Earnings Call: Q3 2020

Nov 30, 2020

Yes. Good morning and welcome to our presentation. We are presenting Media and Games Invest and we just released our Q3 financials. So this presentation will mostly be repeated to the Q3 financials, but also of course give you background for those that don't know the company so much. I would like to start at Page 4 to introduce ourselves. And then Paul, our CFO, can quickly start with introducing. Absolutely. So good morning, everyone. My name is Paul, CFO of Media and Demisto Invest. I studied law and finance, worked afterwards for the company called Shopgating, then for a few years for Unicredit Bank, did quite a lot of debt financing there, worked very close also with ECM team, met Remcon 27, then we refinanced the German bond of our gaming subsidiary, Gamigo AG. And since 2018 now, I'm the CEO of Media and Games Invest and responsible for finance, controlling and I started economics, started working in the oil industry, then into consulting, after that into digital entertainment. Amongst, I was working for SunTrust, the Finnish Telecom, Then also funding BOP Mobile, which was later renamed to Click, listed on the German Stock Exchange. And end of 2012, I had the possibility to buy Gamigo, a gaming company, at that time part of Axel Springer, acquired 100% of the shares. And that's the start of Media and Games Invest, We've started the buy and build story and brought Cameco into Media and Games Invest. I would like to show on Page 4, there's an overview of the shareholders also. We have a free float of a bit under 50%. We have early investors that started already with Camigo of roughly 15%. And myself, I'm holding roughly 37% of the shares of the company. As said, I would like to run you through on Page 6. First, a bit of an overview of who we are, and then we will get later in the presentation to the Q3 financials, of course. Media and Games Invest, yes, the company started to be listed in 2018 when MGI, as a Shell, acquired Gamigo and with that became the gaming company. So we are the continuation of Gamigo. Market gap roughly €170,000,000 at the moment. We are listed on the Frankfurt Stock Exchange in the scale segment and on Nesteck First North Premiers in Stockholm since a few weeks. A bit over 700 employees. The majority of our revenues is coming from gaming and especially from so called massive multiplayer games. So we're running over 25 massive multiplayer games. Those are games where people where lots of people play together on several servers. It can be a role play game, it can be strategy and build game. It's basically gaming as a service. So together with the gamers, we further develop the game, we improve the game. There's all kind of updates, new costumes, those things. And yes, games are mostly as free to play. So people start playing for free and then start building up the character or the city and also invest in those things. And more details to the games coming later in the presentation. We run also over 5,000 casual games, mostly subscriptions or advertising based, over 5,000,000 monthly players. Since 2017, we started also to be active in the media part because for gaming there's 2 success factors. The one is of course content, new content, adding the games, expanding the games. And the second one is, let's say, media getting more users into the game and for that reason to be more efficient on that side also coming in a bit more detail later, we also decided to add media assets and media companies. So over doing over €5,000,000,000 monthly ad views and also working for 5,000 other advertisers over €5,000. What you see in the right upper side of Superstations is a bit our geographical focus. Over 50% of our revenues is in North America and a bit over a third is in Europe. And on the right bottom side, Paul will go later into this in more detail, you see our great track record that we did starting let's say with €15,000,000 revenues in 2014, now doing over €120,000,000 last 12 months year to date sorry, last 12 months from Q3 and with also very strong traction on the EBITDA side. As we do a lot of M and A and sometimes also case that are not so profitable because we can improve them and the efficiency is better from the deal. You see that the EBITDA percentage has gone down a bit, but we're expecting it to go up in the next year, again between 25% and 20% of revenues. Then going to the next slide, number 7. Here you see the 2 basic segments. So Gaming is doing over 50% of the revenues. We like to run it well over 50 percent, it's 55% now. We would like to make it a bit bigger, but also further concentrate on more M and A on the gaming side again. Yes, we are making money with in game purchases, game subscriptions, advertising revenues. On the right side in the left box, you see some of the brands, some of the companies that we acquired, companies that we are acquiring, we are also, let's say, integrating. You see also by the way on top of that that the majority of the EBITDA that we're making is coming from gaming. Yes, and the EBITDA you below the target range of EBITDA is 25% to 30%. And so far we are on the 31% range. And on the right side, we see the media part where we make most of the money via HSUVs, SaaS fees and ad commissions. On the right side you see also some of the brands of the companies that we acquired. Those are getting integrated. And on the media side, we're targeting 15% to 20 percent EBITDA. At the current time, we are at 9% EBITDA. So we still have room for improvement there, which we'll do by further integrations. We did quite some recent transactions on the media side acquisitions. So that's the reason that they still have to come to the target EBITDA, but they are well on their way. Yes, what happened in Q3, coming to the next page, some operational highlights and Paul is going to go into the figures a bit later. Yes, with a strong operational performance, normally Q3 is seasonality wise a bit slower, as normally Q2 is as well. But yes, Q3 had a good performance. We continue our proven strategy of course with M and A and we showed further revenue growth, EBITDA growth and EBIT growth, but also preparing for strong Q4 which seasonality wise normally also is stronger. On the game side, yes, I said negative seasonality. Also on the comfort side, where we profited a lot from the lockdowns in Q3 sorry in Q2. In Q3, we saw a bit less lockdowns, but we see in Q3 that the new players that we got in Q2, which were a lot because of COVID, are really starting to monetize. So that was a good part of the revenue growth. And yes, we had a limited number of game launches and updates. We had some. I'll show a few of those later in the presentation. But we are very much geared to Q4 and full of excitement for Etzer's Rogue's, a new game that at the moment in beta launch, which was beta launch in Q4 and we're expecting quite a bit from. And then the media side, it's sort of supporting the gaming side. We saw good traction there. So we saw organic growth, adding a lot of new customers, also quite some investment in growth. And we saw further efficiency gains, but more focused on synergies, technical integrations and cost optimizations and also let's say pushing the game intake, the gamers' intake on the gaming side. M and A, yes, Gulf of Pipeline, working on quite some potential cases. With a bit of delay of COVID, you can do a lot of things digital with M and A, but not everything is good to look into the eyes of the people. But still we did an acquisition of Platform 161 in Q3 And we, let's say, closed the 3 net digital transaction gaming transaction on October 1. Yes, further a lot of M and A lined up as said. And then further focus on financial markets, very important. We did the listing at Nesteck First North Premier. Bond issue in November also and, it also increased our Investor Relations activities in the Nordics. Then going to the next page, a bit about our game update. As I said, not as many as in Q2, but still we had some really nice things happening. Trove, our Pixel MMO doing very well. And, yes, very proud that we found a Korean partner to launch the game in Korea. Aprogene Games, it's well known in Korea, they're very strong there and we are licensing or sub licensing actually, Trove Game to them and they are preparing to launch now and go and like for the game. Then, Trove also, we have launched in Delfts as a big DLC in the 2nd quarter for the PC, which showed a good effect. We have now in Q3 launched the same thing for consoles because Trove is on consoles and online available. For consoles because of all the permits etcetera with Sony and Microsoft. It takes a bit longer, but it was well received by the communities. Then Fiesta Online, yes, it's our oldest MMO, it's now 14 years old and which was also celebrated very well. Lots of events in the game, a cupcake war for example, but also lots of rewards and prizes and things that were given to the players. Bankrand Fantasia, another great MMO that we have. We did a big update there with the floating city. So at the end of the Rainbow Road, now there is a floating city with lots of sprites where people can also play the game. It was also very well received by the players community. And the last one on this list, our Kingdom, here we did a double patch. Normally we do single patches, but we wanted to test how this works and it works pretty well. So we had a lot of extra content, but also introduced semi automatic cast skill, which allows players to put less attention in casting and much more attention into the game, which was all very well welcomed by the game's society. Yes, looking a little bit further on the next page, you see a bit what's coming up because gaming is also about the future, of course, what's going on, what's being prepared in house and that's of course things that we are working already or have been working already in Q3. Going back to the game that was acquired with the acquisition of the company that we acquired a few years ago, which was prepared in the background, the game of Stop in between and it's now fully relaunched. It's part of the Atlas universe and we are expecting, yes, to really have a good launch early next year. But it is already in open beta, so people can play it already and was very well received by the players. Then TwinSaga, level cap rates coming up for Q4. ArkH, Rise of Nelia going to be launched in Q4, so also big updates. And then some more things that are also coming up, but not yet announced launch date wise, just operations going to mobile. Trove, we're preparing for Nintendo Switch. Yes, studio working on it, so also expecting this to be launched pretty soon. And then we have a great mobile game, which has been or is being prepared for launch. As it's always with software, until you know that it's ready, it's ready. So we don't want to announce too early the launch date, but we're working on it and we expect also this to be coming soon. And there are several other projects like we'll see on the slide. Then I would like to hand over to Paul to give a bit of overview of the Q3 financials. Thank you, Renko. Starting with on Page 11 with the Q3 financial highlights. Here we see that in terms of net revenues, which amounts to €35,000,000 in Q3 compared to last year of €27,000,000 we saw an increase of 29%. While on the adjusted EBITDA, which amounted to €6,400,000 last year €4,000,000 which then is an increase of 61%. Looking at the adjusted EBIT, which increased to €4,000,000 where it has been at last year at €1,600,000 which then is then an increase of 150%, so very strong EBIT growth, while also leverage ratio decreased to 2x by end of Q3, taking into account the equity rates, which were settled in October and therefore reduced heavily from the 3.2% compared to end of Q2 and therefore very nice deleverage. And based on this very strong Q3, we now raised our forecast for the 2nd time in 2020 and now expect revenues of up to €135,000,000 and up to €26,000,000 reported EBITA for the full year 2020. Coming to Page 12, looking a little bit more on the transactions, which we just have completed in the last 8 weeks. So we have now raised €110,000,000 in new financing, which leaves us after the refinancing of the Daimigo bond of €50,000,000 to more than €60,000,000 free cash for growth, which will be invested in organic growth, but also M and A. And at the same time, it also reduces the interest rate heavily as the new MGI bond has now an interest rate of 5.75%, while the old Amigo bond had interest rate of 7.75%. So very nice reduce of interest rates. While we also simplified our reporting structure, as we now moving forward don't need to do 2 quarterly reports anymore and 2 group audits, which will also make it a bit faster for reporting deadlines. Looking at a little bit more on the capital increase, which we also did in Q3 actually, there we now have very nice institutional investors on board like UBS, Akera, Openlandia as well as SEB, which also led the capital increase and also looking a bit more on the discounts where we're currently trading as compared to our closed peer storefront. We actually expect quite some nice development in the coming periods therefore as well. And it overall gives us much more flexibility now to really drive our M and A business model forward. And then now I would like to hand over to Remco again, which will guide you through the Gaming division next. Yes. I will go through the 2 divisions, the Gaming and the Media one. Start with the Gaming 1 on Page 14. Yes, a bit about the Gaming market. Yes, in general, it continues growing. COVID helped a lot. We're talking about market now over €160,000,000,000 more time and especially more time at home helps of course for the gaming. Mass market, lots of smaller companies, also larger companies consolidation going on in the market. And what's very exciting now is the new launches of the consoles, of course, that are coming up of Xbox and PlayStation, which are now, yes, starting to really attract users into them. Go to the next page, a bit of how we position ourselves. This is also a slide that we have normally in our presentation, but just for the ones that are first time listening to us. Yes, we are not a typical publisher neither a typical developer. We're picking the raisins out of the cake, just trying to take the best of the 2 worlds, very strong portfolio diversification with our over 25 MMOs, strong technology edge bringing our MMOs into cloud, for example, which is not so easy because MMOs run on several hundreds of servers. So that's really very much efficiency driving efficiency for us. Then strong M and A platform and with our media arm of course a very strong user acquisition. Then come to the next slide, Page 16, with an overview of our current business on the gaming side and also how we grow. On the left side, you see an overview of the different games that we're running. You see that the majority is MMOs, a small part of schedule. Yes, the largest MMOs are Trove, Arguage Unchained and Fiesta. And the ones with an asterisk are the ones where we owe the IP worldwide ourselves, which is 6 out of the top 10. And in the middle, you see the organic growth, which is of course very important for us. Organic growth is also increasing every period and was very good also in Q3. Yes, we have how are we doing organic growth? First of all, by new game launches. So we license games. We don't develop new games ourselves but we still think we are too small for that. That's too risky. We need to be able to have at least 10 studios developing games to really do that. We are not at the moment. But there's a lot of good external studios that are developing games, which games we then exclusively license for certain territories like Europe or North America or both and then launch. Yes, and the other part of course is big updates, DLCs, which we bring into the games into the current games. The games are that gamers are extremely loyal and always looking for new content and we did Trove Delves, for example, in Archage: Garden of Gods. And yes, the other part is inorganic growth, which is acquisitions of companies. We acquired a gaming company, Frina Digital Mobile Games in let's say for 1st October. So it's just outside of Q3, but already prepared in Q3. And we did early Q3 Platform 1 hundred and sixty one and Media Company. Coming to the next slide, Page 17. Yes, an example of a game Fiesta Online, I said 14 years old now. And what's yes, people are very loyal to the game. It's a role play game. You're scaling up your character, of course. And what you see in the middle is it's really recurring revenues. So over 60 percent of the revenues coming from people more than 5 years in the game, another 12% from people more than 3 to 5 years in the game. So this is really extremely loyal customer base, which is of course is giving us very reliable and long term revenue streams. Typical player paying player spending €50 to €80 per month and typically because it's free to play 7% to 10% of the players start to pay money for it. Game has done over €50,000,000 revenues over its lifetime. Going to the next slide, Slide 18. I'll pass these slides a bit faster because they are in the normal presentation. Nevertheless, we want to do it for new listeners. Yes, here we see let's say that's not only Fiesta, but also other games have extremely loyal customers and current revenues coming from people that are really many years in the games. Best operations, we upgraded the graphics so that we should also see more new gamers or we see already more new gamers coming into the game. And Torch and Spilt on the left bottom side is a subscription service where you also see its casual games, where you also see long term loyal customers in there. Then going to the media chapter and starting with Page 20. Why are we doing media? Media by itself is very attractive. But as a gaming company, why should we do media? That's because we are extending the value chain as you see on this chart. The normal value chain for games is user acquisition, playing user and then making money via items or advertising. With the media part, we're expanding the front side and the back side. We have a cost advantage, of course, very clearly. It's a financial advantage. We get the users cheaper in because we also take the margin of the media company. And also on the selling side, we make the margin of the media company, so getting more money for the ads in our games. And at least as important is we have a much better data usage, data is value data it's called. So we can really much better judge on which potential users we target our advertising and become more efficient by that. So that's the reason we're doing this. And then next page, just putting it a bit in financials, in numbers. A standalone gaming company would typically and this is not for a mobile game, which is advertising funded, but would typically pay €0.15 per install and get €2 per 1,000 ad views, which means to earn back the money for the user acquisition you need to do €0.75 ad views. If you are an integrated game company, you do the user acquisition for €0.10 per install, you get €4 ad income, so you have 200% more efficient. So this is really in a nutshell the reason that we believe in the combination of the 2 and it's not even catering in the data advantage that we have. On the next page, an overview 22 of the Business of the Media Business. Yes, majority of revenue is coming from SaaS, programmatic advertising, where demand and supply are matched via rule time bidding. Then we also have performance marketing and influencer and brand marketing. You see some of the customers, so it's not only gaming companies we're working for, also many companies from other sectors. And on the right side, you see an overview of the tech stack that we have. So we have the demand side platform, a data platform and a supply side platform. Going to the next page, an example where we're also using very extensively our media parts that's for game launches, the game launch of RAGE Unchained as an example, where we used influencers that are showing them the game on Instagram, on YouTube, on Twitch and promoting the game. It's very strong for getting new gamers into the game. And here you see an example where we did over 65 influencer campaigns and got over €10,000,000 organic revenues, which were mostly generated by introduced in the game by the influencers. Then come to the next chapter ESG on Page 25. We're doing a lot on ESG. ESG. ESG is of course very important for us. We feel we see our responsibility here. Just to give two examples, our data centers are powered by natural energy. That's really because energy consumption, of course, for a gaming company, we're using a lot of service. Energy consumption is an important part of our business. And the other part is, for example, we're also involving our gamers. So also here again gaming as a service. We did a tree plant action in several of our games where people could plant digital trees and for each digital tree planted we planted a real tree. On the next page, you'll see another point of ESG that's important for us. That's the safe environment for our gamers, our users. So we have a lot of preventive measures here, control and sanctions and also of course improvement targets, very strong focus on use and child protection in the games. Coming to the strategy on Page 28. Yes, our strategy consists of 3 steps basically. It's buy, integrate, build and improve. Buy means, of course, acquisitions, M and A, coming in a bit more detail on the next page. Integrate, we believe in integrating our acquired companies to get more efficient. You don't need an MB on every company. The technology gets much more efficient. So that makes a lot of sense of integrating and it's much easier to steer and to grow. And yes, growing that's the next point. It's really about improvements in the product and the technology, extending the user base to user acquisition and also of course internationalization, for example, translating games in more languages. On the next page 29, you see an overview of our M and A. We have targets that we're typically looking at are the number 1, it's targets between €5,000,000 or €30,000,000 revenues. Typically, we are looking at 2 kinds of targets, the ones that are EBITDA negative, which can be optimized a lot of course, there we typically look at payback of within 24 months. So bringing the economies of scale in, yes, let's say, think into account restructuring cost burn rates, we earn back the money within 24 months. Typically, we actually are under 18 months. And then EBITDA positive, where we try to buy below 6 times EBITDA, but taking into account also here the synergies. So it could be that we buy for 8 times EBITDA if there's enough synergy in integrating the company. Yes, then we have a very disciplined process for acquiring companies under 2 and also for integrating them under number 3. And it's unbelievable how many companies are out there. A lot of them contact us spontaneously. We are also going out to look at companies and we always have a bell filled pipeline. Going to the next page, a bit of overview there. On the top, historically we have done more EBITDA negative companies. We are at the moment focusing more on acquisitions of EBITDA positive companies. We'll of course speed up our growth and yes going forward. Then some of the targets below and that's really with a word of warnings. Of course, deal is only a deal when it's signed and when it's closed. So we did 3 deals this year. We typically do 3 to 5 deals per year. There's a few deals which are pretty close to becoming successful. Most of them are gaming deals as I said, we are more geared towards gaming acquisitions now after having done a few media acquisitions. And there's a really few very attractive ones, online games but also mobile games. And yes, there's also a small media company on the list. So going to the next page, latest acquisition as said before was Free and Digital, that's Page 31, where yes, that was for us a big step because we want to get stronger on the mobile game side. If you see on the right bottom side, mobile games is only 1% of the revenues. We are growing that now to 10% of the revenues. And one way to do that is by acquisitions. The other of course is by migrating existing games to mobile, which you see in the left bottom side and also by more users into the mobile games, which would be via Remco. So starting with the revenue and EBITDA development on Thank you, Remco. So starting with the revenue and EBITDA development on Page 33. Here we see that we have shown very strong profitable growth in the last 6 years, growing with a CAGR of 43%. And if we now look at the growth of in 2019 of 85% 64% in 2020, we can clearly see that we have accelerated growth quite a bit and outperformed the CAGR of the last 6 years heavily. And this has also been done due to an increased organic growth, which we increased from 5% to 16% year to date due to more content updates, sequels, relaunches as well as launches based on licensed games and also more focus on user acquisition, which were also mainly done after the acquisition of the media companies in 2019, which caused EBITDA margin dilution. And that's the reason why we see on Page 33 as well the EBITA margin going down a bit. But as Remco mentioned already, there's a full integration of the media companies. We expect mid term EBITA margin to go up to 25% to 30% again as well as more focus also on the position of gaming companies, which will also help support us to grow the margins again to the level of 2018. Coming to Page 34, a little bit more in detail, the 3rd quarter revenue to EBITDA development. On the left side, we see the revenue, which has increased with 73% year on year based on the last 12 months revenue base. And just looking at the Q3 revenue of €35,000,000 we actually see that we had all time highs in terms of revenues, even outperforming the very strong Q2 2020 already and even stronger in comparison with the Q3 2019 number of €27,000,000 So very strong growth year on year and growing in the certain period now 8 times faster than the markets, which I think shows that our business model shows very strong growth in combination also with very strong profitability. And that's what we see on the adjusted EBITDA on the right side. So we have grown our EBITDA with 53 percent year on year, now reaching €25,000,000 adjusted EBITDA. And looking at the Q3 EBITDA of €6,400,000 compared to the €4,000,000 in Q3 2019, you see that we have realized quite some synergies within our companies as well as growing our total EBITDA. Coming now on Page 35. A little bit more on the segment performance in detail since Q1 2020. Here we see on the Gaming segment on the left side that after a very strong Q2, we have actually maintained the very high revenue levels, which is also due to the reason that we kept most of the players. So we have a very nice long term effect and therefore have grown compared to Q1. So before COVID kind of by 30%. And EBITDA decreased a bit as we now have an increased license revenue share, which we will also see on the next slide, and have also increased our marketing spend to gain to gear more towards revenue growth. On the right side, the Media segment, we see that we have actually also increased heavily due to before COVID levels with 35% quarter on quarter since Q1 2020 and even stronger compared to Q2 2020 where we saw slight revenue decrease to the COVID situation where less advertising budgets in the up line and non digital brands were maintained. But therefore, now seeing a very nice upside and pick up of the revenues and also very nice increase in EBITDA bringing us to €1,400,000 for Q3 2020. This has also been done, for example, due to the onboarding of Zynga, which is one of very, very declined in the media segment, which is selling the advertising spaces through our software as a service solutions. So very nice strong focus also on the within the media segment on the gaming vertical. Coming on Page 36, a bit more on the gaming revenues in detail. So on the left side, so that's really the gaming revenues, not having the media revenues in here, seeing that 75% approximately is coming from our top 10 MMO games in terms of gaming revenues, 17% from casual games, 11% from our other smaller MMO games. Looking at the gaming revenue by region, 48% was done by North America, 44% by Europe, 5% South America, 3% Asia and 1% Rest of World. And the 3% we expect now to grow also with the launch of growth within Korea and other Asian markets where we are still in negotiations for publishing deals and auto licensing deals of our biggest IPs. Looking a bit more on the gaming revenue by device, it's also almost unchanged compared to the Q2. Nevertheless, within Q4, we estimate that we will increase the mobile revenue share then to 10% and therefore seeing very nice growth also within the mobile vertical. Customer acquisition by channel, 74% stand via our own media companies, 26% via third party distribution, which means that we have a much better profitability overall compared to developers or companies which distribute all their games via third party distribution as they need to give up 30% to the platforms. Therefore, we have an overall better profitability within MGI Group. Coming to Page 37, a little bit more the license versus owned games revenue share. And here we see a pickup of license revenues from 52 percent to 59% now within Q3 2020. And that has also been the main reason is that our casual games platforms have also grown pretty heavily actually after we now have a new setup for user acquisition via our media companies and therefore saw very strong organic growth despite a seasonal low quarter, which actually is a very strong development. And therefore, 2 to the while 10 especially the while 10 casual game platform has grown very nicely and therefore increased the license revenue share as casual games are all licensed games. Coming to Page 38, for the operating cash flow and CapEx development. Here you see on the left side that we have now grown our operating cash flow from €300,000 in 2014 to €21,700,000 based on last 12 months. Q3 2020, with a very strong free cash flow of €17,600,000 and an average cash conversion since 2014 of 88%, so very strong cash contribution. And if we now look a bit more on the CapEx development on the right side, here we have increased our maintenance CapEx from €1,400,000 to €4,100,000 now based on Q3 2020 last 12 months. So increased our develop in house development, especially for sequels, relaunches, but also bigger content updates and VOCs. And therefore, also gearing now more towards organic growth, but still with a very limited maintenance CapEx and a very strong free cash flow. And also expansion CapEx has grown now to €21,000,000 last 12 months as we did the Werf acquisition but also invested more into IP rights, which where some of the projects are the projects which Remco just mentioned, which are on sales modes and where we also allocate quite some investments towards to get more organic growth even in 2021. Coming to Page 39. Here we see the long term net leverage development that started with 7x in 2014, then traded always between 23 after full integration and increased profitability. And then in Q1, had the chance to buy out Gamigo minorities. So have increased our net leverage due to a cash purchase price of 7.3.7x, but delevered pretty fast actually to 3.1x already just purely on operations, so increasing EBITDA and free cash flow. And now within the equity rates and bond issue, which took place after the reporting period, we have an illustrative net leverage of 1.9 times and also very strong cash position of €66,000,000 which now can be used for organic growth investments as well as further M and A. Coming now to our midterm financial targets. So how we want to grow in the coming years with the net leverage between 23, where we are currently with 1.9 times illustrative cost equity rates are well below. And on the revenue side, we want to grow with a CAGR of 25% to 30% compared to the 43% where we have grown in the last 6 years. We're feeling very comfortable with this number. On the EBITA margin, we expect target 25% to 30%. After now, the media companies are fully integrated as well as more gaming acquisitions and organic growth of our gaming unit and also the EBIT margin to go to the 15% to 20% on currently 12%, in line then with the EBITDA margin increase. And now I would like to hand over to Remco, which gives us an outlook for Q4 as well as the full year 2020 numbers and projects. Yes. Thank you, Paul. Then going to Page 41, where we show, let's say, a summary of our basic model plus the outlook for Q4. Yes, we're further growing. We have, let's say, Parol said, plus 25% CAGR we are projecting. We are at a faster growth path at the moment, but we don't want to overpromise and we also want to keep our healthy EBITDA with 25% to 30% margin. Now what's the basis of the business? Low business risk focus. So we have MMO games with steady sustainable cash streams. For Q4, we're expecting some big wins from the market. Q4 always seasonality wise is the strongest quarter, plus we get of course more lockdowns in Europe, which is not nice for everybody personally, but for gaming it's good of course. So we see also some positive effects there. Then strong organic growth, gaming as a service, updated DLCs, game launches. Also here in Q4, we have quite some things coming up like patches and of course also the beta launch of Atlas Rogue, which just happened and where we see, yes, good traction coming up as well and expecting a lot also for Q1. Also quite some signings of new games, so a lot of things happening in Q4. Supported by the media units for efficient user acquisition as explained before, Clear Cost and Data USB. On the media side, we expect further organic growth of the media part itself, but also of the user acquisition for the gaming part. Then Synergetic M and A with over 30 accretive transactions, well filled pipeline, 3 already done this year. Yes, the pipeline is further well filled and we expect already potentially 1 or 2 signings even already in Q4 and more to come also in the next year. Then integrating the acquired targets, as said before, that's driving our efficiency, yes, economies of scale, that's what we strongly believe in and which we will continue to further do in Q4 also, driving our cost efficiencies, but also using the synergies for further growth and also that should further drive our growth and profitability, which brings me to the next slide, Slide 42. Yes, we have based on the very good results of Q3 and also looking forward to a very strong Q4, we have increased our outlook a few weeks ago, which is that we are now expecting revenues of between €125,000,000 €130,000,000 just to say last 12 months including Q3, we did already €120,000,000 So this is really, yes, looking very promising, which would mean also CAGR again over 40% actually between 49% 60%. So faster growth than we did in the past. Also on the EBITDA side, we expect a very strong growth versus last year. But yes, expecting between €23,000,000 26,000,000 looking already at the Q3 LTM. We are more gearing towards the higher side of this and also this would mean a very strong growth. So this is yes, we are happy with the results of Q3. And this is bringing me to the next part of this presentation and that's the question section. I would hand back to the moderator. Thank Our first question comes from the line of Philip Frye of Warburg Research. Please go ahead. Your line is open. Hello, Paul. Hello, Ramco. Well, thanks for the elaborate presentation. I actually a bit wanted to go a bit into the details of your organic growth push and your launches. Can you say a bit more about the typical investments into launches and updates, what kind of payback periods you are eyeing and return on invested capital of these expenses. And probably a bit nitty gritty, the accounting treatment, this is all expensed? Or are you activating these investments? Paul, you take this one? Yes, I can take this one. So as Remco mentioned in the beginning, we have more than 10 organic growth projects now in stealth mode. And there, it's more than €5,000,000 development costs allocated to these projects. It depends on the expenses, but we activate normally 20% to 30% of the development cost and therefore are being more a bit more conservative on this side. So 70% to 80% is then directly going through the P and L and disarming our performance a bit. But nevertheless, as we expect, very nice organic growth from these projects and also being more on the kind of sequel side, so not doing now this kind of crazy development from games completely from the scratch. So not taking the €5,000,000 to €50,000,000 investment like normal developers doing it, really like doing things like Atlas Rook as well as, for example, desert operations, bringing it to mobile. So that's more of the things we are looking at, but expect actually quite some nice organic growth from these projects also in the coming years. And I think as we now have proven already that the increased organic growth from 5% to 16%, we have already shown that we are able. And also, for example, with the launch of ARC Hunchanged in Q4 2019, we generated more than €10,000,000 revenues already, really showing that we are able to launch these kind of AAA games as well on a global scale, attracting 1,000 and 100,000 of gamers and generating very good revenues with it. And I guess there's not all questions answered yet, Philip. So maybe Yes. Well, yes, I just wanted actually. Did I get this right? It's €10,000,000 for Arches. That would basically then mean that you well, were able to recoup the full cost of the launch already in the 1st year or Yes, yes, exactly. So that's nothing which you always see, especially with such an MMO game, which runs for 5 years plus. But it depends if it's an exceptional launch, you can actually have a return on investment even within a few months. So let's say 3 or 4 months, if it's an exceptional launch. And otherwise, we look at the return on investment of 12 months up to 18 months. But actually, having much been much, much better within our games, as you know, our games are running for 5, 10 years plus in a Fiesta, I know, 14 years. And therefore, it's still generating very strong cash flows. But there we also have the maintenance CapEx of SEK 400,000,000, which we're expanding per year, investing in the existing games as well as in new games. And therefore, also on a running basis have quite some maintenance CapEx, but it's always looking at the EBITA margin of 30% of our gaming units, but still very strong cash conversion and cash contribution of these games. That sounds very promising. And my second question a bit on the integration of VNET Mobile now closing October 1. Well, with now 2 months that you've basically been able to look into the business, what are your first thoughts on the potential integration costs, which are having on the growth potential, just some thoughts on that one. Yes, let's say the 2 months doesn't make so much difference because what we normally do when we do an M and A case, we already look at how we are going to integrate the company before we buy the company because that's planned basically of the whole, how to say, evaluation if we do the deal. So there wasn't well made plan already for the integration of Freenet Digital, which is at the moment implemented. And typically, we take 3 to maximum 6 months to integrate the teams and we take 6 to maximum 12 months to integrate technologies. So that's things that are at the moment on the way. And there are of course some parts of the business which we are looking at a bit more critical if they really make sense for the long term. So it does also we have usually when we buy a company there's some games or some things that are not that profitable and not sustainable for the long term. So we normally cut them. And of course we're working on the integrations with the current parts of the company. So I hope that answers your question. Yes. So pretty much business as usual for you. Yes. No, it's our, I think, 34th M and A case now. So it's there is a certain, how to say it, level of experience in these things. Yes. And my last question is actually just financially regarding the accounting for the payback of the bond. I guess you are fully incurring the 3.875 percent core premium in the 4th quarter then and after and the typical interest expenses of the newborns then or is there anything which I should be aware of? No, that's what the auditors together with the FAS team is currently working on, how they treat it from an accounting perspective. And that's something which we will then show within the Q4 report, how it's treated there. Okay. So thanks a lot, and well, all the best for the Christmas season, and happy festivities. Thank you very much. Thank you, Philip. Thank you. Our next question comes from the line of Dharmesh Saylor at Redeye. Please go ahead. Your line is open. Hi, everyone. Thank you for a detailed presentation and congratulations on a strong quarter. Thank you. I have a question regarding the large inflow players you saw during Q2. You mentioned that they monetized greatly during Q3. But how did the customer retention rate look compared to the players that you normally acquire during more normal circumstances? Is it more of a temporary nature of these players? Or have you seen any effect? No, let's say that was of course what everybody was kind of questioning we ourselves as well within Q2 when we had a high inflow because a lot of people being at home looking for other entertainment and yes, just Netflix and YouTube. So the question was, are those gamers are starting the game similar quality and similar lifetimes of gamers that joined in normal times? We can answer that with a yes now. And as we are assuming, but it's not more than assuming at the moment that people are, let's say, more than a few weeks in the game, they're really tied to the game. So probably when the lockdowns would have lasted much shorter, it probably wouldn't have shown the same. But people that really are in the game have played for a few weeks or months actually. They show similar behaviors as other players that we got during normal times. So we're very positive about that because it shows that we really on the long term again have an extra influx of gamers, which is driving long term revenues also for us. Okay. So it sounds like you're building up a new higher base, it's not that it's a temporary boost and then you have to reset and start over again? Yes, that's the way as it looks now. I mean still of course 3 months after the COVID quarter is still not that long. 4 months actually we're talking, but it has all the signs that it's really going like that. And that means that Q2 gave us a real head start on euro acquisition, which normally would have taken, I don't know if you would have done it in normal periods maybe up to a year. Great. Thank you. And a follow-up question on that. With the acquisition of FreeNet, the expanding mobile games segment. And could you maybe elaborate between the difference the Hazers between the different user bases? So basically MMORPGs, you mentioned Fiesta Online, them having a really long lifetime value of those users and mobile games are sometimes more casual. How do they how do the dynamics differ when it comes to, yes, basically the 2 different user bases and the dynamic between customer activation cost and lifetime value? Yes, I would make the difference a bit in another way, because basically we're talking about different channels where you can play games. I mean, smart TV would be another one and console is another one. And what we see more and more that each genre of games is being played basically on each outlet. So also on mobile phones, you have MMOs that have extremely long lifetimes. Of course, it's difficult that let's say some role play games traditionally on a PC have many, how to say keyboard keys that you use for short combinations which are not available on a mobile phone. So you have to work on user interface. But also in the mobile phase, you have games that have extremely long lifetimes and also shorter lifetimes. As on the subscription side and that's more what we're also looking at, you have casual games in subscriptions and you have of course also ad funded casual games where it's about getting people into the next casual game. So lifetimes basically aren't that different between the two channels, so online and mobile. But of course, there is a bit heavier, let's say, if you look at the player base, there are more players playing casual games on mobiles than there are on PCs and online consoles. But also with, let's say, free digital that was one of the big parts. They have mobile games that really played long time that are really yes, have loyal customer bases. Some of them a bit small, so we're also pushing there more on the user acquisition side and seeing that we go forward and also helping that. And of course, as I've showed also in the slide, working on, for example, desert operations to launch that now on mobile to get our other IPs also on mobile where possible. Okay. So the increased competition on the mobile, does that translate to a higher customer activity cost as well? Yes. Mobile, there isn't. Let's say, there's 2 negatives of mobile compared to basically online games. The one is, of course, the gatekeepers with PlayStation and Sony and Microsoft we have let's say they are taking 30% of the part on the consoles and the same thing we see also in the mobile phones where Apple and Google also taking 30% of every euro that's spent from let's say from us. Where on the online games, we are just, let's say, putting roughly 8% to 9% for billing. So that's a big difference. And the other point indeed, especially for mobile, there's a strong competition, a lot of new games being launched and a lot of marketing dollars being spent altogether. So there is more, let's say, competitiveness on the user acquisition. And that's where we are really happy that we have the media companies, which allow us of course that to be very cost competitive and also have an extremely good targeting possibility. Yes, for sure. And the last question. So it's no secret that you had an M and A strategy And the gaming market is very fragmented and a lot of gaming companies are adopting the M and A strategy now because of this. And has this made it harder to find good acquisition targets? And if so, how do you counteract a bit? Yes, I would, let's say, differentiate a bit also here in the kind of targets. On, let's say, EBITDA negative targets, there's hardly any competition because most people think it's too slow and are afraid of it. So that's where we are outside of competition. Then if you take EBITDA positive targets, as long as they are under, I would say, yes, €30,000,000 or €50,000,000 revenues, there's not so much competition on them because that's what we see that really the Steelfronts, Embracers, but also the Sony's, the Tencent etcetera, all concentrating on larger game companies. So there's a lot of competition for, I would say, the range over €30,000,000 to €50,000,000 below that we hardly meet each other because there are so many targets that are available. Okay, great. Thank you and good luck on the rest of the year. Thank you very much. Thanks for your questions. Thank you. And our next question comes from the line of Lars Ola Hellstrom of Pareto Securities. Please go ahead. Your line is open. Hi, Remco. Hi, Paul. Really strong report. I just want to go back to the Gaming and the sequential performance from Q2. Just to establish what kind of new level we actually have. Would you say that you have seen the normal seasonal pattern in Q3 with a slowdown in Q3, but you have some other activities like content drops or pipeline activity that compensated as well, while you almost ended up at the strong Q2 numbers? Yes, Lars Oliver, thanks for the question. If we look, normally Q2 and Q3 are the seasonality weaker quarters because people more outside, good weather and just playing less and when they play less they also spend less. What we saw now with Q2, even though it was nice weather, people being locked at home, we saw a lot of people playing. So the existing players that were in the game were spending more. They were paying more and spending more. And we got a lot of new players into the game, which always take a while to start to spend. And that's the effect that we saw in Q3, which was a bit more normal seasonality because there was much less lockdown. There was a bit, but not a lot. So we basically saw the existing gamers spending a bit less again, but the new gamers that came into the game starting to spend. And also if you compare Q2, we didn't have sorry, we had quite some game launches. In Q3, we didn't. We did a few, but compared to Q2, it was weaker. So we're really happy that Q3 really showed such a good revenue on the game of science. To add one thing here, so but what's your take out as well, L'Oreal, so in Q2, for example, 12 as well as arcade champagne had really big DOP updates. So within Q3, even not losing the players, there was a bit less revenues, but it was then overcompensated by the very nice increase of the retention gains, which then also resulted in the increase of the license revenue share from 52% to 59% during Q3. And as you know, they have a new user acquisition model within our media unit, which showed outstanding results. So heavily above our expectations, we were able to kind of overcompensate or compensate these revenue decrease on the arcade unchanged on the Control game, which were again just because we had very big updates in Q2 and with less updates in Q3, but there's more to come within Q4 again. But that's kind of compensated a bit for this. Okay. So it seems like the Q3 is on level from which to grow. And going into the details versus license versus owned games, I understood it. Is it mostly related to the media side pushing the wild tangent casual games? Is that also the explanation why you're having a slightly lower margin sequentially? Exactly. Because Sorry, Los Blanca. Yes. So it's just a mix effect. Yes, exactly. So it's a mix effect. So our attention, there we now have a kind of new user acquisition set up where we are able to do have this set up due to our media unit, which again saw very outstanding results. So very nice increase in revenues. And that inventory also resulted then in the slight decrease in EBITDA margins as we have to pay the license revenues there. But overall, year on year, very strong total EBITDA growth, which resulted, therefore, also in a high organic growth of revenues. Yes. Okay. And going to the media side, super strong, I think almost 50% sequential growth in the media. You said it's some new collaborations between etcetera. But isn't it also that some advertiser is coming back to the market? Can you give some flavor on the factor driving the sequential growth? Yes, you are correct with your observation. What we saw in Q2, especially early Q2 when the lockdown started that a lot of advertisers were pausing or stopping their campaigns. And therefore, let's say, almost all of them have been coming back and a lot of them actually stronger than before, especially on the gaming side and that's the same thing we did. People have been increasing their budgets. And also on the e commerce side, we have seen strong increases on the Q3 numbers. What we haven't seen coming back is, let's say, the more travel advertisers, but that's only very small part of our ads. So we have, let's say, hotel chains and other travel occupations, which really haven't been coming back. But Media indeed was very good. What also helped by the way in Q3 is a bit of the campaign spend in U. S. Because we also there have a lot of U. S. Business. So also, yes, believe it or not, but a lot of spend was also on games for political campaigns. But would you say that Q3 is the level from which to grow? Or was there an effect of pent up demand for media services that filtered through and now it will be more normal going forward? No, we expect this to be in a healthy level because a lot of the growth is also coming from integrating platforms from getting users on different services with us. So we expect the Q3 level to be growing. So Q4 should on the media side also be very strong. What you normally see by the way on the media side is that Q1 and that's different from the Gaming is a weak quarter. So seasonality wise, we will see of course and dip most likely a bit on the Media side in Q1. But that's only in Q1 and half versus growing again then. But we expect that Q3 really is a good healthy level for also further growth. And maybe to add to you as well, but not 50% quarter on quarter growth always on the media side. So that's in terms of revenue, total revenue numbers, it's a good number to kind of calculate further growth, but not on a 50% quarter on quarterly basis. We don't expect the Media segment every quarter to grow by 50%. So there was quite some effects, which you mentioned by yourself plus Ola in Q3. But we expect and we're already seeing a very strong growth within Q4 as well. And therefore but also this in the 3rd digital acquisition, it's maybe also important to mention also expect to increase the revenue share of the gaming units in Q4 again. Okay. Thank you. Once again, there We have one question by email, which just came in, and it's related to our forecast of 2021. So there, we don't have a guidance or forecast yet. The only things which we have within the presentation, which has been mentioned, is a 25% to 30% revenue CAGR, for example, which we expect midterm. And then there's tons of analyst reports out there where you can also look in, which have some forecast included. And therefore, we would refer to the analyst reports and to the financial targets that's in the presentation. Thank you. And we've had one further question coming through on the phones. That's from the line of Ellis Backlund of First Billing Equity Research. Please go ahead. Your line is open. Yes. Good morning, Remco. Good morning, Paul. Hi. Good morning. I had I was having a few technical issues on the line, so you might have already touched on this, but I noticed that you're expecting a pretty nice uptick in the Q4 for mobile gaming. If you would mind going over the driver behind that expectation? Thank you. Paul, you want to take it or should I? I can take it as well. So what we did now by end of Q3, beginning of Q4, actually beginning of Q4 was the closing 1st October. We acquired the Fiat Digital company, which has a casual game mobile platform of 1500 mobile games. And with this revenue, there we expect revenues of €12,000,000 to €30,000,000 for 2021 with EBITDA of €2,000,000 to €3,000,000 for 2021, but already have some nice revenue impacts during Q4 and therefore expect our mobile revenue share to increase from 1% in Q3 to 10% approximately within Q4 2020 already. And with also in combination then with our solid organic growth pipeline. So some licensed game launches for mobile IPs, but also porting some of our existing games like Desert Operations to mobile to show further organic growth also in 2021 on the mobile space. Great stuff, guys. Thanks. Good luck in the Q4. Happy holidays and stuff. Thank you very much, Ellis. Keep in touch. Bye bye. Thank you. There seem to be no further questions from the phones at this time, so I'll hand back to our speakers. Actually, just as I say that, there is one further question that's just come through. It's from the line of Sven Sawyer at Kepler Cheuvreux. Please go ahead. Your line is open. Yes. Good morning, gentlemen. Sven here. One quick question on the presentation. I saw that you could be expecting further M and A deals in Q4. Should we expect something rather on the media or gaming side? I will answer that. Thanks for your question. We are, let's say, looking at both sides further for M and A, but as already in the presentation I referred to, we are looking more at the gaming side. So we have several targets lined up on the gaming side. And there is on the list, let's say, 4 targets for gaming, 1 target for media, where we are pretty far in processes, which could still be signed very quickly, also still could break of course. But we are gearing more towards gaming and yes, there's also small media deal in the pipeline. Okay. Thank you. Thanks. Thank you. And then I think we're coming to the end or are there more questions? Yes. No further questions at this point. Then I would like to thank everybody very much for listening into this. And if there are more questions, we can also be contacted, of course, directly. So thank you very much and yes, looking forward to a good Q4. I wish everybody Merry Christmas and a Happy New Year of course already. Thank you.