Stillfront Group AB (publ)

Good morning and welcome to the Stillfront Q3 2024 interim report. I am Alexis Bont, I am the interim CEO of Stillfront and I will be joined later by Andreas Hoodman who is our CFO. Next slide please. So we continue to have strong cash flow in the third quarter. We had net revenue of 1.595 million sec in Q3. That was down by 4.6% year on year, but mostly flat organically. It was down slightly by 0.8%. The gross profit margin was of 80%. That was in line with Q2 and up by two percentage points year on year. And that was really driven by the mixed effects of an increased share of bookings from our direct-to-consumer channels. Adjusted EBITDA margin was at 24%. That's down by 0.4% year-on-year, and that's due to increased acquisition costs, which I will go into later. Free cash flow of 298 million SEC in Q3 is up by 49% year-on-year. Next slide, please. So we had higher than actual acquisition costs in Q3. You can see that they were at 29% of net revenues in the quarter. versus a lower amount in Q3 23, around 26%. Most of the reason for that was around the super free turnaround, where we've been able to get super free to have significant growth near and near again by investing in the word collect and to a lesser extent, the Trivistar franchises. Next slide, please. Gross margin improvements mostly compensated for that IR USC in Q3. We had, as I say, gross margin improvements of 2 percentage points in year-on-years. But not only that, we also had staff cost as a percentage of net revenue that went down by 1.4 percentage points year on year. And then if you look at UAC, which is up by 3.2 points year on year, driven, as I say, by Trivistar and WorkCollect, you can see kind of how that balances out mostly. We focused on product investments driving lower capitalization with improved return on investment that also had a good impact. Next slide, please. So we continue to have strong ARPDAU development in the quarter on the active portfolio. Booking in active portfolio declined by 5% year on year, but organically it was really 1%. ARPDAU up by 14% year on year. That's driven by strong monetization due to successful live ops across the portfolio. We have teams that are incredibly talented at live operations, and you can see that in the impact in our ARPDAU. Multi-paying users, MAU and DAU were down. That's in part due to the seasonal effects, but also a conscious portfolio shift of our efforts towards high value users. Direct to consumer, DTC was up by 5 percentage points year-on-year. That's really driven by a strong strategic initiative that we have to increase the share of our own channels, which ultimately drives gross margin improvement and, as I explained, compensates at least in part the higher UAC levels. Next slide, please. Then in the strategy area, we had a slow return to more normal UAC levels in strategy after a very low UAC percentage in Q2. Supremacy bookings declined slightly on-year and quarter-on-quarter. It's important to recall that supremacy had an excellent quarter last year. We still think the franchise is very solid on making improvements, product improvements with that franchise. Empire remains stable, and that's in spite of no user acquisition spend. That leads to very high profitability in that franchise and excellent live operations work by the team there. Six Ways did negatively impact bookings. They had lower UAC, but however, they were able to raise their margins through a series of measures. UAC is down 35% year-on-year for the category, but is up 20% quarter-on-quarter. Bookings down by 30% year-on-year, but gross profit is down by 8%, helped obviously by the direct-to-consumer increase. Um, which, uh, which basically, if you look at DTC channels, that was all by 13, uh, percentage point compared to the same period last year. Next slide please. In the area of SIEM RPG in action, we had lower bookings quarter on quarter. Sunshine Island user acquisition spend was down 41% quarter on quarter. This is normal. This is kind of part of the scaling process of a game such as Sunshine Island. We identified, we basically, we increased the amount of talent that we have working on that game team. We identified a few product gaps. We're working on those product gaps to make the game even better and stronger. And then once we've got those things done, we'll resume pushing. But we do expect Sunshine Island to continue to be a driver of growth into the medium and long term. Albion Online bookings were down quarter on quarter. That was kind of re-driven by the normalizing of user numbers following Albion Online's EU server launch in Q2. When you launch a new server for that type of game, it's normal that you have a very high peak. and then you have a slight decline. But what is important is to look at what happens year-on-year and the level of bookings and all KPIs are up year-on-year for Avion Online. We continue to go in the right trajectory for that franchise. Checks and fidgets, bookings declined. We had an unfortunate update of the user experience that was not very well received. The team is hard at work in fixing that, and I'm very confident that they will be able to correct that issue. But we did have an issue there with checks and fidgets in the quarter. Next slide, please. If you look at casual and, uh, and, and mashups, um, Joe Walker, you know, continues, it's a very, very strong performance. Uh, if there's a graph here where you can see that, uh, basically Joe Walker, since he's joined the, uh, the still front group has grown on average by a KKR of 41%. Uh, so obviously very, very strong performance, uh, with that franchise. But if you look at overall casual and mass shops, bookings were also mostly flat sequentially and increased by about 1% year on year. I mentioned before Superfree. Most of you have been following us for a long time, know that Superfree is a studio that we've been struggling for a while. And I'm happy to say that the turnaround of the studio is well on its way. And basically, the world franchise in particular continued to scale well in the third quarter. And that is also what drove user acquisition spend and strong growth for the franchise. Joe Walker, if you're looking at the year-on-year growth in the quarter, that was at 35% with very high profitability. In terms of challenges in the category Storm8, we're continuing to have challenges with the home design franchise. As you know, Storm8 was initially very, very successful after joining the group, especially during the COVID period and the launch of Property Brothers. It's been struggling since then for quite a few quarters. But we have a new game that has launched recently called Ellen Skarnas Restoration. That game is growing steadily, not enough yet to compensate the decline of the other products. but going in the better direction. We've also identified a few product gaps in how the games function and our puzzles that we're basically addressing. And that gives us confidence that we'll be able to also perform a turnaround for Storm 8, just as we have with Super Free. Next slide, please. So with that being said, I'm going to pass the mic to my colleague, Andreas, who will go over the numbers.

Thank you, Alexis. And good morning, everyone. So cash flow, as Alexis mentioned, we had a very strong free cash flow this quarter of 298 million. Breaking that down on the cash flow for this specific quarter, we had an operative cash flow of 383 million. And of that, we spend more UA versus last year. We spent 33 million more. So we spent 462 million of user acquisition costs during the quarter. We had interest costs of 108 million. The interest rate has gone up in the last few years, and that is still impacting our operative cash flow. We had a positive working capital effect in the quarter of 74 million that fluctuates over time, but it was positive in Q3. So we ended up with a cash flow from operations of 457 million, which is a significant increase from the same period last year. And we still continue to invest in our portfolio. We invested 150 million in our product development portfolio. That is 9.4% of net revenues. So it's coming down. It's been coming down in the last quarter quarters, and we're seeing that coming through the numbers now as well. Financing, we utilized almost 300 million of cash flow quite simply. did buy back shares of 80 million during the quarter as announced as part of the last earnings called. And we also amortized on our debt position of 223 million off in the quarter. Let me move to the next slide, please. Sorry, go back. That was my bad. By looking at the LTM numbers, I think that's also we see a shift, a trend shift now where We have cash flow from operation prior to working the networking capital of almost 1.6 billion. We are still having negative working capital effect on the last 12 months, but we have a trend shift where we are generating more cash flow. the initiatives that we have done in terms of increasing the DTC channels, that is a direct impact on our earnings that allows us to spend more money on UA. But we have also taken down fixed costs, i.e. staff costs and other costs quite significantly in the last quarter. So we have a strong cash flow. We have continued to invest in our product portfolio. We invested $664 million in the last 12 months. That is a decline, but it's still a healthy investment. And we believe that that investment is a good level to sort of sustain our product development and continue to invest more in our core franchises. So with that said, then we can move to the next slide. the debt portfolio we took down our absolute debt in the quarter with 223 million that was a repayment and and we had some positive effects effects which would lower the absolute amount of outstanding that that's with 277 million so we're now down to to to 4.7 in in what how we define um our our leverage ratio our leverage levels which is basically external debt plus the cash out cash earnouts for the next 12 months. But I think it's also to take a bit to step back because there's been some comments sometimes about, are we really deleveraging? And if we take a step back just two years ago, so two years ago in 2022 in Q1, we completed the last acquisition of Steelfront. But if I compare the numbers and how much in total that, so if we had all the earnouts, not how we define it, but if we had all the earnouts, that we had down. We had 7.5 billion of total gross debt. And we end the quarter now of 5.9. So we have a very strong deleveraging capacity. We have basically paid off down our debt with 1.6 billion in the last two years. But we've also been able to buy back shares in the last two years of 530 million. So we have a Definitely a decline in our total debt portfolio. It's shift from earnouts slightly into the external debt, but in total, the absolute amount that we're deleveraging in two years, it's 1.6 and 500 million of share buybacks. So it's just important to remember that. We saw that our leverage ratio, we always peak in Q2, we had 2.15 then. And it's coming down so we can generate, we can do the buybacks, we deleverage in the quarter to 2008. So that's a natural trend of how it's been looking in the past as well. So with that said, we also still have some cash. We're always holding some cash. So we have 857 million. And we still have available credit facilities of 1.8 billion or which of those 1.4 billion are short term. So I think that the absolute debt is coming down. We did also extend the maturity profile further in in the quarter where we we used our extension option with the uh swedish export um credit corporation and extended that for another year so we always work tactically with our with our debt portfolio and we did that um in in q3 as well when we utilized those kind of terms that we have without changing the actual commercial terms of that agreement um So with that said, we continue to have a discipline, a much, much stronger discipline in how we invest in our franchises, what kind of games we invest in. It is more focused. We have been driving fixed costs down and we are, as we communicated just a month ago, and that we elaborate more in the report. We are committed to coming down further in terms of our fixed cost space by focusing where we put the investments going forward. So that and our proven cash flow generation, our proven leveraging capacity ensures that we have both a healthy balance sheet and that we can spend more UA, that we can support the business financially where it's needed. And then as the next slide until I welcome Alexis back is that we announced a share buyback program today, again, up to 40 million. It was 80 million in the last quarter. The rationale for that is that we are going to use these shares to settle earners provisions. We have 178 million of equities earn out part that should go out by Q2 next year. And we bought 80. We're now planning to do 40. So that is a way how we balance our capital deployment approach in a balanced manner. And with that said, I will come back to Alex.

Thank you, Andreas. If we go to the next slide. So yeah, basically, you know, we, we did have a unusually long seasonal slowdown that we also already mentioned the last quarter that drove, you know, lower activity levels across, across our games. So we were obviously able to counter that, you know, with, you know, the, the live operations efforts the cost cutting, the optimizations and all that. The high UAC spend in the fourth quarter in terms of the UAC share bookings reaching 29% did affect EBITDA negatively in the short term, but was largely compensated with higher gross profit and lower fixed costs as you've seen before. Usage acquisition investments in Q4 will sequentially increase due to the higher play activity. However, we are taking a cautious approach. The US elections in 15 days result, that could impact a little bit the timing of deployment of UA in the quarter. The CPIs tend to increase a little bit before the US elections, so the teams are just being watchful for that and leveraging the data that we have to make sure that we do this in the best way. We've also accelerating the communicated optimization and reorganization program that we announced some time ago, just a few weeks ago, delivering 200, 250 million sec by the fourth quarter of 2025. We're slightly ahead of plan. We have 39 million sec of annualized cost savings, which will have full effect in Q1 2025, which we have already actioned. The new organization model will allow us for increase in speed and will also allow us to focus our resources even more into our key franchises, which is really key. We also have initiated the move of moving declining games to lower-cost locations, and we're also addressing low-performing games. And finally, you've seen the impact the direct to consumer can have in our strategy games. So we are also starting to look at some of our larger casual games and seeing how we can roll out direct to consumer for those games as well. Next slide. And then finally, I would like to extend a warm invitation to all of you to join us for Capital Markets Day on February the 6th, 2025. This will be in Stockholm. So you'll be able to join virtually just like now, but also in person. And we will give you a bit more details quite soon. That being said, we would love to hear your questions, please. Thank you.