Go od day and thank you for standing by. Welcome to the Ubisoft 3rd quarter sales conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the question and answer session. To ask a question during the session, you need to press star 1 1 on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Yves Guillemot. Please go ahead.
Welcome everyone, thank you for joining the call today. We are committed to boosting our efficiency and execution through a more agile organization with a strong focus on initiatives to enhance predictability across our productions through our cost reduction efforts of more than EUR 200 million over the next two years. We are notably rolling out the best-in-class Assassin's Creed production model throughout the organization. The Assassin's Creed brand has leveraged exceptional predictability and execution, hitting high-quality targets to become one of the industry's most powerful brands. This reflects maturity in terms of production tools, best practices, and processes we have built over the past 15 years on this beloved brand. We are applying its proven production framework to all our biggest brands production pipelines to deliver memorable and differentiated experiences to players in a more predictable manner.
We are also focused on building on our strengths as we prioritize our efforts on big brands and long-lasting live games. Next fiscal year will see the release of a meaningful lineup of major IPs, including new titles within the Assassin's Creed and Avatar universes, as well as a yet to be announced large game. It will also be supported by the launch of several long-lasting live games with Skull and Bones and The Crew Motorfest, as well as new offerings for mobile with Rainbow Six Mobile and The Division Resurgence. Before handing the call to Frédérick Duguet, I would like to say we have been thrilled to see that the talented composer Stephanie Economou won the first ever Grammy Award for Best soundtrack for Video Games and Other Interactive Media for her work on Assassin's Creed Valhalla.
It's a testament to the importance and relevance of video games as a medium of culture and entertainment. I will now hand over the call to Frédérick Duguet. Frédérick Duguet?
Thank you, Yves. Hello, everybody. Our Q3 Net Bookings came in at EUR 727 million, in line with the revised guidance. Our back catalog stood at EUR 249 million, down 27%, and MAUs were 35 million, down 6% year-on-year. As a reminder, last year our back catalog benefited from the Game Pass partnership on Rainbow Six, as well as stronger content delivery on Assassin's Creed Valhalla. While the macro environment impacted the video game market and our Q3 results, our established franchises and live games have performed solidly. In particular, in a very competitive backdrop, Rainbow Six Siege posted very strong performance in December and January.
Our teams continue to do an amazing job as they build on the positive momentum since Q1 fiscal 2023, which has led the game's PRI to grow double digits on a nine-month basis. The content they are bringing to players is impressive, delivering on many of our players' top requests, and this is clearly reflected in stronger engagement levels. As a result, Siege delivered a new DAU/PU record in December, and engagement is back to double-digit growth versus last year since the beginning of this calendar year. At the end of the ongoing esports Six Invitational event, the team will unveil the new season of Rainbow Six Siege, as well as an exciting year of content. Additionally, next fiscal year we'll see the release of Rainbow Six Mobile, which is set to leverage the brand's current momentum and to bring it to a significantly larger audience.
Total digital net bookings reached EUR 568 million, up 7% year-on-year, and represented 78% of our total net bookings. PRI is to that EUR 419 million, significantly up year-on-year, thanks to the mobile licensing partnership and represented 58% of our total net bookings. Mobile amounted to EUR 311 million. The upfront revenue link to the mobile licensing partnership we announced last July has now been fully booked. Over 9 months, the mobile net booking revenue progression is explained by the impact from this partnership. It offers great financial benefits to Ubisoft and has the potential to bring the related brand to a significantly larger audience. This reflects more than ever our capacity to leverage the powerful appeal of our brands and our portfolio. As a reminder, we do sign sizable partnerships every year.
Looking at the full fiscal year 2023, we confirm our financial targets of Net Bookings expected to be down more than 10% and non-IFRS operating income of approximately minus EUR 500 million. Next fiscal year, we'll see the release of a meaningful lineup to support the development of big brands as well as long-lasting live games. This will include Assassin's Creed Mirage, Avatar: Frontiers of Pandora, Rainbow Six Mobile, Skull and Bones, and The Crew Motorfest, as well as The Division Resurgence and a yet to be announced large premium title. We are now ready to take your questions.
Thank you. As a reminder, to ask a question, you need to press star one one on your telephone and wait for a name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. This will take a few moments. Now we're going to take our first question. The question comes from line of Omar Sheikh from Morgan Stanley. Your line is open. Please ask your question.
Good evening, everyone. I've got three questions if I may. Can I maybe start with Rainbow Six Mobile? Maybe Yves or Frédérick, could you just talk us through how what the launch plan is there? Are you planning to launch this globally? Is this going to be in China and outside China? Could you maybe talk about the revenue model? You know, how do you book the licensing revenue, whether it's outside China or inside China? That would be helpful to start. Secondly, on Avatar and Skull and Bones, could you maybe just update us on where you are on those games? How confident are you that you're going to be able to release them, and how finished are those two games right now? Then thirdly, maybe one for Yves.
You've made some decisions to cancel some titles. You've canceled seven so far in the last 12 months. Could you maybe just talk about whether you think you currently have the right number of premium games and mobile games as sort of that you're currently operating and have in the pipeline? Do you think there's scope for further rationalization, or do you think you're in the right place right now? Thank you.
First, thank you for your question. Rainbow Six Mobile will happen this financial year. It's going to be the next financial year, sorry. It's going to be a free-to-play game. We can't say about China because it's, you know, we have to go through a process for approving those games, and we don't have information yet to give. Any revenue that we would get from the sales of items in games would be in our revenue this year. It's a big launch worldwide except China till we have the actual number from the Chinese government. On the console games.
Yes, we canceled a few games because we thought we needed to make space for other games that are in development in the company, and that's really helping all the other games that are progressing well. Now we feel we have the right number of games, knowing that we will launch a lot of them, a lot of games in financial year 2024. That will also give space for the other games that are on the way in the company. If we look at 24 months, the number of games in the company will go down quite a lot.
That will give more space to all the games we have on the way. Having said that, we know that many of those games are also going to have post-launch content, this will take a certain number of teams to and talent to actually create that content. Now on the Avatar and Skull and Bones, there's a lot of work which is done by the team who are really dedicated to those games. We have regular play tests on those games that are giving us information of where we are and what we have to tweak. They are well on the way. We can't say more at the moment about the games, they are...
We expect they will be good contributors to the next fiscal year.
Great. Thank you. If I could maybe just follow up with one for Frédérick Duguet actually. Frédérick Duguet, you talked on the last call about delivering EUR 200 million of savings over the next two years. Could you maybe just talk about how much of that you're expecting to happen in fiscal 2024? Thanks.
Yes, you're right, Omar. I mentioned, and we mentioned that we will make a significant effort in terms of cost reduction of our fixed cost base over the next two years. Meaning that by fiscal 2026, our fixed cost base will be lower than EUR1.6 billion . We are working on that actively, of course, we give you more detail when we reach specific milestones.
Okay. Thank you very much.
You're welcome.
You're welcome, Omar.
Thank you. Now we're going to take our next question. The next question comes to line of Nicolas Longuet from BNP Paribas Exane. Your line is open. Please ask your question.
Yes. Hello. Good afternoon, everyone. I've got three questions, please. First, on the licensing revenue contribution in Q3. Based on my estimate, it was close to EUR 250 million- EUR 260 million. Do you confirm that figure? Looking at Q4, what sort of contribution are you expecting? Secondly, if we look at next year pipeline, you don't mention The Division Heartland , the free-to-play initiative. Does it mean it's now slated for full year 2025 or not? Finally, on the EUR 200 million non-variable cost reduction, are you able to split that between the OpEx reduction and the cash on the reduction you expect? Not necessarily a very precise figure, but any indication would be helpful. Thank you.
Yes, Nicholas. On your first question, on the licensing contribution in Q3, the number you're quoting, I would say it's, yes, right, about the right ballpark figure. We have now booked the full upfront fee, so you should not expect more in Q4. As for The Division Heartland, yes, we're working actively on this game that with the strong survival shooter game across PC and console and free-to-play. We have not mentioned a release date yet until we complete the different phases of test ahead of us. On the cost reduction program, in terms of split between the cash R&D and the operating expenses, we'll give you more detail in the future.
Okay. Thank you.
Thank you.
Thank you.
Now we're going to take our next question. The next question comes to line of Nick Dempsey from Barclays. Your line is open. Please ask your question.
Good evening, guys. First of all, are you classing Skull and Bones and The Crew Motorfest as Triple-A games? Because we've still got another large game not mentioned. I make that five Triple-A games in 2023-2024 lineup, but perhaps you're not categorizing it that way. Second question, can you give us any more color on what costs there might be in terms of upfront or during the process to take out that EUR 200 million of savings, so the restructuring charges? There was a question on The Division Heartland. You also don't mention XDefiant in your 2023-2024 lineup, though you do refer to it in the release. Does that mean that we shouldn't expect XDefiant during the 2023-2024 fiscal year?
Hello, Nick. To your first question, yes, we consider Skull and Bones and The Crew Motorfest to be Triple-A games, and they will be live service types of games, so we expect that they will contribute to increasing our recurring revenues over time. On the cost question, we won't have more detail to share at this stage. We had mentioned that it would be a combination of hiring freeze as well as targeting restructuring and including some non-core assets divestiture.
As for the XDefiant, I will give you the same answer as for the Division Heartland that I just gave, which is that we are starting with the technical test as we speak, and we will complete the different phases of test before communicating on a release date.
Thanks.
Thank you. Now we're going to take our next question. Please stand by. The next question comes to line of Michael Hickey from The Benchmark Company. Your line is open. Please ask your question.
Hey, Yves, Frédérick Duguet. Good evening, guys. Thanks for taking my questions.
Hello, Mike.
Hello. You mentioned that Assassin's Creed was generating player engagement records in the quarter. Can you just sort of double-click on what exactly records you're hitting there in terms of engagement and how that sort of sets the stage, I guess, for your upcoming release of Mirage and Jade?
Yes. On, on AC, what we said is that the number of active players in the quarters has increased over the first nine months has increased by 30% versus last year. That shows that the brand is in very good shape, and we have seen that trend confirmed in the last quarter. That really sets the brand very well for the next new releases.
We know that, each time now we launch a new game in the franchise, all the back catalog is actually growing a lot. As well as when we launch new content, on the brand. It's a very active brand, at the moment.
Thank you. Do you have an update on your mobile, Jade tied to Assassin's Creed?
Nothing new to say at this stage. We still have some, also more tests to complete and see if we can share more.
Last question from me. You guys have, pre-COVID here historically been, really strong presenters at E3 in Los Angeles. Do you guys plan to attend the event in person, this year and show your games?
Yes. If, E3 happens, we will be there, and we will have a lot of things to show.
All right. Thank you. Good luck.
Thank you.
Thank you, Mike.
Thank you. Now we're going to take our next question. The question comes to line of Matthew Walker from Credit Suisse. Your line is open. Please ask your question.
Thanks, guys. Thanks for taking the question. I was just wondering, Firstly, on Skull and Bones, you know, what are your assumptions within the mix on the EUR 400 million? Have you effectively de-risked that now, by assuming very low units or not? The second question would be, in the EUR 400 million of EBIT, have you assumed that there'll be any other one-off sales like the mobile deal that you did, the mobile deal you did, which you just referred to? Finally, what are the risks around... I mean, we've heard reports of strikes, or potential strikes in France and potentially elsewhere. Could you sort of update us on what's happening on the ground there and what the risk is of, you know, delays to your schedule?
On Skull and Bones, as we said, we're giving it a few more months so that players can really have the improved version in hand. We believe that the work is progressing well. That's why we confirm that Skull and Bones will be in early fiscal 2024. We are confident that this game can establish itself for the long term and contributing to more recurring revenues as it's based on the live service type of gameplay. In your second question, what we've been saying for a number of years is that we do sign partnerships every year with the biggest platforms and entertainment players of the industry.
This is part of the business model.
We can say for your last questions, you know, we know that the current global macroeconomic and social environment, as well as our recent decisions, create some interrogations within our employees. We are in constant and direct dialogue with our teams and take the necessary time to actually explain the reasons behind these decisions. We are working very hard with them to tell them about what we do, how we plan and to get organized in the next few years.
Okay. Thank you.
Thank you.
Thank you.
Now we're going to take our next question. Thank you for waiting. The next question comes to line of Ali Naqvi from HSBC. Your line is open. Please ask your question.
Hi. Good evening. Thanks for taking the questions. Just to step back in terms of your strategy, how much of this shift on your core titles affect how you're thinking about marketing for future releases for Avatar or Skull and Bones, which are not, you know, core IPs yet?
In terms of strategy, actually what we're doing is really focusing on big brands and live services. These are really the two actions that we are focusing on. That's why we really want to make sure that our biggest brands, such as Assassin's Creed, Rainbow Six, The Division, Ghost Recon, and Far Cry will grow in the next three-five years with strong roadmaps across all platforms, geographies and business model. That's really what we're doing on one side. On the other side, we continue working on more and more live service types of games. That's why we're coming on mobile on this big brands.
We also believe that on specific market segments, such as on The Crew, for example, we can really establish these brands for a long period of time.
Skull and Bones, as well. It's for us, it's very important when we are able to install a game for the long term, because it actually generates a very regular revenue and very profitable revenue for the years to come.
Understood. Just, maybe just follow up on this sort of, topic. How much of this focus on the core IPs do you think is a function of, you know, the economic cycle and views on discretionary spending versus something that may reverse and you may look at more new IPs, when it turns and things get a bit better?
The market is going toward bigger IPs at the moment. As we could see, with Hogwarts Legacy last week, some IPs also can also come from outside the industry. It's a market that goes for projects that are very appealing. It's a very dynamic market which is reacting fast to new experiences that they will like. It's big IPs, and it is also some games that can generate recurrent revenue also for the company.
Thank you.
Thank you.
Thank you. Now we're going to take our next question. The next question comes from the line of Sebastien Pette from Jefferies. Your line is open. Please ask your question.
Hello, everyone. Thank you for taking the question. Thank you for the presentation.
Thank you.
The question is regarding Skull and Bones, please. Reportedly, you've been working on this game for about 10 years now, since close to 2013. Therefore, I'm assuming that the investments here are quite sizable. Can you please give us an estimate on either the number of units or maybe revenue that Skull and Bones will have to book in order for this title to break even and potentially avoid an impairment?
I'm asking this because we've seen the reviews and they don't look particularly strong.
No, thank you for your question. In fact, we've been amortizing this game over the years. We only have a certain amount that we still have to amortize when we launch the game. Those kind of games are new games, new IPs, on a different model, and that's why they take time. It doesn't mean that it should have been that long, and we don't like the fact that it was too long. It is a game that is going to, as we see, generate revenue for the years to come. We don't know yet exactly what it's going to do.
Thank you. Thank you very much. If I may follow up, please. From.
Yeah, Sebastian. Just sorry. Just to complete the answer. As we said in January, we've been very happy with the play test that we've seen early January. The... We have a very strongly improved version to show to players that they haven't seen yet. This is really what we are going to leverage in the next months to drive more momentum on the game.
Thank you very much. I appreciate the color for that. May I please follow up? I understood that the risk for an impairment is low here, given that you guys have amortized this title through the years. May I please also ask what's the cash return that has to come in order to amortize the cash investment, in order to break even on the cash investment, please?
What we are planning for next year is really to grow strongly. We as we said recently, we are focusing on R&D allocation towards more of our biggest IPs and our live service types of games. That's why we anticipate that behind this strong growth in the coming years, behind a very rich lineup, we progressively get back to above 20% operating margin in the medium term.
Okay. Thank you very much. I'm looking forward to the game.
Thank you.
Thank you. The speakers are done for the questions at this time. I would now like to hand the conference over to Yves Guillemot for closing remarks.
Thank you very much for your questions and have a good afternoon or good morning.
Thank you.
That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.