G5 Entertainment AB (publ)

The Q22026 earnings call. We wait a few seconds for the attendee list to load properly. In the meantime, I just want to remind you that you're in listener view only during the presentation. And then afterwards, we'll open up for a Q&A session. where you can raise your hand and we will allow you to ask your questions verbally. You can also type questions in the Q&A box during the call or after, and we'll answer them when we get to the Q&A part. With that said, I will hand over to our CEO, Vlad Suglubov.

Thank you, Stefan. Welcome everyone to the earnings call for the second quarter. We obviously have Stefan Bikstrand our CFO with us today and as usual we'll go through the presentation in about 15 minutes and then we'll open the line for the questions and I'll start by giving you a brief overview of this morning's report. And first, I'll tell you about the current optimization of the workforce. As we disclosed in the first quarter report, the plan was to reduce our staff by approximately 180 employees with the aim to have a total of around 635 employees. And this first wave of redundancies was completed during the second quarter. And since then, we have continued to review the workforce and the active projects, and we have identified further redundancies. So the second wave of optimizations took the total number of employees down to now approximately 550, and it was completed in early August. So this is the number of employees as of today. and the total yearly savings from both these waves of redundancies combined is approximately 11 million USD. So let's continue with the numbers from the report. Revenue was 20.1 million USD and this was a decrease of 16% year-over-year and 7% sequentially. We unfortunately continue to see a sequential decline across all three main pillars of revenue, Sherlock, Hidden City and the Jewels family of games. Hidden City in particular suffered due to new functionality that unfortunately had negative effects. And the game declined 10.5% year-over-year and 8% sequentially. So that functionality has been restored. And as of July, the game was trending back gradually. Sherlock declined 16% year-over-year and 8% sequentially. And finally, we have the Jewels family of games that declined almost 30% year-over-year. And as we have stated in previous reports, we have had a roadmap in the second quarter. We worked on it. And this roadmap included a number of changes to the Jewels games that were supposed to change the trajectory of these games. reached the end of the road in the second quarter towards the end of it with little success. So we see that we cannot justify continued investment in these games and the Jewels games will therefore be put in harvest mode. And we will maximize the profitability of these games going forward, assuming that they will continue to gradually decline. On the bright side of things, we have seen a very strong performance in the third-party distribution on the G5 Store during the quarter. Revenue from the distributed third-party games increased 100% sequentially, which is pretty good. The interest from the developers is growing. We are releasing more third-party games in the G5 Store, and the pipeline of new games to be signed is forming very well too. We have also reached another all-time high gross margin of 73.1%, up from 70% last year. The reasons are the same, the continued growth of our direct-to-consumer channel G5 Store, including third-party distribution, and the continued positive development of our efforts to monetize players on mobile devices directly, including through the webshop. Monthly average gross revenue per paying user continues to go up as well. And here we also set a new record of 79 USD, which is a 15% year-over-year increase, reflecting the high quality of our loyal audience. User acquisition was 19.5% of gross revenue, higher than 18% a year ago. And at the end of the quarter, our cash position stood at a strong 24.4 million USD after paying the dividend and share repurchases. We continue to remain debt-free and to have a strong balance sheet, which gives us strategic flexibility. Now let's move over to and have a little closer look at G5 Store and our D2C strategy. So by now the G5 store has established itself as the clear number one among our distribution channels. The low single digit processing fees and the growing G5 store continue to be a key driver of our margin performance as just discussed. Given that third party app stores typically charge between 12 and 30%. And this cost efficiency directly contributes to our improved profitability and the expansion of our gross margin. And we're talking about the gross margin of course. Third-party mobile store sales continued to decline for G5, while G5 store grew 5% sequentially and 15% year-over-year. And it now accounts for 25.5% of total group revenue and 29% of net revenue, which is after the commissions. The share of payments from the players on mobile devices processed directly continues to grow rapidly. In the first quarter, we saw a doubling of such revenue from the fourth quarter, reaching 11% in total. And in the second quarter, this trend has continued, and this share reached over 17% in the second quarter, further reducing platform fee exposure. The expansion of the G5 Store as a distribution platform continues. We launched three new games during the quarter. and of the games that were in negotiations during the quarter five have been signed and negotiations are underway for nine games as of now. Revenue from third party games is growing steadily and we continue to be on track to make this a significant fourth revenue pillar for G5 over time. Let's move on to the next slide and look a little bit more in detail on the development during the quarter. Right, the negative trend here is explained as mentioned before by the decline in all three main pillars of our revenue, Sherlock, Jewel's Family of Games, and Hidden City. And they all unfortunately underperformed, and that's why we have this dynamic. The share of OWN Games is currently on the negative trend as well, and this is due to the weak performance of Sherlock and Jewel's Family of Games, and this effect is further amplified by the increase of revenue from the distribution of third-party games in the G5 store. As mentioned, our gross margin reached a record high of 73.1%, up from 70% a year ago, primarily due to the continued growth of the G5 store and processing more of the mobile player revenue directly. Now let's look at our operating profit for the quarter. Reported operating profit for the period came in at minus 0.2 million USD compared to positive 0.6 million USD last year. The reported margin was minus 1.1% versus 2.5% a year ago. User acquisition was 19% as percentage of revenue compared to 18% in the second quarter of 2025. EBIT margin was slightly impacted by the increase in UA spend for the quarter. EBIT was also impacted by positive currency exchange effects and negatively by severance payments. Adjusting for these, EBIT was $0.1 million USD at $1.6 last year, corresponding to an EBIT margin of 0.4% compared to 6.8% last year. During the quarter, the net capitalization impact on earnings was 0.1 million USD compared to minus 0.3 million USD last year. Net capitalization will go down following the optimizations that we've made. Now let's talk about our cash position. And we'll move on to the next slide, yes. G5 remains debt-free with a strong cash position of USD 24.4 million, providing flexibility to find new game development and marketing from our operations. The quarter was negatively impacted by the dividend of 1.6 million USD, 6.5 last year, and repurchases amounting to 1 million USD, 0.2. Total cash flow during the first quarter was minus 1.9 million USD compared to minus 4.5 million USD last year. And let's move on to the next slide and go through the final thoughts of our earnings call. As we move through 2026, we remain focused on key drivers. The organizational changes have materially been completed in the third quarter. with a run rate decrease of 11 million USD. We remain vigilant about the cost structure while maintaining product momentum across the game portfolio, the G5 store, and other initiatives. And it's the second quarter, obviously, not the third. Sorry for me saying that. We will continue to sign and launch high-quality third-party titles to G5 store to solidify the store as our fourth revenue pillar. We are also looking to increase advertising monetization as another tool to stabilize the portfolio performance and further improve the gross margin. And finally, we are moving forward with our games and the pipeline towards potential global launch or cancellation depending on the results of the soft launch and utilizing agile teams for continuous innovation. We remain committed to financial discipline and generating long-term shareholder returns through dividends and buybacks And I'd like to thank the whole G5 team for their resilience and our shareholders for their trust. And this concludes my presentation. I would like to open the call for questions.

Thank you. And as I said before, you can either raise your hand or you can also post questions in the Q&A box. We'll start with Hjalmar Ahlberg from Redeye. Hjalmar, you're on.