Earnings Transcript for G5EN.ST - Q4 Fiscal Year 2022

Stefan Wikstrand: Good morning, everyone. And also we’re waiting for the attendee list to fill up, and I just want to say a brief welcome this morning at 8 o’clock on February 9th, the good year 2023, where you will listen to our presentation of the Year-End Report for 2022. So you will all be in listen and view mode only. When we wrap up the presentation, we’ll go into Q&A. You can either ask the Q&As by raising your hand and ask them verbally or you can type in the question in the Q&A box and we will answer those as well. With that said, I will hand over to Vlad to start the presentation.

Vlad Suglobov: Thank you, Stefan. Welcome, everyone to G5 Radio and it’s our fourth quarter call and the full year 2022 results call. So my name is Vlad Suglobov, I’m the CEO of the company. This is Stefan Wikstrand, our CFO. And we will take about 15 minutes to run through the presentation of the results, and then we’ll open the line for questions. And I will start by giving you some of the highlights for this morning’s report. Revenue was SEK 364 million, which is 12% more than last year in Swedish kroner, but 7% less in USD terms. This puts our top line performance in line with the overall Mobile Gaming market, which was most likely flat in the fourth quarter, and declined by single-digit percentage for the year. G5 internally made owned games stood for 71% of revenue compared to 67% in the same period last year, Sherlock continues to be our revenue highlight. It is up by a strong 61% year-over-year in USD terms, and it continues to grow. Our New Generation games, the ones released in 2019 and later generated SEK 216 million and stood for 59% of revenue compared to only 52% last year. So Sherlock has been gaining in the share of the Group’s total revenue since it has been released. As you can see in the chart on the right. The game now stands for 23% of total net revenue in the quarter. And the year ago, it was only 14%. And Jewels family of games continues to be a stable performer and stood for 30% of the Group’s total net revenue in the quarter. The gross margin was strong 67% and this was driven by more revenue generated by owned games and higher share of net revenue coming from our own distribution platform, which is called G5 Store and G5 Store revenue was up 30% quarter-on-quarter, this is quarter-on-quarter Q3 to Q4. We are proud to see G5 Store for the first time generating higher net revenue than Amazon Appstore in December. This is of course for us, for G5, not overall. Also for us, for G5, the G5 Store brought in more than 30% of net revenue generated by Google Play in the same month. So we are talking about a substantial distribution channel for G5. Year-over-year G5 Store grew over 120% in SEK and measured in USD growth was 82%, very strong performance. And then in January, the growth of G5 Store accelerated to over 100% in USD terms. We are obviously quite excited about this performance. And I’m going to talk more about G5 Store on the next slide. Among other things, UA spend in the quarter was 19% of revenue. So we are again back to 17% to 22% range that we’ve communicated for user acquisition, reinvestment as percentage of revenue. Increased R&D was driven by a lower capitalization due to the new development funnel and process we adopted in the third quarter and increased the amortization. During the quarter, we chose to spend some of our positive cash flow to repurchase 106,000 shares for almost SEK 20 million. And the average price was about SEK 188 per share. All in all, we continue to have a strong position. We remain profitable and cash flow positive and we are debt free and we also have a strong cash balance. And the recognition of the strong performance of the company, the board recommends the dividends of SEK 8 per share, which is 14% higher than SEK 7 last year. And moving on to the next slide, we’re going to talk more about the G5 Store, which is our game distribution store that’s available to players on Windows, Mac and Android devices as of now. All our games are available in G5 Store and players can download directly and make direct purchases. As a result, the cost of revenue in G5 Store is only payment processing fees in low single-digits as opposed to you know large stores, which take up to 30% in-store fees. We launched the G5 Store in 2020 as you can see in the chart on the right that’s been growing ever since. We’re glad to see G5 Store growing consistently over the last year, and then reaching much higher revenue levels than before. And our levels that are now comparable to net revenue that we derive from major distribution stores. And we’re especially excited about this acceleration and growth that we’ve seen towards the end of the year. So, as you can see you know, in January, we have reached a new all-time high for the G5 Store revenue and that particular month growth year-over-year was more than 100% as I mentioned previously. So G5 Store is an evolving project with a roadmap of improvements designed to reduce friction and the process of downloading, playing and paying in new games. And this project is by no means technically perfect or finished. For example, it was only in August 2022 that we released G5 Launcher, which is a wraparound any game that you download from G5 Store. And it contains the full catalog of G5 Games shows you which ones you already play and which ones you haven’t tried yet, and it makes it very easy to download and install new games compared to before. We are still quite early in the development of G5 Store. For example, we still don’t have local currency pricing, we still don’t have some payment methods available to users. We want to make it more convenient to buy crystals outside of games. We want to provide better integration with G5 France further optimized processing fees, develop G5 Launcher for Mac, make it easier to transfer progress from mobile and so on so the list is really long. So despite all these things still lagging in G5 Store, we are seeing continued strong dynamic at high revenue levels. And we are excited to see how big G5 Store can grow in 2023 and where it takes our gross margin, because again, it’s single-digit payment processing fees as opposed to double-digit store fees. So with that, let’s turn to full year figures. For the full year 2022, all in all, our revenue was stable and we consider it a great result given economic conditions and the obstacles we have encountered. We are happy that our New Generation games are growing at a faster rate than the whole company. This is once again a confirmation that our eternal studios are capable of producing successful and scalable games that perform better than the market and that our bet on our own internal studios was right. We’re also glad to see G5 Store growing consistently over the year reaching much higher levels than before as was already mentioned, and increased revenue from our own games and our own platforms drove the gross margin higher by 5 percentage points for the full year. So we see continuation of the trends from previous year and that – years and in that regard and continued expansion of gross margin. Profitability, the bottom line overall was negatively impacted by several factors during the year. Of course, the war in Ukraine was the largest issue having the largest impact on Q1 profitability, but also starting ongoing relocations which continued through the end of the year. In Q2 and Q3, our planned user acquisition boost on Sherlock weighed on earnings. In Q3, we have made changes to the development formula and process aiming to improve efficiency and probabilities of finding scalable games. This triggered a write-down of SEK 73 million in the quarter as we have made changes to how we capitalize the development expenses on new games. And this has also affected Q4 as changes in the capitalization ratio impact at the quarter was SEK 22.3 million. So as you can see in the table on the right, if we adjust for these factors and changes that we had during the year, our operating result would have increased by 15% year-over-year. That said, we ended the year in the best position we have ever been, I think with a strong balance sheet and strong cash flow, which is enough to fund our marketing and development efforts, while also increasing the dividend for the year, which the board is recommending. With that, let’s have a closer look at the revenue in the quarter. Again, it was a stable revenue development in a difficult market, SEK 364 million, it was up 12% year-over-year. If you look at the underlying USD dynamic, you can see that I think in Q2, we were minus 13%, Q3, we were minus 10%. So Q4 is minus 7%. So there’s some sort of improvement there. Our owned games stood for over 71% of revenue, that’s up from 67% a year ago. So the expansion of the percentage of our revenue generated by owned games continues to happen. Our main growth driver continues to be our New Generation games, which is now the biggest segment of the portfolio at 59% of revenue, up from 52% last year, Sherlock was responsible for 23% of revenue and was up 61% year-over-year. In the fourth quarter, the share of revenue generated by owned games as you can see on the chart was affected by a welcome rebound and stabilization on a higher levels of Hidden City, our largest contributor to licensed games. And finally, monthly average gross revenue per paying user was a stable USD 61.7, despite FX pressure on USD numbers, my guess would be that in constant exchange rates, it likely grew year-over-year. So let’s take a closer look at earnings and margins. In the quarter, we are maintaining a strong gross margin. Again, thanks to our continued positive development of our own games and our own distribution platform G5 Store. For the quarter, gross margin reached 67%. It is down a little from the all-time high in the third quarter because of the mentioned rebound and revenue of Hidden City which is a licensed game. EBIT was SEK 47 million, the EBIT margin was 13.1% and the user acquisition spend was back to normal 19% of revenue. And with that, let’s have a closer look at our cash position. So we continue to generate cash. Thanks to stable cash conversion and despite the write backs of almost SEK 20 million in the fourth quarter, cash at the end of the period was SEK 177 million, that’s more than last year. And yeah, let’s move on to the brief outlook. I think we’ve covered pretty much everything. So we entered 2023 with stable revenue generation, and we expect our New Generation games to continue to grow as a percentage of revenue, with an increased strategic focus on the new development process, we aim to soft launch five to six games per year, and then globally launch one or two of these, choosing the ones that can be released globally and scale. The goal of the new process that we have adopted in Q3 is to improve new game development, efficiency and probabilities of developing successful games. And for user acquisition in 2023, we intend to spend between 17% and 22% of revenue, so we’re back to the normal range for us. The increasing revenue from G5 Store should further boost our gross margin and help improve profitability. And in recognition of the strong performance of the Group, the Board is proposing to raise the dividend to SEK 8 per share, which is up 14% from SEK 7 last year. The total expense is equal to approximately SEK 65.4 million, which is 10% higher than SEK 59.1 million last year. And we only need to spend 10% more to raise the dividend by 14%. Thanks to the buybacks we have done over the last year. We expect to remain profitable cash flow positive, with zero debt, maintaining a strong balance sheet and cash position in 2023. All in all, in the year we strive to deliver stable performance in line with the new normal that we see beginning in the fourth quarter, after the big events of the first three quarters of 2022. I would like to say – we’d like to end the presentation by saying that I’m very proud of the strong accomplishments of the whole G5 team and would like to thank our international teams for their outstanding effort, truly outstanding effort in 2022. This concludes my presentation. And I’d like to open the call for questions.

A - Stefan Wikstrand: So I see that we already have some questions in the Q&A box. Let’s see if we have some – we have Simon Jonsson here that wants to ask the question. Simon –

Vlad Suglobov: Should I go from top to bottom?

Simon Jonsson: Hi guys –

Stefan Wikstrand: We have Simon here to ask a question.

Simon Jonsson: Can you hear me?

Vlad Suglobov: Yes, we hear you, Simon. Go ahead.

Simon Jonsson: Good morning. So, you reiterated your guidance for the UA spending as a percentage of sales. But short-term, do you see any opportunities to be more aggressive here in Q1, for example, on the UA side?

Vlad Suglobov: I don’t think we want to exceed the range that we have communicated. We want – you know, we will be as always transparent when it comes to how much we want to spend and we plan on spending. So, if we decide to spend more than the indicated 17% to 22% range, we would let you know in advance like we did with the Sherlock boost in 2022. Within the boundary of 17% to 22%, the discretion is given to user acquisition team, basically to react to what they see in the market. And they have certain ability to be a bit more aggressive or a bit more defensive, depending on what exactly they are seeing. This adjustment is happening through the month and also at the end of the month. They review the opportunities and they discuss the budgets that makes sense to them for the next month. So, to be honest, I think we were quite normal and in that range for January and then February just started. So I’m not monitoring the UA numbers every day. So, that’s the best I can say is that we’re still within that range and quite close to what we delivered in Q4 as of the end of January. That’s the situation.

Simon Jonsson: All right, thank you. And also you commented that the trend has been good for Sherlock in Q4, and also Hidden City. I think you said it’s also continued or expected to continue in Q1 as well. So should we expect incrementally stronger sales from those two games you think here in Q1?

Vlad Suglobov: It’s hard to say. So again, January performance is quite good. We see that Hidden City did rebound to higher levels in Q4, especially in December and it stays at this higher levels in January. But also this is quite normal for the seasonality in the previous periods. It’s just the magnitude of the rebound that positively surprised us. We’ll have to see you know what follows and what the revenue development is going to be for the game going forward. But certainly this rebound in Q4, Q1 raises our or you know alleviates our concerns about how fast the revenue is going to deteriorate going forward. And so, it improves the chances that it’s going to stabilize or at least you know we’ll fall slower than our worst expectations. And again, no one knows exactly how the game is going to perform going forward. We are analyzing its performance against the only comparable that we have are a couple of comparables that we have from previous big hits. We believe – I mean we hope that the game should be stabilizing around this level and maybe performing a little bit better than our previously well performing games due to the cross selling and the fact we have other big games where we can cross sell users from. So, again, it’s hard to say. I don’t have expectations that over the course of the year Hidden City will necessarily you know grow. My expectations is that, it’s going to decline. Question is how much it’s going to decline. And if it stabilizes or if it declines only marginally in the year, that would make me very happy. For Sherlock, I expect the game to continue growing. It did look like in Q4, it could have done better, I would not make long reaching conclusions based on just one quarter performance, you know there’s always an influence of specific event around the holidays, specific other things. So we’ll see what happens next. But we have good expectations for Sherlock for the next year, we expect it to continue growing.

Simon Jonsson: All right, sounds good. And also maybe a longer-term question here. With the G5 Store gaining traction, and also increasing the share of own games, where could the gross margin go in let’s say, three to five years, I think? Could it reach 75% something like that? Is that possible?

Vlad Suglobov: It’s not impossible. The question is, you know, how high, how big the G5 Store gets, and where our royalties are going to be from licensed games. And that is a question of the revenue development from Hidden City. But also, it’s a question of whether or not we’re going to find some new successes with licensed games. And we’ve mentioned it in the report, where we have signed a new deal with the team of former Happy Star founding members, which developed Hidden City. You know, a success in licensed games can happen, which will change the math, but in the absence of it, I think we’ll continue seeing royalty decline. And, you know, I’d like to see G5 Store grow substantially from here, if it doubles or triples or quadruples, that would be totally fine with me. And even with the flat revenue development, it would mean that we’re going to keep a lot more money. So, by all means, I think gross margin can still expand by several percentage points over mid-term.

Simon Jonsson: All right. And the last one for me here around the OpEx, the strong ruble, et cetera impacting the salary cost. What is the current trend there? Can we expect lower impact from the high ruble coming quarters? And also, what is the current like one-time cost for relocating your staff is that also decreasing coming quarters?

Vlad Suglobov: It does affect. It did affect Q2, Q3 and Q4, probably the highest was probably Q3 and Q4, it will still be a little bit of a drag in Q1, Q2 this year at least. That said, it’s a one-time cost that it’s not a very high amount of per employee, just when you’re relocating hundreds of people sort of adds up. But it’s a one-time thing. And then we try to keep our salaries more or less in line with what they were before during the relocation process, you know, including the tax load and everything. So we don’t expect this to be a big change in profitability, but more like some extra expenses that we have to go through while we are working on these relocations. And I forgot your first question. Can you remind me, please?

Simon Jonsson: Yeah, it was about the strong ruble, Russian ruble impacting your salaries right now. Is that trend –

Vlad Suglobov: Yeah so relocations obviously make us independent of whatever happens with rubles, with the ruble exchange rate, and so we are as I mentioned, we now have did I mention that we have 37% of our staff physically in EU, Montenegro, Kazakhstan, Georgia, Armenia. And that was almost a huge I mean, it was almost nothing one year ago, just a few people. So this is – makes us more dependent on Euro exchange rate or exchange rate or local currencies in these countries. But it reduces our dependence on ruble. But that said, ruble is also – has been trending lower. I think the effect on our bottom line from that is going to continue to get smaller and smaller. So I don’t really know if that is a significant thing to pay attention to going forward, at least unless there are big changes. But, it also seems to be stable and kind of fluctuating within a relatively narrow channel now compared to what we went through in Q1 and Q2.

Simon Jonsson: All right, thank you. I’ll get back into the queue. Thanks for taking the questions.

Vlad Suglobov: Thank you, Simon.

Stefan Wikstrand: Thank you. We also have Rasmus Engberg from Handelsbanken. Rasmus, I think you’re on?

Rasmus Engberg: Yes. Hi. Can you hear me?

Vlad Suglobov: Yes, we can. Good morning, Rasmus.

Rasmus Engberg: Good morning. Good morning. I just had a question on the fourth quarter compared to the third. Looking at your revenues, they are not following the normal seasonal pattern here with you know dollar revenues being down in the fourth quarter compared to the third. And also, it does seem as though that effect comes mainly from your own games. Why is that? I mean, I can think of a couple of reasons. But why do you think that is?

Vlad Suglobov: I believe in USD terms, it was plus 1% quarter-to-quarter. So it wasn’t dramatically up. But it wasn’t down either. Yeah, well as I said, we don’t – we haven’t seen as much increase in activity from the players as we have anticipated. But at the same time, December was quite strong and January looks quite strong as well. So that is, you know, my guess is that, the market conditions and the financial conditions are weighing down somewhat on the activity of the players, and looking at the overall market performance and seeing that we are in line with the market. Or maybe, you know, yeah, I think in line is the right term to use here. I think that’s just the overall situation in the market, that maybe there weren’t as many new devices sold. And usually that spike of new activity that is connected to unwrapping and using a new device did not happen. Maybe you know, people are going back into the workforce, maybe they decided to save some money this year and not buy big new expensive devices that would be consistent to reports from computer manufacturers and device manufacturers like Apple, which sold not as many devices as they were hoping for, from what I understood. At the same time you know, looking at our sales figures, I feel that the demand is quite stable, maybe it has to do with the audience that we have, which tends to be older and more female, and then a lot of retired people. And so maybe they have a little bit more stable situation with their income and their available time compared to younger generations that have to go back to work and so forth. But all of this is a bit of a speculation. But again, given that the market for our games is going through a correction. And you know, looking at the reports from other companies, I don’t think we performed terribly well, I would even say it’s pretty good result in the absence of any, you know, big new breakthroughs or games that are growing really fast. And we’re just recently released in gaining revenue rather fast. I’m glad to see that the main trends are continuing, the percentage of phone games keeps going down, you know, Sherlock keeps growing year-over-year. And the G5 Store is just going through the really fast expansion period. So this is what we have.

Stefan Wikstrand: I think we should add as well that we also aligned with the change in the development funnel in Q3 we aligned that process for all the games, which meant that we put some games in harvest mode in line, but that changed that impact. If you look at New Generation games, which now is a very broad category of games, which is almost four years old. The oldest. And so there’s a lot of games in there, but you know, moving some of these games into harvest mode have impacted their performance both sequentially and year-over-year. So that impacts the number for the owned games, and specifically the New Generation of games as well.

Vlad Suglobov: Yeah, I think we – that’s right and thank you for bringing that up, Stefan. If you look at the New Generation game performance, for example, we’ve – in Q3, we basically removed the support, the active support for and harvested as we call it, [sunsetted] [ph] two games called Match Town Makeover and Hawaii Match-3 Mania. And in the new process, we probably shouldn’t have taken so much time to work on these games, and they would get to this stage. And so in accordance with the new process, they were sunsetted and we stopped actively supporting them, and over the quarter, they went through quite a substantial revenue reduction because of that, because we didn’t see the potential for them to scale in the future. And if you take those games away from the New Generation category, then the New Generation growth year-over-year goes up to 15%. So we still have this core group of games that’s showing healthy growth year-over-year in USD terms. But it only shows us 6%, because we’ve knowingly and deliberately have basically terminated two of these games, which led to a rather sharp reduction quarter-to-quarter in the revenue.

Rasmus Engberg: What was the development in Sherlock Q4 versus Q3?

Vlad Suglobov: I think it was – yeah it was a little, it was positive quarter-to-quarter.

Rasmus Engberg: I can calculate it myself maybe.

Vlad Suglobov: Stefan, do you have a number in front of you for Sherlock. The quarter-to-quarter was like single-digit.

Rasmus Engberg: Yeah, it was.

Vlad Suglobov: In USD terms.

Rasmus Engberg: Okay, thank you.

Stefan Wikstrand: Then that is all. I think we don’t have anyone else raising their hands, so we can go into the Q&A box.

Vlad Suglobov: Yes. So let’s go with the first one. So [Ross Davidson] [ph] is asking. New Generation games grew at the slowest pace, it seems at some time essentially flat with Q3. If I’m understanding correctly, can you talk through some of the underlying dynamics driving the slowdown and the thoughts for future growth rates for this group of games? We’ve just were discussing exactly this. And again, it’s plus 6% year-over-year, but if you take away those two games that we have decided to sunset in Q3, then it goes up to 15%. So, again, there is underlying number of games that performed really well. Sherlock, a group of games, Jewels off, and then the not well performing games from the New Generation games were harvested in q3 and that created a decline, because we removed user acquisition support for these games. That created a pronounced decline in Q3 to Q4. And but if you look underneath that, there’s still plus 15% year-over-year in USD quite strong dynamic for the core games, considering that they already are very large in terms of revenue. So as they grow, you can expect the growth rates to sort of decline and so double-digit growth in the market that’s basically correcting down anywhere from 5% to 10% going up by 15%. I think that’s a quite a quite good performance compared to the overall market dynamic. The next question, Alex is asking, you claim to have a new vetting process of new games to improve quality, have you hired a specialist for that? Or what is your actual strategy? I mean, you can’t really claim you will manage it yourself. Now, when you haven’t been able to before? Well, to be honest, I mean, we’ve produced – to be fair, I mean, we’ve produced some good games like Sherlock, and Jewels Off, and, you know, some other games as well. So the revenue that we derive currently in the market, is not nothing, it’s some revenue. And it’s made by the games that we have vetted before. And the nature of the game development business is that, it’s very hard to be certain what kind of game you will get on your hands when you start the development. So, we’ve always went with the ideas that we thought are interesting and have potential in the market, only to later we find out whether or not they actually you know, live up to the expectation. What we’re trying to do in the new process is to formalize the process and make stages in the process, where we will look for the data, confirming that this particular game we are trying to get to another stage has the potential in the market. So it’s a little bit more data-driven approach. Essentially, the same people are involved in managing it, and trying to create a game that will scale. You know, it is actually not easy to hire a specialist for vetting games, because, you know, we actually – I mean, we could probably work as specialists vetting games, because we’ve made some successful games, but we already are in this company. And so, actually we prefer, the reason we’ve switched to this new process is that, we wanted to take the individual decision making a little bit out of the process or strengthen the individual decision making and the gut feeling, you know, an expert opinion with data, and with analyzing the potential using – users what they think, and you know market research. So I think it’s a great combination, when you have people who have spent a lot of time in the industry, and they maybe have some experience from creating games that sold, you know tens and hundreds of millions of dollars, but then you also improve their decision making by supplying them with a certain process and certain tools and you formalize it a little bit and have a more structured process. So I’m quite happy with how this new process is lining up. It’s a little bit too early, of course, unfortunately, to say that it certainly works, we would have to wait for some games to come out of this process. And I hope that it will start happening in 2023. So I hope I answered that question. And next question from Alex is, how come you decided on a dividend which was 98% of the years’ net profits? Well, because we have not distributed the profits from previous years in dividend, we have a lot of retained profits from previous years. And also, if you look at the profit, which is EBIT for 2022 SEK 73 million of that was a write-down from the balance, but it was paper-only. We did not lose that money. So, to compare the dividend to EBIT for 2022 maybe is not the right way to measure it, maybe it’s best to compare it to the free cash flow before financial activities. And then you get to a much more reasonable number. And then, once again, if you look at the Q4, and given that we expect Q4 to be more or less in line with what we expect with the rest of 2023, with 2023. You can see that we are in a you know compared to that amount of earnings that you can think we’re going to have in 2023, this dividend is reasonable. And so we intend to maintain – we want to maintain the dividend to make sure the shareholders have some predictability when it comes to dividend. All right. Next one from the same person. In another impressive – sorry, that’s the quote. In another impressive comparison G5 Store brought us more than 30% of what Google Play did in December and just reached over 7% of the Group’s net revenue. But the numbers displayed in the G5 Store monthly net revenue, USD does not match with more than 7% of net revenue. I get it to about 5% to 5.5%. What are your comments on that? Well, it is I measured it myself. When I measured it myself, it was more than 7% for December. So, Stefan, do you have any immediate questions on that? I’m sorry, any immediate comments on that one?

Stefan Wikstrand: No, but you can see the growth trend for October, November, December going into January. So obviously, you know, if it’s 5% to 5.5% exactly for the quarter, you know that might be a totally different thing. You know, we say it’s December.

Vlad Suglobov: Yeah. And then I don’t understand, where do you see the total net revenue. I mean, if you wanted to do the calculation, you would have to take the G5 Store revenue from the chart, and divide it by the total net revenue. But net revenue is in January, specifically. Because I was referring to January, saying it’s over 7%. So maybe that’s where the difference is. All right, the next question from [Henrik Gronbeck] [ph]. Sorry, if I misspell or mispronounce your name. Is the quarter-to-quarter growth in monthly average growth revenue per paying user driven by newer games with higher monetization? The honest answer is, I don’t know, we didn’t analyze it on a per game basis. But generally speaking, New Generation of games had higher monetization than older owned games. Hidden City also has a – among licensed games, Hidden City has quite high monetization levels. But our New Generation of games was on par, if not better. So that’s how it is. Next question from Alex. Will you ever publish your earnings in USD terms now that FX is affecting the results pretty heavily? Well, to be honest, when it comes to the bottom line, I’m not sure FX is affecting the results substantially, it’s more of a top line dynamic that’s being affected the most. We have quite a good structure in the sense that we have a lot of USD revenue, but we also have substantial USD expenses for user acquisition, we have a lot of revenue in euro. But we used to not have a lot of expensive in euro, but now with all the staff in European countries and other countries, we are actually, we have more expenses in euro than before, and that aligns well with the revenue that we generate in Euro. So in the end, when we look at it, and when we analyze, how does the exchange – how do the exchange rates affect us? Whatever happens between euro and USD, when it comes to the bottom line, in my view, it tends to more or less neutralize, and then you end up having kind of the same bottom line. More or less the same profit. We’re more sensitive to currencies, in which we don’t derive a lot of revenue. So for example, although it’s now much smaller, but at the peak of the crisis like Q1, when we didn’t derive any revenue in rubles, but at the same time, we had a lot of revenue – a lot of expenses in rubles, that would create a situation where we are quite sensitive to the global exchange rate and now the same situation happening in Kazakhstan, Armenia, Georgia, and so forth. So we’re kind of becoming more sensitive to exchange rates with these currencies, but it’s not you know, it’s even if we switched to USD, you would still have that sensitivity to the exchange rate from euro and a bunch of other currencies. So I’m not sure switching reporting to USD fixes that entirely. And we haven’t done –

Stefan Wikstrand: In any sense it would be you know, we obviously thought we could have it as a comparison as we do with revenue but I would agree with now that I think the necessity or the information you get from that is limited, but we can’t report in USD that is not possible. We could theoretically report in euro, but what’s though that is a big hurdle to cross, but USD is not. We still need the SEK numbers essentially, that’s what I’m saying.

Vlad Suglobov: All right. On to the next one. Net effect of capitalization and amortization on intangible assets amounted to minus SEK 5.1 million. Is it correct that we can expect the negative net capitalization as long as you don’t launch any new games globally? I think it is correct, right, Stefan?

Stefan Wikstrand: Well, I would say that we how we do this, you know, if we would not, if there are no other changes, so no increasing static, we remain kind of stable from here, and we don’t release any new games globally. These numbers should converge over time. So give it a few quarters –

Vlad Suglobov: A few years.

Stefan Wikstrand: Report, and then they would converge more and more. So I think the effect will be less, but then obviously to launch a new game globally, the situation might be reversed. But at least in the short-term, I think we can expect the negative net cap. Yeah.

Vlad Suglobov: Next one. There has been some major moves in the Microsoft Store grossing games. Am I skipping over? I am sorry, I just skipped over a bunch of questions, going back to the top of the list. Another question from Alex. Internal KPIs such as MUP has been trending down despite your words of strong performance. The numbers show that your revenue is actually declining, but FX is upholding it in terms of SEK. What will your strategy be when currencies stabilize? Again, we disclose our profit performance in Swedish kroner, but also give comparison figures in USD for a reason, because if you look at the market analysis, you usually get numbers in USD. And so, if you look at the market performance for 2022, depending on the analysts that you read, the market is correcting or declining by minus 5% to up to minus 10% is what I’ve seen in some of the estimates. So that’s the market situation, overall, we are correcting down. We are in the overall market size for 2022. I’ve seen some analysts say we are down to 2020 level, right, so we’ve lost all the progress with that overall revenue for 2021. So I think in this situation, performing in line with the market being stable, having products that are growing and replacing revenue on weaker products, which are probably losing revenue and audience is a good situation to be in. And the reason the market is declining must have to do with a declining active audience. So again, when you see the market decline, you probably can assume that the active audience in the market is also slightly declining. And this is what we see in our figures as well. So to me, this is performance in line with the market. We’re not performing better than the market, but certain parts of our portfolio are performing better than the market. And this gives me an optimism and the ability to say that some of our teams are delivering great games that are able to grow faster than this market in this situation. So, our strategy would be the same as before we will continue to developing the trends, the positive trends that we have, we will continue to work on new games. And you know, we’re being quite open about the numbers. Yes, the Swedish kronor figure is up 12% year-over-year, to some extent thanks to FX rate, but we give you USD numbers as well. We’re not trying to hide them. They’re right there in the report and in the slide deck. And again, this performance is in line with the market. All right. So from Henrik Gronbeck, again, I apologize if I mispronounce any of the names. Is the year-over-year increase in general and administrative costs all related to the war in Ukraine? Do you expect this to decrease or has the organizational changes with the new offices change the core structure? There is some extra overhead, because you do have to spend a little bit extra for maintaining more officers, you know, leasing some sort of space, which is required in some situations even though we have people working from home. Having some employees in the support of the new office we have – we now have more relocation officers that we didn’t have before. We have more people partners, HR, sorry HR managers that support employees. Like there’s a lot of hand holding – extra hand holding and supporting of employees happening compared to a year ago, obviously, especially with the relocation efforts. And so, there is a little bit of increase in the overall overhead connected to having many more officers. Indeed, also I would say the G&A probably includes our relocation costs. Would it be the right guess? Stefan, yeah? And so –

Stefan Wikstrand: Yeah.

Vlad Suglobov: And so then this is where you also see the increase just connected to paying out you know paying people for flight tickets, and a couple of months in the apartment lease and other support that we provide for people who are relocating. So, again, doing all of that, we are very mindful of the fact we don’t want to cement any permanent substantial cost increases, we are doing everything we can to maintain the costs at around the same level. To be honest, I think, considering the situation and considering the undertaking of spreading our development offices into a bunch of new countries, we’re doing quite well and our HR department is doing an amazing job really, administering all that at a very reasonable cost to the company. Let’s move on to the next one. Alex – a question from Alex, again. You wrote that Monthly Average Gross Revenue Per Paying User amounted to USD 61.7, which was higher than previous quarters, USD 61.2 and the market trust these numbers, you’ve been wrong about them before. So we did revise the numbers in this quarter. I don’t think that these revisions affected the monthly average gross revenue per paying user in any substantial way.

Stefan Wikstrand: I think he’s referring to that we needed to restate the numbers last year, because we found an error in the calculations. But I think, you know, of course, you can never – you know one can never be a 100% sure, but I think we wouldn’t publish the numbers if we were hesitant about them and yeah.

Vlad Suglobov: I would also say that you have to look at the trend, right. I think even if we revise numbers or like this quarter, we have adjusted our audience numbers a little bit, because there are different mathematical ways to calculate your audiences. So, this month – this quarter, Q4, we’ve actually aligned our method for calculating that with the most popular attribution software in the market, just to make sure we see the same numbers in our own analytics, and when we use third-party analytics as well. And so we’ve aligned that, but it didn’t change the trends, we’ve changed the absolute numbers a little bit, because we accounted for shorter sessions, which we tended to just throw out in our account. But the underlying trend remains the same. And I suggest that when you look at these metrics, you don’t look at them in absolute terms, but you try to understand the underlying trends for several quarters, I think it would be a proper use of the KPIs, because also these KPIs like monthly average gross revenue per paying user, it’s a KPI. It doesn’t really give you a lot of - it doesn’t give you too much insight into what’s happening for a number of reasons like the average body temperature in the hospital, right. So it’s that kind of a metric. But in this particular case, you can use it to track the overall trend from development and that’s what it is for in our reports. All right. The next question is from [Ule] [ph] and there has been some major moves in the Microsoft Store grossing games list during the holiday season. Is it correct that G5’s games on the Microsoft platform has had a stable holiday season and that the movements in the list primarily are driven by performance and not G5 games? So I’m not tracking top grossing positions in Microsoft Store on a daily or monthly basis. We did have some reduction in revenue on Microsoft Store over the course of the year. But I think the last a number of months, it’s been very stable. And I think that also it was more than compensated by the growth in G5 Store. And you know, maybe there is a connection there because it’s the same platform essentially. But I think the situation is stable now. And we certainly appreciate having a direct channel and direct store connection to our own users and users in our games. And you know, well, some cannibalization is possible there. I think that if we look at the benefits of having a direct point of contact with the users, and we look at the expected lifetime value, considering small transaction fees, there is a much bigger opportunity in having G5 Store actively developing then kind of holding us back being concerned about potential cannibalization, even if that is even happening. We also try to do, and it’s not like we try, our idea with the G5 Store is that, we will find a new channel to acquire our users on personal computers. And we have developed a user acquisition channels, which are based in the web advertising ecosystem, basically, where we attract users into G5 Store and these channels we were not able to use with Windows Store, for example. So through G5 Store, we are tapping into a much larger pool of users that we can attract into G5 Store. So we’re not – we’re looking at the basically, I’m trying to look at it as the total revenue derived from a technological – technology platform called Windows between whatever stores are available on Windows. And that number is not of a big concern to me. I think there’s a good dynamic there. That’s the situation. And the next question is from Philip Cornier. Can you please comment on what has driven the increase in amortization of SEK 7.6 million of over larger write-down in the last Q3? Is it correctly understood that a write-down last quarter has impacted the level of amortization? Not necessarily the level of amortization, is it right, Stefan. It’s – it affected the level of capitalization.

Stefan Wikstrand: Sorry what in [inaudible].

Vlad Suglobov: Is a question at the top.

Stefan Wikstrand: I mean it’s a, yeah, because we have increased the size of the portfolio over the years, specifically with the New Generation games, even more specifically, maybe then Sherlock being a fairly big game on the balance sheet, that is being amortized. Whilst the games that we wrote down in Q3, they were primarily unreleased. So we didn’t amortize those games. So, they would have impacted amortizations in future periods. So, what we see is, it’s kind of a lagging effect of the buildup of well kind of current active portfolio, so to speak.

Vlad Suglobov: All right. You have to sort of, sorry, another question from Henrik. And you had two launches in the quarter, correct? How have they been performing? Something we can expect to see soon as global launches? Well, as we said, when we launch a game globally, we will communicate through a press release. A soft launch is an iterative process, where usually on the first attempt, we see the opportunity to further improve the performance before committing to global release. And I will leave it at that. Again, stay tuned and again, this is a new process. We’re going through it for the first time, so I would also expect that it will take some iterations in the beginning. And in the beginning, the timeline is going to be a little bit longer to go through the soft launch process. But I certainly hope that and I would like to see that happen that in 2023, we’ll launch one or two games globally, as we have promised. Can you please comment on Sherlock’s development in January? It was good. It was on par with the strong performance in December. And this is consistent with the seasonality that we saw pre-pandemic. I would probably leave it at that. Are you still – another question from Henrik. Are you still looking at increasing ad revenue? You don’t mention it in the Q4 report? We are looking, we are working on it. But to be honest, it’s been a bit of a struggle. And we are fighting a little bit with a counter trend here, because from what I know for companies, deriving a lot of revenue from advertising on mobile, usually they – I mean, recently they had a negative trend with all the you know, IDFA or deals and all these things plus the reduction in activity of the players in the stores that was weighing on their advertising revenues. And I see even hypercasual developers talking more and more about hybrid monetization, and working hard to build up there in-app purchase revenue. So I think we are in a good place, because all of our revenue is in-app purchases. We would like to see more revenue come from advertising. Unfortunately, it’s not happening as fast as we want it to happen. And if we don’t mention it in the report, perhaps we haven’t achieved a new substantial high. We don’t think it’s a big news topic this quarter to discuss. That’s why. Okay, next question from Alex. Are you not over-presenting G5 Store? I mean, initially, you always give strong performance, because it is in the early stages, and therefore it’s easy to see strong performance percentagewise, you must not forget G5 Store only accounts for a small fraction of the revenue. Well, that was exactly my attitude in 2020 and 2021, when it was showing strong growth, but from relatively low base, but now that it’s bringing in more revenue than Amazon Appstore. Not that it’s bringing in more than 30% of what Google Play makes us. It’s hundreds of thousands of dollars a month, it’s no longer a small revenue base. It’s quite substantial. It’s hundreds of thousands a year ago, and now hundreds of thousands this year, and the growth is more than 100%. So I just thought that it would be reasonable at this level to talk more about G5 Store, because from what I see it’s doing really well I expect it to continue growing, and it no longer looks a thing that’s just taking off from a fairly low revenue base, 7% of our total net revenue for a distribution channel, where we pay almost no store fees, approaching 10% hopefully in during the year, I’d like to see that happen. I think it’s prudent to talk about it and explain a little bit more our thinking about the product and use this opportunity to kind of present a little bit more details on this. And I’ve held on you know on doing that for two years. So, I think it’s quite fair. A question from [Mathias] [ph]. You might have covered this already. But I wonder about Q4 being representative for 2023. Do you still expect EBIT margin in a potential range 13%, 15% as was indicated for Q4? Or is around 13% the communication – for 2023, the communication currently? So we don’t provide guidance. Please understand, we’ve – we did some sort of vague guidance for Q4 in Q3 only based on the fact so many changes were happening in how we account for things. Going forward, we’re not and as before as well, we’re not giving guidance. Q4 in many aspects is representative of what we expect to happen during 2023. But we don’t provide guidance for specific margin levels. Stefan, would you like to add anything to that?

Stefan Wikstrand: No, not really. Q - A -

Vlad Suglobov: All right. Alex is asking, you just said your audience consists of a lot of retired people. What is your revenue diversification age-wise? So as we’ve said many times actually in the history of the company, the audience, the typical audience for hypnotic games tends to be older, we usually define it as 35 plus, and it tends to be predominantly female, it’s not unusual to see female players account for 70% of the total audience. And then further, if we look into specific, paying segment, you usually see it’s even more female dominated up to 80% in some games, and even older. So sometimes we would see that the biggest paying segment would be 55 plus. Interestingly, for G5 Store, its cues even older. So G5 Store would have about 70% of its users above the age of 55. And we have – you know, we’ve, over the years, we found that this audience is quite loyal, they are not jumping you know, from one game to another, if they find a game that they like, they really tend to stay in this game. They’re also, you know, because of their age, they may prefer larger screens. And maybe that explains the popularity of Windows platform and G5 Store platform on PC among our users. But at the same time, we can find them and we can find younger audiences also on the iPhone and Android. And as part of the new pipeline for new ideas and new games that we are developing, we’re actually trying to diversify a little bit away from, not away but to also have games that appeal to younger demographics as well. And so some of the games that we have in the pipeline there, I would characterize them as shots at appealing to wider demographic. And with that said, we love our audience. They’re great players, great payers, they are also – you know they have a good amount of free time on their hands. And so, I think that, as a business, we can benefit in this difficult market times when the market is correcting, we can benefit from having a bit more resilient audience than maybe your typical video game company. And there’s a question from Anonymous. Do you have any special activity in France towards the growing India market? No, we do not. We don’t think we understand Indian consumer. Historically, our games aren’t performing very well in the markets where average revenue per user is rather low. However, that said, and specifically, we don’t plan any specific games that are popular in India, because we don’t have really anyone who understands what is popular in India. So I think we will keep our focus on the Western markets, and things that we understand within our expertise. And when it comes to acquiring users into our existing or upcoming new games in India, we have our user acquisition team that is, you know, that’s giving a fair shot to many different countries trying to find the pockets of growth and the ability to acquire in these countries. But over and over again, we find that the types of games that we make, they monetize the best in more developed countries. And that’s why USA and Western Europe and Japan and more developed Asian countries, they just – they tend to drive the most profitable users to our games. I will leave it at that. So that was the last question. Thank you again for listening to us. And yes, and I see a comment thanking us. Well thank you for listening to us for such a long period of time and thank you for following G5. Have a good day.