G5 Entertainment AB (publ)

everyone. We'll give it a few seconds while the attendee list is loading now that we've opened the webinar for this morning for the earnings call. We repeat as we usually do that you will be in listen and view only mode during the presentation, after which you can ask questions. You can either raise your hand, ask the questions verbally, or you can type them in the QA box as well that you will find in the in the Zoom window, and then we'll answer those after the call as well. And yeah, I think we're ready to go. So we'll hand over to our CEO, Vlad Sublivo.

Hello, everyone. Good morning. Thank you for joining the call. And thank you, Stefan, for the introduction. Stefan is, of course, our CFO. So let's begin. And move on to slide number one. So the revenue in the second quarter this year was 287 million SEC, which was 13% lower than last year. That's in Swedish kronor. And in USD terms, it was 14% lower. We saw a negative performance year over year in our actively managed portfolio. And that fell 13% year over year in USD terms. But audience monetization metrics and gross margin continue to improve as more revenue is derived through our own direct-to-consumer distribution channel called G5 Store. So active portfolio is all of G5's games which receive regular updates as opposed to the games in what we call harvest mode, on which we don't make any improvements. And this segment of games saw much stronger negative dynamics. Monthly average gross revenue per paying user was continuously strong at 63.7 USD. G5 Store, the direct-to-consumer distribution channel, continued to show strong growth, and now it makes up 15.2% of total net revenue of the company, compared to 9.4% a year ago. Some really good advancement there. As you know, G5 Store has lower processing fees than in the alternative stores. They are low single digits compared to anywhere between 12 to 30% that the third-party stores usually charge. Growth for G5 store was 42% year-over-year in Swedish kronor and 40% in USD terms. So this is quite a significant pace of growth for an already substantial revenue stream. We are quite excited that G5 store continues to grow. And not only year over year, but also sequentially. So growth compared to previous quarter was 9% in SEC and 6% in USD terms. Our user acquisition spend was 17% of revenue. That's compared to 19% last year. Gross margin remains strong at 67.8% compared to 67.4% last year. And earnings per share was 3.02 tech for the quarter. And that's compared to 4.96 same quarter last year. So in this quarter, we paid our annual dividend of 62.4 million SEC, which is 80 kroner per share. And despite this, our cash position at the end of the quarter stood at a strong 193 million SEC, up from 173 million SEC last year. We continue to have zero debt and a solid cash flow, something we are very proud of. Let's move on to the next slide. And I'd like to take a moment to talk about our development funnel and the stages that games go through and how many games we have in each stage so that you have a better understanding of our new games pipeline. As you know, we have evolved our development funnel, the new one, since the third quarter of 2022. There are several stages that all new games are going through. And the way it works is that after the thorough process of testing and selecting new game ideas, they await the beginning of work and the shortlist for launch. So that happens before the first stage of this funnel. And once we have the resources available to start the work on the new idea, the idea with the most potential is selected from that short list, and the pre-production begins, the first stage that you see on the screen, during which major game design decisions are made. Once pre-production is complete, the development of the soft launch begins, the second stage. And then once it is ready, there are several stages until the engagement benchmarks for each stage are met. And we iterate in these stages and these iterations can happen in the retention stage as well as in the monetization stage. as we work on achieving the benchmarks. And the final soft launch stage is the scalability test. We only move to this stage when previous stages have shown the potential for the game to scale and the benchmarks were met. In this stage, we normally attempt to launch the game in a single country and scale the game's revenue with user acquisition in that particular country. And there may be iterations in this stage as well as we try to achieve scalability. So in any of these stages, a game can be discarded if we fail to achieve the benchmarks we believe are necessary for scalability in that current market situation. And if the game proves its scalability, it is green-lighted for global launch and the preparation for global launch begins. So starting in June this year, our focus has also been on improving the pace of iterations and on speeding up the movement of game ideas and the game development through this funnel. so that we can cycle through new interesting ideas faster, and so that we can filter through them faster to find the ones with the most potential, the ones that we believe can be scalable in the market. So this initiative that's going on in the company is focused on doing that faster and finding, hopefully finding scalable ideas faster and just processing more ideas. So this is the big change that the new funnel brought into the company. Several years ago, we would just pursue in a given year, maybe one or two new game ideas, and we would work really hard for a really long time on them. And sometimes we would find ourselves at the dead end But we've spent years and millions of dollars pursuing that idea. And it will be difficult to abandon it. And now we aim to find red flags really quickly. And once they're found, to move on to another game idea. And this way, in a given year, we move through much more, many more new game ideas. and in search for the one that can lead to a successful game. And as I said before, it takes quite a few attempts to find a hit game. Even prior to kind of a more difficult market situation, we usually saw maybe one really successful game on the 10 games that we've made. So these are the chances that we're working on. So it's important to move through new game ideas quickly enough to be able to find successful, scalable ones. So during the course of the year, we normally expect to work on around 30 new game ideas, from 30 to 36. These ideas that we consider, that we try to test on the market, and we expect of these 30-something ideas to select five to six game ideas with the most potential that we see. to actually develop a build of the game to test it on the live audience during the soft launch stages. And we expect that out of these five to six games, we aim out of these five to six games to proceed into global launch with one. But that's assuming that we are successful in actually getting a game with metrics that we believe are enough to find the scalability in the market And that further shows that scalability in the scalability test. So it's a lot of technical details about what we do, but hopefully it gives you a better understanding of the work that the company is doing. That is quite invisible from the outside in our financial figures at the moment. But this is the work that we're doing for the future. So what you see in this slide is the slice of our development funnel as of the end of the second quarter. And from tens of game ideas that we evaluated over the last 12 months, we had three games that qualified and went into pre-production and early development stages. And we already had four games already in various stages of soft launch testing. So during the course of the quarter, we usually make a lot of iterations in games in different stages, and we may discard some games, and we may actually start pre-production or development of new game ideas that were not pursued last quarter. So there's a lot of work going on, and these games are continuing to progress through the funnel towards the global launch. With that, let's move on to slide four and talk about our strong gross margin and stable performance of the second quarter. Our own games stood for a bit over 70% of net revenue during the quarter, basically on the same level as the second quarter last year. Our active games made up 63% of the quarter's revenue in line with the 62% last year. Our gross margin came in at 67.8%, rising slightly from the 67.4% a year before, and mainly increasing thanks to the fast growth of G5 Store, which continues to be a welcome development for us. Monthly average gross revenue per paying user was strong 63.7 USD compared to $62 a year ago. Let's continue to the next slide with talk about our operating margin. Our operating profit or EBIT was 21.8 million SEC this year versus 38.9 million a year before. This gave us an EBIT margin of 7.6% in Q2. And during the first quarter, EBIT got a boost from the revaluation related to FX, primarily from the Swedish krona versus USD. So in the second quarter, this trend was reversed and we saw a negative impact from FX revaluations. When we adjust for that negative impact from other income and expenses as well, the EBIT margin would be 8.8% versus 9.5% a year prior. So at the same time, net capitalization impacted our earnings with 8.1 million SEG compared to 12.6 million in the same quarter last year. And we expect this net capitalization to continue to go down, I mean, to be a less negative amount going forward. Now let's turn to talk about cash position. We pride ourselves on being financially strong, and this quarter was no exception. Cash flow before financing activities was 6.5 million SEC compared to 45.7 million last year. Total cash flow during the second quarter was negative 56.3 million SEC compared to negative 31.8 million last year. And both figures are after we paid a dividend of 8 SEC per share, both this year and last year. It happened in the second quarter. And it was a total of 62.4 million SEC this year and 64.5, slightly higher, million last year. Total cash at the end of the period stood at 196 million SEC, and that's up from 173 million a year before. So as you can see, we can afford a large dividend and to continue to be profitable and cash flow positive and increase our cash position. So let's start to wrap it up here with some final thoughts on our further development. So we've seen stable revenue generation of the games in our actively managed portfolio and have continued to maintain a disciplined approach to costs. By strategic initiatives and robust operational efficiency, we expect to continue to strengthen our operations for future growth prospects. new games are of course keys to success and executing on the development final process will continue to strengthen our teams and build a promising pipeline of future games during the year we as i said expect to work on from 30 to 36 new game ideas soft launch from five to six uh games and release we aim to release globally at least one game We also expect the G5 store to continue to grow and continue to boost our gross margin and profitability. We will continue to keep our UA spend at sustainable range of 17% to 22%. And all in all, we expect robust cash generation and a strong balance sheet and remaining debt-free markets. We continue to follow our strategy and see positive momentum in important parts of our business as we enter the second half of 2024. I'd like to end by thanking you for following G5 and also thanking the whole team at G5 for their outstanding efforts. So this concludes my presentation and we'd like to open the call for questions.

As I said before, you can either raise your hand to ask a question verbally or ask them through the Q&A box that you have available. We'll start here with Simon Jönsson from ABG.