2023, I mean, we've got three free-to-play shooters. Would you launch those close to each other? Are they different enough from each other to do that, or should you have a big gap between when you launch them, so some of them coming late in FY 2023 or even beyond FY 2023?
Hello, Nick. On the first point, yes, we confirmed the slightly declining to flat guidance for the future full year. Yeah, I think you're about to have the good order of magnitude in terms of potential decline. In terms of fiscal 2023, it's too early to talk about the margin profile. What we can say is that we can rely on the stronger back catalog dynamics. As for your comment on free-to-play, it's true to say that we are at an early stage in investment phase period, but it's really important to value this investment on free-to-play for the long-term in mind.
Again, it's a great opportunity for us to be able organically to move to free-to-play, while others will spend a lot of money in a minute to go there. In terms of your comment on the, I think, the Game Pass deal, it's interesting to see that what we've seen over the last years is that there is an increasing interest on platforms into our content, and that's something that we've been leveraging for the benefit of our IPs, and that's an element that we'll continue amplifying into the next years.
For your last question about when those games will come, you know, it will depend very much on KPIs, but we will make sure they don't compete one with the other.
Okay. Thank you for that.
Thank you.
Thank you. Next question comes from the line of Michael Ng from Goldman Sachs. Please go ahead.
Hey, good evening. Thank you very much for the question. I was just wondering if you could give us an update on the development progress for some of the games that are coming out in fiscal 2023, you know, Skull and Bones, Avatar and Mario. Secondly, I was just wondering if you could talk a little bit more about the strategy with working with Game Pass. You know, was this more opportunistic in nature, or do you expect to, you know, utilize a Game Pass partnership for triple A games going forward? Do you feel that engagement is incremental to overall engagement? Thank you very much.
At the moment for Game Pass, it's more opportunistic. We go to Game Pass when we think it can be beneficial for our brands and that's where the margin we will get is higher than what we can get otherwise. Fred, maybe you can.
Yes. On the development of our games for next year, they are progressing well. As you know, Avatar is nicely highly awaited, as well as the movie, where our teams from the beginning wanted to create a gorgeous world with Pandora. We believe we can deliver one of the most beautiful world ever created, and that's what the teams are focusing on. Mario + Rabbids is a great opportunity. Again, a good example of another
High-profile partnership with a big platform with Nintendo, and we get the benefit of a bigger game, a deeper gameplay and a much bigger install base than what we had with the previous title. That's a great opportunity for us. As for Skull and Bones, it's a very promising new IP focusing on multiplayer first, so very consistent with our strategy to bring multiplayer in competition and co-op first in the big open world with a great and attractive fantasy. That's, of course, a longer development time that we've had on that game, but we are very happy with the artistic direction and the progress of the game so far.
Great. Yves, Frédérick, thank you very much.
Thank you, Mike.
Thank you. Next question comes from the line of Brian Fitzgerald from Wells Fargo. Please go ahead.
Thanks, guys. We wanted to ask about platforms like Stadia. Google is reportedly diminishing the gaming focus there, maybe never really hitting enough of critical mass in terms of subs. Is maybe there just limited opportunity for yet another device or experience in the market? Maybe more gamers are excited about enhanced versions on the Gen 9 platforms versus, you know, the costs. Anything you can unpack there for us? Are there performance quotients around that experience? Second question, it may be related. When you look at the recent market activity and this notion of exclusive titles, or features or release windows, is cross-platform gaming really diminishing the need for exclusives?
What we can say about Google or streaming platforms in general is that they really do a good job to bring AAA games to as many screens as possible. That's a trend that will continue and amplify in the years to come. We don't know yet exactly when it will be taking 50% of the industry, but what we see is that for a certain number of players the experience is really smooth and they are having a great experience when they play those games. It's just how many people will be able to play at a good price that will make this grow a lot.
The other thing is, when there will be games that will be really created having in mind that they will be on those you know that will be native for the cloud.
Yeah.
Those games will automatically help this streaming business to grow exponentially.
On the cross-platform, is that kinda diminishing the need for exclusives?
Cross-platform is working. It's just not yet massive. We will see how massive it becomes. It's going to be more and more important also. That's why I think the platform holders are still looking quite a lot at exclusives to differentiate themselves.
Got it. Thanks, Yves.
Thank you.
Thank you. I would now like to hand back over to the speakers for final remarks.
Yep. Thank you very much for all your questions today, and have a good day or good evening. Thank you.
That does conclude our conference for today. Thank you for participating. You may all disconnect.