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.

Thank you, Michael. Now let's look at the parts of our publishing slate. So here is our main release late for 2025 and the beginning of 2026. And so far this year, we have launched four titles, Rainbreaker, Vampires Fall 2, Lost in Random the Eternal Die, and Eyelander's New Shores. And as mentioned, in aggregate, these titles have not performed as well as we had hoped. However, despite this and the turbulent times, both at Thunderfall and in the industry as a whole, we are still very excited and focused on our upcoming releases. So Godbreakers was announced at the end of June, and it's coming out in the second half of the year. It's the debut title from our talented internal studio To The Sky, and the demo is out on Steam right now with an 89% positive rating. So don't miss this if you're into frenetic hack and slash action. Next is Aska. It is developed by the great team at SandSailor Studio and was released in Early Access last year. And the team continues to work and improve the game together with its Early Access community. And the full release is planned for later this year and the console launch during next year. And if you like survival games, you should absolutely join the Early Access on Steam already now. Replaced is a sci-fi retro-futuristic action platformer, and it's the debut title from the very talented team at Sad Cat Studios. And as I've said many times before, it looks absolutely amazing. Now, the development of the project has had some delays, and to ensure the best possible outcome, we are moving the launch from the planned late 2025 into the spring of 2026. Also coming in in the first half of next year is the sequel to the beloved Planet of Lana from 2023, created by the highly talented and creative team at Wishfully Studios. Planet of Lana 2 continues the amazing cinematic puzzle adventure, but with a much longer story and tougher challenges than in the original game. And as you can see, it looks absolutely stunning. okay that was our 2025 and early 2026 slate and now let's summarize our key takeaways so um as mentioned to manage the shortfall in expected revenue we have initiated another round of cost savings and this combined with a proposed investment from atari and the extended credit facility will recapitalize the group and allow us to continue operating And I have to say personally, I'm very excited about the engagement from Atari. They are a classic gaming company. And of course, beyond the funds from the investment, I believe that they will be a great shareholder and collaboration partner. And furthermore, our existing catalog continues to perform through transactional sales. And despite all the turmoil, the great people at Thunderfell are determined to turn this company around. not least with the amazing games we have coming out in the next nine months. And of course, the immediate goal is still to reach positive cash flow and then to achieve sustainable success in the long term. Okay, thank you for listening. Let's now move into the Q&A session moderated by Thomas.

Yes, thank you Martin and thank you for the presentation. I will actually not dive into the numbers that much. Actually we were pretty accurate. It was in line with our expectations, the numbers and the result. So we dive into some game releases instead. I will start with Lost in Random Eternal Die, which I for once have played and I've played Hades as well and I'm very impressed by the game. and also critics were impressed, and you had some marketing in that game as well, some marketing spent, but it didn't perform commercially, and you named Hades, maybe the biggest competitor, as one reason. Could you perhaps elaborate some more why this game doesn't sell that much?

hard question but yeah yes well i mean this is the games industry so it's always very hard to predict how games will sell but yes the surprise update to the hades 2 game came out on the same day as lost in random the eternal light june 17. So that definitely had some effect on the interest of buying Lost in Random versus buying Hades 2, unfortunately. And it is the biggest competitor in the genre. And the genre is also becoming quite saturated. There are many roguelike games out there. And it's unfortunately very clear that we were not able to properly communicate the USP's unique selling points of Lost in Random. So as you said yourself, I think it's a great game, but it is hard to get through the noise. And unfortunately, we didn't manage at launch. Of course, we're still selling the game and we're continuing to push it for years to come. As it is still a great game and it will provide revenue for a long time still.

Thank you. Maybe you can't answer this follow-up question, but can you say something about how it performed on console compared to PC? Because Hades 2 is only on PC at the moment.

Yeah, so we're not sharing that split for specific games. We can say that in general, our portfolio is performing better on Steam than any of the consoles. But it's really dependent on different games. They perform differently well on the different platforms.

Yes, sorry, one. Historically, the SteamWorld titles in the beginning of the Switch 1 era performed very well, but has that changed? Or is Nintendo's platform still bigger than the PlayStation, for example? Or is it... Can you say something about that?

Yes, well, as mentioned, we're not providing splits between the platforms for specific games, but SteamWorld as a whole throughout its lifetime has performed well on Switch. You're correct there.

Yes, so let's move on to Vampires Fall 2, a game that exceeded your expectations commercially. But that's a free-to-play RPG, only on mobile. The first question is maybe, is this title also suitable for other platforms such as PC?

No, I would say that it's most likely not something that would be ported to other platforms. Mobile games tend to have their own dynamic and gameplay design. So I don't think we should expect this coming out on any other platforms anytime soon.

And the other question, do you think that your audience on this game is large enough that you can have meaningful revenue from this game in long term perspective or can you say something about that?

Well, absolutely. Well, in the short term, all revenue is important for us, of course. Yeah.

And in the long term as well.

Yeah, sorry. Absolutely. No, no. It's Vampires Fall 2. It's a mobile game. Those games tend, and the free-to-play, as you mentioned, those games tend to have a different dynamic in its sales curve. So we expect it to grow for actually many years to come. So it will absolutely have a meaningful revenue impact on Thunderfall going forward.

And maybe one of your most interesting releases in the second half of this year, the full release of Aska on PC and followed up by a release on console next year. But games often experience a sales uplift during this hard launch on PC. Do you have a strategy to maximize sales during this period? Can you give maybe something to say about that? Is it a big update perhaps or marketing effort or something?

Sure, absolutely. Well, I mean, first of all, Asuka is in a genre that has very strong retention. So people, players tend to play for hundreds or even thousands of hours. And it also has a very active influencer community. So part of the launch planning for the full release is to tap into the influencer community and have influencers help show the audience how great this game is. And then, of course, since it was released in Early Access last year, we also have a big existing fan base and community that we will also reach into to get help with the full launch. Yeah, I think that's the main part of the launch planning. Thank you.

And you also talked about Godbreakers and that it has got good reviews on Steam, I think you said, from players. It looks like a multiplayer game, I would say. Could you please say some more about this game and what to expect for players? Absolutely.

So as mentioned, the demo has 89% positive reviews on Steam, so we're very happy with that. And it is a roguelite game, very action-focused, and it's a very popular genre. But Godbreakers is in 3D and also has a very strong co-op multiplayer component. which we believe makes it stand out from the competition. So we believe the sort of style of the game combined with its unique selling points definitely increases the chances of reaching commercial success when it launches later this year.

Could you say something about the budget? Is it like in comparison to Lost in Random Eternal Die? Is it like the same budget or bigger or smaller? Can you say something?

Well, we're not really sharing development budgets for our games, but for Thunderfall, it definitely had a significant development budget. Although we should remember that parts of that is also the investment in starting up to this guy and setting up the company back in 2021.

The last game I will ask a little bit about is of course Replaced that has been under development for some time and I think it was several years ago. First you got some gameplay and the whole gaming community was very impressed and then now some previews have been published recently with very good early reviews if you say so. But unfortunately it has been also postponed yet again. How confident do you feel about this new launch schedule on this game? Is it a forever developed game or will it be released?

Well, the delays, the unfortunate delays that have been quite few, there have been quite a lot of delays. I mean, at least it's leading to an absolutely fantastic game. And this year, our producer team has worked closer than ever with the team at Sad Cat Studios. So we feel very confident that the game will finally be ready for the audience sometime early next year.

Yes, thank you. Let's dive into a member question here. Are you confident that the liquidity and the cost cutting measures taken are sufficient to make it to spring 2026 when replaced is finally scheduled to be released? So will the cash

yeah well that is the plan of course we have uh as part of deciding on a restructuring uh we're doing a lot of analysis on what what is the level of cost cutting that we need to achieve and then combined with the investment from atari and the extended credit facility our estimation is that the liquidity will be sufficient to start generating positive cash flow in the coming nine to 12 months. That is of course related or connected very much to how our revenue can perform, but we think we have been quite conservative in some of our estimates. So the short answer is yes, we estimate that the liquidity will be fine with the changes that we're now making.

Yeah, no, I agree.

It should suffice. Short answer.

Maybe you answered this, but it's another question on the cash position, I would say here. You expect 40 to 45 million cost savings in 2026. What concrete changes will deliver that and how do you avoid cutting into your publishing pipeline or studio capacity? It's a question here. Maybe a hard one to answer, but can you say something maybe?

I mean, our main objective is to ensure that our pipeline of games reaches the market in a successful way. That's the number one goal for us, and that we're able to reach a cash flow positive position. We're doing that while also balancing keeping as much as we possibly can in order to ensure our long-term value of the company and ability to perform even long-term as well as short-term.

Thank you. Yes, let's take another question here. I will also, of course, maybe the biggest, of course, the biggest thing is the Atari, that Atari will, yeah, perhaps or very likely be the majority owner of Thunderfall. And a question here is also from a member with Atari as the new majority owner. Should shareholders expect a pivot towards Atari's retro IP driven direction or will Thunderfall continue to focus on indie and original IP publishing? Maybe a hard question for you to answer, but can you? Yeah.

Yes. Well, I mean, our current strategy is in place and that's what we're continuing to implement. And then, of course, as Atari comes on board, assuming the shareholders vote positively for that tomorrow, when Atari comes on board, they will take seats on the board of directors and obviously influence the direction of ThunderFold through the board of directors. but we have to keep in mind the thunderfall will continue even though tatari will probably I would say become the majority shareholder after tomorrow. Thunderful will continue to be a listed independent company, and the board of directors, including the directors from Atari, will have an obligation to create value for all shareholders, not just Atari. So any potential changes in strategy will need to be for the benefit of everyone, not just to follow Atari's, whatever strategy Atari has in mind.

Thank you. Good answer. Yeah, and this one I think you will actually answer later if Atari becomes the big major shareholder. What synergies or revenue opportunities do you expect from Atari's ownership in near term, it says. But yeah, maybe you could say something about that.

Yes. Well, I mean, as part of this, again, we're waiting for the decision tomorrow. But in the past weeks, we have been talking to the team at Atari and have started to identify various ways of collaborating. So again, the collaborations we are aiming for to identify and potentially implement are all about creating a win-win for both companies.

Yeah, thank you. And a question from me here is that what is Atari's, you have some ways answer this already, but what is Atari's broader strategy behind its investment and which specific asset within Thunder 4 were of greatest interest to Atari?

Right. Well, I mean, this is really a question for Atari, but I think in their press release, they talked about getting a bigger footprint in the European market. So obviously, being a big shareholder of Thunderful will help them provide that. And then, of course, they are interested in the skill set and capacity of our teams, as well as our existing games catalog and the revenue that comes from that.

And thanks. And you communicated that you, Martin, will step down around year end in connection with this change in ownership. What other organizational changes should stakeholders anticipate? You talked about, of course, the board of directors. But maybe something, what will have happened to the management team? Can you say something about that?

Well, I would say that as part of the restructuring that was announced and now is being implemented, we are making changes in the management team and of course also other parts of Thunderfall. And I think that it is quite natural during a transformation as such as Thunderfall has been going through in the past two years, But other than what we have talked about internally and the management and other changes we're making, no other changes are planned at the moment. We think that the organization that we'll have after restructuring is the right one to drive Thunderflow forward.

Yes, I think I'm happy now with your answers. Is it something you want to add or do you feel happy as well with the Q&A?

We're happy, thank you. I just think that obviously Thunderfool has been going through a lot of turmoil for quite a while now, but with this investment from Atari and the potential collaboration and the extended credit facility and the cost savings, That gives us the right foundation, together with, again, the many exciting games we have coming out. It gives us the foundation to finally turn this company around and make it long-term sustainable. That has been the goal all along, and we are all working very hard and crossing our fingers to make this happen.

Thank you very much. Good closing words. Yeah, thank you. Thank you, everyone.

Take care.