Stillfront Group AB (publ)

Hello, good morning. I am Alexis Pont, the CEO of Stillfront. I am joined here today by Tim Holland, who is our interim CFO. Thank you for joining our call today. Without further ado, I will jump into our key franchise activities in Q2 of 2025. So we announced during the quarter a very exciting new game, which is the Supremacy Warhammer 40,000 game. This is part of our Supremacy franchise, and we're doing this game with a major, major IP that is really beloved. We think it's a great fit for our grand strategy type of game that we have within Supremacy. We're very excited about this game. We have also made good progress with Big Farm Olmsted within the big franchise, which has entered its technical launch phase. We are also having successful expansion of key franchises with Supremacy World War III and Ludo Club scaling and growing well in the quarter. We've also significantly strengthened the setup at our CandyWriter Studio. That's the studio that works on our BitLife franchise. We really want that to... That's a really franchise that we believe we can expand and grow. We've completed a new account system to unlock major features there, such as the webshop, and also to allow us for deeper monetization. That's a really corner store franchise for us in North America. We've also initiated the move of the Word franchise from SuperFree in North America to MoonFrog in MENA and APAC, and this is part of our strategic review. Then I'd like to have a little spotlight on our direct-to-consumer efforts, which have really kind of been driving a lot of our gross profit improvements. We have been really able to grow the DTC share that we have in many, many of our key franchises. And that really puts us in a situation where we are an industry leader in terms of DTC efforts. This comes really from a lot of historical know-how and efforts. Those of you who follow us for a long time know that a lot of the roots of Stillfront and Stillfront Studios come from their bars and game days. And as a result, we have a very, very strong and performant payments hub that allows us to power these direct-to-consumer efforts. It's really a key advantage for us that allows us to really maximize why we're able to do that and allows us also to rapidly adapt to new opportunities on this front. For example, we were able to leverage the US legislative changes for iOS and have an immediate positive impact across several of our key franchises by growing the DTC share there as well. You can actually see that from 2023, we're at 26%. share of direct-to-consumer. We've grown that to 43% in Q2 2024, and that's now at 39% in Q2 2025. And as you see, the share of third-party stores is declining, where it was at 61% in Q2 2023, and it's now at 49% 2025. And obviously, this is This is the part of our revenues where we have to pay a 30% revenue share to the third-party stores, whereas in terms of direct-to-consumer, our margins are much, much bigger. We've also done some trials, expanding our direct-to-consumer service to the more casual games. These trials have been successful, and we will expand this to BitLife in Q3 of 2025. Then looking at our business areas, focusing first on Europe, so we had net revenues of 653 million SEC. That's an organic decline of 14.5% year on year. If we look at the key franchises, the decline was slightly less. Really, the drivers there was, first of all, the year-on-year comparables for Albion Online. server launch last year during the same period. So that obviously made a big difference. And then also the underperformance of in our kind of narrative segment, which we are addressing and working on. USC was at 243 million SEC representing about 37% of our net revenue. There we saw some opportunities bigger towards the later part of the quarter which allowed us to invest a bit more USC than we would have expected in the quarter, and we expect that to pay back in the remaining quarter. So we thought that's just a good sign and a good opportunity for us. In particular, we found some good possibilities around our Supremacy franchise. An adjusted EBITDA came in at 132 million SEG, so a 20% EBITDA margin. Moving on to North America, we continue our turnaround and restructuring efforts. Tim will later talk about our cost savings, and a bulk part of our cost savings came from North America restructuring. We achieved there 309 million SEC of revenues. That's down 18% year-on-year on an organic basis. USC was at 174 million SEC. There we were kind of very conservative in terms of UAC around the word franchise and some other parts of the portfolio, but we were actually more aggressive in terms of UAC in our investments with BitLife and CandyWriter as we're kind of investing in that franchise and seeing possibilities of good returns in the future. Adjusted EBITDA continued to be positive at 13 median SEC, that's 4%. This is down versus Q1, but that's really mostly due to the change of the Storm 8 legacy games that we've moved from Storm 8 to Imperia, and those were being legacy games and games in which we have very little UAC investments, these were games that were high on cash flow. Actually, if we didn't account for that move, we would have had a roughly similar EBITDA margin in North America versus Q2. If we go into MENA and APAC, this is the region that continues to grow for us. The growth was really driven by the performance of our key franchises that grew by more than 15% year-on-year, there with revenues of overall of 473 million SEC. And we have lower UAC than year-on-year of 20 million second also versus the previous quarter. That's really due to less investments in our publishing divisions on UA with Six Waves and Babel. We continue to be looking at potentially new publishing titles But for the moment, we are kind of going conservative with these studios. And adjusted EBITDA continue to be very, very solid at 261 million SEC, which is a 55% EBITDA margin. With this, to go look at the overall picture, I will pass on to Tim. Tim, please go ahead.

Thank you, Alexis, and good morning, everybody. My name's Tim Holland. I am the Interim Group CFO. So net revenue declined by 11.3% organically to 1436 million sec. I should note, we did face currency headwinds in the quarter year over year of about 6.3% affecting the absolute net revenue figure. User acquisition expense came in at 436 million sec. That's down from 462 million sec in Q2 of 2024. And as Alexis mentioned, one of the bigger drivers of our UAC decline on an absolute basis was BA North America. And specifically it was related to super free titles. And as we reported, we plan to move those titles or the word franchise from BA North America to BA MENA APAC. Looking at adjusted EBITDA, that came in at 374 million SEC. That's down from 505 million SEC in Q2 of 2024. Part of that decline, of course, is decreased net revenue top line, but a portion of it is due to foreign exchange headwinds, which amounts for about 30 million SEC of the 130 million SEC absolute decline. Happy to report free cash flow came in at 1089 million sec. That's the third consecutive quarter in a row that we've reported LTM free cash flow of over 1 billion sec. So we reported it in Q4 of 2024. We reported it again in Q1 of 2025. And now we're reporting again in Q2 of 2025 over 1 billion free cash flow. on an LTM basis. Next slide, please. Looking at cash flow a bit closer, cash flow from operations came in at 362 million SEC. Of that cash flow from operations before networking capital was paid financial expenses of 81 million SEC. That's down year over year from about 98 million SEC. And the driver for that decrease is reduced interest rate expense based on our reduced debt, but also due to reduced reference rates. We also had taxes paid of 45 million sec, and that's flat year over year. And then moving to networking capital, changes in networking capital, we had a positive impact of 21 million sec. That was driven by receivables, positive 25 million sec offset by payables of negative 4 million sec. I should note that in Q1 of 2025, we had a negative networking capital adjustment of 51 million sec. So you're seeing that natural progression back and forth with regards to our networking capital. Cash flow from investment activities was 713 million sec, and that was driven by the settlement of our cash earnouts, 590 million sec. I should note all of our earnouts related to 2024 performance that are paid in 2025 have been settled in Q2 of 2025. We also had investment of product development that came in at 119 million sec. And when you look at the comparable period and compare that against net revenue in fiscal 2024, it was 8.7% of net revenue, what we capitalize. And then in Q2 of 2025, it's down to 8.3% of net revenue. Cash flow from financing activities came in at $332 million positive. And that's because we had changes in our net borrowing where we took on draws from our RCF to fund earn out liabilities. And this is natural this time of year. And if you look at the comparative period from last year, we did take on additional debt to fund those earn outs. And then lease payments of 9 million sec, comparable year over year. And to end on the left box here, the top left box, we did share buybacks in the quarter of 60 million sec. Looking at our free cashflow on an LTM basis, like I said, we are above a billion sec on an LTM basis for free cashflow at 1,089 million. That's compared to LTM Q2 2024, 737 million sec. And one of the drivers for that is networking capital, but it also is being driven by reduced product development. The right table is really what we did with the free cashflow. So acquisition and divestment of businesses, that's primarily related to our earn out payments. And so 576 million of our earn out payments came from that acquisition and divestment of businesses. And then we also had our minority payouts for Dorado. That's the balance between the 576 and the 618. Then we had change in borrowings of 157. So we paid down borrowing 157 million sec over the LTM period. And compared to the comparative period, LTM Q2 2024, you can see that we actually took on debt during that time period. So that's our commitment to deleveraging the business. Finally, on this slide, we did share buybacks of 222 million sec. And we view this share buyback program as quite successful as it achieves two things where we buy shares for earn out recipients. We believe the shares undervalued, so we're buying and getting a benefit that way. But additionally, we're buying shares and then giving them to the earn out recipients instead of issuing new shares and not diluting our current shareholders. Next slide, please. So looking at our financial position, our total debt profile in Q2 of 2024 came in at 6.2 billion. That includes all net debt plus all earn out debt. And you can see from Q2 2024 to Q2 2025, we've deleveraged down by almost 900 million to 5.3 billion on the far right there in the left table. The maturity profile remains strong. That's the middle table there. And so the first maturity or a larger maturity that we do have is in 2027, and that's the RCF. And that's followed by one of the bonds that's due in 2027, followed by the SEK term loan. But the point is we don't have any significant refinancing to do until 2027. Finally, on this slide, our net debt to EBITDA, our leverage ratio, including cash earnouts for the next 12 months, came in at 2.18. That's rounded here to 2.2. And compared to Q2 of 2024, it was 2.15. We do naturally see an increase in our leverage ratio in Q2. And that's primarily due to the fact that part of the calculation is the earnouts that are due on a cash basis in the next 12 months. And so now we've added the cash earnouts that are due in 2026. to the 2025 Q2 calculation. So you do see that natural increase that occurs this time of year, but also affecting that calculation is reduced EBITDA on an LTM basis. Next slide. This is the last slide I'll go through before I hand it back to Alexis. As you know, we reported 225 million SEC in annualized cost savings. Part of those cost savings are fixed cost savings, and part of them are, of course, direct cost savings. You can see these coming through in our financials, specifically with regards to BA North America and our staff costs. If you look at staff costs for BA North America, it's down by over 50%. And so the majority of the cost saves are coming from BA North America. Additionally, when we're looking at direct costs, you can also see that in our business and specifically gross margin, you can see that it's increased year over year from 80 to 82%. And so that's driving this cost saving program. And specifically, you can see our DTC share increasing as Alexis mentioned. Going forward for Q3 and Q4, we of course believe we will be within the announced range of 200 to 250 million savings by the end of Q4. We do expect this value to fluctuate over time if we choose to take on further costs related to investing in our key franchises. However, we will make cuts in terms of costs if we believe it makes sense. And with that, I want to thank you and I'll hand it back to Alexis.

Thank you very much, Tim. So as you can see, we've continuing through the quarter with our the discipline execution of our strategy in terms of, first of all, focusing on our cost structure and making sure that we reach the targets that we set ourselves on that front, but also More importantly, the key focus going forward is to really focus our investments on our key franchises. We really are now in the position, we think, to go on the offensive there. We see that all the efforts that we've done in Europe We expect them to start paying off in H2. We're already seeing the first results in particular with the Supremacy franchise, and we expect that to continue going forward and be boosted forward by the Warhammer 40K game launch. We see that the bulk of the savings now in North America have been done and we still have the super free move in Q3 that will be kind of an additional part there. But that was we are in a situation now where we also can start being on the offensive in North America from a profitable base since Q1 and Q2 and going forward. So we are feeling very, very confident about the future there and our ability of really driving the results that we want by focusing on these key franchises. Obviously, part of H2 is going to be also dependent on the successful launch of new games. That always carries some question marks in terms of how big of an impact it will be. We have the latest game that was launched successfully with Sunshine Island that fairly quickly went on to provide revenues of 40 to 50 million sec a quarter, but every game is created differently. So we'll have to see how quickly the new games will basically scale. And also we definitely will be very disciplined, very cautious about how we make those launches and make sure that we know we don't burn any bridges. So if we have to delay something by a week or delay something by a week, if we want to kind of change some pushes. But if we see an opportunity and we see an opportunity to deploy a lot more UA than we expected, because the game is really performing very well, we will also do that. But at all times, you know, we will continue to focus on making sure that we're delivering strong margins and strong cash flows, as you've seen, we've continued to do in Q2. And then obviously, we continue to execute on the strategic review that we announced just a few months ago. As we've explain we've done, you know, the first small steps of that specific review with the closure of our, you know, LM Dream Garden game that was basically closed and also with the move of the the future move of the super free games and the effective closure of that studio to basically have the word franchise work within within within MoonFrog where we think we have the depth of talent to really execute well on that franchise. That's really the main things that we're focusing going forward. We are not happy with the Q2 kind of organic development yes there was a slight improvement versus q1 that we would have ideally wanted to to to see to see a better a better outcome uh in terms of top line but we think we've been able to uh through our discipline to really deliver or even over deliver in our cost savings program and we've been able to also deliver on our cash flows uh going forward towards h2 as i said before uh it's back we're going back on the offensive um with this kind of major improvements in terms of some of our key franchises, lots of really interesting live operations, new features, and obviously the launch of new games. With that, I will ask Tim to rejoin me and we will open for questions. Thank you very much.

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. Next question comes from Nick Dempsey from Barclays. Please go ahead.

Yeah, good morning, guys. So in terms of organic revenue growth in the second half, Can you just maybe lay out the kind of range of possibilities, not necessarily in numbers terms, but are we talking about the main flex versus what the sort of top and bottom of the possible range is being related to the new games? Or what about in terms of how quickly the super free franchises roll away? Or what are the other factors that determine the kind of top and bottom of the potential organic revenue growth range for the second half. Second question. So we're now talking about sunsetting some of the super free games, word going over to MoonFrog. Could there potentially be a bunch of other things like that? In other words, could there be a kind of drip feed of news of revenues that we need to start taking out? Or is this going to be the main one?

Yeah. Thank you, Nick. Um, I'll start, I'll start with the, with the first question in terms of, um, it's organic growth. So as I said, no, we got going into numbers. We do expect during H2, a, significant improvement in terms of our organic growth profile. As you've seen, we're not stating that we think it will return to positive organic growth in Q4 yet. The reason for that is, yes, there's a bit of uncertainty always when you're launching a new game. You might have to delay a game by a week or two to make sure that you get the best performance, and we just want to be cautious. But we do have a lot of things that also give us the confidence that we're kind of going back into on the attack in H2. We're seeing really good traction even without the launch of the new game yet within our Supremacy franchise where we have some large updates coming up. So we think that that will carry. And we're kind of seeing some really good signs in terms of Europe and RBA Europe. As you know, we've really been focusing on the last quarter of our investments. And we really think that that's going to start paying off in Q3 and Q4. So that's kind of really the bulk there. One of the things that's kind of Contrasting that a little bit is North America, where we want to continue being very disciplined in terms of the UAE investments, where we really think that BitLife can be a cornerstone for future growth. But we need to see the results and the impact of the features improvement that we make into the game before we can really commit to what kind of effect that will have. So we prefer to be a little cautious with North America. And in terms of Vena and APAC, as you've seen, the key franchises continue to be solid. We are seeing a little bit of weakness in one of our Moonfrog games called TPG, which is not a key franchise. That's kind of dragging down our performance a little bit there. And also the Battle and Six Waves games that, as you know, are kind of our publishers. where we're looking actively for ways to grow that. So that's overall the picture of how we see H2. And also, the reason we're being slightly more cautious than we've been before in terms of where we think we will be, but we are very confident that the improvements will be significant in H2 versus H1 in terms of organic growth. Um, that's, I don't know if Tim, you want to add anything to that question?

No, nothing further to add. That was complete.

Yeah. And in terms of, um, in terms of super free, you know, moving, moving to moon frog. So, um, basically the word franchise moving to moon frog, as you see, uh, you know, we also prior to that at the 20, uh, I think it's 24, 28, uh, store made legacy games that moved to Imperia. Um, basically. Obviously, as part of our strategic review, we're looking at various things. We're also looking at divestments, not just studio closures. But we basically are looking at that as a whole, and we will kind of report back depending on the results of that strategic review. But yeah, we're not excluding potentially doing other moves if we see that that brings a cost savings and also the ability to operate the games in a better way and potentially either slowing their decline so that we can extract more cash flow from them or even potentially pausing that decline or returning them to growth. Thank you.

Next question comes from Rasmus Engberg from Kepler Shoebrew. Please go ahead.

Hi, good morning. Can you hear me?

Yes, we can hear you.

Great. Can you elaborate a little bit on what kind of questions that you discuss in your strategic review and specifically, you know, if there are assets that would seem to be worth more or where you can have bids that are clearly above your own valuation, would that sort of be something that you jump to or how's your thinking around that?

Yeah, I mean, without going into too much details, for obvious reasons, Rasmus, as we announced in the strategic review, we have a very wide scope for the strategic review. And we are basically really discussing every part of the company where we think we can create shareholder value in the best conditions possible. We're under no pressure to do anything radical. We feel that, as you've seen, we were able to deliver very solid cash flows. We are confident that the organic growth trajectory is going to start moving in the right direction in a more pronounced way in Q2 and Q4. So yes, we're looking at everything, but at the same time, we want to make sure that we do the right kind of deals, both for our shareholders and for the company going forward.

With this move of the word games, does that mean that they're going to be kind of immediately profitable or what's the timeframe for that? Tim, why don't you take that question?

Yeah, I mean, in terms of the word franchise, as noted in the report, in 2024, it was 300 million sec in terms of net revenue, but it was a negative 9% in terms of EBITDA margin. And so the question is, will we run them profitably? Of course, we'll run them profitably. And that's one of the reasons for us moving those titles to be a mean APAC. The revenue is coming down year over year in terms of the word franchise, but we believe it has its best shot in MoonFrog and MENA APAC for success. We will be moving those titles closer to the end of Q3. So for your forecasts, you can sort of pencil that in.

Right. Cool. I forgot the question. Sorry about that. I'll jump back in the queue.

That's fine. And if I can just put a bit more color as well. One of the reasons we selected to move this to MoonFrog was not just for cost reasons. It's also a lot of the team at MoonFrog are former Zynga team members with a wide experience in working with word games. So we actually think that we can actually level up the quality of the team that's working on those games as well.

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

Well, thank you very much for joining the Stillfront Q2 call. As Tim and I have stated before, we continue with the discipline execution of our strategy, but at the same time, we think that a lot of the efforts and a lot of the difficulties are behind us, and we feel very confident in improving significantly our organic growth profile during the second period of the year. And we are also very excited about the new game launches that will come during the year and also some of the updates in our key franchises. That being said, thank you and I wish you a good day.

Thank you.