Aristocrat Leisure Limited (MTGB) Earnings Call Transcript & Summary

Hi, everyone. Thank you for joining us today to discuss the acquisition of Plarium. I'm here with MTG's CEO, Maria Redin; and EVP of Gaming, Arnd Benninghoff. So without further ado, I hand over to Maria.

Thank you, Anton, and welcome, everyone. Today is a big milestone for MTG. Many of you who know me knows that I've been with the company for quite a few years, coming up to 20 years. And sure enough, we've done quite a few pivots and gone through quite a few transformations during these years. But I have to say, what we're announcing today is one of the most transformative and is also one of the most exciting ones. We've been setting out the journey, and I think we talked to you also at the Capital Markets Day in 2022 about our vision. What we wanted to do within the gaming space as we sold ESL and became a pure-play gaming company. And what we wanted to do was to build the best home for gaming entrepreneurs and game makers in a home also where we can thrive and where we can share tech and tools in a more transformative and synergetic way. And the one thing that we have talked to you throughout these years is our big believes in evergreen IPs, the relevance thereof and the value thereof. And we pride ourselves today with a home of Forge of Empires, with Tacticus, with the Bloons IP, with sort of Formula 1 Clash and also the word games, Word Trip or Jam, Word Search, amazing IPs that has been loved by customers around the world. And today, with the acquisition, we also bring the #1 RPG game on the mobile screen, RAID. And on top of that, 3 other great games and an amazing and creative team. So again, this is a truly exciting deal that we would like to tell more about this today. But before we do that, we want to show a video so you can also see and feel what makes us excited about this deal. [Presentation]

So hopefully, you felt some of the excitement that we've been feeling in the last couple of months as we've been getting now the company better. It's always difficult to pick up after you've seen a great moving, but I will definitely try to do my best. So to summarize, why are we then so excited about this company? Well, I hope that the video demonstrated it. But I think to get access to one of the best and the top grossing games within RPG, with RAID is, of course, unique asset that goes without saying. And on top of RAID, they also come with 3 strong IPs, 2 other on the mid-core side, which is Mech Arena and Viking, but then also an interesting compelling merge game with Merge Gardens. And addition to that, which Arnd also will talk to you more about is also the proprietary tech and tool that comes with the company. They have been building out over the years a proprietary UA tool with GoGame, and all the direct-to-consumer platform with Plarium Play, both that we are excited to see how we can leverage within the group. And last but not least, as we always say, I mean above and beyond importance of IPs and the tech and tools, it's the people. I mean RAID comes with a talented team that will now join the group and they are spread around the world, and we're really excited to onboard them. And what does this mean then on the revenue side? The company then just closed the fiscal year now at the end of Q3. Their fiscal year runs different than ours. So in total, they reported revenues of $600 million for the 12 months. RAID, which I spoke to you about, is 70% of that. And if you look at the RAID performance, they actually grew 2% year-over-year. It's a very strong performance given that the market, overall, I would say, on the mid-core segment has been rather flat. And what drives them, in particular, strong performance of RAID, and again, Arnd will talk a little bit more about that shortly, is a strong live-ops. Again, coming back to the craftmanship of the team and the innovation within live-ops makes a difference within the game. Adding then the other games, which is some Merge Gardens, Mech Arena, Viking, constitute up to 90% together with RAID on the revenues. And in total, RAID reported 1% revenue growth. The margins, as you can see, is slightly lower than what we are reporting as a group. The one big driver for that is the investment they're doing and the proprietary tech and also the size and scale on the creative teams and also the live-ops team where they're having bigger teams and what we are seeing across our studios. But to offset that and to bring a solid bottom line contribution, the cash conversion that you see stays much higher than what we're seeing across our group today. If you look then at the daily active users, there are 1.9 million daily active users. But what impress us is, of course, a strong monetization on back of each user. And that also represents, of course, that the vast majority of games is coming from mid-core units, and that says at $0.90 per [ ATA ]. Taking a step back then and how does this fit all together? If you've been listening to me before, you've heard me often talking about the importance of IP, importance of scale, but it needs to be relevant scale and also how to find affinity between the audience overlap. And as we look at the RAID, as we look at Viking, the Mech Arena, of course, it fits perfect into our mid-core cluster and where we do believe we will find a good foundation to collaborate not only on the tech -- proprietary tech that they're having with Plarium Play and GoGame, but also on the live-ops the CRM opportunities that we can share best practice between the teams. In addition, I mean, a lot of it's been focused when you talk of Plarium about mid-core, but they do have a very strong foothold also within the casual space. And with Merge Gardens, we're adding a very good complementary game and game engine into our casual side where we today only sit with word games. And we also see that there is a very good audience overlap. So yes, while this is skewed more to the mid-core segment, we're also adding interesting casual games to the portfolio and even more exciting, we're taking a big step forward on what we are doing in the operating model with the flow platform and with Plarium Play and GoGame. We feel that we are much better suited to make sure that with this acquisition, 1 plus 1 will for sure, be greater than 2. To go through a little bit then on the transaction highlights and some of the details. As we said, the upfront purchase price consideration amounts to $620 million, of which $600 million will be paid upfront and $20 million will be deferred to 2026. As we also stated that starting Q4 2024, we will actually benefit from the cash flow generated by the company, which means that as we anticipate, there will be conditions to closing. We will go through regulatory approval. We do anticipate to close in Q1. That also means by then, you've had at least 4 or 5 months, generate our cash flow in the business, which also means that the payment of $600 million, we will do upfront is most likely going to be a lower net amount which also means that the EBITDA multiple that we're talking about 4.5x will also be at the end of the day, a lower valuation. On top and in addition to the upfront valuation, there is 2 performance-based earn-outs, they are structured differently and paid at different timings. The first one, which is a $30 million earn-out potential. That is based solely on the performance on RAID. That is due to paid out in -- based on financial year 2025 and based on the revenue targets and that entity will book on its balance sheet. In addition to the $30 million, there is an additional performance target up to $170 million that is based on much more stretch target, up to 17% growth CAGR. That will not be booked on MTG's balance sheet because the case that we have does not start at the growth hurdle that this earn-out to be paid, which means that we anticipate the deal potential to be up to $650 million. On a positive note, as you know, we did divest ESL back a few years ago, which means that we've been sitting in a net cash position. So this deal be financed with the cash we have at hand and nearly secured debt amounted to $460 million, which means that there will be 0 dilution as a part of this transaction. Of course, I would change our balance sheet going from a net cash position to a net debt position. So we feel with the strong cash flow that we have both in our existing business and then often adding the strong cash flow generation from Plarium, we feel that we still continue to have a strong balance sheet where the out-of-the-box estimated leverage if you take the Q3 year-to-date financials, of $1.9 million EBITDA, if you look at all the financial debt plus earn-out plus deferred payments and 1.1x EBITDA on net debt, if you are looking purely on the financial debt. I think if you take aside the operational metrics from business, from a financial point of view, I think this slide sets it all. Again, I said in the beginning, this is a very transformative transaction. And you can see from whether it's revenue, adjusted EBITDA or free cash flow, we are either nearly doubling or more than doubling our size without diluting from a shareholder perspective with any rights issue, which means that this deal will be also not only highly accretive from a free cash flow point of view per share, but also highly earnings per share accretive. Looking at the growth profile. Yes, from a reported point of view, we've been growing slightly faster than Plarium, so the underlying growth levels are fairly similar. And on the reported pro forma level, we would have a combined growth rate on just below 3%. The margin will be around 25%, and the combined cash flow generation would be 67%. I will later also talk to you if you're calling out the MTG cash flow conversion may look lower than what you normally see. But when I take my CFO hat on later in the presentation, I will also call out the differences there. If you're looking also then of the proportion of the top 5 games on the contribution, they will amount now roughly 61% of our revenues. And I think equally as to DAU, I think if you look at the revenues, the top 5 titles will be 3 games from the mid-core segment and 2 games coming from the cash flow segment. So keeping our focus on a blended sort of group having both a strong foothold in cash flow and mid-core, which is important to us. Looking at the foundation then from a more operational point of view, I've said in many times in this presentation, and you will hear it again and again. I mean having strong evergreen IP's important for us. Having also these live game over the maturity life curve, as Arnd will show later, is also very important. And with the addition of the game from Plarium, we will now have 45 live games and the addition which we are, of course, more excited about is RAID, because we know the relevance and the value of an evergreen IP, which is category leading. I mean we've had with Forge. Now we're adding it with RAID. But equally exciting, which also gives us another growth lever is the 3 additional games that they are bringing and taking our total new games in development up to 10. And of the 3 games, they have already soft launched Elf Islands, the other week, which we're excited to see the progression of. The daily active user will increase to 7.9 million. And as you will see later, this is actually quite healthy mix, the same as our top 5 games between casual players, roughly 40%, 45% and mid-core players. And equally exciting. We are enlarging our group and doubling also the size of our talented people that continue to be energized and engaged to make our games better for our customers on a daily basis. So to wrap up my section before I hand over to Arnd to talk more detail about Plarium. What is really exciting to see this side, we started our journey to become a mobile gaming company 8 years ago pretty much roughly this time, 8 years ago. I think then we bought InnoGames. And ever since we've been on a journey to try to improve our relevance, our importance, enhancing our gaming village with great game makers and games. And with this acquisition, we are really proud to see that we are going to become the #1 listed mobile gaming focused company in Europe and the #2 in the Western space. And if you look at it in the overall space, we are actually now a top 10 company and mobile games developer in the West. And I think that is something that we're a, extremely important about, but also b, is really important because relevant scale matters, both on a capital market point of view and both from gross revenues and IP and diversification point of view. So with that, I hand over to you, Arnd, and you take it forward.

Thank you, Maria. Hello, everyone, from sunny Stockholm. I have the pleasure to show you why Plarium such a great company and how it fits into our strategy and why we as MTG are best owner for Plarium and give them a great home. So let me give you a bit more background on Plarium. Plarium is led by a very experienced and seasoned management team of great game makers and managers, 12 people headquartered in Tel Aviv, but offices all over Europe. They've a flagship and most prominent IP with RAID: Shadow Legends, but there are more attractive games in their portfolio. It's the mix of mid-core and casual games. And what is probably overlooked but a real asset and I will give you a bit more context later, are the 2 tech platforms. So like any game company, there are the games where you see all the creativity in the game play, but there's so much tech underneath. And here, we have Plarium Play which is a distribution platform where they invested millions and it's becoming a leading web store, which already generates 30% of the revenues with a very high margin. And there's GoGame and automated marketing platform. And since you all know, UA is key to succeed in scaling a game, which is also a huge asset and can be leveraged across our Gaming Village. There is a long history all the way from Facebook games in 2009, '10 to scaling successful mobile games. And now with a pinnacle and most successful IP RAID: Shadow Legends, which was the masterpiece only 5 years old, if you put in perspective to other successful mid-core games. But the core portfolio comprises 4 live games. So it's a mix of mid-core casual games, and that's the main reason why it's a good fit to MPG. We have Vikings, which is very close to strategy game to Innos core games. And through the lens of Inno, we've got a really good understanding of Plarium's key growth drivers and game portfolio. There's Mech Arena, a team-based action shooter and from Futureplay, a company Plarium acquired a few years back, there's Merge Gardens, a leading casual puzzle game. Two new games in development and a third new game is already in soft launches with very promising KPIs called Elf Islands, a casual simulation farming game also close to InnoGames core competence. But by far, the most important and shiny and strongest IP is RAID: Shadow Legends. The whole industry has been following what Plarium did since 2019, how fast they created and scaled this turn-based all play game, and it hits the #1 in the charts in a $3.7 billion market and owns 10% market share. And if you look back over the last years, what people learned is, it is so hard to break through with a hit and to create a $400 million-plus game is nearly impossible these days. So it will sit there for a long, long time. And if you look at the ARPDAU of 150, that's very strong and market-leading with more than 100 million downloads and a nice revenue distribution between U.S., Europe and the rest of the world. So that has attracted us, but my favorite chart actually is this one. And I always compare these strong cohorts where you see how they're nicely stacking up on the wire with prime real estate. When you get the best location and create such a loyal player base over the years and just to share one important number with you. When you look at these second cohorts, the total value of all these cohorts is EUR 840 million over the next few years. So then you can put in perspective, and there are more growth avenues they can explore their cost platform opportunities. You can launch more casual-oriented games based on the rate IP. So in this IP universe, you can do so much more. And that's also the other key value driver. That rate has this potential for pure transmedia IP. They already have a series on YouTube that's Call of the Arbiter, generating millions of views. We can go across platform and keep in mind, 70% of all mobile players, now [ Wade ] . There's a huge brand equity in this game. The success is based on mainly 3 pillars. First and foremost, it's one of the most successful game developer, how they approach game development. The marriage between KPI, data analysis and storytelling with great design is outstanding with these 4 live games. Very much OI focused. That helps them over the years to create a very sizable business. And then as I said, this is all on the back of 2 very valuable and also state-of-the-art platforms. Since they spend more than $200 million UA, GoGame gives them the efficiency and the successful way to scale games by combining and leveraging 36 proprietary marketing tools all developed in-house. And that's how they also serve all the in-house studios with this program platform. And we are very much looking forward to work together since we've also started building a similar platform. But here, we see a clear synergy potential. At Plarium Play, you can compare with other successful web stores where you funnel the players create a cross-platform, game play and let them spend on the web where you have a much higher margin. And as you can see here on the right, the figures, they already generated 30% of the bookings from this D2C distribution platform. If you want to rebuild this, there's millions of investment, if you can ever get such a state-of-the-art platform. And when it comes to the financial performance, although it's a 5 year old game, they will manage to grow weight even this year by 2.3%. And put this in perspective, everyone else is struggling to generate organic growth and through our best-in-class live-ops by integrating third-party IP, they have managed to grow the game. And overall, Plarium has been growing more than 1%. But if you look in the middle, they have been very successfully increasing the EBITDA above 22% or 20% margin, which is a 50% increase. And looking the future, what gave us the confidence that there's more growth to come from Plarium are 3 growth levers. So they will continue to grow organically by optimizing live-ops, integrating third-party IP. And then on top, they will expand RAID. There's a very promising publishing project in China together with a partner where we're going to launch RAID with localized content in China. And as you know, 1/3 of the mobile gaming market is China and the last world playing games. Further, we're going to localize way to address the Wade's and the High Roller in Japan and also in South Korea. And there will be new games based on the RAID IP. And as all other game studios in the MTG Village, Plarium is working on very promising new games with Elf Islands, as I said, or in soft launch and 2 more mid-core and casual games. But let me explain to you why we are the best owner and why this is a great deal. So our little green friend here, [indiscernible] ticks all the boxes, as I said. We firmly believe the key assets and value driver in the future of any game studios evergreen IP, which can live for a long, long time. And we know this from Forge, from Bloons, from all our great IP in our village. That's why we kept the plot open for Plarium. Their synergies, both on the tech side, tools and tech, but also on the live-op side and just by knowledge and share. And we value people. We really look at people first. And the depth of talent is amazing. So when we look at our M&A track record, we have been very disciplined and selective. We walked away from many deals, and we found these 4 great companies. And the latest acquisition last year was actually the ideal stepping stone towards Plarium since Snowprint is successfully scaling also one of the biggest IP in gaming with Warhammer Tacticus, and that's been a great success for us, but also PlaySimple, Ninja Kiwi, and Hutch created a high-quality IP portfolio for us. And 20% CAGR over the last years speaks for itself. And active portfolio management is also an important discipline for us. So I think we nailed the timing when to find a better owner for the esports business, and that gave us the firepower to be active in these times where we see a great window to consolidate the market. So now as you can see here in the lineup, it's a great fit, not only because he has the right hair style, the CEO Schraga, but because of this strong market position, we want to create category leaders. And now with 35 million MAUs, we have a great audience network and a highly diversified games portfolio. Here you can see how Plarium's games complement perfectly our games portfolio from 3 new games in production phase, all the way to the growth area to the established phase with RAID, we see high margins and not to forget, they run in total more than 20 live games but also 2 games in harvest mode. And there will be much more we can do together. This is another very important key side to give you an idea about the growth potential. If you look at these curves, the green curve is a success story of InnoGames, when we partnered up. We had no idea how long Forge of Empires can grow and successfully scale. But as you can see, that is a great job over the last 10 years. And Snowprint is following exactly the same curve with Warhammer Tacticus and we can help them even to improve and to leverage to more efficient UA spending. But a great talented game developed team will make sure that this becomes a great success story. And when you look at the top and take away the COVID boost, we all know people sitting at home was probably a bit of an outlier. But even if you normalize the curve, you can see the growth trajectory of [ Wade ], and there are more levers to pull. As I said, the China expansion more localization and geo expansion and new features and live-ops since not to forget, games is like software as a service, you keep the customer a player engaged to be launching new features, new content. One thing is the games P, which is a valuable asset, but also the player, the audience network we are creating. Very early on, when we introduced our game strategy, we always highlighted that we want to create an audience with a high affinity for our games. And by cross-voting this audience between mid-core games, as you can see on the right, where we have 4.2 million daily active users, more male skewed, 1 to 35 age. And then on the left, you see our casual cluster, where Merge Gardens from Plarium is also a great addition, and you have mainly the PaySimple franchises. So further and further M&A, we will always try to add to these audience bubbles to create the increased affinity. And then you can see also the revenue distribution is nicely allocated. There's no dependency on a single market. But now let's come to the other to great assets, which will be the key driver of synergies. The web store distribution platform is something everyone wants to get their hands on. There's a lot of chatter around how can we distribute games outside of the wallet gardens of Apple and Google. And this Plarium Play platform gives us a great opportunity to put our games on and increase the bookings through the web where you have higher margin. GoGame is working in the background, and it's really important to publish and scale our games where we get so many valuable tech in-house. And now is the idea then to look at synergies across 3 levels. There are things MTG can learn and take from Plarium directly as like the GoGame platform, improvement in marketing to learn how to run incentivized events. There's something we can definitely help Plarium with like InnoGames browser experience, very valuable. We can add more marketing channels like TV advertising. And then there are the shared synergies, which are a bit more soft factors acknowledge sharing, but also the consolidation of system where we create a powerhouse for marketing UA and distribution. So that makes me very confident that it's a great deal and there will be a contribution in the double-digit U.S. billion we're going to see over the next years coming out of this fantastic deal. To summarize our strategy, it's exactly the same you have seen over the years, and we have been through these 3 growth drivers. We firmly believe in organic growth; two, leveraging the platforms with an exceptional team. We're going to see really tangible significant synergies across these areas. And the good news is we are ready to continue our strategy and also look into other areas like casual and more mid-core IP because we want to continue our value-accretive M&A strategy. So that's in a nutshell, why this is a great deal for us, and we are very happy to become the new home for Plarium. And with this having said, I hand over to Maria, who will walk you through the transaction structure in more detail.

Thank you, Arnd. So let's then look into the numbers and what does this tell us? And after Arnd's slides, this may not be the most graphically compelling slide, but it does have some exciting numbers to offset the graphic design -- and I think it is amazing. I mean, this transaction in many ways. First and foremost, it brings us to Arnd's point, strong evergreen IPs and an amazing talented team. But it also gives us relevant size when it comes to the financial profile. We are doubling our size when it comes to the revenues, we are above SEK 10 billion in turnover. We have an adjusted EBITDA of SEK 3 billion and a combined adjusted EBITDA margin of 25%. More exciting is if you look at the free cash flow conversion, where we are significantly accelerating. And I promise you, I would tell you a little bit about the 55% capital conversion that we have at -- if you may recall from the Q3 results, we did announce that we had 70% cash flow conversion in the last 12 months. And the difference between the SEK 70 million, which we also said that should not be seen as a run rate going forward, it was extraordinary high is that when we look at the 55 million, we have actually normalized that number and taking out the working capital swing was quite positive the last 12 months, which should not be the case over time, and we've also taken out the interest income. So that actually becomes a much more like-for-like number with a 79% cash flow conversion that you see from Plarium and which brings them the total cash flow conversion to 67% for the combined group. Looking then at the deal transaction, I talked to many of these points before, but I think given how good we feel about this deal and also that we're quite excited about the valuation in the deal, I want to just reiterate again. As I said, the upfront purchase price consideration is SEK 620 million, but of that, SEK 20 million will be deferred to 2026. And the net payments will ultimately be offset against the cash that we will generate in the business since the start of Q4, up until closing, which again means that we do believe that the final EV that will come out of this transaction as we close will be above -- in sorry, will be below the multiples that you can calculate today on 4.5x. On the next slide, I will go through the earn-out in a bit more detail what it will take to reach the earn-out 2, which doesn't fit on the balance sheet. -- but they are not one you will still -- you will find on our balance sheet as we close the transaction. I will then also then on the coming slides, go through the financing. So you can see how we bridge that and how it's structured with a combination of a new rolling credit facility and 2 term loans, both the term loan and the RCF has a tender of 3 years and can extend it for yet one other year, and it's being provided by our existing bank growth that constitute by DNB, Swedbank and Nordea. And while we would love to close this transaction tomorrow because we are ready to get into the operations, we are expecting following the customer regulatory approvals to close the transactions in Q1. Looking then at earn-out 2, and to explain a little bit why we're actually excited to have it, but also why we haven't as of yet, put anything on the balance sheet. I think we can deliver the full potential of this earn-out and pay Aristocrat at the end of the day, $170 million, we would be extremely excited because that means that we actually doubled the size of Plarium over the next coming 4 years because they are not threshold for the earn-out 2 is entry-hurdle of 6% growth CAGR, which means that up until revenue generation of $707 million by the end of 2020, there will be 0 paid out on this earn-out, and that represents a 6% growth CAGR. And then there will be a linear payout up to $1.2 billion or 17% growth CAGR, which means that we have an aligned view and aligned vision with Aristocrat. I mean we do believe to Arnd's point, there is an amazing foundation in the core of the games within Plarium, and we believe in the longevity and the existing live franchises. And we also do believe there is an amazing growth optionality in the new games again exactly when, the scaling of those and if that will happen, time will tell. Looking then a bit more detail on how we will structure the deal from a financing point of view. As I said and also as Arnd showed, we do still sit with cash on the balance sheet from our ESL transaction that gave us a very nice return and also enabled us to provide a lot of capital back to our shareholders. We estimate roughly to be seen to contribute $140 million of our current $300 million cash balance to come to this transaction. Remember that we also do have earn-out to be paid and then we structure the financing in 3 pieces. There will be 2 terminals, A and B, and then we will have one revolving credit facility that we expect to be drawn upon. And that brings up the total upfront payment of SEK 600 million. As you can see, there is also a shaded bucket here, and that is the cash that we expect to be generated between the time of Q4 2024 and closing -- and that will ultimately then net the upfront payment, and then we have the deferred payment of $20 million to be done in 2026, which brings altogether the estimated EV of the deal and where you can then also calculate what is the multiple that we applied to the deal. Taking then a step back and you look at the balance sheet, and as I said before, we're moving from a net cash position to a net debt position. We've been in a net debt position before. And again, if you have such a highly cash-generated business, which we're having, both in the existing MTG operations, but also with the addition of Plarium, that is something we feel very comfortable around. We also see that as we look forward to the projection, we can definitely have a continued optionality. And to Arnd's point, we don't see that this strategy ends with the acquisition of Plarium rather we see the acquisition of Plarium as an exciting acceleration of our strategy, and we will continue to selectively pursue that strategy going forward, which means that even with this acquisition and adding debt to our balance sheet, with the strong cash flow that we're having, we see that we can continue to buy back shares. We do have the existing share buyback program that will run until the next year's AGM. And at that point of view, it's to be decided by our Board to take a new decision on continuous buybacks. We do have the optionality to amortize the existing debt to pay down the leverage. But we also have the option now to continue to invest in organic initiatives and new games development an equal exciting and even more value accretive M&A because as we see this transaction go through, as we can integrate the tech and tools that Arnd talked about, we are going to be even better positioned to onboard more studios into our platform and create more value for our shareholders. So then let's go to the ending remarks before we take questions. Again, I said in the beginning that MTG has gone through many different phases. And I think this slide calls out the changes that we've done and the transition we've had to become the pure-play gaming company that we are today. And I think in all fairness, we started back in 2015 as we look to find where is the audience going, how to remain relevant in the entertainment side outside of the traditional broadcasting. And that's how we found esports and gaming and made the first investment there. And we also took the rather bold decision to actually split the group in 2, which also made that MTG became a pure-play digital entertainment company with esports and gaming. I think the next journey we've had, which has been extremely exciting has been to shape that pure-play gaming group that we now today are. That actually resulted, which Arnd talked to you about, the divestment of ESL and DreamHack that created a highly value accretive transaction for our shareholders, but it also enabled us to be a pure-play gaming group because at the same time, we did the 4 transactions that we are super proud of with Hutch, Ninja Kiwi, PaySimple and Snowprint. And then as we stand here today with you, we are also then talking about the next phase. We're then adding Plarium, which means that we're doubling down on the size. We're adding one of the most known games within mobile gaming and an amazing family of game makers into our village. So we are truly excited about the next step. Hopefully, this is just the beginning of a new exciting era. And that's also why we would like to invite you to a Capital Markets Day coming in the first half of next year. So to wrap it up before we take the questions. Again, I think we said it a few times, but it goes out saying that the Plarium acquisition strengthens our position as one of the leading western mobile gaming companies with evergreen IPs. And we are firm believers that as an operating model and how to drive the synergetic gaming platform, the Plarium tech and tools that they're having will be highly value accretive for us as a group. The transaction as such from all financial metrics, whether it's revenue, adjusted EBITDA, or cash flow is going to be highly accretive and double in size. And as a shareholder, you will also expect to see it highly EPS accretive. And last but not least and which is really important to focus on is, yes, we're going from a net cash to a net debt, but we still believe that we have a very strong balance sheet with a financial agility to continue our journey ahead. So with that, I would like to hand over to questions and leave it to you, Anton.

Thank you very much, Maria. So now let us do some Q&A. [Operator Instructions] So the first question will come from Thomas Singlehurst at Citi.

It's Tom here from Citi. Congrats on the deal. A few questions. The first one, I know it's a bit boring, but I was wondering whether you could talk about the opportunity for sort of ROA cost savings. I mean, obviously, there's a lot of potential operational synergy between the 2 companies. But is there an ability to take out or deduplicate costs? That's the first question. The second question is about the incoming management team. As I understand it, you're acquiring Plarium out of a larger sort of leisure business? Can you talk about the management team at Plarium and in particular, how you are planning on incentivizing them. And then the third question is with regards to the balance sheet. I mean, obviously, you're moving into a net debt position, which makes sense. Should we assume from here on in the plan will be to get back to a net cash position as quickly as possible? Or can you give us a sort of target leverage over the medium term.

Yes. Thank you, Tom, for your questions. When it comes to synergies, I think Arnd called out the exciting synergies that we see that are the first ones to go after when it comes to really exciting revenue opportunities that we can either come from Plarium to MTG or vice versa. I think that would be our first priority. Thereafter, I mean, as we've always said to you, I think what we are big believers is in to run efficient companies, but I think that is too early to be talking about before we actually started working with the business. I mean right now, we focus on how can we see us operate in the business and drive more revenues together because I think there's a lot to be done there to begin with. Yes. And then if you take the income in management, I think Again, this is a different deal for us in many ways to defer. This deal is being the seller is Aristocrat, it's not the founders. Normally, we buy founders. But we spent quite a bit of time with the management. And if you take the average tenure, it's actually 8 years in the management team, which means that, yes, the founders are gone, but the talent is there. And I think that is what is so important. And I think with the leader Schraga, who comes with a highly experienced background, that has seen many different types of businesses, it gives us actually greater comfort that we can actually become better together because you see many different businesses on how to run business and see that synergetic approach. And you raised an important part also when it comes to incentives. That is also where it's an important point that we are finding the aligned incentive structure in order to run Plarium in the most optimum way and find that balanced approach between revenue growth and the bottom line profitability. So that is definitely something we will put in place and make sure we simplified them in the right way and a balanced approach what makes sense and for whom on a group level versus on the Plarium level versus studio level. So I think that's a hygiene that we should always have in place, whether we buy small companies or big companies. And then I think the balance sheet was your last question. And yes, you're absolutely right, we are going to net debt position. And when you have such a strong cash flow, I do believe that makes sense. I think we have a great optionality going forward if we are choosing to actually leverage the cash flow and repay our debt. If we are leveraging the cash flow and actually return that capital to our shareholders through a share buyback or dividend distribution or to Arnd's point, which we raised, if we are seeing the right next value-accretive M&A and maybe complement our casual gaming studios I think that depends on where we see the best shareholder value creation to be done, and I think that should always be the guiding principle.

The next question will be from Jesper Stugemo from Handelsbanken.

Yes. So a little bit around the geopolitical risk you see with headquarter in Israel, Tel Aviv. Plarium employs 1,300 employees. So how money is placed in Israel here? And what's your view on the risk?

Yes, it's a very good question. And we spent quite a bit going through that assessing the risk and outstanding what is a business continuity plan. And I think the one thing we are extremely pleased with as we start to discuss with the company and looking into more of the details, is how proactive they've been working with making sure that they always have backup plans, continuity plans and also elevating all tech and tools and systems into the cloud, which means that you can actually be working remote from anywhere in the world and you're not losing any efficiency. And remember that they have also worked a pretty large team out of Ukraine, moving in particular to the Poland and building up a new studio there, but also to other parts of Europe and they managed to do this transition without any disruption to the operations. So that gives us a great comfort. Of course, we're monitoring the current development. So the vast majority of the actual games development team sits outside of Israel.

All right. Perfect. And could you say something about ARPDAU and that is significantly higher in Plarium versus entities. And if you could give some color on the consumers' willingness to spend in Shadow Legends, what the trend has looked like and what do you expect from the game going forward?

Yes. Jesper, there's one of the USPs that they are really best-in-class when it comes to monetization. And as you pointed out, compared to InnoGames is significantly higher with $1.50 but what we've seen in the due diligence is that by integrating third-party IP constantly working on the live-ops events, they have been even able to increase the ARPDAU. That's why I believe there's more potential, more upside potential monetization and then bring this monetization know-how also to other games like when they acquire Futureplay, they help them also to create a very high ARPDAU for a puzzle game with $0.70. So actually, that's one of the competitive strength, the know-how and monetization. And also for the new games, which are in development, there will be a focus on monetization. And I'm pretty sure, as we heard from InnoGames, they're keen to learn on different tools and also process they can use to leverage their ARPDAU.

Right. And one last question for me here, if I may. I kind of misunderstood you, but you mentioned something around Japan and China and to expand there with the games. So -- what is the current view on the user acquisition spend and competition of Shadow Legends, et cetera, in those markets?

So China is obviously one of the most attractive markets especially for RPG games. And South Korea is one of the probably worth best offers of RPG, but you need a local partner to get the localization-wide, the local flavor. We're not yet looking into UA spend. So currently, we are developing the games together with a partner in China, and China is the priority for now since the biggest market. And given that this is a global IP and well known, I think we want to fight open doors and a lot of demand for such a high-class RPG game. But again, key here is the experience and it's a very sizable games company we're working with in China. And then we're going to go probably end of '25 to soft launch, and then we're going to discuss what are the [ OS ] target to scale the game in China. And South Korea and Japan, the other attractive markets where you see was spending an RPG games. And when we can crack China, then next, we would focus on localizing Wade for South Korea and Japan.

So the next question will be from Viktor Lindstrom at Nordea, please.

It's Viktor Lindström so a few ones from my side. So to start off, how has the UA spending been in the past years? And how has that been allocated between the game portfolio in Plarium?

Yes. So I think if you look at year-over-year, '24 versus '23, UA spend is actually down, which again puts an even better testament to the performance of the games because that shows to Arnd's point that they've done a stellar job when it comes to the live-ops and the engagement within the games. If we then look to the second step, how it's being faced and how it's being skewed within the portfolio, of course, the vast majority goes to RAID. That has been the case in the past and that remains to be the case also as it is. The one game they have been scaling up quite successfully because they've done a remake of it is Merge Gardens, which is exciting for us because that adds also to our casual portfolio, which today sits with PlaySimple games only.

Okay. And the second one here is what would be the interest you pay on the new issued loans here?

Sorry, I couldn't get that question.

What's the interest on the new loans.

I got it from Anton. So the interest on the new loans, we haven't actually disclosed that, but we do feel that those commercials are competitive, and we are happy with the funding structure. The loans and I think that we can be clear on, they are actually denominated in dollars, so it will be based on the dollar interest rate.

Next question comes from Rasmus Engberg at Kepler Chevreau.

Hi, Maria, Arnd, and Anton, just first question, if you look at the growth rate or maybe you can describe the development in the last few years, has it been number of players? Or has it been spend per player that's been the driver of the growth?

Yes. No, as you can see and hi, Rasmus, by the way. If you look at the performance, I mean, many of Plarium's games and in particular, RAID had its boost during the COVID time and as Arnd showed you on that graph and then it normalized and that came in particularly to users. There was an increased level of engagement during that period of time. And also the company were able to scale UA like saying we saw performance in InnoGames. So I mean that's -- that's a trend we're quite familiar with. And of course, that helped us throughout this process is we could compare sort of some of the data points in a good way. So I think if you see the performance last year, I would say the one thing that has drove the performance of 2% growth within rate and 1% in totality, it's actually the live-ops and the monetization of the customers and the engagement of customers, and that's where they've done a great job. And that also gives us a comfort about the deal because that provides -- you can argue the baseline. We know these cores are super sticky, and we know the longevity and the value thereof. And to Arnd's point, I mean we can actually run the forward-looking math on what is the value on the cohorts of RAID on its standalone merit. And that gives us a baseline in the value of the deal, and then we have the exciting growth optionality of the new games.

And can you give us some sense of how much of the spend goes through Plarium Play?

On the UA spend?

I mean how much of the revenues generated in RAID or in Plarium goes through Plarium Play?

No, as we said, it's roughly on the group on a 30% basis. And it doesn't vary that much between the top games.

All right. It's not so much of a question, but I'm actually level 84 in RAID, I'm just saying. That's all from me.

Very happy to hear, Rasmus. Keep on playing.

Outstanding.

The next question will come from Simon Jönsson at ABG.

Congrats on the deal and thanks for all the good color in the presentation. I think it was quite clear what you aim for and what you want to do. But can you maybe expand a bit more on where you want to take RAID in terms of D2C? Is there more to do there? It's 30% of sales now, but what could it be? And maybe also expand on what you said about the cross platform potential? Is that releases on Steam, for example? Or please expand a bit on that.

Yes. I think 30% bookings from D2C is actually a pretty good number already. We would love to get there with our own games. So that would be the focus for us to probably onboard our own games once we can work with Plarium Play. And then it's more about the holistic game experience for the player to really play them cross-platform. And cross-platform means here, we first think probably about browser games that we might be able to port some of Plarium's games on browsers and InnoGames is one of the leading browser game companies in Europe. And Plarium already has with Viking some browser games. So that's another growth avenue we might be able to consolidate the market. And then as you know, some of our games are on other platforms, some console to Netflix, applicate if you look at Bloons, which is a pure cross-platform company. So this will take some time, but we're definitely going to look into this. But as you know, we also like stable, profitable companies where the management team wants the business. So there will be a good balance between supporting their organic growth and initiatives which are underway and then leveraging synergies when it comes to cross-platform and the D2C distribution platform.

Got it. And then on the profitability here. I mean, you said for example, that UA has been lower. I also wonder if that is something you think can be maintained lower UA going forward? And I also wonder if there was some kind of one-off in the LTM numbers is something that we should be aware of? I just wonder because the margin was up quite a lot year-over-year, it looks like.

Yes. Now I would say that there are no one-off as such. And yes, they did scale down year-over-year, and I think they sort of reset the ROA levels. And I believe that the ROA levels that they're currently running on, we're very comfortable to continue to run. So you shouldn't expect UA to go down. We would like to continue to scale on the existing ROA levels. I mean that sits quite nicely in line with our ROA principles in our other mid-core businesses. So I would say that the -- yes, it's a big increase, '24 to '23, which is great to see, but I think that's also where we would like to continue to run the business at.

Excellent. And one last from me. You talked about the strong cash flow and the current buyback program will continue at least to the AGM and that the Board will reassess. But what is management's view here on a continuation of that currently. Should we view that the base case is that you will continue with buybacks all else equal after the AGM? Or what is your view on that?

I think 6 months in our world, all else equal, is a bold statement. So I would say the way to look at it this way is that we're always trying to balance sort of direct return to shareholders. We've taken the right decision to invest for the future. I think this deal is one of those deals. And we can do this deal and continue to run our share buyback program. I think we need to then understand what is our investment opportunities, organic growth opportunities at the time next year at the AGM versus actual returning capital direct through either dividend distribution or share buyback versus actually paying back the loans. I think those are the levers that we have. I think we can do many of those levers at the same time, which, again, shows the financial flexibility we have but it's too early to take a decision as of today. I think what you should assume, however, is that we will always ask for the mandate because we do believe that it's an important tool to have in order to drive shareholder value for us.

We have 1 question from the digital questions. And the question is why didn't MTG consider buying Big Fish games as well since it was part of Aristocrat's strategic review?

I think when we look at businesses, we see how they complement our portfolio. We love evergreen IP, and that's where we saw Plarium as a standup candidate, and that's also why we focused on Plarium.

And not to forget, Plarium as a group is already as big as MTG. So we just felt we focus on one deal at a time and their limited synergies, although Big Fish is running on the GoGame platform and the Play platform, which was an interesting testament for us and proof that this platform is ready to serve as third-party.

Thank you very much. Thank you, Maria and Arnd. And thank you, everyone, who listened in. This will be all for today, and we look forward to bringing you more news in the coming months and quarters ahead. Thank you, operator.

Thank you.

Thank you.