Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the MTG Q1 Results 2019 conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session. At which time, if you wish to ask a question, you will need to press star and one on your telephone and wait for your name to be announced. I must advise you that this conference is being recorded today, on Thursday the ninth of May, 2019. I would now like to hand the conference over to MTG President and CEO, Jørgen Lindemann, who is joined by MTG CFO Maria Redin. Please begin. The floor is yours.
Thank you, operator, and good morning, everyone. This is MTG's first set of results since the split from NENT, which was completed successfully in late March. A lot of work went into making the split and the NENT listing happen. We are really pleased that both companies are now well-positioned to take advantage of the great opportunities they face in their own markets, and we believe that both offer a clear and compelling equity story for investors. Now focusing on MTG, we have now also completed the sale of Nova, the last of our Eastern European broadcasting businesses, with the deal closing finally in early April. The sale of Nova allows us to go forward focusing purely on our two vertical business segments, esports and gaming.
It also provides us with around SEK 1.8 billion of cash to pursue acquisitions, implementing the strategy we set out at our Capital Market Day in March. For the first quarter, our results are in line with what we communicated at the Capital Market Day. Reported net sales were up 3.9% to SEK 967 million. Adjusted EBITDA was SEK 25 million, and the adjusted EBITDA margin was 2.5%. Sales on an organic basis were down 1.7% year-on-year and up from Q4 2018. I will go into more detail about each vertical shortly, but in summary, in Q1, we saw esports return to growth following our strategic refocus in the middle of last year, with net sales up 9.6% on an organic basis, and we also saw the revenue and margin trends in gaming going up from the end of last year.
Overall, we believe that we are off to an encouraging start as a standalone company, focused solely on esports and gaming. The split and the sale of Nova are behind us. We have a clear growth strategy in place, including through acquisitions, and we see the performance improvements starting to come through in both esports and gaming. Our focus is now all about execution. At Capital Market Day, we talked about what we were doing to address the different issues that our operating business were facing, and we currently feel in good shape to deliver our ambitions for the full year. We turn to slide number three, and looking at our esports reported net sales is, in Q1, increased by 15.7% to SEK 336 million. On an organic basis, growth was 9.6%.
The growth in the first quarter was driven by a 17% increase in the revenue generated by our owned and operated properties to SEK 244 million. This was despite there being fewer master properties this year than there were in Q1 2018. This was only partly countered by our having eight challenges events in the quarter, four more than last year. Our two ESL Masters event in Katowice this time around were our biggest and best yet. Over 10 days, ESL welcomed 175,000 visitors, and more than 500 hours of live content was streamed in 21 languages. The peak online audience was 1.2 million concurrent viewers, and over the whole 10 days, there were accumulated 230 million unique daily users.
The main tournament featured Counter-Strike, but we also put on four more games, including Fortnite for the first time, which by itself attracted a peak online audience of 300,000 concurrent users. We are getting the eyeballs. We are starting to see the first signs of some real monetization of those eyeballs. The highlight in the quarter for DreamHack was the eFIFA Leagues. We have launched the eSuperliga in Denmark in Q4, and early this year we added eAllsvenskan in Sweden, both in partnership with Discovery Networks. These e-leagues run in parallel to the local football leagues, of course, this means they will be seasonal. They attract a great viewership, in some cases higher than the actual football broadcast. These leagues demonstrate that esports can be delivered successfully as a mainstream media product.
Last year, we refocused our esports business towards the owned and operated properties, this was the main growth driver in the first quarter. We also saw growth in esports services year-on-year, with sales up SEK 10 million to SEK 91 million. We're not getting out of ESS rather, we are focusing on the quality business where we have good long-term relationship with major publishers, ESS should continue to provide some profitable growth. Esports adjusted EBITDA loss of SEK 50 million was broadly flat year-on-year, but the revenue growth meant that our margin improved from -16.2% to -14.8%. Top-line growth remains our priority in the esports, owned and operated is a scalable business, as this revenue stream grows, we expect margins to improve.
If I can ask you to turn to slide number four, we look at the gaming reported net sales in Q1 increased by 4.6% to SEK 604 million. On an organic basis, this was a decline of 1.2%, up on Q4 last year. This positive trend was mainly due to better Kongregate sales towards the end of the quarter. Mobile sales grew 15% to SEK 312 million, which was 52% of the total net sales of the gaming vertical. More than 90% of Kongregate's revenue is from mobile. InnoGames had a solid quarter with good mobile growth offsetting lower browsing revenue, although the classic browser games all performed well. Our biggest game, Forge of Empires, generated more than half its revenue from mobile for the first time, and Elvenar mobile revenues were also strong. Warlords performance remained somewhat weak.
However, new features are being developed to address this, and as these gain traction with players in the second half, we can ramp up marketing and grow player numbers and monetization. InnoGames successfully soft launched a new mobile MMO game, God Kings, in the first quarter, and we are seeing good initial KPIs. InnoGames is now building on this very encouraging start. They have a good pipeline of content in place and plan to scale up marketing over the coming months. We talked at Q4 and the Capital Market Day about Kongregate refocusing marketing and development resources on a smaller number of existing games with high growth potential. The effect of this started to come through towards the end of the first quarter, with most of Kongregate's top games exiting the quarter with faster growth rates.
The Kongregate turnaround is the main reason for the quarter-on-quarter improvement in our active user numbers. After three quarters of sequential decline, both daily and monthly active users were higher than in Q4 last year. For the gaming vertical as a whole, we reported 2.9 million DAU and 12.7 million MAU. Average revenue per daily active users in the quarter of 2.6 SEK was up versus both the same quarter in 2018 as well as Q4. Organic growth of 5% was due to a higher proportion of paying customers within Kongregate's user base and higher advertising revenue, as well as up DAU growth in InnoGames. There were no significant change in either the geographic splits of the net sales or the proportion of our revenue generated by our three titles, which is around 75%. Adjusted EBITDA in the gaming vertical was 127 million SEK, and the margin was 21%.
The shift of revenue towards mobile reduces gross margin, as you know, because we have to pay 30% to the App Stores. So far, the implemented growth and lower mobile install costs mitigate the impact on the gross margin of these payments. As I said at the start, we are seeing improving sales growth and margin trends in the gaming vertical, and we exited the first quarter with some good momentum. That concludes my comments. I'll now hand the call over to Maria to take you through the numbers in more detail.
Thank you, Jørgen, and good morning, everyone. We then turn to slide 6, I want to start with the revenues and the adjusted EBITDA. Net sales in the first quarter of SEK 967 million were SEK 36 million higher than last year, with a 5.6% positive FX impact more than offsetting the negative 1.7% organic decline. As Jørgen mentioned, Esports and Gaming both reported higher revenues in Q1. Together, the two verticals achieved sales of SEK 73 million higher than in Q1 last year. This was, however, partially offset by an adverse movement of SEK 37 million in our other operations, principally Zoomin.TV, which reported sales down 52% to SEK 27 million. A major revenue recovery and cost reduction initiative is underway in Zoomin.TV, and we are also exploring other strategic options. You should not expect this level of losses to continue for the rest of the year.
Adjusted EBITDA in the quarter was $25 million, which was $17 million higher than Q1 last year. $14 million of this was attributable to the adaptation of IFRS 16. Excluding that change, adjusted EBITDA in Q1 was flat versus last year, as we indicated at the Capital Markets Day, with a margin of 1.1% versus 0.9% in Q1 last year. Turning to slide seven, we will look at the rest of the income statement in a bit more detail. Within adjusted EBITDA, our central operation costs in the quarter were $39 million, in line with the post-split run rate we flagged at the Capital Markets Day. There were two adjustments to the EBITDA in the quarter. The first of these was the one-off cost of the split, SEK 4 million, which we had flagged previously and has been reported as an item affecting comparability.
The second was a charge for the cost of the long-term incentive program, which was $25 million in the quarter. There were no M&A costs in Q1 and no impairment of previously capitalized gains development costs. The total adjustment was $79 million, with EBITDA before adjustments of minus $54 million. Depreciation, amortization was $72 million and included purchase price amortization of $31 million. D&A excluding PPA was $18 million higher than Q1 last year, with almost all of this accounted for by the change in IFRS that I already mentioned. Group EBIT of minus $126 million was $47 million lower than Q1 last year. If we exclude the $54 million one-off cost of the split, EBIT was broadly flat compared to Q1 2018. Financial items were minus $12 million in the quarter, and there was a tax charge of $11 million.
The net loss from continuing operations was $150 million, or 271 SEK per share. In the quarter, both NENT and Nova were treated as discontinued operations. Net income for discontinued operations amounted to $13.6 billion and is mainly due to the accounting treatment of the split. We had to book a capital gain for the difference between NENT's market value and its book value when the split took effect with a corresponding reduction in our balance sheet, it is a mere technicality. Turning to slide eight and the cash flow and the balance sheet. CapEx in the quarter was $37 million, considerably lower than in Q1 last year and closer to the sort of quarterly run rate we should expect for the rest of the year. Most of our CapEx in the gaming vertical, where we capitalize game development costs until the game goes live.
Thereafter, all the costs are expensed, and the pre-load CapEx starts to get depreciated. Last year in Q1, we were still capitalizing the development cost for Warlords, where all development now is OPEX. We invested €52 million in our VC funds, comprising of four new investments and one follow-on investment, we have now in total invested over $20 million into the VC funds out of the $30 million target that we have indicated. All of the fund investments are still carried a cost on the balance sheet. Cash flow from continuing operations was an outflow of SEK 103 million, which includes SEK 87 million of working capital outflow. Almost half of this outflow was a one-off tax prepayment associated with NENT, part of this will reverse later on in the year.
Working capital in the quarter also increased due to the growth in sales and mobile gains, especially towards the end of the quarter. We ended the quarter with a net cash of SEK 349 million. At the end of the quarter, we have now received the Nova proceeds of approximately SEK 1.8 billion, and the SEK 1 billion bank credit facility that was previously in place has left. That concludes my comments. Thank you, and I will now hand back to Jørgen.
Thank you, Maria Redin. As I said at the start, I think we have made an encouraging start to the year in both our core verticals. Esports growing, the driver is our owned and operated properties, and these are getting bigger and better and drawing in the eyeballs. Most important of all, these viewers are attracting sponsors and media as well as new publishers. Still, a lot of work to be done in shaping the different revenue streams, and I would just repeat what we said at the Capital Market Day that the Esports sales growth in 2019 will be second half loaded. Gaming, we are happy with the development in Kongregate with player numbers and sales going in the right direction again. InnoGames remains a really solid performer. Forge is going well in mobile, and the classic browser games are still delivering sales.
Warlords is fundamentally a strong game, and we are working hard to see it get back on track, and the first indication are that God Kings could be another winner. The gaming numbers are getting back on track. Overall, we are therefore confident in restating our full-year ambition of mid-teens organic growth and an adjusted EBITDA margin in the mid-single digit before the impact of IFRS 16. As we have said before, we will make some further progress in Q2, but our performance improvement this year is going to be substantially weighted to the second half. That concludes our commentary on the results. Over to you now then operator to start the Q&A session, please.
Thank you. Ladies and gentlemen, as a reminder, if you wish to ask a question, please press star and one on your telephone. That's star and one to ask a question. Thank you. Your first question now comes from the line of Frederik Svendsen. Please go ahead and ask your question.
Hi. Thank you. This is Frederik from Nordea here. With the 15% organic growth targeted along with the Q1 performance today, I guess we should expect considerable growth now in Q2 and especially within owned and operated. How confident are you with these numbers and these guidance?
I think as we have said as well when it comes to particularly Esports, if that it is weighted towards the second half, that is where we will see higher growth. We would expect, I think the owned and operated, we would like to see improve, of course, over the quarters. That is the focus area that we are having. What you should expect is to see a good growth of course, in Esports in the second half.
All right. We saw Activision Blizzard reporting last week stating that they're starting a new league for the Call of Duty franchise. How do you think this could affect you guys in terms of competition? Also follow up there on probably within ESS, which publishers, big ones, would you argue are up for grabs for you to sort of do white labeling work for?
I think what we have said on the ESS services is that we are selecting and working with publishers on long-term partnerships instead of these ad hoc jobs that we had historically. That is what we have turned to. More long-term and more long-term revenue as well with these publishers when it comes to the ESS product. There will be a lot of competition out there. There is a lot of competition. I think, obviously what we are having, as we have said all along, is that we have a very strong products. We have very strong events. As I said earlier as well, look at the Katowice event, which was massive. That is our focus, of course, but it is a super exciting business and super exciting market, of course.
You will see a lot of people trying their luck in esports as well. We have been there for many years now, and you have seen growth. I think we have doubled the revenue in the esports business since we teamed up with the ESL guys and DreamHack guys in 2015. We have a strong presence already today. Competition, you will always face, so it is about being relevant.
All right. Thank you. Looking into statistics from Newzoo SuperData, which a lot of people refer to, and the income split between sponsorship, ticket sales, media rights, et cetera, can you give us some flavor here on your split, what you have?
Yeah, I think that publishers particularly then also when it comes to sponsorship is the main drivers. As we have said earlier as well, the media rights obviously will come. I referred as well to our ELeague, which actually in many areas have higher ratings that are higher viewing than the actual football leagues, which is quite interesting of course. There we have a job when it comes to the media rights to gather data and to make sure that we can create a currency there so it is easier to sell. Obviously all media partners that they would like to buy esports if they can deliver and they can document the eyeballs. That is a journey we are on right now. That is something we have done with sponsorship, where we are much better in articulating the value of the sponsorship.
That's also why you see a lot of non-endemic sponsors being onboarded, and that is, of course, because they see the value of the eyeballs. That is a journey now we have towards 2020 as well, when it comes to the media rights, where we are getting much better in articulating actually the outcome and the ratings and the shares and so forth of the different events. It is very encouraging, obviously, what we are seeing. Also, as I mentioned around Katowice, to have 1.3 million concurrent viewers is quite cool, actually, I must say.
A follow-up on that one, on the media rights. How are discussions progressing? What kind of obstacles are there? Surely you must get more propositions now that we see, call it traditional sports decline, even Super Bowl declining, which is not really the case usually. Is it a fair assumption that you get more propositions, and then what are the obstacles really for you to really get a decent piece out of this?
The obstacle is, of course, that we need to be much better in gathering data around the different events that we are having. We need to be more sophisticated, and also the measurement system around esports as such might not be as sophisticated as you know the measurement systems are today around, as an example, TV and so forth, when you have the TV media panels. This is an ongoing process which we have worked on for quite some time. We see Nielsen as well is in trying to make sure that we get the currency established. It is a lot of work that we have to do to make sure that we can demonstrate that there's good value in investing into esports, and yet at the same time, make sure that we get the price for the eyeballs as well.
That is, again, that is the long-term journey here. It is not done in Q2, Q3. It is a longer thing where we need obviously to replace other sports. You might have conflicting schedules when you have sports on your sports channels, on your free TV channels, whatever. Therefore, you need to say goodbye to something as a media partner eventually to take our products on board. What we have seen around Katowice, you had Yle broadcasting live, you had TV Denmark broadcast, you had Danish Radio, another public service broadcaster, taking the Fortnite feed and so forth, just to mention the Nordic ones, and of course, you had all the global ones. It becomes more mainstream. There is definitely some way to go, and we have said that all along. The sponsorship is much more sophisticated there than the media rights we are working on.
Super. Thank you very much. Just one final one on Zoomin. What is your plan here going forward? Is there any rationale to keep this, or could you potentially find a buyer for this asset?
Yeah, I think the plan is, of course, to change strategy. I saw this morning as well that Disney had the same issues, of course, with Maker that we have faced with Zoomin as well, that these multi-platform networks are not that strong, are not that relevant when you look at it right now. We have made a transformation in Zoomin, and we have directed Zoomin towards the []millennial/Gen Z] production business. We have a range of video journalists around the globe actually producing a lot of stories every day, which we then can sell to a range of media partners. That is not our focus area. It is wrong of us to deploy capital in that area, and therefore, yes, we would like to find a new home for the company.
It goes without saying, and to make sure that somebody else can make a journey. We are purely focused on the esports journey and the mobile gaming journey.
Super. Many thanks.
Thank you. Your next question comes from the line of Mattias Lundberg from SEB. Please go ahead and ask your question.
Good morning. I have just a couple of short questions. First off, numbers, as you reported, was fairly in line with the guidance. Looking at organic performance, it was slightly behind the expectation. Does this deviation stem from that you expected higher growth in the esports vertical, or that you expected a faster recovery in games?
It was the gaming. That's the base. We saw the recovery towards the end of the quarter. Of course, we would have liked to see that turn around earlier in the quarter.
Okay. Looking at the owned and operated properties, I read in the report that it is expected to have the same amount in Q2 and Q3 as in last year, four properties. When I look in the graph, it says five. Should I interpret that it's still four, or that it is actually one property from DreamHack also in Q2 2018?
Yeah, that's correct. It's one also for DreamHack. It's five in total.
Okay, thanks. Do you have any recommendations on how we should think about modeling restructuring going forward this year?
You mean restructuring as for different reorganization in the business?
Yeah, that's correct. For Long-Term Incentive programs. Should we keep that in mind in our modeling, that we should expect some restructuring charges?
Yeah. I think the way to look at it, if you see the LTI cost that we had in Q1 is a good indicator for the run rate for the quarters to come. We launched a new program in ESL, which we also flagged at the Capital Markets Day, which is on the esports segment. For restructuring, we will have, as I stated in my comment as well, a smaller one in Zoomin, because we need to reset the cost base there. There will be a smaller charge in Q2, but there is no other restructuring currently in any planning.
Okay, great. Thanks. I should have rephrased it as non-recurring items, perhaps. Thank you very much. That's all from me.
Thank you. Your next question comes from the line of Rasmus Engberg from SEB. Please go ahead and ask your question.
Yes, hi. I just wanted to build on some earlier questions. Do you now anticipate that there will be some organic growth in the second quarter, I assume, or is that correct?
Yes, that's correct.
Yeah, sure. Would you care to give any sort of indication? Are we getting towards double digits, or are we saving a lot of the growth for the second half of the year?
No, I think you should expect that the vast majority of the growth will come second half of the year, which we've said all along.
Yeah. In terms of adjusted EBITDA, you gave an outlook for this quarter saying it would be roughly flat-ish. Now you don't say anything. How should we interpret that?
No, I think that you should look at the full-year outlook, which we raised. We don't want to go into isolated quarter-by-quarter outlooks. In order to deliver on the full-year outlook, we should, of course, improve every quarter going forward.
On potentially exiting Zoomin.TV, would that cost you money net from here? You need to do some restructuring. I can't really see how you would get any payment for it. Is it correct, or how should we think about that? Is it a liability or an asset here?
We are having a firm plan how we want to reset the revenue streams and are working on it. In order to offset the cost base rise, we will take the cost in Q2, there is a business plan that we believe in building on. It is just to Jørgen's point not what is fit into the new MTG, which is focusing on esports and gaming. We would like to find another home for it and see it as an asset for that company to buy it.
I seem to recall you already wrote down the balance sheet values. Is that correct?
Yes. All the goodwill has been written down. There are some intangible assets still related to Zoomin.TV on the balance sheet.
Did I understand it correctly that the new program you're launching, if it gets voted through, I guess we should say at the AGM, that doesn't have materially different costs than the current program. Is that correct?
No, exactly. That's correct.
Yeah. All right. Thank you.
Thank you. Your next question comes from the line of Tom Singlehurst from Citi. Please go ahead and ask your question.
Hi, it's Tom here from Citigroup. Thank you very much for taking the questions. Three, sort of a bit all over the place, so I apologize. Firstly, Masters and sort of Challenger events. Obviously, Masters is largely down to timing, so I understand that. Just a brief comment, if you can, on whether there is an emphasis on growing the Challenger base faster than the Masters base. The reason I ask is whether that makes growth less driven by the sort of big tentpole events and more by what's happening perhaps under the radar. Secondly, in the release, you talked about some, I think, early interest in Fortnite events. I was wondering whether you could give some more color on this. Finally, obviously Emily stepped back at Kongregate.
I was wondering whether you could give us a bit more detail on what happened there and the transition of management and whether that threatens to disrupt the turnaround that's ongoing at Kongregate. Thank you.
The last point, I'll just begin with that on Emily. Emily, she simply wanted to pursue building games again and wanted to create a new startup, which she discussed with us. As we also wrote, that we would be happy to invest together with her in things we find extremely challenging. Therefore, we have made a search for success, that we have very strong internal people as well, and they are running the company right now until we have found the permanent solution as a new CEO for Kongregate. As we also mentioned, we're very happy with the change in performance of Kongregate, also that is something, of course, that Emily has been driving as well.
When it comes to the Masters and the Challenger event, I think if I understood you right, the line was not so good, it is the Masters, of course, driving the vast amount of revenue. That goes without saying, that it is those big events which are the ones generating most public, most sponsors, and so forth. They are important. At the same time, of course, the Challenger event, as we have said, the open tournaments as well are very important for us, and we are going to have quite a lot also here in Q2. The Masters are the ones still which are the big drivers of revenue. The second question, I simply couldn't hear. Did you get-
Sorry, I do apologize. Yeah, no, you answered the first one perfectly. The second one was on Fortnite events. You said there's been sort of early interest with events. I was just wondering whether you could give some more color on this, because there is a degree of skepticism about whether those Battle Royale games can work in an esports sense.
I think what we have shown as well, and also with some of the other games in the genre, is that can easily work, and that has very strong traction. The Fortnite was a fantastic success for Fortnite and for us in Katowice. As I said as well, there was a lot of interest. We had the best players in the world attending, it was very interesting. We had a lot of takers as well on the product, amongst others, public service TV and so forth, which were broadcasting live and with studios and everything. I think that was a very good start. Of course, the discussions are now how to enhance that, how to do even more. We are very happy, and it was a very good showcase also for the audience at the Katowice event.
Of course, they are also very interested in Fortnite next to all the other games we had there, with Counter-Strike and StarCraft and so forth. That was a good start.
Perfect. Thank you.
Thank you. Your next question comes from the line of Oskar Eriksson from Carnegie. Please go ahead and ask your question.
Thank you. Good morning. I have a few questions on the gaming segment. First of all, the active user figures improved sequentially. Would you say that it is primarily related to a better performance for browser game and Kongregate towards the end of the quarter? Thank you.
I mean, the active users in the quarter is primarily due to Kong, that's the improvement we saw in the end of the quarter, which is of course then giving promising starts of Q2. It's mobile on Kong.
Great. Can you talk a little bit about the launch of God Kings as well? What metrics look promising and how did these compare to the launch of, for example, Warlords?
Yeah, if you look at God Kings, then it's just soft launch yet, so we have not put very much marketing behind it. We are then monitoring the KPIs, and it's the usual sort of user metrics when you look at the sort of first 30 days, 60 days metrics when it comes to both activation and monetization. It looks very promising, which means that we will gradually, but very slowly, ramp up marketing and see then how it responds when you ramp up marketing. First start is very promising.
Great. Regarding Warlords, which has, I guess, performed a little bit worse than you expected. Are you doing something to improve the performance, or are you focusing more on other titles?
No, I think that we still believe long term in Warlords, which means that we have a roadmap on the development side, which we are working on. That means that we have certain milestones, and as we then see the KPIs on those milestones improve, we will ramp up marketing again. The way we look at it right now, you should not expect any significant marketing ramp up, which means also any significant player ramp up until the second half of the year.
Perfect. Final question from me. On Forge of Empires, compared to Q1, how does the pipeline for content updates look for Forge of Empires now looking into between the quarters, Q2 and second half of the year? Thank you.
What we have for 2019 is actually quite equal phasing between each quarter on both content updates and events, which is a little bit different to last year when it was very much Q2 versus Q1 and Q3, and that is also why you see tougher comps, but that way in Q1 and Q3 versus Q2 and Q4. Even though that the sort of events and the content launches are equally phased, the year-on-year comps will look a little bit different in Q2 and Q4 versus Q1, Q3. But it is equally phased in 2019.
Very clear. Thank you.
Thank you. Your next question comes from the line of Mikael Larsson from Carnegie. Please go ahead and ask your question.
Hi, good morning. I have a couple of questions. The first one is regarding your strategy, the build and buy strategy as a separate company now without NENT. Can you say something about the acquisitions that you have in the pipeline and your financial resources for acquisitions? What is the plan and what is the ambition here?
Yeah. We have a very interesting pipeline, always we build up over some time now. Those are the companies that we are speaking to right now, and we track the performance of the company. We discuss with the management team. We understand that we can add value to the companies. That is, of course, the discussions we are having. After the sale of Bulgaria, obviously, we have SEK 1.8 billion in proceeds now as well, which is firepower for acquisition. We are actually very well set up to execute on some of the ideas that we are having. Important to understand, as we have said earlier as well, is that we have set out a range of criteria for those acquisitions, and that is, of course, what we're monitoring, that those companies can deliver those.
Take the example of InnoGames, which has a very strong performance, have multiple games launches, and it's not just dependent on one game as such. Criteria like that is something that we are looking at, and of course, strong management teams. Last but not least, as I said, that we can contribute as well to the success, future success of the company. We are well set to execute on the buy strategy.
Okay. Great. What type of size are you looking at in terms of revenues, or if you can say something about the targets?
Yeah. I think what we have said as well is that obviously the company needs to be somewhat meaningful, otherwise we have the VC investments to take care of those if it is smaller ones. It is the size we are looking at, $30 million, $40 million valuation up to whatever. I think InnoGames was €260 million. I think important as well for us is that we would like the founders to participate going forward, just like InnoGames, where we have a very strong partner, just like ESL, where we have the founders participating as well. The check size you will see us execute on is in the range of whatever $30 million, $40 million, $50 million U.S. up to whatever, $200 million and $250 million, something like that.
Mm-hmm. Okay, good. Final one regarding central cost and the CapEx, if you can say something about the coming quarters.
In the cost of the quarter, the EBITDA impact was sort of 9 million SEK negative from central cost, that is a little bit lower than, of course, the run rate. It will ramp up a little bit, but it is in line with the run rate we will have going forward. We said SEK 180 million at the CMD. If you look at CapEx, it was high last year because we had a one-off payment to Warlords to finance settlement. The run rate we are having now, SEK 37 million, is about the same run rate you should expect plus or minus going forward.
Okay, thank you.
Thank you. Your next question comes from the line of Martin Arnell from DNB Markets. Please go ahead and ask your question.
Good morning. My question is, firstly, I have a question on esports and this number of events. Could you just remind us how many events Master and Challenger there are in Q2 versus Q2 last year?
Yeah. It's the same actually. You will have around five of the Masters and around, I think it's 29 or 30 of the Challengers, and you will have around five of open events. I think that is how it looks like.
Okay, thanks. It's similar to last year. When we look at this, I understand your guidance of earnings being a bit tilted to the second half. Is it fair to assume that you will improve EBITDA in esports Q2 versus Q1?
We usually expect that the biggest impact or improvement will be in the second half of the year. I mean, that's the way I'd look at it.
Okay. We shouldn't expect any material improvement in the very near term then?
No, that's correct. There will be probably small, but not immaterial.
Okay, thanks. In the game business, you mentioned this timing of upgrades and seems to be a lot of focus on new games, but is it still fair to assume stable EBITDA margin for InnoGames this year, despite this focus on driving new game volume?
Yes, I would say so. Remember what I said with our God Kings, there's not much marketing really right now on the back of that new game. It's about rather making sure that we gradually ramp up it. Focus is, of course, monetizing our live games, which we do very nicely, and Forge of Empires had a very nice growth still, and mobile is now the biggest growth driver in Forge. You should not expect the margin to decline in that.
Okay, perfect. Thank you. Final questions, just on the working capital build-up, do you think that Q1 is a fair run rate for the remaining quarters, or?
If you take off the one-off item that we had, which basically resided with the old legacy structure, then you can argue it's a pretty fair run rate because half of the SEK 87 million was a one-off sort of taxpayer payment that we did.
Okay, great. Just finally on impairment in gaming, how should we look at that? Is it even possible for us to have an assumption on those?
Our assumption is that we build games that we put live and monetize very nicely. We would not like to see impairment either, but it is a part of the nature of the business. At some point in time, you will do an impairment, that goes without saying. We have three games in the pipeline of InnoGames. We would love to see them go live, all of them. It's very difficult to give any guidance there, to be honest.
Yes, of course. I understand. I just wanted to ask the question. Okay. Thank you, that's all.
Thank you. Your next question comes from the line of Predrag Savinovic from Nordea. Please go ahead and ask your question.
Hi, just a couple of follow-ups from mine. It's Predrag at Nordea again. Could you say something on the split between Kongregate and InnoGames in % terms revenue?
We have not given out the exact split. The biggest part is by far InnoGames, so that is the bigger animal, and then Kongregate accounts for a smaller part of the sale. When we bought them, they had a roughly SEK 50 million turnover.
With Forge predominantly growing faster on mobile, I think you said earlier, than on browser, what is the margin differential for you guys here, considering you have a bit higher fees on mobile transactions? Could that imply a bit lesser margins ahead or how should we think about that one?
No, as you see, also compared to Q4, we're growing margins, even though that we have mobile sales accounting for the vast majority of the growth. I think that you see a different scaling of the mobile revenues, you're right that you're going to have a 30% sort of App Store fee, you get that back on the scaling effects on your cost to install and so forth. Right now, we are actually successfully transitioning into mobile, the way we look at it going forward, we continue to do that.
Also if you go back, as we also said at the capital market stage, year-over-year, even since acquiring InnoGames, we've actually been able to grow the EBITDA margin, which is quite nice even though it has been transitioning every year, an increase in the parts of mobile revenue as a part of total sales.
All right, thank you. One follow-up again on media rights. Considering viewers are used to consume esports for free, what kind of equation can you do here to maybe you have to put some content behind a paywall to get really the media rights fees kicking in. How should we think of this? What is the strategy here?
I think if it is distributed on, let's just take the companies we know, on Yle or TV 2 or whatever, then it is, I reckon, for free to the viewers, meaning that TV 2 or whatever is part of the TV packages or whatever. The same goes for ELeague, it's part of Discovery Networks. If you have a, whatever, content package and buy that package, for sure, then you'll be able to watch that. We do have subscription esports products as well, where we have it here, where you are subscribing to play, but that is a different animal than just watching because there you are engaged yourself. That is, of course, something we're looking at, how to make sure that we can create interesting products so you can make a subscription model as well.
Right now, most of the content which we are distributing goes on Facebook, goes on the big OTT platforms around the world, goes on telco platforms as well, and then of course, goes on the linear TV broadcast as well, which we see. That is to a large extent free for consumers.
All right, super. Thank you very much.
Thank you, speakers. There are currently no further questions in the queue. Please continue.
Yeah. Thank you all for your time today and for your continued interest in MTG. Hope to see you all at our AGM, the 21st of May. Thank you very much. Have a good day.
Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you for participating. You may all now disconnect. Speakers, please disconnect.