Hello and welcome to this Q1 presentation with Zordix. With us today we have CEO Christina Seelye and CFO Peter Daboczi. My name is Christoffer Westerlund and I work for Finwire Media. After presentation there will be a Q&A session, so please stick around for that one. With that said, I hand over the word to Christina and Peter.
Hi. Thanks Martin. As Martin mentioned, my name is Christina Seelye. I am the newly appointed CEO of Zordix. I have lots of years of experience, too many, in the software industry, and then over 10 years specifically in the video game industry, founded multiple consumer technology companies, and very excited to be here talking about our fantastic Q1 today. With me is Peter.
Hi, everyone. My name is Peter Daboczi. I am the CFO of Zordix. I joined the company back in January 2021. Prior to that, I held a couple of other CFO roles, and I spent about a decade in private equity. Handing back to Christina.
Great. We had a very strong start to 2022 as the Q1 of all of the companies that made up Zordix's transformative year of 2021. Q1 2022 was the Q1 that we all worked completely together successfully. Lots of highlights for the year for this quarter. First and foremost, we did a really great result for the revenue and EBITDA for the year. As you can see here, SEK 237 million in net revenue with a SEK 21.7 million EBITDA and SEK 17.7 million operational EBIT.
This represents a 20% pro forma growth over Q1 2021. We completed one acquisition in this quarter, which is the IP rights to the game, Them's Fightin' Herds , and the team of developers at Mane6. A really great quarter with 14 games released by the group, including a very successful physical launch of Five Nights at Freddy's: Security Breach, and then a full launch of In Nightmare, and the continued success of our battle royale cross-platform game, Super Animal Royale.
One of the other big highlights that I'm really proud of for this past quarter is a reorganization of all of the studios within Zordix under one business unit, to optimize the use of all of the developers that we have in various countries around the world. We are continuing to invest in content. We invested over SEK 15 million just in the first three months of the year, in content for the group.
Just to remind everybody about who we are, as 2021 was a year of transformative change for Zordix, we are now after the acquisitions that took place last year, a really truly full service global developer, publisher, and distributor of video games with publishing units all over the world as well as development studios all over the world. We are made up of nine organizations, f our of those organizations being focused on publishing, and five of the organizations focusing on creating content, and those are our studios.
We really have created a phenomenal infrastructure and publishing engine by which we take the content both from our own studios as well as from third parties, studios and partners that we work with all over to feed into this engine to get really great commercial results for our created content, our video games. We launch over 60 games a year, and that results in having a very strong back catalog, and we have a pipeline that goes out to 2025 with new games.
One thing that's interesting about this concept of having new titles as well as back catalog titles is that we create an environment where we don't have any single game dependence. We have over 35 titles that are our own IP and over 300 titles in our total catalog, which gives us a really great platform that's very risk mitigated because we are generating revenue from a lot of different games, not just one blockbuster.
We have 200 employees now, about half of them are developers. As I've talked about this before, there's been six acquisitions from Zordix that really transformed the company over the last couple years. The management team is made up of entrepreneurs who really know how to drive organic growth and are excited about the future of driving as much content as possible through this publishing engine that we've created.
Talking a little bit about the industry here and how Zordix fits into the industry, you can see here kind of the total value chain of game development. At the beginning, we have the game concept and the development of the game, and then we move into publishing the game, which is where the positioning, the marketing, the sales efforts, all of the PR, the consumer awareness, everything happens there within the publishing part of the value chain. Then it goes out to distributors, which are the link between publishers and the end gamer.
Those distributors can be retail physical retailers such as Walmart, GameStop, and their global equivalents, or they can be digital distributors such as Xbox, PlayStation, Steam, and other Epic Games Store, all of the different digital distributors that you can use. Ultimately getting the game to the gamer around the world, the players around the world. Zordix has created a model where we have value and we're bringing value to the core places within this value chain, so from development to publishing. We can basically work with people wherever they are in that cycle.
From concept with our own development teams and our own studios creating content all the way through what we call kind of light touch publishing, where we're coming in much later stage, making sure that, partners that we're working with that have created a game can get a really fantastic commercial result from that game.
I've talked about this a little bit before, with the over 300 games within our catalog and over 35 games that are our own intellectual property. This results in a very broad portfolio of our intellectual property. It makes it so that we're not reliant on just one title. That's very... It's a great way to mitigate risk, but it's also a way to make sure that we are seeing what's going on in the industry at large, and we're getting to experience what genres are working and not working and where the trends are.
We can use all of this ability to launch a broad portfolio of games really has a gigantic benefit for us because it's not just we're investing in one game that might come out three years from now, but we're investing in a lot of different games, giving us a lot of visibility, a lot of data that we can use to make good decisions moving forward.
As we move towards more studios and more content that we're developing ourselves, we will change a little bit the balance of what we have within the group as far as how much IP we own versus how much we're working with on a third-party basis. You'll see that balance head more towards our own IP in the years to come.
We've talked a little bit about this as well, which is this concept of a balanced portfolio of back catalog and new IP. Every new piece of intellectual property, every new game that's launched contributes to additional revenue that year, but then it funnels back into the back catalog that allows us to have a big, strong base of revenue for the long tail of each game.
We have over 35 of our own intellectual properties, and that's increasing as we move forward, and every new game contributes to more on the back catalog. We have a large current portfolio and specifically talking about Q1, we had a great Q1, really on the back of a very strong back catalog. A lot of that was reorders and a lot of new sales to new gamers of our existing portfolio catalog, even though we only had a few titles that actually launched in Q1, alm ost everything was coming from back catalog. As you can see here, we have a current portfolio of new IP that's all launching this year or early next that will build this wave of new revenue and then contributing to the back catalog revenue.
As we look towards the future, we have three areas where we see Zordix really managing growth moving forward. We are going to continue to put more content into the pipeline for game releases to grow organically as a company and to further expand our back catalog. Our upcoming titles have a lot of potential for franchising. Specifically, we can talk about Maximum Football there, which is a really it's gonna be the third in a franchise that will be a ongoing franchise for us moving forward. That's the growth, and organic growth is gonna come from the quality of pipeline of new content feeding into the publishing engine.
The other area of growth, and particularly margin growth is as we become more unified as a group and these different transformative acquisitions that took place in 2021 start working together to find synergies, to find operational efficiencies, and to find areas where we can increase margin by working more closely together and optimizing the use of internal resources so that we can increase our in-house capability and create more value for Zordix. Continuing to look at acquisitions as they make sense for the company.
We are not solely relying on acquisitions for our growth because the company's management team is very focused on organic growth, and as a group of entrepreneurs, we know how to grow companies and have grown each of the individual entities within Zordix for many, many years. Acquisitions will be very focused on those acquisitions that make sense within the context of the group, primarily looking at content or territories where we think that it's gonna be important in the future to have feet on the street. Peter, I'm gonna throw it over to you to talk more about the numbers.
Thank you, Christina. Taking a look at the performance of the Q1 of the year, just a quick note before we start, Q1 2022 is the first time all of the group's acquisitions are consolidated for the full quarter. On that basis, net revenue came in at SEK 237 million, which as mentioned before, is about 20% better compared to the same period previous year, and this is on a like-to-like basis. Typically Q1 is the slowest quarter, but we have seen a continuation of the strong performance of the back end of last year.
Variable costs or cost of goods sold, to a large extent follows the net revenue profile, but a substantial part is made up of games royalties, and as such, the type of royalty has an impact on the margin, for instance, relating to high touch or light touch publishing deals. The quarter ended with a gross profit of SEK 85 million or about 36% margin. Fixed costs are made up of personnel in general and admin expenses, and due to the fixed nature of these expenses, at least in the short term, margin expansion and contractions are more prominent at EBITDA level. EBITDA for the quarter came in at SEK 22 million or 9% of revenue.
Moving on to balance sheet and cash, the pace and size of the transactions completed over the last year has resulted in a goodwill of about SEK 970 million, which is also the majority of the group's intangible assets. On the Swedish GAAP or K3, goodwill is amortized, which has a significant impact on the group's profits. Additionally, due to the acquisitions carried out last year, we have an item labeled provisions. This relates to the current value of earn-outs to selling shareholders, and this is to be paid in the years 2022 through to 2025. The difference in the value as compared to the previous quarter, that is Q4 last year, is due to currency translations.
Operating cash flow for the quarter was about SEK 27 million. This was absorbed by working capital and by investments in games. As at end of the quarter, the group had about SEK 145 million in bank loans and other interest-bearing debt, and about the same amount in cash. Hence, leverage as measured by net debt stands at zero as of end Q1. With that, I will now hand back to Christina for a summary.
Thanks, Peter. As you have heard today, Zordix is a new company. It is a truly global gaming group with a fantastic publishing infrastructure from which we can feed additional content in order to create great commercial result for all of our video game content. We have a balanced approach. We are not reliant on one blockbuster or one game that we are developing, but we have multiple games that are creating a lot of different revenue in a lot of different channels so that we are not relying on one blockbuster for our future margin and profit creation.
The video game industry is very exciting and is a large and growing market, and we are going to use those tailwinds to continue to grow Zordix in the future. Our business model is very strong to have most of our costs are variable, and as we grow, we can have a variable cost structure allowing us to create more margin as the company grows. The management team is made up of entrepreneurs who grew their companies organically over many years, and that has resulted in a group of managers who know how to drive organic growth, know how to manage leverage properly, know how to manage cash so that we can continue to grow in whatever kind of economic environment exists at the time. At this point, we can turn it over to Martin for some Q&A.
Excellent. Great. Thanks for the presentation. Let's start with the first question then. You mentioned some highlights there from the quarter, but if you were to select a few of them, what would you select as a highlight for the Q1 quarter?
Well, being named CEO was one of the highlights of last quarter. That was a good one, and I'm excited to take the reins of Zordix and shepherd it into the future of taking advantage of what we've all built together with the various entities within Zordix and continuing to grow into one unified video game company. I think that's one of the things that I'm really excited about that happened in Q1 is that we really did work together.
We created one video game company that has multiple publishing capabilities, multiple studios that are working on content. I think that the main highlight for me for Q1 was working together, really taking all of the different entities and moving them into one engine that is gonna move forward and create really compelling content for the video gamers of the world.
Okay. Thank you. You mentioned there one highlight, you becoming the CEO for Zordix. What has been your top priority, and will that change if we look further?
Yeah, I mean, I think that how it's gonna change is that in this Q1 , it was really kind of getting our feet under us and making sure that we were structured in a way that set us up for growth. It was a busy 18 months for Zordix , with a lot of acquisitions, a big transformative year, and now what really needs to happen is kind of making sure that we have set the company up to work together in a way that fuels growth and margin efficiency as we move forward.
One of the key things that we did in Q1 was reorganize the studios. We reorganized them under one Studio Head, Bruce Hales, who is making sure that each one of the studios is working on content that the group is going to publish. Right now we have every single one of the developers in the company working on different gaming franchises that Zordix will publish either in 2023 or beyond, and doing a lot of kind of organization to make sure that we have a lot of efficiencies within that group, and so that that's the priority now, that was really structural.
I think that as that changes, my role becomes much more visionary and looking towards the future that says, "Okay, now that we have our feet under us, what are we doing moving forward? What franchises are we gonna commit to? What gaming genres are we gonna commit to? What categories do we think that we can lead in in the double A space?" That's how it will change, and it already is changing 'cause as you look at how I'm spending my time in Q2, it's very much on what gaming genres or where are we gonna lead. I feel like we've accomplished a lot of the structural changes that we needed to make in Q1, and now my role has changed to more of a forward-looking where are we gonna lead?
Okay. Thank you. If we look at the game pipeline for 2022, what are you most excited about?
I would say there's two games that I'd like to talk to you today about because when you're listening to this, we will have announced that Them's Fightin' Herds, which is our recent acquisition of a very fun, creative fighting game is. We have announced that it's coming to all console platforms, and that game is also been accepted into multiple fighting esports tournaments later in the year. I'm really excited to see the expansion of that IP to a cross-platform environment so that we have access to a lot more gamers and continue to grow that IP in the esports space and competitive fighting game space. Very excited about that game that's coming later this year to all platforms.
Another game that we recently earlier in this month actually announced the trailer for Soulstice, and it was a combat trailer, so you could start seeing some of the combat in that game. Soulstice is a very high-end AA game that's coming later this year from a phenomenal studio based in Italy, and we are working with them for that launch, and I'm very excited about that later this year.
Okay. Thank you. Could you please elaborate a bit on your back catalog revenue versus new revenue and where do you see the growth opportunities over the coming years?
Yeah. I think we talked about that a little bit within the presentation, and Q1 was really underpinned by a lot of back catalog revenue. We had a really strong Q4 2021, and those games really kind of continued their success story within Q1. These are games like Kena: Bridge of Spirits, which was an award-winning indie game that came out from Ember Lab in 2021. It's just a beautiful game, and that game continues to have really strong revenue in Q1. We also had Five Nights at Freddy's. That franchise continues to do very, very well physically and digitally, and that there was a lot of catalog revenue that came in in Q1 for that game as well.
We also had new releases, and those new releases helped also create the strong result of Q1, and I think that's where you're gonna really see Zordix shine moving forward, which is this combination of new releases and back catalog underpinning the growth of the company. Every new release that we do moves back into the catalog after three months, and then there's a way to continue.
We're really good at long-tail revenue and continuing to squeeze every bit of great commercial result out of the gaming content, whether that be physically or digitally through a wide variety of revenue channels. It was a really good mix of catalog and new revenue growth. We also have live service games such as Super Animal Royale, which we continue to see really good results from that game, both on Steam as well as across all the platforms.
Okay. Thank you. Could you share some more details, if we look at your cash flows and the change in cash?
I'll throw that over to Peter to answer that one.
Sure, happy to. The cash for the quarter from operations before change in working capital was about SEK 27 million, the same, cash flow after change in working capital is about SEK 5 million. The difference between the two is due to working capital absorption, and this is mainly due to inventory build-up during the quarter. In addition to this, about SEK 17 million was spent on investments, of which 15 on game developments and a smaller amount in financing activities. Taken together, this results in a negative free cash flow for the quarter, but as mentioned, this is driven by investments in games.
Okay, thank you. If we look at your goodwill and associated amortizations, are there any plans in changing to IFRS?
Yes. A change to IFRS would certainly remove the need to amortize goodwill and thereby so like the accounting distortion of EBIT. Some additional benefits would be, so like ease of comparison to international peers and perhaps also be seen more favorably by international investor community. A practical implication is that it does take time. That said, this is something we are evaluating, and I wouldn't be surprised if we make a change in the coming year or two.
Okay, thank you. In terms of, I mean, the acquisitions that you did during 2021, how has that integration been for the organization?
Yeah. I think that Zordix started out as a studio many years ago and understood that as a studio they had a real need to have publishing infrastructure in order to get the best commercial result for the games that they were building. Went about acquiring publishers in order to create that engine, which they achieved in 2021. Now we, as a group, have both the publishing engine and all of the studios in order to create our own content as well as work with other third-party companies in order to facilitate really fast growth. Because the publishing engine can manage not just our own intellectual property, but also that of our partners and people that we work with around the world.
Now that we have this engine, our M&A strategy has really changed to be not necessarily publisher-focused, but more content-focused. We are not going to be looking to just acquire and become kind of a financial vehicle where we go acquire a bunch of companies without them working together. That's not the approach that we're taking. We are creating a video game company that works together in order to get the best commercial result and the most efficient margins possible.
When we're looking at potentials, we're gonna be pretty selective, and we're gonna focus on content that we think adds to our overall portfolio, and we wanna make sure that it's the right group of people that are going to, you know, be open to operational efficiencies and excellence and wanna work with the rest of the group in order to get the best games out there to market. If the right opportunity presents itself, we are gonna look at it. We are making sure that our M&A strategy moving forward is content-focused, potentially territory-focused, and most importantly, fits within the strategy, the growth strategy of the company, that they wanna work together to build a leading double-A video game company.
Okay, excellent. That was the final question for this Q&A session. A big thank you to Christina and Peter for the presentation and for answering all our questions. I wish you all a very good day. Thank you.
Thank you.
Thank you.