Thunderful Group AB (THUNDR) Earnings Call Transcript

Hi, and welcome to the Thunderful Group's Q4 presentation. My name is Anton Hoof, and I'm an equity analyst here at Redeye, and I will moderate the Q&A session following the presentation. And just a quick reminder, if you want to ask a question, please use the form below the screen. And with that, I leave it over to Martin and Mikael. Please go ahead.

Thank you, Anton. Good morning, everyone, and welcome to the Thunderful Group Q4 presentation. My name is Martin Walfisz. And with me today on this call, I have Mikael Falkner, our new CFO, who joined back in November. Welcome, Mikael. We will be presenting our Q4 highlights and financial results and also talk a bit about the exciting things we have cooking for 2025. And then we will end with a Q&A session moderated by Anton. But before we talk about Q4, I want to give a brief introduction to Thunderful Group and the changes that have been implemented throughout 2024. So I joined as CEO in the fall of 2023. And back then, Thunderful Group was a quite different business. We had a Games segment and the Distribution segment, selling Nintendo hardware as well as various toys and computer equipment in the Nordics. In late 2023, we took a deep look at the overall business of Thunderful and realized that the business plans were not commercially sustainable. In addition, the company had an untenable net debt position. So after careful deliberation, we decided to make some difficult but necessary decisions. 2024 was a year of substantial change and transformation for Thunderful Group. And the Distribution business was divested in June and large parts of the games business had to be closed or divested. So as we're coming into 2025, Thunderful is a very different company compared to a year ago. We're now a focused games publisher and service provider. We've decreased our upfront risk profile and increased our focus on publishing third-party projects. So in short, we have a healthier balance between internal development projects, meaning fixed costs versus external project investments. We have also kept our strong Co-development capacity and Services and are working with several external clients. So after the conclusion of the restructuring program later this year, we'll be just about 200 people in the group. And almost everyone will be working in our game development and publishing teams. The group is since mid-last year divided into 2 reporting segments. The Publishing segment focuses on all our efforts to develop, market and commercialize games and IPs. And this includes the creative output from our 6 internal studios as well as game projects by external third-party studios. 2 of our remaining internal studios, The Station and Studio Fizbin are unfortunately affected by last year's restructuring program. So we are still trying to figure out a long-term solution, but likely the studios will unfortunately cease during Q2 this year. We are very grateful that they are finishing their current ongoing development projects, and they are both great teams. So it's with deep sadness that we might see them depart from the group. Our Co-development & Services segment primarily focuses on offering development and publishing-related expertise. Coatsink, our largest studio, does a lot of full-service creative development work for external clients such as Meta and other big global companies. And in our Robot Teddy business, we tap into the resources and expertise we have in publishing to provide custom services to third-party game developers who seek help with their self-publishing efforts. So we can help with marketing, release management, business development, strategic planning and much more. During 2024, we've also worked on refining our publishing strategy. So we are now focusing primarily on publishing PC and console games in what we call the premium indie space, positioning ourselves between indie games and AA games. Our games investments will typically be anywhere from around EUR 500,000 up to EUR 4 million, depending obviously on the commercial potential for each project. Internal development projects skew towards the mid and higher end, but they also have the potential to provide more upside. We have also clarified our publisher identity divided into emotional identity, content identity and commercial identity. So I'm not going to go into details here, but all of this and a lot more that we are talking about internally helps us steer our decision-making and increase our chances for future success. Okay. That was a brief intro to Thunderful Group. So let's move on to the highlights of Q4. And I will briefly summarize the financials, and then later, Mikael will go into a bit more detail. So our net revenue came in at SEK 77 million, and this is lower than last year, primarily due to us not having any major new releases and no platform deals revenue in the quarter. Our adjusted EBITDA is minus SEK 11 million, and our EBIT came in at minus SEK 632 million, primarily explained, of course, by substantial write-downs in the quarter. We invested SEK 32 million in capitalized ongoing game projects and cash flow from our operations was SEK 27 million for the quarter. This is actually a considerable improvement compared to Q3, but is partially due to some onetime effects. Mikael will share more on this in a moment. Our available liquidity as of end of December was SEK 150 million. Moving on to our operational highlights, starting with the Publishing segment. So as mentioned, in Q4, we spent a lot of effort on our restructuring program, unfortunately, closing down and divesting some of our internal development studios. It's been painful for everyone involved, but we had to do it to secure Thunderful's future sustainability. On a more positive note, I'm happy to announce that our transactional sales, that is when we sell our games directly to consumers through online stores, and this is very much the backbone of our publishing business, comes in at about SEK 45 million, which is the same amount compared to Q4 last year. And this is despite us not having any major new releases in the quarter. So I think it really demonstrates the strength of our portfolio and increasingly efficient back catalog management. So big kudos to our sales and marketing team. We're also gearing up for a very exciting 2025 with many new releases and opportunities to grow our business. And I can finally mention that our studio in Gothenburg, formerly known as Thunderful Gothenburg is since yesterday renamed Stormteller Games. And this is part of our strategy to make sure that our development teams have their own identity and focus. Moving to our Co-development & Services segment. So the great teams at Coatsink continue with their close collaborations with Meta and other partners. They helped with development work on the VR game Batman: Arkham Shadow, which launched in October and has a fantastic 85 Metacritic score. And the game is bundled with Meta Quest 3 and has now reached over 1 million players. Last year, Coatsink had an opportunity to increase their revenue share when an ongoing Co-Development project launches in the future. However, this increased future upside comes at the expense of a slightly decreased average monthly billing rate for the project. And moving on briefly about Robot Teddy, our Publishing services business. We're very happy to see that the game Clone Drone in the Hyperdome from our client, Doborog, launched in December to great reviews on Steam. All right. Over to Mikael.

Thank you, Martin, and hello, everyone. So let's go into our financials, looking both at the quarter and the full year, and we're starting with our consolidated figures. So as Martin mentioned, our revenue amounted to SEK 77 million for the Q4 and SEK 293 million for the full year. For Q4, revenue decreased in both segments by around 25% to 30%, while for the year, the main decrease is within Co-development & Services at minus 40%, while Publishing decreased at minus 7%. Our adjusted EBITDA, so that is our EBITDA adjusted for the restructuring costs that we're carrying improved by SEK 7 million in the quarter, while for the full year, it decreased from SEK 109 million in 2023 to negative SEK 41 million in 2024. Lower revenue and lower capitalizations are the main drivers for the decreased EBITDA result, where if you look at the lower capitalization, it is coming partly from gradually reduced internal studios and partly due to our stricter policies on cost activation. Our EBIT decreased to negative SEK 632 million for the quarter and negative SEK 907 million for the year. The result is heavily affected by the write-downs of capitalized development costs and acquisition-related values. The write-downs were done both in connection to the announced restructuring program and in order to better reflect the market valuation of industry assets. Okay. So moving into the segments, and we're starting with Publishing. Net revenue decreased by SEK 20 million in the quarter and around SEK 15 million for the full year. As Martin mentioned, transactional sales grew during 2024 and were in line with the same period last year for the quarter, and this is despite fewer games being released during 2024. So in addition to more releases in 2023, we also had onetime revenues such as Game Pass deals that contributed significantly in the comparison period. Adjusted EBITDA improved by SEK 11 million in the quarter, but decreased by SEK 58 million for the full year. And again, it's primarily related to lower revenue and lower capitalization. EBIT for the segment in line with the group is significantly affected by write-downs. And for the quarter, it amounts to negative SEK 573 million and for the full year, SEK 865 million. Moving on to Co-development & Services segment. Net revenue for the quarter decreased around SEK 10 million, and for the year, the decrease is around SEK 77 million. The main decreases for the full year are within Services, so the part of the business where we offer consulting to development studios, while for the quarter, the decrease is in Co-development, mainly explained by the reduced monthly billing rate in exchange for a revenue sharing model for upcoming game release as Martin mentioned. Adjusted EBITDA decreased slightly for the quarter, while more substantially for the year with a decrease of negative SEK 92 million. The decrease is primarily related to lower revenue. When it comes to EBIT for the segment, it improves in the quarter while ending up more in line with the comparison period for the year. Now both periods are impacted by write-downs of acquisition-related values, while last year had a relatively larger negative impact, which explains the EBIT improvement in the quarter. Now briefly about our headcount. At the end of Q4, the number of full-time equivalent counted to 297. This translates to a reduction of about 17% compared to the end of last year for comparable business. The impact of the announced restructuring program will have impacts on the headcount mainly in Q1 and Q2 in 2025, bringing the number of FTEs down to 210. Moving over to our cash flow. And here, I'm focusing on Q4. Cash flow is in total positive with SEK 9 million for Q4. Cash flow from operating activities after working capital changes amounted to SEK 27 million, with large positive impacts from working capital phasing. Investments were done with SEK 32 million and financing activities amounted to SEK 14 million. And to be noted is that in the financing activities, the final deferred payment related to the divestment of the Distribution business done earlier this year is included with SEK 34 million. And the final slide from my side, we have an available liquidity at the end of Q4, which amounts to SEK 150 million. This includes a credit facility of around SEK 120 million. And then there's the positive -- and after the positive cash flow in the quarter, we're ending the year with a net cash position of SEK 30 million. Thank you very much, and back to you, Martin.

Thank you, Mikael. Now I'd like to share parts of the Publishing slate that we have planned for this year. So first of all, let me tell you, I'm, of course, very excited about the Publishing slate we have this year. It is much improved compared to 2024. And this plan will allow us to reach positive cash flow and will be the foundation for a long-term commercially sustainable business. So as you can see, we have 7 main releases planned, plus a few smaller launches not included on this time line. We expect to have the greatest revenue effects in the second half of the year as our biggest launches are coming during the summer and fall. So let me briefly say a few words on each of these games. First of all, Reignbreaker from Studio Fizbin is launching within the next few months on PC. It's a medieval punk action roguelike. And as you can see, it has some amazing visual aesthetics that really make it stand out in the market. So if you like action-pack games with a lot of bright colors, you should definitely check this out in the spring. Next up, we have Lost in Random: The Eternal Die. It's a spin-off from our 2021 release, Lost in Random. And where the original game was an adventure game, the spin-off is an action-packed roguelike. It is still set in the absolutely amazing and magical world of Random, and it is developed by our internal studio Stormteller. I can't wait to get my hands on the final version when it comes out on PC and consoles later in the year. Vampire's Fall 2 is an open-world RPG developed by our internal team Early Morning Studio. It's a direct sequel to Vampire's Fall: Origins, which has over 13 million players worldwide. The sequel takes place hundreds of years after Origins where humans are now on the verge of extinction. The game contains more than 24 hours of single-player content as well as PVP multiplayer. It's launching in Q2, and it's the only mobile game in our Publishing slate, so don't miss it. ASKA was released in Early Access last year, and it's developed by a very dedicated team at Sand Sailor Studio. It's doing great. It's attracting a nice audience and active player community, and the team continues to work with the Early Access players implementing suggested improvements and making additions to the game. So a full release is planned for this year. So if you like survival games, you should absolutely join the Early Access on Steam already now. Moving on Replaced. It's a sci-fi retro-futuristic action platformer. It is the debut title from the very talented team at Sad Cat Studios. And I think you can see in this key art, it looks absolutely stunning. So as some of you might know, the development of this project has had some unfortunate delays, but things are moving along nicely now, and the plan is for it to come out on PC and Xbox at the end of this year. Okay. So those were our announced titles, but I also want to tease 2 wonderful games we have coming out this year that are still under wraps. So project Neapolitan is coming out in Q2. It's built by the Station in collaboration with Coatsink. And I can't say more today, but an announcement is coming very soon. So stay tuned. And last but not least, we have the game codenamed Lemon coming out in the second half of the year. It's the debut title from our internal studio To The Sky, and we can't wait to tell you all about it, but that's not today. All right. Those were some of our super exciting plans for 2025. Now let's look at the key takeaways from this presentation. So as mentioned, we had no new major releases, but still managed to sustain our transactional sales. So it really shows the strength and efficient management of our back catalog. We're very happy for that. The restructuring program has allowed us to shift our investment strategy and create a more balanced risk versus reward profile for the company. And finally, and most importantly, as I'm sure you'll notice, we're very excited about the releases we have coming this year, and they will allow us to reach positive cash flow and long-term sustainability for the group. Okay. Thank you for listening. Let's now move into the Q&A. So Anton, back to you.

Okay. Thank you for that.

And let's start with the Publishing segment. Here, you grew 12% compared to the previous quarter. And as you mentioned, you had no significant releases here. Can you give some more color on what drove sales here?

Well, obviously, oftentimes, Q4 is a bit better than Q3. But overall, it's an effect of our improved work with our back catalog. We've also seen some positive currency exchange effects. But mostly, it's just us putting a better focus on managing our back catalog and sales.

I mean, are there any specific titles that you would like to highlight?

We have had -- it's been a pretty balanced all across in the back catalog. I'm not going to highlight any specific titles.

Okay. That's right. And I mean, are you satisfied with this development? Or had you hoped for more? Or how should we view it?

Well, I think given everything that's been going on in 2024, we are absolutely satisfied with this. We have a nice -- again, a nice stable foundation in our sales. And obviously, coming into 2025 with all the releases we have this year, we have every chance to increase our business quite substantially.

Good. And I mean, in terms of your new strategy, how is it to find new external projects out there? How is the competition currently?

Well, the competition is always out there, but there are also hundreds of potentially exciting games and maybe even thousands. So we are sort of step-by-step going through the deal flow that we are having and then carefully evaluating everything before we decide if we want to invest or not.

Good. And looking at the Games pipeline, we see and you showed it in your presentation also, we see that several titles are expected now in the first half of 2025. And you mentioned that it's maybe more tilted towards the summer. But I mean, should we expect some releases already in Q1 or…

Out of the 7 main releases, 3 are in the first half of the year. We'll likely have one release in Q1, but then the others in Q2 and then the 4 remaining releases in the second half of the year.

And overall, I mean, how do you feel about the pipeline now compared to 1 year ago?

Well, as I said in the presentation, I think we have a fantastic pipeline for launching this year. And we have some exciting games lined up for next year as well. And like we talked about also some exciting potential games that we're looking to sign up for launching in 2026 and beyond.

And you also showed a new mobile game. How should we view this? I mean, are you going to invest in further mobile games going forward or…