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

Welcome to MAG Interactive's Q2 Report. Here to present today is myself, Dan Hasselberg, CEO of MAG.

And me, Magnus, CFO.

And we're going to walk you through some of the highlights from the quarter, and then we're going to round off with a Q&A session of a few minutes at the end. And also we're going to have Twitter open throughout the day. So if we don't have time to answer the question or you have anything during the day, we'll respond to you as soon as we can on Twitter. So MAG Interactive, we're a mobile free-to-play games developer. We have studios here in Stockholm and in Brighton. We're about 100 employees here, and we have been around for 10 years. And as a free-to-play developer, we are on this kind of crossroads of creativity and data. So of course, making really fun, engaging games, but also invested out in capabilities in terms of data analysis to be able to kind of improve product performance, but also really important measure kind of marketing performance and fine-tune the marketing to get best possible return on investment. And today, we're going to dive into a couple of the most exciting product developments during the last few months. So first off is QuizDuel Live. So this is something that went live on March 8 for the German player. So in September, we acquired a company called Primetime, that they have a live broadcast experience on mobile for trivia and now that's integrated into QuizDuel. So as you can see here on the pictures, there is a specific live tab, and you can see on the screens here a bit, what it looks like behind the scenes and the studio we have here in the office. And there's a live show currently running 4 nights a week in Germany, and we have roughly 20,000 viewers on every show at this point. And the winners get tickets to the arena mode. So it's a nice way tying like the different game modes together. So you can win tickets in the live mode and then play in the arena. And as you can see here in the shop as well, you can buy life savers that you can use if you get a question wrong or you can, of course, as previously, buy arena tickets. So now we're off to a good start in Germany.

Exactly. And 1 of the next steps we have is to introduce cash prices in the game as an important one. And after that, we will start to ramp up and push for higher user volumes as well. And beyond that, we expect the game to continue to develop as we usually do with our games service concept. And it's really early days for QuizDuel Live still. So we're super excited.

And as I think we mentioned in the report as well, next up after Germany is also Switzerland and Austria. So hopefully, that happens during this quarter, the Q3 quarter. Another big update is Wordzee. So first off, talk about an update we did earlier this winter, something called Games Just For You. So that's more kind of a social matchmaking feature in the game. So we present players on your home screen that plays at your pace or equal skill level or maybe they have the same Wordzee ratios you have and so on, a lot of different attributes. But the fact that it's kind of presented with a profile picture and says something about the player is more engaging and drives more of these social interactions that we really want between players in our community. And we can see after that update, that significantly more player versus payer games are played in Wordzee. So that's a good kind of building block in building this kind of evergreen game for MAG with very high long-term engagement. And now as of this week, we're rolling out the biggest update in Wordzee since its launch more than a year ago. So it's a really exciting time for the game as well. So one of the things, is the remade version of the Journeys event. So we have a number of events that's always running in Wordzee and the most ambitious event type is something called Journeys where you kind of go through different graphical themes and you try to beat levels to win specific prices. And that used to be kind of Beat The Score kind of challenge, but now it's remade to be player versus player channel, so you need to beat the number of opponents to get to the price. And we also added checkpoints. So say that you, for example, lose at Level 7, will drop down to the latest checkpoint. It might be, for example, level 5 or you can spend some gems to stay at level 7 and continue to go up to level 10. So -- and these are pretty big changes to Journeys that feel really exciting when you play it.

Yes. That's been a very busy time in Wordzee. We also added a new collection system based on card packs. That's a gotcha mechanic that makes the reward aspect of the game more interesting and much more engaging for users.

And we also kind of tie that into the Journeys event now. So when you have these different places on the map where you win stuff, you win these card packs, and as is some randomness to what kind of cards you win, you need to play it over and over again to really make sure you get all the cards to get a specific tile back that you desire. And especially when we have this kind of time-limited theme events like Easter, you need to play quite a lot to make sure you get the tile you want. So this kind of added replayability, we think, is a great strength for this kind of new setup we have. So you should try it out if you haven't already. So moving on to the product mix. So this is a familiar overview of our product portfolio. And of course, a very exciting newcomer here is Word Mansion. So now we have more games than ever that are in the growth category. So now we're investing in user acquisition behind both new QuizDuel and Wordzee, Word Domination and Word Mansion. So great for the user acquisition team to have more products to work with and kind of spend money gaming. And then, of course, we have the left down corner here with the new games that's really exciting. So we have a couple of great games in development now, where -- that are getting closer to market tests and also kind of we're increasing the team sizes, and now it's getting really exciting. So that's fun stuff.

Exactly. And on top right corner, as usual, we have the evergreens. Those are games with stable revenues, relatively high volumes, usually no user acquisition, the margins are good. Some of the games have live op support. And latest addition there is Ruzzle, which recently moved into live ops. And we're going to work also with the new additions, Word Bubbles and Word Whistle to also come in to live ops probably during this year. And they are also now part of the numbers of the second quarter.

And we've seen like over the last couple of years when WordBrain has been run by our live ops team that the performance has been really better than our expectations. It performed really, really well. So it's going to be exciting now to see Ruzzle being handled by this live operations team that really got into great habits with WordBrain. Now they have a new game with full-on event [ engine ] and great tools to operate that game as well. So it's going to be really good and exciting time, I think, for Ruzzle in live ops.

Good. So we're looking at game KPIs now. And this is the quarter where we concluded a full migration of the QuizDuel users. And so all users are now playing New QuizDuel. And if we look back a year ago in the second quarter last year, we had all of them pretty much playing the old game. So it's good to see that we have managed the complete transition with maintained user levels. Looking at ARPDAU, it's up 67%. A big component of that, of course, is transition itself with an effect of the New QuizDuel having a stronger monetization, but it's also a company-wide or portfolio-wide effect where all the multiplayer games have improved their ARPDAU. And in particular, Wordzee with a super strong monetization and growing audience is contributing. And acquisitions such as Apprope as well is contributing to that increased ARPDAU. Yes. And on the financial KPIs, it's nice to file 44% growth, of course. It's 64% accounted in U.S. dollars, which is a big part of the income. Half of the growth is organic. And we also see that in-app revenue is a big contributor at 75% growth year-over-year. On the UA side, as we mentioned, we have 4 games now that we support with UA. So it brings the number up. We look forward to see where it could take us going forward. And finally, the contribution at SEK 42 million is the highest we have filed as a public company, and it also brings an EBITDA [ placed twice ] last year's EBITDA, the same period.

Yes, I think that's -- it's really strong to be able to grow this is much in revenues and still kind of increase profitability at the same time. And I think on the UA side, as people that follow MAG closely, have seen also that Word Mansion doing really well in the charts as of late. So of course, that's it's a game that we've been able to support the user acquisition in a really good way lately. So that's very exciting. So we keep coming back to this ARPDAU, but it's a really important part in our growth. We saw on the previous slides here with DAU stable and revenues going up significantly, and that's, of course, thanks to this ARPDAU improvements. And here we see a picture of the ARPDAU improvement over the last 9 quarters. There's been a continuous improvement, and it's portfolio wide. So all the teams are really being part of this kind of rising up of ARPDAU across all the games, which is really, really exciting to see. Of course, it's been even steeper performance improvements in the last couple of quarters, partly thanks to the migration of QuizDuel from old to New QuizDuel. But as we said, also, kind of the newer games, they all have much higher ARPDAU than the older games that as they become a bigger and bigger part of the DAU base averages go up. And we have a lot of hope will continue to improve the ARPDAU going forward. We're really proud of what we've done so far, but it's tons of more stuff to do here, both in QuizDuel and across the other games. Yes. So wrapping this up, the focus for MAG now in Q3 going forward here is really do the scale-up of QuizDuel Live in Germany. So when we have the cash price in place, and we have kind of fine-tuned the format now. We're running 4 times a week. We can increase the number of shows and also start marketing it more actively, both inside and outside of the game. So we have about 40 million German players that have played QuizDuel at some point in time that don't play anymore. So we hope this can be a really exciting kind of reengagement moment where you can come back, show off your skills and win some real money. So we look forward when we have that in place and can start really kind of launching the game.

Yes. And as mentioned, we have 4 games with UA support and social activity in the growth area, and it's going to be exciting to follow that going forward.

Yes. I hope we can continue to increase that investment in the third quarter as well. And of course, we have the live ops. As we mentioned, Ruzzle already now in live ops and the Apprope game is going to live ops later in the year and so that's becoming an increasingly important part of our business. So that's something we're going to keep investing in and hopefully get more of this kind of cross game wins when we have the same team operating multiple games. And then, of course, new games, being kind of a games company and a product company, it's really exciting to see new products in development. So those teams are getting bigger, so more of our developers and artists are working on the new products. That's going to be super exciting to see what can happen based on that work. So that's the end of the presentation part. So I think we'll see if we can get up some questions here and go through them. And as I mentioned previously as well, we'll answer questions on Twitter as well during the day. Just wait for you to get some questions up here.

Okay. The first one. I heard MAG Interactive is flying to the moon. Is that true? I mean, it's -- of course, it is. I mean, it's a great momentum. I think everyone can feel that when both on you see the numbers and you see how the games perform on the charts right now. It's a really exciting time for us, that's for sure. What possibilities do you see to further monetize New QuizDuel? So that's a lot of things. So, one, of course, we talk about a lot is this kind of live feature, because it's so unique. You don't see any other mobile games having this kind of live performances in the game and in really human being talking to the audience and building that relationship. But of course, there's a lot of more things to do in New QuizDuel. And given that it is our, by far, biggest games in terms of daily active users, it's a lot of potential there. So the team is actively working on other in-game features as well that will create a stronger in-game economy. So on the -- in-app purchase side of QuizDuel, there's a lot to do. I think we have tons of potential to unlock there. Can we expect the ARPDAU improvements to continue at this pace? I think it's always kind of steeper slope starting to promising what's going to happen in the next months and quarters. We do feel that we have reason to believe we think can improve ARPDAU going forward than kind of what kind of pace it is. It's hard to know if it's going to be even quicker or slower. But it's a lot dependent on the kind of the new features we get out into the games, but also the -- the user acquisition balance. Depending on which game that grows quicker, the ARPDAU will be kind of change more or less. So looking games like Wordzee, for example, has a much, much higher ARPDAU than the average. So if that grows a bit, but has a lot of impact. So we expect from ourselves to continue to improve ARPDAU. I think that's fair to see. Is an EBITDA margin of 70% sustainable? So this is referring then to the adjusted EBITDA margin. I think it was 40% the unadjusted, and we did some adjustments. Maybe you want to mention what those adjustments were, by the way.

Yes, we adjusted for a re-evaluation of our option programs that we have to do, and it's driven by the value of the share. So it has nothing to do with the operations. That's why we adjust for it. We also adjusted for legal costs for the acquisition of Apprope, that's a difference between 17% and 14% EBITDA.

So I think like 17% in that sense is fair, but our goal longer term is to get to 20% EBIT margin, so even higher EBITDA margins than -- so it's definitely something we strive for. But of course, it's on a kind of quarter per quarter basis is much -- it's really dependent on how much we are able to invest in user acquisition. So when we can invest a lot in great user acquisition, that will always kind of have a negative effect on the result in that quarter, but of course, have positive effects longer term, that's why we do it. So I don't think we expect our margins to be stable. But hopefully, like the long-term view, we have of our margins is that they're going to improve over time until we have a really strong EBIT margin. Okay. Regarding QuizDuel Live, how expensive is the production of one episode on average? And is this able to sustain itself with sponsorships or rather a tool to create further engagement? So I mean, it's definitely something that we -- both, can support and make money from. Given the size of the audience, the production is not super expensive. And the good thing here is that we already have Primetime that is running these shows in the Nordics 10x a week in each of those countries. So we use the same studio setup. So everything is already there. So it's basically just to make sure we have great host that can interact with the German audience. But otherwise, I'd say it's fairly -- it's more or less the bandwidth to broadcast a show. So we see this as a monetization driver when it is at scale. So when we have these cash prizes and we'll really start to market it, we expect this to be an ARPDAU contributor for sure. But there is another kind of upside of this as well, we believe, that is going to be an exciting marketing tool. So hopefully, make it even easier for the user acquisition team to find new traffic and do this kind of reengagement campaigns to wake up inactive German players. How would you eliminate the possibilities of cheating when introducing real prizes in QuizDuel Live? So this is something we already have live since -- Primetime has been live for 3 years with real money prizes. And the thing is that it's not huge amounts of money that you win. So I don't think cheating is very widespread because like you win maybe a few tens of kroners, if you're lucky, or sometimes even less. So it's more symbolic. I think people are super proud of their wins and the fact that its real money makes a psychological difference. But I don't think it's a big problem with cheating. There is a time aspect to it. So maybe you have 5 seconds to come up with the answers. Of course, if you're super quick at Googling or you use Siri or whatever, then maybe you're able to cheat. But I don't -- we haven't seen it as a big issue for these 3 years for Primetime. So I don't think it's going to be a big deal. You actually -- if you try and play Primetime, for example, if you're in Sweden, you'll see that there is a real-time chat as well. So people are writing -- the answer is in the chat. And sometimes you trick others to the wrong answers and sometimes they're actually helpful. But I think that adds kind of fun spice to it all. Okay. So will you release new games in Q3? So how we operate is always that we're testing games. We're doing market tests multiple times during development. But we only announce games when we go into a soft launch. So that will happen when it happens. And we don't talk about that prior to that being effect. But what we do want to share is that we have exciting games in development. And then kind of being a very data-driven company, we always make sure that data is on our side before we do a release. So if we launch something, it tends to work. And if it doesn't, you never hear about it. That's how we operate. Any thoughts on user acquisition costs going forward, especially after the pandemic? That's a really interesting question. I think it's fair to say that we saw March, April last year was kind of an abnormal environment on both sites like monetization and UA. But it's felt fairly normal from June and onwards. So is this a new normal or will things change when the world come back to life? It's really hard to know. It's been surprisingly normal for the last 8, 9 months. But when we think about player habits, I think that's something that at least some games companies and entertainment companies, in general, think about what happens when people start leaving a normal life, go to restaurants, commute to work and so on. Will kind of -- the time you watch Netflix go down? Probably and maybe sometime game experiences also go down that are more demanding in time. But I do think we are on the right side of that. We have a lot of people who play the games actually commuting to work and so on. So I think we're part of that habit. So in that sense, we can look forward to a normal life in multiple ways, both that we actually want to live the normal life again, but also I think gameplay wise will be good for us. The question was UA costs. And it's really, I don't know if you have a more clever...

Obviously, it's always hard to know going forward, and especially, of course, when changes come up. But it's -- I think the key point is it's been surprisingly normal during this period the last -- I mean, since June and onwards. We will see.

Yes. Okay. We have a final question here. Can you elaborate a bit on the Word Mansion performance last week? So this is someone who's been keeping track of what we're doing. That's always fun. Yes, so Word Mansion has really gone high up to the charts in both U.S. and U.K. and Australia and so on. And it's thanks to the marketing working really well for that game at the moment. So it's been great to see the response from the market when we run these ads. And of course, when we increase the user acquisition volume, it's because we see that it works. So it's a really exciting time for us and for that game. And of course, for the Apprope team as well to see that this game is doing so well in the charts. So fairly steadily since the end of last week, we've been in the top 5 world games in the U.S., which is a real accomplishment and testament to good product and good marketing in combination. So pretty exciting stuff. Cool. So I think with that, we'll say thank you for watching. And again, if you have any questions on Twitter, just fire away and we'll try to answer as quickly as we can. So thank you.

Thank you.