Verve Group SE (VRV) Earnings Call Transcript & Summary

Yes. Good morning, and welcome to our presentation. We are presenting Media and Games Invest, and we just released our Q3 financials. So this presentation will mostly be geared to the Q3 financials, but also, of course, give you background for those that don't know the company so much. I would like to start at Page 4 to introduce ourselves. Maybe Paul, our CFO, can quickly start with introducing.

Absolutely. So good morning, everyone. My name is Paul, CFO of Media and Games Invest, studied law and finance, worked afterwards for a seller company called Shopgate Inc. then for a few years for UniCredit Bank, did quite a lot of debt financing there. Worked very close also with the ECM team. Met Remco in 2007 when we refinanced the German bond of our gaming subsidiary, gamigo AG. And since 2018, now, I'm the CFO of Media and Games Invest and responsible for finance, controlling and investor relations.

Yes. And Remco, that's me. Studied economics, started working in the oil industry then into consulting, after that into digital entertainment. Amongst other, worked for Sonera, a Finnish telecom, then also founding Bob Mobile, which was later renamed to Cliq. It's listed on the German stock exchange. And end of 2012, I had the possibility to buy gamigo, a gaming company, at that time part of Axel Springer, acquired 100% of the shares. And that's the start of Media and Games Invest. We've started the buy-and-build story and brought gamigo into Media and Games Invest. I would like to show on Page 4, there's an overview of the shareholders also. We have a free float of a bit under 50%. We have early investors that started already with gamigo of roughly 15% and myself, I'm holding roughly 37% of the shares of the company. As said, I would like to run you through on Page 6. First, a bit of an overview who we are, and then we will get later in the presentation to the Q3 financials, of course. Media and Games Invest, yes, the company started to be listed in 2018 when MGI, as a shell, acquired gamigo and with that, began the gaming company. So we are the continuation of gamigo. Market cap, roughly EUR 170 million at the moment. We are listed on the Frankfurt Stock Exchange in the Scale segment and on Nasdaq First North Premier in Stockholm since a few weeks. A bit over 700 employees. The majority of our revenues is coming from gaming and especially from so-called massive multiplayer games. So we're running over 25 massive multiplayer games. Those are games where people -- where lots of people play together on several servers. It can be a role play game, can be strategy and build game. It's basically gaming as a service. So together with the gamers, we further develop the game, we improve the game. There's all kind of updates, new costumes, build things. And yes, games are offered mostly as free-to-play. So people start playing for free and then start building up the character or the city and also invest in those things. More details to the games coming later in the presentation. We run also over 5,000 casual games, mostly subscriptions or advertising based. Over 5 million monthly players and since 2017, we started also to be active in the media part. Because for gaming, there are 2 success factors: The one is, of course, content, new content, adding the games, extending the games. And the second one is, let's say, media, getting more users into the game and for that reason, to be more efficient on that side, also coming a bit more detail later. And we also decided to add media -- assets and media companies. So over -- we're doing over 5 billion monthly ad views and also working for 5,000 other advertisers -- over 5,000. What you see on the right-upper side of the presentation is a bit our geographical focus. Over 50% of our revenues is in North America and a bit over 1/3 is in Europe. And on the right-bottom side, Paul will go later into this in more detail, you see our great track record that we did starting, let's say, with EUR 15 million revenues in 2014, now doing over EUR 120 million last 12 months year-to-date -- sorry, last 12 months from Q3 and with also very strong traction on the EBITDA side as we do a lot of M&A and sometimes also games that are not so profitable because we can improve them, and the efficiency is better from the deal. You see that the EBITDA percentage has come down a bit, but we're expecting it to go up in the next year, again, between 25% and 30% of revenues. Then going to the next slide, #7. Here, you see the 2 basic segments. So gaming is doing over 50% of the revenues. We like to run it well over 50%. It's 55% now. We would like to make it a bit bigger but also further concentrate on more M&A on the gaming side again. Yes, why -- we are making money with in-game purchases, game subscriptions, advertising revenues. On the right side, in the left box, you see some of the brands, some of the companies that we acquired, companies that we are acquiring. We are also, let's say, integrating. You see also, by the way, on top of that, that the majority of the EBITDA that we're making is coming from gaming. Yes, and the EBITDA, you see below. The target range for EBITDA of 25% to 30%, and so far, we are in the 31% range. And on the right side, we see the media part, where we make most of the money via agency fees, SaaS fees and ad commissions. On the right side, you see also some of the brands of the companies that we acquired. So those are getting integrated. And on the media side, we're targeting 15% to 20% EBITDA. At the current time, we are at 9% EBITDA so we still have room for improvement there, which we'll do by further integrations. We did quite some recent transactions on the media side acquisitions, so that's the reason that they still have to come to the target EBITDA, but they are well on their way. Yes. What happened in Q3, coming to the next page, some operational highlights. And Paul is going to go into the figures a bit later. With a strong operational performance. Normally, Q3 is, seasonality-wise, a bit slower, as normally Q2 is as well. But yes, Q3 had a good performance. We continue our proven strategy, of course, with M&A. And we showed further revenue growth, EBITDA growth and EBIT growth, but also preparing for a strong Q4 which, seasonality-wise, normally also is stronger. On the game side, yes, I said negative seasonality. Also on the corporate side, where we profited a lot from the lockdowns in Q3 -- sorry, in Q2. In Q3, we saw a bit less lockdowns. But we see in Q3 that the new players that we got in Q2, which were a lot because of COVID, are really starting to monetize. So that was a good part of the revenue growth. And yes, we had a limited number of game launches and updates. We have some. I'll show a few of those later in the presentation. But we are very much geared to Q4 and full of excitement for Atlas Rogues, a new game that, at the moment, in beta launch -- which was beta launched in Q4, and we are expecting quite a bit from. And then the media side, it's for the, yes, supporting the gaming side. We saw a good traction there. So we saw organic growth, adding a lot of new customers, also quite some investment in growth. And we saw further efficiency gains by more focus on synergies, technical integrations and cost optimizations and also, let's say, pushing the game intake, the gamers' intake on the gaming side. M&A, yes, well-filled pipeline, working on quite some potential cases. We had a bit of delay of COVID. You can do a lot of things digital with M&A, but not everything. It's good to look into the eyes of people. But still, we did an acquisition of Platform 161 in Q3 and we, let's say, closed the freenet digital transaction, gaming transaction, on October 1. Yes, further lot of M&A lined up, as said. And then further focus on financial markets, very important. We did the listing at Nasdaq First North Premier, bond issue in November also, and have also increased our investor relations activities in the Nordics. Then going to the next page, a bit about our game update. As said, not as many as in Q2, but still, we had some really nice things happening. Trove, our pixel MMO doing very well. And yes, I'm very proud that we found a Korean partner to launch the game in Korea. Aprogen Games, it's well known in Korea. They're very strong there. And we are licensing or sub-licensing actually Trove game to them, and they are preparing the launch now and going live with the game. Then Trove, also, we have launched Delves as a big DLC in the second quarter for the PC, which showed a good effect. We have now in Q3 launched the same thing for console because Trove is on consoles and online available for consoles. Because of all the permits, et cetera with Sony and Microsoft, it takes a bit longer, but it was well received by the communities. Then Fiesta Online, yes, our oldest MMO is now 14 years old, which was also celebrated very well. Lots of events in the game, a cupcake war, for example. But also, lots of rewards and prizes and things that were given to the players. Then Grand Fantasia, another great MMO that we have. We did a big update there with a floating city. So at the end of the Rainbow Road, now there is a floating city with lots of Sprites, where people can also play the game. It was also very well received by the players community. And the last one on this list, Aura Kingdom. Here, we did a double patch. Normally, we do single patches, but we wanted to test how this worked, and it works pretty well. So we had a lot of extra content but also introduced a semi-automatic cast skill, which allows players to put less attention in casting and much more attention to the game, which was over very well welcomed by the gaming society. Yes, looking a little bit further. On the next page, you see a bit what's coming up because gaming is also about the future, of course, what's going on, what's been prepared in-house. And that's, of course, things that we are working already or have been working on already in Q3. Atlas Rogues, I just mentioned, it's going back to the -- yes, a game that was acquired with the acquisition of the company that we acquired a few years ago. It was prepared in the background. The game was stopped in between, and it's now fully relaunched. It's part of the Atlas universe, and we are expecting, yes, to really have a good launch early next year. But it is already in open beta, so people can play it already, and it was very well received by the players. Then TWIN SAGA, level cap raise coming up for Q4. ArcheAge, Rise of Nehliya, going to be launched in Q4, so also big update. And then some more things that are also coming up but not yet announced launch date-wise. Desert Operations, going to mobile. Trove, we're preparing for Nintendo Switch. Yes, studio working on it, so also expecting this to be launched pretty soon. And then we have a great mobile game, which has been -- or is being prepared for launch. As it's always with software, until you know that it's ready, it's ready, so we don't want to announce too early the launch date. But we're working on it, and we expect also this to be coming soon. And there are several other projects, like we see on the slide. Then I would like to hand over to Paul to give a bit of overview of the Q3 financials.

Thank you, Remco. So starting with -- on Page 11 with the third quarter financial highlights. Here, we see that in terms of net revenues, which amounted to EUR 35 million in Q3 compared to last year of EUR 27 million, we saw an increase of 29%; while on the adjusted EBITDA, which amounted to EUR 6.4 million, last year, EUR 4 million, which then is an increase of 61%. Looking at the adjusted EBIT, which increased to EUR 4 million, where it has been at last year at EUR 1.6 million, which is then an increase of 150%, so very strong EBIT growth; while also leverage ratio decreased to 2x by end of Q3, taking into account the equity raise, which was settled in October and, therefore, reduced heavily from the 3.2 compared to end of Q2 and, therefore, very nice deleverage. And based on this very strong Q3, we now raised our forecast for the second time in 2020 and now expect revenues of up to EUR 135 million and up to EUR 26 million reported EBITDA for the full year 2020. Coming to Page 12, looking a little bit more on the transactions, which we just have completed in the last 8 weeks. So we have now raised EUR 110 million in new financing, which leaves us after the refinancing of the gamigo bond of EUR 50 million, with more than EUR 60 million of free cash for growth, which will be invested in organic growth but also M&A. And at the same time, it also reduces the interest rate heavily as the new MGI bond has now an interest rate of 5.75%, while the all-gamigo bond has interest rate of 7.75%, so very nice the reduce of interest rates. Well, we also simplified our reporting structure, as you know. Moving forward, don't need to do 2 quarterly reports anymore and 2 group audits, which will also make it a bit faster for reporting deadlines. Looking a little bit more on the capital increase, which we also did in Q3. Actually, there, we now have very nice institutional investors on board like UBS, Acervo, Finlandia as well as SEB, which also led to capital increase. And also looking a bit more on the discounts where we're currently trading as compared to our close peer, peer front. We actually expect quite some nice development in the coming periods, therefore as well. And then overall, gives us much more flexibility now to really drive our M&A business model forward. And then now I would like to hand over to Remco again, which will guide you through the gaming division next.

Yes. I will go through the 2 divisions, the gaming and the media one. Start with the gaming one on Page 14. Yes, a bit about the gaming market. Yes, in general, it continues growing. COVID helped a lot. We're talking about a market now of over EUR 160 billion. More time and especially more time at home helps, of course, for the gaming. Mass market, lots of smaller companies, also larger companies, consolidation going on in the market. And what's very exciting now is the new launches of the consoles, of course, that are coming up of Xbox and PlayStation, which are now -- yes, it's starting to really attract users into them. Go to the next page, a bit of how we position ourselves. This is also a slide that we have normally in our presentation. But just for the ones that are first-time listening to us, yes, we are not a typical publisher, neither a typical developer. We're picking the raisins out of the cake, just trying to take the best of the 2 worlds. Very strong portfolio diversification with our over 25 MMOs. Strong technology edge, bringing our MMOs into cloud, for example, which is not so easy because MMOs run on several hundreds of servers. So that's really very much efficiency -- driving efficiency for us. Then strong M&A platform and with our media arm, of course, a very strong user acquisition. Then going to the next slide, Page 16, with an overview of our current business on the gaming side and also how we grow. On the left side, you see an overview of the different games that we're running. You see that the majority is MMOs. A small part is casual. Yes, the largest MMOs are Trove, ArcheAge: Unchained and Fiesta. And the ones with an asterisk are the ones where we own the IP worldwide ourselves, which is 6 out of the top 10. And in the middle, you see the organic growth, which is, of course, very important for us. Organic growth is also increasing every period and was very good also in Q3. Yes, we have -- how are we doing organic growth? First of all, by new game launches. So we license games. We don't develop new games ourselves because we still think we are too small for that. That's too risky, and we need to be able to have at least 10 studios developing games to really do that. We are not at the moment. But there's a lot of good external studios that are developing games, which games we then exclusively license for certain territories like Europe or North America or both and then launch. On -- yes, and the other part, of course, is big updates, DLCs, which we bring into the games and to the current games. The games are -- gamers are extremely loyal and always looking for new content, and we did Trove Delves, for example, and ArcheAge, Garden of the Gods. And yes, the other part is inorganic growth, which is acquisitions of companies. We acquired, again, the company, freenet digital mobile games in, let's say, the 1st of October. So it's just outside of Q3 but already prepared in Q3. And we did early Q3 platform 161, a media company. Coming to the next slide, Page 17. Yes, an example of a game, Fiesta Online. I said 14 years old now. And what's -- yes, people are very loyal to the game. It's a role-play game. You're scaling up your character, of course. And what you see in the middle is it's really recurring revenues. So over 60% of the revenues coming from people more than 5 years in the game, another 12% from people more than 3 to 5 years in the game. That is really extremely loyal customer base, which is, of course, is giving us very reliable and long-term revenue streams. Typical player, paying player is spending EUR 50 to EUR 80 per month. And typically, because of free-to-play, 7% to 10% of the players start to pay money for it. Game has done over EUR 50 million revenues over its lifetime. Going to the next slide, Slide 18, I'll pass these slides a bit faster because they are in the normal presentation. Nevertheless, I want to do it for new listeners. Yes, here, we see, let's say, that's not only Fiesta but also other games have extremely loyal customers and current revenues coming from people that are really many years in the games. Desert Operations, we upgraded the graphics so that we should also see more new gamers or we see already more new gamers coming into the game. And Deutschland-Spielt, on the left-bottom side, is a subscription service, where you also see it's casual games where you also see long-term, loyal customers in there. Then going to the media chapter and starting with Page 20. Why are we doing media? Yes, media by itself is very attractive. But as a gaming company, why should we do media? That's because we are extending the value chain, as we see on this chart. The normal value chain for games, it's user acquisition, playing user and then making money via items. So advertising with the media part, we're extending the front side and the back side. We have a cost advantage, of course. Very clearly, it's a financial advantage. We get the users cheaper in because we also take the margin of the media company. And also on the selling side, we make the margin of the media company, so getting more money for the ads in our games. And at least as important is we have a much better data usage. Data, it's all-new data. It's gold. So we can really much better judge on which potential users we target our advertising and become more efficient by that. So that's the reason we're doing this. And the next page, just putting it a bit in financials in numbers. A stand-alone gaming company would typically -- and this is not for a mobile game, which is advertising funded, but would typically pay EUR 0.15 per install and get EUR 2 per thousand ad views. Which means to earn back the money for the user acquisition, you need to do 75 ad views. If you are an integrated game company, you do the user acquisition for EUR 0.10 per install. You get EUR 4 ad income, so you are 200% more efficient. So this is really, in a nutshell, the reason that we believe in the combination of the 2, and it's not even catering in the data advantage that we have. On the next page, an overview, 22, of the business, of the media business. Yes, majority of revenues coming from SaaS, programmatic advertising, where demand and supply are matched via real-time bidding. Then we also have performance marketing and influencer and brand marketing. You see some of the customers. So it's not only gaming companies we're working for, also many companies from other sectors. And on the right side, you see an overview of the tech stack that we have. So we have the demand-side platform, a data platform and a supply-side platform. Going to the next page. An example where we're also using very extensively our media part that's for game launches. Game launch of ArcheAge: Unchained, as an example, where we used influencers that are showing then the game on Instagram, on YouTube, on twitch and promoting the game. It's very strong for getting new gamers into the game. And here, you see an example where we did over 65 influencer campaigns and got over EUR 10 million organic revenues, which were mostly generated by introducing the game by the influencers. Then coming to the next chapter, ESG on Page 25. Yes, we're doing a lot on ESG. ESG is, of course, very important for us. We feel -- we see our responsibility here. Just to give 2 examples, our data centers are powered by natural energy. So that's really because energy consumption, of course, for a gaming company, we're using a lot of servers. Energy consumption is an important part of our business. And the other part is, for example, we're also involving our gamers, so obviously here, again, gaming as a service. We did a tree plant action in several of our games where people could plant digital trees, and for each digital tree planted, we planted a real tree. On the next page, you'll see another point of ESG that's important for us. That's the safe environment for our gamers, our users. So we have a lot of preventive measures here, control and sanctions and also, of course, improvement targets. Very strong focus on usage of protection in the games. Coming to the strategy on Page 28. Yes, our strategy consists of 3 steps basically. It's buy, integrate, build and improve. Buy means, of course, acquisitions, M&A, coming in a bit more detail on the next page. Integrate, we believe in integrating our acquired companies. Got to get more efficient. You don't need an MD on every company. The technology gets much more efficient. So that makes a lot of sense of integrating it, and it's much easier to steer and grow. And yes, growing. That's the next point. It's really about improvements in the products and the technology, extending the user base so user acquisition and, also, of course, internationalization, for example, translating games in more languages. On the next page, 29, you see an overview of our M&A. Yes, targets that we're typically looking at, under number one, it's targets between EUR 5 million and EUR 30 million revenues. Typically, we are looking at 2 kind of targets, the ones that are EBITDA-negative, which can be optimized a lot, of course. There, we typically look at a payback within 24 months. So bringing the economies of scale in, yes, let's say, take into account restructuring costs, burn rates, we earned back the money within 24 months. Typically, we actually are under 18 months. And then EBITDA positive, where we try to buy below 6x EBITDA but taking into account also here, the synergies. So it could be that we buy for 8x EBITDA if there's enough synergy in integrating the company. Yes, then we have a very disciplined process for acquiring companies, number two; and also for integrating them under number three. And just unbelievable how many companies are out there. A lot of them contact us spontaneously. We are also going out to look at companies, and we always have a well-filled pipeline. Going to the next page, yes, a bit of overview there. On the top, historically, we have done more EBITDA-negative companies. We are, at the moment, focusing more on acquisitions of EBITDA-positive companies. We'll, of course, speed up our growth and, yes, going forward. Then some of the targets below, and that's really with the word of warnings. Of course, a deal is only a deal when it's signed and when it's closed. So we did 3 deals this year. We typically do 3 to 5 deals per year. There's a few deals which are pretty close to becoming successful. Most of them are gaming deals. As said, we are more geared toward gaming acquisitions now after having done a few media acquisitions. And there's really few very attractive ones, online games, but also mobile games. And yes, there's also a small media company on the list. So going to the next page, latest acquisition. As said before, it was freenet digital, that's Page 31, where -- yes, this was for us a big step because we want to get stronger on the mobile game side. As you see on the right-bottom side, mobile games is only 1% of the revenues. We are growing that now to 10% of the revenues, and one way to do that is via acquisitions. The other, of course, is by migrating existing games to mobile, which is in the left-bottom side, and also by more users into the mobile games, which would be by media companies. Then I would like to hand over to Paul for the financials. Paul?

Thank you, Remco. So starting with the revenue and EBITDA development on Page 33. Here, we see that we have shown very strong profitable growth in the last 6 years, growing with a CAGR of 43%. And if we now look at the growth of -- in 2019 of 85% and 64% in 2020, we can clearly see that we have accelerated growth quite a bit and outperformed the CAGR of the last 6 years heavily. And this has also been done due to an increased organic growth, which we increased from 5% to 16% year-to-date due to more content updates, sequels, relaunches as well as launches based on licensed games. And also more focus on user acquisition, which were also mainly done after the acquisition of the media companies in 2019, which caused EBITDA margin dilution, and that's the reason why we see, on Page 33 as well, the EBITDA margin going down a bit. But as Remco mentioned already, with the full integration of the media companies, we expect midterm, the EBITDA margin to go up to 25% to 30% again, as well as more focus also on acquisition of gaming companies, which will also help support us to grow the margins again to the level of 2018. Coming to Page 34, a little bit more in detail the third quarter revenue and EBITDA development. Here, on the left side, we see the revenue, which has increased with 73% year-on-year based on the last 12 months revenue base. And just looking at the Q3 revenue of EUR 35 million, we actually see that we had all-time highs in terms of revenues, even outperforming the very strong Q2 2020 already and even stronger in comparison with the Q3 2019 number of EUR 27 million. So very strong growth year-on-year and growing in the certain period now 8x faster than the markets, which I think shows that our business model shows very strong growth in combination also with very strong profitability. And that's what we see on the adjusted EBITDA on the right side. So we have grown our EBITDA with 53% year-on-year, now reaching EUR 25 million adjusted EBITDA. And looking at the Q3 EBITDA of EUR 6.4 million compared to the EUR 4 million in Q3 2019, we see that we have realized quite some synergies within our companies as well as growing our total EBITDA. Coming now on Page 35, a little bit more on the segment performance in detail since Q1 2020. Here we see on the gaming segment on the left side that, after a very strong Q2, we have actually maintained the very high revenue levels, which is also due to the reason that we kept most of the players. So we have a very nice long-term effect and, therefore, have grown compared to Q1, so before COVID, kind of by 30%. And EBITDA decreased a bit as we now have an increased license revenue share, which we will also see on the next slide, and have also increased our marketing spend to, yes, to gear more towards organic growth. On the right side, in the media segment, we see that we have actually also increased heavily due to -- before COVID, levels with 35% quarter-on-quarter since Q1 2020 and even stronger compared to Q2 2020, where we saw a slight revenue decrease due to, yes, the COVID situation with less advertising budgets in the off-line and nondigital brands were maintained. But therefore, now seeing a very nice upside and pickup of the revenues and also a very nice increase in EBITDA, bringing us to EUR 1.4 million for Q3 2020. And this has also been done, for example, due to the onboarding of Zynga, which is one of very big clients of -- in the media segment, which is selling the advertising spaces through our Software-as-a-Service solutions. So very nice, strong focus also on the -- within the media segment on the gaming vertical. Coming on Page 36, a bit more on the gaming revenues in detail. So on the left side, so that's really the gaming revenues, not having the media revenues. In here, seeing that 75%, approximately, is coming from our top 10 MMO games in terms of gaming revenues, 17% from casual games, 11% from our other smaller MMO games. Looking at the gaming revenue by region, 48% was done by North America; 44% by Europe; 5%, South America; 3%, Asia; and 1%, rest of world. And the 3%, we expect now to grow also with the launch of Trove within Korea and other Asian markets, where we are still in negotiations for publishing deals and out-licensing deals of our biggest IPs. Looking a bit more on the gaming revenue by device, it's also almost unchanged compared to the second quarter. Nevertheless, within Q4, we estimate that we will increase the mobile revenue share then to 10% and, therefore, seeing very nice growth also within the mobile vertical. Customer acquisition by channel, 74% is done via our own media company, 26% via third-party distribution, which means that we have a much better profitability overall compared to developers or companies which distribute all their games via third-party distribution as they need to give up 30% to the platforms. Therefore, we have an overall better profitability within MGI group. Coming to Page 37, a little bit more of the licensed versus owned games revenue share. And here, we see a pickup of licensed revenues from 52% to 59% now we're seeing in Q3 2020. And that has also been -- the -- or the reason, the main reason is that our casual games platforms have also grown pretty heavily actually after we now have a new setup for user acquisition via our own media companies and, therefore, saw very strong organic growth by the seasonal low quarter, which actually is a very strong development. And therefore, due to the -- especially the WildTangent casual game platform, has grown very nicely and, therefore, increased the licensed revenue share as casual games or all-licensed games. Coming to Page 38. For the operating cash flow and CapEx development, here, we see on the left side that we have now grown our operating cash flow from EUR 300,000 in 2014 to EUR 21.7 million based on last 12 months to Q3 2020 with a very strong free cash flow of EUR 17.6 million and an average cash conversion since 2014 of 88%, so very strong cash contribution. And if we now look a bit more on the CapEx development on the right side. Here, we have increased our maintenance CapEx from EUR 1.4 million to EUR 4.1 million now based on Q3 2020, last 12 months. So increased our in-house development, especially for sequels, relaunches but also better content updates and DLCs and, therefore, also gearing now more towards organic growth. But very -- but still with a very limited maintenance CapEx and a very strong free cash flow. And also expansion CapEx has grown now to EUR 21 million in the last 12 months as we did the Verve acquisition but also invested more into IP rights, which where -- some of the projects are the projects which Remco just mentioned, which are on stealth mode. And where we also allocate quite some investment towards -- to get more organic growth even in 2021. Coming to Page 39. Here, we see the long-term net leverage development. This start with 7x in 2014, then traded always between 2 and 3 after full integration and increased profitability. And then in Q1, had the chance to buy also gamigo minorities, so have increased our net leverage due to a cash purchase price at 7 point -- of 3.7x but delevered pretty fast actually to 3.1 already just purely on operations, so increasing EBITDA and free cash flow. And now within the equity raise and bond issue, which took place after the reporting period, we have an illustrative net leverage of 1.9x and also very strong cash position of EUR 66 million, which now can be used for organic growth investments as well as further M&A. Coming now to our midterm financial targets, so how we want to grow in the coming years with a net leverage between 2 and 3, where we are currently with 1.9x illustrative. Of course, equity raise are well below. And on the revenue side, we want to grow with a CAGR of 25% to 30% compared to the 43%, where we have grown in the last 6 years. We're feeling very comfortable with this number. On the EBITDA margin, we expect an -- well, target 25% to 30% after now the media companies are fully integrated as well as more gaming acquisitions and organic growth of our gaming unit. And also the EBIT margin to go to the 15% to 20% from currently 12%, in line then with the EBITDA margin increase. And now I would like to hand over to Remco, which gives us an outlook for Q4 as well as the full year 2020 numbers and projects.

Yes. Thank you, Paul. So then going to Page 41, where we show, let's say, a summary of our basic model plus the outlook for Q4. Yes, we're further growing. We have, let's say, Paul said, plus 25% CAGR we are projecting. We are at a faster growth path at the moment, but we don't want to overpromise, and we also want to keep our healthy EBITDA with 25% to 30% margin. Yes, what's the basis of the business? Low business risk focus. So we have MMO games with steady, sustainable cash streams. For Q4, we're expecting some backwind from the market. Q4, always seasonality-wise, is the strongest quarter. Plus we get, of course, more lockdowns in Europe, which is not nice for everybody personally. But for gaming, it's good, of course. So we see also some positive effects there. Then strong organic growth: gaming as a service, updates, DLCs, game launches. Also here in Q4, we have quite some things coming up like patches and, of course, also the beta launch of Atlas Rogues, which just happened and where we see, yes, good traction coming up as well and expecting a lot also for Q1. Also, quite some signings of new games, so a lot of things happening in Q4. Supported by the media units for efficient user acquisitions, as explained before, clear cost and data USP. Yes, on the media side, we expect further organic growth of the media part itself but also of the user acquisition for the gaming part. Then synergetic M&A with over 30 accretive transactions, well-filled pipeline, 3 already done this year. Yes, the pipeline is further well filled, and we expect already potentially 1 or 2 signings even already in Q4 and more to come also in the next year. Then integrating the acquired targets, as said before, that's driving our efficiency. Yes, economies of scale, that's what we strongly believe in and which we will continue to further do in Q4. Also, driving out cost efficiencies but also using the synergies for further growth. And also, that should further drive our growth and profitability. Which brings me to the next slide, Slide 42. Yes, we have -- based on the very good results of Q3, and also looking forward to a very strong Q4, we have increased our outlook a few weeks ago, which is that we are now expecting revenues of between EUR 125 million and EUR 130 million. Just to say, last 12 months, including Q3, we did already EUR 120 million. So this is really, yes, looking very promising, which would mean also CAGR, again, over 40%, actually between 49% and 60%. So faster growth than we did in the past. Also on the EBITDA side, we expect a very strong growth versus last year with -- yes, expecting between EUR 23 million and EUR 26 million. Looking already at the Q3 LTM, we are more gearing towards the higher side of this. And also, this would mean a very strong growth. So this is -- yes, we are happy with the results for Q3. And this will bring me to the next part of this presentation, and that's the question section. I would hand back to the operator.

[Operator Instructions] Our first question comes from the line of Philipp Frey of Warburg Research.

I actually a bit -- wanted to go a bit into the details of your organic growth push and your launches. Can you say a bit more about the typical investments into launches and updates? What kind of payback periods you are eyeing and return on invested capital of these expenses? And probably a bit pretty quickly, the accounting treatment. This is all expensed or are you activating these investments?

Paul, you take this one.

Yes, I can take this one. So as Remco mentioned in the beginning, we have more than 10 organic growth projects now in stealth mode. And there, it's more than EUR 5 million development costs allocated to these projects. It depends on the expenses, but we activate normally 20% to 30% of the development cost and, therefore, are being more -- a bit more conservative on this side. So yes, 70% to 80% is then directly going through the P&L and the timing of our performance a bit. But nevertheless, yes, we expect very nice organic growth from these projects. And also being more on the kind of sequel side, so not doing now this kind of crazy development from games completely from the scratch. So not taking the EUR 5 million to EUR 50 million investment like normal developers doing it. Really like doing things like Atlas Rogue as well as, for example, Desert Operations, bringing it to mobile. So that's more of the things we are looking at. But expect actually quite some nice, yes, organic growth from these projects also in the coming years. And I think as we now have proven already that the increased organic growth from 5% to 16%, we have already shown that we are able. And also, for example, with the launch of ArcheAge: Unchained in Q4 2019, we generated more than EUR 10 million revenues already, really showing that we are able to launch these kind of AAA games as well on a global scale, attracting thousands and tens of thousands of gamers and generating very good revenues with it. And I guess there is not all questions answered yet, Philipp. But mainly, yes...

Well, yes. I just wanted to -- actually, did I get this right? With EUR 10 million for ArcheAge, that would basically then mean that you, well, were able to recoup the full cost of the launch already in the first year all?

Yes, yes, exactly. So there's nothing which you always see, especially with such an MMO game, which runs for 5 years plus, but that depends. If it's an exceptional launch, you can actually have a return on investment even within a few months. So let's say, 3 or 4 months, if it's an exceptional launch. And otherwise, we look at the return on investment of 12 months up to 18 months. But actually having much -- been much, much better within our games. As you know, our games are running for 5, 10 years plus. Three has done 14 years and, therefore, still generating very strong cash flows. But there, we also have -- and that then the maintenance CapEx of EUR 4.1 million, which we're expanding per year, investing in the existing games as well as a new game and, therefore, also on a running basis, have quite some maintenance CapEx. But it's always looking at the EBITDA margin of 30% of our gaming units, that's still a very strong cash conversion and cash contribution of these games.

That sounds very promising. And my second question, a bit on the integration of freenet mobile, now closing October 1. Well, with now 2 months that you've basically been able to look into the business, what are your first thoughts then on the potential integration costs, which you are having on the growth potential? Just some thoughts on that one.

Yes. Let's say, the 2 months doesn't make so much difference because what we normally do when we do an M&A case, we already look at how we are going to integrate the company before we buy the company. Because that's planned basically off the whole, how to say it, evaluation if we do the deal. So there was a well-made plan already for the integration of freenet digital, which is at the moment, implemented. And typically, we take 3 to maximum 6 months to integrate the teams, and we take 6 to maximum 12 months to integrate technologies. So that's things that are, at the moment, on the way. And there are, of course, some parts of the business, which we are looking at a bit more critical if they really make sense for the long term. So thus, also we have -- yes, usually, when we buy a company, there's some games or some things that are not that profitable and not sustainable for the long term. So we normally cut them. And of course, we're working on the integrations with the current parts of the company. So I hope that answers your question.

Yes. So that is pretty much business as usual for you at that point -- no, most of the time then.

Yes. No, it's our, I think, 34th M&A case now. So it's -- there is a certain, how to say it, level of experience in these things.

Yes. And my last question is actually just financially regarding the accounting for the payback of the bond. I guess you are fully incurring the 3.875% core premium in the fourth quarter then. And after -- on the typical interest expenses of the new bonds then. Or is there anything which I should be aware of?

That's what the auditors, together with the team, is currently working on. How they treat it from an accounting perspective. And that's something, which we will then show within the Q4 reports, how it's treated there, yes.

Our next question comes from the line of Danesh Zare at Redeye.

Congratulations on a strong quarter.

Thank you.

I have a question regarding the large inflow of players you saw during Q2. You mentioned that they monetized greatly during Q3. But how did the customer retention rate look compared to the players that you normally acquire during more normal circumstances? Is it more of a temporary nature of these players? Or have you seen any effect?

No, that's -- let's say, that was, of course, what everybody was kind of questioning, we ourselves as well, within Q2, where we had a high inflow because a lot of people being at home, looking for other entertainment than, yes, just Netflix and YouTube. So the question was, are those gamers starting to gain really similar quality and similar lifetimes of gamers that joined in normal times. We can answer that with a yes now. And as we are assuming, but it's not more than assuming at the moment, that people are, let's say, more than a few weeks in the game, they're really tied to the game. So probably when the lockdowns would have lasted much shorter, it probably wouldn't have shown the same, but people that really are in the game have played for a few weeks or months. Actually, they show similar behaviors as other players that we got during normal times. So we're very positive about that because it shows that we really, on the long term, again, have an extra influx of gamers, which will drive long-term revenues also for us.

Well, great. So it kind of sounds like you're building up a new higher base. It's not that it's a temporary boost, and then you have to reset and start over.

Yes, that's the way as it looks now. I mean still, of course, 3 months after the COVID quarter is still not that long -- 4 months, actually, we're talking. But it has all the signs that it's really going like that. And that means that Q2 gave us a real head start on user acquisition, which normally would have taken, I don't know if you would have done it in normal periods, maybe up to a year.

Great. And a follow-up question on that. With the acquisition of freenet, they're expanding the mobile game segment. And could you maybe elaborate between the different behaviors between the different user bases? So basically, MMORPG, as you mentioned, Fiesta Online and them having like a really long lifetime value of those users, and mobile games are sometimes more casual. How do the dynamics differ when it comes to, yes, basically, the 2 different user bases and the dynamic between customer acquisition cost and lifetime value?

Yes. I would make a difference a bit there, a bit in another way. Because basically, we're talking about different channels where you can play games. I mean a smart TV would be another one and console is another one. And what we see more and more that each genre of games is being played basically on each outlet. So also on mobile phones, we have MMOs that have extremely long lifetimes. Of course, it's difficult. That, let's say, some role play games traditionally on a PC, you have many, how to say, keyboard keys that you use for short combinations, which are not available on the mobile phone. So you have to work on user interface. But also in the mobile phase, you have games that have extremely long lifetimes and also shorter lifetimes. As on the subscription side, and that's more what we're also looking at, you have casual games and subscriptions. And you have, of course, also ad-funded casual games, where it's about getting people into the next casual game. So lifetimes basically aren't that different between the 2 channels, so online and mobile. But of course, there is a bit heavier, let's say, if you look at the player base, so more players playing casual games on mobiles than there are on PCs and on the consoles. But also with, let's say, freenet digital, that was one of the big parts. They have mobile games that are really played a long time that are really, yes, have loyal customer bases. Some of them are a bit small, so we're also pushing there more on the user acquisition side and seeing that we go forward and also helping that. And of course, as I showed also in the slide, working on, for example, Desert Operations, to launch that now on mobile, to get our other IPs also on mobile where possible.