Earnings Call: Q4 2018

Feb 13, 2019

Morning, everyone. Thank you for dialing in or listening to us for this earnings call regarding the Q4 2018 in G5 Entertainment. Let's proceed to Page 1. So in the Q4, we had a revenue of and 40,700,000, that's minus 5% year over year. However, if you look at the big picture, the full year 2018 had record revenue and the record earnings. We had SEK1.5 1,000,000,000 in revenue almost and SEK143 1,000,000 in earnings, also actually a record positive cash flow, SEK45 1,000,000. And the revenue was stable in Q4 compared to Q3. And Heat City, our largest name by revenue, as you know, continues to perform great. It's an amazing game, has hit with a loyal audience, and it has been a great financial success. And there's a really long tail of sales in front of us. So the game will continue to generate revenue and profits for years to come. Then another thing is that the revenue from our internally developed games actually achieved record levels during 2018, and they continue growing faster than licensed games year over year. User acquisition costs were lower compared to previous year and compared to Q4 previous year. So 28% in Q4 compared to 34% in Q4 2017. The reasoning is that we've built a large enough audience, actually pretty loyal audience, players in GBP City. And in absence of momentum there, we're we can basically spend less on user acquisition. And the users we have attracted with our investment in user acquisition in previous periods will we'll continue playing this game for a long period of time. The monetization has improved 5% year over year in the 4th quarter and that partly is a function of less new users attracted into the game, but also the evolution of the games and the improvement of monetization in our games. The revenue breakdown by region remained the same, stable, North America, more than a half of revenue Asia, 26% Europe, 17% rest of the world, 6%. Nothing new there. I can just reiterate that our audience is stable and the breakdown by revenue is by region is stable and Q4 to Q3 is also stable revenue. Let's move on to the next slide and discuss our earnings and EBIT. So the EBIT in the Q4 was CHF 18,600,000, EBIT margin of 5.5 percent. And this has been an increase in earnings compared to Q4 2017. If we look at the full year, there was an expansion of the EBIT margin for the year from 9% in 2017 to 10% in 2018. And the gross margin continued improving because the share of revenue from internally developed owned games continued to grow. The EBIT margin in Q4 was 4.5% last year, 5.5% this year. We have quite a few games in the development at the moment. So if you look at our portfolio, there are about 12 games in what we call active evolution. That means that there is a team working on the game. 8 of them are already released on the market and 4 are in development. And we continue strengthening the development teams during the year to make sure we can evolve the games and improve them, the ones that are released and also create new games that will generate the growth going forward. And that is necessary and that is important for a company like us with the developer DNA and our approach with managing the portfolio and creating new shots at creating new hits. And that obviously puts a pressure on the margin. So from one point, you have the reduction in new acquisition expenses. And from the other point of view, you have the a bit more pressure on the EBIT margin from the increase on the staffs and increased R and D in connection with the development and evolution of games. The Board proposes a dividend of SEK2.5 per share. I can say we have we could have afforded more, but the company is on the new platform. The company is much larger. And if you compare G5 to our mobile peers that are publicly listed, I think our reserves are a little bit on the lower side. So it's kind of a prudent thing to do to build up reserves at this point. Let's move on to the next slide. Cash on cash flow. And cash flow in the Q4 was SEK40.7 million. For the full year, it was SEK45 million. What can I say? Strong cash flow in the quarter. The reduction of user acquisition expenses affected this positively, obviously. I can also say that the performance of internally developed owned games is a great contributor here too. And the two highlights that we had in the Q4 and in the full year 2018 are Magellan Journeys and Homicide Squad. And Magellan Journeys are 2nd largest gain by revenue developed internally. And Hammertie Squad, it's going to be one of our games at the top there by revenue. And it has been consistently growing for a year at this point. So this improves gross margin and our revenue mix between owned and licensed. And what else is there? There was an early payment from Apple in this really nice figure for the cash flow for the Q4. So that affected it positively. The capitalized development costs were higher than 1 year ago, again, because we have strengthened our development teams, and our focus is really on evolving our portfolio for growth and creating new growth drivers, and that is something vital to our business that we will continue doing. And cash flow from normal business operations, well, from all business operations really remains stable and healthy. And total cash at the end of the period was almost million. I think it's the highest that we have ever had. That's about it for the results of the Q4 2019. We are very focused as a company on managing our portfolio of games, something that we have done for many years and on creating new growth drivers for the company, and that is going to be our goal and our focus in 2019. So if you have any questions, please step forward and let us know. I'll try to answer. Speakers. Please go ahead. All right. So I do not see any questions in email either. So thank you very much for joining us today. And this concludes our call.