Ubisoft Entertainment SA (UBI) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Ubisoft Q1 Fiscal Year 2027 Sales Webcast and 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, Ubisoft Co-Founder and Chief Executive Officer. Please go ahead.

Welcome, everyone, and thank you for joining the call today. We delivered first quarter net bookings slightly above our guidance, led by a record performance from Invincible Garding the Globe. The rest of the catalog, including Rainbow Six Siege performed in line with our expectations. We also continue to execute our transformation. This included further targeted rightsizing actions and the ongoing reconcentration of resources towards our highest potential opportunities. At the same time, the leadership of our new operating model and organization continues to take shape, including the appointment of Christophe Artmann, the lead creative out in building a world-class portfolio of battlefield-driven experiences. These franchises include Ghost Recon, The Division, Sprinter Cell and March of Giant. Christophe joins us with nearly 30 years of experience, building, scaling and operating global gaming organizations, having notably spent 20 years at [indiscernible], where he supported the early releases in the Grand Theft Total franchise and co-founded 2K games. The strong launch of Assassin's Free Black Flag Racing by Vantage Studios in early July is an encouraging proof point. The game is the highest rated Assassin's Free title since the original Black Flag, and we are very pleased with the praise it has received from players. Two weeks in, the title has already exceeded the annual expectation we had. I would like to warmly thank the teams whose talent and dedication brought it to life. This launch tells us 2 things. First, it's a reflection of the enduring strength of Assassin's Cree brand. Second, it's an illustration of the early benefits of the ongoing transformation and commitment to deliver very high-quality experiences, notably enabled by the revamped cutting-edge proprietary engine and deal engine. Finally, today, we have confirmed our financial year '26-'27 objectives and midterm outlook. Financial year '26-'27 remains a year of disciplined execution as we continue to implement our transformation, invest behind our strongest opportunities and prepare for significantly stronger content cycle. We are confident this new operating model will strengthen our position as a leading creator of high-quality, memorable and engaging entertainment experiences and enable the group to return to a stronger trajectory of performance, cash generation and long-term value creation. With that, I will hand over the call to Frédérick. Frédérick?

Thank you, Yves, and hello, everybody. Our Q1 net bookings stood at EUR 256 million, down 9% year-on-year and slightly above guidance. As I said, this outperformance was driven by a record quarter for Invincible Guarding the Globe, while the rest of the catalog performed in line with expectations. The quarter included around EUR 15 million of pre shipments linked to Assassin's Creed Black Paget, in line with what we had planned for. The year-on-year decline mainly reflects significant bookings from Assassin's Creek Shadows in the prior year quarter. You will recall that having been released on March 2025, shadows had a significant contribution in the following quarter. Back-catalog bookings and digital net bookings stood at respectively, EUR 220 million and EUR 206 million, down 15% and 18% year-on-year, both reflecting the shadows impact I just highlighted. PRI stood at EUR 151 million, stable year-on-year and representing 59% of our total net bookings. Let me now give you some color across the catalog. Rainbow Six each performed in line with expectations this quarter. Your 11 Season 2 delivered one of our best battle pass conversion rates for a season without a new operator and the meta-driven rotating changes brought depth and variety to the experience. Overall, average DAUs throughout the quarter were slightly up on the back of a comparison base that benefited from the launch of Siege X and its free entry point in June of last year. Looking ahead, Season 3 will introduce a new ship counter defense operator, a highly requested edition and the Legends division, a new playlist targeting core competitive players. Other live services titles were also supported by the regular rollout of new content. The Division 2 released year 8 Season 1 this quarter, which helped deliver improved monetization trends year-on-year, driven by virtual currency conversion and DAP records. The Primatafest benefited from the NASCAR Season 9 that released in March as well as the RC Frenzy Playlist and the inclusion in the PS+ subscription service, which all drove robust year-on-year growth in active users and session days. Finally, mobile bookings stood at EUR 48 million, significantly up year-on-year, reflecting a standout performance for Invincible Guarding the Globe, developed by Ubisoft Barcelona mobile studio. The title exceeded expectations this quarter, 2 years after launch, already surpassing the prior full fiscal year. Momentum built through the period, thanks to the March release of the TV series 4 season and the introduction of a new in-game character, which together drove meaningful player acquisition, retention and monetization. Now turning to the lineup. Assassin's Creed Black Flag Rcinct released on July 9, and as I said, is off to a strong start. It sold in 3.5 million copies to date, exceeding Ako annual expectation within its first 14 days. The game is praised by critics and players alike with a current 84 review score on Metacritic and Open Critic, making it the highest rated Assassin's Creed game since the launch of the original Assassin's Creed IV Black Flag in 2013. Following launch, player sentiment continued to strengthen and the game showed robust player engagement with a record performance for the franchise on PC as it reached a peak of around 105,000 concurrent players on team, the highest ever recorded for an Assassin's Creed title on this platform. This translated into a historical proportion of sales for the franchise on PC, led by the U.S. and Chinese markets. We think demonstrates Ubisoft's ability to leverage proven catalog brands for remakes to win over a whole new generation of players while allowing long-time fans to rediscover well-improved iconic games. In the same spirit, we revealed Remain Legends retold to be released in October, making the franchise 30th anniversary. Early hands-on coverage has been encouraging with press highlighting the new visuals and cinematics, expanded world buildings and new gameplay additions that build on the original celebrated foundation. This premium remake co-led by Ubisoft Monpuri and Milan reimagined the acclaimed platformer in full 3D, deepen its world and introduces fresh gameplay ideas while preserving the original DNA. On top of these 2 games, the lineup for the rest of the fiscal year also includes -- just Dance's Decades of hits scheduled to release on October 13 as well as targeted premium titles based on established Ubisoft brands to be announced at a later stage on top of continued live services content updates across the portfolio. August will be an important month for Rainbow Six Siege and Trackmania, which will be represented at the Sports World Cup in Paris, bringing together some of the best players in the world and showcasing our brands on one of the biggest stages in Sports. We also continue to execute on our cost reduction initiatives. In June, we announced the closure of the Winnipeg and Belgrade studios targeted changes across the group's global publishing organization and the restructuring at the Ubisoft Barcelona HD Studio. These are difficult decisions, but necessary steps as we concentrate our resources on our highest priority projects and further improve quality delivery to exceptional levels in a consistent manner. Turning to the outlook. We've confirmed our fiscal '27 guidance today and continue to expect net bookings down by a high single-digit percentage, a high single-digit negative non-IFRS operating margin and free cash flow consumption of no more than EUR 500 million. Additionally, the fiscal '27 housekeeping items for modeling purposes I provided during the full year earnings call mid-May are unchanged. On the balance sheet, as we said back in May, we have sufficient liquidity to address the near-term maturity using cash on hand. We are reviewing available financing options with the objective of addressing upcoming maturities, extending the group's debt profile and maintaining financial flexibility. This review is actively progressing with a way to executing the most efficient financing scheme in due course. Beyond fiscal year '27, we expect an important rebound with a return to positive free cash flow generation and non-IFRS EBIT in fiscal year '28, robust free cash flow in fiscal '29 and positive cumulative free cash flow during the fiscal '27 to fiscal '29 period. Finally, we expect Q2 net bookings of around EUR 370 million, keeping in mind that Q2 of last year included significant partnerships, while we only factored in for a limited impact in this year -- in this Q2 guidance. I'd like to hand over the call to Yves for concluding remarks.

Thank you, Frédérick. Before we close the call, I would like to take a moment to sincerely thank everyone for their outpouring of support following the tragic death of my brother, Claude. As many of you know, Claude co-founded Ubisoft alongside Christian, Gerard, Michel and me. He played a key role in building Ubisoft and its iconic brands. He also was always genuine and generous, sharing his kindness, wisdom, optimism and energy with everyone he met. He will be dearly missed. Thank you again for your support. We are now ready to take your questions.

[Operator Instructions] And your first question today comes from the line of Nick Dempsey from Barclays.

I've got 2 questions, please. So first of all, can you talk about the likely margin profile of a game like Assassin's Creed Black Flag Rinct, so a remake that has sold well ahead of your expectations. Can you tell us whether you've already covered your costs for that game and whether it should make a better contribution to non-IFRS operating income than a typical game? Second question, I heard your comments on the debt refinancing. Can you maybe give us an indication of when you will be able to communicate to the market when you have a plan in place to address the financing of those debt maturities, particularly the putable 2028 converts due in November?

Nick. So yes, the margin profile of a game like Assassin’s Creed Black Flag should be attractive. First, because it's planned to be a success with a strong start. Usually for remakes that are ambitious, you have a reuse of the existing assets of the original experience, but you also come with additional game play and features. So that still come with some investments. But of course, the overall budget is not as high as the original experience. You also benefit from the awareness of the game, so you can come with lower marketing, but you don't have the same price as a full game. So it's really a different economic profile, but we expect this one to deliver superior financial performance. We expect we should expect the direct contribution to be positive as soon as this current quarter in cumulative terms. In terms of refinancing, as we said, we will -- we are looking at different options. So we won't make any more announcements today. But we have a high cash position as we speak. So as we said back in May and in February, we can use it to address any near-term maturity. And we are looking at different options to work the upcoming maturities with the objective to really optimize the cost of capital. So that's what we can say at this stage, and we will update the market in due time.

Our next question today comes from the line of Nicolas Langlet from BNP Paribas.

I've got 2 questions, please. First, you said that Singsagcinct already reached the annual performance expected for the game, but you reiterate the guidance. So are there other parts of the portfolio which are not performing as well as expected or you want to keep some room of maneuver for the rest of the year? And secondly, on the licensing and partnership deals, can you remind us what you expect for the full year? And what's the expected phasing by quarter? And notably, were there any specific contribution during Q2 -- during the Q1?

Nicolas. So on the -- yes, we said indeed that we're very happy with the strong start that exceeded in only 2 weeks the annual expectation that we had. It's still early in the year with 9 months ahead of us. And we have, of course, still a number of games to come in the second half. We also have a strong competitive lineup to come this year. So it's a bit early to update the guidance. That's what I would say at this stage. In terms of partnerships, so for the whole year, we expect a material contribution, but lower than over the last years. We had a limited contribution in Q1. It was below EUR 10 million, probably around EUR 5 million. We factored in, as I said, a limited contribution in the second quarter. So the material contribution is expected in the second half of the year.

[Operator Instructions] And our next question today comes from the line of Aleksander Peterc from Bernstein.