Today, and thank you for standing by. Welcome to the Ubisoft H1 Fiscal Year 2026 earnings webcast and Conference Call. 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 hand the conference over to your speaker today, Yves Guillemot, Ubisoft Co-founder and Chief Executive Officer. Please go ahead, sir.
Welcome, everyone, and thank you for joining us today. Before we begin, I would like to start with the reason for the delay in publishing our results. First, we appointed a new panel of auditors that was approved at the AGM last July. Their position, as part of their review of the H1 financial accounts, required a restatement of our financial year 2025 annual accounts that had been previously approved by our former panel of statutory auditors in May. In this context, we required additional time to finalize our accounts for our board of directors to approve them. Frédérick will walk you through this point in more detail later in the call. The closing of our strategic transaction with Tencent, which will see Tencent become a minority shareholder in our new subsidiary, Vantage Studios, is now imminent, as all conditions precedent have been satisfied. This will mark a pivotal milestone in Ubisoft transformation, significantly strengthening our financial position by bringing in EUR 1.16 billion of cash, enabling the group to deleverage as planned. It will also empower Vantage Studios to accelerate the growth of our three flagship IPs under a dedicated leadership team. In a highly competitive market, Ubisoft delivered net bookings above guidance on the back of stronger-than-expected partnerships that underscore the appeal and reach of our brands. Our portfolio showed contrasting dynamics this quarter, with softer trends for Rainbow Six Siege, reflecting a phase of evolution for the game in an intense, competitive first-person shooter environment, offset by strong performances across the rest of the catalog. The Assassin's Creed franchise exceeded our expectations, confirming its positive momentum and ability to engage players over time.
The Division two also continued to perform strongly, benefiting from the momentum of the Battle for Brooklyn expansion, with the game's first semester already exceeding last year's annual bookings. Additionally, the progress we've made in addressing our fixed cost base brings with it confidence that we can continue to drive structural efficiencies across the organization that, together with top-line growth, will contribute to ensure a return to strong cash generation in the coming years. Vantage Studios represents a key element of the transformation of the company toward a new operating model built around creative houses. We will have finalized the design of this new organization by the end of the year. These creative houses will be autonomously efficient, focused, and accountable business units, each with its own leadership, creative vision, and strategic roadmap. This group-wide transformation reflects our ambitions to renew how we create and operate in order to deliver great games for our players and lasting value for our partners and shareholders. The full details of this new operating model will be unveiled in January. On the innovation side now, we are making great strides in applying Gen AI to high-value use cases that bring tangible benefits to our players and teams. It's as big as a revolution for our industry as the shift to 3D, and we have everything to lead on this front. On the player experience side, we are continuing to make progress on groundbreaking player-facing generative AI applications, building on our Neo NPC announcement in 2024. We have already advanced from prototyping to player reality, and we are looking forward to sharing more before the end of the year.
On the production side, we now have teams in all our studios and offices embracing this new technology and constantly exploring new use cases in programming, art, and overall game quality. On the transmedia side, we also, after greenlighting the Assassin's Creed live-action TV series in July, I would like to highlight the recent success of the animated Netflix series Splinter Cell this March that premiered on October 14, obtaining an 86 score on Rotten Tomatoes and landing the daily top 10 across more than 12 countries, including six consecutive days in the U.S. This strengthens our brand's long-term value ahead of the Splinter Cell remake, currently in development at the Ubisoft Toronto Studios. Last but not least, I would like to celebrate the successful launch of Anno 117: Pax Romana that expands the city-builder genre. This level of quality, innovation, and sales set the standard against which we want to measure our future releases' performance in the coming years. I will now let Frédérick give you details on half-year performance.
Thank you, Yves. Hello, everybody. H1 net bookings stood at EUR 772 million, up 20% year-on-year, with 34 million MAUs and 88 million unique users across consoles and PC, slightly down year-on-year when excluding XDefiant from the base. Turning to our second quarter, net bookings stood at EUR 491 million, above guidance, and up 39% year-on-year. The outperformance was driven by stronger-than-expected partnerships, demonstrating the power and attractiveness of our portfolio, as well as a meaningful contribution from live TV and animated series. Excluding partnerships, overall back-of-the-rack performance this quarter was robust and in line with expectations, broadly stable year-on-year, but marked by contrasted dynamics. The Assassin's Creed franchise posted a strong performance in Q2, with both Assassin's Creed Shadows and the rest of the brand's catalog overperforming. In the year to date, Assassin's Creed has generated 211 million session days, around 35% higher than the last two years' average. Shadows benefited from the launch of the New Game Plus mode, which was widely anticipated by the community and introduced greater difficulty and new challenges for players. The close of a large expansion released on September 16 contributed to re-engaging players. It was praised as a solid addition to the base game, offering new unique boss fights in a beautiful and dark atmosphere. Looking ahead, Assassin's Creed Shadows will reach a broader audience with its launch on the Nintendo Switch two on December 2. Beyond Shadows, the rest of the AC back catalog also performed strongly, highlighting the strengths of the franchise. Turning to the current quarter, we launched Valley of Memory on November 18, a free major update for Assassin's Creed Mirage, which brought new content and a fresh chapter in Basim's story set in Al-Ula.
First feedback from the community is very positive, with player activity on Assassin's Creed Mirage doubling following the launch of the update, enabling the game to reach the 10 million player mark. In a highly competitive first-person shooter market, Rainbow Six Siege continued to attract new players this quarter with acquisition levels twice as high year-on-year, and sustained activity levels with unique players stable quarter on quarter and up double-digit year-on-year. Session days and play time also increased both sequentially and year-on-year. However, as part of the evolution of Siege and its move to free access, a temporary surge in cheating has impacted activity and player spending versus expectations. With additional resources now in place and further hires planned, the team has identified the main issues and is actively addressing them with a robust plan in place. Having focused most of this year on establishing a new foundation for the game, the team is exploring a new seasonal approach that introduces multiple updates throughout each season, focusing on the core gameplay experience and heavily engaged players. This shift is designed to offer a steadier stream of fresh experiences with more variety, keeping players engaged and supporting long-term franchise growth. The Siege community remains highly engaged and passionate about the game's success. The development team is equally committed to working closely with players to address recent feedback, with a strong focus on anti-cheat measures and gameplay balance. As announced at the Munich major on November 16, starting in Season four, the team will double the number of anti-cheat updates per week and introduce new prevention solutions.
On the balancing front, the team is accelerating efforts in Season 4 with four balancing updates per season planned for Year one, aligned with the new content cadence. To celebrate Siege's 10-year anniversary in December, players can look forward to daily rewards and a special in-game event launching mid-December. Elsewhere in the catalog, I would like to highlight a few notable performances. The Division two continued to benefit from the momentum of the Battle for Brooklyn DLC released in May, as well as regular content updates continuing to attract new players to the game. Along with rising player numbers, player engagement is up, with a record second quarter in terms of session days since Fiscal Year 2021. The game's performance this semester has already exceeded last year's annual net bookings. Avatar: Frontiers of Pandora posted a strong performance this quarter on the back of the July third-person update announcement that was widely anticipated by the community. The game also regained momentum with the announcement of the From the Ashes expansion that will come along with the movie. Star Wars Outlaws launched on Nintendo Switch two in September to strong critical and player reception. The release expanded the game's audience and was praised for its exceptional visuals, technical optimizations, smooth performance, and seamless transition to Nintendo's new hardware. Total digital net bookings reached EUR 436 million, up 62% year-on-year, and PRI stood at EUR 323 million, up 10% year-on-year. Both of these metrics benefited this quarter from tailwinds linked to partnerships. Within PRI, mobile amounted to EUR 26 million, slightly down year-on-year. First, you will find our non-IFRS P&L on slide 7 of our presentation.
Gross margin was strongly up year-on-year by more than 3.5 percentage points, which reflects the fact that this semester saw more high-margin partnerships than the first semester last year. R&D was down year-on-year, and I will come back to that point in the following slide. SG&A was down 16%, reflecting lower variable marketing expenses due to the absence of major releases this semester, while last year's first half saw the release of Star Wars Outlaws and XDefiant. Overall, non-IFRS EBIT came back to the positive zone at EUR 27 million this semester, which marks a strong improvement to last year's EUR 250 million loss. Please refer to our press release or presentation appendix for the full IFRS to non-IFRS reconciliation. Turning now to slide eight, P&L R&D was down year-on-year and mainly reflects lower depreciation of in-house software-related productions, coming from the absence of new AAA releases this semester compared with accelerated depreciation for Star Wars Outlaws and XDefiant last year. For its part, total cash R&D was down 11%, or EUR 70 million, and reflects our continued efforts addressing our fixed cost base. Looking at cash flow statement on slide nine, free cash flows stood at EUR -251 million compared with a negative EUR 126 million the previous year. This free cash flow consumption mostly reflects the following impacts. On the one hand, a negative EUR 139 million cash flow from operations, reflecting the fact that we had no new releases this semester, which was half the outflow of last year, again illustrating a strong improvement versus the year before. On the other hand, a negative EUR 102 million change in working capital requirements, notably driven by trade payables decrease, comparing with a significantly higher gain in receivables last year, which mainly reflects cash in from Q4 Fiscal Year 2024 partnerships. Non-IFRS net debt stood at EUR 1.15 billion, slightly up versus last year, and cash and cash equivalents amounted to EUR 668 million, down EUR 265 million versus last year, mostly driven by the reimbursement of around EUR 245 million in debt. The EUR 1.16 billion cash injection from the Tencent transaction will deleverage the group and strengthen its balance sheet. I would now like to provide an update on the continuous progress we have been making on the group's transformation. First, all conditions precedent of the transaction with Tencent have been satisfied, enabling the sale of a minority stake in our new subsidiary, Vantage Studios, to Tencent to close in the coming days.
This marks a major milestone in our transformation journey. The proceeds of this transaction will deleverage the group on a consolidated non-IFRS net debt basis while providing enhanced financial flexibility to support our strategic transformation. A new leadership team is being formed around Vantage Studios, including heads of franchises, to drive creative excellence and operational agility across each brand on their path to building annual billion-euro brand ecosystems. Second, we will have finalized by the end of the year the design of our new operating model, built around creative houses, independent business units, with the objective of driving stronger creative vision, greater focus, efficiency, autonomy, and accountability. We will unveil the full details of this model in January. Overall, we benefit from a strengthened balance sheet. Our non-IFRS net debt position stood at EUR 1.15 billion at end September, with a cash and cash equivalent position of EUR 668 million. The EUR 1.16 billion proceeds from the Tencent transaction will enable us to deleverage the group and notably proceed with the early repayment of the term loan and Tranche 1 loans, which have an outstanding principal amount of approximately EUR 286 million. Of note, EUR 210 million were due next month. Additionally, we will cancel the existing revolving credit facility and initiate discussions with our banking partners, with the objective of putting in place a new facility designed to support our strategic ambitions, in line with the broader transformation currently underway. Overall, we plan to rely on a very comfortable cash and cash equivalent position at the end of March 2026 of around EUR 1.5 billion. Third, we continue to make progress on our new cost reduction program, which targets at least EUR 100 million in fixed cost savings by Fiscal Year 2027 versus Fiscal Year 2024.
Thanks to continued discipline in hiring and targeted restructuring efforts, the group's global headcount stood at 1,797 at the end of September, representing a decrease of around 1,500 employees over the past 12 months and about 700 since the end of March. Since the end of the semester, a targeted voluntary leave program and a proposed restructuring were introduced at our Nordic studios. Overall, the H1 Fiscal Year 2026 fixed cost base stood at around EUR 701 million, a decrease of EUR 69 million, or nine year-on-year, including a favorable EUR 19 million foreign exchange impact. Out of the EUR 69 million reduction, approximately EUR 55 million came from lower capitalized investments. Before I turn to the outlook, I would like to cover an IFRS update. As you mentioned, we had to delay publishing our results. Towards the end of the review process of our H1 financial accounts, our new panel of auditors reviewed the analysis that had led to the Fiscal Year 2025 accounts being validated by our former panel of auditors in May. This related specifically to the IFRS 15 revenue recognition of one meaningful partnership in Fiscal Year 2025. The new panel of statutory auditors considers that utilization-based payment schedules must now be recognized under IFRS 15 as revenues over utilization, even if the commitments are firm. This ultimately led to the restatement of our Fiscal Year 2025 account as per IAS 8. We then had to assess the impact of this restatement, as well as the implication of this new position on the second partnership booked in Q2, along the same initial principles.
The combined effect of what I've just described results in the company not complying with its leverage covenant ratio under certain existing financing agreements at September 30, 2025. However, this is being addressed by the aforementioned actions relating to the concerned debt instruments. The restatement of the prior year financial accounts is detailed in the appendix of our press release, and the IFRS accounting restatement has no impact on the group's non-IFRS indicators, given the firm nature of these amounts, and has no impact on the operating cash flow profile of the group. Beyond this technical restatement, I want to make one thing clear. Our approach to B2B partnerships as a critical complement to our B2C business has always been and will continue to be centered around maximizing the value of our catalog, which we measure in terms of cash flow generation over time. Turning to the full year outlook, the stronger than expected benefit from partnership increases our visibility for the fiscal year in a context where, on the one hand, there remains a number of new releases to come by the end of the fiscal year, and on the other hand, Rainbow Six Siege faces an increased competitive FPS environment. In this context, we reaffirm our full year objective with net bookings to be stable year-on-year, non-IFRS operating income to be around breakeven, and negative free cash flow reflecting the group's transformation. Following the closing of the Tencent transaction, we expect to maintain a consolidated non-IFRS net debt position of around zero. Looking at Q3, we expect net bookings of approximately EUR 305 million, which will represent a slight increase year-on-year.
Q3 would notably see the releases of Anno 117: Pax Romana, as well as the Avatar: Frontiers of Pandora From the Ashes expansion. Anno 117: Pax Romana launched on November 13 and marked a bold new chapter for the Anno franchise. Building on the series' strong momentum and releasing simultaneously for the first time on PC and console, it showcases impressive scale, striking visual fidelity, and a deep economic simulation. The title has already received strong industry recognition, including winning Best PC Game at Gamescom, and has now launched to strong critical reception with an 85 Metacritic score, the best score ever in the franchise, which translates into solid consumer spending growth after one week compared to the successful Anno 1800. IGN awarded it a 9 out of 10, calling it a gorgeous antique city builder that is worthy of a standing ovation. For the first time in the series, players can choose their starting province, easily defined by distinct cultural identities and unique gameplay mechanics that emphasize player choice. This innovation expands the game's depth and replayability, laying the foundation for sustained player engagement and a rich post-launch experience. The Avatar: Frontiers of Pandora From the Ashes expansion is set to launch on December 19, timed to coincide with the theatrical release of Avatar: Frontiers of Pandora. This bold expansion sees players embark on the journeys of Solec, a battle-hardened Na'vi warrior who seeks revenge against the ruthless Ash Clan. The expansion introduces new visual gameplay set in the Rivage Klingler Forest and unveils a new sub-region known as the Ravines. Ahead of that, a highly anticipated free update introducing a third-person mode will arrive on December 5, which will feature long requested by the community. Together, this content should further strengthen engagement and extend the game's momentum into the holiday season. For its part, Q4, we see the release of Prince of Persia: The Sands of Time remake, Rainbow Six Mobile, The Division Resurgence, as well as an unannounced title. Beyond Fiscal Year 2026, we expect to return to positive non-IFRS operating income and free cash flow generation in Fiscal Year 2027, and to see significant content coming from our largest brands in Fiscal Year 2027 and Fiscal Year 2028. Finally, as always, here are a few Fiscal Year 2026 housekeeping items for modeling purposes. The stock-based compensation is expected at around EUR 32 million, down versus prior guidance and reflecting the lower share price.
The non-IFRS net financial charge, excluding foreign exchange, is expected at around EUR 45 million unchanged versus prior guidance and reflecting a year-on-year increase, primarily attributable to a lower interest income. The non-IFRS tax rate is not relevant in the context of breakeven non-IFRS operating income, and the number of diluted shares is expected at around 132 million, reflecting the fact that with an expected negative net income, the dilutive nature of our instruments no longer kicks in. 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. Please stand by while we compile the Q&A roster. Thank you. I will now go to the first question. Your first question today comes from the line of Alexander Peterc from Bernstein. Please go ahead.
Yes, good morning, and thank you for taking my question. The first one would be pertaining to the breach of covenants. Although this is quite temporary, I'd still like to know if there are any of your other debt instruments that don't have these covenants that have a standard cross-default clause that could be enforced. Is that a risk over the coming days or not? It's just a hypothetical, but I just need to clear that for me. The second question is, given your below-expectations third quarter, it seems to me that the implied fourth quarter is extremely strong, down only 15% year-on-year. Last year, you had the Assassin's Creed Shadows release, which was delayed, and that propped up the fourth quarter quite substantially. Can you help us understand how you're going to achieve this super strong fourth quarter? Thank you very much.
Yeah, thank you, Alex. Yeah, that's on your first question. We are addressing the topic by settling the repayments of our covenant-based debt, true shine, and terms loan. We are canceling the RCF before building a new credit backup line facility by repaying EUR 286 million in principal amount, keeping in mind that we were anyway preparing to repay EUR 210 million that we are due in December and EUR 50 million in September. Overall, the net acceleration is estimated to be around EUR 25 million if we look at the impact on the medium-term cash trajectory for the company. That has nearly no impact. We do not expect any impact on the overall debt structure in account, keeping in mind that we will benefit from a very comfortable EUR 1.5 million cash and cash equivalent position at the end of March. In terms of Q4, yeah, as you mentioned, it would be significantly lower than the Q4 that we posted over the last two years, keeping in mind that Shadows only impacted Q4 last year for 10 days. This quarter will benefit from a slate of new releases, including the remakes of Prince of Persia: The Sands of Time, Rainbow Six Mobile, The Division Resurgence, and an unannounced title. We will have a meaningful contribution of partnerships, B2B partnerships, but to a lower extent than last year. We expect a strong Rainbow Six Siege that will go through the Six Invitational and starting into the next year. We will have the follow-on sales impact from Anno 117 and the Avatar expansion. All this will contribute to the key building blocks of Q4.
That's very clear. Thank you very much.
Thank you. As a reminder, if you would like to ask a question, please press star one and one on your telephone keypad. That is star one and one to ask a question. 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 morning, guys. My first question is, have the auditors looked at all of the partnership deals that you have done going back several years so we can be comfortable that what we are seeing here is the final restatement? In fact, we won't get more, for example, at the full year 2026 results. Second question, if I look at the restatement for FY2025 and the restatement for the last 12 months period, it seems quite a big difference. Maybe I misunderstood something, but can you perhaps explain the difference between those two restatements, given that I thought it related to particularly one partnership deal? The third question, in terms of any partnership deals landing in Q4, do you have good visibility on when they land and whether they will land?
Yeah, on the first question, there is no risk on the prior year financial accounts. It is, by the way, interesting to have in mind that when you look at the many partnerships that we've been signing over the last seven years, if you look at all the partnerships between Fiscal Year 2019 and Fiscal Year 2025, all of them have converted into cash. That traces back to the quality of the earnings and the very strong cash conversion coming from these various partnerships. In terms of your following questions, I understand that you're talking about the Fiscal Year 2025 restatement. It refers to a meaningful partnership. If you look at the first half, Fiscal Year 2026, you see the difference between IFRS revenues and non-IFRS net bookings, and you'll see that also it's driven by the second partnership that I mentioned earlier. In terms of Q4, as we said, we've had an increased visibility on these B2B partnerships' performance. Yes, we have a meaningful contribution that is expected in Q4, but to a lower extent than last year.
You have full visibility on that landing in that timeframe, or you don't? That was my question.
Yes, we have a good pipeline of partnerships that we are working on.
Okay, thank you.
You're welcome.
Thank you. There are currently no further questions. I will hand the call back to you.
Thank you very much for your questions, and have a good day or a good evening. Thank you.
Thank you.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.