Operator  

Good day, and thank you for standing by. Welcome to the Ubisoft Q3 Fiscal Year 2025 Sales Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your fair speaker today, Yves Guillemot, Ubisoft Co-Founder and Chief Executive Officer. Please go ahead.

Yves Guillemot   Co-Founder, Chairman, CEO, President & Chief Creative Officer

Welcome, everyone, and thank you for joining the call today. .

Our Q3 net bookings were in line with our revised expectations. Frédérick will provide more detail on that later on.

As we look ahead, we are fully focused on the upcoming launch of Assassin's Creed Shadows on March 20. Early previews have been positive, praising its narrative and immersive experience, with both characters playing critical roles in the game storyline as well as the quality and complementarity of the game play provided by the dual-protagonist approach.

Personally, I am pleased about the fact that the previews contributed to a better understanding of the coherence and power of the 2 protagonists' very singular and epic narrative trajectories that had initially given rise to some controversies and misunderstandings.

I want to commend the incredible talent and dedication of the entire Assassin's Creed team, who is working tirelessly to ensure that Shadows deliver under promise of what is the franchise's best and most ambitious entry yet.

We are also progressing well on our cost reduction program. As a result of disciplined execution, we have announced further targeted restructurings, making difficult but necessary choices, and now expect to exceed our cost reduction objectives by the end of financial year '25, ahead of schedule. We plan to pursue our efforts in financial year 2016.

Finally, the formal review process of our strategic options is ongoing. Ultimately, the objective of this competitive process is to unlock the best value from our assets for our stakeholders and to foster the best conditions to create great games in a fast evolving market. We are convinced there are different potential paths to achieve this ambition.

I will now hand over the call to Frédérick. Frédérick?

Frédérick Duguet   Chief Finance Officer

Yes. Thank you, Yves, and hello, everybody. .

Our Q3 net bookings reached EUR 302 million and, as mentioned by Yves, in line with our revised expectations.

Since the beginning of the fiscal year, MAUs across Console & PC stood at 36 million, remaining broadly stable year-on-year. Activity metrics have been solid with playtime and session days per player, respectively, up by 4% and 7%.

On the new release side, while the sales curve for Star Wars Outlaws improved throughout the holiday season, it wasn't enough to deliver on our expectations. Thanks to the rollout of title updates, the game has reached a high level of quality and is considered by the fans as one of the most immersive and beautiful interactive representations of the Star Wars universe. The game will be a long-term seller.

Turning to back-catalog net bookings. This stood at EUR 268 million this quarter, down 26% year-on-year. Excluding partnerships, they were down mid-single digit in Q3, while being up mid-single digits since the start of the fiscal year. In a significantly tougher competitive landscape for first-person shooter live services games, Rainbow Six Siege delivered a resilient performance this quarter, with activity broadly flat in December despite a strong comparable base. Session days per player in Q3 grew year-on-year, while Year 9 Season 4 reception was solid, culminating in December, achieving the highest monthly average revenue per paying user in the game's history.

Looking at the game's ranking across all Console & PC genres, the game ranked in the top 15 in terms of MAUs in both fiscal Q3 and calendar year 2024 and even improved in January to get back to the top 12. Over the first 9 months of the fiscal year, the game's activity has been stable year-on-year and its playtime grew solidly.

Looking ahead, the Six Invitational is taking place in the United States, the game's largest market, for the first time. As the game nears its tenth anniversary, the team is preparing something significant to celebrate this milestone. For some time now, we have been prioritizing major growth plans for the years ahead, starting next fiscal year, even if it meant producing less content in fiscal year '25.

Elsewhere in the back-catalog, the Assassin's Creed franchise performed strongly throughout the quarter, highlighted by the Steam release of Assassin's Creed Mirage, confirming the brand is in great shape. Meanwhile, The Crew Motorfest launched its Year 2 of content, featuring the brand-new island of Maui. The game's retention and monetization metrics continue to significantly outperform those of The Crew 2 since launch, and achieved its highest monthly player count to date in December. Overall, The Crew franchise saw session days grow 38% year-on-year this quarter. Since the beginning of the year, the number of unique active players grew 18% year-on-year.

Reflecting the fact that Q3 of last year had 2 large new releases, total digital net bookings reached EUR 257 million, down 45% year-on-year, and represented 85% of our total net bookings. PRI stood at EUR 144 million, down 18% year-on-year, and reflected the lower PRI contribution from this year's new releases, of which a negative contribution from XDefiant discontinuation linked to the refunds issued this quarter. Mobile stood at EUR 29 million this quarter.

Throughout the quarter, as part of our ongoing efforts to streamline operations and enhance collective efficiency, we have continued to drive significant cost reductions as we have adopted an even more selective approach to investment. In December, following a thorough assessment of our performance, profitability and market conditions, we announced the discontinuation of XDefiant and the closure of 3 production studios in high-cost geographies. Additionally, in January, we announced the closure of an additional production site and targeted restructurings that impacted 3 other studios.

We now expect to exceed the EUR 200 million reduction of our fixed cost base by fiscal '25 compared to fiscal '23 ahead of schedule. We plan to pursue these efforts in fiscal '26 and go beyond our initial target by a significant margin.

Today, we have confirmed our fiscal '25 guidance. We expect net bookings of around EUR 1.9 billion and approximately breakeven non-IFRS operating income and free cash flow. Together with a solid back-catalog and expected material partnerships, Q4 net bookings are planned to grow year-on-year, thanks to the Assassin's Creed Shadows release.

As we mentioned, the Assassin's Creed Shadows previews were positive, with critics praising its immersive world, stunning visuals and richly detailed setting. The game builds on the franchise's core strengths while introducing fresh elements that enhance variety and engagement. The dual-protagonist game play was particularly well received, offering 2 distinct play styles that cater to different player preferences as well as both characters playing critical roles in the game's storyline. Stealth mechanics and parkour fluidity were highlighted as major improvements, while the revamped combat system was praised for its strength. Finally, the inclusion of canon mode and immersive mode was seen as a thoughtful addition, specifically tailored to core fans.

Current preorders for the game are supportive. The bulk of the preorders is still to come. And while we have just reopened digital preorders, we are happy to see that our total preorders are already tracking on par with those of Assassin's Creed Odyssey 5 weeks ahead of launch, the second most successful entry of the franchise, keeping in mind that the Ubisoft+' subscription service didn't exist at the time.

And as always, here are a few fiscal year '25 housekeeping items for modeling purposes. The stock-based compensation is expected at around EUR 55 million, unchanged versus prior guidance. The non-IFRS net financial charge is expected at around EUR 45 million, unchanged versus prior guidance, reflecting the full year effect of last year's additional financing. The non-IFRS tax rate is not relevant in the context of breakeven non-IFRS operating income. And the number of diluted shares is expected at around 128 million, reflecting the fact that with an expected negative net income, the dilutive nature of our instruments no longer kicks in.

Operator  

[Operator Instructions] Your first question comes from the line of Nicolas Langlet from BNP Paribas.

Nicolas Langlet   BNP Paribas Exane

I've got a couple of questions on the licensing and partnership deals you expect in Q4. So first of all, are you able to split the contribution between the streaming rights of Activision Blizzard game and the other type of partnerships as I think you still expect a bit of streaming rights in Q4?

Secondly, regarding the partnership deals, anything you can share regarding the nature of the deal? Is it linked to subscription services publishing deal? Any detail would be appreciated.

And finally, in terms of cash impact, do you expect to get the full impact of those deals in Q4 this year or we might see a bit of delay in the collection as was the case last year? So just to be clear on that. And then I've got a follow-up please.

Frédérick Duguet   Chief Finance Officer

Yes. Thank you, Nicolas. So in terms of the partnership overall, what we can say is that, as mentioned during last call, we expect a total contribution that will be broadly in line with what we did last year in Q4. But we won't provide any more detail. As you can imagine, these are confidential elements.

In terms of the nature of the deal, we can't share more either. What we can refer to is what we've been doing over the last 6 years, which has been a combination of new releases coming to platforms that want to get traffic and/or back-catalog of games coming to platforms that want to drive traffic and us getting the benefit of more penetration on these platforms and/or publishing deals indeed. And as you've just mentioned, we added last year the additional opportunity to monetize streaming rights from what we acquired from Activision and what we want to continue doing. But we can't share more at this stage.

In terms of cash, we don't expect the 100% of them coming into Q4, but the majority of them in the current quarter.

Nicolas Langlet   BNP Paribas Exane

Okay. Perfect. And then on the cash position, so I think during the last call, you mentioned EUR 800 million of cash position in Jan. What's the level of gross cash you expect at the end of full year '25? And I think also in previous call, you mentioned EUR 260 million of debt reimbursement in calendar '25. Do you confirm? And can you tell us which debt instrument you plan to reimburse next year?

Frédérick Duguet   Chief Finance Officer

So on the first question, sorry, can you repeat the first question?

Nicolas Langlet   BNP Paribas Exane

Sure. What's the level of gross cash you expect at the end of the year '25 compared to the EUR 800 million?

Frédérick Duguet   Chief Finance Officer

So yes, we don't guide on this. What we can tell you is that we expect gross debt at the end of the fiscal year to be around EUR 1.9 billion. And what we mentioned previously is that we expect free cash flow to be around breakeven this year. And we also got the benefit of a capital increase of around EUR 40 million this fiscal year through the employee share ownership plan that was issued in August.

In terms of debt reimbursement in 2025, we expect around EUR 275 million, of which EUR 260 million at the end of the calendar year.

Nicolas Langlet   BNP Paribas Exane

Okay. And that EUR 260 million, it's related to the bond, bank debt, anything you can share? .

Frédérick Duguet   Chief Finance Officer

So it's a combination of term loan and Schuldschein.

Operator  

We will now take the next question from David Lustberg from BMO Capital Markets.

David Marshall Lustberg   BMO Capital Markets Equity Research

I wanted to ask around the cost reduction plan. It sounds like you guys are making great progress there as it relates to what you guys have previously announced. The comments on 2026 were interesting. It sounds like you guys maybe have a little bit more wood to chop there. Maybe can you talk a little bit about -- I think you used the word significant. How big should we be thinking about a cost reduction plan in '26? Is it something you guys have already put in place? Or what's sort of the planning and the groundwork for?

Frédérick Duguet   Chief Finance Officer

David, yes, we've been happy with the momentum of this cost reduction program. And yes, we now have a good visibility to be able to exceed the initial target a year ahead of schedule. And yes, we qualified for now the fact that we will exceed the initial target in fiscal '26 by a significant margin. I won't go further in terms of qualifying it. We'll share with you more in the future. But we'll continue along the same lines that we have done so far.

So as we mentioned, with an even more selective approach to investment, and so combining streamlining of our production processes, simplifying the organization that allow us, with stronger focus, to maintain a strict control on recruitment, so relying more on internal mobility and as well as pursuing with targeted restructurings, lower external spending, so with sharper purchasing. So that's what we can say at this stage.

David Marshall Lustberg   BMO Capital Markets Equity Research

Got it. That's helpful. And then a follow-up, if I may. Just curious if you can talk a little bit about how you guys have been thinking about the development pipeline. Obviously, there's a lot going on. Just talk about how you guys are fundamentally thinking about product development from here given everything you guys have seen recently. I really appreciate it.

Frédérick Duguet   Chief Finance Officer

Yes. So as we had said before, we've been investing significantly for a big pipeline of products for the coming years along our 2 verticals being Open World Action Adventure as well as gaming service native experiences. And that's what we want to deliver year after year. As you know, we are preparing with a big launch for AC Shadows in the very short term. Next year, we'll have big growth plans that would benefit to Rainbow Six across all platforms. And so that's progressing well, and that's a key milestone in the growth plan for the company.

We announced that Anno 117: Pax Romana will come also next year as well as The Division Resurgence on mobile, all this coming along well. We haven't provided more color for fiscal '26, but we will have more to share by the time of May. And as I've just said, we have a strong pipeline for the future years across these 2 verticals.

Operator  

We will now take the next question, and the question comes from the line of Nick Dempsey from Barclays.

Nick Dempsey   Barclays Bank

Just a question about your comments on the preorders for Shadows and how those relate to Odyssey. Was Odyssey the second biggest revenue-generating game? Or was it the second biggest unit sales-generating game in its early months, first quarter, whatever works? I'm just thinking it had more in-game spending than previous Assassin's Creed. I'm just trying to think what the preorders might mean for our first 12 days of Shadows unit sales.

Frédérick Duguet   Chief Finance Officer

Yes, Nick. So yes, Odyssey has been the second biggest performer in the franchise history, very close to Valhalla in terms of units sold on a comparable time basis. At the time when we launched Odyssey, it set a new benchmark for the franchise. So it was a very successful first week. So that's what we can say at this stage. And when we look back, Odyssey has been accumulating 40 million players to date. So it's been really a great success. So what we see as a preorder benchmark is encouraging.

Nick Dempsey   Barclays Bank

And I guess a quick follow-up to that. Through the period of the last couple of years where we've seen some disappointing unit sales outcomes compared to your expectations, were you able to see those disappointing outcomes in the preorders? In other words, can we assume that the relationship between preorders and actual sales that we saw back in 2018, was it, for Odyssey, can still hold in the current environment?

Frédérick Duguet   Chief Finance Officer

What we can see is that for the curve that we have been observing after just reopening the digital preorders of Odyssey, it's really supportive of what we can anticipate. But of course, the bulk of the preorders for the next 5 weeks is still ahead of us. So what we can see today, it's really positive. And of course, we'll continue monitoring this.

Yves Guillemot   Co-Founder, Chairman, CEO, President & Chief Creative Officer

And there are plenty of indicators that we look closely at to see how the game is expected by our players.

Operator  

Your next question comes from the line of Ben Shelley from UBS.

Benjamin Shelley   UBS Investment Bank

I've got three, please. In the release, when you talk about the strategic and capitalistic options, can you talk us through what the incremental changes there have been since you last spoke to the market?

Two, particularly, can you expand on the phrase of formal and competitive process? Are you implying there is more than one interested party?

And three, I just want to come back to cash and looking at the balance sheet for FY '26. Would you expect to pay off upcoming debt obligations in FY '26 through existing cash and cash generation? Or would you look to refinance? If the latter, could you talk us through what options you are considering?

Frédérick Duguet   Chief Finance Officer

Yes. So in terms of strategic options, yes, as we said early January, we appointed advisers at the very beginning of the month. So now the process is ongoing. Of course, we can't share much more than that, but we are currently actively exploring various strategic and capitalistic options. Indeed, we have now got into a formal process that is a competitive process. And the Board has decided to create an ad hoc committee that will oversee that process, with 3 independent directors being members of this committee that will be chaired by our lead independent director. So that's what we can say at this stage.

And in terms of on the cash side, so yes, we said that we benefited early January from a solid cash and cash equivalent position of EUR 800 million. By the end of 2025, we have around EUR 274 million to reimburse. We are planning to be breakeven in terms of cash generation by end of this fiscal year. And in fiscal '26, we'll get the benefit of significant cash-in from Assassin's Creed Shadows as well as from the growth plan from Rainbow Six across all consoles and platforms, including mobile. And we will also have a growing impact of the cost reduction program that is ongoing. But as we've always done in the past, we continue looking at refinancing opportunities moving forward, of course.

Operator  

[Operator Instructions] We will now go to the next question, and your next question comes from the line of Aleksander Peterc from Bernstein.

Aleksander Peterc   Sanford C. Bernstein & Co.

The first one is on the strategic review. Do you actually have a date on which you plan to communicate on the conclusions there, or at least some idea at what point in time, at the latest, do you expect the process to complete? And then I have a quick follow-up.

Frédérick Duguet   Chief Finance Officer

Yes. The idea is to progress on the different options that we are exploring and to make a decision in the coming quarters.

Aleksander Peterc   Sanford C. Bernstein & Co.

So definitely over the next 2 quarters? Or you just can't say more?

Frédérick Duguet   Chief Finance Officer

In the next quarters, in the course of this year. .

Aleksander Peterc   Sanford C. Bernstein & Co.

Okay. And then the second question is just on the reimbursement of debt that you have in the course of the next 12 months. So what I see in your annual report is you have a term loan facility of EUR 218 million, installment loan facility of EUR 25 million and Schuldschein for EUR 105 million. So the sum of this is actually EUR 350 million. So I'd just like to understand why the figure you gave is different. It's a bit lower. Is the term loan facility lower or what's moved there?

Frédérick Duguet   Chief Finance Officer

Yes. So we started reimbursing the term loan for around EUR 65 million over the last quarter. So that's why we're talking about a lower amount. And so that's why our short-term debt within a year in total is around EUR 274 million.

Operator  

Your next question comes from the line of Nick Dempsey from Barclays.

Nick Dempsey   Barclays Bank

Just one quick follow-up. When we're thinking now about the slate for FY '26, is it possible for you to tell us whether you have at least more than 1 AAA game unannounced that we can start to build into our modeling for the year to end March '26?

Frédérick Duguet   Chief Finance Officer

So Nick, it's too early to give you more color on this. We'll share with you where we are by May. What we said already is that, again, we have strong plans for the Rainbow Six brand across all platforms. We should get the benefit of strong sales from AC Shadows. We said 2.5 years ago that we will come with a high-quality paid content, going to market on the AC franchise. And we already announced the launch of Anno 117: Pax Romana. That is a very promising strategy game. More to be said by May.

Operator  

I will now hand the call back for closing remarks.

Yves Guillemot   Co-Founder, Chairman, CEO, President & Chief Creative Officer

Okay. Thank you very much for all your questions, and have a good day or good evening.

Operator  

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.