Welcome to the Fractal Gaming Group Q1 2023 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing star five on their telephone keypad. I will hand the conference over to the speakers, CEO Hannes Wallin and CFO Karin Ingemarson. Please go ahead.
Hello, everyone, and welcome to today's presentation of our Q1 report. We're very excited today to update you about the latest development in our company and share the details of our report. Looking first at some highlights from our Q1 report. Our sales increased by an incredible 66% year-over-year, measured in Swedish krona and increased by 49% measured in US dollars. We are, of course, very satisfied with this development and we will talk more later in this presentation about specific dynamics of the market turnaround and also our revenue developments. Our sales at revenue increased by 32% year-over-year, which is also a very positive sign of the market turnaround.
The difference in sales and increase and sales out increase is explained by the channel stock filling dynamics, where our sales partners need to also increase their stock levels to match the higher run rates. The recovery in the market, which we saw started already in the second half of 2022, has further strengthened during the quarter and clearly shows that there's been a pent-up demand that we have talked about in previous presentations. The increase in sales out is, however, also explained by a very positive market reception of our new case series launched in 2022, which were the new models of the Torrent series and the new case families of Pop and North. The North especially launched in December 2022, has been a monumental success for us and is one of our best-selling cases in our history.
As a result of our strong product lineup, we also see that we are gaining market shares in key markets. Our EBITDA increased to SEK 42 million, compared to SEK 11 million a year ago. Our product margin is slightly higher year-over-year. We had 40.4% compared with 40.2% last year, with a positive impact from lower shipping rates, but offset by a less favorable product mix. Looking at the general market development and trends, we saw in Q1 that the leading gaming platform, Steam, set another record with 33 million concurrent players, which is a testament of the still strong gaming interest and activity. There's also been some strong game releases in the quarter, especially the best-selling Harry Potter franchise, Hogwarts Legacy, which have further boosted gaming activity.
It is predicted that the popularity of cross-platform games will continue to rise, where PCs remain the platform of choice for the majority of the game developers. We think that this year will be a busy year with many major game releases, also paired with lower prices and additional options within the graphics card category, which can fuel increased demand. Also as we have discussed in previous reports, the gaming industry has proven to be relatively recession resilient in the past, and we believe it's likely that gaming will continue to be strong in coming years despite macroeconomic headwinds. I mentioned previously that the North case launched in end of 2022, has been a big success for us with a tremendous reception from both media and customers, followed by very strong sales numbers.
We are also very proud to report that the North has won the prestigious Red Dot Product Design Award for 2023. Our focus has always been on creating products that combine exceptional functionality with remarkable design. This recognition from the Red Dot Design Award is a testament of that endeavor. With that, I'll leave over to you, Karin, to continue.
Thank you. Moving on to net sales and sales out. The graph at the top shows the development in net sales. The first quarters started strong with a net sales of SEK 196 million, and a growth of 66% compared to the first quarter last year. We also measure our sales in US dollar, as we sell exclusively in dollars, regardless of the end market, and the organic increase in the first quarter was 49%. The recovery in the market, which started already in the second half of 2022, has further strengthened during the first quarter 2023, which has led to our retailers having to increase their inventory levels to meet the increased demand.
When sales to end customers increase, retailers need to increase purchases to cover for the increased sales run rates, but also to maintain a certain stock level, which gives a temporary boost effect to be able to adapt to the higher run rates. Of course, vice versa. If the run rates goes down, then the effect, then the retailers reduce purchases for reduced run rates as well as to reduce stock levels. In the past two years, we have made many successful product launches, as Hannes just talked about, and we now have the strongest product portfolio ever, which has contributed to increased sales but also increased market shares. Case series, Torrent, Pop and North were among the best-selling products during the quarter.
The strong sales in recent quarters clearly shows that there is a pent-up demand as many gamers have waited to upgrade their equipment. We now have a significantly improved market with good access to graphics cards, lower prices, while new generations of graphics cards have been launched, which increases interest in Fractal's products. In the graph at the bottom, you can see our quarterly development in sales out to end customers that distributors and resellers report to us measured in dollars. Sales out is an important measure that shows the underlying commercial development. In the first quarter of 2023, sales out increased by 32% organically compared to last year, with an increase in the case category of 36%, which shows increased demand and great interest in our products. Sales out has been on a high level during the last two quarters.
In the first quarter 2023, it was $17 million and the strongest quarter since Q4 2020. Moving on to the next slide and segment development. The strongest region in the quarter was EU, with net sales of SEK 98 million, corresponding to 50% of total net sales compared to 42% last year. The increase was mainly driven by increased demand from end customers, successful launches, and low inventory level at retailers. America's net sales amounted to $71 million, which is 37% of total net sales, and APAC and other amounted to SEK 26 million, which is 13% of total net sales. Sales of Cases was 91% of total net sales compared to 89% last year. Moving on to the next slide and product margin.
In the first quarter, product margin was 40.4%, which is 0.2 percentage point higher year-over-year. Factors affecting the margin were lower shipping costs, which positively affected the product margin by approximately 5 percentage points as shipping prices were even lower than before the pandemic. The comparative numbers in the first quarter of 2022 were historically high as freight prices peaked in the fourth quarter of 2021 and the first quarter of 2022. We had the currency effect, which had a positive effect on the product margin by approximately 2 percentage points attributable to inventory that was purchased at a lower rate and sold at a higher rate. The product mix effect affected the product margin negatively by approximately 8 percentage points and was mainly attributable to lower gross margins within the product groups.
Let's have a look at the next slide and earnings. In the first quarter 2023, EBITDA was strong and amounted to SEK 42 million, and the margin was 21%, compared to SEK 11 million and 10% margin last year. The increase in EBITDA was mainly due to increased sales and higher product results and lower warehouse costs due to decreased stock. Looking at operating cash flow, which was strengthened to SEK 59 million compared to SEK 7 million last year, positively impacted by higher EBITDA. The positive change in net working capital was mainly related to lower inventory and increased accounts payables. The cash flow from investing activities amounted to SEK 10 million and in line with last year.
The bank overdraft facility was SEK 18 million compared to SEK 123 million last year and was mainly related to purchases of products in stock. Lower utilization of the overdraft facility is mainly due to increased sales. Total credit facility amounts to SEK 120 million. Moving on to the next slide and the income statement. As previously presented, we had a net sales increase of 66%, mainly due to retailers having to increase their inventory levels to meet the increased demand, successful product launches, and good access to graphics cards with lower prices. Lower shipping costs as well as positive currency effects improved the product results. Warehouse cost was lower due to lower inventory level, some variable costs were higher because of increased sales. Fractal is in many ways a dollar company with 100% in dollars down to product margin.
Fractal's reporting currency is SEK. The numbers are affected by fluctuating exchange rates in currencies other than SEK. The first quarter had an average US dollar SEK rate of 10.4 compared to 9.3 last year, which is positive on our results. The financial net is mainly affected by interest expenses related to the overdraft facility and FX translation effects. With that, I hand over to Hannes again.
Thank you, Karin. A summary of our presentation here today on the quarterly report, including with outlook. The recovery in the markets that we reported already in the Q4 report strengthened further during the quarter, and we saw net sales growth of an amazing 66%. We can also proudly say that our product portfolio is now more attractive than ever, which have contributed significantly to the sales growth and grown our market shares. Our product margin continues to be on a very solid level on 40.4%, and EBITDA margin was in this quarter very strong at 21.3%. As also mentioned by Karin before, our cash flow was very strong in the quarter, which have reduced our debt significantly, which we are very satisfied and happy about.
The market turnaround we see currently is of course very encouraging, but it's still too early to judge, of course, the length and strength of it. We continue to see a strong momentum in the start of Q2, which gives us confidence in our ability to drive profitable growth in this year and beyond. With that, we have finished our presentation and we would like to open up for any questions.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Amar Galijasevic from Carnegie. Please go ahead.
Thank you, operator, and good morning, Hannes and Karin.
Good morning.
I have a couple of questions here. First one on the regional performance here with the Europe standing out very well from the rest of the regions. You talk about how increasing inventory levels at the resellers and stuff. Is there any particular reason why it's not the same effect in the other regions?
Yeah. I mean, we have seen now in the first quarter that the return to growth has been particularly strong in Europe. I think there are several reasons to that. One reason is that the comparable numbers of Europe last year was quite weak. Therefore, the growth becomes stronger. We had relatively decent markets still in the U.S. and in Asia last year. In general, the channel stock dynamics is something that is mainly affecting our European and Asian markets. Whereas in the U.S., we have our own inventory. There is some channel stock, of course, but it's more limited.
Okay. Thank you for that. If we look at the product margin, very solid here in the first quarter. If we look out further out this year, is there anything that affects the product margin in any direction that you see now already?
Well, I think it's worth mentioning the FX effect, which we had as a positive contribution in this quarter and have had for some time now, which is basically because we had purchased some inventory at lower dollar rates in the past and are selling it now at higher dollar rates. But now our inventory is starting to normalize to the current dollar rates. If the dollar rate would be dropping over the year, that could turn around into a negative FX effect. So that is something that is worth mentioning. We don't know how that's going to develop, but at least the positive FX effect will likely slowly disappear. The other part which we could see on... I could actually switch to that slide again for illustration. Hang on a second.
This slide. We can see the waterfall here. We have the freight costs, which have now come down significantly compared to where they were in 2021, 2022, and that has a positive effect. That is not something that we believe will disappear. We believe the freight costs will now stay low or stay normal rather, because what we see now is return to normal freight levels before the pandemic price hikes. Apart from that, we also have a product mix effect in the first quarter, which is mainly attributed to some of our new Kelvin Series which have lower margins than some of our other Kelvin Series, which is mainly attributed to the Pop and the North Kelvin Series.
The Pop because it's more value-oriented case, and the North because we have some quite expensive wood details there which are quite costly. We have worked very hard on getting the cost down, especially on those two product categories. We have in general had quite significant cost downs in the first quarter. On all our products, but we worked especially hard on the Pop and the North to get our costs down and also to make some price adjustments in order to remove this negative product mix effect. We have done significant progress on that, and I foresee that it takes some time for that effect to fully be realized in the P&L with some stock delay and such effects.
Further on incoming quarters, we believe that the negative product mix effects will vanish. On the downside, there could be a negative FX effect.
That's super helpful. Thank you. Just a final one for me. You talked a bit about game releases, Hogwarts here in Q1, very strong release. You mentioned a bunch of other AAA titles being released throughout the year. I was just wondering, do you see any material effect for your business when there are more, let's say, AAA releases in a quarter or no similar effects?
Yeah, for sure. It's always an important driver for gaming hardware upgrades. It's not 100% correlated, but there are certain correlation to a strong game release roadmap to the interest of upgrading your PCs. It depends a little bit on the type of titles as well. If there are more performance demanding titles, like for example, I think it was two years ago now that the Cyberpunk 2077 release, which was extremely performance hungry game, that drove a lot of upgrades. Yes, there is some correlation to game releases and in general gaming activity and a need for upgrades in particular.
Okay, perfect. Thank you very much. That's all from me.
Thank you, Amar.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad.
All right.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Thank you. Yeah, we have some written questions we have received. The first question is, in which of your four business areas do you see most recovery and in which least in 2023? Will there be new water cooling products to compete with the latest generation? We see that the main recovery has been in cases, which I think is mainly attributed to that we have launched a lot of new strong products in the last year in that category. In terms of water cooling, yes, we're always working to make sure that we have a competitive lineup, and we will release further upgrades to our current lineup and also in the water cooling segments. The other question we got here is, could you expand on large impact and gross margin from product mix in the quarter? What are the drivers?
What do you expect going forward? I touched on that a little bit before on Amar's question. We see that the product mix effect is mainly attributed to some of our newer launches, which have had a bit lower margin, but we have been working very actively on that since Q4, and we have done a lot of improvements, and we see those improvements will at least reduce or perhaps entirely eliminate that product, that negative product mix effect. All right. With that, I think we have covered all the questions, and thank you all for your time today and wish you a great day. Thank you.
This concludes the call. You may now disconnect.