Stillfront Group AB (publ)

Welcome to Stillfront 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. lower revenues by 4% compared to last year. We increased our gross profit by two percentage points, up to 80%. And we had an EBITDA margin of 29%, up 8%, quarter over quarter, driven by lower acquisition costs and up 0.5 percentage point 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 1.6% 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 in Q1 had a significant uplift in user acquisition costs due to the so-called trampoline massive launch of our big success the Sunshine Island but that was on very high levels now we are back to 26 as we were also in Q3 last year you can see also in 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, obviously, since we had this uplift in Q4 and Q1, we're 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, it's really kicking in now in our margins, which is satisfactory. So you can see on the left side that our margins were 29%, our EBITDA 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 1.6% percentage points compared to our revenues. UAC up by 2.5% year over year, driven by, again, Sunshine Island. What is also very important, and a third part in the in the initiative that we took on at our capital markets day in February 2023 is to focus our investments more to where it yields 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 EBITDA margin in the way that we have had. Next slide, please. And the important driver 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 accretive that we have a direct relation to our consumers it's good for the consumer relationship as well as it is for for margins we can see that our monthly paying users are stable we have a drop on mao and daos 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 high to 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 long as as well as that we work with our direct to consumer channel. Next slide, please. looking into the different areas of our of our active portfolio looking at strategy strategy saw a clear slowdown at the in june basically and 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 SIEM 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 Admin Online last year, but nevertheless, a successful launch and contributing positively to 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 it as 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 revenue start to pick up. So in Q4, it 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 cash and in mashup, we were flat sequentially and year over year in cash and mashup. uh very satisfactory to see that super freeze word franchise had gained traction uh so it scale well in the second quarter and drive it uh drive both organic growth for the franchise and we we see that we can we hope and think them and see good kpis indicating that we can continue this for the second half of years second half of the year so that we get another contributor for growth over time Then we also have Joe Walker, which has continued its massive, very impressive performance. So you can see on the upper right side 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 Storm8's home franchise. So we're working both with CETA that we adopt the studio for other circumstances. That's one thing. The second thing is that we also launched at the Ellen garden restoration game and slowly scaling it. And we hope and think that that could contribute to Storm8'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 again, and good morning, everyone. I will look at the cash flow for the quarter and also the LTM numbers. We had a strong cash flow in the quarter. We had 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 amount of 28 million versus last year, but significantly down versus the two previous quarter. So now I get a bit more into depth of that. We had a financial expense of approximately 100 million in that, which is an increase versus last year of 20 million, which is driven mainly by that we have been in a higher interest rate environment, even if that is now coming down. Paid taxes of 45 million. And we had a negative network and capital effect in this quarter. It's mainly driven by a reduction of liabilities. As Juergen was saying that we saw a slight decrease in the spend, especially on strategy. by the end of the quarter was we had spent a lot of UA 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 on the investment side, then we had As usual in Q2, we settled our earnouts and that was 432 million of earnouts that was paid in cash. We have invested also 152 million or 8.7% of net revenues in capex. 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 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 moon frogs subsidiary in Bangladesh, which impact this 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 purchased shares for 182 million in the quarter. And these shares have then been used to settle the equity components of the R&Rs, which has now all been settled in Q2. And I think it's... looking at the graph that looks free cash flow per quarter, which is the low graph to the left. That's how we come from up here where we have intentionally invested more money into UAE, we spend both in Q4, but also in Q1. And that was because we can see that we are getting 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 gross profit in combination that we also have focused our investments. When we then reduce UA, we still invest 26%. So it's not like we're completely scaling it down. It's still on a normal level, even if June was slower. We directly see the positive contribution in terms of the cash flow, which is then shown in the Q2 numbers. So that also impacts the LTM numbers, which is the graph to the right, that we come through this investment period and we still have cash reform operations prior to working capital of adjustments of 1.6 billion. It is a decrease from last year, but that is driven by partially that we have spent a lot more UAE in the comparative periods of approximately 248 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 132 more that we can still service our debt. But that is, of course, impacting our cash flow from operations. In here as well is 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 12% versus last year. we have some one time costs of 49 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 day, we have invested in the last 12 months, 698 million, which is 10.1% versus net revenue. So that's around the period that we or the area 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 211 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 12 months. So in terms of that cash flow from cash flow free cash flow and that was a down if you compare to the periods uh comparative periods but it was still 737 737 million and a large driver of that is obviously our our the increase of financial cost combined with the intentional investments in more ua especially q4 and q1 then we can jump into the next slide Leverage, we ended the quarter at 2.15, which includes the cash earnouts. It is as normal in Q2. The next year's earnouts, either ones we're paying in a year from now or a bit less, they are the one, they're now falling into the measurements. We have settled the earnouts for 2023, and now in the measurement, earners for next year is falling in. So that's a normal sort of cycle that we peak around Q2 in terms of leverage in that sense. Taking out the earners, we would be below our financial target and we would be at 1.93. We had a strong cash position of 895 million in the quarter, and we had approximately 1.5 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 transaction from 2.5 billion to just 2 billion. So we have two bonds outstanding, which is also visible on the maturity slide that we have now shifted. our maturity profile the next maturity we have is in December 2025 so it's almost 18 months away and we will continue to work tactically with our maturity profile and with our uh financing structures to ensure that we can maintain a healthy and de-risked approach to to that but they also led that that we actually used um a bit more in our rcf uh but it's still almost 30 out that we are unutilized um 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 marketing housing initiatives, which gives us the flexibility with UA as we've done in the two 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... We can move to the next slide. We also announced a share buyback program this morning where we stated that we will buy up to 80 million of shares. And we are hoping and our intention is that the volumes will be there so we can complete these buyback programs during Q3. And with that, I will hand back to Jörgen.

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 at EBITDA margin of 29% in the quarter. We did see, to summarize and repeat, that we did see, especially in June, that we had a slowdown. So 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 re-accelerate some of the UA, which is currently at low levels, but we can re-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 profitability measures that we have taken are really showing the operational leverage so far. But also 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 going 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.