Good afternoon, everyone, and welcome to the conference call to present MTG's results for the second quarter of 2022. This call is hosted by our CEO and President, Maria Redin, and our CFO, Lasse Pilgaard. I will now hand over the word to Maria, our CEO.
Thank you, Anton, and hello, everyone. I suggest we jump straight into it and go to the highlights of the quarter. Q2 has been a very busy period for us. We continue to focus on driving growth, which means scaling new games as well as launching new content and events for players in our established games. This has helped us to deliver 7% pro forma year-over-year sales growth, and organic revenues were up 3% on a quarter sequential basis, which demonstrates the strong portfolio of our evergreen IPs. Our portfolio of new games has also continued to grow, and we saw record revenues now in June. On the back of increased revenues, we reported record high adjusted EBITDA with a 26% margin, along with a very strong cash conversion of just over 60% for the first half of the year.
We expect to have taken market share in the quarter with the overall 7% pro forma growth that we reported. The market visibility is low, but if you look at the external market data on the growth in our purchase spending, and we look at that in Europe and North America in particular, which is our main market, it indicates that the market has declined year-over-year while we actually have been growing in the same territories. On the corporate side, Q2 has been an historic time for MTG. We successfully closed the sale of ESL Gaming, which allowed us to return around SEK 3 billion to our shareholders through a mix of a redemption share program and the ongoing share buybacks. We've also significantly clarified our corporate structure by rolling up the minority ownership of EHM to become shareholders in MTG.
For those of you who may not be as familiar with our background, EHM is a company jointly owned by the founders of InnoGames, and they have now become our largest individual shareholders in MTG AB. Last but definitely not the least, we also held a streamed Capital Markets update in June, which allowed us to share with our shareholders and investors our strategy, vision, and ambition as a pure-play gaming group. We also there introduced to the world our Flow platform, which provide granularity on our financial management and thinking as a pure-play gaming group. The Flow platform is what we call the common layer of skills and competence hub that we're building together with our companies and also helps them, the companies, to accelerate.
As we mentioned during the Capital Markets stream, we're currently focusing on four key areas, user acquisition, business intelligence, ad monetization, and cross-promotion. We are making steady progress in these areas, and we're excited to bring you updates as we move along on the development. Let's start over on the corporate side so we don't miss any important things. Where I was on the Flow platform, which we call the common layers of skills, and where we are building based on the skill sets that we have, on our platform and already in the existing companies, we elevate that on a group level to help our companies accelerate and become stronger together and leverage each other's capability. Where we focus on is user acquisition, business intelligence, ad monetization, and cross-promotion.
This is something we want to share with you as doing progresses along the way because we do believe this will help us accelerate both growth, and hopefully we can invest more smartly as we move forward. Moving on then on the next page, let's look at some of our operational KPIs, which shows that we are on the right traction in our evolution as a gaming group. At the Capital Markets Day, we talked a lot about building relevant reach, which is something that we are passionate about. We are therefore very happy that we have 6.7 million daily active users in the quarter, which was a big increase from the 4.3 million in Q2 that we had last year and reflects our growing portfolio of companies and games. We also talked about the importance of diversifying our revenue streams.
63% of revenues came from in-app purchases this quarter, and we are growing our in-app advertising related to revenues to 26%, and also 11% comes from platform fees in the quarter. If we look at it sequentially, the number hasn't really changed significantly from the first quarter, but it shows a very clear progress of improvement to the diversified revenue stream that we had last year and where we are today. Last year, in-app purchase revenues represented 93% of our total sales. Finally, also, when we look to our mobile revenue, 73% today of the revenues comes from mobile, and we generated 42% of our sales from our top three games today, which is a significant improvement from the 66% that we had last year. That means that we are reducing our dependency on any one single game title.
Moving on and looking at our revenues. As I mentioned earlier, we increased our market share in the quarter, and our sales went up 7% pro forma year-over-year in Q2, while the reported sales were up 70% year-over-year in the same period. These results showcase the strength of our evergreen IP and the diversity of the games in our portfolio. In particular, the games from Ninja Kiwi and PlaySimple, our most recent acquisitions, continue to drive the growth on the back of their strong performance. The growth of 7% is within our growth range that we previously provided to you in the Q1 call and takes into account also the changing market conditions that we see around us. On an annualized basis, we report the net revenues in krona.
They were up 76%, and that is driven by the consolidation of our recently acquired and strongly performing new companies, PlaySimple and Ninja Kiwi, as I just mentioned. On the organic sales performance and development, we report a 7% decline in the quarter, which is an improvement compared to the 9% decline we reported in Q1, and we can see that things are moving in the right direction. On a sequential basis, the organic portfolio grew 3% from Q1, and we saw a small year-over-year growth also now in June, which we're happy to see, which means that we're going into the second half of the year where we expect to return to organic growth for the portfolio.
Looking also then at the big picture, we do expect that our growth rate of 7% has helped us outperform the overall gaming market in the quarter, and therefore also for MTG to take in market share. Moving on then to drill down into our franchises. As we did mention in the capital markets stream in June, we will report game franchise revenues now going forward. We do this because we want to help you and the market stakeholders to understand how our games are performing. At the same time, we also want to emphasize the diversity and relevance of our different genres that we have in. Also as a side note, when you look at these numbers, it's important to note that the franchise revenue data that you see there are actually in reported currencies, so they are not currency adjusted.
The growth number, as you see 7%, is FX adjusted. Looking at them, the Word Games franchise overtook strategy and simulation when it comes to total revenues in the quarter, being our biggest franchise for the group. Despite the small sequential decline that we saw in the quarter, it is performing on a very strong level. The main growth behind it is our anagram franchise, which has the two games, Word Trip and Word Jam in particular. It's important to remember when you look at the game's performance and the franchise development is that it has performed extremely well and we also in Q1 increased our marketing significantly. Sequentially, it's coming from very elevated levels of revenues. Looking at it in the other way, year-over-year, we're seeing a 44% revenue growth, which we're very happy with.
Also when you look at the performance of these games in the quarter, we do continue to expect them to be one of the main growth drivers for the group going forward. When it comes to our strategy and simulation genres, it continued to be stable revenue generator for the group, and is primarily, of course, driven by InnoGames. We invest in to scale Rise of Cultures, where we're seeing positive effects from the new content launches that we've done. In addition, where we have also added video ads now visible for all customers in the game. Further, with our largest game, Forge of Empires, we are continuously working with event calendar to optimize the player engagement, as well as work on initiatives to optimize the retention rates of the game.
The Tower Defense franchise continued to perform very strong in the quarter, and that's predominantly thanks to a very successful launch update that we had for Bloons TD 6 in April. The racing franchise revenues were up in the quarter, where we actually had the highest revenue since Q3 last year. This is also thanks to a successful update for the Formula 1 economic reset that we had with the new Formula 1 season in May. Moving on then. MTG as a pure play gaming group, what does it mean? I mean, in theory, scaling of new games is one of our key priorities to drive growth, even though we said content update is relevant for the existing games, but also to make sure we extend our franchises with new games is an additional and important growth driver for us in the future.
We're currently scaling five new games, with Rise of Cultures being the largest individual title for us, and we're therefore very happy to see that the game grows revenues in Q1 with 30%. As you further see on this picture, we have also new games in all our different franchises, which again puts one of the most important growth drivers for the second half and onwards, which is scaling existing game franchises, of course, but equally important, scaling new games. In addition to the games that you see here, we also focus on adding content as well to create the user acquisition. Our studios are also working on a healthy pipeline of upcoming titles across a wide range of genres.
That also includes our new initiatives around the NFT games, where we're having Kongregate and our two titles that they're about to launch, along with also other yet not identified game launches in our different portfolio companies. Moving to the next slide. As I mentioned earlier, one of the focus areas is to ensure that we have a balanced mix of revenues that can improve our resilience to market fluctuations. Today, 63% of our revenues come from in-app purchases. This figure has become more balanced during the last twelve months, primarily because, of course, the consolidation of PlaySimple, which generate most of its revenues from advertising.
Also because we're adding advertisements into games that historically and predominantly have been using in-app purchases as a revenue source, and we were seeing that we can equally actually benefit from advertising for the players in the games without actually losing any player engagement. Advertising revenues in total represented 26% of our total sales in the quarter, with the remaining revenues made up steadily growing from third-party platforms like Steam. This revenue type is of course coming from a very low level, but it's an important part of the future, and several studios are exploring opportunities to add their games to new platforms over time and extend their reach.
On the user front, our monthly active users were slightly down compared to Q1, with daily active users more or less flat quarter-over-quarter, which reflected a number of factors, which include in part the traditional summer seasonality, with the summer coming and also the heat wave coming across here in Europe. People are traveling more and not being close to their devices in the same way. We're also seeing then on the macro level, ongoing adjustments to post-pandemic new normals. In the same way also with that low visibility that we do see on the market with high inflation rates, that could possibly also have reduced some of the player engagement that we see.
If you take that into account and we see where we ended the quarter, we're still very happy with the 6.7 million daily active users that we have in the quarter playing our games. That is a big increase from the 4.3 million that we had in Q2 last year. That really reflects our growing portfolio and companies with strong gains. With that, I would like to hand over to you, Lasse, and take us through on the financial part.
Basically, starting off on EBITDA, we do see the benefits of being part of a larger group now or being a larger group. We delivered a strong quarter on adjusted EBITDA of SEK 357 million and a margin of 26%. In the old definition, this would have been a margin of 27%, which you can then compare to the 25% that we reported in Q1. A 2 percentage points increase. The earnings growth corresponds to a 75% increase year -over -year and a 4% increase on a sequential basis. These results reflect a strong performance across the portfolio, with especially Ninja Kiwi maintaining the high margin again this quarter. Further, as mentioned, this also reflects a quarter where we tactically adjusted UA investments from what was originally planned. I will comment more on this on the subsequent slide.
Lastly, commenting on the difference between reported and adjusted EBITDA for the quarter, the only two corrections that we have done are, one, non-recurring bonus structures, which goes back to the PlaySimple bonus, where we negotiated a correction in the purchase price at the time of acquisition, and hence taking over a bonus liability that we needed to fund over the next three years, including the year of 2022. Hence, this level will continue in the quarters to come at an approximate rate of SEK 15 million per quarter. Further, we adjusted for reversal of transaction costs related to ESL that initially was booked as an administration expense in Q1 and has now moved to a non-recurring M&A item. Turning to the next page, we will look at UA spend, where we again managed to maintain a high investment level, although down from the elevated Q1 levels.
Our user acquisition spend landed at SEK 500 million for the quarter, the second highest month we have had, representing 36% of revenue. The sequential decrease is primarily driven by the very elevated Q1 levels that we have from some of the larger games, where specifically Rise of Cultures, Word Jam, and Word Trip were very high in Q1 and has come down to lower levels in Q2. Investment in new games have remained stable in Q2 versus Q1. At the Capital Markets Day, we guided long-term levels between 39% and 42%, although with variations in the quarters. We are seeing some of that variation between Q2 and Q1.
We've moved from being at the high end of the interval to below the interval this quarter, which is driven by the general seasonality, and that we took deliberate decisions not to spend the full market budget in this quarter. We are seeing some softening in the eCPMs, which over time should make it cheaper to acquire customers, which then we need to put into the context of seeing what happens with the customer lifetime value across the different games. That equation, of course, we are monitoring closely to see if we want to spend more or less. Looking forward, as you know, we're not guiding on UA spend quarter -by -quarter. It will always fluctuate, and we have an ambition to spend as much as we can as long as the return on investments meet our threshold.
For the actual spend level, I want to refer you to the guidance we provided as part of the Capital Markets Day, reminding everyone that Q2 and Q3 typically are slower months than Q1 and Q4, given the cyclical media pattern that exists. Lastly, from my side, turning to cash conversion, which is also a new measure for Q2. We delivered 61% cash conversion for the first half year of 2022 as a result of strong operating cash flows. Cash flow from continuing operations before taxes and changes in working capital accounted for SEK 678 million for the first half year. Free cash flow ended up at SEK 426 million, reflecting a 61% cash conversion. Year -to -date, the group has used SEK 216 million in the quarter.
Year -to -date to fund earn-out payments and hence delivered a free cash flow after earn-out payment of SEK 210 million for the first six months. At the end of the period, we had SEK 8.182 billion in cash in MTG and are currently carrying no other debt than earn-out liabilities, which totals SEK 2.498 billion as per the end of the quarter. Please see the new table on page 16 in the financial report showing liabilities per year split across cash and shares. Please keep in mind that on top of that, SEK 2.7 billion was paid out as part of the share redemption program shortly after the end of the quarter.
We're not guiding cash conversions for the remaining part of the year, and hence I'll point towards the long-term guidance of 50%-60% that we provided to you as part of the Capital Markets Day. Back to you, Maria, for summary and outlook.
Thank you, Lasse. To wrap it all up, we do expect MTG to outgrow the market in Q2, and we do expect this dynamic to continue in the second half of the year, given our strong portfolio. This is how key games continues to scale, more updates for our public titles to be launched, and of course, that we also get into easier comps. Our results in the quarter showed the strength of our group. This, as we combined strong top performer growth with higher stability and as Lasse just mentioned, also high cash conversion and cash generation. Further, Q2 has been a milestone quarter for us as we completed ESL sale, and we're delivering on our commitment to distribute at least 40% of the net proceeds of the sale back to our shareholders.
Last but not least, we also have a strong balance sheet, and we continue to look for value-creating M&A opportunities that will amplify our portfolio and the skills and expand our gaming village. Looking forward, we do believe that we're well-positioned with our strong portfolio of evergreen IPs and new games to be launched in the pipeline. Therefore, we do reiterate our outlook, and we expect the organic growth for Q1 2022 to be indicative for the full year. In terms of profitability, we do expect to deliver a long-term EBITDA margins of around 23%-25%. As Lasse just said, free cash flow conversion levels around 50%-60%. All in all, we're very happy with our position, and we're happy to see us continue to evolving the group and take it the next level on our journey.
I hope you will also follow our progress as I look forward to talking to you soon. With that, we are ready to take your questions.
Thank you. As a reminder, to ask a question, you will need to press star and one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. This will take a few moments. Thank you for standing by. The first question comes from the line of Martin Arnell from DNB. Please ask your question.
Good afternoon, Maria, Lasse, and Anton. I hope you can hear me.
Loud and clear, Martin.
Perfect. Thank you. I just want to start asking you on this lower than initially planned marketing investments in the quarter. Was that the decision that you took sort of halfway in, or can you share some more color on why you took that decision?
Yeah. But I mean, to be fair, I mean, the campaigns are running on a daily basis, and it's an automatic process that it sets the profitabilities of the campaign. What we do is always to make sure that we optimize how much can we spend based on what we believe the profit potential is on back of that spend. That shifts on a day-to-day basis. Of course, the further in you are in the quarter, the more visibility you have. But it's not. It is something that you work with on a daily basis, not on a sort of monthly or quarterly sequential basis. It's not the first time that we have scaled down marketing, and it's probably not the last time.
Also in Q1, it was extraordinarily high, which is something we should also remember that we really saw lots of good marketing opportunities. Then we invest. I think the way you should look at it is we will always be prudent. We will always do increase in scale-up or scale-down based on the right profit potential on our marketing investments. On a good note, when you look at the investments on the new games, we continue to see great opportunity to scale them and do marketing investment on back of the new games. I think especially then, of course, Rise of Cultures, which is extremely important because that is also one of the growth drivers that we see in the second half that will accelerate our path into organic growth for the group.
Maria and Lasse, is it fair to say that you have not changed your plans for the level of UA spending for the second half at this point, considering your reiteration of the guidance?
That is correct. Remember also, UA spend always have a lag in terms of when you see the revenue effects. Investment is done in Q3, for example. You will start basically see the revenue effects from the quarters onwards, and typically you have between one and two years payback until you're neutral on that investment. That's more how you also should think about the timing of translating UA spend into revenue.
Yeah. Okay, thanks. Did I hear you correct? I think you said that you had stable investments for new games, but the lower UA was mainly for the old games. Was that correct?
That's correct. If you look at the absolute level of investments in the new games, it's remained fairly stable between Q1 and Q2. For some of the larger established titles, especially Forge of Empires, Crossword Jam, Word Trip, we have very high levels of investments in January and February that already actually in March came a bit down, and that's more the, you say, levels that we are seeing also continuing into Q2.
You also commented in the report that you returned to organic growth in the month of June when Ninja Kiwi was included in the organic calculation. It would be very helpful if you could just comment if that growth continued in July?
I think it's too early to comment on July in terms of also giving Q3 data out there. But I think it's more important to look at the sequential development between Q1 and Q2, where we have 3% FX-adjusted sequential growth. We do have now a stable and growing organic portfolio, and it's more a question of what's the comp in terms of whether it's year-over-year growing or not.
Okay. My final question is on your M&A pipeline. You mentioned that you're reviewing several potential targets. What can you say about sellers' expectations in the last months?
Again, I mean, we talked about it at the Capital Markets Day, but also here. I mean, it's difficult to comment on any individual discussions. If you look in general, if you have a great gaming company, I mean, you want to get fairly paid. That is of course, when you see the valuations on the public markets, which has changed. Of course, there could be a discrepancy between the private and the public market. I think when we are looking at M&A, we're making sure that it makes operational sense, strategic sense, and financial sense. That is a dialogue that you also need to have with the founders because we wanna find great companies that can positively contribute to both our growth, but also could bring capabilities onto our Flow platform.
Okay. Thanks, everyone. That's it for me.
Thank you.
Thank you, Martin. Now we're taking our next question from Rasmus Engberg from Handelsbanken. Please ask your question.
Yes. Hi, can you hear me?
Yes.
Did I understand it correctly that you still think that you will reach around 10% pro forma organic growth for this year? Is that still your expectation?
Yes, that's correct. We still expect to have that ambition.
Okay. Does that sort of factor in that the market dynamics change or is that sort of mainly up to you to deliver on?
No, but if you go back when we did announce it back in Q1, the news expectation was a 5% market growth. Now we've seen a decline in market in Q1 and declining market in Q2, which of course is not helping sort of you're not getting the boost from the overall market growth, which means that you need to take market share to deliver that. I think what you're seeing us now in both Q1 and Q2, that we outperform the market. Of course, overperformance versus market growth needs to be higher if the market doesn't come back to growth in the second half of the year. I think that is the unknown that is difficult for us to sort of forecast. When it comes to our ability to outgrow the markets, we feel very comfortable.
All right. I had a question for Lasse. If you could, can you provide some sort of guidance on where amortization and CapEx would be? I think there was a huge increase in amortization of game development intangibles in this quarter compared to the previous one. Do you have any sort of guidance on either amortization or preferably both that and maybe a bit on CapEx as well?
On CapEx, we have been fairly stable on the levels also communicated at the Capital Markets Day. There you're not seeing the same fluctuations, a little bit up in Q2, but not the larger fluctuations. You are right that both in Q1 and Q2 we had elevated depreciation levels, primarily driven by Kongregate, where the idle portfolio that has stopped at the previous levels in terms of revenue after COVID-19 did do a decline. We basically in Q1 and Q2, you could say, cleaned up the balance sheet to make sure that also was reflected there in terms of what's actually the revenue potential from them.
Basically, if you look at our, you could say, depreciation schedule going forward, it will more be Q4 type of levels as a percentage of revenue that you should expect.
All right. Thanks a lot.
Thank you. Now we're taking our next question. Our next question comes from the line of Fredrik Skoglund from FE Fonder AB. Please ask your question.
Hello, everybody. I have a question on performance marketing in general. Every day we see more and more evidence of people scaling back on marketing, especially for loss-making startups. Could you elaborate a little bit about that and with your experience from marketing and TV and advertising, how that is likely to play out going forward and how that could impact you in the future?
Yeah. No, I think it's gonna be interesting times ahead, potentially on the CPI levels, cost per install. I think that's the one thing that when you do your ROAS calculations, which is return on ad spend, which defines how much you can invest on a profitable level, that could actually potentially be an opportunity for us. As Lasse mentioned, we do see a slight softening on the eCPM level. The flip side of that is that you also then see lower potential cost for acquiring the customer because we spend less per customer in advertising. I think there are different sort of market metrics that can actually work in our benefit that would help us do more efficient marketing going forward.
Of course, I mean, when we run marketing campaign, everything is optimized, and that is also one of the benefits of us now rolling out the Flow platform to all our portfolio companies, so that you can actually add the same strong system that we've been building in InnoGames to all the companies, which will sort of simplify and optimize the much faster decision processes. We can actually benefit when we see these opportunities in the market.
Okay. Thank you. Also a follow-up question just on acquisition in terms of if you can elaborate a little more what kind of potential capacity you have for acquisitions over the next couple of years?
Yeah. In terms of capacity, that's you could say very much down to the scalability of the different channels or how much marketing spend can you actually put through and still receive the conversions and kind of return on investments that you would like to see. It's a difficult question to answer because it depends on basically the eyeballs out there and the competition that we're gonna have for it.
I think as Maria also mentioned, if you go back and, for example, look at what happened in the early days of COVID. If you go back to March, April, where we for that period in six months ahead had very high ROAS, it wasn't due to increasing lifetime value of the customers, it was due to decreasing CPIs because all our competitors, which is also IKEA and the likes, withdrew basically their marketing spend, and that meant we could spend a lot more without seeing higher costs. Basically a click became relatively cheaper, and given that the conversion was not lower, we basically got in a lot of customers at very attractive return on investments. It's difficult to put an actual number to it, but of course we are fairly ready when and if this would happen.
The only question that we are monitoring very closely is there also some impact on the customer lifetime value? Because of course there's also a macro environment out there that is determining the fact that a lot of competitors are cutting their spend. It could be that the spend on games will also be adjusted. That's the uncertainty you always have that you need to factor in.
Okay, thank you. That was very helpful. Also on the actual M&A potential, if you have some SEK 5 billion in net cash now and going forward in terms of M&A, how fast do you think you will spend those money?
That's also as impossible to say as the marketing spend one. Of course, we have dialogues. We are looking. It's not gonna sit idle on our balance sheet the next three years because that basically doesn't make sense from a capital return point of view. I'm not gonna give you either a day or quarter where you should expect large M&A announcements.
Okay, thank you.
Thank you. Now we're taking our last question. Please stand by.
The last question comes from the line of Oscar Erixon from Carnegie. Please ask your question.
Thank you and good morning, guys. A couple of questions from me, starting with the market. You didn't wanna sort of comment on the pro forma growth guidance here, but you reiterated it. You seem confident on outgrowing the market. I think previously this year, and I guess some things have happened since, but you've talked about mid-single digit market growth, I believe. Do you have a sort of updated view on market growth here in 2022, please?
Hi, Oscar. I think what we said in the Capital Markets Day is for the sort of next coming years, we do expect our addressable market, which is on a mix of in-person North American and Europe , the browser, and ad revenues to be sort of 5% range. Then we believe in our guidance, 5%/7%- 10%, that we will then beat the market accordingly. When you look at short-term, as we said, I said, I mean, it is low visibility. You see now in Q1 and Q2, the market has been down. If you go back to the most recent official data point, I mean, ad usage, I think mid-single digits to your point in sort of Q1 for the full year.
I would probably expect it to come down a little bit. The question is how much and what can we expect in the second half of the year? That's a little bit short term, the unknown. What I do feel comfortable with is that we're gonna continue to outperform the market. I think if we look at our plans, we feel good about them. Also when we look at the games updates and the events we will do and also scaling the new games, and that's why we're reiterating sort of our outlook.
Great. That's very helpful. I mean, assuming market growth is a bit lower, let's say, I mean, flat for the year, with some improvements implied in H2, do you expect the Q2 result here to be sort of an indication of how it might look for the year in terms of margins? Your growth guidance might come down, but then most of the margin guidance should come up. Thank you.
I think we in Q1 we said that second half of the year should be stronger than first half of the year. We don't see any, you see, reason that should change. If you're looking at what we've done already first half of the year, and we basically just assume that we maintain this level throughout, I think mathematically we will be up to 7%. Given that, and given that we still expect to outperform in second half versus first half, and first half wasn't a great market year either, I think that's probably the easiest way to conceptualize why we still believe and reiterate the guidance on top line. Then on margins, of course, we wanna spend as much of our marketing spend that we can, as long as we meet the threshold of our investments.
The marketing spend we will not spend, potentially not spend at the end of this year will not really have an impact on this year's revenue, but more next year's. Of course, I think that's gonna be more the determination vis-à-vis whether we're gonna deliver on the top line this year.
Great. Thank you. Then, on organic growth here in Q3 and Q4, if you could just help me talk it through a bit. I mean, if I'm not completely mistaken here, I think the word segment grew by, was it 70% pro forma, including FX, that is. Could you talk a little bit how that will impact organics in Q3? Because I think PlaySimple turns organic from August, so two months in Q3, for example. Some help there would be useful. Thank you.
Yeah. I mean, you're right to say that the main growth drivers we've seen and that shows also the strength that we could do strong M&A. It's been the, I mean, the key event at PlaySimple that's been having a very strong growth. I mean, PlaySimple grew 44%, I think, pro forma FX adjusted in the quarter under Anagram brand or the Word franchise.
If you look at it going forward, what we also said in Q1 is the shift going into organic growth is also that we see then the second half that with the new game launches, Rise of Cultures in particular, and also the content updates that we're having in our existing games portfolio, you should also expect what we call the, I hate to say the classic portfolio, but the more the older companies and their games that we've owned should also come back to. It is a combination of growth throughout the portfolio that should enable the total sort of growth level of the Q1 range and also the organic growth. It's not just by us consolidating PlaySimple that we turn into organic growth.
Maybe just to add, you have some of the details now that we're disclosing the revenue by franchise on-
And also the organic growth. It's not just by us consolidating PlaySimple that we turn into organic growth.
You have some of the details now that we're disclosing the revenue by franchise on slide six and in the financial report, because there you can see basically at the current level we are at now with the franchises. If you were comparing them with, for example, Q3 last year, Strategy and Simulation is a good example, then we would at this level, if we deliver that again in Q3, grow quite significantly. Q4 last year was very strong. Again, there were some lockdowns there. So again, I think our focus in the communication has been very much on the sequential growth that we keep seeing that in our portfolio because that's really the health of the portfolio.
Whether it's gonna translate into year-over-year growth or not will really be determined on what happened last year, which was really impacted by more external factors than anything else.
Perfect. That's very helpful. And then just finally, question on D&A and financial cost. I guess you touched upon D&A partly, but I mean, first of all, D&A, will it completely normalize in Q3 and Q4, i.e., no sort of extraordinary D&A for Kongregate in Q3 and Q4? And then secondly-
The financial costs here, which were very high in Q2, are there any cash costs at all in that, or is it purely sort of 95% earn-out related revaluations and discount interest? Thank you.
Yeah, no, it is the earn-out revaluations that is the major impact here. You are right in terms of the depreciation schedule that we are back to normalized levels in Q4.
Great. Very clear. Thank you very much. Over to you.
Thank you, Oscar.
I think we had a question here.
Yes, we had a question in writing that comes from Thomas Singlehurst at Citi. There are three questions, so we will start with the first one. It looks like there's quite a wide variance by genre. What underlies this? Is there a massive difference in types of players between these cohorts or word games and/or tower games naturally more resilient, or is it a question of them being more ad funded in the short term?
No, good question. I think it is fair to say that the genres are different. The audience is different. The revenue metrics are a little bit different. If you take the Word Games, it's probably the most casual end of our spectra, and especially when you look at the anagram games, Word Trip and Word Jam, which are the most casual type of games, and I think they have been performing very, very strong in this environment that we see, which we are of course very happy with, and they're also bringing diversification of revenue streams, adding much more ad revenues in. Then it also comes to, I mean, what we see in the tower defense genre, which is actually slightly more sort of it's a mix, we can argue, between casual and mid-core.
What we've done there and what we see is there is when you launch new and strong content updates, you really drive player engagement. I think that the April update we did within TD 6 is it just got an amazing sort of attraction from the streamers because it was really positively perceived and engaged the players and also, of course, drove the revenues. What it tells you is A, why have we focused on the different genres, because we do believe it gives us a good diversification. It also means that you cannot today, when you look at them, you cannot cross one genre to necessarily the end of the spectrum on the other end. If you start with anagram board games into the city builder, which is maybe the most advanced game that we're having.
That's also why we believe that the M&A fund is so interesting because you can actually add relevant companies in between here and create your own audience reach and make sure that you can create a customer journey within your audience reach. Also make sure that you diversify your revenue streams where you're in the PlaySimple games have more ad funded revenues. In, for example, the Strategy City Builder franchise, you have more in-app purchase driven, even though we're adding ad revenues in there, which is very interesting. Then Tower Defense is a mix between premium revenues and in-app purchases. I think you're right, and it all serves a purpose, and it brings us a diversification that we want as a group.
Okay. Thank you. The second question from Tom is, did you quantify the difference in growth trend between in-app purchases and advertising in the quarter in underlying terms?
Yeah, I can answer that. No, we didn't. I think the closest you can get is basically again, looking at our franchises because of course, PlaySimple, and hence the word game franchise is predominantly ad revenue, and the majority of the revenue coming from the other franchises is in-app purchase. That probably gives you the best indicator of the actual growth. As a last question, can you give us some firm guidance on where you expect the share count to be at the year-end as well as the average for the year as a whole? I think we'll come back with that on a written answer, in terms of giving you the details.
We don't expect anything that hasn't already been announced in terms of basically, you could say, increasing or decreasing shares from some of the buyback ongoing. I think, let's come with the detailed number to you by email. Thank you very much. It does not look like we have any further questions at this time. Operator, over to you, and thank you.
That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day. Dear speakers, please stand by.