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Rovio Entertainment Corp.: Q3 interim report. Adjusted operating profit margin 18.9%, games gross bookings at last year’s level with lower user acquisition

Rovio Entertainment Corporation
·11-min read

Rovio Entertainment Corporation Stock Exchange Release October 30, 2020 at 9.00 a.m. EET

Adjusted operating profit margin 18.9%, games gross bookings at last year’s level with lower user acquisition

July–September 2020 highlights

  • Rovio group revenue was EUR 67.9 million (74.8) and declined 9.2% year-on-year mainly due to lower brand licensing revenues

  • Group adjusted operating profit grew to EUR 12.8 million (5.4) and adjusted operating profit margin grew to 18.9% (7.2%) due to stable revenues of key games and lower level of user acquisition year-on-year

  • Games revenue declined 3.3% year-on-year to EUR 64.2 million (66.4). In comparable currencies, games revenue grew approximately by 1%. The Games gross bookings were EUR 64.5 million (65.1) and declined 0.9% year-on-year. In comparable currencies, the gross bookings grew approximately by 3%

  • Scaling up of Rovio’s newest game Small Town Murders’ continued and its gross bookings reached EUR 3.0 million

  • User acquisition investments were EUR 15.3 million (27.1), or 23.8% of the Games segment’s revenue (40.8%)

  • Brand Licensing revenue was EUR 3.7 million (8.4) and declined 56.4% year-on-year

  • Group adjusted operating profit excluding Hatch Entertainment was EUR 14.2 million (8.6) and adjusted operating profit margin 20.9% (11.5%)

  • Operating cash flow was EUR 15.8 million (-0.7)

  • Earnings per share was EUR 0.12 (0.06)

  • 2020 outlook updated: Group revenue will be somewhat lower than last year and adjusted operating profit will improve significantly (previously “improves”).

January-September 2020 highlights

  • Rovio group revenue was EUR 203.8 million (217.5) and declined 6.3% year-on-year due to lower brand licensing revenues

  • Group adjusted operating profit grew to EUR 39.7 million (18.2) and adjusted operating profit margin to 19.5% (8.4%)

  • Games revenue declined by 2.2% year-on-year to EUR 193.8 million (198.1). In comparable currencies, games revenue declined approximately by 3%. The Games gross bookings were EUR 194.4 million (196.1) and declined by 0.9% year-on-year. In comparable currencies, the gross bookings declined approximately by 2%.

  • User acquisition investments were EUR 42.7 million (72.2), or 22.0% of the Games segment’s revenue (36.4%)

  • Brand Licensing revenue was EUR 9.8 million (19.4) and declined 49.2% year-on-year

  • Group adjusted operating profit excluding Hatch Entertainment was EUR 45.7 million (26.0) and adjusted operating profit margin 22.4% (11.9%)

  • Operating cash flow was EUR 46.0 million (7.4)

  • Earnings per share was EUR 0.38 (0.17)

Key figures

7-9/

7-9/

Change,

1-9/

1-9/

Change,

1-12/

EUR million

2020

2019

%

2020

2019

%

2019

Revenue

67.9

74.8

-9.2%

203.8

217.5

-6.3%

289.1

EBITDA

15.9

9.6

65.3%

47.8

29.7

60.9%

32.3

EBITDA margin

23.4%

12.8%

-

23.5%

13.7%

-

11.2%

Adjusted EBITDA

15.9

9.6

65.3%

47.9

29.7

61.2%

32.6

Adjusted EBITDA margin, %

23.4%

12.8%

-

23.5%

13.7%

-

11.3%

Operating profit

12.8

5.4

138.1%

39.6

18.2

118.0%

18.1

Operating profit margin, %

18.9%

7.2%

-

19.4%

8.4%

-

6.3%

Adjusted operating profit

12.8

5.4

138.1%

39.7

18.2

118.6%

18.3

Adjusted operating profit margin, %

18.9%

7.2%

-

19.5%

8.4%

-

6.3%

Profit before tax

12.1

6.1

100.2%

38.4

18.4

108.6%

17.7

Capital expenditure

0.9

0.6

50.1%

2.8

2.2

24.0%

3.1

User acquisition

15.3

27.1

-43.7%

42.7

72.2

-40.8%

99.7

Return on equity (ROE), %

22.6%

14.9%

-

22.6%

14.9%

-

10.8%

Net gearing ratio, %

-69.7%

-64.9%

-

-69.7%

-64.9%

-

-65.7%

Equity ratio, %

81.0%

79.8%

-

81.0%

79.8%

-

80.5%

Earnings per share, EUR

0.12

0.06

99.1%

0.38

0.17

120.0%

0.17

Earnings per share, diluted EUR

0.12

0.06

98.4%

0.38

0.17

121.1%

0.17

Net cash flows from operating activities

15.8

-0.7

2448.5%

46.0

7.4

524.7%

10.5

Employees (average for the period)

475

463

2.6%

467

444

5.2%

450

Unless otherwise stated, the comparison figures in brackets refer to the corresponding period in the previous year. Calculations and definitions are presented in the Performance Measures section.

The changes in comparable currencies have been calculated by translating the reporting period figures with the average USD/EUR exchange rates of the comparison period for the US dollar dominated in-app-purchases in United States and global ad network sales.

Kati Levoranta, CEO:

In Q3 2020, our Games revenues declined slightly quarter-on-quarter after the revenue and player engagement normalized from the peak during the global shelter-at-home situation in Q2 2020. The revenues were higher than in Q1 2020 and, in comparable currencies, games revenues grew by 1% and gross bookings by 3% year-on-year.

The user acquisition investments were marginally increased quarter-on-quarter as expected as we continued to scale up our newest game Small Town Murders. However, during the quarter, the user acquisition investments were at a considerably lower level than in Q3 2019. As a result of the moderate level of UA investment and stable games revenues the profitability continued to be at a high level and improved significantly year-on-year. As earlier stated, our UA investments are driven by our 12-month payback model and the overall investment level is dependent on both the games performance and the external market environment. Due to high profitability our operative cash flow was very strong.

During the third quarter, our largest game Angry Birds 2 grew year-on-year and has continued at a quite stable run-rate since the end of Q2 when the revenues normalized after the Covid-19 peak. We are happy with the continued strong performance of Angry Birds 2 and its exciting road map of new updates and features for Q4 this year. The strong momentum of Angry Birds Friends that started at the end of Q1 continued during Q3. Angry Birds Dream Blast’s revenue declined from the previous quarter and due to much lower UA compared to one year ago, the revenue was also lower year-on-year.

We continued to scale up Small Town Murders, our newest game that was released in June this year. New murder mysteries and puzzles are being added to the game every month. We introduced the game with an end-game feature to increase player engagement especially with the most advanced players who play through the content very fast. In October the game was localized to 10 new languages including Japanese and Korean. We believe that localized languages can enable higher engagement and monetization

Our new games roadmap is healthy with 3 games in soft launch and in total 8 games in various stages of development. The timing of new game releases is always uncertain until the KPI’s and the user acquisition scalability is verified in the soft launch stage. We believe that our current games in soft launch will in the long run benefit from having more time in development and thus, we are not launching a new game at the end of 2020. While we keep on adding new projects into our roadmap, we have also continued strengthening our studios with recruitments and appointed Andy Muesse as head of our Stockholm games studio.

We announced on 5th of October that I will be leaving Rovio at the end of 2020. I started as Rovio CEO in January 2016, and during the past five years we have crystalized our strategy and brought more focus in our operations. At the same time, we have transformed the company from a privately-owned company into a public company. It’s been great to work with top professionals in the game business and be surrounded with talented and passionate people. Today, Rovio is in good financial shape, has a strong games portfolio, and we have an amazing crew of talented people.

2020 outlook (updated)
Group revenue will be somewhat lower than last year (2019: EUR 289,1 million) and adjusted operating profit (2019: 6.3%) will improve significantly.

Previous 2020 outlook
During 2020 we aim to launch 1-3 new games. The timing of new game launches depends on how the games progress in soft launch. Therefore, we do not give a full year 2020 revenue guidance. We start the year at a lower user acquisition level than we ended last year. Due to lower user acquisition investments and the planned cost savings in Hatch Entertainment Ltd., our adjusted operating profit improves.

Basis for outlook
Our strategy is to seek growth in the Games business through improving the performance of our key games and developing new games.

Brand Licensing segment is optimized for profit at a lower revenue which is expected to decline approximately 50% year-on-year in 2020.

Hatch Entertainment annualized expenses are expected to be approximately EUR 5 million (2019: EUR 10.9 million) on an adjusted basis after restructuring and aligning with its new strategy.

More detailed outlook per games category is given below:
Grow: We expect Angry Birds Dream Blast to grow on an annual basis but with much lower user acquisition vs. last year. The game has a strong feature roadmap focusing on improvements to long term retention and monetization. We are continuing to develop Sugar Blast through live operations for its core audience and improve retention and monetization in order to scale the game up. We continue to gradually scale up the user acquisition of our newest game Small Town Murders in Q4/20.

Earn: The revenues of Angry Birds 2 stabilized despite much lower user acquisition investments y-on-y. We further focus on improving the performance of the game through introducing new updates that increase engagement with our core users. The revenue of Angry Birds Friends is expected to be stable or slightly grow year-on-year. The revenue of other games in this category (Angry Birds Match and Angry Birds Pop) is expected to continue declining at a steady slow pace. We have lowered or stopped user acquisition investments into these two games.

Catalogue: We expect these games to continue declining over time. They still receive substantial organic downloads, but the active user base and revenues are expected to decline over time as we do not develop these games further.

New games: We have released one new game, Small Town Murders, in June 2020. At the moment we have three games in soft launch and several in different stages of development and we think they will benefit from having slightly more time in development and, accordingly, we will not launch another new game in 2020.

Games in soft launch are available in a selected number of countries and operated with a limited number of gamers. Soft launch games have advanced far in the game development process. They are being tested and developed in order to verify their commercial potential and scalability. There is no guarantee that games in soft launch will be published.

Audiocast and conference call:
Rovio will host an English language audiocast and conference call on the third quarter 2020 financial results, including a Q&A session for analysts, media and institutional investors at
14:00-15:00 EET on October 30, 2020. The audiocast can be viewed live at: https://investors.rovio.com/en, and later on the same day as a recording.

Conference call details:
PIN: 33522954#

Finland: +358981710310
Sweden: +46 856642651
United Kingdom: +44 3333000804
United States: +1 6319131422

More information:
Kati Levoranta, CEO, tel. +358 40 485 8985
René Lindell, CFO, tel. +358 40 485 8985

Distribution: Nasdaq Helsinki, key media, https://investors.rovio.com/en

Rovio in brief
Rovio Entertainment Corporation is a global, mobile-first games company that creates, develops and publishes mobile games, which have been downloaded over 4.5 billion times so far. Rovio is best known for the global Angry Birds brand, which started as a popular mobile game in 2009, and has since evolved from games to various entertainment and consumer products in brand licensing. Today, Rovio offers multiple mobile games, animations and produced The Angry Birds Movie in 2016. Its sequel, The Angry Birds Movie 2, was released in 2019. Rovio is headquartered in Finland and the company's shares are listed on the main list of NASDAQ Helsinki stock exchange with the trading code ROVIO. (www.rovio.com)

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