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UbiSoft Entertainment Inc. (OTC:UBSFY)
Q4 2020 Earnings Call
May 14, 2020, 12:15 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Yves Guillemot

Welcome, everyone, and thank you for joining the call today. People around the world are facing a global health and economic crisis. I would like to offer the sympathies of all of us at Ubisoft to those who have been adversely affected by this crisis. We extend our gratitude to healthcare workers and everyone else working to combat the virus and restore a sense of normalcy to our lives.

I also want to sincerely thank all Ubisoft teams. The health and well-being remain our priority and they have adapted admirably to these challenging times, as well as, managed to remain highly focused and productive. Our teams have found extra motivation in video games' ability to deliver relief and joy to billions of people and to help them stay connected with their communities. In those difficult times, they have notably delivered plenty of free operations and they plan to continue doing so in the coming months.

In many respects, confinement highlighted the best qualities of video games, including offering nearly unlimited content, deeply needed social interactions, and new forms of activity and education. Ubisoft's stated mission, to enrich players' lives, has never been as important as during those uncertain times. With our deep and diverse portfolio of franchises, we have been able to offer players of every age and preference great ways to escape, from the most engaged fans with Rainbow Six Siege, Assassin's Creed Odyssey, and The Division 2 to kids and families with Just Dance, Mario + Rabbids: Kingdom Battle, Rayman Legends, and more casual titles like Monopoly, UNO, and Hungry Shark. On top of helping to take care of our employees and players, a major focus for our organization this quarter has been production.

Ubisoft's culture of deep collaboration, the flexibility and efficiency provided by our network of international studios, and the amazing work from our IT teams have been key to reacting rapidly to the challenges of working from home. Looking at our strong Q4 performance, we already had built solid momentum in the first 10 weeks of the quarter prior to much of the world's extended stay-at-home ordinances, which had a further positive impact on engagement. Our team's execution, notably on our live games, have indeed been remarkably strong. For example, Rainbow Six Siege and Assassin's Creed Odyssey confirmed their strong dynamic and we also were pleased by gamers' very favorable reception to the major updates made to The Division 2 update.

The game had an impressive reverse of momentum during the quarter, and its performance is now on par with Assassin's Creed Odyssey after 13 months, which is an impressive benchmark. Therefore, the quarter confirmed in striking fashion, the strength of our live services, our PRI momentum, and our capacity to engage with our communities even without new releases. We benefit from a deep portfolio of strong franchises on which we can rely and grow. If we take a step back and look at our performance during the console -- this console generation, Assassin's Creed Unity, Origins, Assassin's Creed Odyssey, The Division 1 and 2, Far Cry 4 and 5, Ghost Recon Wildlands, Rainbow Six Siege, Watch Dogs 1 and Watch Dogs 2, all sold more than 10 million units.

During the prior generation, only the Assassin's Creed franchise and Far Cry 3 reached these levels. This shows how far we have come in deepening and strengthening our portfolio of franchises over the past seven years. This provides us with great confidence as we enter the new generation cycle with -- the new generation console cycle, sorry, with significantly stronger creative and production firepower, franchises, and live services capabilities. Leveraging those strong pillars, we believe we are in a position to deliver our initial operating income target of EUR 600 million in fiscal year '21.

This notably relies on our current excellent momentum on PRI and back catalog, as well as, the most ambitious lineup of the industry over the period. However, the COVID-19 crisis has brought external uncertainties. First, the trans -- transition to work from home means we have been facing some challenges in areas like motion capture, localization, voice recording, and testing, which has an impact of few weeks of production. While our teams are finding and implementing innovative solutions to those challenges, only time will tell if we can continue to maintain our release plan.

On top of those production-related topics are the related external uncertainties over the horizon, including the potential impact of the economic crisis on our business partners and on people's consumption. To account for the potential impact of those external uncertainties, we have decided to introduce a range in our target for financial year '21 to provide as much visibility as possible on the different estimated outcomes. This takes into account the possibility of having one of our five AAAs moved to fiscal year '22, if needed, to maximize the potential of our lineup. Frederick will detail the different assumptions.

I will now let him detail our Q4 and the full-year performance.

Frederick Duguet -- Chief Financial Officer

Hello, everybody. I will first provide details on some of our responses to the COVID-19 crisis. As Yves said, the health and safety of our teams and their family has been our priority. We have been notably providing them with logistical material and psychological support at the group and local levels.

We have offered ways for our players to stay engaged and entertained during this period, including through special offers. For example, in April, we launched the Play Your Part, Play At Home campaign. Through this campaign, we gave away three beloved games, Child of Light, Rayman Legends, and Assassin's Creed 2, which have been downloaded 9 million times in total. With many children unable to attend school, our educational resources and games have seen renewed interest among our communities.

Teachers are using Assassin's Creed Odyssey Discovery Tour Ancient Greece to give their students virtual history lessons. While our free Rabbids Coding game provides a fun way for kids to learn to code. As of today and until May 21st, both Discovery Tour Ancient Greece and Ancient Egypt are available to download for free on PC via Uplay. Finally, our different Ubisoft offices and our teams have also been showing amazing commitment and care to their communities.

They have been highly engaged and donated to a variety of local organizations, such as hospitals and food banks to help the communities where we do business. Looking now at our Q4 performance. I would like first to mention we applied a new classification for mobile revenue in line with the industry practice. We are now booking revenue growth of platform fees and netting them at the cost of goods sold level with no change to underlying profit.

As the impact represents EUR 29 million and less than 2% of our revenue, we have decided to apply the full-year impact on Q4 and not to restate our past year in agreement with our auditors. The slideshow posted on our investor relations website provides our performance before and after this reclassification. For the sake of comparability, I will base all my comments today before that reclassification to ensure like-for-like comparison with fiscal '19. Our Q4 net bookings reached EUR 388 million, down 43% year-on-year but nicely above our target of approximately EUR 333 million.

Full-year net bookings reached EUR 1.505 billion, down 26%. As Yves noted, while we saw clear growth in engagement from mid-March, we already were operating at a faster pace than initially anticipated with over two-third of our EUR 55 million Q4 outperformance happening in the first 10 weeks of the quarter. The rest of the game came from a mix of organic strength and from the increased engagement related to confinement. The dynamic was felt across the board with strong performance from our full portfolio, as well as, great trends on digital and PRI.

It was notably driven by strong execution and intense activity across our games with well-received new updates, impactful sport events, and very effective player acquisition strategies. Among these games, The Division 2 delivered a very strong comeback. With the release of Warlords of New York, The Division 2 had a very busy quarter with deep gameplay updates, a massive expansion bringing free and paid new content updates, and a very attractive promotion. As a result, we saw a significant increase in acquisition, engagement, and PRI KPIs.

MAUs tripled versus January and reached record levels in February and March. The game was the second best contributor to Ubisoft's PRI revenue over the full year. As Yves said, after 13 months, its overall performance is on par with Assassin's Creed Odyssey. Rainbow Six momentum continued to be amazing during the quarter despite huge competition.

Acquisition keeps up at a very healthy rate with 60 million registered players as of today, with record levels of engagement from January, February, and March months. Engagement passed 1 billion session days over the year and the introduction of the Battle Pass contributed to incremental growth of engagement and PRI. The game achieved a 15% growth in PRI over the full year with an acceleration in Q4 up 26%. After four years of growth, esports continues to thrive with a 30% year-on-year increase in total work time over the six invitational events.

For the first time ever, Siege was ranked in the top-tier most impactful PC titles in The Esports Observer quarterly ranking among League of Legends, Dota, and Counter-Strike. GameSpot decided to review the game again and gave it a perfect 10 out of 10 score, stating Rainbow Six Siege has become one of the best first-person shooters ever made. Others confirm the game's progressive and impressive ramp up as one of the industry's leading games. Assassin's Creed obviously keeps surprising us on the upside, generating 35% more active players in fiscal '20 than in fiscal '19.

Additionally, we saw another spike this quarter in overall KPIs versus Assassin's Creed Origins. Over the past 12 months, Odyssey outperformed its predecessor by approximately 90% for both sell-through and engagement and by 170% for PRI. This demonstrates another strong acceleration on all metrics since our last update in February. We are also humbled by the positive reception to the multiple updates brought to Ghost Recon Breakpoint.

We worked with some of our most engaged players for feedback on the Ghost Recon experience, which was pivotal for generating higher positive sentiment from the community and journalists alike. Another demonstration of the depth and strength of our portfolio comes from Far Cry 5, whose revenues 25 months after release are up almost 40% versus Far Cry 4 with PRI up almost 10 times. Player reengagement has also been strong, as we've seen the number of returning players rise between February through April. Our portfolio of casual games also had a very strong quarter, notably on Switch.

Yves already mentioned Just Dance 2020, which after a strong Q3, thanks in large part a very effective TikTok marketing campaign, continued its market growth in Q4. Just Dance offers entertainment, social interaction, and exercising options for the whole family, and it saw accelerated sales and engagement mid-March due to confinement. Just Dance 2020 Q4 net bookings were up 156% year on year. Our family of Hasbro games also performed very solidly in the context of confinement, and Brawlhalla continued to break engagement records, which bodes well for its upcoming release on mobile.

Over the quarter and the full year, despite challenging year-on-year comparison base, we saw very solid performance at the engagement, back-catalog, and PRI levels. During the year, engagement remained stable at very high levels with 100 million active players across our console and PC games. Including Brawlhalla, our active players base was 117 million. We even managed to grow slightly our MAUs on consoles and PC to 34 million.

The month of March was particularly strong with record levels for both new and reactivated players, even beyond the high levels we traditionally see in December. Total engagement over the quarter was stable despite the release of The Division 2 in March 2019. Full-year back-catalog net bookings reached EUR 1.091 billion, down only 5%. This is quite a nice performance considering the very strong comparison base due to Far Cry 5's release in the last few days of fiscal '18.

Back catalog represented 73% of total net booking versus 55 -- 57% in fiscal '19 as we had fewer new releases this year. During Q4, back catalog saw a solid year-on-year growth of 8%. As a consequence of this overrepresentation of back catalog, full-year total digital net bookings represented 82% of our total net bookings versus 69% last year. PRI was definitely stronger than expected.

It was up 5% for the full year at EUR 673 million. In Q4, despite a strong comparison base, PRI was only down 2% to EUR 199 million. It represented 60% of this quarter's EUR 55 million net bookings outperformance. On a platform basis, for the first time ever, PC became our second biggest platform in terms of active users over 12 months with a strong year-on-year growth.

This PRI progress over the past few years reflects the successful transformation of our portfolio, including a significant offering exposition in multiplayer and RPG games. Over the same time period, new play represented more than 40% of our PC net bookings on all platforms, which saw the biggest growth in active users. The console is reaching more mainstream audience, which is a clear capacity for Just Dance. Download patterns for our Switch games saw meaningful improvement over the quarter.

As expected, mobile revenue was down 14% to EUR 132 million. With confinement, engagement also grew meaningfully, but contrary to our PC and console titles, we did not see a meaningful PRI conversion even if some titles outperformed like Just Dance Now. We expect our mobile business to rebound strongly in fiscal '21, with the full-year benefit of the Green Panda and Kolibri Games acquisition and the releases of Brawlhalla, Roller Champions, and Tom Clancy's Elite Squad. Let me now go into the details of our full-year earnings.

First, Slide 8 of our presentation. Our pro forma gross margin was up 1.3 points to 85.1% despite the impact of provisions on inventories to reflect some prudence on the retailer side. The Switch outperformance during the quarter also weighed on gross margin. Including the new mobile reclassification, gross margin was mostly flat year on year.

R&D was down 3% in absolute value and up 9.9 points. I will review the detail in the following slides. Variable marketing expenses were up 2.5 points. It reflects a lower performance on the release side, as well as, early spending for the three delayed AAAs.

Additionally, the cancellation of upcoming trade shows resulted in a one-time provision. Fixed structure costs were up 7.1 points. This reflects, first, the full-year impact of the i3D.net acquisition in December 2018, as well as, our strategic investments in our direct-to-player platform. Turning now to Slide 9.

Total R&D reached EUR 681 million. Despite only one release this year, the limited 13% decrease in total depreciation reflect significant impairment charges on Ghost Recon Breakpoint and accelerated depreciation on upcoming titles as we are factoring in prudent estimates in our fiscal '21 top-line guidance. I will come back later on to this topic. Royalties at EUR 24 million were higher than anticipated following the outperformance of Just Dance and the Hasbro titles.

Non-capitalized R&D is up 19% and mostly reflects our investment in our live services and future mobile games. It also reflects a onetime accounting event as last year, Rainbow Six Siege post launch was capitalized and it is now fully expensed. As expected, total cash R&D was up 14% to support our future strong top-line growth. As a consequence, the gap between R&D, P&L, and cash increased to EUR 229 million as we are bringing an impressive lineup in fiscal '21 and as we had few new releases in fiscal '20.

Moving to Slide 10. The IFRS/non-IFRS reconciliation shows four types of adjustments, EUR 61 million IFRS 15 deferred revenue mostly driven by reversals from past launches, the traditional stock-based compensation charge standing at EUR 54 million as expected, and flat versus last year. As a precautionary measure, we have booked a noncurrent goodwill amortization charge of EUR 101 million. After a very strong performance, two of our past acquisitions have facing -- have been facing a significant increase in competition even if they remain profitable.

As usual, our non-IFRS figures also exclude EUR 8 million non-cash charge related to the convertible bond option costs. The non-IFRS net financial charge saw a EUR 9 million increase versus last year. This is mostly explained by the gain of EUR 13 million related to the total return swap settlement that was booked last year. On top of those adjustments, I would like to mention the income tax which was significant this year despite a low profit.

This was due to the increased BEAT tax in the U.S. that went up significantly in fiscal '20 without direct correlation with our limited group operating income this year. This discrepancy is due to the fact that the base use for this tax is our growing digital sales in the U.S. Finally, the number of diluted shares is in line with the number of non-diluted shares.

As in case of a negative profit, they will have an anti-dilutive impact. Looking at our cash flow statement, Slide 11. Free cash flow stood at minus EUR 191 million versus EUR 310 million in fiscal '19. This EUR 501 million gap reflects mostly the following two impacts: the EUR 471 million decrease of our cash flows from operations due to the EUR 342 million decrease of net income and the EUR 128 million growing gap between cash and P&L R&D and investment in capital assets grew EUR 35 million due to investment in servers and studios.

Below the free cash flow line, we had EUR 144 million in acquisition related to the purchase of Green Panda and Kolibri Games, as well as, deferred payments of strongly performing past acquisitions. We benefited from EUR 382 million of proceeds from the conversion of our 2016 convertible bond and from our employee share plan for EUR 75 million, resulting in EUR 456 million total proceeds. We also received EUR 35 million from disposal of own shares relating to the transfer of our shares under our employee shareholding plan. Finally, the issue of our convertible bonds strengthened our equity by EUR 50 million minus the EUR 7 million interest.

In the end, we have significantly reduced our non-IFRS net debt to EUR 101 million versus EUR 293 million last year. As illustrated in the Slide 12, we are entering fiscal '21 with a stronger financial position. We have a solid EUR 1.3 billion equity, and as I just said, a non-IFRS net debt reduced to EUR 101 million. And we benefit from EUR 1.3 billion of mostly untapped long-term financing at our disposal to fuel our strong investment plans with no reimburse maturity happening before January 2023.

That's all for my review of our fiscal '20 performance. Moving now to fiscal '21. Leveraging our current strong momentum, we believe that we can still achieve our initial EBIT target of EUR 600 million. This reflects an exceptional lineup, as well as, higher back catalog, digital, and PRI than initially anticipated.

As a consequence, we have also taken into account an additional buffer, reducing by around 10% the needed unit estimates for our five AAAs. As Yves said, the COVID-19 crisis has brought external uncertainties over the past few months. As a consequence, we are introducing today a range to our fiscal '21 target with net bookings between EUR 2.355 billion and EUR 2.650 billion and non-IFRS operating income between EUR 400 million, and EUR 600 million. The top-line range does include EUR 50 million from the new mobile reclassification, which has no impact on profit.

For the sake of prudence, the low end of our guidance with EBIT of EUR 400 million factors in two assumptions. First, we have taken the assumption that one of our five AAAs will be moving to fiscal '22. This assumption represents more than 50% of the EUR 200 million EBIT range. Even if our current plan continues to include all of them, there is a higher level of uncertainty related to the impact from the transition to work from home.

This impact is, up to now, limited to a few weeks. We need time to evaluate the evolution of our production over the coming months. Our compass will be the maximization of the long-term value of our games and franchises. Second assumption, the low end of our range also integrates further reduction in the number of units.

This reflects additional problems to factor potential effect from the COVID-19 crisis on our business partners and on consumption. We believe we have factored enough conservatism in the low end of our targets with those two prudent assumptions. Looking at our lineup. Four of our five AAAs are now revealed.

On top are Gods & Monsters, Rainbow Six Quarantine, and Watch Dogs: Legion. We recently unveiled as Assassin's Creed Valhalla, the next entry in our blockbuster franchise. The reveal was spectacular and set new records in terms of Ubisoft game announcement. We had over 100 million views of the trailer in the first 10 days, making it the most viewed trailer in Ubisoft history.

Since the reveal, the cumulated views of official and UGC videos is close to an amazing 200 million. AC Valhalla also remained at the top of trending topic list on Twitter for several days from April 30th in many countries, a first-ever for Ubisoft. As a demonstration of the current excitement around the franchise, we also saw a very meaningful spike in players' engagement with Assassin's Creed Odyssey and Origins. As of today and as announced previously, three of those five titles, including Assassin's Creed, will be released in the fiscal third quarter and two in the fourth.

We can't wait to unveil more and we will do so progressively throughout the summer notably at our Ubisoft Forward event on July 12th, as well as, at some other exciting upcoming digital events. As mentioned last quarter, we will also deliver other innovative titles, some of them with deep social layers like Roller Champions. We expect back catalog to be slightly down year on year versus our prior comment of down high single digit. Digital and PRI are expected to grow and represent a higher share of total net bookings than in fiscal '19.

We expect gross margin to be up and R&D and SG&A to be in our long-term range of, respectively, 35% to 40% and 25% to 30%. On the cost side, in the current context, we are implementing a tight control of our expenses on top of the automatic cost savings implied by the lockdown. Regarding other items, we expect stock-based compensation of around EUR 55 million and a non-IFRS net financial charge of around EUR 13 million, of which EUR 3 million is coming from the IFRS 16 impact on lease accounting. The U.S.

BEAT tax is having quite an impact, so, we are guiding for between 30% and 35%, which we believe is prudent. Number of diluted shares is expected around 125 million. The R&D P&L and cash gap will be higher than EUR 100 million. Long-term opportunities for material value creation are even stronger than before and we continue to invest meaningfully in them.

Of course, given the current macroeconomic context, if the level of activity was lower than expected, we will adjust our investment plans accordingly. We expect to generate a solid cash flow from operations in fiscal '21. With a negative impact from working capital due to the releases of two AAAs in the last quarter, free cash flow should be negative. Regarding Q1, we forecast EUR 335 million in net bookings, which includes an estimated EUR 11 million impact from the mobile reclassification.

On a comparable basis, we expect Q1 to be slightly up despite the fact last year had benefited from the release of Anno 1800 and from The Division 2's recent launch. This highlights our current excellent momentum with positive trends that are continuing well into April and early May. We are also benefiting from last year's two acquisitions. Finally, before handing back the call to Yves, I would like to mention that leveraging our learnings with the reopening of our Chinese studios, we are implementing a gradual return of our teams to our studios and offices.

We will have, also, to adapt to the different restriction list across geographies while preparing ourselves to possible new waves of confinement. The health of our teams and their families is our top priority. I now hand over the call back to Yves.

Yves Guillemot

Thank you, Frederick. Over the long term, this crisis will have a profound impact on the world and our industry. While it is too early to draw definitive conclusions, it is clear gaming has structurally expanded its audiences. More people are engaging with video games than they have ever been.

More of them are discovering the benefits of online platforms and of the social benefits of modern gaming, and the installed base of hardware has been growing. There is also a more widespread acknowledgment of the benefits games can have on people's lives. The video game industry is pleased to show a strong resilience in the current crisis and the current trend should be very supportive over the long term. The past quarter has shown how strong and deep our portfolio of franchises and our live operations are.

This is providing us with very strong support for the year on top of the most ambitious lineup of the industry, comforted by the recent and very promising reveal of Assassin's Creed Valhalla. We also have to continue to adapt to the challenges presented by the COVID crisis and our teams are working hard to deliver strong productivity across the board. The global uncertainties that surround us require agility, entrepreneurial spirit but also a certain level of insight. What matters to us as founders, managers, and key shareholders is to remain in control of our trajectory and of the maximization of our franchises' value for the benefits of players.

Ubisoft has created major value for its communities of players, employees, partners, and shareholders over the years. We intend to continue doing so by focusing on creating amazing content, by building our direct relation with our players, and by delivering strong engagement and player recurring investment growth. Finally, we are super excited by the arrival of the next generation of consoles, which will bring a new wave of excitement and momentum to the industry. We are now ready to take your questions.

Questions & Answers:


Operator

[Operator instructions] We'll take our first question from Robert Berg with Berenberg.

Robert Berg -- Berenberg -- Analyst

Hi, Yves. Hi, everyone as well. A couple of questions from me actually. On the three delayed games, it's now been a few months since we last heard from you.

Could you run through any update on your learnings, the types of things you've changed in these games? Have these been in line with what you thought a few months ago? Or is there anything more that you think needed to be changed? And then, I guess, a question on the guidance. I'd like to know why, in your top end, kind of the, no real COVID impact, end of the guidance. You have chosen to take that 10% haircut to unit sales. Is there any particular reason behind this? Or is it just prudence? And why, now you're giving a range, are you reluctant to raise the top end of that range? And I suppose a follow-up on that point.

Let's say you were being prudent and maybe you decided not to be prudent and reiterated the same unit assumptions, could you give us a sense of the EBIT that you would have forecast for us or at least how we could think about the underlying positive trends that you're seeing and the impact that would have on FY '21? Thank you.

Yves Guillemot

Thank you for your questions. We -- additional time is always a good benefit for games and we have been putting lots of energy and passion on those three games so that they can really come with something new for the industry and also help us to bring new brands to the company. So, we are really using that extra time to improve and create games and brands that can lead for a long time in our portfolio. On the 10%, Frederick can give you more.

Frederick Duguet -- Chief Financial Officer

Yes, Yves. Yes, Robert. This is to give you some visibility on the extra buffer that the extra back catalog that is higher than expected is giving us on the new release side. So, we're very happy today and relying on what Yves just mentioned with the progress and the visibility we have on the new releases.

We've really taken the extra time on the three postponed games, as well as, on the two other franchises to come with strong quality, strong element of differentiation and we are even more comforted on the potential for marketability. And I think, the Assassin's Creed Valhalla recent reveal is another strong compelling testimony of that. So, it's really to give you visibility on the extra buffer that the structural higher catalog that we've benefited from is giving us. If we had kept the same level of quantities, or in other words, what is the level of extra profit that potentially the higher catalog than expected is giving us, we had previously guided on a high single-digit decrease on catalog on the lower base, as guided in last February.

And today, we're talking about a slight decrease on the catalog on a significantly higher base. So, you can consider that that translates into nearly EUR 100 million extra potential contribution.

Robert Berg -- Berenberg -- Analyst

Contribution at the EBIT level or the revenue level?

Frederick Duguet -- Chief Financial Officer

On the gross margin level and --

Robert Berg -- Berenberg -- Analyst

The gross margin.

Frederick Duguet -- Chief Financial Officer

We're talking -- yeah, from the catalog.

Robert Berg -- Berenberg -- Analyst

OK. That's great. Thanks very much.

Frederick Duguet -- Chief Financial Officer

Thank you.

Operator

And next, we'll move to Omar Sheikh with Morgan Stanley.

Omar Sheikh -- Morgan Stanley

Good evening, everyone. Just three questions from me, if I may. The first is on the guidance. I wonder whether you could maybe just dig in a little bit on the two assumptions that you made for the bottom end of the range.

And in particular, could you maybe talk about some of the actions you might be taking to mitigate the impact on production. You mentioned motion capture and localization and so on. Perhaps if you could just kind of give us some color on what you're doing to offset or mitigate that headwind. And then on the consumer environment, could you just maybe -- just talk through a little bit how you're currently expecting the consumer environment to be, come October, November when you'll have these releases coming out? That's the first question.

Second, on Tencent, you obviously have -- it's been a couple of years since the Tencent agreement was signed. I wonder if you could just give us some color on where we are today, how you're thinking about the development of games that they might be working on, and in particular whether you think there might be some chances there will be some, again, launch during fiscal 2021. And then finally, on past calls, Yves, you've talked about your confidence that '22 will grow over '21. I know we've got a lot to get through before we get there.

But do you still have that same confidence?

Yves Guillemot

So on Tencent, I can give you some color. First, we are still waiting for approval on a certain number of titles, including Rainbow Six. And so, we are dependent on the speed of the approval process there. On the other games that Tencent is developing, they are working on a few titles and they are progressing well.

So, we expect those will have an impact not this year but next year.

Frederick Duguet -- Chief Financial Officer

So the -- your first question was on mitigation on the tailwinds -- on the headwinds? Mitigation on the --

Omar Sheikh -- Morgan Stanley

Yes.

Frederick Duguet -- Chief Financial Officer

To the -- first on production. Yes, on production. So what we've done since the move to work from home is that we have addressed a few areas of challenges, such as testing, motion captures, video recording, and localization. So we have a defined and clear priority list so that all the intervention we made at group level would serve our biggest games coming in fiscal '21 and fiscal '22, as well as, our biggest games that are supposed to deliver strong live content in the fiscal to make sure this project are really first off in the group.

What we see today that we're on the right path, productivity is progressing well. But as we said previously, of course, we need to wait more months to see whether we are capable to deliver and sustain high productivity over time, knowing that we have, as we said earlier, a very big and impressive lineup and content to serve in fiscal '21. Your question was on fiscal '22 as well --

Omar Sheikh -- Morgan Stanley

And whether you might grow in --

Frederick Duguet -- Chief Financial Officer

On fiscal '22, what -- we continue to see growth potential relative to fiscal '21. We -- as we -- as I've just said, we are collecting our biggest projects that need to deliver in fiscal '22 as well. And so, so far, so good. But of course, in the light of the external uncertainties we've just referred to, we stay vigilant on the impact it can have on fiscal '22, of course.

Omar Sheikh -- Morgan Stanley

OK. Thanks very much.

Frederick Duguet -- Chief Financial Officer

You're welcome.

Operator

And next, we'll move to Nicolas Langlet with Exane BNPP.

Nicolas Langlet -- Exane BNP Paribas -- Analyst

Yes, hello. Good afternoon, everyone. I've got three questions, please. The first one, you mentioned the boost in March and April supported by the lockdown measures.

So is this boost mostly related to existing players spending more on your games or you have seen a lot of new players entering your game? And for those new players, did you implement any specific initiatives to try to retain them? Second question. When you build your guidance for full-year '21, how did you model the player engagement post the lockdown era? Did you basically assume a normalization of the trend mid-May as many lockdown measures are lifted or you have to retain some benefits in the coming quarters? And finally, on Rainbow Six Siege, what feedback can you share regarding the Rainbow Six Around The World Battle Pass which was released end of March? Have you seen any material improvement in player engagement and monetization for gamers -- at both the Battle Pass? And do you plan other Battle Pass for Rainbow Six in the coming quarters? Thank you.

Yves Guillemot

Thank you. Thank you for your questions. So on the new -- on the revenue for the end of the quarter and the beginning of this year's first quarter, what we can say is it's a mix between new players that are coming especially on casual. A lot more people are coming on Just Dance, Monopoly, UNO, and other casual games that we have.

So many of our family games are played and those are new players. On the high end, the fact that Valhalla did very well is bringing also lots of people on Assassin's Creed, some that played before and some that are new to the franchise, but in a lesser extent than on casual. So it's a mix between the two. On the Battle Pass now of Rainbow Six, the Battle Pass is doing very well.

It's a good new addition to the franchise and a new way to play the game. So it's really -- it has a good momentum and it's doing well for the franchise. On the other question, maybe Frederick?

Frederick Duguet -- Chief Financial Officer

Yes. Hi, Nicolas. On the PRI, the way we model it relative to lockdown impact. Actually, in terms of the lockdown impact, we factored in an impact on the first quarter and not beyond end of June.

So of course, it benefits PRI for the first quarter, but in our assumptions, we have not factored in an extra boost beyond end of June.

Yves Guillemot

And so, we are also neutral on -- after the containment. So we consider that it will be as it was before even if in China, it's a bit higher.

Nicolas Langlet -- Exane BNP Paribas -- Analyst

OK. OK. Perfect. Thanks a lot.

Yves Guillemot

Thank you.

Operator

Next, we'll hear from Ryan Gee with Bank of America.

Ryan Gee -- Bank of America Merrill Lynch -- Analyst

Hey, good evening, guys. Thanks for taking the questions. So back to the guidance, I don't want to put words in your mouth, but it's just important to clarify why we're even talking about EUR 2.35 billion in bookings at the low end. So can you clarify for us, are you actually tracking at this point toward your original outlook that you provided in February but just acknowledging that if trends change and if you decide to delay a game, then this is what the downside is, not that you're actually tracking anywhere near that at this point? That's the first question.

And then in terms of the three titles that were pushed out from last year, Gods & Monsters, Quarantine, Watch Dogs. Since those were originally planned for last year, are they actually finished at this point and you're just getting some final polish so there's no real risk of those titles being delayed and it's more likely the one unannounced title that could see the delay? And then, I have a quick follow-up.

Frederick Duguet -- Chief Financial Officer

Yes. So on your first question, yes, we do confirm today that we are tracking against our original guidance for the first -- the very reason I mentioned, which is we benefit from structurally stronger catalog dynamics even before we saw the confinement started, of course, recognizing that we factor in the positive impact from the confinement in the first quarter. So assuming that this catalog dynamics will maintain throughout the year, we're entering into this fiscal with some more comfort. And also, we've been very happy with the spectacular reveal from Assassin's Creed Valhalla.

Now of course, like Yves said and I repeated that after him, we need to take into account that there are major external factors that can have an impact both on the production development, knowing that we have a massive content to deliver this year. That is going along very well but that's a factor of prudence that we need to take as we're going to be tracking our production process in the next months and also taking into account that there is some lack of visibility on the potential COVID-19 crisis impact on consumption and on our business partners. Now in terms of the planned -- the titles that were planned for last year. As we said, we've taken the benefit of the extra time to really strengthen what we mentioned.

That will be our focus areas coming with an impeccable player experience at launch, making sure that quality is really good, that the differentiation element will allow this game to stand out and to work on the marketability and the potential in terms of increased audience. So, we're happy to see the progress of the teams currently and they are working intensely through this -- for this period. We are also taking the benefit to bring more value for the players and that's a great benefit of this additional time.

Ryan Gee -- Bank of America Merrill Lynch -- Analyst

OK. And then just a quick follow-up with Assassin's, Quarantine, and Watch Dogs, those have had -- those are kind of sequels from prior games more or less. So, do you expect those three to grow versus the last version in terms of unit sales for fiscal '21? And then, PRI in year 1 for those, should those be up, down, flat? What are your thinkings there? Thank you.

Yves Guillemot

Yes. First, Quarantine is a new game. It's not the same -- than Siege. So, it's a completely new experience that we are bringing.

Even if we had some of that that came in Siege at one point, it's a completely new development. On Assassin's Creed, we expect the game will do very well, but our assumptions are still present.

Operator

And were you done with your question Mr. --

Ryan Gee -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

And next, we'll move to Ken Rumph with Jefferies.

Ken Rumph -- Jefferies -- Analyst

Hello, gentlemen. Three questions, if I may. Firstly, any comment on Uplay uptake? I know I can put myself in that column but I guess a lot of other people have taken advantage. Secondly, I know it's looking forward a bit, but your kind of model for the average year was three or four AAA games.

If a game was delayed into '22, should we assume that is, therefore, a four-game year? Or is there a possibility that it becomes a five-game year? And related to that, how is the production of those games that are further out, Skull & Bones that we know about and a number of others that are kind of long in development? Do you feel that work from home is -- that they're so far from being finished that it won't kind of have an impact on those? Or is that a factor? And then finally, the goodwill writedown -- the main sources of goodwill on the balance sheet are a couple of mobile businesses that you bought in '18 and '17. You mentioned a precautionary goodwill writedown because of a more competitive environment. Is that what I should assume it is? I can't see why it would be a high 3D, for instance. So it seems more likely to be one of the -- one of those earlier mobile businesses that you bought.

Thanks.

Yves Guillemot

Thank you. Yes. On the -- on those companies, yes, it's more mobile companies that we bought in the past and they are on some businesses that are very competitive at that time but they are still profitable. On the other topics?

Frederick Duguet -- Chief Financial Officer

Yes. On Uplay, it's -- we've been very happy with the strategic move that we accelerated this year in focusing more on Uplay and that has paid off greatly. And so, we've seen a strong momentum on Uplay over fiscal '20 and that's why we mentioned earlier in the call that it's now accounting for more than 40% of our PC net bookings. PC, that has been very dynamic for this year.

So this is really definitely a good strategic move.

Yves Guillemot

And a lot of those sales are done directly on Uplay. So it's a big plus also in gross margin.

Frederick Duguet -- Chief Financial Officer

So on your question on fiscal '22, we guided for three to four AAA games. That's our normal pattern. It's still too early today to give more visibility on this. We are -- as we said a couple of times earlier in the call, we are carefully monitoring the good progress of our production.

And so far, as we have prioritized our big projects for fiscal '21 and fiscal '22, we can say that this project has been impacted the same way as fiscal '21. We lost a few weeks of productivity, but so far, so good. And the impact is still manageable. We'll continue tracking that in a vigilant manner in the coming months as well.

Ken Rumph -- Jefferies -- Analyst

Thank you. May I ask a quick follow-up? Some companies may not be finding life easy in the current environment particularly if they don't have kind of back catalog or live games. Do you feel that the likelihood of M&A has increased particularly perhaps once we get beyond the immediate kind of difficulties of arranging things that we have currently?

Yves Guillemot

We are studying carefully the market those days and if there are opportunities, we will take them. At the same time, we have also to tackle these new challenges. So, it's taking a little bit of our time at the same time.

Ken Rumph -- Jefferies -- Analyst

OK. Thank you so much.

Yves Guillemot

We'll look at it carefully.

Operator

Next, we'll move to Tom Singlehurst with Citi.

Tom Singlehurst -- Citigroup -- Analyst

Good evening. Thanks for taking the questions. Tom here from Citigroup. Just a couple actually.

I was just wondering whether you could talk about engagement on some of the cloud-based services, in particular Google Stadia, and whether there are any numbers you can share on Uplay+ on the subscription side. And then -- so, I think you said -- second question is on free cash flow. I think you said you expect free cash flow to be negative in 2021. I'm just wondering whether you can break out the different parts of that.

I presume that's because, as you said, the launches are coming quite late in the year so there'll be a working capital outflow. But can you -- I may have missed it in the presentation, but can you specify the anticipated level of cash spend on R&D for 2021 as well? Thank you.

Yves Guillemot

So yes, on cloud, things are moving. There are more and more actors looking at this potential business. We have more and more games now available on Stadia which are doing well. We are also using a lot of Stadia possibilities to -- actually to do development because we -- it gives a chance for work-from-home people to actually review some of their games.

So it's something interesting. So cloud is coming. It's coming at a normal speed, I would say, but it's getting better and better. And we think at the end of the year, you will see some evolution on the number of players and also on the brands that will be launched there.

So it's a good long-term trend that will change the industry, we think.

Frederick Duguet -- Chief Financial Officer

Yeah. On the -- on your question on the cash flow, yes, we mentioned that in fiscal '21, we will rely on a solid cash flow from operations. But because we will have two big games, AAA games in Q4 this year and comparing with no big AAA game in fiscal '21 -- in fiscal '20, sorry, in the last part of the year, it will have a significant working capital effect. So that's the key element to have into account, again, relying on solid cash flow from operations.

In terms of cash R&D, as we said, we continue to invest strongly as we see the medium- to longer-term opportunities to be immense, actually bigger than ever before. So we continue focusing on investing at a good pace. Of course, in the context of what we said, we will track carefully the level of activity and consumption over time and so that we regularly adapt our investment plan accordingly.

Tom Singlehurst -- Citigroup -- Analyst

Perfect. And you're not going to give us a number for cash R&D spend?

Frederick Duguet -- Chief Financial Officer

We had guided on a 15% growth year on year on average comparing with fiscal '19 as a reference base. It was 14% this year. So we are in -- we continue to get a double-digit growth rate in investments.

Tom Singlehurst -- Citigroup -- Analyst

That's very clear. Thank you so much.

Yves Guillemot

Thank you.

Operator

And next, we'll move to Matthew Walker with Credit Suisse.

Matthew Walker -- Credit Suisse Securities -- Analyst

Hi, thank you and good evening. The first question is, do you feel like you have solved the issues around sort of consumer testing that led to break points? So how happy are you with your testing process now? The second question is on the EBIT guidance for the downside case. You mentioned that -- you said over 50% is potentially for the delay of one title. It used to be that one title in a million units was roughly EUR 35 million of EBIT, which would actually be much more than EUR 100 million or so.

So maybe, you could explain what you're assuming for each million units delayed. And then, the second -- the third question is on the -- do you feel like now that you've got those three games that you had last year that those are just in polished phase? It feels like Valhalla is -- you are ready to go with that on the time frame that you suggested. So, would you say that the risk of delaying more than one title is extremely low now for this year?

Yves Guillemot

Yes. We can say that delaying more than one title is extremely low. What we can say though about the revenue of one product is -- EUR 35 million is more the turnover than a game can generate per million, so, for EUR 35 million per million. So you have development costs, marketing and so on.

So the profitability is dependent more on how many units you achieve over a certain threshold.

Frederick Duguet -- Chief Financial Officer

And what we said earlier is that in our assumption, to help you model what is behind our assumption, the impact of a delayed game would be more than 50% of this EUR 200 million range.

Matthew Walker -- Credit Suisse Securities -- Analyst

And on the consumer testing, on the consumer testing point, yeah.

Yves Guillemot

Yeah. On consumer testing, as I just mentioned, we had to use other systems. And that's why I was mentioning Stadia as a way to test with consumers, as well as, some specific consumers for play test and also in-house test. So, it's still challenging especially during the time when most of us are in confinement but it's working.

And what we see is that we have first reopened in China and we are reopening in many countries, so, including Germany, including Sweden. So, we have the ability to do a lot more testing but it's something that was more complex in the last couple of months.

Matthew Walker -- Credit Suisse Securities -- Analyst

OK. Thank you very much. Thank you.

Yves Guillemot

You're welcome.

Operator

And next, we'll move to Mike Hickey with Benchmark Company.

Mike Hickey -- The Benchmark Company -- Analyst

Good evening, gentlemen. Thanks for taking my questions. I appreciate it. I guess at a high level here, if you assume your one game delayed gets you to four AAA games, you're still sort of EUR 350 million above your performance in sales of fiscal year '19, but the low end of your profitability guidance is EUR 46 million below fiscal year '19.

So can you speak to the disconnect in profitability between those two years, in particular, when you think live service growth is higher? I'm guessing your catalog, which is high margin, is also higher than fiscal year '19. And then, I have a follow-up.

Yves Guillemot

So one thing to consider is when we delay products, we really also spend more time to grow them so that they have a bigger potential. So that's taking some resources and cash that we expect will be in the benefit of the long term of those brands. So that's one thing. Then maybe, Frederick, can give more color?

Frederick Duguet -- Chief Financial Officer

The other point is that we are talking here about five AAA games as opposed to three at the time. So we expect, of course, that on the long term, five AAA games will drive a very high level of profitability. But for the year of launch, of course, you have five marketing campaigns and five R&D budget. So that, also on a per-game basis, will take more related to the overall net booking.

Mike Hickey -- The Benchmark Company -- Analyst

Don't you guys pick up some marketing benefit given that you're launching these games with next-gen consoles?

Frederick Duguet -- Chief Financial Officer

So we -- as we said, we took some assumption to be prudent in terms of consumption in our guidance.

Yves Guillemot

And there's also -- one thing to consider is that Ghost Recon Breakpoint was very negative in fiscal year '20 because we had a good marketing budget on that game and it didn't achieve what we expected. It's getting better now with the community as what we introduced with -- the new mode is helping players to have a far better experience, especially closer to what they expected, but it has been a loss leader in financial year '20.

Mike Hickey -- The Benchmark Company -- Analyst

OK. Now last question from me. A few weeks of productivity loss doesn't seem huge, I guess, given where we are at the end of your fiscal year. It looks like just one game is really at risk here.

Can you please just sort of weigh the probability that you think there is a delay or just how conservative you're being here? Thank you.

Yves Guillemot

So what is important to consider is that we have five games. So a few weeks on one can have an impact on the others. And so, we are being prudent for sure but we don't know what will be the -- what will the next few months will bring. So, that's why we are taking potential further delay due to the situation.

Even if our teams are really working hard to make sure they tackle all the problematics for mocap, testing, and all the other potential issues we had.

Mike Hickey -- The Benchmark Company -- Analyst

Thanks, guys. Thanks a lot.

Frederick Duguet -- Chief Financial Officer

And yes, we consider we are conservative. We don't see any specific issue on a specific game. We -- as Yves said, we are taking a general cautious stance there.

Mike Hickey -- The Benchmark Company -- Analyst

Thank you.

Operator

And Mr. Hickey was that the end of your question?

Mike Hickey -- The Benchmark Company -- Analyst

Yes. Thanks, guys. I appreciate it.

Operator

Thank you and that will conclude today's question-and-answer session. I would like to turn the call back over to the speakers for any additional or closing remarks.

Yves Guillemot

So, thank you very much for all your questions and we'll keep you posted on the evolution. Thank you very much.

Duration: 68 minutes

Call participants:

Yves Guillemot

Frederick Duguet -- Chief Financial Officer

Robert Berg -- Berenberg -- Analyst

Omar Sheikh -- Morgan Stanley

Nicolas Langlet -- Exane BNP Paribas -- Analyst

Ryan Gee -- Bank of America Merrill Lynch -- Analyst

Ken Rumph -- Jefferies -- Analyst

Tom Singlehurst -- Citigroup -- Analyst

Matthew Walker -- Credit Suisse Securities -- Analyst

Mike Hickey -- The Benchmark Company -- Analyst

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