G5 Entertainment AB (publ)

Our presentation. So I'll start by giving you a brief overview of this morning's report, starting with revenue development. Revenue was 19.3 million USD. It's a decrease of 20% year-over-year and 4% sequentially. We unfortunately continue to see a decline across all three main pillars of revenue. Sherlock, Hidden City, and The Jewels Family of Games all have shown declines in the period. Hidden City declined 11% year-over-year and 6% sequentially. Sherlock declined 23% year-over-year and only 3% sequentially. The Jewels family of games, however, continues to be the weakest performer, declining 39% year-over-year and 12% sequentially. As we have announced last quarter, the Jewels games, together with The Secret Society, have now been put in harvest mode in September. Our older games are now mostly complete in terms of functionality and content, so our focus going forward is on fine-tuning them for the best performance and operating them for the best return on investment in the long run. Our main games have a long tail of revenue that will generate cash flow for years to come. On the bright side, 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 41% sequentially. Interest from other developers is increasing as we deliver solid revenue share reports to the developers already on the G5 store. And the pace of new game deals and releases is gradually increasing as well. As a consequence, we have also reached another all-time high gross margin of 74.1%, up from 71.2% last year. The reasons are the continued growth of our direct-to-consumer channel G5 Store, including third-party distribution, the growth of our advertising revenue, and the continued efforts to monetize players on mobile devices directly, including through the web shop. Monthly average gross revenue per paying user came in at $75.2 USD, a 6% year-over-year increase, reflecting the high quality of our loyal audience. User Acquisition was 18% of gross revenue, down from 21% a year ago, and User Acquisition investment decreased 31% year-over-year to $3.4 million USD. Moving to profitability. If it was 1.9 million USD, as communicated before, we have carried out two waves of optimizations during the year, and this optimization is now substantially complete. Our severance costs in the third quarter were higher than we anticipated and guided for, but we have also achieved higher savings than we expected. Our current assessment is that we have created annualized run rate savings of around 14 million USD, Up from 11 million USD we communicated last quarter and we expect the team to stabilize around 450 by the end of the year. We are now operating a much leaner organization and as you can see it shows in our profitability. At the end of the quarter, our cash positions stood at a strong 24.3 million USD, including liquid short-term investments, and we remain debt-free and we continue to have a strong balance sheet, which gives us strategic flexibility. Now let's move over to the G5 store and our direct-to-consumer strategy. The G5 Store is now established as the clear number one among our distribution channels. The single-digit processing fees in the growing G5 Store continue to be a key driver of our margin performance, given that third-party mobile app stores typically charge between 12% and 30%. This cost efficiency directly contributes to our improved profitability and the expansion of our gross margin. G5 Store revenue continues to grow overall. As I said, revenue from third-party distribution in G5 Store grew 41% sequentially, while G5 Store revenue overall grew 7% sequentially and 16% year-over-year. And G5 Store now accounts for 28.4% of total gross revenue of the group. The share of payments from the players on mobile devices processed directly continues to grow rapidly. After reaching 11% in the first quarter and 17% in the second quarter, it has now reached 21% of mobile gross revenue. In the third quarter, further reducing platform fee exposure and the expansion of the G5 Store as a distribution platform for third-party developers continues. As of the end of the third quarter, 19 games have been signed for distribution on the G5 Store compared to 12 games at the end of the second quarter. Revenue from third-party games, as I mentioned, is growing steadily and we continue to be on track to make this a significant fourth pillar of revenue for G5. Now, let's look a bit more in detail on the development during the quarter. As mentioned earlier, all three pillars of our revenue, Charlotte Jules, Family of Games and Hidden Scene, continue to decline in this quarter, which explains the overall negative dynamic. Our own games accounted for 65% of net revenue compared to 73% a year ago, as own games declined faster than licensed titles, and third-party games on the G5 Store added a growing share. At the same time, the direct checkout combined with the G5 Store growth improved the gross margin. Let's now look at our operating profit for the quarter. So reported operating profit for the period came in at 1.9 million USD compared to 1.3 million USD last year. The reported margin was 9.8% versus 5.5% a year ago. EBIT was negatively impacted by severance payments of 0.8 million USD and positively by a one-off release of social security fees of 0.3 million USD and also by currency exchange effects of 0.3 million USD. Adjusting for these, EBIT was 2.0 million USD compared to 1.4 last year, corresponding to an EBIT margin of 10.6%, compared to 5.7% adjusted EBIT margin last year. In addition, the net capitalization impact on earnings was minus 0.9 million USD, The underlying cash generation or EBITDA of the operations was a strong 3.0 million USD. User acquisition, as I said, was 18% as percentage of revenue compared to 21% in the third quarter last year. or 3.4 million USD compared to 5.0 million USD last year. Now let's turn to the next page and talk about our cash position. G5 remains debt-free with a strong cash position of USD 24.3 million including liquid short-term investments. Strong reserves combined with the return to profitability provide us with the flexibility to fund new game development and execute on our marketing strategy. Operating cash flow was 0.7 million USD, 4.5 million last year, impacted by working capital movements of minus 2.5 million USD, and we used 0.3 million USD for share repurchases compared to 0.9 million last year. Cash flow adjusting for interest bearing investments was minus 0.2 million USD, 1.1 last year. Let's start to wrap it up with some final thoughts. As we move through 2026, we remain focused on key drivers. The workforce optimization is substantially complete with annualized run rate savings of around 14 million USD and the team expected to stabilize at around 450 by the end of the year. We are committed to having compact teams that make impactful changes supported by the advancements and tools. We remain vigilant about the cost structure while maintaining product momentum across the game portfolio, the G5 store, and other initiatives. We will continue to sign and launch high-quality third-party games in G5 store to solidify the store as our fourth revenue pillar. We will continue to grow advertising monetization, which increased 53% sequentially in a quarter, as another tool to stabilize the portfolio performance and further improve the gross margin. And finally, our new game continues in soft launch with the strongest short and medium-term metrics we have ever seen. further iterations over the coming quarters will focus on its long-term metrics which will indicate the gains scalability in the market for us we remain committed to financial discipline and generating long-term shareholder returns through dividends and buybacks And with this, I'd like to thank the whole G5 team for their resilience in this time that is not a very easy time. And I'd like to thank our shareholders for their trust. This concludes our presentation and we'd like to open the call for questions.

Yes, and as I said at the beginning of the call, you can type your questions in the Q&A box or you can also raise your hand to ask a question verbally. We have a few in the Q&A box. If we start with Hjalmar Olberg, do you have an indication of the UA level going forward?

Yes, we are looking at it as a function of a performance of a particular title. So in the situation where we have just moved some of our bigger games into harvest mode, basically that's because we don't see the possibility to scale these games in the market. And so at the time, There is, so to speak, less rationale to spend high amounts on user acquisition. We want to make sure that when we spend on user acquisition, we can see clear path to recouping that money. And when we move a game into a harvest, it basically means that we do not see that path on the game anymore. So in the short run, user acquisition spend as a percentage of revenue and Vladislav Suglobov. and we are also investing in the marketing of G5 Store and in the marketing of the third-party games on the G5 Store. So we have a situation where user acquisition spend is being reallocated from older games in our portfolio to these third-party distributed games and also to the soft launch needs of our new game. As we get more confident in its metrics and we try to spend a little bit more to get more data to understand the metrics better and have a better look at the medium and long term metrics. So the interplay of these factors will determine user acquisition levels. I would say, as we said before, if user acquisition spend is going to stay within the brackets that we have outlined before, 18 to 22%, we will not really try to guide for anything else. You can assume that we will try to stay within that range, which historically has been normal for us. If we are going to deviate away from this range, As we have made a commitment, we'll try to guide for that. So for now, I think we are staying within the previously communicated range. Yeah.