Stillfront Group AB (publ)

My name is Lars Johan Jarnheimer. I happen to be the chair of Steelfront Board. And before I hand over to Alexis and Emily to take you through the quarter, I would like to say a few words about the announcement we made last night. First, on behalf of the board, I want to thank Alexis. He took on the role at a challenging time and has led still from through a decisive period of strategic and organizational change, including the focus on our key franchises that you will hear more about today. He will lead Stillfront until the 1st of November and will be available to the incoming CEO after that date to facilitate a solid handover. Secondly, I'm very pleased to announce that Marcus Jacobs will assume the position President and Group CEO on 1st of November. Marcus has an extensive experience in the industry, including many years in King's Executive Management and Candy Crush, which became one of the world's biggest mobile games. And he knows Stillfront well from his time on our board. He was on the board for almost four years. a tough recruitment process. The board is, of course, convinced that he is the right person to lead Stillfront and deliver on our strategy. With that, thank you for listening to me and I will then hand over to Alexis. Please go ahead.

Thank you, Lacheron, and good morning, everyone. I'm joined today by our CFO, Emilie Villatte, and we'll go over the quarter with you, and then we'll open up for a few questions. The third quarter continued to show that our strategy is working. Net revenue was about 1.3 billion SEC, corresponding to an organic decline of 1%. That's in line with the second quarter, and it means our organic revenue has now been broadly stable for three quarters in a row. after declines of 8% and 9% in the second half of last year. Behind that, our key franchises grew organically by 8%, driven by BIG, Empire, and Board. It was their fifth consecutive quarter of growth, and our key franchises now make up around three quarters of our revenue, while our other games continue their planned decline. Our franchise model is consistently profitable. Adjusted EBITDA was 366 million SEC with a margin of 28%. And free cash flow rose to 250 million SEC, which was used to reduce our debt. The profitability is backed by long-lasting players who expect a steady flow of new content. Delivering that effectively is where AI comes in. and it is already part of how we build, market and operate our games. For our teams, it's a force multiplier. They produce more, test ideas faster and spend more time on the player experience. Our engineers use AI agents to write, review and test code, which also makes it affordable to modernize some of our older games. AI also lets us explore new formats. Our team in Croatia has launched Real Saga, a short-form drama app that combines AI-assisted production with the audience-building and monetization know-how from our games. It's an early-stage experiment, and any further investments will be tied to results. Finally, we remain well-positioned for long-term profitable growth. And before going into the franchises, I'd like to take a moment to introduce our business for those of you who are new to Steelfront. So we're a global games company focused on free-to-play games with long life cycles and highly engaged player communities. Around 32 million people play our games every month. Our strategy is centered on seven key franchises where we focus our resources to drive scalable growth and long-term value. And our portfolio is highly cash generative with a proven track record. With that, let me take you through the key franchises starting with Joe Walker. Joe Walker reported net revenues of 228 million SEC, corresponding to an organic growth of 3%. That was against a strong comparison of 16% last year, so Joe Walker held on to the higher level that it reached then. The pay base continued to widen beyond Joe Walker's core markets. We had more daily players than a year ago and more paying players in markets across the wider region where we are expanding through reseller partnerships. Around four-fifths of Joe Walker's revenues come from players who have been with us for more than two years. That loyal, long-standing community drives network effects and reduces reliance on paid marketing. This is what makes Joe Walker such a steady contributor to our profitability. As a reminder, Joe Walker had an exceptionally strong fourth quarter last year with a lot of sales activity, which makes for a tough comparison. Supremacy now reported net revenues of 290 in SEC, corresponding to an organic decline of 10%. This was against an exceptional third quarter last year when Supremacy grew 31%. Last year's quarter benefited from favorable marketing conditions linked to world events. Fewer new players joined this quarter as we kept marketing tied to returns in a more challenging user acquisition environment for that franchise. At the same time, revenue from our long-standing players grew. Supremacy Warhammer 40K remains in soft launch. The focus is on refining both engagement and monetization before we scale it to a global launch, and we are taking the time to get that right. On BIG, BIG continued to perform very well in the third quarter. Net revenue amounted to 171 million SEC, corresponding to organic growth of 78%. Big Farm Homestead, which launched globally in the first quarter, has almost doubled their franchise in a year, and Sunshine Island continued to grow year on year, supported by new features. Their franchise's revenue held at the second quarter's level, even as user acquisition investments continued to normalize after the launch. This demonstrates our ability to expand and establish franchise with new games and to take what we learn into one game from into the next one. Bitlife now. Bitlife reported net revenue of 100 million SEC. That corresponds to an organic decline of 2%. Unlike the last three quarters, the franchise is now compared against a like-for-like UA strategy as we refine our targets and profitability in the region last year in Q3. The core bitlife have returned to growth, supported by higher advertising revenue and new content, including the movie director expansion in August, while smaller titles in their franchise declined. Empire. Empire delivered on another strong quarter with net revenue of 105 million SEC and organic growth of 22%. It was the franchise's third consecutive quarter of growth Empire celebrated its 15th anniversary in August, which resulted in their franchise's highest monthly revenue since March of 2024. For a game that has just turned 15, that says a lot about the strength and loyalty of its community, and at the same time, the team continues to invest in the new game for their franchise, Empire Titans & Dragons. Albion. I've been reporting net revenue of 91 million SEC, corresponding to an organic decline of 9%. The comparison quarter was lifted by The Crossable, a creator event which was held in Q3 last year. At the end of August, we released a Dragonfire update with a new area and a 20-player raid. It lifted player activity in its launch week, but engagement softened afterwards, so it did not give us the lasting lift that we had hoped for. Board. Board continued strong development in the third quarter. Net revenue amounted to 71 million SEC, corresponding to organic growth of 16% against a strong comparison of 27% last year. More Ludo Club players chose to pay, particularly in Brazil. Growth in app purchase was led by new weekly subscriptions, which together with passes accounted for more than half of the increase. Both give players regular ways to take part in the game, the kind of recurring engagement our franchises are built on. Now, in other games, other games reported net revenue of 316 million SEC, corresponding to an organic decline of 23%. That is in line with our plan to focus investments on the key franchises. Other games now make up 24% of group net revenue. That is down from 35% a year ago. Several titles are stable or growing with little or no marketing, including Simatronics and the older Storm 8 games. Other games remain profitable and continue to generate cash for the group. This was also the first quarter without OFM Studios and the Gameberry royalties. And with that, I hand over to Emily to take you through the financials in more detail.

Thank you, Alexis, and good morning, everyone. What a big day. Let's go through the financials for our third quarter. We reported net revenue of 1.3 billion SEK for the quarter, which represents an organic decline of 1% compared with a decline of some 8% in the same quarter last year. And as Alexis noted, this was driven by our key franchises, which grew organically by 8% year on year, offset by a decline of 23% in our other games portfolio. And on an absolute basis, net revenue was down 6% year on year. And here we have the impact from our divestments of Narrative and OFM Studios, and also the end of our Gameberry royalties. And these together had a negative impact of around 4.5 percentage points. But notably, unlike in recent quarters, currency had almost no effect. Our gross margin was stable at 83% as a higher share of direct to consumer bookings offset the end of our Gameberry royalty payments, which carried no direct costs. And DTC actually accounted for 47% of bookings, which is up from 44% in Q3 of last year. And the increase came mainly from web shops launched in more of our games, for example, Bitlife. And it strengthens both our margins and our direct relationships with our very loyal player communities. All right, moving on to UAC, which amounted to 307 million sec in the quarter, down from SEK 336 million in Q3 of last year. This corresponds to 24% of net revenue compared with 25% last year. The decrease was mainly driven in our other games portfolio, where UAC came down to 14% of net revenue from 20%, and by lower investment in UAC in Supremacy, as Alexis noted earlier. And this was partly offset by higher investment in Big Farm Homestead, which continued to scale. And in the key franchises, UAC was flat year on year, representing 27% of net revenue. Sequentially, UAC decreased from 340 million SEC following the launch of Big Farm Homestead and Albion's launch on Xbox in the first half of the year. And our approach to user acquisition is unchanged and remains dynamic and tied to returns. And we apply strict return criteria. We invest where we see returns, and we, of course, hold back where we do not, as we did in Supremacy, which saw a more challenging environment this quarter. Adjusted EBITDA amounted to 366 million SEK, which is a decrease of 16% from 436 million SEK last year. Our EBITDA margin was 28% compared with 32% last year and 29% in the second quarter. Now, the decrease was mainly driven by lower net revenues, which came largely from our divestments and the end of our Gameberry royalty payments, together with higher personnel costs. And this was partly offset by lower UAC and a higher share of DTC bookings. It should be noted that personnel costs amounted to 256 million SEK, compared with 231 million set in last year. And this increase mainly reflects targeted investments in our key franchises and higher accruals for performance-based incentives. And this was partly offset by lower personnel costs in other games. So profitability remains strong, supported by steady delivery from our community-led franchises, such as Jewalker, and by disciplined marketing investment. Moving on to our cash flow. So cash flow from operations actually increased this quarter to 383 million SEK from 310 million SEK in the same quarter of last year. And this was even after tax payments of 100 million SEK made in the quarter. Working capital contributed 70 million SEK, mainly from timing effects in receivables. And cash flow from investing activities was a negative 122 million SEK related to product development of 119 million SEK. Cash flow from our financing activities was a negative 421 million SEK and the strong cash generation in the quarter allowed us to amortize 377 million SEK on our credit facilities which is in line with our focus on reducing debt. Free cash flow for the quarter increased to 256 million SEK from 183 million SEK last year. And on an LTM basis, free cash flow was around 1.1 million SEK or 913 million SEK if we exclude the Gainbury settlement. So, over the same period, 469 million SEK went towards earn-out payments, net of the proceeds from divesting narrative and OFM studios, 446 million SEK went towards deleveraging, and we also completed 220 million SEK in share repurchases, which went towards the settlement of earn-outs. So, to summarize, our underlying cash generating capacity remains very healthy. So turning to our financial position where we ended the third quarter with total net debt of 4.4 billion SEKs, including all earnouts. And this is down from 4.6 billion SEK last quarter and a reduction of more than 650 million SEK from 5.1 billion SEK a year ago. Now, net debt, including next 12 months cash earners, was 4.2 billion SEK. And our leverage ratio was stable sequentially at 2.2 times as lower net debt was offset by lower EBITDA. And our liquidity remains sound with 458 million SEK in cash and 1.3 billion SEK in unutilized credit facilities. And if we look at our maturity profile, the remaining are announced of 671 million SEK are due to be settled in June 2027. And all our external debt matures no earlier than 2028. So you will also recall that in July of this year, we extended our 60 million euro term loan facility with the Swedish Export Credit Corporation to September 2028, for which we're very grateful. So with all of this in mind, looking at our maturity profile and our earnouts coming up, it is really clear that 2027 is an important inflection point for us. When the remaining earn-out obligations are settled, significant annual cash flows will be released, which strengthens our ability to deleverage. And this remains our near-term capital allocation priority. Alright, so I'll hand back to Alexis to wrap up.