Good morning and welcome everyone to Hacksaw AB's Q2 2025 results call. I'm joined today by Christoffer Källberg, Group CEO, and by Per Alnefelt, Group CFO. The agenda for today is as follows: Christoffer will start with a review of the operational and financial highlights before Per zooms in on the financial performance and position, after which Christoffer will conclude with his comments on the outlook and targets. We will then open up for questions, which you are welcome to submit at any point by using the 'Ask a Question' tab on your screen under the video window and clicking 'Submit.' I will then read out the question for you. Please make sure to include your full name and the name of your organization. Okay, let's get on with the presentation now, and first up is Group CEO Christoffer Källberg.
Thank you, Matthew, and good morning everyone, and welcome to our first quarterly report presentation as a listed company. The 25th of June was a milestone date for Hacksaw AB as our shares were admitted to trading on Nasdaq Stockholm. The IPO was oversubscribed several times and attracted a large number of well-known international investors, most notably from the UK and the U.S., as well as a strong interest amongst Nordic institutional and retail investors. I would therefore like to start with a big thank you to everyone who has contributed to the IPO process and to welcome our more than 8,000 new shareholders. Turning to the operational highlights of Q2, we exceeded our own expectations in terms of the number of new deals that we closed.
Continuing to increase monetization through new deals is one of our core growth strategies, and the team's ability to close a large number of new deals with both existing and new customers illustrates our large market opportunity and our ability to capitalize on it. These new deals will positively impact our results already in the second half of the year. Our games portfolio now includes 241 released games. This compares to 168 games at the end of Q2 last year, so the portfolio has grown by over 40% year-on-year. In Q2 alone, we released 11 new in-house developed games, and third-party studios launched an additional 11 new games on our platform. Product innovation, both in terms of in-house game development and expansion of studio partnerships, remains at the heart of what we do and is also a core part of our growth strategy.
We're present in over 35 locally licensed markets compared to 30 a year ago, and as we've announced earlier this month, Pennsylvania is the most recent market where our games have been launched. While the U.S. continues to be a small revenue contributor for us, we're very happy to be live in Pennsylvania and continue to view positively the long-term potential in the U.S., both in terms of growth from states with current regulatory frameworks in place and the potential upside for more states adopting local licensing frameworks. Other than Pennsylvania, we do not expect to add any new jurisdictions in Q3 in the U.S. or elsewhere. The debate in the U.S. around sweepstakes casinos continued during the quarter, with more states issuing statements on the matter. We're closely monitoring any regulatory developments, and where required, we implement geoblocks to prevent access to our games.
Louisiana is a recent example of this. Revenue from sweepstakes casinos remains a small part of our business at sub-10% of revenues, and its share of our revenues is currently declining. Moving on to the financial highlights, we issued a trading update in early June as part of the IPO process in which we stated that should the two-month period of April and May be representative for the remainder of the quarter, we would expect to report Q2 revenue growth of 45%- 50% when compared to Q2 last year. June came in stronger than April and May, and we therefore came in above the 45%- 50% range. Our EUR 45 million revenue for the quarter is equivalent to 53% year-on-year revenue growth. Year to date, for January to June, our revenues were up 61% year-on-year.
Our EBIT, when adjusted for the non-recurring items affecting comparability that mainly related to IPO expenses, was up 45% and we reported an adjusted EBIT margin of 82%. We generated EUR 25 million of cash flow from operations in the quarter and EUR 66 million in the first half of the year. This represented 30% growth in cash flow for Q2 and 89% growth for the first half. Our rolling 12-month free cash flow conversion rate remains high at 84% in Q2. We have no bank debt, and we had EUR 53 million of cash at the end of June, even after paying out EUR 106 million of cash dividends early this year. Let's now zoom in on our game development. We accelerated the pace of our in-house games development in Q2 and increased the rate of releases from three games per month to four games per month.
I.e., we released approximately one in-house developed game per week, and in total, 11 this quarter. We expect this to continue this pace in H2. Third-party studios released 11 games on our proprietary games development platform in Q2, which is up from eight games released in Q1 and more than double the five games released in Q2 last year. This demonstrates the growing interest in using our platform, and in total, a total of 34 new third-party games have been launched on our platform in the last year. With our portfolio of games, we continue to strive for a well-diversified offering as opposed to betting on a few blockbusters. We're therefore very pleased to have received very positive reactions to our 11 new in-house developed game releases from both players and customers.
If I were to mention a few, Ultimate Slaughter of America, which was released on the 5th of June, and yet another hit in the Le franchise with the release of Le King on the 26th of June, were particularly well received. We are pleased with our in-house game development releases in Q2, and we look forward to our upcoming releases with great anticipation. June also marked the two-year anniversary of our partnership program with third-party studios. We now have six studios active on our OpenRGS platform compared to just two a year ago. These six studios have released a total of 50 games since the first third-party game was launched on our platform. As a reminder, these studios build the front end of the games on our platform, and we build the back end.
We take full responsibility for the compliance of the games, and the games are distributed to the operators by us. The ongoing growth of third-party studio games drives our revenue, profits, and cash flows up, while our margins come down slightly due to the inclusion of the IP license fee that we pay them. The onboarding of new third-party studios is positive for the business, and we look forward to our already onboarded studios releasing even more exciting new games moving forward, and we look forward to onboarding new studios. The primary operating KPI that we monitor on a day-to-day basis is the number of rounds played on our games.
The average bet size for these rounds will naturally vary both across markets and over time, and the outcome of those bets, i.e., players winning versus losing, will by definition vary, and short-term sums must be above and sometimes below the mathematical mean. With rounds, we focus on the average daily number of rounds played, given the varying number of days across months and quarters. Average daily rounds played in the quarter were up 72% compared to Q2 last year and up 11% compared to Q1 this year, which is a very positive development. As I've mentioned before, we have a well-diversified portfolio of 241 released games versus 168 a year ago, with the largest game contributing less than 15% of gross gaming revenue in Q2.
Our top 10 games accounted for 46% of GGR in Q2 compared to 57% a year ago and down slightly compared to Q1 this year. The majority of our employees are based in our offices in Bucharest, Malta, and Stockholm, and in total, we employ 185 people. In line with the overall scaling of the business and our ambition levels moving forward, we have further increased the size of our team, and the team has grown by 70% since the end of Q2 last year. The recruitment and retention of the very best talent is essential for our continued success and remains a key priority for me and others in the Senior Management Team. The fact that we've continued to attract this talent reflects the quality of our culture, the working environment, and the overall opportunities that talented people see with Hacksaw .
That concludes my initial remarks on our performance, so now back to you, Matthew.
Thank you very much indeed, Chris. Just to remind you all, if you want to ask questions, please make sure that you click on the box underneath the video window and click 'Submit' on the question, and please remember again to put in your full name and the name of your organization. I'll now hand the call over to Per to zoom in on our financial performance and position. Over to you, Per.
Thank you, Matthew, and hi everyone. Let's get straight into the numbers for the quarter. As Chris mentioned earlier, our 53% year-on-year revenue growth in Q2 came in higher than the indicative 45%- 50% level that we included in the trading update in the prospectus. This range was based on what would have happened if June was in line with April and May, and June therefore clearly came in stronger than the other two months in the quarter, and our Q2 revenue amounted to EUR 45.4 million, which was also up compared to our very strong Q1 this year. This growth is totally organic and driven by additional game releases and growth in our customer base, as well as the increase in the number of rounds played. Our Q2 OpEx was up from EUR 4.6 million last year to EUR 10.6 million this year and reflected four key drivers.
Firstly, we had items affecting comparability in Q2 this and last year, both relating to advisory costs for the IPO process. We'll only have minor remaining IPO-related costs in Q3. Secondly, our cost of services sold was up substantially due to the increase in license fees paid to third-party studios operating on our platform. As Chris already mentioned, the growth in this part of our business raises our revenue and profits but slightly lowers the margins. The increase in cost of services sold also included higher costs for licenses and certifications. Thirdly, we also had higher personnel costs as we ramped up investments in new talent so that we're well geared for continued growth and enhanced productivity levels.
The sum of other external costs and personnel costs, when adjusted for non-comparable items, was unchanged as a percentage of revenue compared to Q1 last year and up one percentage point compared to Q2 last year. Fourthly, and finally, the depreciations increased in line with the higher CapEx levels, most of which relate to the investments in Cap light development cost. All of this demonstrates the operating leverage in our business model. Our EBIT, when adjusted for the EUR 2.3 million of items affecting comparability in Q2 this year and the EUR 0.5 million in Q2 last year, amounted to EUR 37.1 million in Q2 this year, which was up 45% year-on-year and almost at the same level as our very strong Q1 this year. The adjusted EBIT margin was 82%.
As a general point, it's worth noting that we continue to have a gross margin for our in-house developed games that is well above 90%, and our primary costs are personnel related, so we have quite a considerable operating leverage. The Group's effective tax rate was 6.5% in Q2 compared to 5% a year ago. The increase in the tax rate was mainly driven by FX-related expenses in the parent company, which cannot be offset against the Group's profit in Malta. Our profit for the period, or net income, for Q2 was up 37% year-on-year to EUR 32 million, and our fully diluted earnings per share were up 41%. The financial performance of the company is clearly very healthy, with strong operational gearing moving forward as we convert top line growth into higher profits and substantial cash flow generation.
Moving over to cash flow, our cash flow from operating activities before changes in working capital was up 79% year-on-year to EUR 32.3 million in Q2, and this includes most of the IPO costs that I referred to earlier. Changes in working capital were negative in Q2 this year but positive in Q2 last year, which reflected changes in VAT and tax, including withholding tax paid on dividends. Our total cash flow from operating activities therefore amounted to EUR 25 million and was up 30% year-on-year. Our free cash flow was up 29% year-on-year to EUR 23.3 million. Free cash flow is defined as cash flow from operating activities, less cash flow from investing activities. We also had a very strong free cash flow conversion rate of 84%.
The free cash flow conversion rate is defined as rolling 12 months free cash flow adjusted for EUR 6.8 million of short-term debt arising from withholding tax paid after the period on dividends paid in the period, and that figure is divided by rolling 12 months EBITDA. Our Q2 CapEx of EUR 1.7 million increased in absolute terms given the pace of our games development but was largely unchanged as a percentage of sales at 3.7% in Q2 compared to 3.6% in Q1 this year and 3.9% in Q2 last year. It mostly comprises capitalized expenses related to development of new games, functional improvements to our platform, and investments in patents and trademarks. We invest relatively little in tangible assets. All of this leaves us in a very strong financial position, and we further improved our cash position in the quarter.
Our total cash and cash equivalent amounted to EUR 53 million at the end of June compared to EUR 26.4 million at the end of last quarter and EUR 29.7 million at the end of June last year. The cash balance on the balance sheet has increased despite the fact that we paid out EUR 106.3 million of dividends in the first half this year compared to EUR 45.7 million in the first half last year. We more than doubled our dividends this year but still increased our cash balance by almost 80%, and we have no financial debt apart from IFRS leases. That's it for my comments on our financial performance and position, back to you, Matthew.
Thank you very much, Per. As a reminder, everyone, I can see you are posting questions, but please do post any questions you have by using the 'Ask a Question' tab on your screen under the video window and clicking 'Submit.' Please make sure to include your full name and the name of your organization. I'll now hand the call back to Chris for his comments on our targets and strategies. Over to you, Chris.
Thank you, Matthew. In conjunction with our IPO, we communicated long-term financial targets, and long-term here means more than three years. We intend to grow revenue by more than 30%, and we intend to maintain margins above 80%. We allocate capital as opportunities arise, and most of this allocation happens day to day over the P&L. We've therefore adopted a capital allocation policy by which we intend to return at least 75% of net income to shareholders, either through cash dividends or share buybacks or a combination of the two. Our performance during the first half of the year, our game releases pipeline for the second half of the year, our increasing monetization and ongoing customer acquisition levels, and the significant global market opportunity all reinforce our momentum and our commitment to our growth, profitability, and cash flow trajectory. In summary, we are very pleased with our Q2 results.
Looking forward, the market opportunity, our positioning with regards to platform distribution and game development, and the team and culture we have built all contribute to our confidence as we step into the second half of the year. It's been a great pleasure to get to know all of our stakeholders since I joined as CEO at the beginning of the year, and I look forward to our next steps together now that we've made the transition to becoming a publicly listed company. As I said, we have a great team, and this journey is only just beginning. That's it for my comments, so back to you, Matthew.
Thank you very much, Chris, and thank you everyone for the questions you've been posting in the activity feed. I think if we go, first of all, we will take a question from Martin Arnell at DNB Carnegie, and this is a question really for you, Chris, if that's okay, which is what were the key drivers behind the growth improvement you saw in June when compared to April and May?
Yes, sure. As we stated in our trading update, April came in a little bit softer than we would have expected, which to some extent was probably a consequence of Liberation Day and general uncertainty in terms of macro and geopolitical risk. What we saw already in May was a bounce back from that, which was commented on, and we've continued on that trajectory. I think that's one of the key drivers that it's more of a normal month as such, June versus April. I think we have had good releases throughout the quarter, but obviously towards the end of the quarter, we also had a few quite successful releases. I think it's a combination of them.
Okay, great, thank you. We have a question from David at Seven Grand. From David, congrats on a strong quarter. Your OpenRGS platform continues to see strong traction. Can you share any specific anecdotes or KPIs that illustrate the excitement and engagement from your partners or operators? I guess that's another one for you, Chris.
Yeah, no, we are very excited about that. Like we've said, I think multiple times, the OpenRGS part of the business is still, from our point of view, very early days, but we do think that it's encouraging that we continue to get inbounds from studios who wish to work on our platform and who wish to partner with us in their own success journey. We are very happy about that. We continue to onboard studios at roughly a pace of one studio per quarter, and I look forward very much to seeing both the old studios continue to up their release cadence and to welcome new studios onto our platform.
Great, and maybe just to take the second question that David's posted as well, the Pennsylvania market entry is a major milestone. How's the onboarding process been with the partners, and how should we think about the broader U.S. roadmap from here? Again, for you, Chris.
Yeah, sure. You know, David, as I think we've talked about before as well, the U.S. is a complicated market in the sense that it takes a little bit longer than many other markets. We have the right relationships in place with the key customers, and we're pushing ahead with that. When it comes to the onboarding process with clients, as a result, we're there. When it comes to the onboarding process regarding games, as you may be aware, in the U.S., each and every individual game needs to be licensed for each and every individual operator, and as a result of that, there's a regulatory backlog, meaning that things are moving in the right direction, but they are moving slower than perhaps we would have hoped. It's an industry-wide situation as opposed to a company-specific one. Thinking about the broader U.S.
roadmap going forward, we will continue to spend as much time as we can getting more and more games up and running with as many operators as we can across the few states that have regulated this far.
Okay, great. There is a question which has come from various people, including Aurelien at Sadiq, from Amal at Carnegie, and various people, which is to do with the growth rate, Chris, and what the sales have been doing in absolute numbers versus the actual growth rate, and what we expect to see there moving forward given it's flattened out to some extent.
Yeah, so when it comes to growth rates, what we've said before is that we observe a seasonality in the industry such that Q1 generally is a little bit softer, Q4 is a little bit stronger, and Q2 and Q3 are somewhere in between. Now, we came off a very strong Q1 where we overdelivered versus our own expectations to quite a large extent. From that quarterly, from a sequentially perspective, we had a tough comparison in Q2, and as a result of that, we're very happy with the outcome of it. If you look at the growth year-on-year, you know, we're north of 50% for this quarter, we were north of 70% in Q1, and we have a long-term financial target of 30%. I think the numbers we've delivered year to date reinforce our long-term view.
Okay, great, because Amal from Carnegie's pushed a little bit more on this. I think in terms of anything to do with the new games releases compared to the previous older games, can we say anything that is better or worse than expected or beforehand? What are the trends in terms of those game releases and their performance?
We release one game per week, so it is difficult to give a general answer to it. Naturally, over time, some releases are a little bit better than expected, and some are perhaps not as good as expected. I haven't seen any extreme outliers in either direction. We're broadly quite happy with the releases we've had, and as I mentioned, I highlighted a few sort of 20 minutes ago that we were particularly happy about in terms of how they've been received by players. I think that's moving along according to expectations on an overall basis.
Okay, and then Peter from Earphones asked, can we expect any proactive regulatory actions such as further geofencing for operators lacking local licenses on regulated markets?
We have already geoblocked any unlicensed operator in markets where we hold a license, such as the UK or Sweden, meaning that whatever ring fencing we're referring to here is something that we did from day one. I don't see a change in that. Obviously, if there are regulatory developments, we will always adapt to those, but there's nothing on the horizon that calls for change at this point in time.
Okay, one for you now, Per, and this is from Amal at DNB Carnegie again. How are the non-recurring costs split between the line items as both external costs and personnel expenses increase significantly quarter- on- quarter? Per, do you want to take that one? I think, Per, you're still on mute.
If I understand the question right, we're talking about the one-off cost?
Yes, the non-recurring costs. This is effectively the items affecting comparability in the question.
It's all in the other external, so nothing in personnel on that one.
Okay, as we've commented, that's mainly related to the IPO advisory costs.
Yes.
Okay, again, reminding everyone, if you have any other questions, please do post them in the box there and just click "Submit" and provide your company name and your own name. I'm just looking through to see if there are any more here. Give me one second. Martin asked the question, Chris, what is your view on the outlook for the daily average bet size? Just to put this in perspective next to the strong bet volume numbers. How do we see the average bet size versus the number of rounds played? Chris, that'd be for you.
The bet volume, just to be clear, the 72% growth was the number of rounds. Bet volume is something that can vary short term, both because you have different average bet size in different markets and also over time people tend to bet a little bit more and a little bit less. That is something which is difficult for us to forecast and give any detailed guidance on. That is coming back to my comment that I said before that for us it's more important to follow the daily rounds and make sure that we can increase the daily rounds no matter whether the short-term development in average bet size is slightly up or slightly down.
Okay, and then two questions from Nadir at LC Capital Management. Start with the first one, and for you, Chris. In the European market, we've seen increasing regulatory scrutiny over online gaming. How does management view this trend of intensifying regulation across Europe? Given Hacksaw AB's presence in multiple European jurisdictions, will it pose challenges to your business?
A very broad question. Generally speaking, changing regulation can be two things. One can be that the country which currently does not have a regulation introduces a regulation. The impact of such development is obviously a direct factor of what the regulation would include. It could be a strict or a loose regulation, so it's difficult to comment on a general basis. The other is that you have a country with an existing regulation who changes it, and we've seen historically countries who, for instance, increase the tax rate, which has a negative impact on the market overall. We've also seen countries in Europe that loosen up the regulation such that they change the maximum bet size or the minimum spin time to the better in order to have a higher degree of channelization.
In other words, the % of the market which goes through the licensed channels, meaning that it's difficult to give a general answer because it depends on in which way the regulatory winds would blow in any specific country. Generally, as I've said before, for us, we work under the assumption that a larger part of the world will be regulated tomorrow than today, and we are fully prepared to adapt to any changes in regulation no matter whether they're in Europe or elsewhere.
Okay, and the second part of that question, Chris, from Nadir is the company's margin has seen some recent pressure, primarily due to rising operating expenses and increased software license fees paid to third-party studios. How do you view the profit margin outlook going forward? Do you expect further margin compression, and what initiatives are in place to stabilize or improve profitability? I think there's a tag to this, which is could you share your capital expenditure plans for the coming quarters?
Sure. When we talk about our EBIT margin, I think it's important to understand that when we have software license fees paid to third-party studios, the change in EBIT margin is a mix effect. It's a matter of if we have a larger % of revenues coming from OpenRGS where we pay software license fees, then by definition the mix effect will push the margin down slightly. Do remember, when that happens, we get revenue growth and we get higher EBIT in EUR millions, and we have stronger cash flows. From that point of view, a slight margin decrease is most likely going to be received very positively, I should think so. As a result, there are no initiatives in place to prevent that from happening. Quite the opposite. If we can grow third-party studios, that's great for everyone.
In the case that we would have a margin that would be declining due to increased costs across the business, that would be a different story, but that's not the case. When it comes to capital expenditure, we have very limited CapEx if you look at the numbers historically, and there is nothing as of today that would make us believe that we would have a significantly increasing CapEx going forward. There's no investment debt or anything like that that we need to cater for.
Okay, another one for you, Chris, from Stefan at MBAM, which is can you please provide a bit more color over the 30% long-term growth rate? Is that a CAGR for the 2024 to 2027 period, and what are the key components of the 30% target?
The 30% long-term growth rate is what we have as a target beyond three years, so it's not a CAGR. It's the growth rate beyond three years. Key components, I think that that's very much almost all of the above that we've talked about. It's a combination of the performance of the back catalog games with the addition of new games. When I'm talking about in-house games, it's the growth from the platform that we just talked about. It's increasing monetization through both developing our relationships with existing customers and attracting new customers over time, and it's about those customers venturing into new markets that are opening up, Pennsylvania, for instance. It's a combination of all of those.
Okay, and just worth a clarification, Chris, we've got a few questions here about providing any guidance on future dividend distributions. I think it's probably worth just taking that one because it's come from a couple of people. Any guidance on future dividend distributions?
Not more than what I stated in the financial targets.
I think the important thing to note here is these are targets rather than guidance, and we've given that indication as a combination of potential share buybacks and dividends. Otherwise, there's a question here from Oscar at VIP Asset. You mentioned in April some player activities were impacted by tariff and macro uncertainties, but as I understand it, the company's business is mostly virtually accessed through online platforms. Can you please clarify on how these macro events impact the business?
Yeah, good, Oscar, that you picked that up so I can clarify. Just to be clear, we're not directly impacted by tariffs, but we are indirectly impacted by overall macro and geopolitical uncertainties because it impacts the consumer behavior as it would in any other business. You're correct that the business is a virtual business through online platforms, so it's more about the consumer behavior following such events.
Okay, another question from Oscar. Another listed iGaming B2B operator is facing cybersecurity and IP piracy issues in the Asian market. Is this a potential risk for your business as well?
Not very limited.
Okay, just a reminder everyone, if you have any remaining questions, please do post them in the box on the screen. Oscar had one other question, actually, Chris, which relates to the reason for the IPO. The question is you have a very strong cash position and no debt. It's also quite rare to see a company just recently IPO'd and commit to such a high shareholder return, it seems there's no need to raise capital. The question then is what are the reasons to go for the IPO?
Correct, there's no need to raise capital, and we didn't raise any capital in the IPO. We have no intentions to do so now either. The reason for the IPO was very much based on the owner's intentions from the outset to, over time, create a liquid investment from some of the early believers. As a result of that, we did a relatively speaking small IPO in order to allow some of the shareholders to sell a little bit of their stock and also for the existing shareholders to be able to both buy and sell depending on their own personal preferences over time.
Okay, I think that brings us to the end of the questions. I don't see any other ones posted here, so I'd just like to say a big thank you to you all for your questions and your interest. That concludes the Q&A session for today. If you have any further questions or would like a follow-up meeting, please don't hesitate to reach out to us using the contact details included on the last page of today's report. Thank you for your interest in Hacksaw AB. We're on a roadshow for the next few days and hope to see as many of you as possible. The Q3 results will be published on the 4th of November, so that's it for now. Thank you for your time, and we hope you continue to enjoy the summer.