everplay group plc (EVPL.L) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the everplay group plc Half Year Results Investor Presentation. [Operator Instructions] Before we begin, we would like to submit the following poll. And if you give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from everplay group plc. Frank, good afternoon, sir.

Good morning, and welcome to everplay interim results presentation. I am Frank Sagnier, Exec Chair. I am here with my colleagues, Rashid Varachia, CFO and COO; and James Targett, our IR. Let's start straight away. We've had a strong -- we're waiting for a strong full year. The key headline for today. H1 revenue was solid with good performance from new releases and back catalog. We expect H2 to be stronger than H1, thanks to more new releases, a stronger back catalog during the Christmas period, as you would expect, and a number of licensed deals, some of them already signed. In terms of EBITDA, we delivered GBP 19.2 million, thanks to improved margins. This is due to a product mix with packaged goods in a much lower proportion. We are delighted to pay our shareholders a 1p per share dividend for H1. We continue to generate cash, helping our M&A ambitions and allowing those dividends. Most importantly, we are well positioned for future organic growth, thanks to our doubling down on first-party IP, strong back catalog, new revenue streams, including more back catalog republishing and we will continue to actively look for accretive M&A to accelerate that growth. Operational highlights. We've had quite a few new games this year, and we're happy to say that we had a good success in particular, with Date Everything!, which achieved over 500,000 units to date. We continue to control our costs, improve mix and strong performance of new releases contributed to strong margin improvement. New IP announced for '26/'27. At this point, we've announced Hell Let Loose Vietnam, which was announced last week at Gamescom, Ranger's Path: National Park Simulator, Golf With Your Friends 2, and Bus Simulator 27. We've got more IP in the making, but these are the ones we've announced. Good progress against key strategic priority of M&A, 3 acquisitions of IP and back catalog publishing rights completed during the period. And I'm pleased to say that we've got a few more that have been signed since which I'll talk to you about in a minute. Group rebranded to everplay group, reflecting the evolution of the business following the acquisition of both StoryToys and astragon. In terms of Team17, we had a strong release performance. We've released 4 games: Sworn, Nice Day for Fishing, Jumping Jazz Cats, and Date Everything!, all with strong review scores. As you can see on the left side, the growth year-on-year for new releases is sevenfold. So we're excited about that. Excellent performance from Date Everything! with a user score -- it's hidden by the camera, so I can't see it, but it's a very high user score and high CCU, concurrent user of 14,000 on Steam alone. Back catalog continued to deliver strong performance in the context of a very strong period last year. CCU increased by an average of 28% across the 5 titles. Hell Let Loose had an outstanding start of the year following its launch on the Epic store with record concurrent use of 145,000, which is up 200% versus the peak of 2004 (sic) [ 2024 ] level. The next installment of the franchise, Hell Let Loose Vietnam has been announced. Happy to say that we already passed 130,000 wish list within 10 days. Awards during the period for Conscript and multiple wins for Amber Isle. And finally, strong momentum going into H2, driving expected revenue growth for FY '25, Ritual of Raven launched in August, early access of Goblin Clean Up in September and Rogue Point end of November, early December, full launch of Sworn on PC and console, and first dedicated product for Switch 2, I can't name at this point, but it should be soon before I can announce something. In terms of astragon, very much H2 weighted. Revenue decline in H1 due to a reduction of physical sales and the phasing of new release, which is -- and license deals, which are coming in Q2. Despite no new releases during the period, the player numbers have increased significantly. We've launched 2 add-ons, not new game, but existing titles with new platforms with Railroads Online and Police Simulator. Police Simulator: Patrol Officers debuted on Xbox Game Pass along with Firefighting Simulator: The Squad and was renewed on PlayStation Plus. Independent Arts Software would remain astragon development, and it continues to support astragon focus on developing first-party games. But you will know that first-party games represent 87% of astragon revenue. Two major first IP scheduled for release driving strong H2 revenue performance. The first one being Firefighting Simulator: Ignite, the next installment of this very popular franchise, and Seafarer: The Ship Sim, a brand-new IP at the end of the year. In terms of StoryToys, very strong performance, H2 and even stronger outlook. We've had a large number of apps, 335 app update, that's significant, but it's the name of the game with StoryToys. Sesame Street Mecha Builders and LEGO Friends Heartlake Rush+ on Apple Arcade, bringing the number of StoryToys titles onto the platform to now 5. Subscriber numbers grew, low single-digit year-on-year to now reach over 330,000. We got awards in Bologna for Sesame Street Mecha Builders. For the second year running, StoryToys was included in The Sunday Times' Best Places to Work in Ireland. Most importantly, again, strong outlook for H2 with the improved revenue growth expected for fiscal '25. LEGO Bluey launched in August with preorders of over 800,000, reaching #1 on the iPad app overall in 6 countries, including U.S. and U.K. and #1 Kids iPad in 117 countries. In addition, LEGO DUPLO World by StoryToys will be launching on Netflix Games, expect more deals to be announced when you see it in due course. And I pass on to Rashid for the financials.

Thank you, Frank. So just moving on to the group revenues. So group revenues for the period fell by 10% to GBP 72.4 million versus GBP 80.6 million for the same period in 2024. This was mainly due to timing of licensing revenue and new title launches at astragon. Declines in physical distributors and sales and a very strong prior back catalog performance was also a key factor. We were unable to repeat last year's stellar back catalog performance growth of 30% versus H1 2023. However, we still managed to achieve a respectable double-digit growth when comparing H1 2025 versus H1 2023. And despite the decline in H1, we are forecasting a return to growth for full year FY '25. In terms of the divisions, Team17 revenues, despite the excellent new release performance from our 4 new titles in the period, H1 revenues declined 4%, mainly due to the back catalog. On astragon, this is where we saw the most significant decline of 35% and some of which is phasing between H1 and H2 for new releases and licensed deals and a reduction in lower margin physical sales revenue. And finally, on StoryToys, revenue increased by 2% despite no new releases in the period. In H1 2024, we had 3. However, as they release 335 app updates versus 242 for H2 of last year, and subscriber numbers increased marginally from 320,000 in 2024 to 330,000 in H1 2025. Next slide, please. In terms of our revenue split, new release revenue increased 40% to GBP 8.9 million in H1 2024, which was GBP 6.3 million due to an excellent performance of Team17. StoryToys and astragon new release pipelines are weighted to H2 2025 and back catalog revenue contributions was from over 140 titles. However, as previously mentioned, we saw a decline of 15% as last year was exceptionally strong. The strong performance on first-party revenues from Team17 offset by no new releases from astragon, which resulted in a decline of 26% for the period versus H1 2024. And despite the decline, community engagement remained strong, and we saw double-digit growth in concurrent users. Finally, on this slide, third-party revenue grew modestly to GBP 47.2 million, with strong contribution from Dredge, Blasphemous together with the StoryToys portfolio. On gross profit, our gross profit increased by 2% to GBP 33.7 million versus GBP 32.9 million in H1 2024. The gross margin increased to 46.5%, mainly due to no title impairment in H1 2025. And just as a reminder, in H1 2024, we booked GBP 4.6 million of title impairments. And timing of new releases also led to lower expense development costs, lower physical revenues, and finally, royalties were flat versus H1 of last year. Just moving on to adjusted EBITDA and EPS. The adjusted EBITDA remained broadly in line for the same period versus last year, though margins increased from 24.1% to 26.5%, reflecting higher gross margin. Admin expenses declined 2% to GBP 20.4 million, driven by lower staff costs, marketing and depreciation and amortization, partially offset by higher FX costs. Acquisition-related expense adjustments declined from GBP 7.2 million to GBP 5.7 million due to an end of acquisition-related incentive payments. And then finance income increased to over GBP 1 million as we actively implemented our new treasury policy. The effective tax rate remains at circa 24% and the adjusted EPS increased to 10.5p. Capitalized development cost and balance sheet cash. So there was an increase of GBP 2.7 million, predominantly driven by Team17 new titles, titles, which we've already announced, which are sequels, for example, with Golf With Your Friends 2 and Hell Let Loose Vietnam. That was the main driver behind the increase in cap debt and then smaller -- much smaller increases on astragon and Team17. From a cash position, our closing cash was GBP 59.4 million, and I'm pleased to say there's been no significant change since post year-end. And finally, as mentioned earlier in the presentation, we are pleased to announce a 1p per share interim dividend. And with that, I'm going to pass back to Frank.

Thank you, Rashid. Before getting into the strategic progress, I thought I'd give you a few words on the market itself. The '25 to '28 growth is expected to be at a 3% CAGR according to Newzoo overall. PC is actually growing 3.3%, a lot of that driven by China. And the console business is expected to grow by 4.7% CAGR over the next 3 years due to the recent successful launch of Switch 2, the upcoming launch of ROG Ally for Microsoft and handheld -- sorry, and of course, the game everybody is expecting next year, which is GTA VI. The indie market continues to perform well, and we see more indie games in the top 50 sales, which means that there are some unbelievable return on the investment for the winners. I was at Gamescom a couple of weeks ago, and you could feel an air of hope -- that's my French, French of hope. I've been around the industry for a few years, I've seen many ups and downs and it generally felt like the industry were cautiously on the upper again. So excited about the prospects of the industry overall because we're part of it, and we want everybody to win to be able to win ourselves. Now in terms of where we're heading in terms of our progress. Next slide. We have, as we mentioned earlier, a number of first-party products that we've already announced. We've got 2 from astragon with Firefighting: Ignite and Seafarer this year. In '26 , we've got Hell Let Loose Vietnam, we've got Ranger's Path, Golf With Your Friends 2, Bus Simulator 27 is the year after as the name indicates, and we're going to have more surprises for you coming soon. We're building a 3-year SKU plan and all our first-party franchise are being scrutinized in order to increase visibility. It's really important for us. Some of you are well-aware, a first-party game generate better margins and the biggest long-term value for the company. I would like to show you the -- if you haven't seen it yet, the announced trailer for Hell Let Loose Vietnam. [Presentation]

Very excited about Hell Let Loose Vietnam. As you know, Hell Let Loose was a very big successful game for us. We will make sure that we do not release at the time of GTA and before the craziness of the winter, so you can expect a release probably around the summer. In terms of new revenue stream providing levers for growth, in addition to our existing portfolio, back catalog and republishing acquisition, we've got a number of opportunities. We've got a new label from StoryToys for kids slightly older. We haven't announced any games yet, but it should be pretty soon, and we're very excited about the potential. We have new platforms that we have recently announced whether it's robust streaming or next-gen console. We recently discussed a Netflix deal that we did for StoryToys. I think you will think you will see quite a bit more of those in the next few months and years. In terms of M&A, we are actively looking for acquisitions, whether it's quality IP or bigger, more scaled companies. We obviously are extremely cautious. There's a lot happening at the moment in the market. Activity is starting to show up -- heat up again, but we are very disciplined and we'll make sure that those acquisitions if they take place, are accretive, and they add value to the overall company. In terms of back catalog publishing rights, we continue to double down on this. It's a very secure way to build predictability with a strong ROI and a very strong lever for growth with a number of developers knocking our doors. In fact, you're going to see in a few seconds a video from Harley Homewood, who is our Head of Product, who will discuss briefly with you what back catalog strategy is. [Presentation]

Hi. I'm Harley Homewood. I joined everplay back in 2024 as Group Director of Product Acquisition. My role is to evaluate interesting opportunities, not only for acquisition, but also for publishing and any other opportunity to collaborate with great teams and exciting content. everplay's acquisition strategy is focused on great content and talented teams. We look for products and games that have not only been successful in their own right, but also that we believe have the potential to become long-running beloved evergreen franchises. We have a strong track record with acquisitions from The Escapists, Golf With Your Friends and Hell Let Loose in the IP space to acquiring StoryToys and astragon, who are key businesses within the everplay group. Things kicked off in half 1 this year with an IP acquisition of a franchise named Hammerwatch, from a small indie studio called Crackshell who are based in Sweden. We bought Hammerwatch because not only has it been successful in the past, but we thought it was the kind of title aligned very much with our values, small indie studios that have worked hard to create something sustainable. We saw the hard work that Crackshell and the team have put into a fantastic game and a really strong community that they've built, and they created that over a number of years. And we believe that we can build on that success going forward. This year, we've also acquired distribution rights for 3 new titles: Settlement Survival, Operation: Tango, and Heavenly Bodies. These are not only great games, but we believe they are a fantastic opportunity to bring in new revenue streams and build on our already substantial back catalog of high-quality titles. And this just helps to maintain sustainable long-term revenues and growth.

So the acquisition of Hammerwatch, Harley touched on it, a very strong product with positive reviews, generating that already got good revenue. We have a very disciplined capital deployment. We know that the strongest suit of everplay is its ability to manage lifetime cycle, cycle management. And we believe that we are going to be able to have a strong return on this IP. We also want to put this IP to console at some point, hopefully, next year. And we would, obviously, if it's a success as we expect, looking to developing Hammerwatch III for the future. So you could see how by acquiring an IP that is strong to start with at a very reasonable price, we can get a very strong return on investment. In terms of back catalog publishing rights, I'm not going to go into details. But again, it's additional revenue with a very predictable ROI and margin accretion. Since Harley's video, we acquired another 5 titles last week, that you can see on the following slide: Storage Hunter, Underground Garage, Biker Garage, Let's Go Nuts!, and the other one is Shipwreck. So we are continuing to acquire a back catalog. We obviously have to make a choice at some point between acquiring an IP and acquiring back catalog because our cash is only what it is, but we feel confident there's a lot of opportunities, which are a very strong way to secure our future. So the outlook, a few key messages here. Midterm, we're already excited in delivering against our strategy. We continue to build our portfolio strategy by maximizing new games opportunity and minimizing risk with existing, and newly acquired back catalog and cost control. We have doubled down on our first IP strategy with 10 of them in development. We look for further growth both organically and through M&A, which started with the Hammerwatch IP acquisition in H1. We continue to generate cash to support both our acquisition strategy and our progressive dividend policy. As for the full year, we are confident we will deliver based on the continued performance to date. We expect new release revenue to be significantly higher in H2 and the same is true for license deals and the contribution from recent acquisitions. Our margin expansion from a more favorable mix -- sales mix should further boost EBITDA growth, hence a slight upgrade for the year. Well, just thank you very much. As you can see, we are -- I think we're in a really good shape. More importantly, we are very much aware, and we've got quite a strong visibility for the years to come. So I feel very positive, and I hope I've shared the excitement with you guys.

I may just jump back in. Thank you very much indeed for your presentation this afternoon. [Operator Instructions] I just like to remind you that a recording of this presentation along with a copy of the slides and the published Q&A can be accessed via your investor dashboards. Guys, you can see that we have received a number of questions throughout your presentation, and thank you to all of those on the call for taking the time to submit their questions. But James, at this point, if I may just hand over to you just to chair the Q&A with the team. And if I pick up from you at the end, that would be great. Thank you.

Thanks, Jake, and thank you to everyone for submitting your questions. We'll kick off with a couple of kind of long-term questions. What is the long-term growth ambition of the business? And could you explain the long-term competitive positioning?

Again. Good afternoon this time. The long-term growth ambition is we want to continue to grow in a predictable manner steadily, i.e., we do not want peaks and troughs. So we want to grow every year. We would like to grow organically, but we will add and accelerate that growth through the right M&A when it comes along. And the idea is to build scale, predictability and we believe that both scale and predictability will bring additional goodwill and will make the company more valuable. That's really where we are in terms of the ambitions. I will not hide that I would like to think that we could reach GBP 100 million adjusted EBITDA. And as you can imagine, given that it's a bit more than double the consensus of this year, it's going to have to be a mix of organic and M&A. In terms of our long-term competitive positioning, I think what we're building today is, first of all, the rebranding of everplay and the 3 labels under everplay now with Team17, astragon and StoryToys is making it very clear that we are present in different sectors of the business, reaching sometimes different audiences. But importantly, each of the category we're in, we are kind of best-in-class and either leader or in the top leadership of each of these segments. So this is a particular positioning where we are made of several verticals and each of the verticals are doing very well and puts us in a position where we're quite unique within the industry. I can't see today many -- certainly in the Indie business who've got this sort of positioning, and that's as clear as that.

Thanks, Frank. Rashid, maybe one for you here. Given the pace of publishing rights acquisitions, should we expect a step-up in CapEx and M&A spend in H2 and FY '26?

Thanks, James. So yes, I mean, we have got plans for further acquisitions in H2. So as Frank mentioned during the presentation, there's a number of opportunities, and we are reviewing all of those opportunities. And we are expecting to sign hopefully new things in H2, which will result in an increase in CapEx spend. Again, just to remind everyone, last year, it was particularly low, especially as we went through an impairment, but we are looking to increase this year with a forecasted normalization, I would say, in terms of capital around about GBP 30 million going forward.

Thanks, Rashid. One on the pipeline. Team17's new release pipeline looks much stronger this year, particularly with Sworn and the upcoming Switch 2 products. How do you see this Team17's division mix between premium titles and ongoing live service franchises evolving?

They're not mutually exclusive, obviously. Yes, we have a strong lineup and excited about that. Our own franchises are now franchisees that have a life cycle that is way longer than it used to be in a few years ago. The big licenses today can last for 10 years. In fact, 60% of our back catalog sales represented by games that are 5 years old or plus. So it shows you how long the tail is and how important having live services where we can bring additional content or downloadable or new iteration is so important. It's very expensive and risky to launch new games. And certainly, retention is always cheaper than acquisition. So nurturing our existing game is very important. We're happy that we've got 10 of our own first-party IP in development. And therefore, we've got a strong visibility and ability to continue to grow over the next few years just by our first-party alone.

Thanks, Frank. A question on AI. How are we using -- how actively are we using AI to drive growth and efficiency at everplay?

So AI is actually being used in many different parts of the business, more or less rapid speed, but we're using -- you could use it for content creation, for design and gameplay, for testing and QA. There's many, many areas we are probably more -- spending more time at the beginning in terms of workflow and productivity. So we're making sure until these AI tools are refined -- they're sufficiently refined that we know they are 100% right. We're using it to basically be much more productive. We can do things in record time now. And as I said, it's -- whether it's in the legal department, in live ops, in monetization, in player relationship, QA is playing -- not QA, AI is playing a more important role every day, and it's growing at the speed of light. I expect that it's going to allow us to make a lot of more content at a -- for the same money, we'll be able to do a lot more, which means that we are going to be capable of making better games, and we're still going to be able to control the cost because of AI helping us in that direction.

Thank you. Do you -- does the company have any ambitions to move to the main market?

Yes. So obviously, it's something that we have discussed as a Board, but we have a varied shareholder base. Some of that shareholder base is IHT. So we have to be, I think, cautious, but from -- we also need to be optimistic in terms of our own ambitions in terms of growing the business. So absolutely, we'll continue to review. And maybe it's something that we will consider at some point, but it's an active discussion, an open discussion, but no immediate plans to move to the main market.

Thanks, Rashid. Well, actually, those are all the questions we have at this stage. So I will hand back to Frank for any closing remarks.

About this year, but we're excited about the future in general, and we're excited about the industry. And I just would like to thank you for your support. And if you've got any more questions going forward, don't hesitate, feel free to write to us, and it will be a pleasure to answer. Yes, on that note, I wish you a good weekend.

Perfect, guys. That's great. And thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you will now be automatically redirected for the opportunity to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of everplay group plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.