Asmodee Group-b Stock

Welcome to Asmodee Q3 Report 2025-'26. [Operator Instructions]

Now I will hand the conference over to CEO, Thomas Koegler; and CFO, Andrea Gasparini. Please go ahead.

Good morning, and welcome to our third quarter results presentation for the fiscal year '25-'26, where I am very happy to report the strongest sales and EBITDA performance in the history of Asmodee, accompanied by a healthy free cash flow and a solid balance sheet.

Looking at games published by partners, sales increased by 50.3% and were driven by successful TCG releases, including Mega-Evolution - Phantasmal Flames, the latest Pokemon trading card expansion. TCGs published by Bandai also contributed to sales growth, including the continued success of One Piece and its latest set Carrying On His Will. The launch of Magic: The Gathering, Avatar: The Last Airbender this quarter was met with high player demand. And this quarter also saw the successful release of the highly anticipated TCG from the League of Legend Universe, Riftbound, with Asmodee acting as a leading distribution partner in Europe.

Sales of game published by Asmodee Studios decreased by 12.7% against an exceptionally strong performance in the same quarter last year. The development reflects a combination of factors isolated to the U.S. that Andrea will walk you through in more detail. Important to note that games published by Asmodee Studios achieved overall stable performance in Europe.

This quarter saw high-profile transmedia announcements. The Werewolves of Miller’s Hollow unscripted game show is slated to expand to more than 10 new territories through a deal with Banijay. Furthermore, together with Netflix, we announced an all-encompassing media partnership on the CATAN franchise for upcoming scripted and unscripted content. And after the quarter, we also announced a new transmedia deal with Netflix on our Ticket to Ride franchise.

During the quarter, we announced a new strategic licensing agreement between Asmodee and Middle-earth Enterprise, under which Asmodee will act as the exclusive category manager for tabletop games based on the Lord of the Rings and The Hobbit franchises. We aim to expand this portfolio even further, including titles published or distributed by third-party external to Asmodee.

We also attended events such as the International SPIEL game show in Essen, where Asmodee has the largest footprint, showcasing our new releases to the show's 220,000 visitors and business partners. Other notable events included Asmodee partnering with the GP Explorer in France, a leading influencer event that attracted large audiences and our participation in Italy's leading pop-culture event in LUCCA, the LUCCA Games and Comics Festival and our presence in the U.K. at Outernet.

We continue to execute our M&A strategy, actively sourcing new opportunities. During the quarter, we closed the acquisition of the Cthulhu: Death May Die IP and games. And after the end of the quarter, we also completed the bolt-on acquisition of the Sheriff of Nottingham IP that is further strengthening our portfolio of intellectual properties.

Moving on to the highlights of the third quarter, where net sales reached above EUR 520 million, representing organic year-on-year growth of 25.6%. This was, as I said, mainly driven by the European market, primarily supported by the continued success of trading card games, as just described.

The adjusted EBITDA grew by 28%, driven by the strong sales growth and the adjusted EBITDA margin increased by 100 basis points to 21.8%, supported by disciplined cost control, bringing our year-to-date margin in line with prior year.

The free cash flow was healthy with free cash conversion at 67% and our net debt-on-EBITDA ratio came in at 1.9x, in line with our medium-term target of below 2x. During the quarter, we also successfully refinanced our EUR 320 million floating rate bonds, thereby lowering our interest expenses by around EUR 5 million annually and strengthening our debt profile.

And with these words, I will now hand over to our CFO, Andrea Gasparini.

Thank you, Thomas, and good morning, everyone. Let's now take a look into sales for the third quarter, where net sales reached EUR 524 million, a year-on-year increase of 22.2%. On an organic basis, sales grew by 25.6%. Structural changes relating to the divestment of Twin Sales Interactive had an effect of minus 0.5% and the impact of changes in exchange rates was minus 3%.

Breaking down sales by publisher. Reported sales of Asmodee published games decreased by 12.7%. Games published by partners increased by 50.3% and the other category declined by minus 8.5% impacted by the disposal of Twin Sales Interactive.

The strong performance in games published by partners was driven by continued successful TCG releases, as already noted by Thomas, primarily across Pokemon, Magic: The Gathering and One Piece. As discussed during our Q2 report, there is a timing effect between Q2 and Q3 related to Pokemon Mega Evolution launch of approximately EUR 10 million to EUR 15 million, which had a negative impact in Q2 and the corresponding positive impact in Q3.

The development in games published by Asmodee is mainly coming from the U.S. due to three factors. First of all, the U.S. market dynamics. The underlying U.S. board game market as measured by mass market and online sell-out data remained stable during the quarter. Asmodee sell-out performance was in line with the market in Q3 following outperformance in Q1 and Q2. Therefore, on a year-to-date basis, Asmodee continues to outperform the market. Quarterly fluctuation reflect the normal volatility in sell-in, which is influenced by retail inventory levels.

Second impact is the FX. This is due to the unfavorable U.S. exchange rate exposure since the beginning of the year. And the third reason is related to Star Wars: Unlimited normalization. As you remember, strong prior year comparison due to the launch of Star Wars: Unlimited compared to last year. Now the performance is normalizing as can be expected from this type of product because we are now in the second year of the life cycle of this TCG.

From a category point of view, so the split of sales TCG versus board games, the board games performance was partially mitigated by good dynamics in games published by partners such as Hitster from Jumbo [indiscernible].

Looking at the year-to-date development, net sales reached EUR 1.276 billion, a year-over-year increase of 24.3%. On an organic basis, sales grew by 27% as a result of our diversified product catalog and geographical footprint underpinning another strong sales year.

Adjusted EBITDA grew by 28% in the third quarter, reaching EUR 114.5 million compared to EUR 89.3 million last year, paving the way for a year of strong profits. The increase reflects a combination of factors, higher volumes supported by solid sales momentum, disciplined cost management with personnel costs increasing by only EUR 3.5 million due to high activity, well below our top line growth. And other operating expenses were flat year-on-year as continued investment in marketing were fully offset by lower other operating expenses.

From a profitability point of view, the adjusted EBITDA margin increased by 100 basis points to 21.8%, supported by the strong cost control. Note that below the EBITDA line, as part of the refinancing, we recorded an impact of minus EUR 5.7 million related to the write-down of implementation costs for the previous bond, with the costs for the new bond of around EUR 5 million being capitalized.

So the outcome of the year-to-date performance clearly demonstrated the scalability and efficiency of our business model, able to convert growth into profit and to reach margin in line with last year, a solid achievement considering the unfavorable sales mix impact observed during the last 3 to 4 quarters.

Moving on to cash flow. Free cash flow after income tax and capitalized lease payment amounted to EUR 76.5 million in the quarter compared to EUR 71.8 million last year. This corresponds to a free cash flow conversion of 76% (sic) [ 67% ] versus 80% a year ago due to the buildup of strategic inventories and higher tax paid, thanks to increase in profits.

Looking more closely at the working capital movement, inventories decreased by EUR 55 million, in line with seasonality after our high activity period in Q3. In terms of inventory quality, we have both and still continue to hold the strategic inventory position of distributed TCGs that have turned into sales shortly after the end of Q3 as well as some higher-than-expected position of long sellers board games that will generate sales in the short to medium term. Overall, the inventory levels remains under strict control with inventory as a percentage of the last 12 months sales going from 17% down to 15.3% year-over-year.

Receivables increased by EUR 45.6 million compared to EUR 39.6 million last year. This is mainly driven by higher sales. Despite this natural increase, the ratio as a percentage of sales improves, and this reflects our continued focus on cash collection.

On payables, which decreased by EUR 29 million compared to an increase of EUR 2.1 million last year. So last year, payables, just as a reminder, were favorably impacted by items affecting comparability related to the listing process of around EUR 20 million. Furthermore, the less favorable movement compared to last year primarily reflected the strong growth in the TCG category, which at current sales level leads to a different cash flow pattern than historically due to standard credit limits.

The cash flow from operating activities was also impacted by higher income tax paid of EUR 19 million versus EUR 6.4 million last year. This is driven by higher profit before tax last year, which increases the tax payment in the current fiscal year. This explains the majority of the growth as well as strong activity this year in certain jurisdictions requiring an upward adjustment of current year tax prepayment to avoid unfavorable catch-up effect during the next fiscal year.

CapEx for the quarter of EUR 7.2 million, representing 1.4 percentage of sales, in line with our CapEx-light business model.

So the year-to-date free cash flow after tax and capitalized lease payment is EUR 78 million, resulting in a free cash flow conversion of 34%.

Our call option to acquire the remaining 45% minority stake in Exploding Kittens was exercised during the quarter with the closing, cash out expected during the first half of the calendar 2026 year.

So to conclude, the strong P&L performance delivered during the third quarter is expected to translate into further cash generation in the fourth quarter, in line with the seasonality of the business.

Then moving into our healthy balance sheet and capital structure. Both leverage ratios before and after M&A commitment are improving and going below 2x in line with our medium target, thanks to the positive development of both the adjusted EBITDA and the [indiscernible], the latter reaching EUR 322 million in Q3 compared to EUR 258 million in Q2.

I'm also very pleased that during the quarter, we successfully refinanced EUR 320 million floating rate bonds, extending maturity from 2029 to 2031 and moving to a fixed rate. The refinancing lowers our interest cost by around EUR 5 million per year, improves visibility on future expenses and strengthen our debt maturity profile.

In terms of credit rating, during the quarter, Fitch and S&P confirmed their BB- rating, while Moody's upgraded to B1 with a positive outlook. In addition, we still have access to the unutilized revolving credit facility of EUR 150 million.

And with that, I'll hand it back to Thomas.

Thank you, Andrea. Before we open up for questions, I would like to make some concluding remarks. As you have seen, this was a record quarter for Asmodee with sales and EBITDA at historically high levels. The solid performance, as we said, was driven by the European market, supported by strong trading card games and the development seen in games published by Asmodee was mainly isolated to the U.S.

The strong sales growth, combined with the cost control drove an increase in adjusted EBITDA and our margins, bringing year-to-date margins in line with last year, a solid achievement considering the unfavorable sales mix impact observed during the last quarters. On top of that, we recorded a healthy free cash flow, and we have a net debt-on-EBITDA at 1.9x, in line with our medium-term target of below 2x with, as Andrea mentioned, an improved credit profile.

Looking forward, the strong P&L performance this past quarter is expected to translate into further cash generation in Q4, in line with the seasonality of our business. We're actively sourcing new M&A opportunities -- some are delivering with the new bolt-on acquisitions of Cthulhu: Death May Die and Sheriff of Nottingham and the remaining stake in Exploding Kittens soon to be acquired.

This past quarter demonstrates the strength of our business model and our ability to capture opportunities as they arise. Supported by strong underlying trends in TCGs, the current market environment reinforces my confidence that our diversified portfolio positions us to deliver continued growth.

With that, I will now open up the floor for questions.

[Operator Instructions] The next question comes from Adrian Elmlund from Nordea.

A couple of questions for me, please. So first off, could we have any further guidance here on the planned personnel investments? Kind of what numbers are we talking about? And how much of the sort of margin improvements that we saw here during the quarter is reflected in the timing effects, I guess, in the quarter of personnel?

So personnel expense we do not provide the precise guidance on a cost basis line, just to remember. But directionally speaking, as you've seen during the current fiscal year, personnel expense was mainly focused and triggered by our strong top line growth. These are types of personnel costs that we'll keep on investing on to deliver sustainable growth in the future.

It is also true that some of those personnel cost increase during this year were driven by the fact that we have scaled some corporate functions in the context of Asmodee being a listed company, et cetera. So on this one, we will see more moderate growth going forward.

Right. So I guess that there's not a major deviation here that we should not extrapolate, I guess, the margin improvement, I guess?

No.

Right. Okay. Another question. We're also meeting some tougher comps here in trading card games, I guess, beginning of next quarter. Do you expect to continue to drive, I guess, year-over-year growth in this category? And given, I guess, the continued strong momentum in trading cards that we've seen as of recent, this quarter as well and Pokemon's 30-year anniversary coming up as well?

Well, if you look -- first of all, we look at trading cards in the category overall. The category is extremely dynamic. We have some positive outlooks. Let's call it that way. We have the 30th anniversary effectively of Pokemon coming out. I think everybody saw the Super Bowl commercial, which is a statement to the power of the franchise and how it engages. So this is quite exciting for the upcoming year.

You have a lot of other TCGs that have very good dynamics. I mean we see continued performance on One Piece. Magic has shown good performance. And you have the release or the recent release of Riftbound. So I would say that overall, the category, as I did mention in the report, puts us with positive expectations for the future. Yes, there are a bit tougher comparables, but we see ourselves given the diversification of our portfolio and our ability to distribute all TCGs, but also have good dynamics on games to continue to deliver growth.

Okay. Perfect. And moving, I guess, to the board game category, could you provide us, I guess, with a pipeline here? Like how confident are you in your own studio's ability to return to growth? When we will see some tougher TCG comps here?

So there are a few elements here. First of all, as we did mention, yes, we had some negative developments on the games. But if you look at the sell-out, which is the sales to consumers, in the U.S., for instance, the market was relatively flat and our sell-out was in line with this, which means that we still have positive outlooks for the future. Our performance was impacted especially by, I would say, some inventory position at retail and retailers' purchase strategies.

Now if we look forward, first of all, the vast majority of our revenue is coming from existing titles. That's the first thing that's important and we are constantly working on engaging consumers on those. You saw the recent announcements on CATAN and Ticket to Ride with Netflix, all of this with the objective to further increase brand awareness and visibility and in the future, generate additional sales.

If we look at some of the products we're looking forward to in terms of new releases for next year, we have announced the new LEGO game in the NINJAGO franchise being released at the same time as the NINJAGO anniversary. We have Azul Kids coming out. We have [indiscernible]. We have the future sets of Stars Wars: Unlimited. We have a refresh of Ticket to Ride Europe.

So I would say that it will be still an active year. But what's important, if you look back at the historical performance of Asmodee is that some years, it's strongly driven by trading cards. And in the other years, usually, when trading cards are less strong, you have a relay that's coming from board games.

Okay. Perfect. Last question here, if I may. Regarding the TCG distribution in the U.S., could you give us any comments on, I guess, how Riftbound might have performed from your perspective in the U.S. here versus Europe pertaining the kind of how you build your distribution in the U.S.?

So in the U.S., we are for Riftbound, a micro distributor in our position to Europe, where we are the major distributor. But we have all seen that I think the launch was successful and that everybody agrees to the fact that there was not enough product to serve the entirety of the market. The next -- the second set just released, we will see how this product installs itself in the medium term.

The next question comes from Simon Jonsson from ABG Sundal Collier.

First of all, I want to focus a bit more on the board games, where sales were down year-over-year, and it sounds like it's mainly coming from headwinds in the U.S. Can you talk a bit more about what has changed in the U.S. recently, if anything? Yes, you mentioned the bigger retailers, but you commented also a few quarters ago that there were some inventory problem with the online retailers, and now it sounds like maybe a similar problem, but with the larger retailers. So I mean, is there something broader going on here or just a few different factors? Or what do you say about that?

Yes. I think it's what you mentioned, which is a few different factors. Let's remember also that the beginning of the year has been quite shaken up in everybody's supply strategies, ours, the retailers by the various announcements on the tariffs. And I think that it has been a constantly evolving situation where I'm quite proud of how the teams reacted.

Once we've said that, of course, let's not underestimate the impact of foreign exchange, which is quite material in the decrease. And secondly, what's important to look at beyond our own sell-in performance, which is what we sell to retailers, is the sell-out. As I did say, we have, since the beginning of the year, overperformed the market. And even in the third quarter, it was a quarter for the Christmas period that was very much focused on lower price point products. We captured very strong growth with Exploding kitchens and did have some headwinds on higher price point products. But I would say, in the grand scheme of things, first of all, it's fine. Our portfolio is diversified. And secondly, it's limited to the U.S. So we should expect some better trends in the future.

All right. But if we stay a bit on the inventory problem and go back to what you said on -- I think it was Q1, talking about the online retailers after the tariff announcement and so on. Has that problem sort of got resolved and that this is then a new temporary problem? Or do you think that they are tied together in some way and that there's still an overarching inventory problem situation in the U.S. that could be going on here for next quarters as well?

Simon, no, if I can complement what Thomas just said, I think that the sell-in reflects the fact that the retailers continue to carry inventory and they are prioritizing working through their existing stock. We are, therefore, aligning our shipments with the current inventory position at retail.

Their inventory level remain manageable, even though in some cases, they are slightly above historical levels following the market trends. This is why, as a result, we are adjusting our sell-in where appropriate, including being more selective on shipments to certain partner because we want to support a healthy flow of inventories within the whole value chain. So we are working closely with them, with our retail partners to ensure that the inventory level across the channel remain balanced and healthy.

All right. But do you think that those inventory levels are sort of approaching a more normal level?

Yes, they are going back to more normal levels.

All right. Then turning a bit to board games in Europe then, which looks more stable, growing a bit. What level of market growth would you say you are seeing right now in Europe for board games specifically? Are we talking mid-single digits or high single-digit rates or something like that? And do you think that, that could or will continue during this year?

No, I think it's more in line with your first assumption, which is low to mid-single digit. After that, what we see also is that there is a bit of competition at retail level between -- especially on cash allocation in hobby between trading cards and board games. So as we did say, when you have one category that is extremely strong, the other one is -- has a bit of headwinds. And it's -- for us, it's okay because we look at the group holistically and all categories, that's what drives the growth.

All right. So naturally, if we see a stabilization in the trading cards growth, I mean, would that mean that there's big opportunities for higher growth in board games then?

In the past, it's what we've seen. Again, it's not fully mechanical, but yes.

All right. Then just the last one for me on the M&A and you continue to do a few smaller bolt-ons. But where would you say that you are right now in terms of building the pipeline of maybe a bit more meaningful targets? And do you feel more comfortable now when you have a gearing below 2x?

Yes. I mean without being specific, the activity in the pipeline is in accordance with our plan. And the smaller acquisitions are faster, IP acquisitions and asset deals are faster to execute. So I'm satisfied.

The next question comes from Nicolas Langlet from BNP Paribas.

I've got a few questions, please. So first of all, on the U.S. market, it was mostly stable in Q4. Are you seeing any improvement in the consumer behavior heading into the calendar Q1? And you also said that you work closely with your U.S. team and partners to adapt to the market evolution. What are the main initiatives you are planning for the U.S. market?

Secondly, on Star Wars: Unlimited, can you comment on the sell-out trend during the quarter? And if there are any specific initiatives to support the game over the next few months?

And lastly, on cash return, so you should end the year below the 2x net debt to EBITDA. could you consider start paying a dividend on full year '26 result?

Thanks, Nicolas, for your questions. So first of all, on what we do in the U.S., we'll continue to serve the market on the products that sell well, especially the lower price point ones. So leveraging Exploding Kittens, which also, I would say, reinforces the appeal for us acquiring the remaining 45% of Exploding Kittens.

In parallel, of course, on the other product lines, we are actively working on commercial deals and commercial actions to have a more positive trend, let's call it that way, on those. They have seen very strong growth in the past years. So you see ups and downs. It's not unheard of. But clearly, yes, it's mainly sales and marketing actions from the local team to adapt and also to adapt to, as we did say, the purchasing strategies from the retailers. So both working on the consumer side, but also on the retail side.

If we talk about Star Wars: Unlimited, as we did say, first of all, we look at the TCG category overall. That's the model. It's -- right now, it's the distributed TCGs that see the strongest growth. On Unlimited specifically, at the same time last year, as I did mention, we had reprints of set 1 and set 2. We had very high demand for set 3. We see some more stable figures around the past three latest releases.

And then, of course, one should not underestimate how the category is competitive with some big brands having been released. We did mention Riftbound. What we do is that we try to continue doing our best in supporting the game, having great sets, having great content in the sets, having strong activation and organized play. So here, the idea is to continue to build and give it time.

Finally, on your last question, as you did note, our debt ratio on adjusted EBITDA is effectively below our target of 2x. So it would be reasonable to accept for the Board because it's the Board's recommendation as -- that they would provide the recommendation in terms of excess cash allocation as part of our Q4 report.

The next question comes from Jacob Edler from Danske Bank.

I think most of my questions have already been answered. But just a question here on the gross margin. I obviously understand the mix attributes in the quarter. But maybe more specifically, presumably, I mean, if you listen to Hasbro's numbers and also what you said in the report, obviously, Magic and specifically Avatar was very strong in the quarter. Was that also one element pushing the gross margin down a bit further?

And then secondly, was there any element of more discounting for your, let's call it, the board games that also affected the margin this year relative to last year?

I think it's -- both statements are fair. So there is sales mix within the various categories based on various commercial agreement and margin. Then Q3, and this is something that could also pursue in Q4 as promotions, as the normal course of business as well as some provisions, normal course of business that are booked in Q3 and Q4 based on how the activities is unfolding in the P&L. So this is really a normal course of business for Asmodee as has always been in the past and it will continue, yes, in the future in terms of seasonality.

Yes. Very good. And just a follow-up, I guess, on the gross margins. I mean, obviously, there will be releases that affect the mix within distribution between different quarters. But given the continued momentum in One Piece and also the launch of Riftbound, would you say that these products are contributing underlying to the mix here within distribution as we look ahead?

Yes, these are products that have no major impact either positively or negatively compared to the rest of the category, let's call it that way.

Yes. Okay. Good. And just a last question on my side. These deals you've signed with Netflix for CATAN and here recently for Ticket to Ride, I understand that, I guess, the main upside is to drive engagement for the physical products. Maybe there are some royalty elements in it as well. But are there any upfront components? You're receiving some cash from Netflix when you've signed these deals? Or how should we think about it?

Well, we do not disclose the details of the deals. But very clearly, the main objective for us is not in the direct cash or direct revenue that we get from those. It's really the brand exposure and the ability for consumers to enjoy their favorite brands in various ways of entertainment.

The next question comes from Erik Larsson from SEB.

I just have one question, which is more high level. Seeing your numbers, looking at peers, it's quite obvious that the TCG space or rather hobby space in general, the spend continues to do quite well. So could you give any insights to what extent this is driven by now existing hobby players, new players? Is it the mass market coming in more? Just any color there would be interesting.

It's a mix of all of this. I think that, first of all, it's linked to the high quality of the products that are available or are being released on the market. I mean the work that is being done by the Pokemon company, by Hasbro, Wizards on Magic, by Riot and their partners on Riftbound, by us on Unlimited, by Bandai on their own TCGs, I would say that the quality of the product is extremely high.

The franchises also have a very strong appeal to various audiences. That's something that's quite interesting is that it brings new players, fans of the respective franchises in [ TCG ] universe. And then lastly, I think that there is pleasure from players in the collectability of those products beyond the gameplay. Of course, there you have also a very significant part of people that enjoy those to play, but that varies from game to game. So it's a mix of all of this. But the one thing that one can say is that more and more people enjoy trading cards.

The next question comes from Martin Arnell from DNB Carnegie.

I have a question on -- if you could talk a little bit about the upcoming sets and expansion that you plan for 2026 and timing for it. And also if you could comment anything on what you expect in terms of effects from events by Pokemon in relation to the 30-year anniversary, clarity on the timing for these events that could impact your [ TC ] sales?

Martin, as you've seen, the Pokemon Company has launched the 30th anniversary. They will detail what will happen at the next -- at the upcoming Pokemon Day later in the month. So I would say it's their remit to announce things, not ours. So I would ask you to be a bit patient and you will get some answers there. But what we have seen is quite exciting. And if we look at what they have done in the past, it was quite amazing. The Super Bowl ad was very strong. Consumer response or mentions online were also very strong.

The rest of the TCG category, everybody is lined up with their own releases. So this should unfold without any major surprises in the upcoming quarters. And finally, as I did say, we have some nice games coming up either in Q4 and in the upcoming quarters, Q4, looking forward to Dewan. We did have -- I forgot to mention that, but it's outside the quarter, also some good nominations at the As d'Or in France, both for Toy Battle and for Take Time, which are two recent releases. So yes, it's good perspectives for the future.

And on your comment in the report there about that you think you're positioned to deliver continued growth. Do you expect your events and your growth initiatives will be enough to bring tabletop back to growth in your next fiscal year?

Our ambition is to bring those to growth in the long to medium future. I will not give guidance on the upcoming year, but it would be logical that it is one of our main focus of the upcoming months.

Okay. And my final question, maybe to Andrea. Could you repeat the comments that you made on the cash flow in the period after Q3 about the receivables, et cetera?

Sorry, what was the question then?

So I think in your presentation, you commented on the cash flow so far in Q4, if I recall. But could you repeat what you said because I didn't really hear it.

No, I think that the P&L in Q3 is encouraging with respect to the free cash flow generation of the company currently and on the year to go, on the remaining quarter of the current fiscal year. So we see the free cash flow generation again following the normal seasonality of the business. And I have highlighted the specific factors that have impacted the current fiscal year with respect to inventories and payables that are a little bit more specific to what's going on right now for the rest is, again, free cash flow generation as usual.

And should we see the historical patterns for the second half to be sort of similar this year, with the start of Q3, it looks similar to [ past ] and it's fair to assume a similar to historical numbers also in Q4, right, in terms of seasonality patterns?

Yes. Last year, Q4 free cash flow generation was really high with the TCG -- the distributed TCG business started to kick in with strong dynamics during Q4. I don't if you remember, but we communicated about an extremely exceptionally strong Q4 free cash flow generation last year. So just please remember that.

So then the Q3 free cash flow generation plus the year-to-date position ourselves to generate once again strong free cash flow in terms of conversion ratio, not as strong as last year because of this exceptional Q4 that we benefited from during the last fiscal year.

The next question comes from Ricardo Chinchilla from Deutsche Bank.

Most of my questions have already been answered, but I was hoping if you could touch upon your capital allocation priorities given that your leverage is now modestly below your long-term target level. Do you anticipate more aggressive M&A? Do you anticipate increasing shareholder returns? Do you anticipate paying even additional more debt? So any color that would be very appreciated.

And on the M&A side, are there any opportunities that you -- or not specific companies, but any sector or any type of business that you feel that would complement your business from an M&A perspective?

Yes. Thanks for the very good question. So if you look at the capital allocation, what we look forward to, there is the remaining 45% of Exploding Kittens to be acquired that we mobilize some cash. Adding on top of that, as we did say, our M&A engine is nicely running up. I will not comment on specific ongoing projects. But as I did say, I'm satisfied with what we have in the workings.

What we're looking for, as you asked, is, in priority, studios and intellectual properties because we already have a very strong distribution reach. And then maybe to complement some distribution reach here and there, depending on the strategic advantages this would provide us in specific territories. But again, I think the priority is on IPs and creative capabilities, which is what we have been delivering up until now.

Perfect. If I may follow up, is there any particular leverage level that you consider the max leverage for this portfolio in case that there is like any opportunistic M&A opportunity? Or is there any project that could result into higher leverage just from a knowledge perspective on what will be like the maximum amount of leverage that this company could handle?

So I will not provide one figure, but if you look back, we've operated for many years under private equity. You know the types of leverages that can exist there, and it hasn't prevented us from thriving. So I think that we can afford higher levels of leverage. Of course, now being listed, we prefer to remain around the levels that we have today but we could consider temporarily in order to finance some significant opportunities. Let's see. Again, this is element on which we will strategize with the Board once the opportunities arise.

The next question comes from Rasmus Engberg from Kepler Cheuvreux.

Just two questions remain on my side. Firstly, I have the feeling that what you have done in terms of M&A is not kind of your typical M&A. It's small deals. And the fact that nothing kind of larger has happened, is that -- are there any explanations in terms of pricing or timing or the fact that you wanted to sort out Exploding Kittens? Or is it just it takes two to tango?

As I did say, the smaller IP deals are faster to execute. It's a question of timing. Yes, we do have Exploding Kittens in parallel, but this was planned for quite some time. And as I did say, it's a question of timing. Any more significant deals will unfold in due time.

All right. And the other thing, you talk a lot about the U.S., which is, by and large, a fairly small part of your business. What does sell-in look like in Europe, which has been your sort of growth engine for some time? Can you comment on that?

The sell-in has been stable on the games side and obviously strongly increasing on the TCG side.

There are no more questions at this time. So I hand the conference back to the speakers for any written questions and closing comments.

Yes. We have a few written questions. We have a question from Robert on effectively the U.S. and acknowledging the tough comparables that we had seen. You were asking what caused this strong -- this number last year.

Last year was the release of Star Wars: Unlimited, was very strong dynamics on our existing brands. And so in the more recent quarter, I would say it's the normalization of this and some lower sell-in, but again, whilst the sell-out remained stable.

We have a second question, which is on the long-term trends of TCGs over the next 5 years.

Of course, there is no way of foreseeing the future. However, what we see is that overall, the category is very strong, that strong IPs are either existing or have been announced to be released in TCGs. And here, very clearly, Asmodee, we are well positioned as a leading distributor in Europe. If we have a look at external market studies, they were expecting normalized or long-term growth of around mid-single digit or up to mid-single digit. But again, we know that the TCGs can, at some years grow faster and in some years, slightly recede. But the long-term trends remain normally very strong.

We have a question from Eric. How competitive is the publishing landscape for new TCGs such as Riftbound? And are you relatively leading position in any other regions than Europe in terms of distribution?

So I would say the TCGs find their audiences, and then it comes down to how well the work is done in first working with stars and secondly, in the community, animation and of course, the quality of the products that are released. I think Riftbound came in with a very strong IP. And we will see it's just one full set and the beginning of the second set that have been brought to market. Our position, of course, is quite unique in Europe. Elsewhere, we also start distributing TCGs in South America, in Asia and a bit in the U.S., although it's not really material at this stage to be a distributor in the U.S.

Can you share any insights on the upcoming digital Stars Wars collectible card game? And what's your view on this? And could it potentially impact the player base within Star Wars: Unlimited?

I don't have specific views on that game. However, if we look at other TCGs, when there is a digital version, usually, it does not harm the sale of physical products. It's what we're seeing with digital versions of Pokemon or other TCGs. So I do not foresee it being a bad news.

And the last question from Alex, is there any plan for installing dividends?

As I did mention, it's prerogative to the Board that will bring their recommendation in line with the -- by start of the Q4 results. So our full year results to be then submitted to our AGM. That's it for us.

Maybe as a final concluding remark, I would like to thank our teams because delivering such growth comes with a very, very high engagement of our teams. I'd like also to thank our partners that continuously renew their confidence in us. And finally, as I did say, the numbers speak for themselves and this quarter is a very strong illustration of the strength of Asmodee's unique model in our industry. Thank you very much, everybody.

Thank you very much.