Ubisoft Entertainment SA (UBI) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Ubisoft Q1 FY 2024 Sales Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Yves Guillemot. Please go ahead.

Welcome, everyone, and thank you for joining the call today. In fiscal year Q1, we delivered a better-than-expected performance, and we continue to progress on our 2-pillar strategy of reaching a significantly larger audience and growing our recurring revenues. We showcased our promising big brand games and live experiences during the highly regarded Ubisoft Forward event. It positioned us favorably for the upcoming months and years. In addition to increased engagement and positive sentiment from players, Ubisoft Forward was an important moment of pride for our teams across the world. This quarter, we also made progress on our free-to-play titles with many test phases, which provided a great amount of fresh new data to our teams as they are getting the game ready for release. We also announced that Level Infinite will be publishing Assassin's Creed Codename Jade on mobile. It reflects the powerful appeal of our brands and the significant value creation our shareholder agreement with Tencent is delivering. This publishing partnership greatly enhances our medium-term mobile footprint, while delivering significant financial value to the benefit of Ubisoft and its shareholders. Last week, we were pleased to announce that we will be presenting to our shareholders' vote 2 highly qualified independent director candidates, Katherine Hays and Olfa Zorgati, increasing the Board's women representation from 45% to 55%. Over the past decade, Ubisoft's Board has demonstrated its commitment to continuously adapting its governance to the best standards. With the appointment of Katherine and Olfa, together with the additional director refreshment made over the last 3 years, we further strengthen the Board with a diverse set of relevant skills, experiences and perspectives. Additionally, the Board appointed Claude France as Lead Independent Director and Chair of the Audit and Risk Committee, who has deep digital and tech expertise as well as experience in managing large-scale organizations. As we look to further -- to the future, sorry, we are confident that our sharp focus on our biggest opportunities, coupled with significant cost reductions, will result in meaningful progression of revenue, earnings and cash flow generation over the coming years. So I now hand over the call to Fr d rick. Thank you.

Thank you, Yves, and hello, everybody. Our Q1 net bookings of EUR 268 million came out ahead of our guidance of around EUR 240 million, notably driven by our live games overperformance. Net bookings were down 9% year-on-year as Q1 this fiscal year saw no new release. Our solid back catalog stood at EUR 246 million, down 4%, and MAUs across console and PC were EUR 36 million, up 2% year-on-year. This quarter, despite the fierce competitive landscape, Rainbow Six Siege net bookings and daily active users grew double digit year-on-year, driven by strong activity throughout the quarter on the back of the Year 8 Season 2 content and seasonal events. All the live games performed solidly, in particular The Crew 2 and The Division 2. Total digital net bookings reached EUR 241 million, down 8% year-on-year and represented 90% of our total net bookings. PRI stood at EUR 127 million, down 17% year-on-year, and represented 48% of our total net bookings, mostly explained in terms of comparison with last year by the positive impact of Dawn of Ragnarok that was launched towards the end of March 2022 as well as a light release late last year. Mobile amounted to EUR 28 million. The quarter was marked by Ubisoft Forward and our return to a conference live from Los Angeles. We unveiled gameplay and new trailers from some of our most anticipated upcoming releases, including big brands like Assassin's Creed Mirage, Avatar: Frontiers of Pandora, Star Wars Outlaws and long-lasting live games such as the The Division: Resurgence, The Crew Motorfest and Skull and Bones. As Yves said, the event was well received and was an important milestone for the company. What's more, I would like to note Star Wars Outlaws just made the cover of Edge magazine as it leads the magazine's lineup of the 100 new games to watch. Today, we confirmed our fiscal year '24 guidance. We continue to expect strong top-line growth, non-IFRS operating income of approximately EUR 400 million and positive cash flow from operations. The other large game present in this year's lineup will be released in fiscal Q4. We continue to progress on our cost reduction program and our employee base is now down by more than 1,000 compared to last September, mostly thanks to a tight control on recruitments. Looking at Q2, we expect net bookings of around EUR 350 million. This reflects ongoing solid back-catalog trends, the first weeks of release for The Crew Motorfest as well as preshipments for Assassin's Creed Mirage and limited initial contribution from XDefiant. As a reminder, Q2 last year included the first material benefits from the mobile licensing partnership, which was behind that quarter's EUR 115 million mobile revenue growth. In the coming days and weeks, we've dedicated test phases for The Crew Motorfest, Skull & Bones and Assassin's Creed Codename Jade, we will continue to iterate and optimize our games as we are getting closer to their releases. We are now ready to take your questions.

[Operator Instructions] We will take our first question. The question comes from the line of Charles-Louis Scotti from Kepler Cheuvreux.

Yes. I have 3 questions, if I may, the first one on your Q1 beat. I see that player recurring investment is down 17%. So it means that one drove the beat is the full game downloads. I'm just curious to hear which games performed best during the first quarter? Is it again Assassin's Creed Valhalla? Second question on your Q2 guidance. Please correct me if I'm wrong, but if I remember well, you booked last year EUR 110 million from the licensing deal in Q2, so restated from this impact, your guidance basically suggests a 17% growth year-on-year. It doesn't look particularly aggressive considering the expected release of The Crew Motorfest, shipment of Mirage and potentially a good launch of XDefiant. So if you could be a little bit more explicit on these three items, it would be very helpful. And then my third question is on Skull and Bones. It seems that you have lowered the price of the games, at least on the Ubisoft Stores, when it comes to preorders. Does that mean that you have also lowered, generally speaking, your expectation for this title?

Thank you, Charles-Louis. So on the Q1 beat, actually, yes, it comes from back catalog. And it came primarily from our live services. So you're right, full games have done well, but the overperformance primarily came from live services, including Rainbow Six Siege that came back with a strong turnaround as we expected to come at some point in time. So we're happy to see that coming now. We also had The Division 2, The Crew 2, Riders Republic that did well, and Far Cry 6 as well. On the Q2 guidance, so we actually set the guidance the usual way, I would say, to give you a bit more color. So in terms of pre-shipments of Assassin's Creed Mirage, it's going to be very limited, as Mirage will be released on October 12. And we took a prudent initial revenue assumption for XDefiant. We will be relying on actually a pretty solid back catalog. As we said, we've been happy with the overperformance and a very limited decline in the first quarter with our live services doing well. And yes, we're happy to come with The Crew Motorfest launch. Actually, it's interesting to see that The Crew 2 has been enjoying all-time record activity levels since the beginning of July after the launch -- the reveal of the game play of Motorfest. So we have a good momentum on the brand. We will be leveraging good data coming soon. And so we're confident with the success of Motorfest that will expand the brand as a long-standing live service on the open world racing genre.

On the Skull and Bones, the game will be launched with full price. And the game continues to make good progress. We will have the beta coming at the end of August and that will be a good milestone to see where we [ are ], it's -- we are very happy with the progress we are making.

Okay. So if I understand well, the game is still planned to be released at full price next Jan? [Technical Issue]

Okay. So apologies for the technical issue we just had. We are open again to answering your questions. Apologies again.

Okay. It looks like we need to move on to the next question as the previous line has been removed. One moment, I will take the next question for you.

Yes. Did they hear the answer to the previous question?

Your line did cut out midway of the answer. Would you like to take the next question?

No, we'll answer the second and third. We can ask the previous analyst to ask his question again?

No, no, we are not going to ask again the question, but we are going to take back the question. So I think the maybe question one was -- so maybe we are going to come back to question 2, which was about the Q2 guidance and the question 3 about Skull and Bones. Okay. We are going back these questions. [indiscernible].

Can you put us back to the call?

We are on the call.

Yes, you are live. Please continue.

Okay. So shall we...

Sorry, everyone, for that.

Sorry, everybody. I will start again the question 2 on the guidance for the second quarter. What I was saying is that we set the guidance the normal way, I would say. In terms of key building blocks, we are relying on solid back catalog for Q2. We've been happy to see the overperformance in the first quarter, and we've seen a solid performances across all our live services. So that's -- we'll be relying on these dynamics, and notably, with the strong rebound we've seen on Rainbow Six Siege, and moving forward. The second building block will be indeed will get the benefit of the first weeks of releases of The Crew Motorfest that will come mid-September, and we are happy to leverage the strong momentum that we see on the brand, notably with The Crew 2 that enjoys record level of activities, all-time record activity levels, and we are coming soon with a new closed beta ahead of launch. Third element is that we will have a very limited preshipment impact from Assassin's Creed Mirage that will be released on October 12. And the last, as we said, we are taking -- factoring in an assumption of prudent early revenues of XDefiant.

Yes. And to answer the third question about Skull and Bones. Skull and Bones will be published as a full price game. And we are making really -- we continue to make really good progress on the game, and we will be able to unveil the game with a closed beta at the end of August. And we think you will be happy with what you will see.

And we've seen good progress on all the tests we've been doing on Skull and Bones recently. So it's boding well.

Thank you. We will take our next question. Your next question comes from the line of Nick Dempsey from Barclays.

I've got 3 questions. So just for the preshipments of Mirage in September, I think you said limited amount. Can you give us a bit of a sense whether we're talking about a very minor factor in the quarter? Or could it be as much as tens of millions of euros that you are factoring in from that? Second question, regarding the other large game, how far ahead would you normally announce a game of this kind? So if we got to September and it was still an unannounced game, would then not be rather late that you would have the usual marketing buildup and still release before the end of March? And the third question, does your guidance for non-IFRS operating income allow you to delay one of your smaller games, I'm not saying one of the big ones, but one of the smaller games on your slate? Have you got that kind of flex?

So on the first element, Nick, I won't give you much more color. As I said, it's a very limited pre-shipment impact, knowing that Assassin Mirage will come in on October 12. So that's what we can say on this right now. On the other large game, we -- of course, we will have a strong marketing plan and it's well shaped, but we can't provide any more information at this stage. In terms of our EBIT guidance, we are factoring in the games that we announced to be released this fiscal year. All these games are well oriented to release on time, and that's what is reflected in our current guidance.