G5 Entertainment AB (publ)

for the attendee list to fill up. You will see on the screen here that you will be in listening view mode only for the start of the call and the presentation. After we finish up the presentation, we're going to a Q&A session. where you can either raise your hand and ask your questions or you can also type them into the Q&A box that is available in Zoom. As you open up that, you can type in your questions and we'll answer those as we get to them.

All right. It seems like everyone has come on the call.

So welcome, everyone, to our second quarter results. My name is Stefan Wikstant. I'm the CFO of G5 Entertainment. With me, I have Vlad Suglibo, our CEO as well. Unfortunately, Vlad is traveling today, so he has a bit of a poor connection. So I will walk through the presentation. and go through that part, and he will be available for the Q&A that we'll get to afterwards. We expect the presentation to take roughly 10 to 15 minutes before we get into the Q&A. So we'll start with some of the highlights from this report. And we are rather happy with the sequential dynamic. In USD, revenue declined by only 1.7%. in what normally is a seasonally slower quarter, Q2. If we look at the USD performance, which is more relevant to us, we are primarily a USD business. We saw a decline of 11% in USD terms year over year, much better than the corresponding figure in the first quarter. If we compare it to the Q1 USD dynamic, this is quite important. And if we look at the portfolio in more detail, our actively managed portfolio of games only shrank 0.2% sequentially in USD terms. And Sherlock revenue was actually up 2.4% from Q1 to Q2. This performance was driven by the improvements that were made in the game and the increased UA spending that we did in the quarter. The Jules family of games delivered a relatively stable performance in the quarter. And of course, the team will be working on making improvements to those games that can change their dynamic, just like they did with Sherlock. Use acquisition was 18% of revenue, back within our previously communicated range of 17 to 22%. Up from 17% last year, but only 15% in the first quarter. So this has been achieved by expanding the number of UA channels and the volume of acquisition on the back of the improvements that we did on existing games, specifically Sherlock Down. G5 Store continues to show strong growth and now makes up 23% of our net revenue compared to only 15% a year ago. And thanks to the continued success of G5 Store, gross margin reached a record 70% up from 67.8% last year. In the quarter, we paid the annual dividend of 62.2 million SEC, which is eight SEC per share, which was the same as last year. But despite this, our cash position at the end of the quarter stood at a strong 247 million SEC, up from 196 million last year. As you may have noticed in the report, and it's kind of going through all the numbers that we look at, this quarter was impacted by the substantial and continued weakening of the US dollar and the strengthening of the Swedish krona, which affects our reported numbers. And in addition to having an impact on the reported turnover, it also has an impact on earnings and specifically on this revaluation that we do over operational assets and liabilities. And this quarter was impacted by minus 10 million SEC on these other operating cost lines. And that impacts the earnings quite drastically. But we remain debt free. We continue to have a strong, solid cash flow. And that is something that we're very, very proud of. If we then move ahead a bit and talk about the G5 store, which is our third largest source of revenue or platform. And during the quarter, it accounted for 23.3 of total net revenue, which is up significantly from the 15.2% that we had last year. And G5 store continues to build momentum. despite a much larger size than a year ago. So gross revenue growth in USD terms was 38.5% year-over-year and 8% sequentially, which is a significant pace of growth and one of the fastest we've had for G5 Store in any given quarter. As you know, one of the key advantages of the G5 Store is the lower payment processing fees, which are in the low single digits. This is in stark contrast to the 12 to 30% fees that we typically charge by third-party application stores such as Apple App Store and Microsoft Store. This cost efficiency directly contributes to our improved profitability and the expansion of our gross margin. Last quarter, we mentioned that G5 Store has a significant opportunity to scale its revenue by licensing and distributing third-party games that are or were successful on mobile platforms. We're currently working on the technical preparation for third-party developers to be able to distribute their games on G5 Store. The goal is to release the first games from other developers on G5 Store before the end of the year. This will bring much desired incremental revenue to mobile game developers while further expanding our reach and scale of the G5 Store operations. G5 Store is now at the size where its strong continued growth may start positively affecting the overall top line dynamic from the sheer size of the store. If we then go ahead and looking at the gross margin and what is leading up to that, the owned games accounted for over 72% of net revenue and active owned games accounted for 62% of total net revenue up from 59% last year. And this is then excluding Mahjong Journey that was put into harvest mode in Q1, but it's reflecting a strong performance from our in-house Hytos. Our gross margin, as mentioned before, would reach a record high of 70%, up from 67.8% a year ago, thanks to the G5 Store's growth. Our monthly average gross revenue per paying user reached an all-time high of 68.9 USD, a new record and significantly higher than last year's figures of 63.7 USD. And this number reflects the improvements of the underlying quality of the audience, where we see a shift to having a smaller number, but of higher paying users. And this is also primarily driven by the growth of G5 Store. If we then move to the operating profit, the operating profit for the period came in at 5.6 million SEC compared to 21.8 million SEC last year. This is equal to an EBIT margin of 2.4%, which is down from last year. But as mentioned on the first slide here, the lower EBIT was mainly due to foreign exchange revaluations, specifically related to SEC USD fluctuations. And those amounted to 10 million SEC in this quarter compared to 3.4 million in the previous quarter. As we have mentioned before, we are primarily a USD business and most of our revenue and most of our expenses in the form of U expenses, royalty, et cetera, are in USD. However, we are reporting in SEC and being a USD operation means that we have the majority of our balance sheet in USD as well, which then needs to be revaluated to SEC upon reporting. And therefore, when the SEC USD rate moves fast, it causes these other operating income expenses to move and they can move quite drastically and can go both ways. And currently with the USD weakening, we see the negative results here in Q2 as well as we saw in Q1. But if we adjust for this negative impact from other income and expenses, our EBIT margin would have been 6.8%, which is a healthy margin for the quarter. At the same time, we saw that net capitalization impact on earnings was only minus 0.4 million SEC compared to minus 8.1 million SEC last year. Let's then move on to our cash position. which continues to be very strong. We have a capitalization impact on cashflow of minus 22.5 million SEC, which is a bit less than the minus 27.1 million SEC we had last year. That moves us into cashflow before financing activities, which was a solid 25.7 million SEC compared to 6.5 million last year. Total cash flow for the period was minus 38.8 million SEC, down from 66.3 SEC, or up rather, from a negative 56.3 SEC last year. And the quarter was heavily impacted, as it was last year, by the dividend payout of 8 SEC per share. And this year, that was a total of 62.2 million SEC that was paid out to the shareholders. Total cash at the end of the period was 247 million SEK compared to 196 million SEK last year. We move ahead to the status and outlook for the rest of the year. And looking ahead, we continue to maintain the healthy profitability as we've done over the years and looking forward to sustainable growth in the next half of 2025. We'll continue to make improvements to the active games to stabilize the top line and increase UI spend to facilitate growth. During the quarter, we made seven iterations on new games, of which one game, Twilight Land, is expected to launch global later this year. Our collaboration with third-party developer continues and want to be able to distribute their games on the G5 store with the goal to release the first games before the end of the year. We are strengthening our management team with expertise in development, marketing, and growth. And these strategic hires will be essential in ensuring that we stay on track with our long-term growth goals. Our focus on operational efficiencies remains a priority, and we continue to make improvements in our development funnel and our game evolution process with the aim of releasing one to two games globally per year. A key driver of our future growth is the rapid expansion of the G5 store. And as we grow the G5 web shop for direct payments and mobile users to G5 and leverage scalable distribution opportunities in G5 store, we expect a positive impact on both our top line and gross margin from the G5 store. In terms of user acquisition, we are taking a disciplined approach. We expect to stay in the range that we have indicated over the years of 17 to 22% for UA as a percentage of revenue, which will help us to continue optimizing growth while maintaining profitability. If we see opportunities for venturing outside of this UA range, we will communicate that to the market in advance, as we've said before. Throughout all of this, we maintain a strong financial discipline, generate solid cash flow, and we're proud of our very strong net cash position, which gives us the flexibility to execute on strategic initiatives and strengthen the foundation for future growth. We would like to end by thanking you for following G5 and also thanking the G5 team, obviously, for their outstanding efforts in the quarter. And that concludes our presentation for the day. And we are ready for opening up the Q&A. And as I said in the beginning, you can either raise your hand to ask questions verbally, or you can write them in the Q&A box if you have anything. We'll start here with Hjalmar Ahlberg from Redeye. Let's see. There we go. If you unmute, there you go.