Stillfront Group AB (publ)

Welcome to Stylfrans Q2 earnings call. I will be presenting Jörgen Larsson CEO together with our CFO Andreas Udman. So next slide please. We posted strong margins. We had a strong margin development in the second quarter. We had net revenues coming at 1744 million SEK, which is in line with Q1 and lower revenues by 4% compared to last year. We increased our gross profit by 2% up to 80% and we had an EBITDAQ margin of 29% up 8% quarter over quarter driven by lower acquisition costs and up .5% year over year. Our free cash flow amounted to 272 million SEK, which is almost a doubling from the previous quarter. You can also see on the lower right side of this slide that we lowered our gross profit, which is the one that we are steering the business on, by .6% only. And that is an important number. Next slide please. Looking into our lower use acquisition costs, there is a few highlights that I would like to emphasize on this slide. One is that you can see that we are on a normalized level at 26%, whereas we both in Q4 and Q1 had a significant uplift in use acquisition costs due to the so-called trample line massive launch of our big success, the Sunshine Island. That was on very high levels. Now we are back to 26% as we were also in Q3 last year. You can see also the stability both in terms of net revenues as well as for the individual quarters, as well as we have on LTM. You can see that we are still then obviously since we had this uplift in Q4 and Q1, we still on LTM UAC are on high levels, but they are going slightly down. We can go to the next slide please. So looking at our lower cost base, which is a product of the efforts that we took on 18 months ago, is really kicking in now in our margins, which is satisfactory. So you can see on the left side that our margins were 29%, our EDTAC margins, which is by the way the highest margins that we've had for three years, and it's a significant uplift from Q4 and Q1. And also this is driven by the gross margin improvements that I mentioned briefly. We have staff costs that we have lowered by 12%, which then equals to .6% percentage points compared to our revenues. UAC up by .5% year over year driven by again Sunshine Island. What is also very important and a third part in the initiative that we took on at our capital markets day in February 2023 is to focus our investments more to where it needs the best, where we get the highest ROI. And that is also one of the main explanations to why we have been able to improve our EDTAC margin in the way that we have had. Next slide please. And the important driving behind the improvement of gross margin, it is a product mix effect that is in there as well. But the most important thing is that we did work very actively with the DTC direct to consumer channel. And as you can see on the upper right graph, it's up to 33% from being 29% and last year 26%. And obviously that is very margin accurate that we have a direct relation to our consumers. It's good for the consumer relationship as well as it is for poor margins. We can see that our monthly paying users are stable. We have a drop on Mao and Dao which is a consequence of that we are focusing our efforts, our live ops on the customers that are most valuable for us. And that is paying off. You can see that the average revenue per daily active user is on the lower left side graph up from 1.7 last year which is a quite significant improvement. So more focus on these customers as well as that we work with our direct to consumer channel. Next slide please. Looking into the different areas of our active portfolio, looking at strategy. Strategy saw a clear slowdown in June basically, second half of the quarter which was a bit earlier and a bit more than we had expected. And you can see that it's a clear drop in both bookings by almost 90 million approximately, but you can also see that our UAC has gone down significantly from 28% in last quarter to 16% this quarter. And so hence we have not been able to deploy the level of UA and continuing with our ROI targets. So then we lower it and it's also by the way strategy that always is the most obvious evidence that we come into the usual seasonality of this industry. So a bit slower than we hoped and expected in June, but nevertheless a stable performance. And UAC is actually down by 40% compared to last year, whereas bookings down 12% and gross profit only down 7%. And you can also see here that we are very strong on the DTC channel in the strategy product area on the upper right side. So we have DTC amounting to 44% of our revenues. Next slide please. Within the SIM RPG product area, we can see that sequential increase in bookings and users driven by two things. One is that we have been able to launch one server not as successful as the Asia server for Alvin online last year, but nevertheless a successful launch and contributing positively to the quarter. But also that we have been able to continue to scale our, I would say, probably most successful launch ever, which is then Sunshine Island. You can see on the upper right side that we are now from being running with as it should look when you have a good success on your hands that you are able to deploy a lot of UA and the revenues start to pick up. So in Q4 was 22 revenues or bookings 62 in UA. Then we are closing the gap slightly in Q1 doubling the revenues. Now the Sunshine Island revenues are up by 10%, whilst we are scaling down user acquisition costs by 40%. So they are on par. And what we will do now is to continue to work with further content, further optimizations, further features for Sunshine Island. So it will serve us with profitability for many years to come. Also, we hope and expect that we can scale it as we come out of the weaker season of the year into Q4 and then Q1. We can go to the next slide, please. In Cache and in Mashup, we were flat sequentially and year over year in Cache and in Mashup. Very satisfactory to see that Superfreeze world franchise has gained traction. So it's going well in the second quarter and drive both organic growth for the franchise. And we see that we can we hope and think and see good KPIs indicating that we can continue this for the second half of the year so that we get another contributor for growth over time. Then we also have Joe Walker, which has continued this massive, very impressive performance. So you can see on the upper right side of this, of the graph or the slide, how they have developed. So Q2 was the highest uplift we've had so far. So they are still on the 41% CAGR since we made that acquisition with very high margins. So it's really a gem that we have in our portfolio. On the other hand, we have struggled a bit with Stormate's home franchise. So we're working both with C2 that we adopt the studio for other circumstances. That's one thing. The second thing is that we also we launched at the Ellen garden restoration game and slowly scaling it. And we hope and think that that could contribute to Stormate's further progression during Q4, not the least. So good early KPIs, but nevertheless, it's still some mileage to walk there. So with that, I would like to hand over to Andreas.

Thank you, and good morning, everyone. I will look at the cash flow for the QoN also the LTM numbers. We had a strong cash flow in the quarter. We had a cash flow from operations before network and capital effects of 482 million. Within that, we spent 462 million of UA, which is actually still a higher absolute cash flow. The absolute amount of 28 million versus last year was significantly down versus the two previous quarter. Now I get a bit more into depth of that. We had financially expensive of approximately 100 million in that, which is an increase versus last year of 20 million, which is driven mainly by that we have we have been in a higher interest rate environment. And we had a negative network and capital effect in this quarter. It's mainly driven by a reduction of liabilities, as Jürgen was saying that we saw a slight decrease in the spend on especially on strategy by the end of the quarter was we had spent a lot of UA in the quarter. And that was in Q1 and especially in March. So that is just a fluctuation that impacts the quarter negatively. So that ended up with a cash flow from operations of 434 million. And we on the investment side, then we had, as usual in Q2, we settled our earnouts and that was 432 million of our nuts that was paid in cash. We have invested also 852 million or .7% of net revenues in the mess in in capex. And so that is, as we talked about previously, that is now coming down in the numbers, you can see it is a 40 million reduction from from from last year or 1.9 percentage points lower in terms of relationship to net revenues. We also had a negative effect in terms of investment activities based on the consolidation due to loss of control of our our moon frogs subsidiary in Bangladesh, which impact is investment cash flow of 82 million. So the financing activities, these were 260 million. We had a net change in borrowing of 463 million. And we we purchased shares for 182 million in the quarter. And these shares have then be used to settle the equity components of the earnouts, which is now all been settled in Q2. And I think it's it's looking at the graph that looks free cash flow per quarter, which is the low and the low graph to the to the left is that that's how we come from appear where we have intentionally invested more money into UA. We spend both in Q4, but also in Q1. And that was because we can see that we are getting the the financial leverage or the operational leverage in RP now through the reduction in terms of fixed costs, but also in terms of the improvement of our of our gross profit in combination that we also have focused our investments. So when we then reduce UA, we still invest 26 percent. So it's not like we're completely scaling it down. It's still on a normal level, even if June was slower. And we directly see the positive contribution in terms of the cash flow, which is then shown in the Q4 and Q2 numbers. So that also impacts out of the LTM numbers, which which is the graph to the right, that we come through this investment period and we still have cash for former operations prior to working capital of adjustments of one point six billion. It is a decrease from last year, but but it is driven by partially that we have spent a lot more UA in the in the comparison periods of approximately two hundred forty eight million more comparing the two periods. We still have a higher financial cost, especially looking into versus the LTM numbers in Q2 2023. And that is one hundred thirty two more that we can still service our debt. But that is, of course, impacting the cash flow from operations in here as well as some of the effects or defects that we're seeing that we've been able to reduce our fixed costs, which is partially done as staff costs, which is down twelve percent. Versus last year, we have some one time costs of forty nine million for these cost optimization programs. In terms of investments here, we can really see that what we were talking about in terms of the capital markets, they have invested in last twelve months, six hundred ninety eight million, which is. Ten point one percentage versus net revenue, so that's around the period that we are there. Everyone we stated that we will come down that we have now come down to. And if we compare to just a year ago, there's a decrease of two hundred and eleven million. So a bit what we were talking about creating operational leverage in the business or financial leverage by increasing gross profit, reducing fixed costs, reducing capex. Is clearly now visible as we as well taking down capex in the last twelve months. So in terms of that cash flow from cash flow, free cash flow, that was down if you compare to the periods, comparative periods, but it was still seven hundred and thirty seven seven hundred thirty seven million. And a large driver of that is obviously are are the increase of financial cost combined with the intentional investments in more UAE, especially Q4 and Q1. Then we can jump into the next slide leverage. We ended the quarter at two point seven fifteen, which includes the cash earnouts. It is as normal on in Q2. The next year's earnouts, I don't want to be paying in a year from now or a bit less. They are the one they are now falling into the measurements. We have settled the earners for twenty twenty three and now in the measurement, the earners for next year is falling in. So that's a normal sort of cycle that we peak around Q2 in terms of leverage. And that's us taking out the earners. We would be below our financial target and we would be at one point nine three. We had a strong cash position of eight hundred ninety five million in the quarter and we had approximately one point five billion of unutilized short and long term facilities. I think it's also important to remember that this quarter we reduced our outstanding bonds because we completed the transactions was two and a half billion to just two billion. We have two bonds outstanding, which is also visible on the maturity slide that we have now shifted our maturity profile. The next majority we have is in December twenty twenty five. So it's almost 18 months away and we will continue to work tactically with with our our maturity profile and with our financing structures to ensure that we can maintain a healthy and de-risk. And we have a very good approach to that. But it also led that that we actually used a bit more of our RFC, but it's still almost 30 percent out that we are unutilized. And so to summarize, we have increased the discipline in our product development. So in investments, we are more focused. The cost efficiencies are coming through and you can really see that this is leading to a margin enhancing initiatives, which gives us the flexibility. We way as we've done in the previous quarters spend more. Now we reduce it to 26 percentage point versus net revenues. And then we see that the margins and cash flows are coming through. So with this and with. Can move to the next slide. We also announced a share buyback program this morning where we we stated that we will buy up to 80 million of shares. And we are hoping and the intention is that the volumes will be there so we can complete this buyback programs during Q3. And with that, I will hand back to you again.

Thank you, Andreas. So next slide, please. So to summarize, we had a very strong margin development in the second quarter and we are entering into the low season of mobile gaming or gaming in general. But we're pleased to see that we are reaching the higher end, the higher part of the spectrum of our financial target. We are are at EBITDAG margin of 29 percent in the quarter. We did see to summarize and repeat that we did see in especially in June that we had a slowdown. So the season, the low season is here and that is clearly visible in strategy, which is most frequent and most clear. Hit by the lower season. On the other hand, they are stronger in the high season as well. We expect that we can reaccelerate some of the UA, which is currently at low levels, but we can react to accelerate that during the half, the second half of Q3 so that we enter into the strong periods Q4 and Q1 with some pace. And also, as mentioned several times, we are pleased to see that our probability measures that we have taken are really showing the leverage, the operational leverage so far. But also we we are in the process of identifying new projects and initiatives going forward that we think will both further lower our cost base and provide us with operational efficiencies that we don't have today further. But also increase accountability and transparency in our organization go forward. We will come back to that during the fall. So with that, I would like to conclude the presentation and open up for Q&A.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Simon Johnson from ABG Sundal Collier. Please go ahead.

Hi and good morning, Jurgen and Andreas. I want to start with the strategy. It was a rather sharp decline and given that you spent record levels of UA in the segment in Q4 and Q1 and now record low levels, at least if we talk about the levels in terms or compared to the bookings. Can you please talk a bit more about moving parts in the segment during the quarter, especially given that you said the big game, Supremacy and Empire were more stable?

Yeah, so we saw for the first time that the Supremacy was on much lower activity levels as we entered into June. We followed our plan quite well, I would say, both in April and May, but then it turned on. Then, of course, it's multiple factors behind that. I've done this for more than 15 years, so sometimes it starts earlier. It could be triggered by other events like the Euro 2020, Copa America, football and such things. But it's quite normal that strategy games in general are more hit by the seasonality than other areas. And then whether it's in June, whether it starts in July, of course, when we have an earnings call on a separate quarter, that individual quarter will be clearly so. But as you said, I'm very pleased to see that Empire, despite that we are on low levels of UA for that franchise, it's really performing steadily. And with low or almost no UA, it's margin-accurate. But it's primarily within the Supremacy franchise that that slowdown came. But at the same time, the perspective and the performance of Supremacy, it's important to notice that it has been between double digit, 10 percent, up to even 100 percent growth for quite some time, many years now. So sometimes you have a setback slightly, but there's no, we're not concerned over time.

All right. Got it. And when you talk about lower activity in Q3 as well, do you mainly refer to strategy or do you mean in a broader sense in the portfolio?

No, I think it's again, what is good since one year approximately is that we're into a normal market after first the pandemic boost and then the effects from the downside effects from that. So we're back in the way that this industry works. And in general, there is a slowdown in gaming in general. Then it is more in strategy because for the very simple reason that playing a strategy game is more of a commitment, takes more time. And when it's when you have your holidays, you're with your family or whatever, friends, then you play less than in casual and matchup. Usually it's a lower effect since you it's not as big a commitment to take on playing casual games. So you have the full scale from casual matchup, not so much to strategy clear slowdown.

All right. Thank you. And on the cost side, you talk about potentially finding some new initiatives you can make in the second half here. Can you talk about the magnitude of those potential realizations and compare it to what you have done already?

The very short answer is no, because we are initiating these efforts now in Q3. But we think it's important to signal and to be transparent about that. We see other potential initiatives that we haven't done yet, not only lowering cost base, but also increase the transparency of our business. But we will come back to that rest assured during the second half of the year.

Excellent. Thank you. And one last from me in terms of new titles heading into the second half of the year. Could you maybe name drop some of the games that you are more excited about to add to the active portfolio?

So we partly new, but not completely new is Ellen Gardner Restoration, which we again, everything is early. So it's hard to just extend the line. But we the KPI so far are promising. So we hope that that will be a growth product for us. But we also have some unannounced a couple of unannounced gains that we will go into soft launch during the during the fall further. And that is important that we since we invest now eight point seven percent in the quarter and at the run, ten percent capex in relation to net revenues. A lot of these that goes into extend our existing strong franchises. So it's meaning that we can do extensions or bit life or other franchises that we have as well. So it's not only the number of completely new titles that counts. It's also extensions, significant extension or feature releases of products that we have.

OK, I got it. Thanks. That's all for me.

The next question comes from Amar Gali-Gicevich from Carnegie Investment Bank. Please go ahead.

Morning, guys. A couple of questions from me here. The first one being on Joe Walker, you're mentioning they're going very quickly here, having high margins. This question on what make Joe Walker stand out so much in terms of the margin profile compared to the rest of the group. Is it market exposure or or anything else?

So they Joe Walker has made a tremendous it's a tremendous franchise and studio. So what they have built is the nature of their products is that they take social behavior, which is the strongest driver of playing games and take it digitally. They have taken it digitally and expanding. So they have more than 50 games in one single app. What happens then is that if you're good at making this and it's not easy is that you get the network effect. So they have a large portion of their marketing is just by organic or viral marketing, which means that UAE is on very low levels and they are cost efficient. So they really stand out both in the way that they can grow. I mean, 41 percent Gagert since we acquire them is a really impressive number without spending not zero but close to zero in in UAE. So they have positioned themselves uniquely within their within their both region but also the types of game that they

have. Understood. And then just a couple of questions here. You had a very solid gross margin in Q2 and I get that you're driving more DTC supporting the margin. Was there anything unusually good? Thank you to that we should keep in mind for each two.

I would say it's a product of hard work over a long time. But so we're pleased to see that without getting any forecast. But I think that we have opportunities to further strengthen our gross margin of the time. But it's a it's a it's as you know composed of several things. One is how good we are on on on promoting our DTC channels, which are now up significantly to 33 percent. But there is also product mix component in it. So certain games like in strategy are are usually very, very strong on DTC, whereas cash and mashups are usually a bit lower. But I think that we are pleased that we have progressed further than we thought 18 months ago. But we we can do more.

OK, thank you. And then just the final one on the personal cost. And you talked about it a bit. But would you say this is a new normal level given what you've said so far? Should we expect costs to decrease further or on the other way, you know, increase further in each day?

Andreas, you do take that one.

Yeah, no, I mean, as we were saying, we we we see that we have opportunities to tackle our cost base further. We will get back to that. But but I think it's also how we reallocate capital between different studios. So some studios will get more capital, especially in terms of our core franchises. And then some studios will will not have the same kind of capital allocated in terms of then, you know, which ultimately is our people that built our game. So so I think we see still see things we see that we have opportunities on the total fixed cost base. But exactly how that's going to develop, we will come back to in the near future.

OK, understood. Then lastly, from me here, I mean, you're generating healthy levels of cash flow and I've been doing for some time. Could you just discuss kind of what leverage ratio would you be happy with perhaps starting to spend more cash on buybacks or dividends, et

cetera? I mean, we have we have a target of two. So that's what we will be happy to have now temporarily, especially in Q2. That's just about our leverage ratio. But I was to be expected and sort of a normal thing. Today we announced that we will continue to to to with the buyback program and buy hopefully then shares for 80 million in in Q3 with volumes allowing on the market. So that was a decision made that was good capital allocation in terms of the free cash we do generate. We do have our notes coming up next year and as well as notary report, your workers is is very stable and growing. So they are also the one that stand for the for the majority of the earnouts in our portfolio. So it was good investment. It was an investment decision made on where we still, you know, balance the position of buying back shares, deploying UA and having something being ready for for also making product investments. So it's always a balance how we keep that level. But we are roughly around our financial targets today.

OK, thank you guys for offering me.

The next question comes from Nick Dempsey from Barclays. Please go ahead.

Yeah, good. I've got three left. So first of all, just going back to the weakness in strategy, give us an indication of whether six ways is forming better. First, rest. By that second question, your commentary on Q3 focuses on it focuses on it being a lower seasonal quarter. We care about year on year progress. Am I right to judge from the tone, though, that the weakness in strategy may make it difficult to see positive group growth in Q3, despite the easier comp at Albion online. And the third question. Over time, where do you think the D to C bookings as a percentage of group can ultimately get to?

Thank you, Nick. So on strategy, six waves has its two parts in the performance of commenting. One is that they have not been able to launch new games. The other comp. So that is obviously hurting top line over time, but it is strategy. So it's it's it's not the dramatic drop immediately because they have a loyal, significant user base. The other thing that happens is that since they're not scaling new games, they're they're instead not growing top line. They're growing their margins, which they have done significantly during the last 12 months. So they are not active for the moment in top line, but they are active and increasing their their margins in a in a satisfactory way. Looking at Q3. Yes, of course, we everything else. You don't want the seasonality to kick in and the strategy part to kick in. So we we do expect that for for at least half the quarter Q3, it will be lower activity. So and that that is a negative impact. On the other hand, it depends also when we get traction with you again, because it's even in strategy, we can get quite. Quite not as fast as in casual, but we can get some effect. So I think that we don't give. I cannot say that, but it's a it's a bit softer June than we had hoped for in strategy. And that is, of course, I would have preferred the opposite. We have a chance to beat organically Q3. Yes, of course we have, but I don't give any forecast about that. Your third question, TTC, how far could you go? That's a question. And to be honest, I don't really know because it's many bits and pieces moving around. And it's also important to understand that what we focus a lot on is the customer experiences and live through live ops. And if you push too hard when it comes to the TTC, especially in cash and mash up and some other product, it could be on mid long term cost of the user experience, which would be much more expensive than increasing the TTC. But I'm absolutely convinced that we can do more than we have today. That I can say.

Thank you.

The next question comes from Martin Arnell from D&B Markets. Please go ahead.

Hi, Jörgen and Andreas. My first question is, I think, Jörgen, you mentioned that you're back to a normal market now, but I guess you still have an ambition to grow your top line. So I want to know what are the main things that you think is needed for you to return to top line growth?

Yes. So we did grow organically from November and through Q1. So but now in Q2, as we as I stated in the presentation as well, we did have this 80 million SEC one off revenue from from the Arbion East. And that is very much what we're downing year over year. So I think we are in a good position for for getting back back to growth. We think that the market, my best guesstimate now is that the market this year, full year, there's a lot of numbers jumping up and down. And there are the ones that we're looking at are often moving from one quarter to another literally. But we if I should pick a number, I would say the market is growing by one to three percent this year. But then you should remember it's quite unevenly spread. So the world's largest mobile game currency currently is on its own. Some one to two percent market growth they are driving. So the market is not grown by high numbers yet. But I think ultimately when it comes to us, we have a very focused capex strategy. We know it yields in a good way. We're good at live ops. So we can see on the average revenue per daily active users that that yields, which is important for our growth. Obviously, you can also see that we're able to scale new games. And I think the combination of these three will allow us to grow. And also the final comment is that we see that we probably will be stronger on gross margin, stronger on cost control, but maybe on average, be in a slightly higher due way, taking away the sunshine island effect because that stands out. But on average, compared to what we thought in February 20, 23, when we thought 25 percent would be a number. And I would say it's probably a couple of percentage points higher. And that, of course, since we're not compromising on return on ad spend, also will support top line growth.

OK, thanks. That's helpful commentary. And can we talk a little bit about the DAOs also, which falling quite rapidly. I think it was negative 90 percent year on year in this quarter. Can you elaborate on why it's falling by so high

level? Yeah. Again, coming back to live ops, coming back to focusing on our core users, you can see that the monthly paying users are high. They are that's quite stable. And these users are the ones that we really make our money from. So we have shifted from not focusing so much on low monetizing users. And there are many, not the least in our Indian business that have had a tremendous amount of low monetizing users. And it doesn't really pay off to pay them too much attention. So instead, we focus on the best customers we have, the most loyal users we have. And then you get the ratio different. But I prefer a high ratio of the paying users to end to my users instead of the opposite, because then it pays off to work with live ops. I hope that makes sense.

Yeah, it makes sense. Do you expect the ARPDAU levels to be fairly stable in the coming years?

I think we have got good opportunities to continue leverage our live ops activities. So which means then that we don't think that we have maxed out on our ARPDAU, but then in Q3, it's lower activity levels. But we're entering into Q4, Q1, and then usually it goes up. But the trend line, I'm optimistic about that we can continue to improve our ARPDAU across the line.

OK, thanks. And I have a final question, maybe for you, Andreas. The efficiency actions that you're doing, the ongoing and also the upcoming initiatives, do you think it's enough to stabilize the free cash flow trend, assuming that the top line trend stays where it is or maybe improves a little bit? What do you think?

Well, I think I think depends what you mean by stabilize. I mean, we mean in the last two quarters, we have intentionally made investments in terms of additional UA investments. That was a conscious choice that we did. So we did spend record levels both in Q4 2023, but also in Q1. So it wasn't and we we could allow ourselves to do that. Why else we would we had these things already showing up in the in the financials in previous quarters, but now it's even more visible. So I think it depends. It was an intentional decision to do that. And so it wasn't something that just happened in terms of going forward. I think we have been working diligently in how we how we where do we deploy our capital and that has yielded cost savings so far, especially on the fixed cost side and and and and also on the capex side. But how and how that's going to be progressing, we have to come back to in the fall.

OK, thanks. That's all for me.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Rasmus Engberg from Kepler Chevrolet. Please go ahead.

Yes, I good morning. Just had one question left, actually. If you roll time forward a little bit and you do continue to generate about a billion on cash flow and pay earn out that maybe 500 million per year. What is your scenario? What do you want to do? As a result, what do you want? Where do you want to take that money?

I mean, it's a I can start and they also you fill in. So I think it's a first of all, it's a it's not only a management decision, as you know, but I think that being highly cash generated gives you options. And then it depends obviously on on what levels we're traded. If buyback could be something that would do for a longer time, whether we have products that needs very good for deploying more UA and so on. So it's a it's a tactical decision over time. But of course, when we are traded on the levels that we are buybacks, as we have declared today is an attractive thing for our shareholders with it. So that is what I how I would like to phrase that. So, Andreas, you can fill it.

No, it's complete.

That's OK. Thanks.

The next question comes from Victor Lindstrom from Nordia. Please go ahead.

Hi, good morning. Just a quick question here regarding the the level going forward. How should we think about the levels in the second half compared to last year?

I think, first of all, we must take out the as we have said many times during this call, we must take a look at this from two perspectives. One is when, which is a very rare thing, we have a product with a strong KPI site, San Juan Island, then it's our obligation to max and do the so-called trample line launch, which has we have deployed. I don't have the exact number, but you can see it's more than I think one hundred fifty million in one hundred seventy or something in San Juan Island. So and that has happened, I think, three times in this company's history. So if we take away that and I would love to have such a success again and then we should take that opportunity. But most likely we will not have successes on that level, but still good deployment opportunities. So taking that away, as I mentioned a few minutes ago, I think that when we look at the the composition of our P&L, it's likely to expect that we will be on higher levels than the 25 on average. I would say 27, 28 or something over rolling 12 months. So a bit higher there, but we gain back in gross margin through the DTC work that we had lowering staff costs by 12 percent and also be more efficient in allocating our capex. So we are in a good position to deliver on our 26 to 29 percent either that margin financial target and also then deploy more UA and having a more efficient capex makes it profitable to deploy that to reach the other part of the goal, which is to get to grow above market. So I think there is it's not unlikely that we rolling 12 months higher than it was two years ago. But we we can make up more than make up for that, as we can see this quarter as well. I hope that answer your question.

Yes, sure. Thanks.

The next question comes from Edward James from Cantor Fitzgerald. Please go ahead.

Morning, thanks for taking my question. Most of the answers I've got two remaining. Can you clarify a comment you made earlier on user acquisition as a sensor of sales? I believe the comment was earlier last year, believe that 25 percent of sales was the appropriate level. However, now going forward, you believe that that level might be a couple of percentage points higher. Can you just clarify that? And I imagine that that is offset by the reasonably material gross margins gains that you've made. And does that leave still front as a higher, lower or the same in terms of structural underlying margin profile? And then the second question is, appreciate your comments on daily and monthly active users. But even if we look at monthly paying users, it's declined year over year in all seven quarters in a row. And the strategy monthly paying users after increasing in Q4 declined in Q1 and obviously declined by approximately 10 percent in Q2, with only strategy RPG action seeing consistent increases. So I guess the question there is, at what point do you believe that this will stabilize? Because that seems pretty central for organic growth to return on a sustainable basis. And are there any learnings you can take from what seems to be much better momentum in simulation RPG action and apply them elsewhere? Because the other two categories seem to have pretty precipitous paying user declines. Thank you.

So to the first question of yours. Yes, I believe that it will be different structure in our P&L compared to what we elaborated on, not forecasting, but elaborated on in February 2023. So I repeat what I just said that we expect it would be higher than the 25 percent that we panned down at that point in time. Again, taking away these trample line launches is more realistic at maybe 27, 28. But just as you said, and that is important that we can offset that clearly with stronger progress in gross margin, with stronger and more efficient capex spend. So you did that margin as we clearly see this quarter being at the upper end of our of our targets already. And we have more things to do that we also announced. So I think indeed that UA will be on average higher. Yes, but we can more than compensate that with the other factors. So that is confirmed. So the margin profile in total is not changed at all. But we can it will be the disposition of the P&L will look slightly different. That's my best. That's how we view it at this current point. When it comes to your question about users, as I also said, we had I mean, we had channels, we had platform platforms that were not yielding any revenue. So we have worked our way down. I mean, even on snap games where some of the one moon throw game thing when that existed was the largest game globally on snap games. But that platform does not even exist any longer. So but they had some paying users, even though it was a massive amount of Mao and Dao's. So we are focusing again. And this is important. We are focusing on our most valuable users so that we can get most leverage on our live ops. And that is important because you can see what is the key thing is not only the the player numbers. It's the end to you times the average revenue per paying users. And that is going the right way. And as you rightly pointed out, even if you ask on slightly down or depending on product area, we are still increasing the average revenue per daily active users. So hence, it's strong on average revenue per monthly paying users. Indeed. So I think that's a natural development. Of course, you wouldn't mind everything going up always. But this is not an alarming thing for us. It's a product that we work very actively with our most loyal users and live ops. C-MARPG. I mean, we've had some good traction. But I remember a year ago or two years ago, the question was often why don't you only work with strategy games? Because they have been growing for, I think, three, four, five, six years by high numbers. But now we can see that that's the whole point with it, with a portfolio that we have of different 73, 73 different games in our active portfolio. It will vary from quarter to quarter, from month to month, from week to week, but also from one year to another. So I think that we are very pleased as you as you now state that it's C-MARPG delivering that we have the different areas that we have. So not being uncomfortable on the contrary, I think it's much better to have a wide array of games in different genres.

Maybe I said a bit of flavor to the to the gross profit in UA and how that's directly linked, because how we measured forecast ROAS is basically revenues minus the costs. So the gross profits, right? So that's that's the one we measure. So when students have been able to deploy more DPC channels, they obviously get the natural impact becomes that they actually the number of days goes down. So that's also why there's a shift between between those two parts that higher gross gross profits and then you can deploy more in UA. So it's a direct link to those that how we actually operation is to steer the business.

Thank you very much.

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

Thank you all for dialing in and also for you that had questions. Thank you very much, and I hope that we could that we shared some insights besides the actual quarterly report. Thank you for this time. See you next time again. Bye bye.