Modern Times Group MTG AB

STO:MTG B

Earnings Call Transcript 2022-Q1

[Lars Torstensson, executive]

Good afternoon, everyone, and welcome to the conference call to present MTG's results for the first quarter of 2022. The call is hosted by MTG's President and CEO, Maria Redin; and CFO, Lasse Pilgaard.

I now hand over the word over to Maria.

[Maria Redin, executive]

Thank you, Lars, and good day, everyone.

So just we go straight into the business. And if we look at the quarter from an operation standpoint, I believe the group continues to perform very well. We reported total revenues of nearly SEK 1.4 billion in the quarter, which is then equivalent to a healthy pro forma growth of 10% year-over-year, which also showcase that we yet again in another quarter is delivering above market growth rate.

Our adjusted EBITDA in the quarter was SEK 342 million, that similarly reflects our strong underlying profitability. And even though we are also accelerating our investments in the quarter in marketing in our gaming studios, we still deliver a strong margins that we're very happy with.

If we're looking at the core and specifically, our Anagram franchise within PlaySimple, of course, stands out with a very strong performance, and it drives overall growth quarter-on-quarter. Another important highlight that we want to bring forward, which is also going to become more meaningful in the later part of the year is also the property commercial launches and scaling of the new tiles from InnoGames and in particular, Rise of Cultures, which had its first commercial launch in January, and it was later also followed by Lost Survivors. In totality from InnoGames, we actually have 400,000 daily active users as per the end of the quarter from the new games.

Last but not least, it is also interesting, we now in the second quarter in a row actually have our biggest news coming in after the quarter end. On the 24th of April, we also announced the successful closing of the ESL sale to Savvy Gaming Group. We expect the sale to generate net proceeds of $875 million or more than SEK 8 billion for the group. As previously announced, our plan is to return at least 40% of the money back to MTG's shareholders, and we will do that through a combination of a share redemption program and a share buyback program. You should expect to see the final details in the notice to the AGM, which we will hold then in June.

The closing of ESL also turns MTG into pure-play gaming group, which we're very excited about. And also with the cash that we will keep, we're also going to have a very strong balance sheet, which puts us in a very strong position as we see the consolidation happening behind us or around us, and we also want to be a driving force in that.

So before we go into the gaming part, let's also drill down a little bit in the actual ESL Gaming transaction. The sale of ESL led to the value creation and the build-up of the first esports unicorn, thanks to the valuation in north of $1 billion. The transaction provides MTG's shareholder with 2.5x return on investment. And this is actually the end of 7-year old era, where we've been working together with the management with a strategy, ongoing investment and execution. And we've done that on the back of very strong supporting shareholders.

For the ESL Gaming, this deal, of course, brings the merger with FACEIT and a support of a new long-term owner who love esports as much as we do, and the combination also means that we are creating the ultimate leading player in the competitive gaming space. We want to thank everyone at ESL Gaming for the years together. And of course, we wish them all the best in the next part of the journey. And we're going to look very much forward to see also what they will do next.

Our focus is, of course, then shifted to becoming a pure-play gaming group. So where is our starting position then? Well, if you look at it, we are now actually for the last, I would say, 12 months to 18 months, really built a strong portfolio of gaming companies that brings a diverse range of companies, games within both casual and mid-core segment. We today have 35 million monthly and 7 million daily users across the group. 70% of the revenues come from mobile today, which is a positive trend.

Another step in the right direction is that we today generate actually only 44% of our revenues from the top 3 games, which can be compared to nearly 70% at the same time of the year. So, this is clearly an indicator that we're becoming more diversified as a group, and we're also less reliant on the success of any one title. We generate approximately 63% of our revenues from in-app purchases today, and we do expect this portion to gradually go down also as we move forward. And this is actually related to the recent acquisition. But it's also in general a result of a focused approach towards in-game advertising.

For us, this is a very important part of diversification to really balance our revenue streams, making sure that we have a healthy balance between in-app purchases and in-app advertising in particular. And I think it's important from 2 points of view, both to diversify revenues as such, but it's also an important part when it comes to indirect hedging to counterbalance the CPI movements, given that a big part of our cost items is actually user acquisitions.

And as we look forward and turning into pure-play gaming company, and I said it before, we're very happy about the portfolio of companies that we have today. We still see this as just the beginning. We are super proud of the companies, the people and the games we have in our portfolio, and we do believe we come a long way compared to where we were as I started as a CEO.

But still, as we look forward, M&A will continue on top of the organic growth to be an important part of our strategy. And I think as we look at our portfolio where it stands, we're also now going to make sure that we're very focused, going to prioritize accretive M&A, looking at the position where we are and how we then can complement the assets that we have in a very strong way. We are, as we often said, overall firm believers in strong evergreen IPs, and I will always direct our focus as we look at the next phase M&A.

So before I go into further details on the gaming part, I will hand over to Lasse, who will then walk you through the financials.

[Lasse Pilgaard, executive]

Thank you, Maria.

So, we start with revenue here on Slide 5, just starting to message that we delivered 10% year-over-year pro forma growth in the quarter. And based on the latest estimates we've seen for the market, this means that we outgrew the overall market in the quarter as we've done in the previous quarters. So consolidated net sales in total increased 77% year-on-year in the quarter to SEK 1.357 billion. And we benefited in the quarter from the positive currency effect of 6%, as well as the contribution from companies we acquired last year, specifically PlaySimple and Ninja Kiwi, where particularly, PlaySimple's Anagram franchise remains one of the main engines of our performance in the app advertising space.

On organic year-over-year growth, we basically saw a 9% decrease in the quarter. This -- when we're talking about organic, it is InnoGames, Hutch and Kongregate for Q1. The decline reflects a mix of factors, including the rapid decline in the popularity of idle games, which currently makes up a significant part of Kongregate's portfolio, as well as delayed commercial launch of Rise of Cultures and postponement of the Formula 1 season for F1 clash in Hutch. Thanks to the game launches that happened in Q1 in the special InnoGames, as well as upcoming content launches [ in June ], but we expect to see organic revenue growth again in the second half of the year. Maria will come a bit more back to later some of the new game launches that we have and what we are seeing so far.

We'll now turn to Slide 6 and look at EBITDA. So consolidated adjusted EBITDA in the quarter accounted for SEK 342 million. This is a 90% increase year-over-year in Q1 as a result of the contributions from our most recent acquisitions. We reported a 25% EBITDA margin when we're looking at adjusted EBITDA in the quarter, while being able to increase our marketing investments in user acquisition to help our newly launched and fast-growing games like Rise of Cultures, Sunrise Village and Bloons TD Battles 2 in Ninja Kiwi.

As you know, even with a very high marketing effectiveness, as we see, we'll see a negative year one EBITDA contribution from increased UA investments. But given the return on investment, we're able to do -- it will support the future earnings growth. We are already seeing some positive effects from the marketing investments done in Q1. So Rise of Cultures in particular is showing very promising early signs, but again, Maria will show you latest update on that. Not on the slide, but as you also see in the report that -- sorry, not on the slide, but as you also see in the report, consolidated EBIT in the quarter was SEK 85 million, corresponding to an EBIT margin of 6%.

So just quickly turning to cash flow to mention some of the larger items. So cash flow from operations before taxes and changes in working capital accounted to SEK 273 million in the quarter, a significant increase year-over-year, although not shown here on this slide as previous quarters are not yet restated with -- after the divestment. Please note, the group reported a SEK 127 million negative change in working capital. This is mainly attributable to a timing effect of payments received in Q4 to PlaySimple and the subsequent payments of marketing expenses in Q1.

If you go back to last year, Q4, we also had a similar but opposite net working capital effects that basically is now being [ counted out ]. As already mentioned by Maria, the ESL Gaming sale closed in April, and so it's not included in these numbers. We expect net proceeds of SEK 8.174 billion and we'll return at least 40% to the shareholders. How and when we'll do this, will be announced ahead of the AGM.

So I think with that, I'll give it back to Maria to give more operational update on the portfolio.

[Maria Redin, executive]

Perfect. Thank you, Lasse.

And I think this slide is an important one to show how we, as a company, are becoming more mature because the balance on our revenue mix is really important to make sure we diversify and have a healthy mix. And we discussed it before and I also briefly talked about it. We want to make sure that we're not reliant on any single title. Of course, we want to grow each title as much as possible, but it's important to keep the diversification.

And if you look at this chart and the dynamics that we see on the sequential growth in the top 3 games, we're very happy to see that we actually have more games in the studio and the portfolio than ever before, which also means that if you're looking at the top 3 games now, we are now representing 44% of our total revenues in the quarter, and that was even a slight decrease versus the previous quarter and can be compared to, as I said before, 70% in the last year.

And what is important to highlight as part of this is actually that the absolute number is actually growing sequentially quarter-on-quarter, both when it comes to the top 3 games, but also games totality, showing the strength of our portfolio in totality and as a whole, but also on the top 3 titles, which for the quarter is Forge of Empires, Word Trip and Word Jam.

Looking at the other growth where we look at the revenue mix, it's also improving. And as I said, we put for us a strategic importance to keep that as a diversification and also create a better balance between our in-app advertising and in-app purchase revenues. And we now have roughly 30% of our revenues coming from in-app advertising in Q1, and we continue to build a more diversified revenue mix as we continue.

And I think what's interesting also to note is that we are seeing more and more opportunities across the group to actually monetize our games, not just on in-app purchase, where we used to be predominantly focused on, but also on in-app advertising. And as an example, we can also say the 3 new games that we're launching at InnoGames is both going to have in-app purchases and in-app advertising on back of the monetization. And of course, this is also that we can learn and get best practice expertise from PlaySimple who is our champion in the company.

Another positive dynamics that we're working on is also to making sure that we make our games available as broad as we possibly can do. I think what we've seen and especially on back of Ninja Kiwi is a really positive performance on back of third-party publication platforms such as Steam. And we're also now starting to work more and more with Apple Arcade and also exploring other platforms on how we can make them more available across third-party platforms.

The next feature, which we are also showing the trajection that we have in the company, and of course, that is coming both on back of increased marketing efforts and also new game launches. So the total monthly active users increased by 4% sequentially in the quarter and while daily active users actually grew 8%. And if you look at the positive dynamics between the 2 growth rates, that actually implies that we are doing something really good because we are finding customers players to stick around in our games. And of course, as I said, not only are we doing more marketing initiatives back on the games, but we also have 2 commercial launches on the back of the InnoGames' Rise of Cultures and Sunrise Village.

If you then look at the average revenue from the daily active users, it is slightly down in the quarter, which is quite a natural effect that we are sequentially improving the revenue contribution from PlaySimple, but in general has a lower ARPADAU. So that is basically offsetting the lower ARPADAU -- the higher ARPADAU that we see in some of our other specific games. So, that is something that is in line with our expectations. And for us, it's most important to grow the absolute number of users and the monetization will be something we continue to focus on as we progress as well.

Moving on to the next slide then. I think this is -- I mean, we show these slides in different shapes and forms. I think it's extremely important to see the breadth of the portfolio that we built up, and also that we are seeing the organic growth coming from 2 dimensions. We continue to invest in our existing games. I mean, we see games as a service and also, of course, making sure we launch new games initiatives. And that's why I think it's important that we also highlight what we're doing on some of our most established franchises.

I think we could take our sort of the biggest game of the group, Forge of Empires, it continues to remain one of our most important revenue contributor. And I think it's quite impressive that it's actually just celebrated its 10-year anniversary, which really shows the strength of the IP. And the new thing coming in for this year, which we're quite excited to see the development on is that we are -- which goes in line with what I just discussed is, today, we only monetize the game on in-app purchases, but the team is now working to also introduce in-app advertising in the game, which we're now rolling out. And that is going to be an interesting potential driver for the rest of the year.

If you then look at the PlaySimple games, Word Trip, they've had a fantastic performance this year. And I think as we look for the rest of the year, I think their team focus is we'll continue to drive strong UA on back of this game and to scale it and also to see how they can extend the franchise as we go forward. Third key titles that is Formula 1 Clash from Hutch. I think the one difference this year compared to last year is that we have the season start of the Formula 1 slightly later this year, which also means that Hutch is going to decide to have their restarts and the new unit economics to be done now in Q2 instead of Q1. So, that is something we look forward to see the impact now in May and see the results. And also the other part, which we look forward to is also to see whether we can bring Formula One Clash also to new publishing platforms.

Last but not least, going into Ninja Kiwi B TD6, it has been an amazing performance last year. I mean, it was really shown by many of the most famous streamers in the world, creating excitement about the game. We now just recently did a big content update in April, which was highly appreciated by the players, and it's all about scaling and driving that game for the rest of the year as well.

So as you hear, I mean, in general, evergreen IP remains extremely important for us, and we believe in games-as-a-service. Still, I mean, new game launches are essential for us to drive long-term sustainable growth. And that's why we're very excited as well for this year because we do have some really interesting titles that we're just now putting into commercial launch and we'll start to scale as we move further into this year.

I think I really wanted to bring into mentioning is Rise of Cultures. We had its worldwide release now in late January. And if you look at the steps, and it's important to remember that the most difficult thing to really get in gaming is retention rates. And if you can see, the Rise of Cultures is really in world-class retention rate compared to our other games. And Rise of Cultures is, you can argue a more modern version and also appealing to the younger demographic than Forge of Empires. So that's why these early steps when it comes to retention are exciting for us and also what we spend in a lot of time, and that's also why the game was actually put in commercial launch slightly later than anticipated is the monetization part of it. But with the most recent update, we feel very happy about also the monetization. And that's why we started to scale the marketing and that's in full commercial launch. And the game has close to 300,000 daily active users by the end of the quarter.

On back of these, we are also actually already working on the browser version of Rise of Cultures, which, again, is a testament to what we believe is a potential to game, and that is something that we'll launch in later in the year. And that is, of course, drawing on the learnings on Forge of Empires and our sort of ability within in-games to work both on browser versus mobile. There's going to be a cross-platform play. The launch of Rise of Cultures was done followed by Sunrise Village and also InnoGames had the third game, Lost Survivors. But as it looks right now, it's probably going to be launched in Q4. So it's going to be quite exciting and quite busy year for InnoGames.

The other big title that we actually launched already in December last year is Bloons Battles 2. What Ninja Kiwi do is actually launched a game slightly earlier, which means that there's a lot of work now being done when it comes to both monetization and retention and the build-up of the game [ icons ] in the game, but I think it's going to be very exciting to continue the journey under very Epic IP that is really loved by the fans. So if you then take together the initiatives we're doing in the evergreen existing franchises that we have a lot and also the new game initiatives, if you take the 2 combined, that is really what we believe will bring the group back to organic growth in the later part of the year.

Moving then into pure-play gaming companies. We spent quite a lot of focus on our operating model, and I think you've seen this slide probably before, what are the initiatives that we believe as a group, we can actually surface and perform to the companies to make sure that we're good owners that can add value to the portfolio companies. And also, I think, equally important, making sure that we elevate the capabilities that we have within the group to support the other companies. So, we are firm believers to not preempt the wheel. If we have something that is working in one group company, we should make sure that we share as best practice.

Exciting for the quarter, on the marketing side, we're making steady progress. Christian Pern, who used to serve as the CMO of InnoGames, stepped up with the Global CMO role within MTG. He is now already working with Hutch to help them accelerate the user acquisition on their side. And I think the way we look at it over time, we will build up central marketing capability skills, and we're leveraging also the great tools and systems that we already built in this instance within InnoGames to make sure that we can offer these tools to all the companies and the companies that we see required and needed.

One of the parts that we also identify as crucial for our future success is, of course, business intelligence. It is the foundation for everything we do. I mean, gaming is such a data-driven business. And it's -- even though it's fair to say that each company has its own platform, we are believers in a common tech layout, and that is also what we're building up. And you should expect that we can put it live in the quarters to come.

And the third part. And we actually look at more as a project rather than a central initiative. It's also blockchain and probably something that a lot of people are talking about and it's early days for us. But I think it's extremely important that we are on top of it to understand what is happening in the industry and how it is evolving and potentially changing the gaming space.

On a good note, Kongregate has actually worked with some of the blockchains for quite a period of time, which means they've taken the lead in this area, and they actually even recently announced the first NFT-powered community game. So, we're very excited, the fact that we're actually starting to invest in these initiatives and Kongregate is building up the blockchain capabilities gradually during the year.

So to wrap it all up and in summary, hopefully, as you heard, we're becoming a pure-play gaming company and we're truly excited about the journey ahead. We believe we have a clear strategy for the group. And most importantly, we have the team in place to execute on back of it. With the sale and the proceeds from the sale of ESL Gaming, we are going to be in a very strong position for the future. We're going to have a healthy cash balance. And we want to be a driving force on the ongoing industry consolidation.

We are firm believers in a solid operating model. And that's why we focus a lot of time and effort to set in place what we believe is right for us and our companies. And we do believe that with the first proof-of-concept, it is the right foundation to further build upon. So when you wrap it all up and based on this, we are, for the first time in a while, providing also a full-year outlook in this Q1 report.

And as we stated, we continue to expect to grow faster than the market. We did it in Q4. We did now in Q1. And we do expect that the revenue reported now on a pro forma basis for the quarter and the adjusted EBITDA margin will be indicative for the full year. And that is, of course, taking into account the investments we're doing in marketing in UA, as well as new game titles and in-game content.

So having said that, I want to thank you for your time. And I think we're ready for your questions.

[Operator]

[Operator Instructions] We have first question coming from the line of Oscar Erixon from Carnegie.

[Oscar Erixon, analyst]

A few questions from me, starting with the full year guidance here and your outlook comments as well. Could you describe sort of if there's any sort of market climate effects that you're seeing, causing you to only guide for roughly 25% adjusted EBITDA margin? I'll start with that question, please.

[Maria Redin, executive]

No, I think -- I mean, I know we're going down from our 30 percentage that we had last year, but you should also remember that last year, we didn't have any new games that we invested in. And on top of that, we're also building up this year the initiatives both in blockchain and also accelerating, of course, the new marketing investments and building up some central capabilities. So if you take those altogether and that we believe that we will then also accelerate the organic growth. I think we are quite happy with the position and where it will take us then in the years after 2022 because we are not building out like for 2022. We're building for the years to come.

[Oscar Erixon, analyst]

Understood. And if we sort of try to split these different effects up, starting first with central costs, SEK 26 million in the quarter. Do you have any guidance for the full year? How large is the investment into blockchain compared to 2021? Just trying to break it down a little bit to understand the dynamics.

[Maria Redin, executive]

Yes. We haven't actually broken it down. I don't think that you should expect -- I mean, I don't actually define the blockchain as a central project. It's a gaming project. So when you look at the central run rates, I mean, it should probably expect to run there. But if we're going to break down anything further, [indiscernible] at our CMD. But I think that's the time of the place where we would break down anything further and also maybe give you more long-term sort of ranges on how we see the world. But for now, I think you should expect that in the market, I mean, the investment initiative that we are doing is all factored in there. And it is the investments that we're also doing to make sure that we can continue in the years after 2022 to have a very strong growth trajection.

[Oscar Erixon, analyst]

Understood. And then a question on InnoGames. First of all, the games grow year-on-year organically, I mean, excluding FX effects in Q1. And also, sort of understanding a little bit the dynamics between perhaps lowering marketing spending in Forge of Empires and increasing it in Rise of Cultures and other games, how does that affect sort of growth and margins during 2022 as you see it?

[Maria Redin, executive]

No. If you start with the in-app purchases, it did not grow to [ 1,000 ]. I think you can do the backward calculations on the numbers that we disclosed there. And it's also because of some of the last quarters tough comps against COVID. And then when you look at the marketing, I mean, when we do marketing, of course, we are shifting some money into new games because that's the future. At the same time, the optimization of Forge is extremely important and that's where we're always trying to strike the sort of balance, if I can put it that way. We have an extremely rigid machinery when it comes to the marketing side to make sure that we uphold our [ ROA ] calculations and don't overinvest in the games. It needs to have a solid return.

At the same time, we're also working on the games, as I mentioned recently on the call, that we now, actually, for the first time, are exploring to add in-app advertising on Forge of Empires. And on top of that, we are also working on retention metrics where we believe we can actually be better in the game when we compare it with some of our other games in the group and also the new launches. So, we still continue to invest in the game per se, Forge of Empires, which then should actually allow for more marketing. But our sort of religion is it comes down to the ROA calculation, if the numbers need to add up, then we accelerate marketing. And in a good way, that should also make sure that you understand that we're quite disciplined in that approach.

[Oscar Erixon, analyst]

And then finally, on long-term incentive costs here, quite high in Q1. Can you give any indication for the full year? What's the run rate -- what run rate should we expect?

[Lasse Pilgaard, executive]

Let me answer that one, Oscar. So, you are right that it is fairly high for the quarter. And one of the -- or say, the main reason is basically an accrual that has been, say, an increase that was done in Q4 on the backside of the PlaySimple acquisition. So that is SEK 27.1 million of the -- a little bit more than SEK 70 million in this quarter. So it has nothing really to do with that. On top of that, there are some postponed, say, invest -- or sorry, costs related to the ESL transaction, that's also related to Q4 that we're taking into the accounts here.

So if we're cleaning out for that, you get to a number that is closer to SEK 38 million, SEK 39 million, which better reflects the run rate cost. And then I think it's fair to say, of that, a significant portion in the range of SEK 16.5 million to SEK 17 million is related to an earn-out program for PlaySimple. That was already, say, financed from their side as part of the acquisition, i.e., we paid less for the asset when we acquired them when we took over this liability of basically paying that.

And again, if you take that out, because that's -- if you say, from a shareholder point of view, something that we have already received the money from, it's closer to the 22%. But again, if you look at what will be the run rate cost for the other coming quarters when you're talking about accounting cost, it's just below [ 40% ]. But that's, of course, an expectation based on management central programs on performance, et cetera. And so it will vary with that, but it's in that area.

[Operator]

We have the next question coming from the line of Martin Arnell from DNB Markets.

[Martin Arnell, analyst]

Maria and Lasse, I hope you can hear me now. I just want to go into this organic business performance, which looks quite weak. And I was just wondering, I mean, you're facing very easy comps here in Q2, but you're guiding for the second half. Could you help us a little bit with how we should view the second quarter?

[Maria Redin, executive]

Yes. No, we don't -- to your point, we don't guide per quarter, but I think the way to look at it is, of course, the only way we are going to come into organic growth in the second half of the year, which we feel very comfortable around is, of course, we sequentially improve also in the second quarter. So, I think that is fair to assume. And I think that should be pretty spread equally to multiportfolio.

[Martin Arnell, analyst]

Is there a potential, Maria, that you actually could be at growth in Q2? Or do you rule that out?

[Maria Redin, executive]

There is always a potential. If we don't believe there's a potential -- but we're not going to go into it. So, I mean the way you should look at it is our guidance is for the full year. And what we feel comfortable is that we are going to deliver organic growth in the second half of the year. But of course, I mean, our job is to do better business every day and that's not going to stop.

[Lasse Pilgaard, executive]

And I think maybe also to add to that, when we're saying organic growth in the second part of the year, that's also if you're only looking at how you define organic today. So it's not just adding in the, let's say, current pro forma companies into the organic, which will, of course, do from Q3 and Q4, but also looking at the studios that define us again today.

[Martin Arnell, analyst]

And can you mention some of the projects? What will be the key projects for your return to organic growth?

[Maria Redin, executive]

No, I think to some extent, I did mention the different initiatives that we're doing and it all comes down to -- not saying, all of them delivering, but I think they all are adding up, the fact that we are looking how to optimize Forge even further by adding enough advertising and working on the retention rate by continuing to scale the Anagram franchises and successful in making sure that we continue to optimize the eCPM levels that we are continuing to launch and update, as we did now in April on B TD6 and making sure it is exciting update that is enticing the community, all these are extremely important.

And then you have on top of that, of course, for in-game, they have now 3 games, 2 that has already gone into full commercial launch. There is for them, of course, important that they make sure that they continue to scale now on the monetization. The early indications are really strong, and we're super excited. I mean that's why we also invest now in making sure we rolled out a browser version of it. Then of course, they need to continue to scale our core into the metrics that we anticipate. And that is also a very important driver to make sure that as a group, we come into overall organic growth.

[Martin Arnell, analyst]

Are you happy with your user acquisition capabilities? I mean, Q1 is a big quarter in terms of UA.

[Maria Redin, executive]

No, I think we're super happy to have Christian Pern now being a Group CMO. I think it's fantastic. And it's also helping us shape the company that we want to have, having sort of very mandated empowered CEOs in the portfolio companies, but then some common tech infrastructure and layers where we can support them in the areas we believe is important. Marketing UA is one of those areas, I mean, to be able to do that efficiently and to be able to share those best practices and learnings among the group companies. I think that is essential as we move forward because I don't think the marketing environment per se is going to get easier. And that's why I think it's so important to have this strong both tech tools and people that can help us at the group.

[Martin Arnell, analyst]

Okay. But do you see improvement potential in the UA during the second half? Or are you happy where you are here?

[Maria Redin, executive]

Yes. I do believe that as we roll out these initiatives that it will help us as a group. And as a very precise example, I mean, we're now working, for example, with Hutch and they have started to actually get connected to all the tools that we're having and built up for the group. So, I think that's going to be very exciting to see what results can we see coming out of that because that will, of course, allow them to use more marketing channels. They used to be very dependent on Facebook. And now it's opening up for many more channels and tools. So, I think that should, all else equal, will give us better performance.

[Martin Arnell, analyst]

Okay. And just a final question would be on your M&A opportunities. Can you comment anything on your deal flow? Is it busy? What's in your discussions? What do you think about price expectations now compared to 6 months earlier or something like that?

[Maria Redin, executive]

No, I think it is, to be fair, becoming a pure-play gaming company made us even more attractive. So, I think that is, of course, super exciting. I think we have a very strong deal flow. And I think we mentioned that also when we announced the ESL transaction. So, I think it's an exciting market. It is a market, of course, that is consolidated. And as I said, we want to be an active driver of that. I think now as we have more companies in our portfolio, it's also, not say easy, but for us, it's very clear on where we want to build and how we want to build. So, we can also be more precise on what kind of companies are we going after. So, we have quite a few interesting discussions, but I cannot be more precise than that.

[Operator]

We have our next question coming from Rasmus Engberg from SHB.

[Rasmus Engberg, analyst]

My first question just -- I didn't quite hear you. You're saying that the management incentive costs are around SEK 40 million, 4-0 million per quarter for the remainder of the year. Was that the comment you made?

[Lasse Pilgaard, executive]

Yes. So just below SEK 40 million, where a significant part of that was already paid for as part of the acquisition of PlaySimple, but from an accounting perspective. Yes.

[Rasmus Engberg, analyst]

Yes. All right. Good. And then the second question is also kind of a boring one. But the one-off costs -- or the -- sorry, the adjustments you take, I can't really find if they are in the central operation or in the division. Of course, since you don't own the full division, it's kind of interesting to know where these end up. Is there a breakdown of those?

[Lasse Pilgaard, executive]

I think the closest we come to a breakdown is if you look at the interim report, we are writing out how much is basically the [ OSIP ], how much is M&A transactions, et cetera. And I think if you add that up, you should have a majority of it. And there, of course, the management central program is more related to the studios. And if you're talking about where, from an accounting perspective, they have been hit when they sold our mother company. I think that's probably fairly, say, evenly split with M&A transactions being a top line.

[Maria Redin, executive]

Yes. Actually one comment there is to say, I mean, the M&A that we're doing on gaming always being charged to the gaming vertical.

[Rasmus Engberg, analyst]

So the M&A [ is also there ] in the gaming vertical. And the incentive costs, are they?

[Maria Redin, executive]

That's a combination, but you should assume the majority of it's also in the gaming vertical.

[Rasmus Engberg, analyst]

All right. Good. And then you commented that you think you outgrew the market. But what's your guess on where the market was in Q1 in sort of constant currency or whatever?

[Lasse Pilgaard, executive]

The overall market, you mean, on the gaming side?

[Rasmus Engberg, analyst]

Yes.

[Maria Redin, executive]

No. I mean you can read different reports, and there are quite a few reports actually talking about the negative growth in the market. But then, again, there's no official data being published. So I mean, you can look at yourself and send it over all the data, which then shows you negative results. And I think we have to see what is actually the final formal numbers. But as you look at the full-year outlook, I mean, there's no new changes to the most recent data numbers [ as we sit ], which is 7% growth. And if you ask us what do we believe long-term view on the gaming market, I mean, we remain very optimistic that we believe it's a super exciting market that should have this very high single-digit growth.

[Rasmus Engberg, analyst]

Okay. And then just a final question. Where does your UA costs end up in the P&L? Are they all in cost of goods sold? Or where do they actually show up? And are you planning to change this accounting to be more sort of similar to maybe what your peers are doing?

[Maria Redin, executive]

Yes. Lasse, if you can take it, Lasse?

[Lasse Pilgaard, executive]

So you are right. It's in cost of goods sold. I think in terms of future reporting, I think I'll park that for now in terms of how we will overall organize. [ If it falls ] in the future, I think we'll make it more transparent as part of the Capital Markets Day once we get there.

[Rasmus Engberg, analyst]

Okay. Could you comment on anything on the change in UA costs to sales sort of year-on-year? Was it up massively? Or how did it look in this quarter?

[Lasse Pilgaard, executive]

So if we compare it to the same period last year, it was up, as Maria has also indicated based on, basically, the game launches. Of course, it's always one of the main driver of that, given the new games. And I think right now, you wouldn't be able to get that out of the numbers, but it is a significant, you say, increase that they have seen.

[Operator]

We have the next question coming from Simon Jonsson from ABG.

[Simon Jönsson, analyst]

Could you please break down the organic growth in any way? What was the contribution from the different studios, Hutch, InnoGames and Kongregate?

[Maria Redin, executive]

Yes. I mean, we don't actually break down the different drivers. But I think we mentioned the overall themes of the revenue sort of decline for it. And I think one thing is that we continue to see sort of tougher trends year-over-year when it comes to sort of still some COVID impacts. And I think it's fair to say when you look at Inno, they did have, which we also said, I mean, a big boost in the browser revenues because people had more time spending at home, which also meant that they invested more time on the browsing type of games and there's some of the old legacy titles as well.

So, that's a big part of their revenue decline. I mean, the mobile actually performed much better year-over-year than the browser did. One other big part as well on the core side, where you also saw that, I mean, one of the drivers have been the idle games and as you see the overall idle games changing. And also, we felt that we've also been less competitive to be fair on the idle games. We've actually scaled our marketing on back of those games, which also, of course, then takes on the revenues on those games. And as we look forward, Kon is going to focus more on the CCG games and the titles that they have there and also the blockchain project. So, I would say, to some extent, the overall market and how it impacts and also player behavior on the browser side in Kon.

[Simon Jönsson, analyst]

All right. But if you exclude, let's say, Kongregate from Q2, do you expect other studios in the games like Hutch to possibly grow organically?

[Maria Redin, executive]

We are not drilling it down, but I do believe that they're going to perform much better in Q2 than what they did in Q1.

[Simon Jönsson, analyst]

All right. And can you say anything on how the daily active users for Rise of Cultures and the Sunrise Village has developed in April?

[Maria Redin, executive]

No. I think the number, which I gave is the number we're sticking to that. We had 400,000 daily active users for the combined 3 games as we sort of ended the quarter, which we're very excited with. We did get a big boost of active users for Rise of Cultures, as I said, a big sort of promotion from Apple at the time of the launch, which gave us the biggest user uplift. But I think the most important as well now to continue to work on the monetization because as you saw in the chart, I mean, the retention rates are absolutely amazing. So our focus is for the team now is continue to build comfort in the games and work on the content updates and launches and the events to make sure that we also, on back of that strong retention rate is also working on the monetization.

[Simon Jönsson, analyst]

Can you say anything about the monetization in relation to Forge of Empires? No. But I think that if you look at it -- on a good note, if you compare the 2, you see how strong the retention is on the Rise of Cultures versus Forge of Empires. And we have the team and we have all the learnings from Forge of Empires that we spend those learnings and build those up for the 10 years. For me, that is quite exciting step ahead if you look at how you can actually apply that on the Rise of Cultures because the players are there. The players stay and now we need to make sure that we bring that best practice monetization into the game.

And another important part is also to remember, I mean, to some extent, we need to remember Forge of Empires was built browser first. Rise of Cultures is built mobile first, which means that it's a very fresher, cleaner look and feel, which in a good way also brings a whole new demographics into that game, a much younger demographic, still male, but much younger, which means that the game is not cannibalizing on Forge. It's actually complementing Forge, which is also quite important for the overall revenue performance.

[Operator]

We have the next question coming from Tom Singlehurst from Citi.

[Thomas Singlehurst, analyst]

It's Tom here from Citi. First question, a bit of a generic one about the conflict in Ukraine and Russia. I was just wondering whether there has been any fallout either -- I mean, obviously, the whole situation is awful, but I was going to say either positive or negative in the sense that has it led to any disruption to your own development programs? And by contrast, has it disrupted some of your competitors and left you more of an opportunity, which you can capitalize on later in the year? So that was the first question.

And then the second question. And please forgive me if you mentioned this early in the call. I got cut off at one point. But with regard to the cash return, just wondering whether you can just go through the thinking behind the mode of cash return. And in particular, given the share price reaction, why a more aggressive near-term buyback wouldn't be the right way to deploy that capital as opposed to a share consolidation or some other methodologies.

[Lasse Pilgaard, executive]

No. So we just -- I'll answer both questions. So if we start with the conflict in Russia, I don't want to comment on how our competitors are potentially hit or not hit by this. But if we look at our business, both from a, say, demand point of view, but also from a development point of view, there has been no real disruption to the business. Of course, all of our portfolio companies are working to also support whatever they can, especially, of course, when it comes to developers in Ukraine, but also from a society point of view. But we have been fairly, say, we haven't seen any major impact on our business from what's happening. In terms of the cash return, I think, as you know, we have a mandate to execute on a share buyback program until the AGM. And of course, we're evaluating on an ongoing basis, whether that is, say, an attractive way of distributing cash back to shareholders.

[Operator]

There are no further questions at this time. I hand back the conference to you.

[Maria Redin, executive]

Very good. Well, thank you for your questions. We're truly excited having the call today, and then we hopefully speak soon to you. And have a continuous good day.

[Operator]

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now disconnect your lines. Thank you.