Stillfront Group AB (publ)

Good morning and welcome to SILFRON's Q2 presentation. I am Alexis Pont and I'm joined by our CFO, Emilie Villatte, today. Before we go into financials, I will start by taking you through the key franchises of the quarter, including the progress that we've made and key developments. Looking at the second quarter, we continue to make progress in building a more focused and franchise-led storefront. Net revenue amounted to 1.323 billion SEC, corresponding to an organic decline of 1.3%. This means that organic growth remained broadly stable, despite a significantly lower level of user acquisition investments compared with the first quarter. Profitability strengthened clearly in the quarter. Jocity BigTac increased to 387 million SEC. That corresponds to a margin of 29%, which is up from 23% in Q1. This was mainly driven by the normalization of launch investments in BigPharm Homestead, as well as a broader reduction in user acquisition costs. We also saw continued double-digit growth in our key franchises, which grew organically by 10% in the quarter. This was the second consecutive quarter of double-digit organic growth in the key franchises. And this is a statement to our strategy to focus on our key franchises and the fact that that strategy is working. Finally, cash generation was strong. Free cash flow amounted to 519 million SEC in the quarter, supported by the underlying businesses as well as the upfront settlement with Gameberry. This strengthens our ability to continue reducing debt while investing selectively in our key franchises. I will now go through the franchise development in more detail, starting with Joe Walker. So, Joe Walker delivered a strong quarter and returned to double-digit organic growth. Net revenue amounted to S$223 million, corresponding to organic growth of 11%. This represents a clear rebound from the slowdown in commercial activity we saw in the first quarter. Looking ahead, our focus remains on expanding Joe Walker's presence in Syria and Iraq, supported by reseller partnerships and marketing initiatives. We continue to see long-term growth opportunities in the franchise, supported by its very strong local relevance, its very loyal player base, and a strong established market position and brand. We move on to Supremacy now. Supremacy reported net revenues of 214 million SEC, corresponding to an organic decline of 2% in the quarter. This development reflected a more challenging user acquisition environment for the existing titles compared with the favorable marketing conditions that we saw in the first quarter. At the same time, the team continued to focus on technical improvements and on preparing Supremacy Warhammer 40K for global launch. The game is now currently in soft launch, and the focus is on refining the player experience, improving technical performance, and in order to ensure a high-quality global rollout. If you move on to BIG now, BIG continued to perform very strongly in the second quarter. Net revenues amounted to 172 million SEC, corresponding to organic growth of 79%. This was driven by the continued momentum in BIG Farm Homestead after a successful global launch, as well as continued strong performance in Sunshine Island. So the franchise maintained positive momentum. This is despite significantly lower user acquisition investments compared with the launch-intensive first quarter when we launched Big Farm Homestead. This shows that the investments made during the launch phase continue to deliver even as investments level normalized. So this is a definition of a successful launch. As we have said before, we do not expect the same pace of growth to continue quarter after quarter, but the performance in Q2 confirms that BIG is developing well and that we've been able to build on the strength of the franchise through both new games development and strong live ops execution. If we now move on to BitLife, BitLife reported net revenues of 109 million SEC. This corresponded to an organic decline of 19%. The year-on-year decline was mainly driven by challenging comparison figures and the more disciplined user acquisition approach in the franchise. If we look ahead, comparison figures should be less challenging. At the same time, revenue actually improved sequentially compared with the first quarter, and it was supported by strong LiveOps executions. Some of you may recall that we stated we've been investing in the LiveOps kind of engine there. And actually, as a result, during the quarter, BitLife released the Ultimate Fighter Mode feature, which actually became the franchise's best-selling expansion pack to date. So clear indications that the franchise is starting to head in the right direction. Empire delivered a strong quarter with net revenue of 104 million SEC and organic growth of 2%. This was the franchise's highest quarterly net revenue since 2024, which is a strong achievement for a game that has been live for 14 years. The performance was supported by strong monetization, live ops, and a very good execution of in-game events. Empire continues to demonstrate the strength of long-lived player communities and the value of operating established games with discipline and consistency. At the same time, the team continues to invest in new game development within the franchise, with the development of the new upcoming game Empire Titans & Dragons. So very excited about Empire and its future. If we move on to Albion, Albion returned to growth in the second quarter. Net revenue amounted to 95 million SEC. This corresponds to an organic growth of 10%. The growth was supported by the successful launch of the title on the Xbox Series X in April, which marked Albion's first expansion into console. This is an important milestone for the franchise as it broadens Albion's addressable player base and gives the game access to a new platform. The quarter was also supported by strong feature releases and player engagement. Albion continues to benefit from an established and engaged community and the console launch provides a broader foundation for the franchise going forward. So with Albion clearly delivering on the strategy that we had set. In terms of board, board continued strong development in the second quarter. Net revenue amounted to 71 million SEC, corresponding to organic growth of 24%. The performance was driven by strong development in Ludo Club, which remains an important contributor to the franchise. The team also continued to roll out LiveOps improvements, including greater automation of in-game events and offers. If we move on to other games, other games reported net revenues of 334 million SEC that correspond to an organic decline of 24%. The decline reflects the continued underlining development in the remaining portfolio, but also a really deliberate reduction in user acquisition as we continue to focus on profitability and disciplined capital allocation. In addition, we successfully divested OFM Studios during the quarter and did the Gameberry supplement. And this, of course, impacts the reported net revenues in other games from June onwards. And with that, I will add to Emily to take you through the financials in more details.

Thank you, Alexis, and good morning, everyone. Let's jump right into the financial details. We reported net revenues of 1.3 billion SEK for the quarter, representing an organic decline of 1.3%. As Alexis noted, this was driven by strong performance by our key franchises, which grew organically by 10% year-on-year, offset by a decline of 24% in our other games portfolio. On an absolute basis, net revenue was down 8% year-on-year, driven by negative FX impact of 3 percentage points, as well as the recent divestments of narrative, OFM and the Gainbury Settlement, together having a negative 3 percentage point impact. While organic growth was broadly stable compared to Q1 the last quarter, our strategic focus on our direct-to-consumer channel keeps yielding results, and our gross margin increased by 2 percentage points year-on-year, reaching a strong 84%. DTC, or direct to consumer revenue, now accounts for 46% of bookings, a proper step up from the 39% we saw in Q2 of last year. And this is strengthening not just our margins, but also our direct engagement with our player communities. Onto UAC, which amounted to 340 million SEK in the quarter, down from 436 million SEK in Q2 of 2025. This corresponds to 26% of net revenue spent in UAC in this quarter compared to 30% last year. And the year-on-year decrease was driven by a more strict user acquisition approach. Sequentially, UAC decreased from 447 million SEK, driven by the investments in Big Farm Homestead, normalizing in Q2 following the trampoline launch in Q1, but also a broader reduction in UA costs, particularly towards the end of 2021. Adjusted EBITDA amounted to 387 million SEK, which is an increase of 3% compared to last year. And it is great to see that we're achieving this while our reported revenues and organic growth decline year on year. The adjusted EBITDA increase was primarily driven by decreased UAC and higher share of DTC bookings driving a higher gross margin. The increase was partly offset by decline in reported net revenues, primarily from recent divestments, together with a total negative FX EBITDA effect of approximately negative 23 million SEC. And the adjusted EBITDA margin increased to 29%, up three percentage points on the same quarter last year. Moving on to our cash flows. We reported 644 million SEKs in cash flows from operations for the quarter. And this quarter's cash flows benefited from a total of approximately 245 million SEK related to the Canebury settlement. 196 million recorded within items affecting comparability and the remaining balance came from working capital movements. Working capital movement overall positively impacted cash by 73 million SEK in total, which was underpinned by tax payments of some 38 million SEKs in the quarter. Cash flow from investing activities was 611 million SEK, and this primarily reflects cash earn-out settlements in the quarter of some 515 million SEK. In addition, we had product development spend of 117 million SEK, mainly relating to our key franchises, in line with our strategy to focus capital and resources towards our key franchises. These costs were partly offset by the divestment of OFM at an impact of plus 24 million SEKs in the quarter. Cash flow from financing activities was a positive 206 million SEKs in the quarter, mainly related to the drawn RCF in correlation with our earn-out payments, which took place in Q2. Free cash flow for the quarter increased to 519 million SEK, which was greatly impacted by the upfront Gaybury settlement of approximately 196 million SEK. Now, on an LTM basis, we generated 1.037 billion SEK in free cash flow, or 841 million SEKs when adjusting for the upfront element of the Canberra settlement. Of this, 469 million SEK went towards earn-out cash payments, minority buyouts, and the divestments of OFM and the narrative portfolio. 404 million SEK was directed towards deleveraging, and additionally, we completed 220 million SEK in share repurchases, which went towards the settlement of burnouts. To summarize, our underlying cash generating capacity remains very healthy. Now turning on to our financial position, and we ended the second quarter of 26 with total net debt of 4.6 billion SEK. including all earnouts, a significant 621 million SEK reduction from the 5.2 billion SEK in the last quarter. This reflects our strong underlying cash generation in the quarter, further improved by the Gainbury Settlement. In terms of our net debt and leverage ratio, including next 12 months cash earnouts, it remains stable at 4.4 billion SEK and 2.2X leverage ratio, respectively. This is a mixed effect of the strong underlying cash flow and the Gainbury settlement offset by adding on the next 12 months cash out or not obligations. And as noted by Alexis in his CEO letter for Q2, as the payments continue to absorb cash, as earn out payments continue to absorb our cash in the near term, we are moving closer to the important inflection point we have in Q2 of 2027, when the remaining earn-out obligations will all be settled. The resulting release of annual cash flow will strengthen our capacity to deleverage, which remains our near-term capital allocation priority. During the quarter, we also successfully settled the 1 billion SEK bond refinancing secured during Q1, and we secured our revolving credit facility now at 2 billion SEK through June 2028. And lastly, post the quarterly close, we extended our 60 million euro term loan facility with the Swedish Export Credit Corporation, now maturing in 2028, continuing our diversified financing platform. With this, we improved Silvan's debt maturity profile with all debt now maturing beyond the final earn-out settlements taking place in Q2 of 2027, while maintaining a sound level of financial flexibility. In short, we're in a very good position to keep calm and carry on. Now, handing back over to you, Alexis, to wrap up.

Thank you, Emilie. Thank you very much as well for going over the financials. Before we open up for Q&A, I would like to summarize our recent events and priorities going forward. First, our focus on key franchises remains unchanged. The second quarter again demonstrated our key franchises are the main driver of Steelfront's organic development with double-digit growth for the second consecutive quarter. This is a clear indication that our strategy to focus on these key franchises is working. Second, the strategic review remains ongoing. During the quarter, we completed the Gameberry settlement and successfully divested OFM Studios. These transactions simplify the group and allow us to focus resources on the franchise and studios with the stronger long-term prospects. Third, as announced at the end of June, the Board and I have agreed to initiate a CEO succession process. I remain fully committed to leading Steelfront until a successor has been appointed and to ensuring continuity and an orderly handover. Importantly, this transition does not change Steelfront's strategic direction. We will continue to focus on execution, profitability, cash generation, and long-term value creation to our key franchises. Our strategy is working, and I want to thank the teams for their strong execution again in Q2. With that, I want to thank you for joining today, and we are ready to take your questions. So please go ahead.