Good afternoon, everyone, and thank you for joining MTG's live stream and teleconference for our third quarter results. This event is hosted by our Group President and CEO, Maria Redin, and our new CFO, Nils Mösko. After the end of the presentation, there will be an opportunity to ask questions. If you're watching the live stream, please use the questionnaire feature in the video stream to submit your questions. If you're dialing in by phone, please follow the operator's instructions. I now hand over the call to Maria.
Thank you, Anton, and hello, everyone, and thank you for joining our Q3 results. Before I get into the numbers, I just want to start with a big welcome to Nils. This is his first results call with MTG, and I'm really glad to have you on board. Having noted that, let's get into the business. I'm really happy to report a strong Q3. We delivered both record sales and record profit. These results came on back on the great operational momentum that we've been gathering since the end of Q1 this year. And as you can see, in Q3, we've done a lot of things. We continued building our gaming village. During the quarter, we successfully tested a new game in the Racing franchise and announced two exciting additional future titles.
At the end of the quarter, we announced the acquisition of Snowprint Studios, and the first addition to our gaming village since 2021. We also launched a SEK 300 million share buyback program in August, and we are doing M&A therefore, and balancing with shareholder returns. So as you can see, we've been a really busy quarter with executing our strategy and delivering on our commitments to the market. So let's now start looking at the quarter and the milestone that we delivered in Q3. We reported a record sales of almost SEK 1.5 billion. That is representing 6% year-over-year growth in the quarter, and I'm also really proud to say that we deliver 1% organic growth year-over-year, and 2% sequentially when you exclude the currency effect.
These results means that we have delivered on the commitment that we made in Q1 to grow sequentially in each quarter of the year, and it's worth remembering that the underlying growth was even stronger when you exclude the effects from the platform incentive payments that we received from PlaySimple during the first three quarters of last year. Looking at the EBITDA, we further delivered a record Adjusted EBITDA of SEK 449 million with a very strong 30% margin. This is an outstanding performance, and it was driven by the strong growth in our Word Games and Tower Defense franchise, and the fantastic execution from the Forge of Empires team that again delivered a strong quarter with Live Ops and events, which also reactivated all players and engaged existing players.
The strong performance that we saw in the quarter leads us to reiterate our revenue outlook for the full year. We continue to expect full year sales to be in the range of -3% to +2%, and when it comes to our margin, we're also upgrading our full year outlook, and we now expect a full- year Adjusted EBITDA margin of 25%-27%, which is up from the previous range of 23%-25%. Before we dive into the nitty-gritty of our operational performance, let us spend some time on the newest member of our gaming village, Snowprint Studios. Just a few weeks ago, we acquired 70% of Snowprint Studios. They are a Swedish developer of mobile tactical games with offices here in Stockholm and Berlin, and they are the studio behind the Warhammer 40,000: Tacticus.
This is a new turn-based tactics game set in the Warhammer 40,000 universe. The game itself was launched Q3 last year by Snowprint, and it has already grown to become one of the leader in its genre. Tacticus is still a new game, and it's in the early stage of the development, and we are really excited about the fantastic journey we have, and we look forward to helping the Snowprint team to help them grow through their own journey and accelerated by our Flow Platform. Having Snowprint in the family as well in our village, adds another team of industry veterans to our gaming village, and the member of the leadership team within Snowprint all have over 50 years of experience each.
What was also important when we look at the acquisition is that we feel there's a high level of alignment between our company cultures and the Snowprint, and that's why we look forward even more so to work with all the Snowprinters. Moving forward then and looking at our sales, we report a strong third quarter with both record sales on reported and organic basis in Q3. Sales reported to SEK 1.5 billion in Q3, and that corresponds to 6% year-over-year growth in reported rates and 1% organic growth when adjusted with foreign currency. Our sales were also up 2% from the second quarter of this year, which means that we have been able to deliver on our promise to grow our organic sales sequentially each quarter this year. Moving then to the franchises and looking more detailed into our portfolio.
Nearly all our franchises contributed to our growth in Q3 on a sequential basis, despite Q3 actually being a seasonally weaker quarter. Our Word Game franchise continued to be the main driver of growth. Franchise revenues were up 15% year-over-year, and it was up 1% sequentially in current, in constant currencies. The performance we reported also included the challenging comps last year due to the platform incentive payment that we got Q3, and also the first quarter of the year. Our new game within the portfolio, Word Search, continued to be our most impressive growth driver. Sales were up almost 50% quarter-over-quarter, and PlaySimple continued to focus on Live Ops in the other games and adding more content, especially in Word Trip and Crossword Jam, that continued to have a strong quarter.
Tower Defense franchise revenues were up 24% year-over-year and up 6% from Q2 in constant FX. The driver of this growth was, again, Bloons TD 6, which delivered combination of strong content updates and continued to successfully execute on its multi-platform strategy. The game has continued to generate strong revenues from Apple Arcade, and we saw good results from the first period of sales on Xbox. Franchise sales were also positively affected from a one-off payment from a partner that is exploring to bring our Bloons TD 6 to the Chinese market. Again, it's too early to say about the specific, but of course, we're excited about the potential, as the Chinese market is a massive market. The team further launched an update in BTD 6 in early October.
It's part of their ongoing plan, but this update was one of the larger one, and it was the anticipated map editor feature. The early data that we've seen as a map editor is positively driving engagement in the game, which also means that customers who's never before engaged in in-app purchases are now actually also paying in the game, which we see very positive. Our Strategy and Simulation franchise sales were down 5% year-over-year in constant currencies, but they grew 3% sequentially, and this is positive momentum that we've seen through the year, and now in Q3, we continue to reflect the fantastic work, especially the Forge of Empires team has been doing. The game itself, which is over 11 years old, grew both year-over-year and sequentially, which really shows the strength and the longevity of the popular mid-core games.
This growth, again, was driven by a very strong execution on Live Ops and events in the quarter, which in particular, success, we drove player engagement and monetization. Through the quarter, we also continued to see the shift on revenues more skewed to with browser gameplay. The franchise revenue overall, though, declined in the quarter, and it remains challenging to onboard new customers in the mid-core market, which is one of the drivers and also reduces our DAU in these games. When it comes to the other games in the Strategy and Simulation franchise, InnoGames continued to work on Rise of Cultures and Sunrise Village to improve the performance. Both games had an active pipeline of content in the quarter, and Sunrise Village grew slightly year-over-year.
As we have mentioned before, the team is working on a revamp of Rise of Cultures, which come back in a better shape and form next year, and therefore, we are not seeing any results really this year of the game performance. Moving on to the Racing franchise, revenues were down year-over-year, and it was flat versus Q2. Both Top Drives and F1 Clash continued to perform below our expectations, and the game teams are working on the roadmap to improve the performance of these titles. As I mentioned before, Hutch had an exciting quarter from a new game perspective, and they launched a new title, Forza Customs, globally. They are now preparing for the full commercial launch of the games, which we expect later this year.
Hutch also announced a new partnership with NASCAR and will develop a new game under the NASCAR brand, and this title is expected in 2024. If we then are looking into the new games, we are executing on an active new games pipeline, and I think it's really exciting to see that we had a busy quarter with several exciting developments, especially Hutch, which I just mentioned, a completed market test for the new games, Forza Customs, and they're now having the game globally available. The commercial launch will take place now in Q4, and the team is getting ready on the marketing side. Further, they also announced a partnership with NASCAR to develop a new game, and of course, this is also building on the expertise from the F1 Clash. Our other games pipeline on new games remains strong.
Ninja Kiwi is working on three new titles, and they unveiled the new game, Bloons Card Storm. It will be a collectible card game to be launched during next year. Within PlaySimple, they remain very busy. We are testing several new games, and we are looking to see if we can scale them during the next quarter and next year. And above that, we're having several titles of other games and projects that are in the early phase across the group, which we hope to come back with updates in the quarters to come. Moving on to our DAU. Our total number of monthly active users were up slightly in Q3 on a sequential basis, while the total number of daily users were down slightly.
The stable performance mainly reflected the dynamics of the growing base in our word games, offsets by the lower number of players in our mid-core games, as user acquisition continues to remain challenging. Our average revenue per daily active users was up slightly from Q2 this year and from Q3 last year. This mainly reflected improvements in the successful monetization of all the players in our Strategy and Simulation franchise that I just talked about earlier. Having gone through the DAU now, I will hand over to Nils, who will then talk us through our profitability, UA dynamics, and financials.
Thank you, Maria, and hello, everyone. It's a pleasure to report a great performance during my first quarter with increasing profits and margin despite higher UA spend. We reported an all-time high Adjusted EBITDA in Q3 of SEK 449 million , which represented a 20% year-on-year increase. And the growth on an underlying basis would have been up significantly if we were to adjust for the platform incentives received by PlaySimple in quarter three last year. Our EBITDA was also up 13% sequentially, even though Q3 normally is a seasonally weaker quarter. This performance enabled us to deliver an outstanding margin of 30% in Q3, significantly higher than last year. What I would like to point out, though, is us growing the company and expanding the margin, and that despite a higher year-on-year marketing spend.
There are several reasons behind our margin performance. Firstly, we increased revenues at Ninja Kiwi and PlaySimple, with the latter also scaling further. Secondly, InnoGames, following their reorganization during spring, a renewed focus on creating engaging content and events that led to a higher spending of their customers, especially in Forge of Empires. The content the team has been putting out led to players coming back to the game, as Maria talked about earlier, and these players have no acquisition cost, play mostly in the browser version, and hence, the platform fees are lower, which has a positive impact on our margin. Additionally, we see also a lower UA spend, mainly due to lower spend on the new games and then lower OpEx run rate post the reorganization during the spring, which all contributed to the positive margin development.
It's worth mentioning that our profitability was also positively impacted by several smaller one-off items, on the revenue and on the cost side. Individually, each of those would have been immaterial, but together they gave us a tailwind to our margin. The strong quarter has now led us to upgrade our profitability outlook for the year to a range of 25%-27%, and please note that Snowprint is not included in the guidance. Let's look at the UA spend. We invested 37% of our revenues in UA, compared to 35%, in Q3 last year. This represents an increase of around SEK 55 million, or a 6% increase year-on-year at constant FX.
As you know, this spend is not evenly distributed across our portfolio, with Ninja Kiwi spending almost no marketing at all and PlaySimple being above the average, and the other three studios somewhere in between. PlaySimple spending reflects the continued momentum in their established portfolio, as well as their ongoing scaling of their new games. It's worth keeping in mind that they invested a lot in marketing in Q4 last year. Since then, we have been working on distributing marketing spend more evenly throughout the year. InnoGames and Hutch invested proportionally less in UA, in line with the threshold and discipline that we have within the group. These reduced investments reflect the challenging user acquisition environment, which we continue to see in the mid-core segment. Let's look at the cash flow.
Finally, we delivered very strong cash flows in Q3, and this was mainly due to three factors, and the first one, of course, is the result generating strong operational cash flows in this quarter. The second one is a positive working capital effects, where negative effects in Q2 had an adverse effect in Q3. But as said before, over time, we should hover around zero on working capital, but there will be slight swings to either side during quarters. And the third reason is our lower CapEx in the quarter. This is driven by timing effects on where we are in projects and how much we capitalize on those. For the full year though, we are at the 4% of revenue, as guided earlier.
Due to all these tailwinds, we had a fantastic cash conversion of 69% in the quarter, and we have said before to expect our cash conversion levels to be between 50%-60% long term, and we do not see any reason to change that. We also have a strong, clean balance sheet with a net cash position. We have roughly around SEK 4 billion in cash, most of it held as deposits in U.S. dollars, and we have roughly SEK 2 billion of earn-out liabilities, most of them in U.S. dollars, and this provides us with a natural hedge.
But it also leaves us with a net cash position of around SEK 2 billion at the end of the quarter, which means that we can continue to look for value-creating growth opportunities, as well as using our balance sheet to create shareholder value more directly. It is worth noting, though, that the acquisition of Snowprint will be paid in cash, which will take down the cash position accordingly.
Good. Thank you, Nils. Let's then wrap it up. To summarize, we're towards the end of the year, and we are in a really strong position, and we do have a great operational momentum in the business. We are now working towards a full year outlook, and as we said, the guiding range -3% to +2%, which means also that our ambition is to continue to grow our revenue sequentially, as we have done throughout the year, this year. We have increased, to Nils' point as well, our profitability outlook, and that is on back of our strong performance. We now expect a margin range between 25% and 27% for the full year. We are really excited to have the new games as well, from Hutch coming out in the market.
We look forward to now going to full commercial launch, and we are equally excited to then onboard the Snowprint team and support them on accelerating their growth journey ahead. It is worth mentioning, and I'm repeating again what Nils said, that our outlook for the year is excluding the Snowprint. Coming back then to the acquisition of Snowprint, and to just give you a few words on that, that is our first major M&A deal since 2021, and I think this transaction really demonstrates our M&A philosophy. We completed the divestment of ESL Gaming in April 2022, and we have been in a strong cash position ever since. And when it comes to M&A, we have always approached that in a highly prudent and patient way.
Our goal is to make sure that we grow MTG and our portfolio with the right teams and the right games, and we are prepared to wait until that right partner and games come along, and that's really what we found in the Snowprint Studios. Taking a step back then also, since the sale of ESL, we have returned nearly SEK 4 billion to our shareholders through a mix of share buyback programs and a direct cash transfer that took place last year, and that really provides that our M&A strategy can and do go hand-in-hand with shareholder value creation, and that MTG continues to be able to balance M&A and shareholder returns in a good way. Taking it all together then, our results and our business dynamics highlight the quality of our games and the strength of the team that make up MTG today.
Our strategy and our long-term growth ambitions remain in place, and I really look forward to speaking to all of you again soon. But for now, thank you for tuning in, and we are ready to take your questions. So Operator, over to you.
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 Martin Arnell from DNB Markets. Please go ahead.
Hi, and good afternoon, everybody.
Hello, Martin.
So, my first question is on the strong profitability, and part of it was explained by InnoGames and you mentioned Forge of Empires existing players spent more in the game. Could you just, I mean, could you elaborate on what you did and how sustainable do you think that is? 'Cause you also mentioned that you had a bigger tilt to the more profitable browser version.
Yeah. Thank you. No, and I think I answered the same question almost in Q2, and I think what I said then is, it's really difficult to forecast the same stellar execution. But what we have actually seen in Q3 is that we've seen the same stellar execution, which is, of course, great to see. I think it's an amazing testament to the team about how they work with Live Ops, how they work with the events, how they work to nurture the audience base within Forge of Empires to make sure everyone keeps loving the game. So I think based on the momentum that we're seeing, we do believe this is a sustainable momentum that we're having in the business, but that also means that we need to deliver every day.
I mean, tomorrow is a new day, and I think the team is really excited, and I'm a firm believer that success breeds success. So, so I think the commitment from the team is there, the focus from the team is there, and, and then it's up to us to deliver every day towards our customers.
Correct me if I'm wrong, Maria, but I remember that the live ops in InnoGames has been quite lumpy in the past. They've done really well from time to time, but it's, like, hard to really see the stability in it. Do you feel more confident in that going forward?
No, but you're right. I mean, every year you create a plan, and then it's about executing that plan. I think we learned some hard lessons from some events on what didn't work. I think what is always important is to learn from those lessons. I think right now we have a good plan. We managed to execute very well. I think also what we have done in a good way is to reshift the focus a little bit following the reorganization we did internally. I mean, of course, part of the reorganization was to improve the sort of cost ratio, but part was also to make sure we created a better efficiency within the company when it comes to creating smaller, agile team, making sure that we can work in things in parallel.
I think that is also paying off to make sure that we can do several things at the same time, and making sure we can roll them out more sequentially rather than to have the big bangs. So, so I do believe I have a better comfort in the team now, based on what I'm seeing them delivering. I think we have a clear focus that also our established games are equally important as it is building new games. Both are important. And I think also worth mentioning, I think the browser is an amazing platform to drive engagement on because these games are extremely rich in content. You can play them having a great user experience, and then browser is also a very strong platform for that type of gameplay.
Okay. Yeah, thanks. On the margin performance, you raised the guidance and I was just thinking, you know, your long-term target is 23-25, I think. Is it fair to assume that you're seeing more towards the upper end of that in the next year, given the strong trends you are experiencing now?
No, but I think the way to look at it is we are moving towards the end of this year and, of course, going into next year with a strong underlying momentum. And that, of course, means that in the healthy operations, that comes also with higher margins, then we are hopefully scaling new games. So remember, the mid-core games comes with a different margin mix, and sort of short term, they are actually negatively contributing to your bottom line performance, and we're onboarding Snowprint. So, so I think what you should expect is for us to come out with a new outlook, so, when we report our Q1, which we've done the last two years. But it is a very strong operational momentum we're going into next year, and that, of course, gets us excited also when we look at the margin operation next year.
Yeah, that's very clear. Thanks. And just two more questions. Firstly, what do you expect the mobile market to grow next year in Europe and the U.S.? And secondly, how did you reason about the timing with the Snowprint acquisition? I mean, correct me if I'm wrong, but I mean, it adds to your top line growth, but not really that much to your earnings and cash flow. And we must view this in sort of relative terms to versus executing more, even more on the buybacks.
Yeah. When it comes to the market, I, I don't think we are in position to give you exact number what we expect the market next year. We do expect the market coming back to growth this year. We're seeing that, and I think that the market has performed better than what we thought in the beginning of the year. We do expect growth in the years to come, but exact the level, I think it's just very difficult right now for us to predict. You're seeing different, different data points from different, sort of, analytic houses. The truth is probably somewhere in between, to be honest. When it then comes to Snowprint, I think it's an amazing acquisition. So you can never time M&A in a perfect way.
When you see the right opportunity that you believe is great talent, great game entrepreneurs, a great IP, you need to figure out whether that fits into your portfolio and our gaming village, in our case. I think that was the case with Snowprint. I think in a good way, that would accelerate our top-line growth. I think we can leverage a lot of the tools and tech capabilities, know-how, that we have within our mid-core studios, both in InnoGames and Hutch. And I think also both those studios can learn from Snowprint. So I do believe we can create a lot of positive synergies internally, and over time it will also bring us solid sort of incremental bottom-line cash flow and EBITDA.
Short term, it's a growth engine and a very exciting one, and I think together we can accelerate growth in a good way.
Okay. Thank you, guys.
The next question comes from Rasmus Engberg from Handelsbanken. Please go ahead.
Yes, hi, hi, good afternoon. I wanted to continue on the Snowprint acquisition. What... you know, it's an early phase for that game. Do you expect to incur—I mean, you have spent now, it's valued at SEK 600 million roughly. It's Swedish krona. What do you anticipate in the coming few years from that company?
I think we are actually spending slightly less on it, just so we not mix up the numbers, 'cause we only bought 70% of the company. But I think what we-
Yeah, it will make sense for the rest.
Yeah.
Yeah.
But what we do expect is very solid growth numbers from it. It is an exciting—it's in early phase. I mean, historically, we actually bought later-stage companies. But I think the good thing with building up the flow platform the way we're doing, having that UA capabilities in now, having that BI capabilities, having the Live Ops expertise in InnoGames, having the web sort of cross-platform expertise in InnoGames, we are actually in really good shape to support early-stage companies, especially on the mid-core segment. So I think that's what got us excited about the team within Snowprint, and also their openness to collaborate. So they're actually seeking these capabilities. They want to team up and partner up. So I think that's that created a win-win in those discussions.
Yeah. Well, but, what are you expecting financially, I mean?
But we don't, we don't provide guidance on individual companies. So, so I think the way you should look at it is we're coming back in Q1 and providing sort of a, an aggregate group updated outlook, and that will include Snowprint. And I think then you can probably look at what is the updated one and what was the old one and see are there any changes. So, so I think that's the way to look at it. We, we don't want to start to, to guide for individual companies, but it should be, of course, our fastest growing game as such.
But is it a, is it? You know, how long is an investment phase for this? Is it, you know, is it as long as it grows 100%, or 50%, or 30%, or how should we think about it?
Yeah, but the way to think about it, that it's not gonna add any sort of EBITDA in a material way to our sort of bottom line this year, because it's been around for one year. It's in the scale-up phase, which means that we are—if we can see the marketing opportunities, we would really like to deploy the incremental UA spend on it, because that will come back. We know the cohorts from InnoGames, the longevity of those cohorts. I mean, knowing also the pattern from InnoGames, I mean, mid-core games are not profitable year one, so I think that's the one thing to remember. I think the exciting part that we will spend some time now in Q4 is to sit down with the team to say: How can we accelerate the strategy?
How much marketing can we deploy behind the game? Can we get the game out on a cross-platform play? And I mean, that's work to be done. We bought them sort of two weeks ago, and I think this is the exciting conversation that we will have in Q4, and then we'll come back to you after that.
Yeah, you mean, I assume you mean that 2024 is the investment year, not this year?
Yeah, no, I mean, Q4 is an isolated, I mean-
Yeah, sure
... the investments already started, but next year will be an investment year for them. I think that's-
Yeah
... absolutely fair, and that's what we're excited about.
Yeah. And for the rest of the business, I wasn't quite sure what you meant with the UA spend. It should be higher in Q4, but perhaps not as pronounced as before. Is that kind of implicit in what you're saying for the fourth quarter?
Exactly. So we spent a lot. You remember last year in Q4, there was a-
Yeah
... quite a boost on UA spend. We see more flat sequential UA spend.
Hmm. And just, I just have to ask you, there's still a 5 percentage point span in organic growth, and we have about two months remaining. Why are you-- have you not tightened that a little bit?
I mean, the way we would looked at it is, our revenue outlook remains intact, which means if we were to update our guidance and we would tighten, it would be, it was very different. Are you gonna knock out 1%? Are you gonna... How much are you gonna tighten it? So that's why we kept it intact. We also said that we still anticipate to grow sequentially each quarter, which gives you mathematically a pretty good lead on sort of where we're aiming towards. So unless you needed to change the guidance, which we did on the margin, we said, "Let's keep our outlook intact.
All right. Fair enough. Fair enough. Well, all right. Thanks.
Thank you.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
No, we have some questions online before we do that. Thank you. Hi, everyone. So we have some questions, as I said, online. As usual, I'm gonna read them for Maria and Nils to comment on. So let's start with, you commented on positive trends within in-app purchases in the report, which we can subscribe to. How do you perceive the advertising side of the market? Even if Word Games is doing very well and perhaps taking market share, how is the underlying advertising market?
No, we still see it solid. I don't think we saw a big improvement versus Q2. I think Q4 is now, as we move into, is a bigger sort of seasonality ad market. So that is something we look forward to, but I think in Q3, it was okay markets. Overall, I know that the general ad market is quite challenged. We don't see the same challenges on the gaming side.
Thank you, Maria. On a different note, but coming back to Snowprint, could you comment in any way on the amount of earn-outs that you expect for the Snowprint acquisition?
That is something we will come back to as well in the Q4 report. But it's a mix between the upfront and then the earn-out, and then also that we have a right to buy the remaining 30%.
Thank you, Maria. And then moving to a more operational question: So can you please comment on the amount of, and type of one-off items in the quarter?
Yeah. If you look at the one-off, it's a mix both of revenue opportunities that we're seeing, which comes with a fixed one-off, sort of minimum guarantee, and the timing of those came this quarter. Hopefully, that will lead to future revenue streams. I mean, one example is a Chinese distribution deal. And then there was also some smaller one-off reversals on the cost side. I mean, isolated, none of them are material as such on its own merits, but when you add several items up, it does become a material point, so I think it drove, like, our margin 1-2 percentage points.
Thank you very much. It doesn't seem like we have any more questions today, so with that, I would like to say thank you to all of our guests. Thank you to Maria, and thank you, Nils, and we will speak to you soon.
Thank you.