Starbreeze AB (publ)

Welcome everybody to the second quarter 2025 presentation by Starbreeze. Today's presenters are Adolf Kristiansson, CEO, and Mats Juul, CFO.

Good morning everyone. Today we are going to cover the second quarter, where we made some major shifts in our strategy and structure. We have now put our focus back on our biggest IP, Payday. During the quarter, we released key updates into the franchise, which have resulted in increased playing time and a shift in community settlement. The recent ratings of Payday 3 on Steam have been more positive over the recent weeks, which have lifted the rating after an overall mixed review. This puts us on a positive path as we are further improving Payday to drive it into positive rating category. We have simplified our organization, which will be formally put in place on the 1st of September. We have made some critical hires during this period, which now have the critical business responsibilities and are responsible for their own P&L, where they drive both revenue and manage the cost. And as part of this org change, we took on exceptional one-time charges, which marginally draw our costs up. As well as closing our friends entity and building up our tech teams in Stockholm. Our work for hire project with Krafton delivered solid revenues during the quarter. The project is progressing incredibly well and we will continue to work on such projects as they fulfill an important function in our business. Both in terms of development of our employees and even out the ebbs and flows of our revenue. The third-party publishing revenue was disappointing during the quarter, despite losing two titles, which both were well received by players and media alike. Both games, RoboQuest on PlayStation and Out of Sight, received solid ratings. But in the current environment, this is simply not good enough. Hence, we will be exiting our third-party publishing efforts from September and putting all of our focus on our own franchises, Axter, and Work4Hire projects. Words are cheap, and we have been putting our money where our mouth is in terms of payday. We are now laser focused on the heisting genre with our below Payday at the center. We are expanding the Payday 3 team by 40% and we'll have 25 people working on the franchise for the remainder of the year. We are pursuing growth across the board, partnerships in our transmedia strategy, and all of these areas are progressing well. We have big aspirations for both Payday 2 and Payday 3, especially the latter. Payday 2 will receive quality of life improvements, bug fixes and new content over the next few months, while Payday 3 will go through more extensive changes to the game, as well as adding more content and gameplay. Stay tuned as we are putting the final details down in terms of the Payday strategy, content pipeline and will communicate the company and our payday strategy over the next couple of months. Our key objective for Starbase is to transform the company into a thriving, sustainable and profitable business. To achieve this, we are implementing a matrix organization where our product leads for Payday, Baxter, and work for hire projects will have full P&L responsibility, where they make key decisions in terms of optimizing costs and maximizing revenue. This will take effect on the 1st of September. We are sure this will lead to a business where the employees will feel a stronger sense of ownership, increased synergy and cost optimization. And more importantly, accelerate our speed to market. All of our studio functional leads and product leads will now report directly to myself and essentially removing communication filters, enhance transparency and eliminate company politics. We made some key improvements in terms of payday, which has seen better heist releases in recent months, improvements in gameplay, and introduction of a new mode called Smash and Grab. These are faster-paced heists, which the community has embraced, leading to better player retention. But we are not stopping there. The game will go through major rework over the coming months, which we will outline in our upcoming strategic communication. We also made a key hire, Jonas Gans, one of the best kept secret in the Swedish gaming industry, who will be making sure that we will fulfill our promises and deliver a state-of-the-art heisting experience in Payday 3. Back to our Krafton Work4Hire project. This project has helped us to establish ourselves as a high quality work for hire studio, where both parties have been thrilled with the collaboration, quality development, and the end product. This project has now reached an alpha stage, which is a major milestone for the project. I couldn't be prouder of the team and the project, which is delivering a strong product, healthy revenue, and is beneficial to the development of the team. We are and will be looking for key work for high projects going forward and see this as an important part of our business. And finally, in terms of our progress of Baxter, we are still planning a release of Baxter in 2026, but have been looking at all potential loans options that will benefit the product, our partners, and most importantly, our players. We see this as a product which we want to develop with our players at the center and want to deliver a product which has been extensively tested with players and has improved with player feedback. As the product is now, it will fill a market gap in the market with a strong co-op action RPG experience. We are currently looking into how we can lean further into heisting in terms of this gaming experience. And I have to say, I've been very impressed with the latest playtests. We have had a lot of interest from platform holders and major publishers for this product, and we are hoping to have updates soon in regards to Baxter partnerships. So in short, The company is changing fast. We have a new structure in place, a new operational model and key hires on board, which will make a major difference for this company. Our future strategy is going through the final approval stages and I'm looking forward to communicate this alongside our leadership over the coming months. Thank you for the faith you're showing me, the company and our incredible employees. We are turning over every stone and improving the company every single day. And I could not be more optimistic and excited about the future. And with that in mind, I hand it over to my partner in crime, our CFO Mats Juul.

Thank you very much. Yes, let's have a look at the numbers as well for our last quarter and also for the first half year of this year. So net sales for the quarter amounted to almost 54 million, an increase from the same period last year with about 13.6 million. In total, the payday franchise generated 25.7 million in net revenue. And as you've seen in the news, we acquired the payday rights back from our previous publisher PlayOn during the quarter. We don't see the full effect from that transfer yet. You will see more effect from that coming in the next quarter, the third quarter of the year. And the reason for that is simple. It takes some time to get everything moved from one publisher over to ourselves then, since we are self-publishing the game going forward. So more to see about that. Work for Hire, our public project, as Adolf mentioned, generated almost 20 million during the quarter. So it's a fantastic revenue-generating project that will continue for the full year. If you look on our EBITDA, it amounted to almost 6 million, 5.9 million, compared to 8.1 million the same period last year. As mentioned earlier here in presentation, we did see some one-off effects on recurring items that affected our result during the quarter. This is mainly related to organization changes. Adjusting for that in the quarter, our EBITDA amounted to 13.3 million, which was in line with our own expectations. And as you see, we have depreciations of slightly over 30 million in the quarter, significantly lower since we are following the depreciation plan that we set up for payday, which is the main part of that amount. and if as you know and as we talk about here as well in the presentation we do continue to invest quite heavily both in payday but also in baxter and and other minor projects so we report the loss of the tax and for this quarter as well of 25.4 million cash flow wise we have a good quarter we have a positive cash flow 39.2 million compared to 2.7 million in previous year for the same quarter. Cash received regarding payday three together with the directed issue that we fulfilled during this quarter as well gave us a positive impact in our cash position. So we closed the quarter with a cash position of 156.4 million which is an improvement with about 26 million during the quarter compared to how we closed quarter one this year. So it's a good progress and we have a cash position. If we look on the first six months for a year, we saw net sales amounting to 121.5 million. It's a growth compared to the same period last year, with slightly over 25%. we are progressing of course a big portion of that growth comes also from work for higher projects but that is is and will be a part of our strategy going forward as well our ebta for the first six months amounted to 21.6 million and our cash flow for the first half year was a positive with 27.4 million And as we talked about also earlier in presentations, we are not satisfied with our net sales and we do see improvements in sales, mostly in Payday 3, day by day, week by week. It's a long journey, but our focus is to continue to grow sales generated both through Payday franchise and in the future from Baxter. And we also see that the changes we do take us in that direction. A little bit more about our cash flow. We closed last year, 2024, with a cash position of 192 million. During the first six months this year, we have a positive cash flow from operating activities related to our games of 27 million. We continue to invest in Payday 3 and Baxter. So, so far this year, we invested 96 million in game development. So it's a Heavy investing, but perfectly in line with the development plans we have in place, as we communicated about earlier as well. We made a total investment during the first six months of 105 million. Part of our revenue related to payday three is recognized during the second quarter as financing still. That will change once we have everything in place now for the third quarter, taking back the rights. So, but during the second quarter, we have still some revenue recognized as financing also in the quarter. And as I mentioned also during the quarter, we should share to the director share issue. And that gave us a positive effect of 33 million during the quarter. So in total, our financing activities had a positive effect of 42.2 million during the quarter or during the first six months. We closed the quarter then with a healthy cash flow, as I mentioned, slightly over 156 million. So we are in a good position to continue to invest into our games. A little bit more on the expenses then during the quarter. Direct cost amounted to 45.2 million during the quarter, a decrease compared to last year, where we saw expenses of 82 million or slightly over. The change is mainly driven, of course, by lower depreciations since Payday 3 now are coming into the next stage. So the depreciation of intangible assets are significantly lower, but we also see lower revenue share on third-party games, mainly RoboQuest. And as Adolf mentioned, we are getting out of that business, so that will continue to decrease as well over time. So in total, if you look on the direct cost, we also working a lot on efficiency and streaming our organization, but also when it comes to tools we use in development and so on. So direct cost will continue to decrease over time. Our selling and marketing amounted to 12.9 million during the quarter. Expenses mainly relates to cost for personnel working with marketing and peer activities for our games. Part of that is of course the launch of RoboQuest on console and also outdoor site. That drove those costs a little bit higher compared to last year. Our admin expenses amounted to 16.5 million during the quarter, which are in line with the same period last year as well. And as Adolf mentioned a little bit about, our expenses are impacted by non-recurring items of about 7 million during the quarter. So taking that into account, of course, our expenses should, in a normal stage, be slightly lower. The non-recurring items as I mentioned mainly relates to organization changes. We have closed down the entity in France and unfortunately by that also letting some employees leave the company and that had a financial impact of course. And at the same time, we're building up a new tech organization in Stockholm, which is in place now. So that's a good change for the company, but it impacts our expenses slightly during the quarter. You see that also in our number of employees where we by the end of the first half year were 159 employees, which is a decrease with 33 employees compared to the same period last year. And part of that is, of course, employees in France, but it's also some employees in Sweden, mainly in the publishing and marketing area, as we talked a little bit about before as well. Some of the employees that left the company have been replaced by contractors as well to make sure that we have a proper handover and a good process and don't lose momentum in our development projects. And as mentioned as well, we do continue to recruit over time. We have a number of key personnel on board already, and we are looking for key talent for our projects constantly. So we will see a number of employees slightly increasing going forward, but it should not be a major change compared to where we are at the moment. And finally, looking into our balance sheet, our intangible assets amounts to 416 million. That is mainly capitalized expenses for game development and our IP rights, as you know. Property, plant, and equipment amounts to 50 million, which are rights of use assets for our office lease amounts to 36 million. So that's the majority of that amount. Our current assets amount to 77 million and mainly relates to prepaid expenses and trade receivables. And as I mentioned, also our cash position at the end of the quarter, 156 million. Furthermore, our external non-current liability mainly relates to lease liabilities for our office lease and tax and prepaid revenue related to previous projects as well. Our current liabilities amount to 72 million, and that mainly relates to accrued expenses and trade payables. So to sum the quarter up then, we have a good split of sales between our different games. It's fantastic to see work for higher revenues coming in, in line with expectations. And we continue to see that over the coming quarter as well. We see improvements both in revenue when it comes to Payday 3, and we will continue to invest and see also hopefully then improvements in Payday 2, which is in line with our strategy as well. We do have a good cash position. We feel confident that we have enough cash to continue to invest both in Baxter and in Payday going forward. So that feels good as well. So all in all, we see good progress in many areas, even though our second quarter partly is impacted with non-recurring items, since as an effect of the organization changes, we also see improvements in the coming quarters. And that is what we focus on, constant improvement in sales and having a stellar organization and keeping focus on our expenses. So we are efficient in that area as well. And by that, back to Edolf as well. And then we open up for questions.

Thank you both for that presentation. Moving ahead, we have some questions from the chat here. First off, is it too early, but can you say anything about which project is coming after the Dungeons or the Project Baxter game?

Probably a bit too early. We have it drafted in terms of the heisting strategy, which will be communicating over the coming months. We were actually at Gamescom where we talked to a lot of our partners, platform holders, and outlined the strategy for them just to test the waters a little bit. And we got extremely good feedback from those meetings. So I believe we have a solid plan in place, and it clearly will be related to the strategy and the path that we are on. And I think fans of the company, the Heist Inc. and Payday will be disappointed with that.

Thank you for that answer. Another question here. When can we expect more info on Project Baxter?

Good question. As I said earlier, we are still aiming for release next year. We actually put together this vertical slice, which showed our partners how the game would look like, how the end game would look like. We got some really good quality feedback from them and also through some of the play tests. So once we have implemented this feedback and tweaked it a little bit, then we will be ready to show it to the world. And part of our strategic update, I think we will communicate that probably over the next two months, will be Baxter. So we will show something in terms of that, both in terms of gameplay and screenshots. um as as we are communicating the whole company strategy as well as the paid strategy but baxter will be a part of that thank you another question here moving over to the transmedia efforts do you have any news on the payday show or any other initiatives related to payday transmedia projects yes um i do we have at this moment i think three or four uh parties were extremely interested in in bringing payday to life whether that is in animated series or in terms of live TV series and even movies more so for the first two that is in place what we have been doing as I I believe I mentioned in in our last quarterly update is that we've been putting in efforts to lock down the narrative. What that means is that our narrative is split between Payday the Heist, Payday 2, and Payday 3, along with a lot of live shorts, I would say, on YouTube, which tell the narrative of the heisters, the background, the psychological issues they're going through, what led them to the crime, etc. This is fairly complex as it's across three games and across all this content, some which has not been shown until recently to the public. So we have a group which has been pulling that together and when that is done, that will be shared with the interested parties. What usually happens then, there's a pilot being funded and that is being shown to the key distribution and streaming channels. And that essentially kicks off the process, which takes few years, which is good for us because we want to get the Payday franchise to a place where we are ready to take on millions of new players into the franchise. So if we would do it today, and we would get the transmedia effect into the game, it wouldn't really amount to anything. But down the line, it will. I know that the Minecraft movie had an incredible impact on the Minecraft franchise, where they saw people coming back after decades being away from the game. incredible acquisition play, and that is the hope and the goal with this exercise. But these things take time. Once we press the go button, it will take around three years until you will see the series on the screen. So be patient on this one. There's a lot of interest, and I'm absolutely sure we will deliver this one in a few years' time.

Thank you for that. Another question here relating to release strategy for Project Baxter. Have you decided on the kind of release you are doing? Is early access, for example, an option?

Everything is open. We are talking, as I said, to platform holders and publishers. all different they all have different strategies go-to-market strategies they have different platform capabilities etc and they have preference in terms of how they want to how they want to um launch games especially in in this competitive space as it's now So we're looking at all potential options. There are benefits, as you mentioned, early access. There are benefits to early access because we want to develop the game with the players at the center and take in players' feedback and respond to that in the game development itself. That is probably the best way to build games today. If you saw recently the success of the Battlefield Beta, and that's simply because the game looks amazing, but it has been developed with players. They established the Battlefield Labs where they actually allow players to play the game, give feedback, which led to the improvement of the game. That's essentially what we're doing with Baxter, and Early Access would allow us to do that. Will that be the case? Maybe. We are looking at all our options and we will be communicating that in two or three months.

Thank you for that answer. A question that seems directed to Mats. Looking at the cash flow from investing activities, it seems the 29 million SEC payment was settled in a way other than a straightforward cash outflow. Could you provide more details on the structure of that settlement?

settlement on the Payday 3 rights. Yeah, basically what we did during the quarter, we came to an agreement with Pleion about the settlement of the or finalization of the project, so to say, with them as a publisher. So basically it's that we get all the rights back for Payday and we are now free to do everything we will or want with the game, Payday 3, but also with the franchise as a whole. So that's a huge benefit. And the sentiment we did is that we becoming a publisher, we're taking over the game on all platforms, pay the freedom. And during the quarter that transaction was done and there were, of course, always the negotiation when you part ways with the partner. We didn't actually pay any money to get the rise back, but we did a settlement when it comes to how do we split the current revenue during the quarter and the quarter before. So for the first six months now, we had a look on how much money had the game generated, and then we came to an agreement how we split those money and at the same time get the rise back. We haven't communicated any details, of course, in how that split is done. But you also see our revenue during the first six months. And that is where we ended up in that negotiation, so to say. And going forward, we will have 100% of the revenue related to Payday 3, not sharing any revenue with any publisher at all, which is a huge benefit for us since we continue to invest into the game and also get the full full output of those investments.

Thank you. We have a two-part question here as the last one. Could you share some insights on the feedback you received from the vertical slice and where you currently stand in partnership discussions around Baxter's release?

So the latter part of the question in terms of we just came from Gamescom and there were even The feedback from publicists and platform holders alike was very positive. People like what they're seeing in terms of the product. As I said in my opening, the game is actually filling a gap in the marketplace. It is super fun to play. It has a lot of chaotic elements in it, and we're going to add to that. We're going to add to the metagame. So again, the partners and publishers are very positive. We just need to pick our key partner in terms of this. So that's on us. In terms of the vertical slice, both internally and externally, we had our partners come to our studio to play the vertical slice. Feedback was very positive. We had players coming to our studio to play the game as well. And they gave very, very good feedback. So we have been integrating their feedback into the end product. Team has been hard at work. And we look forward to show you more of what they have been doing over the next two months. But very positive about the product. And I think the adjustments we're making to the product will be incredibly well received by our players.

Thank you for that. Thank you for the answers and today's presentation. And thank you to everyone who participated in this