Stillfront Group AB (publ)

Good morning and welcome to the Stillfront Q4 report. I am Alexis Bond, the Group President and Interim CEO of Stillfront, and I will be joined later by Andreas Hundmann, who's our Group CFO. We had strong cash flows and adjusted to BITAC in the fourth quarter, this in spite of net revenue being down by 5% -on-year organically. Cash flow was up by 170% -on-year, sorry, on a quarterly basis and for the full year of 2024, it totaled 1.05 billion sec. So very strong cash flows in the fourth quarter in spite of the organic growth being slightly lower than we would have liked. We had overall a normal Q4 in terms of UA, but I mean really overall, because it was harder to place it for certain games and we had to shift around the investments more than usual during the quarter. So lots of kind of moving UA from game to game depending on the results that we saw. So normal overall, but challenging in terms of placing it depending on the games. We improved our adjusted EBITDA -on-quarter, but also significantly compared to Q4 of 23. This was driven mostly by lower fixed costs, lower UAC in the strategy product area and lower capitalization as we focus our product investments on our key franchises. In the quarter, the overall decline in MAU and DAU was offset by higher HarpDow. We also had solid growth in our direct to consumer -on-year. This is something, as you know, that we've been focusing quite a lot on and it now represents more than a third of our total bookings. And that is more than any individual app store, just to give an idea of the size of it. And ad bookings were stable. We've been trying to kind of push ad bookings more, but it is a difficult environment at the moment to increase ad bookings, but that's something that we're looking into for the future. In our strategy product area, we had lower levels of marketing for the supremacy franchise. This resulted in lower bookings, but stronger adjusted to be tech in the franchise. We are also making significant product investments in this franchise. And that includes a new game that will be self-launched in the second part of 2025. And this should allow us to unlock future growth in the franchise and also in the product area. Furthermore, the higher level of UAC in Q4 2023 boosted the strategy bookings in that quarter, but also then in Q1 2024, as well as MAU and DAU in Q423. And all of that kind of explains the decline in Q4. Here in this product area as well, the right to consumer to continue to grow and now represents close to half of the bookings in the product area. In the simulation, RPG and action product area, we also had lower levels of UAC in the quarter compared to last year, but Sunshine Island was able to grow its bookings year on year. And that's despite in reduced investments in UA as we focus on product improvements to unlock further growth into that game. And Shakespeare and Fidgets, as you remember, we had some issues with Shakespeare and Fidgets in the previous quarter in terms of some UX user experience issues. The game is now slightly recovered to compare to Q324 as we've kind of been fixing those issues. In this product area as well, we have this lower level of UA year on year, and we are really kind of focusing our investments in terms of where we think there will be the most difference. If we look at the casual and mashup product area, we had continued strong growth within the Joe Walker franchise while we continue to see product challenges with the home design makeover franchise and high dependency also on UAC investments for that franchise, and in particular for the word franchise that we have from our studio, Superfree. The team at Stormate is working on a large player experience improvement from design makeover. We have notified some clear fixes that we need to do to that user experience. So we hope that will allow us to turn around that franchise. The team at Superfree is also looking at ways to improve the word franchise from a product point of view, and we want to see how we can kind of have that franchise be less dependent on UA and to have kind of sustainable levels of UA for the word franchise. So, bit of a mixed story here in casual mashups with obviously Joe Walker performing extremely strongly. With that being said, I'm gonna pass on the word to Andreas.

Thank you, Alexis. Good morning, everyone. We have a bit of an extended presentation today, so I will go through the cash flow of the quarter to start off with. We had a strong cash flow, as Alexis also mentioned in the quarter, and also looking in the last 12 months of cash from operations before Networking Capital of 374 million. We had positive effects of working capital that we almost generated then 500 million. Even if we in that, we did pay taxes of 63 million. We did pay interest of almost 90 million or 89 million. In that interest is obviously is coming down versus with the reference rates going down and our margins that we paid to the banks going down, but it's still we are paying almost 90 million of interest in the quarter. So, we ended up with almost 500 million, so 491 million of cash flow from operations in the quarter. We have taken down our investments, so we invested 138 million in product development or .3% of the net revenues in the quarter. So, we have taken down our investments. We are improving our operative cash flows, and that allows us then to utilize one to pay off some debt in this quarter as well. So, we paid off almost 230 million of debt in the quarter, and we did a buyback as we announced also of 40 million. Then, of course, looking at cash flows, it's always in quarters, et cetera. We always look at the LTM perspective, and I'm very pleased to see that we have from a free cash flow, i.e. our cash flow from operations, minus any leasing costs for offices, et cetera, and minus product development, we are now back to above a billion in terms of our cash flow. And that is, of course, driven by some of the cost initiatives and optimizations we've done in the last 12 months or even longer than that. That is now starting to show also in the margin where even if we have a disappointing top-line performance in the quarter, we can still deliver both very healthy margins and then resulting in a very healthy cash flow. We have taken down our investments, and I think it's very clear on the light blue bar here to the right on the slides. But so we are just below 600 million, so 598 in the last 12 months. That has been an intention choice, and you can say, okay, have we taken it down too much? No, we believe that between eight and 10%, there will be a good investment pace. There was difference between quarters, there was difference between years, but I think we're still investing 600 million into our portfolio. So then moving to the next slide, which is our debt portfolio. Here we actually did a lot of activities in the quarter. First, we issued a new bond, so the 850, which is now maturing in 4.75 years. That was an intentional choice to have a good distribution in our bond structure. For some of you that remember, we did reduce the outstanding bonds earlier in 2024, and now we got a much better maturity profile on that. So that's very pleased. Following that, we also negotiated, or we completed a new RSF for 2.5 years with existing banks. We took down the amount from 3.75 to 2.5 billion, since we don't actually need that much. We still pay for an outstanding amount of debt. So a lot of things happened on that one, and I think it's important to remember that Stealthfront is always focused on the maturity profile, because that gives us the flexibility. And I think now the next maturity is in June, 2027. So we have a good flexibility and a solid balance sheet and solid financing structure in terms of our debt portfolio. In addition to that, we had, as I mentioned on the cash flow, we did reduce some more debt. On the reported numbers, the FX, especially the dollar debt, closes a higher level. But we are still around our financial targets of 2.2X in terms of leverage ratio. And we have still unutilized cash position of 1.2 billion or credit facilities, and we have almost a billion of cash in our balance sheet. So rounding off the year in terms of our cash flow and our balance sheet positions, we have strength in our margins, we have strength in our cash flow from operations that hasn't reduced our investments slightly, and that is yielding strong cash flows. And we have significantly in 2024, improved our maturity profile in terms of our debt portfolio. So we enter 2025, and we will speak more about how this business in a very, very short time, to give you a bit more flavor in terms of the financial performance of our new business areas, how we will run the business going forward. And with that said, I will hand back to Alexis.

Thank you very much, Andreas. So we'll be taking questions at the end of this slightly extended presentation, because we obviously have been doing a bigger organization of the company. And so we wanted to basically explain to you what we've been doing, what has been realized, and where we're going with this organization, and why we're doing it as well. So really what we're focusing is on simplifying the organization to increase accountability and streamline the decision making. We're focusing on the key game franchises to drive organic growth, and we'll explain how we define those key game franchises and what they are. And we want to slow the bookings decline and optimize costs within our legacy games, the games that are not part of these key game franchises, but drive a lot of cash flow to the business. So this is quite a busy slide to explain the new operating way. You have on the left, you have how our previous organization was working, and on the right, the new organization. But I think it's a bit busy, but it illustrates well how we operated in the past. The changes that we've made over the past few weeks and how we will operate now in 2025. So we had, first of all, two layers of HQ management with 11 execs. That has now been reduced to just one layer with six execs. We also had before four senior vice presidents that were coordinating 20 studios and working with these studios to optimize resources across 70 games, well, actually more than 70 games, in the active portfolio. We've now reduced that to 16 studios and 10 key game franchises. And we've divided that into three business areas, each with its own executive vice president that is part of the group executive management and has P&L responsibility and authority of their business area. We then had several hubs that provided services to the studios and to the group that are now all under shared services. And we're also taking a very pragmatic approach in terms of what are the hubs that provide significant value, doing a lot of cost benefit analysis about what makes sense. And some of the hubs clearly are providing massive value, such as the payments hub that's behind direct to consumer, the marketing hub, all that. But some other hubs, we think that we can improve and optimize. The previous structure was really focused on scaling quickly via M&A, rather than on the integration. And it was quite complex to operate. This new structure of having three business areas focusing on key game, few key game franchises, results really in more focus, a common direction, and really more operational simplicity with less layers of management. It's just quicker, it's just more efficient. So, focusing our resources will make us more efficient, it will make us more competitive. And as you can see in the new org, our 10 key franchises are divided across our business area. So, each business area doesn't have that many things to focus on. We have five key game franchises in Europe. Those are Albion, Big, Empire, Narrative, and Supremacy. We have three in North America. Those are Bitlife, Home Design, Makeover, and Word. And we have two in MENA, APAC, which is, one is Bored, and the other one is Joe Walker. And then, although we have reduced the number of studios significantly from 22 to 16, we still have more studios than key franchises in each business area. And that's because some of the studios, such as Imperia, for instance, are focusing on legacy games. And others, such as the Republic, have part of their resource that is not working on non-franchise games, live ops. And then another part of their resources that is supporting the big franchise is operated by New Moon. So, that's also another important thing that we're doing here with this new organization, is not only are we kind of investing our UA where it makes the most impact, where we get the most bang for our buck, but we're also making sure that our talent is working where it makes the most impact. So, that's really a big fundamental shift in how we operate. That creates a lot more alignment, and then we think in time, we'll pay off. So, how did we kind of, how these key franchises work? What are the main criteria? So, the main criteria that we have selected to define these key game franchises, that we will focus our resources and attention on are the following one. The first one that you see there is about having sufficient size and impact. We are now in a market where you need to have a certain scale to be successful long-term. So, a key game franchises needs to be of a certain size. So, in our case, we've decided it needs to be driving at least 200 million SEC per year or more, and all 10 key franchises that we've just outlined have more than 200 million SEC in bookings per year. So, that's the first one, size and impact. The second one is the consistency of the core experience. Each game in the franchise should maintain the consistent core gameplay style or fit within a particular genre that aligns with the franchise's identity. And the franchise should be aimed at a clearly defined audience with consistent preferences, teams, or experiences that resonate across the game. It needs to make sense, right? A good example is our supremacy franchise, where games such as Conflict of Nations or Supremacy 1914 have a similar core experience and appeal to the grand strategy player demographic. So, that's very clearly defined there. A third one is technology and game mechanics. Games within the same franchise should have a common technological framework and game systems that can be reused and iterated on. A good example of that is our home design franchise, where many game systems and game mechanics are used across home design makeover, Property Brothers, and then Ellen, what we used to call the game engines. And then the final point is a recognizable and evolving IP. A good example of that is Joe Walker, which is one of the most recognized game IPs in the mini region, and is the umbrella brand for more than 50 games when it's up for, when it's really super apt for cultural and classical games. Another good example of that is Albion Online, which has a very strong IP and brand recognition. So, we are starting with these franchises. This is kind of the criteria that we have for those. And we'll be happy to answer to any questions you have on this. Then what about the other games? So, we also have a clear definitions of what is not a key franchise, and we divide this into three areas. The first area is active live ops. And this is a non-franchise, but there's a non-franchise games, but these are games where more than 5% of bookings are invested in UA. An example of that would be Shanks and Fidgets that you can see there. It's one of my favorite games. It's a game that we have mentioned several times, but at this time does not meet all the criteria. Although right now it is self-launching a mobile dungeon game, spin-off game, based on the same IP and addressing the same audience. And if that is successful, that could be a candidate one day to become a key franchise. So, that kind of explains well what we have in terms of inactive live ops. In legacy live ops, that's defined as non-franchise games as well, but that have less than 5% of bookings invested in UA. That's really the games that are, I would say, in maintenance mode, or the games that we really know that it's, you know, the product, you know, there's no way to invest UA in a profitable way, but in many cases, they're kind of, you know, they're very cashflow positive. An example of this would be Warclimatic Rock Assault that we recently moved from Kixi in Canada to Imperia in Bulgaria. As Imperia, we've turned that studio into a legacy live ops hub, and Imperia will receive more legacy games in 2025. So, that should allow us to ideally not only improve the cashflows around those games, but also kind of reduce their decline. And then the last category is external partnerships. And here, these are basically games where Stillfront does not have the user data, where really Stillfront is not the publisher. And a good example of that are the games that Nanobit develops and that are published by Netflix. So, that's really kind of the main ways that we define this. So, what does that mean? How are things performed? So, if you look at 2024, although we had negative organic growth as a group of minus 2%, actually, our key game franchises who represent 72% of our bookings grew by 2%. And we believe that is in line or slightly better than our addressable market. So, an increased focus on them will allow us, of course, with the inevitable quarter on quarter variations to make sure that long-term this continues to be the case. And we believe that their proportion of our raw portfolios, we focus more of our resources and our talent on them, will grow. In terms of our active LiveOps games, they had a negative organic growth of 8%. And the legacy LiveOps that represent about 90% of our bookings had 20% negative organic growth. So, I hope this showing you kind of this different things allows you to better understand the dynamics that are happening within our portfolio. And with that being said, I think I'm gonna let Andreas explain and go into each of the business areas.

Thank you, Alexis. Yeah, as part of the, in conjunction with the report, we also released the numbers for each of the business areas in this morning. And there's a lot of numbers, there's a lot of new numbers. And the purpose of my part of this presentation is to give a bit a sense of how is Europe, North America and Medan APEC doing and what's the dynamics in that. Of course, this is the way we will also report going forward. So, we will be following up on this when we in Q1, et cetera, where we can give even more flavor. But I think it's quite important to remember that when we have three business units, that's how we run the business. So, that's the geographical spread. And then we have what we call also the shared services. So, and they have quite different unique characteristics and look quite different from a financial performance. So, also important to remember when we break down the group as a whole, that some of the dynamics when we see when we shift user acquisition, spend or costs and the growth between within quarters is more visible. And that's fine because if we break something bigger down into smaller and you have a very dynamic business, you will have those fluctuations. But if we first look at Europe, we classified as a stable business with solid margins. And they're very focused on in terms of revenues, 84% of the revenues actually comes from the key franchises and they have the most key franchises in terms of both the big franchise, supremacy, empire, Albion and the narrative franchise. So, a lot of the revenues actually come from that. They're well established fairly. Some of them I have of these franchise been around for many, many years, but it's a very, it's a stable and solid margins. Then it can fluctuate between time. So, for example, looking at here, looking at Q1, we did spend more in this particular case in supremacy in 2024. And of course, then the margin goes down when we had higher growth, et cetera. So, it will fluctuate between quarters, but it has been a consistently stable and solid business. I think one other dynamic to have is that this business area has the strongest cross margin. We have a lot of the games and the key franchises are more strategy and simulation RPG. And there we have come on much further in terms of our direct to consumer. You can also see that the direct to consumer share is above 40% in this business area. So, that is something that is driving a higher gross profit. And this is also an area where we actually invest more. We have shifted, and you can see that on terms of how much we spend on product development, but also in terms of some of the other fixed costs here. We have shifted some of the investment from, especially North America, which you see in a few slides, into Europe. So, we have taken that conscious decision to reallocate some of the investments. And this is the largest business area. It's 575 people working in this as of year end. So, it's the biggest business area that we actually have. So, we have a bit of a duck, very similar to the group, 25% on the full year. But remember that we also have these seasonality swings. That is more visible when you break down on a business area. Then, North America. Alexis mentioned that earlier as well. I mean, here the focus is very much on a turning around the business. I mean, we have two main franchises. It's the Home Design Makeover franchise, and we have the Word franchise. And they make up 70% of the bookings in this business area. So, it's been a lot of, it's been a fairly, or it is a fairly big push to both reduce the cost base, which we can clearly see that we have reduced the cost base by, and the number of people here, but almost 25%, Q1 2024 versus Q4. We still believe in these two key franchises, but there are some fixes that needs to be done from Home Design, especially around the game dynamics and the player mechanics, and in terms of the Word franchise, we actually get profitable user acquisitions, or have profitable user acquisition costs. So, that is one thing. Here we have also a fairly good margin, in terms of gross margin, and that is primarily in the US or North America driven by, actually, the ad revenues, something that we haven't done yet. But what we're targeting to do is that we haven't really rolled out direct to consumer in our North America business. As you can see, it's only 1% of our revenues that come from the direct to consumer part. So, that is an initiative that will also strengthen the gross margin over time in that region. With the business being fairly dependent on UA, this has been a business where we have only a 5% EBITDAQ margin. We're still making money in the North America. It's important to remember it's not negative, but we are not happy with the results, and that's what we're saying. We need to turn around this business. And this was also one of the reasons that we actually took a good build right on in this part of the year and accounts as well. But we have hopes that we have two strong franchises in there, and then we have a plan to execute on during 2025. Should always end on a happy note. So, I end on, so mean and AIPAC. I mean, these are, I mean, we have two key franchises, the board and also the your Walker franchise in here. Very consistently strong growth in terms of those two key franchises, it's been very fun and interesting to see how they can continuously grow in these strong markets and in these growing markets with a very strong marketing, sorry, very strong underlying margin. So that's something that has very much impressed us. Just a few things around this is that we actually have here a lower gross margin than we have across the group. And that is mainly driven that we also in the mean and AIPAC, we have two of our third party publishings above it and six waves and that takes down the gross margin because we give some of that royalties, they go to third party, the people actually or the game, companies actually make the game. So that's one dynamic. As you can see, we are hoping that we can increase the DTC and maybe also some of the ad bookings in this business. But that is a dynamic not to miss that it is below the rest of the groups. But we also have very low user acquisition. I mean, if you look at the full year, we only spend 6% of our net revenues on user acquisition costs. And that is just that both your Walker but also in terms of Moonfrog have very strong communities, very strong brands within their genre, in their geographical region. And that of course ensures that we can generate a very, very healthy EBITDAQ margin of 48% for the full year. And that has been improving during the whole each quarter because we are growing very healthy on the top line. We also have allocated the MENA Imperia here. They will take over and they have started already. We have started to move games from North America but also looking from other where we can actually have that in our what we call the legacy portfolio and having that run as one hub where you focus on reducing the type of the decline in legacy portfolio at a much lower underlying costs. So before I hand back to Alexis, just to summarize, we have in Europe, we have a solid business with a stable margins. Of course, can be a bit volatile between quarters. We have big franchises here in terms of, we have the actual big franchise but we also have bigger franchise. We have the most focus in terms of general revenue generation into these five key franchises. And we have enabled within these franchises to innovate and release new games and supremacy is of course one very clear evident of that. We also have here in Europe, the Nanobit collaboration which of course gives us another dimension of our revenue streams. North America as we pointed out and we have pointed out before, not maybe in this detail is a turnaround case. We have a plan. It is the lowest margin for 2024 in the business but we have a plan to fix that going forward. It is still a sizable business but it has not been performing the way we have wished it to be. Then we have the last one. So MENA and APAC, solid growth and very, very strong margins. And it will also be interesting to see now when the Imperial can start taking over some of the legacy games, how we can improve or reduce the drop of those kind of impacts. So it's important to think about, we are breaking down the portfolio into these geographical areas. And of course making $1 in MENA and APAC has a 48% margin return versus making $1 in the US which had a 5% return at least in 2024. So it is a more than a ,000,000 dynamic business when you break it down into this perspective but we have solid foundations in Europe, we have a growth case in MENA and APAC and we need to fix North America. And with that, I will hand back to Alexis and I think I will stay here.

Thank you very much Andreas. I hope that showing to you how this business areas work and how our portfolio is divided across key franchises, active LiveOps and legacy LiveOps really allows you to see what is working very well and what we need to improve and gives you a view a little bit under the hood about what really are the dynamics that are driving the overall numbers that you see for Stillfront. So I think that gives you kind of more transparency than what you had before. In this slide, I just wanna kind of show you what the actions are that we've done in terms of driving operational efficiency and kind of what is coming. So we've started with this transition a few weeks ago, well a little longer, actually a few months and we've already achieved 15 million SEC in annualized cost savings as a result of that. Six studios were consolidated in 2020-24. And this also kind of feeds into our growth initiatives. So for example, merging, consolidating Baitro and Dorado, which are two studios that are working on the Supremacy franchise is an example of how aligning our resources and team towards common goals around a game franchise should allow us to perform better. Also, focusing on our core game franchises will allow us to benefit from scale effects from our marketing and have more impact from product marketing initiatives and reducing our dependency on performance marketing. As Andrés was saying, some of our key franchises have strong IPs, other can benefit from community or network effects and all that. And we want to relay into that to reduce kind of the dependency on performance marketing across the portfolio. We are also kind of concentrating our product investments on these key game franchises is just more efficient in terms of growth impact. And this gives a clear route to return to organic growth later this year. So that's really kind of the main things in terms of the efficiencies that you can see and how this kind of reorg is helping us. So to summarize what Andrés and I have said and before we start for questions, in terms of the business areas for Europe, I know we expect some fluctuation between negative and positive organic growth in general and across our key franchises, but it is a very, very stable business. We are in a kind of product investment phase for several of the franchises. One of them was mentioned is supremacy and we kind of expect to keep solid cash flows during that period. For North America, we are in a turnaround situation. We are likely to continue in being very economical with UA or more economical with UA short term and that will have a negative impact on organic growth but should be neutral to positive on EBITC. As we invest in product improvements, we should be able to then rescale UA and kind of improve these KPIs. And also in North America, we have a new leadership that does come in with Todd, which is a 20 year venture in the games industry, which would really kind of allow us to boost this turnaround. For MENA and APAC, we have strong performance by Jay Walker that is carried by the excellent work that the team is doing there, but also by the brand recognition, the SuperHab network effects, some strong monetization improvements and then constant new game launch in its app, as well as a fast growing MENA market. The MENA market is growing by double digits, not the strongest Jay Walker, but growing by double digits yearly. And then MoonFrog also in that area is supported by similar effects in terms of the market. Indian market is a fast growing market. And in addition to the board franchise, is investing in emulating what we're doing in the Jay Walker SuperHab approach with Tinpati Gold. So, this new still front operating system with a linear and fast organization, growth through key game franchises, balancing growth with good cash flow and just having stronger capabilities and industry talent gives us the solid foundation to build into the next waters and years. So, with that being said, thank you very much for your time and we're ready to take questions.

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 Nick Dempsey from Barclays. Please go ahead.

Yeah, good morning guys. I've got three questions. So, first of all, in the release, you talk about organic revenue growth improving for the group through the year. On the call, I think you referred to aiming for positive organic revenue growth during the year. So, I wonder if you could clarify that a little bit in terms of whether you expect during the second half, the group to move into a positive organic revenue growth situation. Second question, can you maybe give us a bit more color on what is driving the more difficult UA environment that you have flagged in the first weeks of 2025? How can we be confident that this is a temporary thing? Perhaps there's a bit more information there. And the third question, we've seen other video games groups sell single franchises, which aren't necessarily a very large part of the group. And those show the market that it is undervaluing the group. Do you think that there are any corners of still from where you could get an interesting price, which would make investors reevaluate the rest?

Should I take the organic growth one? Yeah, that's the second one. Yeah, so thank you, Nick. So, in terms of the organic growth, so as you saw, we had kind of minus 5% organic growth in Q4. Entering into Q1, we kind of explained that we expected that organic growth to continue to having negative organic growth and slightly worse organic growth in Q1. Strong comparables are behind because of that. We know we had some strong game launches last year in Q1. We also had Easter in Q1, which this year is in Q2, and there's a few other factors. Also the fact that with some of our franchises, such as Supremacy, we're kind of in an investment phase in terms of product, but we're kind of in terms of UA. We've kind of taken it down a notch and increase the BTC. We have to be dynamic in this case, depending in terms of what we see. So that's kind of what we're seeing for Q1. And then we think that from Q2 onwards, that would progressively improve. We think Q2 will likely continue to be negative. And then from Q2 to Q4, we will see kind of progressive improvement. And we do think that we should be able to reach positive organic growth at some point in the second part of the year. So that's for the first question, for the second question. That was a UA question as well. Oh, in terms of the UA, what were you seeing in terms of the UA environment? Nick, it's just very, very dynamic and constantly changing. As you know, we work with many, many different channels. And what we're seeing is, we have different games and there were different channels that will work well for a few weeks. And then all of a sudden, that channel will no longer work and we have to change. We've done massive improvements in terms of our creative output in terms of what we do. So we think that in Q4, the U.S. elections that obviously always have an impact. We also had a kind of a shorter period between Black Friday and Christmas. So we weren't really able to use a bit of a leeway there to invest. We are able to push in Q5 in terms of the UA. And then normally what we usually would see is January is usually a very good month to invest UA. What we've seen this year is that it was good just for a few days at the beginning of the month and then it became expensive quite quickly. So it's something that we're monitoring on a permanent way. Obviously, we don't wanna be dependent on market fluctuations in UA. That's one of the reasons we're focusing on key game franchises. And yes, we need to continue to be excellent and world-class in terms of our performance marketing. And that's something that we're continuing to invest. But we do wanna reduce our dependency on it.

And then in terms of your last question, Nick, I mean, it's obviously, I mean, difficult to comment on individual assets. I think we are taking quite good steps now in terms of breaking down our business. So of course you can see, even if we don't present the P&L per studio or per franchise down to the bottom line, we are showing now that we have three very different financial profiles in our different business areas. If things are for, if we would divest something, et cetera, that's something we will comment on when we get to that. But I think just the way we report it, or we'll be reporting it going forward, is obviously show some of the positive and some of the things that we're struggling with in a more transparent way. And that's also one of the reasons we are breaking down the reporting in much more of a granular way going forward.

Yeah. Can I just follow up on the UA question? It became expensive quite quickly. Do you have a theory as to why that happened? Is it to do with other mobile games, other factors out there in the mobile market, or what do you put that down to?

Yeah, I think it's a mixture with, stronger competition in certain markets. Particularly in Match 3, which is the home design makeover market, as you know, we have some very, very strong players, privately funded players that have come in and taken a lot of market share, such as Dream Games. So you need to make some massive product improvements to compete with them, and also kind of the marketing side is difficult. So that's kind of one side of the things. And another side is, you've got large providers, such as AppLav and IronSource. Where it's kind of a black box, what kind of margins they take. And if you look at their results, their results have been improving constantly. And then if you look at the ad revenue from the game companies, those have an increase at the same level, and the cost of the US side have increased. So one of my theories, but it is just a theory, is that more of that, they're basically capturing more of the value from that market. Obviously, that's not something they can do forever, because then it's not economical to do UA with them. So I think this will balance out over time, but at the moment, it does feel there's been a bit of a squeeze there.

Thank you.

The next question comes from Martin Arnell from DNB Markets. Please go ahead.

Hi, guys. My first question is, you had a comment there in the report that you had positive organic growth for the key franchises last year. Was that the case also in Q1, or were you negative so far in Q1 in January?

In terms of the January 2025? Yes. We, I think we will refer to what Alexis just said, is that we have struggled a bit in the beginning of the place in terms of the UA deployment. How that is impacting the key franchises, I mean, it's a bit premature to state that in this call.

Okay. And when I look at the strong cash flow, there is this big working capital effect in the quarter. Can you comment a little bit on that? Is that something that will be negative reversal in the coming quarters, or?

As you know, I mean, working capital always fluctuates between the quarters. I think, then especially when we get the receivables from especially Apple and Google or Apple. This one, it was positive. I think if you look at it longer over the cycle, our working capital has been fairly, fairly stable. Then yeah, in 2023 Q3, we had a negative effect and now we have a positive effect. I think the fact is that we are shown that even if we had some, we have to be struggling a bit on the top line, we haven't been able to improve our cash flow generation because we are actually improving our margins. So both in terms of DTC, also our gross margin, but also in terms of some of the fixed cost reductions that we've done in the last year. So yes, you have a working capital, you always have any working capital impact, but I think the fact is that there are some underlying drivers in terms of margins, but also that we also see that interest rates actually are coming down, and that has been negatively impacting our cash flows historically. And we will see that with the reference rates coming down, if it takes a while to flush out, that will also improve our operative cash flow going forward.

Okay, thanks. And when you look at the top line trend, it's negative right now, but when you look ahead, for how long do you think that you can offset that with the cost optimization and the lower cap peaks in order to have free cash flow, say above one billion where you are now on an annual basis? For how long can you offset the negative revenue trend, assuming that it could move on for a little bit longer than you think?

Yeah, I think if I just, I can just take, I think if we go back now to our three business areas, I mean, if we take MENA and APAC, it's growing, very strong margins, we don't see any signs that that business area anyway deviating significantly. I mean, they are not as dependent on UA. And what we're hoping there as well is to move some of the legacy games into Imperial and improve the margins there. So that's that business area. I think, and then if we look at Europe, Europe has, which we were showing as well, a stable business, I would say in Q1, especially in Q1 2024, there we had more UA deployment, especially in the supremacy franchise, which you see in the margins, but we had better growth. We don't see as much of that this year. But it's a stable business that has shown that they can deliver not tremendous growth over time, but a stable business that has been a strong cashflow generator. And then we have North America. And North America is a turnaround case. And we have a plan. But of course, if we can improve the North American cash flow, we have been deploying a lot of UA, as you can now see. Of course, that will improve cash flow if we redeploy that into more profitable markets like Europe or, I mean, an APAC. So I don't want to give a timeline, but I do think that if we look at break it out in those three components, then I do think there are things that we can do and especially in terms of cash flows where we have both North America direct to consumer share can go up and also in more profitable user acquisition. But I know to

build on Andreas and very simply, negative organic growth in North America doesn't mean worse cash flows necessary. We could actually eventually, we could actually even improve the cash flows from there. And it's not worth the same as the positive organic growth that we get in so in MENA and APAC, for example, where we have much stronger margins and therefore much stronger impact to cash flow. So we're fine.

Okay, thanks for that. And my final question, I don't know if you can reply to it, but I have to ask you, you know, how is the recruitment process going when it comes to new CFO and also no solution for permanent COC? Is there any update from the board on this that maybe you could share?

Yeah, I think as you put it correctly, that's for the board to respond to and to update you on. So there's no immediate updates at the moment. Okay, thank you guys. It's the process.

The next question comes from Rasmus Engberg from Kepler. Please go ahead.

Good morning. Two questions or three maybe. So you're saying that capitalized development is in the 8 to 10 percent range also going forward. So we are kind of at the lower end of that. So can you reduce that further? I didn't quite pick that up. That's the first question.

Yeah, I said, I mean we have, I think, well, I think, Captain Marcus Day two years ago, we stated that we will take down CapEx in product development. I think what we then stated, we would take it down a few percentage points. We've started at 14 and we have come down. I think, of course, when you go through the changes that we've done and that Alexis elaborated, you know, you put, you take out some things, but then you also start investing in some things more. So for example, in Europe, in our key franchises, there you can see now in the numbers that we have actually started to deploy more of that investment. So, but we still think and we stated this before that between 8 to 10 percent of our net revenues is a healthy number. Will it be like that every quarter? No. Can it go down below that some quarters? Yes, but I think it's all about we are in the phase where we are redeploying capital and of course investing with in less in the US. One man hour in the US is more expensive than in our other business areas also has an impact, of course, and I would say that 8 to 10 percent is a healthy healthy level.

And I think focusing those investments on the key franchises also makes a difference because there's a lot of things love games were maybe, you know, we would have we would have, you know, potentially dumps on investments that, you know, there are we now moving to kind of legacy live Ops. So that also kind of helps with the process, but it really in we now were a games company. We made games and we will continue to do so and that's what we're doing. We're just focusing on what kind of games were making and why we're making it more than we did in the past.

Have you benchmarked that it looks to me still to be quite high number. I mean, they to 10% of sales there are companies substantially below that.

Yeah, then you're correct. Then of course, it depends where you where you benchmark that if you benchmark that into a US company where you don't have the same accounting rules, you don't activate in the same way, but we think it is and you see some game companies that have a lot higher investment. I think from our perspective and that's why we think it's a healthy level. We also that one of the reasons we change our profitability metric two years ago to a bit duck to take away the discussion. How much do you activate? It's what we I mean, it's an accounting principle what you invest you need to put on the balance sheet from a profitability in how we steer the business. It is still a bit duck that is our key profitability.

Yes, and then the same question for you. A it was relatively low now and I guess if I read you correctly, we shouldn't expect to pick up in q1 either. But what kind of range to see for you a perhaps for this year if you have any thoughts on that we

haven't I mean, we haven't guided in terms of the UA deployment this year as well. So it will as normal fluctuate between the quarters Alexis was saying how the q1 will look but give a range for the full year. It's it's it's not something and

I think there's important thing about UAZ. You know, you also need to be quite opportunistic. You need to be opportunistic in terms of you know, when you see that the costs are too high. You need to pull back and get your B-TAC up. But when you see that, you know, there is an opening and then you need to be very quick to react again and investing. So I think to give guidance on there would be would be naive.

Okay, final question with regards to to North America. Do you anticipate further restructuring and charges there or or is it smoother from here that we there is some massage to do but but

no

charges or similar things or how should we think about that restructuring?

I'll let you answer the financial side of it. But in terms of what we're doing in North America, so obviously we have new leadership with Todd. I know we are he's executing on a plan there. We do expect to transfer more games from North America to our legacy live ops at Imperia. We've already done a few and we will do some more. So that's kind of is that ongoing ongoing process in terms of the financial aspect. I'll let Andreas answer.

Yeah, I mean we have as you point out dressments. We had a few quite a bit of our restructuring cost in the last year has been relating to the reductions. I mean reduction of some force almost 25% in North America. So it would be less of that. I would say because we have we have we have taken out quite a lot of the fixed cost base exactly how Todd will organize this team. We'll get back to you. And we will be more details around that going forward as well. But we it's not we have done a lot in North America in terms of a cost base.

All right. Thank you so much.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

I'm perfect. So thank you very much for your time again. I hope that we've been able to explain, you know, this the new organization that we have at Stillfront in a way that is understandable, you know, with the three, you know, business areas by geography, you know, Europe, North America, mean and APAC the different dynamics within this business within the those business areas and also that we've been able to explain, you know, our our key franchises and the dynamics around that. Thank you very much for your time and we will see you next time. Thank you.