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

Hello. Welcome to the presentation of MAG's Q4. So here today to present the report is me, Daniel, I'm the CEO of MAG.

And me, Magnus, CFO.

So as per usual, we're going to talk you through some of the highlights in the report and then at the end of this presentation, we're going to have a Q&A and also throughout the day, we're going to answer questions that come in online on our X account. So first, to talk about the highlights of Q4. So this is the summer months, so June, July, August. And as our business is pretty dependent on season in terms of ad revenue, so during summer months, we have lower CPM. So the average amount people pay to show 1,000 impressions of an ad that impacts our in-game economy. Also during summer, people tend to play slightly less. So a normal year for us. Everything equal, we see a dip from Q3 to Q4 of about 10%, measured in terms of revenues. What we've seen this summer is less than that, like 5%, 6%, and I want to talk about why that is. So we overperformed basically in the terms of product performance. So especially 2 big product updates. We have new things come out in Wordzee and also in QuizDuel that I'll come back to in a couple of minutes. So this helps obviously to keep the revenue levels up and the continued profitability of the company that we're -- that's so important to us to be a profitable operation even though we don't invest so much in UA at the moment. And then we have the Crozzle soft launch. So that's the game we talked about the last couple of quarters that we really believe in. We're still in soft launch, and I'm going to talk a bit about that soft launch development as well. So Crozzle is a multiplayer crossword game. We -- it's been out in the U.S. market since late December. And what we're doing now is basically to verify that the product is strong in terms of retention and monetization, and we're now in soft launch also testing marketing. So can we get back to the marketing money that we invest in the game in a short enough time frame for us to be -- see this as a scalable future product. So we're super optimistic about the game. We're doing a lot of A/B testing to see kind of what can be further improved and further out in time and so on. And as we talked about in the report, basically, when we see that if we have a good conviction of getting the money back within 180 days, we are in a state that we call global launch, and then we start ramping the game up. We're not there at this point in time. So we're continuously testing it. So it's coming new updates on a frequent basis in the U.S. and just trying to learn from the data and get the game closer and closer to a place where we can launch. And I think important also for context, when we get a game out, historically, we're talking about hundreds of millions in future revenue. So this is a big thing for us getting a game across the finish line and become an important part of our game portfolio. So it's a big goal we're after, and we're still very optimistic that we'll get Crozzle to that place. But we don't want to get too early and burn through marketing money, don't make money, as profitability is so important to us. So we want to get the product right before we get it out. So I mentioned important and efficient updates in QuizDuel that raised the performance this summer. So we have made a new game mode called Card King. So this is a new way to play QuizDuel where you basically have packs of questions in specific categories. And you can pay to get your favorite categories, you bring them into the game, your opponent brings some other categories and then you face-off. But these are consumables, which means that you will run out of the questions in some of the categories and then you want to refill, and this has created kind of an interesting new in-game economy. So we ran this test for 4 weeks in Germany or the German-speaking markets this summer. It looked really positive. So the team decided to go and make this a permanent feature of the game. So as of a couple of weeks, this is a permanent part of QuizDuel in those German-speaking markets, so this is Germany, Austria and Switzerland. So we really look forward to continue running and optimizing this thing. And the more of these kind of really strong new event types and feature types we have in QuizDuel, the richer the product becomes and the better the economy of the game becomes. So this together with Question Streak and the match three stuff and so on is really making this product a better, better game over time. And also, in addition to that, when the LTV goes up, we can also invest more and more in the UA. So this is a very positive development for our biggest game.

Yes. And with that, we take a look at our product mix and the portfolio. And on the right-hand side here, we have the smaller and older games, generally speaking, as usual. Turning around roughly SEK 100 million per year. And speaking of seasonal effects, we see one here where we have 10% down from Q3 to Q4. We grouped the games in the smallest and the slightly bigger games on top where the LiveOps team take care of the bigger ones and making sure they're fun and relevant for our players for many years post peak of the game life.

Yes. And on the left side, we have the growth games. And as I mentioned, QuizDuel and Wordzee have had a really strong summer. So if you compare Q3 here, that was the SEK 46 million and that was SEK 45 million, so it's basically flat. So I think the shift here is basically just the exchange rate of U.S. dollar to Swedish krona. So it's super stable, and that's thanks to like making the product stronger, especially on the in-app purchasing side. And then, of course, Crozzle that we're working hard to push up to become one of those growth games, and it's going to help us being able to invest more in UA and start growing the revenues again.

And audience KPIs, and we're now in a phase where we compared to quarters a year ago with slightly lower spend, whereas in the last quarters, we compared to a year ago with much higher spend than in the current quarter. With that, we're still down year-over-year, and that shows also in our DAU and ARPDAU, where DAU is down a little bit and ARPDAU also down; DAU from the lower influx of users, but ARPDAU is from the mix of users where the UA-based audience is usually higher value. Sequentially, though, we're stable, both audience and monetization and we see that sort of across portfolio, more or less. And having a look at our financial KPIs. Net sales is down year-over-year, also connected to the lower spend of UA. It falls through to contribution and EBITDA. And sequentially, again, we have a stable performance. And at this level, we show good profitability and cash generation and we're ending the quarter at SEK 122 million.

Yes. And here is the picture of a few years back. So we see the quarterly revenues, combined with the adjusted EBITDA margin. So 1.5, 2 years ago when we had this big UA push, we saw the revenues climb quite quickly, but the profit margins go down as the investments take time to recoup. And what we see now when the UA level is lower, the profit margins bounce back as it shows. So this basically shows that the kind of steady-state operation of MAG is a profitable and very stable operation, then obviously, we want to get back to investing more in profitable UA and grow the size of the pie as well. But it's a very healthy kind of operating margin when things are at a kind of steady state that it is right now. And our growth strategy is relatively simple, and it stays the same. It's been the same for many years for us. It's about getting games to market, either through our own in-house development or through M&A. And over the years, we have acquired a number of games and studios, and that continues to be an interesting path for us in terms of expansion.

Yes. And another key component is improving the performance of the games with LTV and ARPDAU being key components there. And improving ARPDAU obviously means higher revenue short term, applying in high ARPDAU to the same audience, but it's also one of the 2 key components in increasing UA where game performance combined with efforts to find channels and creatives that work in the market will be the foundation to find volumes in the UA.

Yes. And just looking ahead, what we have -- where we're at right now and how we're thinking about the near-term future. So basically, the things we see work so well in QuizDuel with this kind of the new types of gameplay with match three and the new event types like Card King and Question Streak Leagues really gives us the energy to go forward and do more of that stuff. So we're going to see more content on the puzzle side in QuizDuel, double down on Card King and the team is also working right now with another big feature that hopefully are going to come out in the next couple of months. So it's really fun to be QuizDuel player, and it's great for us to see the game being better and better every year and very, very solid. On the UA side, this is obviously our biggest challenge right now, and it's been for a few quarters. So we really need to get back to spend more on UA and get that part of the growth engine going. So super important. And of course, Crozzle that I think everyone is very excited about and interested in. So we're really supporting that team and doing a lot of testing and optimizing and as quickly as possible move to a place where we can feel confident in launching that game. So I think that wraps up where we are right now. The biggest game looks really good. UA is a challenge, and Crozzle looks really exciting. So with that, I think we're ready to take a look and see if we have any questions here in the stream or anything that's come in from Twitter so far.

So we get a question here that we collected from Twitter, which was about M&A. So has anything changed regarding your search for acquisitions? You did not mention M&A in the report. So no, it's not changed. So this is still like when we see this cash position building up, we really want to be able to use that to find interesting acquisitions. So then this is a long game, same thing as launching a new game. You feel the urge to do that as quickly as possible, but then again, you want to get the game right. Similar with M&A, there's a lot of potentially interesting games or studios, but you really need to kind of drill down and see, is this a good fit for us? Does it makes sense in our portfolio and does it actually add value to be part of MAG? I think that's really important. So we continue to look, for sure. So next up. Will the Card King event launch in other markets, too? So that's too early to tell right now, but I'd say it's pretty likely that we're also going to go to further languages, but it's not been decided yet. So right now, the focus -- and this is an absolute biggest chunk of both audience and revenue is in the German-speaking markets. I think this is the right focus for us. It's a lot of content that needs to be created as well. So we need to kind of trade-off where it's profitable and meaningful to go to a new language. But for now, it's German-speaking markets. So this is going to be about optimizing both content and the flow for the user and the economy of this game mode. So that's the focus at the moment. But it might show up in Sweden, I guess that's -- people would be interested to play that, but not decided at this point. Okay. Next one is what does Crozzle global launch entail or mean? So this is basically, I think back in the day, global launch was kind of big bang on the drum and going out with tons of tons of marketing at the same time to create this boom effect. That's not how we look at launches nowadays, and I think very few companies do. So it's a very gradual process. So obviously, being a public company, we will tell everyone that we're now ready for a global launch. So that's not going to be a surprise. But when that happens, it's going to be gradual increase of marketing spend every day and every week and more channels and more creatives and so on. It's a really long game, but it's not going to be from 1 day to the next or 1 week to the next an explosion of UA investment. It's a gradual increase. And also, the focus is the U.S. So we're going to start expanding in the U.S. and then do more localization. So we have really good localization. We have a history of that. So obviously, the games are also going to be available in Germany and France and Italy and so on, but at a later stage. But U.S. is where we launch. Is Wordzee getting better LTV and you think you can scale UA on it or should we assume that Crozzle is where the potential is? So this is a good question. So we definitely think there's more potential in Wordzee as well and QuizDuel. So it might be that increased UA spend for the next 3 to 6 to 9 months comes from those games even if we launch Crozzle, although the majority might be behind one of the more mature games. So I think of it looking at kind of a history of Wordzee's UA spend, for example, to take this question. It's been going up and down as we've seen opportunities. So Wordzee 2, 3 years ago was a pretty moderate UA investment level and then we found new ground again, and we were up at SEK 30 million, SEK 40 million per quarter. And now it's much smaller again. So we -- it could definitely happen that some of these updates and some new ad creatives and new channels will ignite that engine again and then Wordzee will be the big driver. So we're working on all fronts at the same time. But I'd say in general, when you get a new game to market, it's easier for the first X number of months or a year because there's -- it's something new and fresh. Whereas, Wordzee, obviously, a lot of people who play word games have already been exposed to marketing for Wordzee, so then you need to find a new angle to awaken that interest. It's probably easier with a new game, but it could be Wordzee is where it happens. Okay. Your strategy evolves around modular game making, what does it mean in practice? So we talk about that in the report today and the last few reports. So what we're doing, and this is a big focus for us as a company over the last year, is to make sure we become more modular in how we think about making games. So this is basically if you have a leaderboard in 1 game, you don't want to have to write that software again. You want to just have it run in all of the games and look across a lot of games in our genre and definitely in our own portfolio, they are very similar on an abstract level. You have a lot of components that are the same, and then the core mechanic is different. So what we're doing now is basically game by game putting it on the same platform. So we'll have much less software in the sense that we have the same code running for the same type of feature. So what's that's going to bring us is higher quality of everything and also higher speed to market. So when we build a new game, a lot of the stuff is ready to go, and you don't have to recreate it. So it's a very important step for us to become kind of a faster and more efficient company and also to be able to really polish these kind of core experiences in the most important games. So a big focus for us, and I'm happy that people have picked up on that. So yes, with that, we're wrapping this stream up, but we're going to continue online today and answer any questions that come in on X or Twitter to our account. So thank you so much for watching.

Thank you.