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Hello, everyone around the world and welcome to Rovio's First Quarter of 2019 financial webcast. My name is Mikko Setälä, and I'm in charge of Rovio's Investor Relations. I have here with me Rovio's CEO, Kati Levoranta; and CFO, René Lindell. You can ask questions by using the webcast facility. I will be collecting those during the sessions and answers are provided in the end of the presentation. And the recording can be viewed also later on our website at rovio.com.Now Kati, how did the first quarter go?
Well, thanks, Mikko, and welcome to the webcast also on my behalf. Let's kick this off by looking at the highlights of the first quarter as usual. We started the quarter by launching a new game, Angry Birds Dream Blast on 24th of January. As noted in our full year 2018 interim report in February, few weeks after the game launch, we were happy with the launch and the game looked promising. Now approximately 2 months later, we can say that the launch has been successful and Dream Blast as well as strong performance of Angry Birds 2, which grew 48% year-on-year drove Rovio Games' first quarter revenue up 16.6% year-on-year.Dream Blast has continued to perform well and based on March figures, its quarterly run rate is over EUR 11 million. The monetization KPIs, average revenue per daily active user and monthly average revenue per paying user stayed stable. René will also go through these with more details a bit later. During the Dream Blast launch, we invested in user acquisition during the first quarter more than in the previous year Q1. In fact our user acquisition investments in Q1 this year were a record high. However, regardless of this, and the Brand Licensing revenues being lower due to less movie revenues from the first Angry Birds movie as expected, our profitability stayed in a good level. Our adjusted operating profit margin was 10.5%. Operating cash flow was EUR 3.3 million and at the end of the Q1, we had EUR 128.8 million in cash. Thus our cash position is very strong and gives us certain flexibility to execute upon our strategy as well as act fast if wished for example in M&A cases.Let's then move to look at the revenue and the profitability a bit closer. Rovio's revenue in the first quarter was EUR 70.9 million representing 7.8% growth year-on-year. Games revenue, which is the red part of the pillar, grew 16.6% and landed at EUR 66.3 million. As already mentioned, the revenue growth was driven by a strong performance of Angry Birds 2 and a successful launch of Angry Birds Dream Blast. Brand licensing units revenues represented by the black part of the pillar declined and were EUR 4.6 million. This decline was mainly due to lower revenues from the first Angry Birds movie, as expected.Then moving on to profitability. Our adjusted operating profit was EUR 7.5 million and the adjusted operating margin was 10.5%, while a year ago it was 14.6%. It's good to note that the games adjusted operating profit stayed on the same level year-on-year regardless of a significant increase, more than 60%, in the user acquisition investment. Thus the decline in adjusted operating profit was mainly explained as already mentioned by lower revenues from the first Angry Birds movie.And then over to René, to look at the numbers a bit more deeper.
Thank you, Kati. Let's look at the gross bookings of our games portfolio. Games gross bookings was EUR 65.8 million and grew 12.3% on a year-on-year basis and 7% if we look at comparable currencies. Angry Birds 2 was the main source for this year-on-year growth as it grew 48% and the second biggest source was the newest game, Angry Birds Dream Blast that made EUR 6.9 million in revenues in less than 3 months' time. And as Kati mentioned, in March month, Dream Blast reached already over EUR 11 million quarterly run rate and this actually means, it is our second largest game at this point of time.Angry Birds Friends was similar to last year and Angry Birds Match grew approximately 10% year-on-year. The other games category, which includes our older portfolio and games that are less actively developed and where we use less user acquisition, declined by approximately 46%.The user acquisition investments in the first quarter as Kati said, was a record amount for Rovio. It amounted to EUR 23.7 million and was 35.8% of games revenues. The growth was mainly driven by the launch of Angry Birds Dream Blast where we targeted most of the investments. And accordingly, the investments in Angry Birds 2 was a bit lower in this quarter, which is also seen in daily active user. And a bit lower revenue in Angry Birds 2 versus the last quarter where we spent more UA. In the second quarter this year, we expect the user acquisition investments to be at a similar or slightly higher level than in Q1.Next, let's look at the key performance indicators for games. The daily active users was similar as in the last quarter of last year. The new users to Angry Birds Dream Blast offset the DAU decline in Angry Birds 2 and the older games portfolio. At the same time, the monthly unique payers were at a similar level as in the last quarter. The monetization in the quarter was quite stable. The ARPDAU or average revenue per daily active user for both, for all games and the top five games was same as in the last quarter, while the monthly average revenue per payer for the top five games grew slightly by 1% to EUR 39.Next, a few words on cash flow in Q1. As Kati mentioned, the operating cash flow in the quarter was EUR 3.3 million, which is a lot lower than in Q4 last year as expected, as there were timing of working capital changes that impacted both of these quarters. But on average, the cash flow is as expected and it is strong. The cash balance at the end of the quarter was EUR 128.8 million.Our 2019 full year outlook remains unchanged. In 2019, we expect the group revenue to be between EUR 300 million and EUR 330 million and the adjusted operating profit margin to be between 9% and 11%.We expect the profit of the first half of the year to be lower than in the second half of the year.
Thanks, René. Let's then move to look at our strategy. We have defined our strategy in 4 core pillars: first of all, grow our games business; then grow the Angry Birds brand and the licensing business around it; seek growth through M&A; and explore the future of gaming.With regards to growing the games business. We continued prioritizing the top live games when it comes to allocation of user acquisition investments and resources. Most of our user acquisition investments in Q1 were directed to Angry Birds 2 and Angry Birds Dream Blast as already mentioned by René. While running our existing games as services with the focus on our best performing games, we at the same time naturally keep investing in new game development. We have currently 14 games in different phases of development cycle. Out of these 14 games, 2 are in soft launch right now. Thus our pipeline for new games is healthy.We have said that we aim to launch 2 new games this year and as mentioned, one game Angry Birds Dream Blast was already launched, and we are very happy how it has developed. The other global game launch is expected to happen during the second half of the year. As part of our future of gaming initiatives, we have been exploring, for example, augmented reality and how that would play out in Angry Birds games. Our first AR game, Angry Birds AR: Isle of Pigs, offering a new and immersive way of playing Angry Birds is now in pre-registration in Apple iOS and will be available for download shortly.Last year, as part of our M&A strategy, we acquired PlayRaven, a Phoenix mobile gaming studio that is focusing on strategy games. The development continues and the aim is to enter into soft launch with a new strategic game still during this year. PlayRaven was our first acquisition and according to our M&A strategy, which is the third pillar in our four-pillar strategy, we continue screening and evaluating potential targets focusing on free-to-play mobile gaming companies.In addition, to our own initiatives at this front during Q1, we invested USD 3 million in a venture capital fund managed by Play Ventures. The fund makes early stage investments in mobile gaming companies globally and thus offers Rovio opportunities as well as visibility in the startup scene. And then let's go to the second pillar of our strategy, Angry Birds brand and the licensing business. We are celebrating, this year, the 10th anniversary of Angry Birds. The birthday is in December and many fun things are planned around that. However, before the Birthday or Birdday, as we call it, we'll have the Angry Birds Movie 2 hitting the theaters. The sequel to the very successful first Angry Birds movie will be released in August this year, and we expect the movie and surrounding marketing to boost our consumer products licensing business as well as drive users to our Angry Birds games during the second half. To keep serving new and exciting Angry Birds content for our fans also after the movie, we are already planning a long-form TV animation series for the second half of 2020.And then moving on to the fourth pillar in our strategy, which is the future of gaming. Being on pulse, what's happening around us is a key to future success. We already discussed about the AR Game, Angry Birds: Isle of Pigs, which is part of our future of gaming initiative. We have also brought Angry Birds into virtual and mixed reality with partners. Both interesting areas when we talk about the future.One important investment in future of gaming is Hatch Entertainment. Hatch is Rovio's 80% owned subsidiary, developing a mobile game streaming service for mass audiences. Hatch has recently signed partnership agreements for example with leading tele operators NTT DoCoMo and Sprint followed by a partnership agreement with Samsung signed in April.Through these corporations, Hatch is bringing its service also to Japanese, South Korean and U.S. markets. Hatch is already available for download in many European countries in Android. And to accelerate its growth, Hatch continues to seek external funding and further strategic partnerships and in this context, Rovio is also prepared to reduce its ownership below 50%.So this was the recap of our strategy and before Q&A, let's go and take a look at the first official trailer of Angry Birds Movie 2.[Presentation]
I'm sure that will be huge fun. So there's actually a question here going to the questions-and-answers section about the movie. So can you open up a bit on how much revenue you're expecting from the movie? If no specific numbers, some sort of comparison to the first one would be nice.
Sure. I think that it's good to remind everyone also about how we made the first movie and as said earlier, Rovio financed the movie by itself, the production and the marketing and Sony acted as our distributor for that first movie. So Rovio obviously heavily carried the risk of the investments in the movie. And the second movie is done in a different model. So we have licensed the Angry Birds brand for Sony or Sony's subsidiary, Columbia Pictures, who is now then handling the production as well as marketing and distribution. So the risk level as said is much lower in the second movie for Rovio than in the first movie. And thus also the revenues from the second movie will be much lower than from the first movie.
Okay. And then going to the 4 strategic pillars, meaning Hatch here. So the -- have you any more information about the financing round of Hatch?
Well, the financing round is ongoing. We have a set process for that, and we have several discussions ongoing as well.
Okay, and what about the DoCoMo part there? So how big ownership do they have?
I mean depending on of course about the financing round and how that ends, that also will determine then DoCoMo's part.
All right. So the -- and then there are actually a few questions regarding user acquisition. So the -- one of them is, you're guiding UA costs to be around 30% of games sales in 2019, in quarter 1 that was almost 36%, and quarter 2 will be on a similar level. So what about second half then?
Yes. That is correct that we said that about 30% is the full year U.S. spend and if you look at the quarterly levels last year, we were between 25% and 35%. Now we started the year with quite high percentage, and we aim to keep that if we can in Q2. It's always uncertain, if -- it depends on how the games perform. And if we manage to do that, then I think it's more likely that we'll be above 30% for the full year than below 30%.
All right and then another one regarding user acquisition. So the -- you said you're heavily -- invested heavily in Dream Blast taking UA from AB 2, so how do you see this evolving for the second half of the year?
Well, I mean the UA is such that it always depends from many things that how that will be allocated between the games. For example, I mean how the game performs without the key KPIs as well as then we have the governance model for payback time in place, which we want to comply with. And then of course market situation can impact as well how we spend UA. So we are continuing spending of course UA as René said, hopefully in a good level going forward as well.
And one question regarding the soft launch game Angry Birds POP 2. How is this going? It's still going as planned? Or what's happening?
I mean, we have 2 games in soft launch right now and Angry Birds POP 2 is the other one of those games. And as we know soft launch is targeted to improve the game KPIs and hopefully then come to a place where you can actually launch the game globally. So that's what we're doing with POP 2 right now and looks nice.
And what about the people producing the games. So the question is, how comes the personnel cost is decreasing during the quarter even though you have increased the head count by about 40?
Yes. So it's important to understand that personnel operating expenses is not only direct salary costs, but it includes also provisions, it also includes equity-based incentives and the valuation of those, so it kind of fluctuates over time and in this case they were a bit lower for the quarter than previously.
So how is the head count then evolving this year?
I mean, we of course, recruit talent all the time. So getting good talented people in the company is very important, and we continue doing that. But we don't see any dramatic changes in the head count.
All right. And I think there are not actually any new questions here coming up. Oh, yes, there is one. This is also about user acquisitions. So the question is that have you axed the user acquisition budget from Battle Bay, Angry Birds Blast and Angry Birds Evolution, permanently?
I mean, it comes to the point that we discussed that depending on how the games perform, the user acquisition is also targeted and at this point of time of course these games are not on the top of our key games. So we are using user acquisition to the top performing games.
And the games related to the Angry Birds Movie 2, so which games will receive the most marketing related efforts obviously not only financial, but something else as well?
I mean, we've been discussing about this internally as well that what are the games that will be tied into the movie and of course, I mean, Angry Birds 2 is quite obvious with the name as well. But we have other very well performing games as well, for example, the Dream Blast as we've been discussing already. So in that sense we need to see how we will work this out.
Good. So the -- what about brand licensing costs? Are they -- will they increase in second half?
Some of those costs are quite stable and some costs will depend on also kind of activities done in the business units, which are then tied to the top line as well. For example, marketing costs and anything we do in retail together with our partner, so those costs are then also tied to our top line. It's like we see a cost increase then we should expect also a corresponding benefit in the revenues.
Okay, and the -- we said that there were 14 games in the production pipeline in different phases. How many of those are non-Angry Birds Games?
We have currently a pretty balanced portfolio between Angry Birds and non-Angry Birds games and yes, like I said, it looks very healthy.
And the Angry Birds AR game for Apple, for iOS, so how will that monetize?
Well, the AR game for Apple was one of the initiatives under our strategic -- 4th strategic pillar, which is the future of gaming. And the game will be free to download. So it's free-to-play game. And at this point of time, monetization will happen through ads.
Okay. And given that the Angry Birds Dream Blast has a more casual audience, would you say that the cost per install is significantly lower than Angry Birds 2, for example?
I mean, we don't compare those cost per installs in our reporting and these do fluctuate over time. And based on the fact that you have a more casual game doesn't necessarily always mean that cost per install is lower. It's also a matter of which has the higher lifetime value, so in end we balance the lifetime values and the cost per installs. And the kind of users coming in. So it really depends on the source of users. There is no one single answer and universal truth that the cost per install, which is low would be better or high would be worse. It always depends on the balance of which kind of users you get then and how much you pay for them.
And is it possible to have a game which is not from the Angry Birds franchise into top five, in the years to come?
We strongly believe that we can have either an Angry Birds game or another IP game or both in top five, in years to come.
And are you afraid of the dependency of the group of Angry Birds franchise games?
No. We're not afraid of that at all, and I mean, looking at our games performance now, we see that the 2 top performing games are Angry Birds games.
And there is one more related to Hatch. And is there a set time line for the financing round?
Well the process is ongoing as we said and discussions are ongoing at the moment, and we will come back to that when we know more where we are and when things start to come to an end.
All right. And anything else. I think that was the last one actually. So thank you very much.
Thank you.
Thank you.