Artifex Mundi S.A. (ART) Earnings Call Transcript & Summary

Hello, everyone, and a warm welcome to the Poland ON AIR conference. It's a real pleasure to have you all here for this specific and special roundtable. So this session is dedicated to Artifex Mundi, and we're truly delighted to have the chance to hear from the CEO, PB, who will share some insights with us. So with no further ado, PB, the stage is yours.

Thank you, [Foreign Language]. My name is Przemyslaw Blaszczyk. [ I am the CEO of the firm ] Artifex Mundi. I have started from [indiscernible] especially at [indiscernible]. Today, I will show you how our free-to-play engine Unsolved today and our new RPG tomorrow translates into the [indiscernible] generation business. I'll keep it simple, where we are, how we grow and what returns you can expect. And let's move further with the presentation. So probably you already know that we are a video game development publisher. For majority of our existence, we will focus on HOPA genre and our path was typical for a game developer, which is we are -- we have started from the work for hire and then becoming at later stages, independent developer and eventually a publisher. We have a portfolio of more than 90 HOPA games published on all main platforms, PC, mobile consoles. We used to produce games in a premium model. However, since 2020, where we made an important pivot in our history [Technical Difficulty].

PB, I guess you're frozen and I cannot hear you anymore. So maybe you will dial in again. So ladies and gentlemen, now -- now you are back with us.

Okay. So I don't know where I was cut, but I believe we are still on this first slide. So we specialize in 2 genres, hidden object where we have accumulated know-how, experience gathered during our 16 years of existence and RPG, which is the second genre where we have 8 years of experience in production on one live game and one that is currently under development. In terms of high-level picture, today, we are 120 people organized to ship content and operate live services at efficiency. Majority of our shareholders are still [ founders ] owning more than 30%. Then there are 2 -- almost 3 funds owing another 25%; and G5, which is older brother, but what -- I mean, this is our company, which also works in our niche in hidden object games. Free flow amounts to approximately 45%, shares outstanding roughly 20 million, market cap of roughly PLN 180 million, which gives us a price-to-earnings ratio of 6.5 at the end of the August. For 2024, our revenue was slightly above PLN 100 million, EBITDA of PLN 35 million and net profit of PLN 27 million. And that profitability give us optionality to keep funding user acquisition and products without stepping external capital. How are we organized? This slide shows the headcount split by business unit. So we work in 3 business units. On the left side, one internal studio called hidden object dealing with our biggest game Unsolved. Then on the right side, there is a second -- our internal studio RPG -- working on a RPG title and having also one game live. And of course, support teams like business intelligence, user acquisition, HR, IT, legal are centralized to keep velocity high and overhead low. And let's talk about our engine -- or maybe before that, a small remark how we divide our numbers in financial statement. So we report numbers under 2 segments, free-to-play and HOPA. Free-to-play consists -- actually makes roughly 95% of our revenue. And for that segment, the biggest contributor is Unsolved, making almost 99% of that revenue in that segment. And for that segment, there is also one game that is under development, still unrevealed RPG title. And then there is a HOPA segment, which makes each year less and less revenue. This is portfolio of 90 HOPA games, our old legacy business. So for majority of this presentation, I'll focus only on the free-to-play as this is our future, and this is currently what we are working on. And let's now talk about free-to-play segment. In 2024, free-to-play revenue grew 33% to almost PLN 96 million. UA spend rose 28% to PLN 51 million. And [ sales ] margin, which is revenue minus user acquisition grew almost 40%. Unsolved did the heavy lifting here, generating PLN 95 million of revenue, which -- so basically 99%, while first RPG title, Bladebound, now contributes marginally, which is by design because this game is in a low maintenance mode currently. Let's move forward. In first half of the year, revenue grew 5% to PLN 50 million. User acquisition cost 16% to almost PLN 30 million and [ sales ] margin landed approximately on PLN 20 million. Seasonality and ad market inflation are visible here, but the unit economics remain intact. And let's now talk about our biggest game, generating almost 95% of our revenue, which is Unsolved. So for those of you who are not familiar with Unsolved, it's our innovative approach to HOPA content. Within a single application, we provide a large portion of our HOPA content in a free-to-play format. We have developed pretty suitable monetization model for this type of content [indiscernible] our HOPA chapters by consuming energy, which gradually and slowly [ abate ]. And this is enough energy for the player to get familiar with and become engaged in the stories we tell, but it's not enough for the player to feel fully satisfied. So this is the basic motivator that triggers monetization, purchasing energy and other resources that enable a player to progress further for our content. This chart shows revenue and user acquisition spending since beginning of 2024. The game has been launched beginning of 2021. And since that, it's still in the scaling phase. Currently well-made free-to-play games can survive and monetize for years. And this monetization period keeps getting longer. So for example, there are games in the market that are approaching 10 years of continuous operation. And within this life cycle, several distinct stages can be identified. So the first 2 stages, ideas, let's call it, soft launching -- essentially high-weightage phases where the game is just being developed and the revenue is only at the testing level. The true harvesting of benefits of a really good game idea begins when the game enters the scaling stage. And this stage can last for several years. And during this time, the game is usually significantly expanded and [ hasted ] with live-ops and other features and regularly provided, of course, with the new content. Unsolved is at the beginning of this journey. The most important changes that explain -- for example, metagame are still ahead of us. And only after these changes are implemented, we will be able to say that Unsolved is a complete game. So as I mentioned, metagame -- before metagame, an important thing is to highlight also the -- during this meeting that Unsolved is still a game in an early development stage, and it remains a young title. We have not reached the vast majority of the target audience. And for the purpose of this presentation on the left side, [ I wouldn't except ] from the [indiscernible] magic application. Maybe you are familiar with that. Here, we have a comparison of our closest competitors. So the table presents estimated revenue, number of installs and average revenue per player, both overall and for Tier 1 countries, which are the countries with the largest potential like the U.S. or the Western Europe and as calculated by Magic, of course. Currently, Unsolved ranks #4 in this category in terms of revenue and #1 consistently achieving 6x higher revenue is [indiscernible]. At this moment, we actually have more monthly installs than the title in the first place. So we have over 6,000 installs per month compared to roughly 500,000 for [ JJ ]. However, Unsolved clearly lags behind in terms of revenue per download, which for example, for Q1 countries is even 4x higher than for the games above as in the ranking. And this gap, this unrealized potential is due to the lack of metagame in Unsolved, which is now our top priority in the studio to implement and all resources are being now directed towards this initiative. We assume that in the worst case, the metagame will increase our LTV, lifetime value, of player by a high double-digit percentage, while seeing also signs that it could potentially have well over 100% impact on our LTV. Looking into lifetime installs, for example, [ JJ ] has over 80 million, all free games above altogether have roughly 160 million combined downloads, which Unsolved currently has only 50 million. So it's -- it also proves that the game is still a young project with relatively pretty high potential and it has not been played by majority of -- even majority of the players or had by the -- relatively rather few numbers of players. And let's talk about the metagame, what is it and how it can improve the monetization of Unsolved. As I mentioned, this is our highest priority right now. And to recap the purpose of metagame is to significantly deepen the monetization, enable us to build additional loops of monetization and that's, for example, event systems, live-ops, all of that will help us to bridge the LTV gap between us and the top preference games. So we are continuing our work. The turn of Q3, Q4 will have an alpha version. Beginning of next year, we'll have a beta version. And during the first half of next year, we'll start release and optimization of KPIs. All right. Let's move to our second growth engine, mobile RPG with AAA ambition, which is a fresh take on the proven subgenre. We've completed an NPV plus stage with a full main loop and passed 2 silent reviews. Since last year, we have been building the feature complete [ soft launch ] version. The other -- the one that includes all key models and systems. And as I mentioned, we have been undergoing 2 silent reviews. The first took place in 2023 and the second in autumn of previous year. In both tests, the participants who are content creators, steamers and above all, players who are well acquainted to this kind of genre. The test involved playing our builds and then answering a survey which consisted of for the first 7 closed questions, for the second -- 16 open ones. And for the second closed -- 12 closed questions and 16 open questions. Most reviewers, apart from filling the survey also recorded a review video for us in their own site, of course, showing the game play. When providing our NVP build, we expected players to have a few days of game play, but it turned out that most play for several weeks. And the main goal of the first test was to verify whether our implementation of the genre appeals to players. In other words, whether we are able to create a game of this type and initial tests confirmed this for us. Players also highlighted high production values at the level of top reference games, which are crucial for success in the RPG market. For the second test, which took place last autumn, our goal was to find out whether our USPs are fresh and attractive enough to these genre experts to switch from the core games to ours. And the responses collected especially for the open questions confirmed that we have a promising game provided we maintain this level of launch. Player emphasized engaging skill-based gameplay, the overall mood, atmosphere of the game. They like the main game loop and continue to know that the high production values are a unique selling point for that game. Well, so the best high-level summary of this test is the overall score on a scale of 1 to 5, the first test scored 4.4 and the second 4.6. However, the most valuable insights came from the open-ended questions. And in these responses, the real substance and player feedback emerged, which continue to use -- which we continue to use to calibrate the game's design. And so what's next? Well, our plan is to continue milestone delivery through 2025. Alpha and title review early '26. And of course, with marketing [ warmup ], soft launch in Q4 '26. Success looks like stable retention curves, stable [indiscernible]. And then, of course, we'll be able to conduct the ongoing user acquisition activities. Okay. And a quick word about the HOPA segment. So the legacy business that still generates cash, HOPA is a run in no investment mode. So it's a mature cutting [Technical Difficulty] new leases of the [indiscernible] for 24, they dropped by... [Technical Difficulty]

PB, unfortunately, the connection isn't that good anymore, I guess. We cannot hear you. But let's wait a couple of seconds for the last slide, just to come back with us.

All right. Am I still a visible and heard?

Yes. Now I can hear you.

Yes, I can see you. I can see you. So I can continue, right?

We can do it with turning off the camera. So maybe...

Good. So in terms of the -- our key financial data, the revenue was up to PLN 100 million by 26%, driven by free-to-play segment, which grew by 33%, while premium HOPA fell by 24%. And intended mix shift, gross profit drove by 27% reflected the scale and the content leverage. [indiscernible] expenses largely user acquisition grew 27%, in line with revenue and the G&A expenses as we invested in people and in transaction grew 35%. So the EBIT amounted to almost PLN 30 million, which is increased by 23%. Yes, in terms of the first half of '25, we have already released the preliminary key financial data. Sales were 1% year-over-year higher, which amounted to PLN 52 million out of which free-to-play revenue segment grew by 5% as we prioritize the ROI over brute force scale. Premium HOPA declined, 35% has declined. So EBIT amounted to PLN 13 million, dropped by 13% year-over-year and given the higher user acquisition intensity in selective windows. Net financial improved to PLN 2.5 million, keeping net income essentially flat in terms of Polish -- amounted to PLN 40 million. And in terms of our outlook, where this goes next? Well, you can expect moderate revenue growth from Unsolved sales, lower income from smaller titles in the second half of '25. In terms of user acquisition, likely higher year-over-year, but with [ variability ] month-to-month swings as we change efficient cohorts. EBIT will reflect that mix next term variability for long-term LTV. So production spend will likely rise as we build Unsolved metagame and RPG. And cash, we expect to cover most developments. We continue to self-fund progress. So our main opportunity is focused on 2026. So along with implementation of metagame, along with launching a new RPG title, we expect other significant increase in terms of revenue and -- which will be followed next quarters also with the increase on EBIT in general on the margin side. So to wrap up my presentation, we operate with measured aggression, data-driven user acquisition, LTV first design and pragmatic capital allocation. Unsolved metagame and our RPG are 2 catalysts we control and we're happy to go deeper on KPIs, [indiscernible] or milestones in Q&A. So thank you for this opportunity. I'm open to your questions.

Thank you so much, PB. [Operator Instructions] And then we will move on with the first question from [indiscernible]. So how would you describe Artifex Mundi long-term growth strategy?

Well, we are a company that's focused on specializing in selecting genres. So in terms of our long-term growth strategy, we think that the success in our business is a function of time, providing that we keep our resources intact. So each game in this same genre is produced still by the same team, which is getting more and more experienced with the production of mixed titles. So we are not hoping on acquisition trying to acquire new studios or open new genres. We want to focus on getting deeper and deeper knowledge in terms of our 2 genres, which we have some cumulative knowledge and know-how, which is hidden object and RPG. So once we feel that Unsolved potential is fully used, we will focus on a new title in this genre, of course, with the same team, which will be even more experienced. The same with the RPG title. So after a few years from launch, once we feel that the game is fully complete in terms of features that the game is fully scaled, we'll also launch a new project, but still within the same channel, so we are building synergies and focusing deeper and deeper know-how and experience in the same genre.

All right. So then second question, what role do international markets, e.g., the U.S., Asia play in the future growth?