Thunderful Group AB

Good morning and welcome to Thunderfalls Live Q. Today, CEO Martin Wallfisch and Nikal Falkner, CFO, will present the Q2 report. And shortly after, we will have some Q&A. So let's begin.

Thank you, Thomas, and good morning, everyone, and welcome to the Thunderful Group Q2 presentation. My name is Martin Walfisch, and with me today, I have Mikael Falkner, our CFO, and we will be presenting our Q2 highlights, financial results, and also our upcoming product slate, and then give some details on the ongoing restructuring and proposed investment from Atari. And then we will end with a Q&A session moderated by Thomas. So before we dive into Q2, let me give you a brief introduction to Thunderful Group. 2024 and 2025 have been years of substantial change and transformation for Thunderfall. We are today a very different company compared to the beginning of last year. And we are now a focused games publisher and service provider. And we publish PC and console games from our internal studios as well as from external third-party studios. And we also have a strong co-development capacity working on projects for external clients. The group is divided into two reporting segments. The publishing segment focuses on all our efforts to develop, market and commercialize games and IPs. And this includes the creative input from our internal studios as well as game projects by external studios. Our co-development and services segment primarily focuses on offering development and publishing related expertise. CodeSync, our largest studio, does a lot of full-service creative development work for external clients such as Meta and other big global companies. And in our Robot Teddy business, we tap into the resources we have in our publishing departments to provide custom services to third-party developers who seek help with their self-publishing efforts. Okay, that was a short introduction to Thunderful. Let's now move on to the highlights of Q2. And I will briefly summarize the financials for Q2 and then later Michael will go into a bit more detail. So our net revenue came in at 59 million SEK, which is in line with Q1 this year and a testament to our stable games catalog, but it is considerably lower than Q2 last year. Our adjusted EBITDA is minus 23 million and our EBIT came in at minus 51 million. We invested 21 million SEC in capitalized ongoing game projects from both internal studios and third-party collaborations. And this is considerably lower than last year as an intended consequence of our various cost savings and restructurings. And cash flow from operations was minus 27 million SEC for the quarter. And our available liquidity as of end of June was 32 million SEC. So moving to our operational highlights and starting with the publishing segment, we launched two games in the quarter. First, Vampires Fall 2 at the end of May on mobile, and it's received great reviews and has sold well in its first few months. As it is a mobile game and a sequel, we expect it to grow and perform for a long while. Our expected biggest release in the quarter was Lost in Random the Eternal Die. It has received solid reviews averaging above 80 on Metacritic, but unfortunately it has not translated into commercial success. The timing was also unfortunate as the Eternal Die was released on the same day that Hades 2 got a major surprise update. And Hades 2 is the biggest competitor in the roguelike genre. On the positive side, sales of our existing catalog continues to be stable and inside the organization, we have continued to improve our structures and processes and the publishing and development teams are working more focused than ever. However, as our revenue has not increased as we have projected, we determined after the end of the quarter that we needed to implement further cost reductions. And combined with a proposed investment of 50 million SEC, it will significantly help our liquidity going forward. Now let's move to our co-development and services segment. The teams at CodeSync continue with their close collaborations with Meta and Sony Pictures VR. Some milestone phasing has caused lower revenue in Q2 compared to Q1, but this is quite natural as milestones are not evenly delivered each quarter. CodeSync are also focused on securing new contracts with new and existing clients for 2026 and beyond. Finally, a note on our services operations that is being affected after the end of the quarter. As we are decreasing the size of our publishing organization, our ability to secure robot Teddy clients is decreased. This will have a slightly negative impact on revenue in the segment going forward. Now, let's share some more details about the restructuring that was announced on July 29. Although we are closing in on being cash flow neutral in our regular operations, our revenue this year has not grown as planned. And we have utilized a large portion of our credit facility. So to decrease the risk of lack of liquidity, we decided at the end of July to initiate another cost savings program. As part of that program, we are making redundancies in various teams. Our Stormteller Studio has seen some redundancies, as has our publishing organization, and our central operations, finance, IT, and HR teams. And we are also evaluating doing cost savings in our To The Sky studio. The performance of their first title, Godbreakers, which is launching later this year, will determine our ability to continue investing in that studio. All in all, we expect this restructuring to produce cost reductions of up to 45 million SEC on a full year basis. Now, a few details on the Atari investment that was also announced on July 29. So the board of directors, together with two of the main shareholders of Thunderful, proposed to offer the classic gaming company Atari to invest 50 million SEC in the group. And this is subject to shareholder approval at an extraordinary general meeting that will be held tomorrow. And the investment will mean that Atari will own just about 80% of Thunderfall. And in addition, as part of this financing, Danske Bank has also agreed to extend our existing credit facility. So the combination of the investment, the extended credit facility and our cost savings program will allow us to continue our operations and focus on reaching positive cash flow. As also announced a month ago, I will be leaving the role of CEO With the major transformation that Thunderfall has been through in the past two years and with now the proposed investment from Atari, the company is preparing to move into a new phase. And I and the board agree that this is the right time for a leadership change. So I will be staying until the end of the year to ensure a smooth transition for my replacement. And with that said, let's move on to Michael and more financial details for the second quarter.

Thank you, Martin, and hello, everyone. Thank you for listening in. Let's have a look at this quarter's numbers. I will be starting with a highlights overview for the group before giving some more context in our segment slides. Sales came in almost in line with Q1, but significantly below last year. We see sales decreases in both our segments. And besides underlying performance, the stronger Swedish krona, especially versus the weaker US dollar, has had a negative impact on our revenue. Our overall cost decrease, both due to the variable royalty cost that moves with our revenue, and as a consequence of last year's restructuring programs. However, all in all, the cost savings has not been enough to mitigate the shortfall in revenue, and both EBITDA and EBIT comes in negative. Moving on to our publishing segment, so the segment that develops markets and sells games, net revenue decreased by over 35%. Back catalog performed stable. Currency had a negative impact, but the biggest effect comes from this year's main launch compared to Q2 last year launch. The game Lost in Random launched to great reviews, but has not reached close to the same commercial success as last year's Q2 launch Asuka. Operating expenses decreased overall versus last year. We saw decreases in staff costs as planned, but also an increase in marketing costs as we did more launches this quarter. Our capitalization rate has decreased, impacting EBITDA and EBIT levels negatively, but so has our depreciation and write-downs, which has a positive effect on EBIT and is the main explanation for the improvement in this segment. In our co-development and services segment, the part of our business is where we have some 100 plus FTEs that do work for higher game development. We flagged in Q1 that we had a positive revenue facing, which we now see the downside of. And as Martin already mentioned, the revenue in this segment is mainly connected to certain projects. milestone deliveries, and the progression towards each milestone can be uneven, leading to some fluctuations in revenue, which we see this quarter, which in turn correlates to fluctuations in EBTA margin as well. Briefly on our headcount development, at the end of Q2, the number of full-time equivalents counted to 208. So reduction of almost 90 FTEs versus the start of the year and 120 FTEs comparing to Q2 last year, not counting discontinued business. The FTE reductions are connected to the restructuring programs announced last year. The newly announced program will have a gradual impact starting mid to late Q3. Moving to my last slide is about the Cordus cash flow and net depth. The negative cash flow has compared to Q1 slowed down, but it is still negative. Cash flow from operating activities amounted to negative 27 million SEG. Investments into future game launches were done with around 20 million SEG and an earn up was paid with around 5 million. And all in all, this has led to further increase in the company's net debt and decreased available liquidity. This was my last slide. Thank you very much and over to you, Michael.