Verve Group SE (VRV) Earnings Call Transcript & Summary

Welcome to the Media and Games Invest Q3 report for 2021. [Operator Instructions] Today, I am pleased to present CEO, Remco Westermann; and CFO, Paul Echt. Please begin your meeting.

Yes. Good morning, good afternoon, good evening, wherever you are. I would like to welcome our investors, our analysts and our other stakeholders that tuned into this call or see this video later on the Internet. Yes, we're presenting our Q3 2021 earnings, and we would like to lead you through this presentation. Q3 was another very good quarter for Media and Games Invest, and we will, in this presentation, present the highlights of Q3 and after that, there's the possibility to ask questions. Yes, I would like to hand over to Paul so that he can quickly introduce himself, and then I'll quickly do my introduction, and we will start. Paul?

Paul, the CFO of Media and Games Invest, with the company now for 3.5 years, leading Finance, Controlling and Investor Relations, and looking forward to lead today through the financial highlights of the third quarter.

Yes. I'm Remco, CEO and Chairman. On the right side of this slide, you see the shareholding, so nothing's changed there. We still have 3 main cornerstone shareholders, many smaller shareholders, institutional, private shareholders and also happy that we have a growing base of U.S. investors in the company. I would like to go to the next slide. A bit of the highlights for our Q3 2021. Yes, it was another quarter of strong growth. I mean, we have a lot of quarters in a row now, where we've been growing each quarter. We did EUR 62.9 million revenues in the third quarter, which compared to the EUR 35 million revenues that we did in the third quarter in 2020 is an 80% growth, so extremely strong revenue growth. We did, and that's even a faster growth, EUR 19 million EBITDA compared to the EUR 6.4 million adjusted EBITDA in Q3 2020, which is a 200% growth and what's very important to see, and I mean, that's the reason that the EBITDA is growing -- we increased our EBITDA margin from 18% a year ago to 30% now, which is, of course, a very good milestone to reach the 30%. Very important in the growth is, of course, organic growth. I mean it's important to grow with acquisitions. We have been proving that over many years that we do, but we have also been able to increase our organic growth part, reaching now 41% organic growth in the quarter, which is extremely strong, and I also want to manage expectations here. We are not promising that we will do 40% or over 40% every quarter. But of course, it shows how strong our organic growth is. Our organic growth pipeline is extremely strong that's what you also will see further in the presentation. Yes, 1 major M&A transaction we did in this quarter, which is Smaato. It's consolidated from September 1. It's a large substantial tech company, it's a platform -- it's omnichannel platform, self-serve, SaaS purposes. It's mostly on the publisher side. They have a very strong SDK base, which means they're integrated in apps. By that, we have access to a lot of first-party data. We had that already. But together with Smaato -- Verve and Smaato together have one of the larger -- one of the top 10 SDK bases far to our knowledge in the world, which is giving us a really good position in this world where identifiers like IDFA are disappearing. The other thing is it's adding for us web capabilities -- a web SSP that was something that we were missing, so that's tick the box on another technology and revenue component that's now being added in the vision of having a horizontal full vertical platform and also, it's adding critical mass, so it has really been helping us to further grow. As I said, there's only 1 month in Q3, we will see a larger effect, of course, in Q4 of this acquisition. I would like to go to the next page which is going a bit more in detail the highlights of Q3 2021, and there were many things that happened in this quarter. So, this is really just a few examples -- a few important examples, of course, but there were many, many more things that were helping on the growth and pushing it forward. On the gaming side, Fiesta Online, the game that we actually had in the portfolio with our first acquisition of gamigo, it's 13 years old now and we had a very big release, a very big content release called Realm of Gods, extremely successful, extremely well received by the players. There were 3, let's say, new worlds or 3 new realms, there were 100 new quests and yes, players extremely excited and showing really that if you treat these older games very well, they have an extremely good possibility to grow and to go forward. Then Trove, our Voxel MMO is also going very well. We had let's say, an extension that's called the Bard, which was already released for the PC version. We now also in Q3, released it for the consoles versions, so for Xbox and PlayStation. Also there, we saw a really very nice traction. Then yes, also looking a little bit forward we don't develop new games because we still think we are too small for that, but we license new games for also organic growth. And we signed 2 really substantial licenses. And 1 of them, we still haven't announced, and we would like to keep that because, of course, there's also very much to say if you announce this with a boom, it's also towards players and so much more exciting than if you do this step by step. So sorry for that, but the one that has been announced is Fantasy Town, a very well-known title, very successful in Asia. It's a mobile game, and we signed the exclusive rights for Europe, North America, Australia and New Zealand. Then yes Wizard101, we celebrated the 13th birthday of the game, Wizard101 was a game that joined our portfolio early this year when we acquired KingsIsle. And yes, it was a great party, a lot of free stuff for the players, which is, of course, always very liked and also a tournament, but we got a lot of traction in the game, which is also, let's say, bring it forward. 56% growth in the gaming side. Gaming side also to remember, last year was COVID. Q2 was extremely strong because of COVID, Q3 also was very strong, so 56% growth is not bad in gaming to go forward compared to the last strong Q3 in 2020. Then on the media side, the Verve Group, yes, we acquired Beemray, a very nice acquisition in the media segment, and I come to that later in the presentation, a lot of things are changing. The market is disruptive because of the identifiers like IDFA going out of the market. With Beemray, we have a very strong solution that we acquired privacy-first contextual data platform. It's also a nice example of a small company that is very technically driven, it's based in Finland in Turku, and it didn't really internationalize because they didn't have a lot of salespeople and this is a solution that we really can roll out very much. And we had for example 1 partner that's not a gaming company because also we work for non-gaming companies. But Ford the car company, we did a campaign with them, which was extremely successful, where we really saw double results compared to what we normally see because of the contextual data platform. Then 2 strong partnerships that we also announced, so we don't need to buy everything. We also partner LiveRamp, which is also a good solution that helps us further with the duplication of the IDFA and so that's on the data side and Pixalate, which is the other side because, let's say, there's always people in this market to try to make money without delivering really content value, the so-called fraud and there we have a very nice tool -- additional tool, we have quite some already in working and also some internal tools, but here, we also decided to get Pixalate integrated. Then yes, Verve, the media part is growing very fast so that means that you also need to upgrade on the team and on the management of the team, so we're really happy and proud that we got new joiners like Stephanie Vandenberg, Corey Kulis, Derek Hashemi and also met Ionut Ciobotaru and Sameer Sondhi 2 Co-CEOs of the group so we really are, yes, let's say, scaling up the media side, not only in the revenue but also on the team so that we can further grow. And then the Smaato integration process going very well. I'll get to that a little bit later on the slide going more in detail there. 105% growth in total on the Verve side so also here, a really nice growth. Coming to the next slide, because there is a bit of -- yes, how to say it, a lot of questions from investors are reaching us. We decided to go a bit more in detail here. There are 2 basically large things that are, at the moment, affecting the media segment, and that's -- this is the reason that we said, let's go a bit more in detail. The one is that there is a general tendency in the market that especially large players that are formally sharing their identifiers -- identifiers can be cookies, but can be also on the mobile phone, the IDFA from Apple, for example, that they are basically not making them widely available anymore. Sometimes with the apology that it is data privacy that takes into that, but basically, it's a strategic strategy that a lot of large players close [indiscernible], and yes, and want to make some extra money with that. This, of course, has very disrupting effect. So IDFA was now the main one Apple that is really not making the IDFA available anymore. You have also the ones that have iPhones will have noticed that it's much more straight that you need to opt in, instead of where formally this was more an opt out, so this is really -- the data are not available widely anymore and that makes of course -- has a disrupting effect. If you look at numbers of some companies, large social networks but also some gaming companies that have been really suffering from this because if you cannot target that much, people start shifting budgets and maybe pausing budgets, but you see differences there. We see this as a huge opportunity for us because we have been in a very early stage, already been preparing for this, which led to, for example ATOM, a technical solution -- there's more information on that on our website, but also the Beemray acquisition with contextual audiences. So, let's say IDFA getting out of the market it's not -- it's disrupting, but it's absolutely not a drama, but you need, of course, to react to that. And there's different ways of doing that, the one is with contextual audiences, the other one is with audience on the device, like ATOM and that is a really -- sorry, the third-party is, of course, having a large first-party -- SDK base, which we also have and those things together make it -- enable us to be better performing better than the market which we're of course, very happy about and we are further building on that. Then the other thing on the right side of the slide, the disruption in the global supply chains, yes, we all see that after COVID, there's contained spending everywhere, a lot of stuff -- lot of goods not available that's also affecting, for example, the gaming side, Xbox, PlayStation, having problems delivering their goods. If you look at this, it's also something that is not really affecting us because we are mostly focused on digital customers where the problem is less, especially gaming companies where you have virtual goods, you don't see in effect, of course supply chain problems. Actually, we see that there is an increase of activity there so that's really something we're profiting from. And on the consoles, yes, we have the games and the games are still available in the old consoles, as they will be on the new consoles, so in that sense, it's also not affecting on that side. So summarizing, IDFA, big opportunity for us and supply chain changes at the moment, not hurting us or actually, rather, we are profiting also a bit from that. So that's that part. Then going to the next slide, which is more the in-house part, where also we would like to give an update. The one thing is our governance structure. We have been growing very fast as a company, and from, yes, let's say, a company doing EUR 12 million revenues 8 years ago, we are now a company doing or planning to do far over EUR 200 million revenues. We're now 900 employees where we started with 80, so of course, this is a big difference. Also our listing, our market cap so we also want to live up to expectations of the market here, so we have decided that we want to extend the Board that we also will establish different committees that are common for company like ours. We are preparing all that. There is some dependency, of course, for those things, also for the jurisdiction we will move to, so that's also where we're working with experts to see what makes sense and what is also expected in those jurisdictions so this goes hand-in-hand, and we expect to also soon be able to implement and to get with clear choices there. Nevertheless, quite a few things have happened already. We have optimized the management structure and the team as for example, talked before about by Verve. We are optimizing our internal control and risk systems, we have KPMG at the moment, supporting us with that it's a very big project, where already we see also first results. Then a publication of governance and sustainability report, which will now also be happening on a regular basis and we expanded also the Board already in April 2021 with Antonius Fromme. Then an update on the relocation process which you see on the right side. Yes, decision has been taken to go away from Malta that still stands, and that's absolutely our conviction that we will do that. We had a bit of a hiccup because we have already transferred from a PLC to an SE, but our relocation to Luxembourg is not feasible as Euroclear after we have prepared everything, Euroclear who is the enabler of the Swedish NASDAQ Stock Exchange, told us that they will not support our move to Malta, which would have meant that the shares cannot be traded like anymore in Sweden. As that is, of course, not a smart idea to do, as it would affect all our Swedish shareholders, we decided not to move to Luxembourg. We have now new target countries, we have agreed with Euroclear. They first didn't want to support anything. Now we have agreed that we have 6 countries of choice that we potentially can move to, which are Sweden, Norway, Denmark, Switzerland, Canada and Poland. Bit of strange list, but those are the countries that would support, and we are at the moment with consultants checking [indiscernible] parts, what are the consequences if you move to those countries. There's, of course obvious preferences from our side, but let's wait for the experts. We quite find that process, but I cannot announce yet where we go. So, what we decided, however, that latest by January 1, 2023, this will be closed. We are trying to do it earlier, but we are working this and further, we'll make sure that we push this. Good. Then I'm coming to the next slide, which is a bit about Smaato, also to give an update there to go a bit more in detail and yes, there's so much happening in the company we can have many, many more details, but that doesn't make sense, of course. But just because Smaato was a very substantial acquisition maybe good to see what we are doing, how much work it also is for a company to do this kind of acquisitions because we are -- and that's different from a lot of our peers. When we do an acquisition, we are integrating those companies. We're really going for the synergies and there, we also see the effects, of course. But just to go through and are also not going to read every stanza on this slide. But publishers, Smaato is extremely strong in the publisher side so what we did here is really connecting, I mean making sure that the publisher that Smaato has are also available over our other platforms for our other buyers, for our other advertisers and that has, of course, a very good effect on scaling and additional revenues. All major publishers are now connected, so that's really where we're now getting more and more volume on basically on a daily basis. Then on the advertiser side, that was something where Smaato was not so strong so that's a part that we're pushing, where, for example, now the global sales team that Verve has is now also selling the Smaato products, selling the Smaato services and we're also continuing to build a story, more marketing on it going forward so that also the demand side is going forward. Then the video and CTV part, that was something that Smaato has been developing where the technology is extremely forward, but that was, let's say, not so much also driven into the market. So, also there is a strong I would say, push on it. They have cool products, like, for example, ad podding and ad podding is basically that you already kind of preinstall certain ads in a row behind each other so there's 3 ads that are already combined or 2 ads, and that are then served basically as 1 ad or let's say, as 1 video, which makes the latency better, which makes the responses better et cetera. So that's technology that's in-house already there that we are pushing also throughout the group. Then on the product technology side, yes, also here IDFA affecting so we're also to the customers of Smaato introducing now the ATOM solution, working much more on data and especially also introducing much more machine learning techniques to get a better search quality and to also grow. Then efficiencies, which is more the cost side. We have looked into operating expenses. Just to give a very simple example, they are a customer of one of the leading cloud platforms, which renegotiating the deal, which we started basically immediately when we signed the acquisition. We have been able to basically save EUR 200,000 on a monthly basis, which is of course very substantial. And there's more things like that. So by benchmarking, by checking with other conditions that we have in the group, we are able to really bring costs substantially down. And also the synergies, of course, are really helping us forward on that. Then I would like to hand over to Paul to present the financials and go more in detail there. Paul?

Thank you, Remco. So starting here with the third quarter financial highlights, and you can see that what Remco already said, have grown massively by 80% to EUR 62.9 million revenues, and thereof achieved 41% organic growth, taking also the divestments into account, so the closure of the influence and Performance business, we would have had 27% organic growth, while also the EBITDA has increased substantially by 199%. EBIT increased even stronger by 270% as depreciation were more or less stable, while the profitability increased massively and then also the operating cash flow increased in line with the EBITDA by 308% and here, we had a minor working capital effect of roughly EUR 2 million, which then reduced the operating cash flow a little bit, nevertheless, very strong underlying profitability of the overall business. Coming now to the summary of the annual financial performance. And here we see that we are trailing now on a last 12-month basis at EUR 221 million revenues and EUR 58 million adjusted EBITDA, where we have been able also on a last 12 months basis to increase the EBITDA margin from 21% to 23% and expect actually by end of the year to be within our net financial target of 25% to 30% EBITDA margin for the full year of 2021. Going now a bit more in detail on the third quarter, group revenue EBITDA development and here we see on the left side that we have increased the revenues from EUR 35 million to EUR 63 million in the third quarter, which then corresponds again to a revenue growth of 80%, while the EBITDA has increased even more by 199%, which corresponds to an increase from EUR 6 million to EUR 19 million, and which is really outstanding, is actually the increase in EBITDA margins on overall profitability from 18% to 30%, which has been achieved to economy of scale so much stronger revenue growth leads also by more or less relatively stable fixed cost to much higher profitability and that's what we currently see, so revenues are scaling, while the profitability is increasing much faster. And that is also what is reflected in both of our segments actually. So looking here a bit more in detail on the third quarter, segment performance, we see on the left side that the game segment has grown by 56% from EUR 18 million to EUR 28 million, while also the EBITDA has grown substantially from EUR 5 million to EUR 11 million, while also the EBITDA margin has been increased from 28% to 38%, and this is also due to the KingsIsle acquisition, which has a very strong EBITDA margin but also due to strong organic growth due to more content updates, DLCs as well as in-game ad revenues and therefore, we achieved actually compared to a very strong 2020 due to the COVID pandemic, still a very strong total growth of 56% in the revenues. On the media side, we see even stronger growth of 105% from EUR 17 million revenues last year to EUR 35 million this year, while also the EBITDA has expanded substantially from EUR 1 million to EUR 8 million in the third quarter, while also the EBITDA margin has scaled up from 18% to 24% and here, we also see due to critical mass and economy of scale, while the fixed costs are relatively stable compared to revenues, we actually really scaling into much, much higher profitability as well. We have targeted actually 20% to 25% -- or 50% to 20% for the second half year of 2021, just in the third quarter, we have been already well above the target where we expect it to be next year, so 20% to 25% and currently, due to the strong increase in profitability, we rather expect that we can also mid to long-term go up to 30% EBITDA margin on the media segment. So, due to the strong revenue growth, there's much more to come also on the media side. Looking now into the revenue diversification and revenue streams of MGI here on the left side, we see the total group revenues, where 24% of the group revenues have been contributed by MMO games, which is mainly in-game item sales, then 14% by advertisement, which is mainly in-game ads, 6% by the PC and mobile casual games and then 55% actually from the media business. The first quarter where the media business is larger than the games business, which is also due to the smarter acquisition, which has been consolidated with 1 month and therefore, also the media segment is growing very strong currently. Looking on the right side, into the details of the media segment. Here, we see 79% is coming from our supply side platforms, which is fully software as a service driven, 14% from the demand side, which is also software as a service driven and then 6% and 1% from the performance and influencer platform this, we have decided in the third quarter and already announced that we will close it down. That's also the reason why the revenues have decreased already, and we expect that to be close to zero actually during the fourth quarter. The reason for the closure and divestment this year that it's not as scalable, the profitability is not as high, and we rather really want to focus on the high profit businesses, which are super scalable and therefore, the decision has been taken to close that down. Coming now to the operating cash flow and CapEx development, and here we see that we have increased our operating cash flow substantially to EUR 45 million on the last 12-month basis, while also the underlying free cash flow is EUR 34 million, has a very strong free cash flow conversion and that actually achieved as a maintenance CapEx, slow very limited with EUR 11 million as we're still down to fully new game development, so we don't invest this EUR 5 million to EUR 50 million to a new game and launch it and rather do further development of our IP owned games. And if we launch a game, we rather license the game and publish it and that's actually also one of the reasons of our expansion CapEx, so the majority here came from the KingsIsle and smarter acquisition over the last 12 months so that's the purchase prices which we paid here, plus also some game licenses and game IPs, which we have acquired. Fantasy Town is one which we have announced also in the third quarter, which we will publish next year and there is 1 in stealth mode, which is actually the biggest license, which we have signed to date, which we will also announce in the future and launch. Looking now into the long-term net leverage development. Here, we see that we have actually de-levered over the last years quite nicely and always traded between 2 and 3, which is also our financial targets. We have increased now net leverage on a reported EBITDA basis to 3.0 on a last 12 months basis but there's 1 -- just 1 month of Smaato included just 9 months of KingsIsle included therefore, on a pro forma basis, taking also the LTM EBITDA of these acquisitions into account, we are well below our 2.5 net leverage already, which means we are well within our net leverage target and also on a reported basis, we look and further deleverage over the coming quarters. That brings us already to the outlook for the MGI group. We have updated the guidance when we did the Smaato acquisition, the guidance remains still unchanged and corresponds actually to a very strong revenue growth of 67% to 81%, where we expect to rather be on the higher end of our range by end of the year and also on the EBITDA side, EUR 65 million to EUR 70 million, which corresponds to 123% to 141% EBITDA growth, which is much more than the revenue, so we're really scaling into much higher profitability and also here we expect to be rather on the higher end of our EBITDA target than on the lower end. That brings us now to the midterm financial targets, which we have said quite a while ago already and where we also, in this quarter, can tick the box for all our targets. Just looking, for example, at the revenue CAGR, where we expect midterm 25% to 30% growth. Here, we have achieved just with organic growth, already 41% in the third quarter so therefore, being rather conservative here and over-deliver also in the future. And also the EBIT margin has increased substantially, while this is just reflecting 1 quarter, therefore, on an annual basis, we expect more to be on the higher end of our net leverage of our EBIT margin target. So therefore, we can tick the box for all our financial targets also in the third quarter and have a very strong outlook also for the coming periods. And with that, I would like to hand over to Remco again who will give a brief outlook and what we have achieved in 2021.

Yes. After the quarter -- is before the next quarter or let's say, already in the middle of the next quarter, actually where we are so we're in the middle of Q4 already and also shortly before the next year, time flies and yes, it's going forward. So a few highlights here. What's going to happen in the fourth quarter, but also next year already. Pirate101, great title there's zero revenues, almost zero revenues at the moment in Europe so we will do a launch in 2022 for Pirate101 so that's something that we're looking forward to. Then also Golf Champions, a game that we licensed, a mobile game is also made ready for launch in 2022. Trove Switch, it's also good to realize that also things that we have launched already, like making Trove available on Switch, have, of course, a revenue effect in the quarters thereafter so we have an extremely good player activity on Trove Switch, revenues are also good and increasing so also that is something that we will see further revenues from in the future. Heroes of Twilight also in mobile game that's also being made ready, also launched in 2022 so that's also -- yes, we're preparing it, we're testing at the moment quite a bit on it. Going forward so that's a few facts on the gaming side, of course, a lot of big updates in our games, smaller updates now in games and also, let's say, just the usual weekly things like new costumes and things like that so that's very important and more games to come, more licenses to come. And also, we were doing more ports to other platforms. Games are going very well, media side as well so probably -- just to -- so first on the slide, still some things about the media. Yes, we're rolling out a platform so we did quite some acquisitions altogether, connecting the platforms, making sure that we really skill the customers. Also the very important point is data. Data are really optimizing the match between an advertiser and a publisher and as such, really extremely valuable. And we have a big data set of also our gamers [ which obtains -- so all ] data privacy conform, which we also can very well use on the media side. Focus on customer acquisitions, so getting new customers in there, but also scaling up customers to get them out to new products. Then IDFA, yes, ATOM the solution, but also now Beemray so also working on solutions that help people that are hit by -- anymore to really make the targeting much more effective and better. Many other projects in gaming and as well as the media, so looking very well forward to the Q4 results, of course, and also to the next year. Then we go to the next slide, which is the last slide of the presentation, which is basically a summary that most of you know already. This is our strategy this is what we're working on that's what we stand for, so we are an integrated media games company, which has a lot of owned and operated yes assets, but also doing AdTech and the combination of the 2 makes the big difference. No business risk focus is very important for us, so focusing on products and services with long sustainable revenue streams like MMOs on the gaming side, but also the SaaS media revenues that we are focusing on. There's strong organic growth on the games side with new content and game launches on the media side, scaling the existing customers, but also adding a lot of new media accounts. Utilizing the strong synergies between the 2, I think that's clear and that's making a big difference in the market. We're not the only ones, but let's say, a lot of game companies start to realize that they also should have a media part and vice versa media companies are very much profiting from gaming. So it's a model that really works, and that's helping us to grow very fast. Then synergetic M&A, yes, we talked a lot about organic growth, but of course, we have also a well filled pipeline for M&A, further working on that and looking at interesting gaming targets as well as media targets. Not promising anything. I'm not sure if something will come still this year -- might make -- might happen -- doesn't need to happen but we will certainly continue with M&A. And then what we do also is we integrate the targets that are either on the gaming side or on the media side because this drives efficiency and that's what you see on our EBITDA, the larger we get and the more we integrate, the more percent or the higher our percentage of EBITDA gets and as such, our profitability. That brings me to the end of the presentation and I would hand back to the moderator and time for questions. Thank you for tuning in.

[Operator Instructions] Our first question comes from Ken Rumph with Jefferies.

A couple of questions. One was just to try and understand the difference between ATOM and Beemray because I thought that ATOM was also a kind of partly a contextual solution, but maybe it's the -- on device thing that's the difference there. But basically, how they address the IDFA privacy cookie deprecation issue? Secondly, thinking about the fourth quarter, is there a bit of a kind of lull in-game activity? I kind of would imagine perhaps that long-standing games, the holiday quarter is maybe not the time to launch new content because lots of new games are coming out, people's attention is a little bit elsewhere, maybe that's wrong just wondering. Yes and probably the other one, which is a kind of an issue across the sector is just wage inflation, competition for people in games and any observation you have there?

Yes. Thank you very much. I will address them just in the order that you gave. ATOM and Beemray, the difference, similar though different indeed. They are both working on contextual, but Beemray is really working on, let's say, more higher level contextual so collecting data where, let's say, from different properties that we have to possibility to advertise and ranking those contextually, while ATOM is really on device and is more coming from the individual person without sharing his personal or her personal data, but also they're making contextual, I'd say, part out of it. So they are similar, but really from an approach they're different and they are really very nice and different approaches that also in combination, work very well, but also, of course, yes allow us to do different things on this. So, both help us in the IDFA less world. Then the game activities yes there is a certain seasonality in gaming, of course. The strongest quarter for gaming is Q4, and that has mostly to do with its dark -- people are more in house and also there is the extra allowances, holiday money and these kind of things so that's the reason that Q4 is the strongest. Q1 is still dark, it's also a very strong quarter, and Q2 and Q3 seasonality wise are also the weaker ones and that's also the reason that most game launches, you will see in either Q4 or Q1 and that's also what we're doing. As you saw, we didn't do a lot of game launches now in Q3. Q4, we will have more activity and also Q1, I expect more activity on our side. So in that sense, yes, gaming has a bit of seasonality, and everybody is using that because it when there's less activity, even though there's less game launches, it still makes less sense to launch games or to do a lot of activity in the games. So also, we will see a lot of DLCs coming in the games in Q4, especially towards the holiday season. And then the last point yes, wage inflation, I think we are, in general, talking about a big inflation -- oil prices go up because of supply chain limitations, but also in general after COVID, everybody wants to make a bit of extra money. We also see with a lot of companies that the churn has increased, so people were not necessarily changing or swapping jobs during COVID, but there is more, let say, churn at the moment. In relation to the market, we're doing do extremely well and that has a bit to do with increase in size, so we get now also applicants for jobs that we formally didn't get also from big tech companies, people are suddenly considering to work with us. I think having a winning recipe and really growing fast, people like to be part of a growth story but that helps us absolutely in the market, but it is indeed -- yes, salaries go up, we see that especially in cities where also the tech giants like Google, Apple, et cetera are working tech salaries are increasing, and that's the reason that it is important that we also are part of that, although we don't like to increase the salaries too much, be more looking into retention tools, like, for example, our phantom stock program that we have, which with this fast growth and also with the growth, of course, of our share price, is tying people much more than making a bit of extra salary. But it's indeed -- yes, it is a challenge in the market. I think we are pretty well on the good side there, but also in certain fields, especially, for example, AI specialists, so artificial intelligence are difficult to get and that sometimes it makes more sense than to buy a company like Beemray, which -- or still has also sorry, 5 artificial intelligence specialists on board so this is also extremely helpful, of course, to start up. So I hope that answers your questions.

Our next question comes from Jörg Philipp Frey from Warburg Research.

Hello gentlemen. Well, congrats to obviously another strong quarter and well, as you've pretty much outperformed everybody else in the industry this quarter just wondered if you could a bit rank the factors behind your strong organic growth between, say synergies, game launches -- any impacts to market share gains you took or whatever comes to your mind? Just a more granularity on that one and then regarding margins for 2022, well, can you bit explain the margin impact which we are going to see due to the exit of the influencer performance business, according to my calculation that should be at least something like 100 basis points or what -- can you confirm that calculation or what's your view on that one, please?

Yes. Thanks Philipp. I'll take the first one and Paul should take the second of your questions, but let me start with the first. Where is growth coming from? And I think that's the good thing that growth is really coming from multiple projects and stuff that is going on, but to give a bit more background on that in gaming, it's basically all the large games that we have -- that have a lot of activity in them, which is big DLCs, more customer acquisition, also more customer acquisition, working together with the media side, so there, it's a very well spread portfolio of growth. But also there, we have, of course, projects like, for example, putting a different technology platform under our casual games platform, which allows suddenly a lot more people to pay with different payment methods to, how to say it -- also our advertising is really and some, let's say, other tweaks we did on the advertising has grown a lot there. So there is, of course, some drivers that drive a bit more Trove for example on the Switch platform. But altogether, there is a good mix of projects that are driving growth on the gaming side and there's many more in the pipeline. So that's -- if you look back, I mean, the first 4, 5 years after we started this company or started this venture, it was really like only buying companies and integrating them and then we have started to do more and more organic growth projects. You see it also on our capitalizations so that, let's say, it was EUR 11 million now in the LTM last 12 months so we're also slowly increasing it. It's increasing less than our revenue growth, but still, you see also on that, that we are investing more into our portfolio and the EUR 11 million is of course, not only gaming, but that's a substantial part of it. Then on the media side, the growth is -- the biggest growth driver is synergies between the platforms, which we really see if you have 1 customer that for example, uses 1 type of platform. So yes, for example, only buying CTV connected TV volume from us, and then we connect the platforms amongst each other and then suddenly this customer also starts to buy display ads and starts to buy different other products then we put data on top, so we have an upsell on the data side so that's the biggest driver at the moment on the media side, apart from also onboarding new customers and we know -- and that's also the reason actually that we started a lot of specialty gaming customers are really unhappy with a lot of their partners because the efficiency or the effectiveness of their media is not as high and that's where we really have a great solution now for gaming companies, and we see more and more gaming companies onboarding and also not only onboarding but also increasing their volumes with us. So I hope this gives you a bit of background on what's happening. But the good thing is it's really not, let's say, it's the 1 game that's going to make the difference. It's really -- yes, a very well spread portfolio of growth initiatives and also here, not everything works -- not everything works as well but because we have so many projects and also have, I think, a good strategic view on that and also the synergy between the 2 segments, we really see extremely strong growth drivers now in this quarter, but also for the next quarter.

And then maybe coming to the question regarding the influencer and Performance business so that was slightly breakeven so your assumption, Philipp, is correct, that it will rather increase the EBITDA margin in the fourth quarter, but also in the coming year and therefore, yes, percentage point is roughly what you could expect on a group level, where we expect rather -- I mean, we have a financial target of 25% to 30% for the overall group and expect to be with that already during that year and therefore there's also more upside in the coming year.

Well, thanks a lot. And hopefully, our strong performance continues, fingers crossed.

Thank you. We're working on that.

Our next question comes from Viktor Lindström with Redeye.

A couple of questions from me. Well, it seems that you lost one of your license games -- ArcheAge seems to lose these contracts towards another publisher. Could you elaborate behind the dynamics behind that and if it has any financial impact? And the second one is how much user acquisition did you spend in the quarter?

Yes. I think I can take both of them. ArcheAge is indeed a license game that we had in the portfolio. We have done nice revenues with that in the past, but it was the last year's, let's say, revenues were declining and that's the main reason, it's a bit different game principle than the other games that we're running. It's a pay to play game, while all our other games are free-to-play games and what you see with the pay to play game that you make a nice revenue if you launch the game, or if you do a very big update on the game but for the rest, let's say, revenue is pretty low on the game. We had also -- I mean, it's a contract that we took over with not really favorable terms so let's say, the margin of it was -- first of all, license game has already lower margin, of course, and again that you have yourself in the portfolio secondly, because there were really some unfavorable terms also with milestone payments, which didn't make the game too profitable for us in the portfolio and now the developer has been taken over by a large gaming company or let's say, media game company, Kakao and in that sense, we have agreed with them that they will take back the game. They pay us good money for that actually so for us, it's a commercially extremely attractive deal. And it's not a title --and of course, it's costing us a bit of revenues, but it's not substantial on the revenue side and on the other hand, on the EBITDA didn't really add. So that's, I think, also a bit of a red line that we are looking into our portfolio, like what we did with also in the influencer part, for example, parts that are not growing fast or that have low margin we try to, let's say, not focus on and to even get rid of them to really be focusing on the things that grow and that have good margins. So as such, it's a very nice game, we like it, we love it, but it's not a drama for us to lose it actually, it's a pretty good deal. Then on the UA side, we are on the gaming side, normally working with a rule of thumb, 8% to 10% of revenue as marketing media cost. Of course, if you launch a game, this is not a relevant percentage because then the revenue is zero and you do, of course, much more marketing, so you will always see that there are some fluctuations if you have game launches, they were not, let's say, game launches in Q3 because the Trove Switch one was in, let's say, that was in Q3, but that had a bit of marketing on the -- sorry, we didn't. But we normally work with this 8% to 10% but we are aiming at increasing that percentage because together with the media part, we have seen now that we are much more efficient on the marketing and then it makes also sense to increase the percentage if, of course, in exchange, you get much more growth for that. Sorry, I hope that answers your UA question.

Yes, super. And also the media segment performed very, very strong in quarter and you mentioned that you gained market share due to positive IDFA effect. Do you think this will continue from now on, when companies have started to know how to address this or what's your view on that?

Yes, we see a shift in the market with people that have really been addressing actively IDFA and specialty solutions for, let's say, getting IDFA out of the market and companies that are totally surprised that it's happening. It's a bit comparable to data privacy when GDPR came into the market. There was also everywhere in Europe, I would say, companies were totally surprised that it was suddenly there. Well, you could have known already 2 years before that it was coming and the same with videos identifiers. I mean it's -- cookies are partly out of the market for some browsers already. Google has announced that by 2023, they will also, let's say, take the cookie out of their browser and IDFA was also known that it was coming. It was actually postponed a few times. So it's really about -- yes, first of all, of course, if you're a small company, it's difficult to invest in those things because if there's not a lot of profitability, so there skill matters. Larger companies have more money to prepare for these kind of situations but also if you look at larger companies, some just haven't prepared, others have and yes, we have and I've also said it before, roughly one-third of our engineers on the media side is working on innovative projects, and there will be more changes coming on the media side. So that's what we're preparing for and yes, where we see now the big difference that we have prepared for it and to really are profiting from it. And on top of it, of course, doing an acquisition like Beemray for example, is also very helpful for further building this advantage that we have. So, I expect us to profit from it also in the next quarters and yes, every disruption is, of course, a risk, but also an opportunity and we certainly see this as a big opportunity for us.

[Operator Instructions] We now have a follow-up question from Ken Rumph with Jefferies.

2 questions. One was just to get an idea of the sort of economics or the business model of licensing. The examples, the named and unnamed ones these are existing games perhaps in a territory that you would take over publishing? Is that the idea? And LiveOps, reps, but the developer remains the same? Anyway, just try and understand kind of what -- sort of how that works, potentially or the different opportunities are? And the other one was CTV just to understand, it's obviously a rapidly growing area of digital advertising, where you're at sort of what's developing in the coming year? You mentioned that in the slide of kind of technological advancements kind of for the year ahead. So where are we at in CTV and what can we look forward to?

Okay. I'll also take those 2. Yes, economics of licensing, typically, the game developer takes a certain percentage of the revenue, which is for an online game, somewhere between 25% and 30%, sometimes a bit more. And for that money, he has developed a game, but he's also, let's say, make sure that there's updates and such things. For mobile games, there's a bigger spread, casual games are only fixed fees or only fixed price up to, let's say other games that need more maintenance, where there's also percentages, mostly after the share that Google and Apple take, which is this 30%, I think, is all in the market and where, at the moment in this case, between Epic and Apple is going on. So, that's a bit on the license fees. We normally like to have games in-house because it's more efficient to have a game if it has certain substance in-house and don't pay this license fee. But, if you launch new games, of course, either you develop them yourself, which is a high-risk of developing an MMO, for example, EUR 5 million, EUR 20 million, EUR 50 million, this kind of amounts we're talking about, 3-year development cycle and let's say, absolutely not every game will be successful so that's the thing where we say we are still too small for that because for that, you would need to run a portfolio strategy like developing 30 games at the same time, so then you have 10 that you can launch every year because it's 2-year development cycle, and then you have a likelihood that 1 of the 10 maybe is really going to make enough money to cover or, let's say, to get more than this. So that's something that we refrain from. That's the reason that we're using or, let's say, working with developers that have to develop the game at their risk and therefore, we're also taking for new games that we launch these kind of license payments into account because that's cheaper for us than to develop the whole game and have taken the risk. However, when a game is successful, and that's what we have done in the past, we try to buy the full IP rights from the developer or we buy the developer that we have also the license in-house. So long-term strategy is clearly to have the IPs in-house because more efficient and also give them more opportunities and possibilities, but for license or let's say, for launches, it makes sense to have a license strategy. So, I hope that answers your question on the licensing. Then on the CTV, yes, connected TV, it's video advertising, the whole world gets digital and if you look at digital, especially at younger people, but also more and older, people start to watch before it was still, it was, let's say, just reading stuff on the Internet and on the mobile phone, but you get more and more into video, look at the growth of YouTube, but also look at all the new stations that are more and more video that's 1 part. The second part is that also traditionally linear TV is also becoming digital. People get digital at home, so also there, you have the possibility to do -- not do too many, but to do one-to-one or one to few which is also basically connected TV. So this part is growing so we see volumes coming from linear TV towards that and also by itself a growing market so that's the reason that the whole market or that part of the -- I'd say the digital advertising market is growing -- is the fastest-growing of all and that's what we're also, of course, working on and what you see that part of it, it's not as developed for example, as the display advertising or as a big part of mobile advertising, for example, header bidding, which is a way of selling the ads is only shortly -- let's say, it's not everywhere common. There is still even people that sell their inventory exclusive to a partner also that is starting to change and for example, ad podding as I said before, also some technology changes like combining ads because it's more efficient or things that are happening. So it's a very dynamic market. We're well prepared with the acquisition we did of LKQD, which we acquired from Nexstar, where we also have a good relation with Nexstar being a big TV company in the U.S. and also with Smaato which had built a lot of technology, but not really rolled out as much, where we see very nice traction and yes, we're also working on combining those, of course, or have already done partly of that because this is one of the big growth segments in -- how to say -- digital advertising. And now to also make a relation to gaming, yes, every gamer is basically almost in every channel so people that are gaming, they use their mobile phones, but they also, of course, watch TV and multiple also get connected TV ads. And what we have been doing, for example, is re-targeting console users, just to give an example on CTV. And -- but that we have really good response rates so also here, that makes -- it's a whole circle. If you have to consume a data or if you have to, let's say, the contextual audiences, you can target people on different channels and CTPs absolutely very interesting one at the moment. And I mean, I can talk for an hour and a half about it, but this gives some idea, I think and some headlines on what we're doing there and what we're aiming at.

Our next question comes from Ellis Acklin with First Berlin.

Thank for the detailed presentation and well done on the good Q3. Just a couple of quick ones from my side and advanced apologies if you already touched on these, I had to jump on a little bit late today. Can you give me an indication of what the one-off expenses might be looking like for the fourth quarter? And then regarding the margins for your segments, it looks like you've already hit your 2022 targets at this point after exceptional performance this year. Is that going to be sustainable going forward, considering your acquisition growth strategy or should we expect a little bit of volatility as you onboard new companies and have to integrate them? That's it.

Paul, you want to take that?

Yes, I can take it. So looking at the last question in terms of overall growth, so we've actually been rather conservative, and that's also the reason why we have not changed our midterm financial targets of 25% to 30%. Looking currently at the organic growth of 41% and actually 37% in the first half year. We also don't promise that we deliver that for the next 5 years but nevertheless, looking at the current trading of the company and the development, we see a lot of synergies between the companies, which we have acquired and therefore, also see very strong growth for the coming years and also rather expect to over-deliver on our midterm financial targets while we also don't really want to put too much pressure on the company that we need to do M&A, to make our gross numbers and that's actually also the reason why we have not changed our midterm financial targets and it is something which we also want to achieve, not just in 2022, also in 2023 and in the years after. And therefore, it's a rather midterm thing -- midterm less long-term target, I would say, than just looking at 2022, where we might have been even able to perform or we expect also to be able to perform better. Yes, so that's in terms of the financial targets. And I think we had also another question if you could just repeat that Ellis that would be helpful.

Yes, yes. Just a simple one. You have, I believe, EUR 3.7 million in one-offs through the 9-month period. If you could give some sort of an indication of what that number might end up being for Q4, what you're tracking towards?

So I mean, we most likely have EUR 0.5 million to maximum EUR 1 million also in the fourth quarter because we still have some costs for the closure of the influencer and performance business, but that's rather limited and the majority of the one-offs have been taken already in the third quarter. And as we're also growing substantially now into the fourth quarter, which is on the media side, but also on the game side, the strongest quarter, actually, of the year. We also -- on a reported EBITDA basis, expect to really overcompensate that by performance of the other side. But nevertheless, answering your question, it should be between EUR 0.5 million to EUR 1 million one-off cost.

We have no further questions. I hand back the word to our speakers.

Yes, then I would like to thank everybody very much for your trust, for your support, for helping us, and we will further work on the results for the next quarters and bringing the company forward. So thank you all very much, and looking forward to our next presentation. Thanks very much, see you next time. Bye-bye, thanks.

Have a good one guys, bye-bye.