Financial · October 26, 2022

Q3 2022 Earnings Call

Summary

Stillfront Group AB demonstrated significant financial resilience during the third quarter of 2022, reporting a 36 percent year-over-year revenue increase and achieving an adjusted EBIT margin of 29 percent. This performance was underpinned by a strategic combination of acquisitions, favorable foreign exchange effects, and 1.4 percent organic growth, which notably outperformed a broader global mobile gaming market currently facing post-pandemic contraction. The company’s operational cash flow reached a milestone of over SEK 2 billion on a last-twelve-months basis, supported by a diversified portfolio that has expanded to 77 active games. The organizational strategy centers on a disciplined capital allocation model that prioritizes high-performing studios and dynamic user acquisition spending. While certain subsidiaries like Storm8 and KIXEYE have faced efficiency challenges or market softening, these are offset by the success of strategy titles and the integration of high-growth assets like Jawaker. The "Stillops" platform serves as a critical driver for synergy, facilitating the transition of acquired entities toward higher-margin, first-party game development. This portfolio-wide approach ensures that overall profitability remains stable even as individual studios experience natural fluctuations in performance. Looking ahead, the pipeline remains robust with 50 new products in development and a high conversion rate for recent launches. Management anticipates continued acceleration in organic growth through the remainder of 2022 and into 2023, bolstered by a strong liquidity position and SEK 2.2 billion in unutilized credit. By focusing on live operations and regional expansion for long-term assets, the group aims to maintain a consistent EBITDA margin between 35 and 40 percent, reinforcing its position as a consolidated leader in the global gaming industry.

From the report

Corrected Transcript 26- Oct-2022 Stillfront Group AB( SF.SE ) Q3 2022 Earnings Call Total Pages: 15

Stillfront Group AB( SF.SE) Corrected Transcript Q3 2022 Earnings Call 26- Oct-2022 CORPORATE PARTICIPANTS Hans Jörgen Larsson Chief Executive Officer, Stillfront Group AB Andreas Uddman Chief Financial Officer, Stillfront Group AB ...................................................................................................................................................................................................................................................... OTHER PARTICIPANTS Nicolas Langlet Rasmus Engberg Analyst, Exane SA Analyst, Svenska Handelsbanken AB Nick Dempsey Simon Jönsson Analyst, Barclays Capital Securities Ltd. Analyst, ABG Sundal Collier ...................................................................................................................................................................................................................................................... MANAGEMENT DISCUSSION SECTION Hans Jörgen Larsson Chief Executive Officer, Stillfront Group AB Welcome, everyone, to the Stillfront Q3 Earnings Call. I will be presenting as CEO, Jörgen Larsson, alongside with CFO, Andreas Uddman. We have a strong continued growth in the third quarter, total growth of 36% and we also were well above market in organic growth. We will come back to these topics later. Very much based upon that, we were successful in our live ops, but also in marketing, strong performance from strategy games, and of course supported by the positive FX effect, in particular the US dollar.

d we also were well above market in organic growth. We will come back to these topics later. Very much based upon that, we were successful in our live ops, but also in marketing, strong performance from strategy games, and of course supported by the positive FX effect, in particular the US dollar. We also leverage from the fact that we are more diversified than ever at Stillfront, which you can see on the right side of this slide, both in terms of where we are present with the red dots, our offices, which we have leverage from, but also how you can see how our revenues are distributed. So, now Europe and Asia is on par and North America is on 46%. Further on this slide, it's important to emphasize something that is very important when we manage and operate our business, and that is that we continue to deliver a strong cash flow and cash generative. And we also have during the quarter diversified further our financing platform, which Andreas will go into later in this presentation. Next slide, please. So, as briefly mentioned, very much of our growth this quarter is based upon successful ingame events and campaigns. So, what we have been working with and live ops is such a key lever for us to achieve growth, and that is very much that we work with campaigns where we'll actively with pricing and many other things. Of course, events and things updates, feature updates, as well as other types of content updates. So, we have achieved what we have achieved this quarter with less UA spend, but we have achieved that through live ops.

t we work with campaigns where we'll actively with pricing and many other things. Of course, events and things updates, feature updates, as well as other types of content updates. So, we have achieved what we have achieved this quarter with less UA spend, but we have achieved that through live ops. And again, live ops is larger – to a larger and larger extent, something where we can see that we can leverage the fact that we are a very well-diversified group of studios and game teams and products. So, more synergies coming within live ops already now, but we expect that to also be clear going into next year.

Stillfront Group AB( SF.SE) Corrected Transcript Q3 2022 Earnings Call 26- Oct-2022 We can – we are happy to see that the brand strategy engine that is based on – built on the Bytro engine, we have leveraged further. So, we have the five games out now from three different studio based upon that engine, which is, of course, a very efficient way for us to grow as we can be much more capital efficient for getting out new games. Also pleasing to see that Super Free for the fourth consecutive quarter have added a game to the active portfolio, which is the single game that came in in the third quarter, which is usually not a good quarter for launching games since this is the weakest quarter seasonality wise for us. But nevertheless, looking over the last year, we have added 21 games in total. So, we're now up to 77 games. Out of these 21 games, 15 have been added organically out of approximately 30 going into soft launch. So, we think that success rate is on par or even slightly better than we have had historically. We also – it's also important to note that in general terms, this is always our slowest quarter. But nevertheless, we have been able to improve our total performance and organic growth as we will come back to in a second.

uccess rate is on par or even slightly better than we have had historically. We also – it's also important to note that in general terms, this is always our slowest quarter. But nevertheless, we have been able to improve our total performance and organic growth as we will come back to in a second. Next slide, please. So, looking at some of our financial development. As mentioned, net revenues grew by 36% year-over-year driven both by acquisitions, of course the positive FX effect and organic growth. You can see on the right upper side of the slide that we had 1.4% organic growth, 22% growth from our acquisitions, hence our acquisitions are developing satisfactory or from satisfactory to very good. So, we are pleased with the acquisitions that we've made the last year, Jawaker, that now is organic from the 1st of October, and they will support us we're sure and also very stable performance from 6waves. Also, we can note that we increased our margins from Q2 to Q3. So, we have an adjusted EBIT margin of 29%. And also, it's important to emphasize that the organic growth that we have, 1.4%, is not the number that we are targeting or we are pleased with. But yeah, if you look at in relation to how the market has been developing, which is between 10%, some market analysts say up to, there was a report I think yesterday of 13% negative growth that in relation to that, which is of course also important to factor in I think it's a good number, but we're not satisfied with that number going forward and we expect that that will improve not only in Q4, but into next year.

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