MAG Interactive AB (publ) (MAGI) Earnings Call Transcript & Summary

Hello. Welcome to the Q1 report presentation from MAG Interactive. Here today to present is myself, Daniel Hasselberg, I'm the CEO of MAG.

I am Magnus, the CFO of MAG.

And the Q1 is covering September through November. So that's what we're going to talk about today. But first, a couple of words about what we're doing here at MAG. So we are a casual mobile games developer based in Stockholm and we also have a studio in Brighton. And the last 8 years, we reached about 0.25 billion downloads of our games. And as free-to-play is our business model, we're kind of trying to combine creativity with data, so build with a fun, engaging game ideas and then use data to optimize the games and, of course, optimize marketing to make sure we get good return on investment for our marketing investments. And if you follow the company for a while, you know that since 1.5 years back, we are completely focused around the multiplayer games. So we -- I think we've seen during the last few reports that it's becoming a bigger and bigger part of our business. And the reason for this focus is, of course, we looked at our own games and see what we do best. But it's also a trend we see in the market and where we think gaming is going into the future, that social is really, really important and people expect to be able to hang around with their friends and make new connections in the game. So that's the full focus of MAG going forward. And as usual, we want to lift up a few highlights from the period. One extreme great thing, of course, is that we actually launched a new game globally. So this happened on November 28, so the last 2, 3 days of this reporting period. But it's -- of course, it's the work that's been carrying on for a long time during the year. And making it all the way through testing and early tests and soft launches and so on and actually go to global launch is a really big deal for us. So usually, when we see new game come on in the market, it grows for maybe 2, 3, 4 years until it reaches its peak. To have a new game in the portfolio is a really strong thing for us. So Wordzee just launched end of the period. And of course, New QuizDuel, we talked about that during last year as well. So that's now finally out in Sweden. And after the reporting period, so in December, we also launched it in the U.K. And this is kind of a more of a staged rollout than a soft launch, I guess. So seeing encouraging data in Sweden and in U.K. and then just building from this, so it's a really exciting time for QuizDuel. And then of course, we have the kind of the ongoing business, the live games.

It's actually, I mean, we have 2 ways of creating growth in a company like this. And it's either by building our audience with -- through marketing or by improving the games in the portfolio, the live games. And the theme of this quarter has been improvements in the portfolio as you're going to see more about in a while. We jump into some of the financial KPIs. And we're showing a significantly higher net sales with SEK 47 million in this quarter compared to SEK 40 million in last year. And this is despite having a relatively flat user acquisition compared to last year. So we are 17% up in net sales while marketing is more or less the same. And this goes back to the performance improvements of the games, the live games, also connected. And of course, given the high net sales and the flat marketing, we have quite a strong contribution. So with SEK 31 million in this quarter, up SEK 5 million from last year, it's actually the highest we've shown since the last 2 years.

That's pretty amazing. And good to remind that, that's sales minus marketing investments and platform fees. So this is really the money we can use to kind of invest in our business and so on.

Exactly. And it drives profitability as well, so we're showing a comparably high EBITDA of SEK 5 million this quarter. We can break this down to, as we've done in the last couple of quarters, into multiplayer sales as part of the portfolio. And we see a strong development in the last couple of quarters. And we can conclude that the growth in sales is fueled by multiplayer part of the portfolio. And we actually see growth in all of the individual games. And we also see improved metrics in all of the individual games in the multiplayer part.

And I think -- I mean it's really encouraging to see these oldies, the classic games, like Ruzzle and QuizDuel, are actually growing compared to a year ago. So it's primarily showing that it was the right thing for us to give them more focus and more attention, those games.

Exactly. And it fueled that with 50% year-over-year growth. So that's good.

Yes.

If you put back the rest of the portfolio on top, we see that multiplayer is now 80% of total sales. It's a very focused portfolio on where our core strategy is and where we put our focus. And also if we look back on a year ago, we know that we had still an effect of Paint Hit. With that in mind, the rest of the portfolio is relatively stable now. In fact, we don't expect that to decline too much into future despite the fact that it's not the focus.

Exactly. So I think if you look at the last few quarters, you see our live operations team doing a great job with WordBrain and WordBrain2 and Wordalot, those single-player games, keeping -- keep feeding that in new levels and running events and so on makes those games still feel really live, even though that's not the core focus of the company at this moment. And I think that pays off with this fairly stable revenue.

Breaking the revenue down differently now in DAU and ARPDAU. The DAU is going down year-over-year. Again, that is connected mainly to Paint Hit, when we had Paint Hit left in Q1 last year. And looking at ARPDAU, we have a 33% stronger ARPDAU compared to last year. And it's mainly again the multiplayer games have improved. And all of them actually improved individually as well. So this is a strong sign of the payback you can get when focusing on games.

Yes, for sure. I think there's a lot of learnings that can now be shared between our teams. So doing something that works really well in Word Domination, you'll see that show up in other games as well and so on. So it's really great to have a more tight focus as a company. We see that really showing here in the numbers. So I'm very happy to see the ARPDAU improving. And of course, as I mentioned in the beginning of the presentation, New QuizDuel, that's also a big deal to us. It's our biggest game in terms of daily active users. It's a huge game in the German market specifically. And the aim here with the new generation of QuizDuel is really though we are on a new tech platform now, we can reuse much more of the stuff that we have in the other MAG games. And we also prepared the game, as you see in the screenshot as well, you have the Arena mode, which is completely new and we have a special place for events in the game. So we have something we can really build upon for the future. So this is a foundation of where we go with QuizDuel 2020 and onwards. So we expect to continue to add new markets as we go now, month for month, until the big prize for us is, of course, to get a really strong optimized game out into the German market, where we have the majority of the current both revenue and users. So it's an exciting time. And I think that's -- like we mentioned, we have 2 ways of driving business, optimizing the current user base. That's a very profitable way of growing. It's an exciting time for sure. I missed the other part of growing, really fueling the game with new users. And then it's really important to understand these kind of the dynamics of user acquisition that we're targeting 6 months payback time. So if we spend $100 in January for a cohort of users, we expect that $100 to be back 6 months later. And we put some kind of schematic picture here. It's not supposed to be months or quarters, something just shows over time how it can look if you gradually increase user acquisition. And revenues will eventually follow. And later on when you more -- go to more stable user acquisition spend per month, you will see the profits actually showing up in the legal reporting as well.

Exactly. And now we've had fairly flat user acquisition for a long time and we'll be launching games, where we hope to spend -- be able to spend more marketing on. So it's good to keep this in mind for us and the rest. And it is really the schematic. And since Wordzee's been out since November, as you mentioned, we are hoping to be able to move into this period now.

Therefore it can gradually increase the user acquisition and build the audience for that game. And as we talked about many times, we have this kind of multiyear growth for new games. So if this follows the same pattern, we're going to -- we expect to be able to continue to increase investments behind that game and expect also to see the game continuously grow for the last -- for the next 2, 3 years. And hopefully, we see that. I think we mentioned that in the report about Word Domination is now 1.5 years since global launch and is still growing really nicely and definitely on that historic trajectory. And as usually, we sum up with kind of what are the next steps for MAG in this quarter and going forward. So it's continued focus on Ruzzle, QuizDuel, Word Domination but now also Wordzee. So I'm really happy to be able to talk about 4 games, multiplayer games, where we have our focus and invest in user acquisition and really want to grow. And then of course, we continue to invest in infrastructure and new games. That's the kind of long-term future for the companies, to keep on having an exciting pipeline of new games and have good infrastructure for all the stuff that multiplayer game needs. And of course, in the more kind of immediate future is New QuizDuel, where we hope to be able to get into more markets every month going forward here. So exciting time for us as a company, of course. And I think now we go into some Q&A. So if anyone who's watching want to write any questions, we'll try to answer that as good as we can. And what we tried last report, we also had a kind of a Q&A on Twitter. So that will be open during the day as well. So you can write any questions to MAG Interactive on Twitter. And then we'll do our best to answer that as well. So whatever the preferred way of asking questions, we'll try and do our best to answer it.

Yes.

So let's take a look and see if we have any questions that are already coming in through this channel.

So here, I have one who says can you guys elaborate a bit on the increase in current liabilities? Does this include any noninterest-bearing debt? This sounds like a CFO question.

Yes. We have a couple of changes. Of course, we continue to work with -- in the balance sheet, we continue to activate balanced development costs, of course. We also have changes in -- with IFRS 16 and the lease costs, where we have introduced that in our first quarter. And that will create changes in the balance sheet, it's connected to both the P&L and the balance. I think that will be the main difference between last year and this year.

Okay. I hope that answers the question. Which are the key drivers behind improving the ARPDAU? So this is a question, of course, we love to talk about. So all the teams are really trying to figure out how to better monetize this high player engagement we have. And the way we've done that, we've seen -- if you've played Word Domination, you've really seen that during the last year, a lot of time-limited events, where we make sure it's really fun to engage with the event, but it also could be limited in time. So in able to play through, you're much more likely to have to spend a few gems and eventually some dollars. So we try to build it in a way, so it really improves the fun you have in the game when spending. So I think that increased focus. And also our advertising team is doing a great job in optimizing the ad revenues per active user. So it's a combination of multiple things. How has the New QuizDuel performed so far? So we are live in Sweden and in the U.K. And what we're doing now is basically we're doing some cross-promotion from the classic QuizDuel into New QuizDuel and then we look at how that behavior is. We really want to make sure that this is a better-performing game than the classic one before we really start pushing the audience over. So we do that [ it can be in pulses ] and send new players over to the new game or old player to the new game and see how they perform. We really see they're highly engaged in this new Arena mode. So that's really encouraging, both in terms of spending time but also converting just to buy the in-app purchases. So I think it looks really promising. But we want to make sure this is absolutely rock-solid before we do anything that could jeopardize a big chunk of our DAU base.

Absolutely.

So we're going to do this step-by-step. But we have a really high confidence in the game. So it's so far, so good. Regarding the new in-game shop in QuizDuel, what other purchases, engagement options are you going to implement? So if you look at the -- I think this refers to classic QuizDuel, where we fairly recently introduced a shop. So you have the blitz mode where you can play a quiz by watching a video and then you take part in this kind of a leaderboard-based challenge. Now you can also buy tickets. You don't have to watch advertising. You can buy ticket bonus instead. So I think that's the main thing for that game. The key goal for kind of QuizDuel as a franchise is to have more and more people playing the New QuizDuel, where we have -- we'll have a much richer variety of things we could promote and sell and engage the player with in terms of monetization. So we'll see if there's anything more happening on the monetization side in classic QuizDuel. But the focus for the kind of the entire QuizDuel franchise team is to make New QuizDuel the kind of destination for trivia players. How actively will you try to transfer QuizDuel players to New QuizDuel? Is the goal to transfer all players to the new game? So, yes. I mean the end goal is to have everyone on New QuizDuel eventually. But since this is a really core asset to us and audience is really loyal to both that brand and the game and so on, we want to tread carefully. But our end goal is to have -- you seldom say that. But, I say, I guess we want to have a 100% cannibalization. We want New QuizDuel to have the full audience of QuizDuel. So that's why we kind of built it in a backwards-compatible way. So you can actually have the full QuizDuel 1 experience in New QuizDuel. So we want you to come there, find your friends, play your old games and also discover all the new exciting stuff, where you hopefully also will engage in spending some money. Can you please elaborate on the time line on New QuizDuel? So yes. So this is kind of, as I said previously, more of a staged rollout than a soft launch. We know that this game is going to go out to the global audience. So it's a bit different from when we have a game in soft launch, then that's actually a real evaluation that could end up with a game not being launched. In this case, we are launching the game. And it's like a lot of things at MAG, it's very much up to the teams and the data. So they will, based on when they feel comfortable, add on more markets, do more cross-promotion, optimize and so on. So I actually don't myself have a 100% certain time schedule for the game, more than that the ambition is to gradually move it out and with the end goal, of course, to be live in Germany. I think everyone wants to run as fast as possible but just want to may come to the biggest market with an optimal experience. Is there going to be a cross-promotion for the New QuizDuel in German TV? Is this something you guys are actively approaching? Yes. So this is a really interesting collaboration we have with ITV. So I think it's the seventh season maybe, sixth or seventh season that's running. So the big thing there is they license our IP and brand and so on. And we're looking to if there is any way you can actually work deeper together. But right now, it is -- they run the show. They kind of raise awareness on the game. And the big thing for us, I think, is eventually classic QuizDuel will not be available on the App Store. So if you want to go and play QuizDuel, it's going to be the New QuizDuel. And we've at least previously done a cross-promotion between the TV show app and our game. So if we run that this coming season as well, of course, that's eventually going to be New QuizDuel on the TV shows. So I guess the much shorter answer would be, yes. It took me a while to get there. And do you expect to release completely new titles in 2020? So what we do have is a number of titles in kind of earlier stage in various kind of concepts or actual real user testing and so on. So our hope is always so that they will pass through all their milestones and gates to get out to the global market. But it's really up to player -- how well the games are perceived by the players and if the data looks good enough, so we can see we will be able to kind of run a profitable user acquisition eventually for those games. So it's hard to say. I sure hope so, but then we'll see. But what we can say with more confidence is that QuizDuel will come out globally and Wordzee is out. And then hopefully, we can announce out some soft launches during the year that may end up being fully launched. Can you elaborate a bit on the games in your future pipeline? There's not so much mentioned in the report. What's the launch status of the XX game that have been out on test in Sweden? That's really hard to comment because I actually don't know what XX is referring to. But the future pipeline, I can comment this much. We have quite a few people working on new games in the company. And it's really part of our strategy to make sure we never dry up in the pipe of new games. So we have games in different kind of stages of their development cycle. And then we'll see what the hit rate is, how many of those that hit the market. But it's a really big deal to get out global with a new game. And as I mentioned previously, I expect to see growth from Word Domination continuously after 1.5 years, continue to grow. And Wordzee is newly out, so we should have multiple years of growth from that game. But of course, we're trying to feed the funnel with new stuff as well. But it's hard to do predictions, when it's kind of the consumers that will actually have the final call if we are able to launch them or not. Okay. You recently presented Asbjørn Søndergaard from Tactile as new Board member. What do you expect Asbjørn to contribute with? Yes. So we're really excited to have Asbjørn onboard. We've been in contact for many years. And I really admire both him and Tactile as a company. I think they do a lot of things well. And they have an amazing hit game out now called Lily's Garden. And I think what we hope when we have other industry professionals on the Board is to have someone to bounce ideas with and they can challenge what your own thinking is on, just have engaging and value-creating discussions on a Board level. So we'll see, he's really new now. So he's getting to know the company and getting to know the Board but really exciting to have him on board. So yes, that's it, what we have in our question list here. Yes. So I think we'll wrap this up. But you can continue to write questions on Twitter. You see the address, I think, on the screen. So please do that. And then during the day, we'll do our best to answer the questions from the topic. So yes, thanks for watching.

Thank you. Bye-bye.