Welcome to Stillfront's Q1 report. Me, CEO Jörgen Larsson, and CFO Andreas Uddman will present today. Going into the presentation, we are first some headlines of what we will talk about today. We had a promising start to the year showing an organic growth, which is something that we have prioritized, and we also managed to increase our gross revenues or gross margin up to 80% for the first time. This is very important. I will go deeper into that later in the presentation. We sustained our high UAC, which is very good news because that is driving not only growth in this quarter but for many quarters to come, both when it comes to existing products as well as that we have continued to scale Sunshine Island.
That means that short-term the margin is lower, hence as we have much higher UAC, so 21% recorded for the quarter in EBITDA margin, which is a 3% down quarter or sorry, year-over-year, but very stable quarter-over-quarter. We had a free cash flow of SEK 828 million last 12 months, which is a 2% down compared to last year. Looking a bit further into our net revenues, you can see that we are at SEK 739 million in net revenues with then 34% UA, which I think is the highest we have been able to deploy ever, and that again is good news because we have not compromised at all on our return rate on this, so that will yield further growth and margins throughout the year. So that is a good investment indeed.
If you see also on the rolling 12 months, as a consequence, the rolling 12 months UA is up to just shy of 30%. You can also see that we have small FX effects, but a negative FX effect of 1% in the quarter, so very stable revenue line there. This continued high marketing spend is important to elaborate on because that is what will fuel both growth and margins for quarters to come. We have not compromised, as I said, on our return rates, which means that this spending as well as the one from Q4 will yield results already this year, and this is the best investment we can do. Instead of investing in products where the outcome is much more uncertain and much later in time, the best investment we can do is in marketing on products with strong KPIs.
So we are very pleased and we have steered actively the business in this direction, and that is why we are very optimistic about the coming quarters and hopefully the coming years. You can see also that we have. Sorry, I'm on the wrong slide here. You can also see that we have this pattern, which is important, which is very clear on the EBITDA where we last year had a lower UAC and hence the results are going up, not the least Q2 as you saw last year.
So, I'm convinced and we see that we can have a similar pattern, and what this shows is that we are in the normal, the market has normalized where we can deploy UA at high levels since we have the products that could cope with that level of marketing and still yielding the return that we seek for, and hence that will benefit us not only for this year, we will get our money back, but it will support growth and margins for years to come.
Also, I would like to emphasize that we have, as we said at the Capital Markets Day one year ago, just over one year ago, that we will be more disciplined and more focused when it comes to our CapEx, and in the quarter we had 9.1% CapEx, so that is a significant focusing on our main franchises, and that is paying off because the ROI is much higher. And again, moving these investments into marketing instead is creating a much more predictable and sustainable high-margin business for us, not for the individual quarter but over time.
So, look then into our active portfolio, whereas we had a sequential growth for the whole group of 3%, the sequential growth for the active portfolio where we focus our efforts, where we have dedicated teams working with Live Ops and where we focus and put our marketing spend are sequentially organically up by 4%. So we have had a significant sequential improvement from the weak Q3 that we had last year, but then Q4 was the turning point and then we are increasing sequentially significant again, and I'm optimistic due to the fact that we have been able to deploy profitable and invest in marketing Q4, Q1 that we are in a very good position to continue to grow our top line with lower marketing and then we get the double effect.
The leverage or the yield is very strong, and I think that's a key thing to understand our business model, otherwise it's easy to misinterpret one single quarter.
Further, we can see, and I'm very pleased with that, that our D2C, direct-to-consumer efforts that we took on, the strategic initiative two years ago, is really paying off, so we are up by 5 percentage points year-over-year in D2C, and that is of course what is the main reason why we can increase our gross margin up to 80%, and that is good not only for the immediate higher contribution to our results, but it's also creating a higher marketability because when you look at how you can market products, you compare the average cost per new user versus how much they can contribute on gross profit level, and that's why it's a double positive effect to increase your gross margin.
And also, without having these results, our marketing would have been lower and hence we wouldn't have positioned ourselves as well for the coming quarters, higher revenues and lower marketing spend. Finally, on this one, ad bookings, we managed to increase that from 13%-14% from Q4 to Q1, and this is also supporting both gross margins, but also is an, as I've said several times before, I think we can do better here, but it's also a question of product mix and we have been able to grow the Narrative franchises from Super Free, which supports ad revenues going up.
Further and lastly, it's good to see that we continue our MAU and DAU positive development, so we have been managed to do what we told also a year ago that we would like to focus on core players that are very engaged, and that is the audience that we prioritize and the traffic that we prioritize, and we have taken out or let go with low monetizing users. You can also see finally also on this slide that the average revenue per daily active users is significantly up year-over-year, and that is ultimately a sign of that our efforts, all our game team's efforts on Live Ops is really paying off. Looking then per each of the different product areas, starting with strategy.
Strategy has been a dear friend of us from the very start of this company's life, but it also supported us through the tough last two years with high growth. This quarter, it's not strategy that is the main driver of getting into organic growth, but they are stable, and also the Supremacy franchise still is very, very strong on its 14th year with a double-digit growth. But otherwise, you can see it's a slight decrease in revenues, but also lowering the UA, the user acquisition cost by 15%, is only lowering the bookings by 2%, which shows the stability that strategy has, which is different from casual games when you put in UA and you get a much faster return.
You can also see on the upper right side here where we have some specifics for strategy shown and the very, very strong development on DTC, so more than 12 percentage points up compared to the same period last year, and that is of course one of the very clear explanations to our increased gross margin. Going over to SimRPG in action, Sunshine Island has continued to develop this trampoline launch, which we started in Q4, has continued into Q1, and you can see on the upper right side how the revenues have developed month-over-month and it continues upwards. Then, so summarizing Q1 compared to Q4, it's approximately 100% uplift.
We did deploy a lot of UA here as well, but the good thing is as we now go in stabilizing Sunshine Island on a higher level than we are now, so it will continue to grow, we produce more content, conduct more live ops, but we have a solid audience in place. Gradually through Q2 and Q3, we will have less and then significantly less UA, but the revenue will continue up, and then we go into a profitable period for many, many years to come. Just as a reference again, we expect this game will live for some 10 years or so. The previous main game in the Big Farm franchise was launched in 2017, and it's a very healthy and profitable product as we speak.
So this is why it's so important to understand when we have the opportunity to really have a one of this is one of the most successful launches that we've ever had. It's you invest and you have a deficit for 2-3 quarters then, and you increase the content of the game, and then it will be there for many, many years to come with high profitability and loyal users. Besides that, you can see that we have. It's not only about Sunshine Island, we also had a very strong quarter from Nanobit with the narrative franchises. Albion Online was slightly down, as you might recall, we had the very successful launch of the Asia server that started in March last year. Unfortunately, that was hit by the cyberattack in the summer, but it contributed strongly from March to June last year.
This year, however, we also have a server launch that will launch later, 29th of April, and we are excited about what that could bring us. Going in then to casual mashup, we have a sequential increase in both user number and bookings, and we also had the possibility to push UA significantly, and I'm pleased to see that we, after struggling for some time, now SuperFree are back to organic growth, which is very good, and it's also supporting us in increasing ad revenues. And not the least, I would like just again to show the unprecedented performance by Jawa ker, as you can see on the upper right side.
We have had, since we did the investment, 41% CAGR, which is an impressive number with very, very high margins, so it has been a very successful acquisition of ours, and the whole Jawa ker team is making a tremendous, good job in delivering this solid growth. What is now the one downer we have in this area is Storm8 that have had struggled for a number of quarters, but there is a new game on its way out going into global soft launch here in April, and that's Ellen Garden Restoration. So we have hopes that that will support Storm8 coming back to stronger numbers again. All right, so with that, I would like to hand over to Andreas, please.
Thank you, Jörgen, and good morning, everyone. I will talk about the cash flow.
We have a stable free cash flow generation over the last 12 months, and that is supporting the increased investments in UA that we have had just in the last two quarters as well. So looking firstly at just the quarter isolated, we generated operating cash flows of SEK 349 million. There is a decline from last year, however, we are also deploying almost SEK 600 million, so SEK 594 million in UA, as Jörgen talked about, and that is an increase of SEK 121 million versus the same quarter last year. In line with earlier trends as well, the reference rates on interest have gone up, so we are still supporting SEK 108 million of paid interest in the other financial costs during the quarter, which is a SEK 34 million increase year-over-year, and we paid some taxes, so SEK 53 million in the quarter.
We had a negative working capital effect in the quarter that's mainly driven by the fact that we're growing sequentially from Q4. We have an organic uplift, so we have a negative impact on receivables of SEK 64 million, and that is offset by liabilities. Easter was at year exactly at quarter end, so some banks were closed before, and we got also paid or paid after the quarter. So we generate SEK 305 million even if we manage then to continue to invest in our product portfolio. In terms of our investment activities, Jörgen touched upon that as well, we have spent SEK 158 million in the quarter. It is a, and that's an intentional choice, that's 9.1% or SEK 67 million less than we did in Q1 last year.
This is how we have restructured our investments, so we are now deploying some of our investments in UA that goes on the P&L, and we have structurally reduced the CapEx, but we're still investing SEK 158 million in the quarter, so it's not like we are underinvesting. It's just a shift of where that deployment is happening. We had some financing activities. I'll get back to that, but we did amortize SEK 109 million of our RCF during the quarter, and we also reduced actually some of our leasing costs, which goes into the financing costs as well, and that has been part of the because in leasing costs, it is basically offices in Stillfront, and we have gradually reduced the office space when we have also reduced the number of people in the customer optimization programs in 2023.
Looking then at the last 12 months, I think here's where we really see we generate a very similar cash flow versus the same period last year, so SEK 828 million is the actual free cash flow that we generated. The operative cash flow, which was almost SEK 1.6 billion, has gone down, but that is driven mainly by UA, so we spend SEK 181 million more Q1 LTM 2024 versus the same period in 2023. So that's an intentional choice. How we have, and in that as well, we obviously have higher interest costs, which is still SEK 147 million more. As you might recall, the reference rates started to have an impact sort of early Q1 but more into Q2, Q3 last year.
We also have some one-off time costs in these numbers, so still a very healthy underlying operating cash flow, but how we tackle that is then we have reduced investments, so we have now SEK 738 million in terms of that we invested in the last 12 months, and that's a fairly big decrease of SEK 227 million versus the same period in Q1 2023. And that is just how we shift. Where do we focus our investments? And as Jörgen was saying, marketing is a more sure investment because we know we get our money back. We are running these deployment models and statistical forecasting models for many, many years.
So this is just how we structurally have shifted where we put the money, but in terms of absolute cash flow generation in the business, we are still in a very healthy level even if we're supporting higher interest rate environments. And then move to the next slide. So our debt profile, we did issue a new bond in Q1, so that is part of our tactics, how we work with our debt portfolio. Even if we did maintain and re-amortize the SEK 109 million of debt in the year, we are quite stable versus last quarter, and that is purely driven that actually the FX strength and sort of the SEK decreased in value by the end of the quarter. So then you have the balance sheet effect of that sort of the closing of the month.
So we did amortize debt, but in terms of reported numbers, it is quite stable due to FX. We're still below in terms of our leverage ratio. We are at 1.95. It's still below our targets. So with that, we have also been able to go into the share buyback program, which I'll get to a bit later. In terms of our maturity profile, we are here presenting the numbers as of 15th of April rather than on the year closing of the books because we did then settle the last part of the bond that we did not buy back prior to the quarter. So this is how it looks as 15th of April. We thought that would be a more clearer view. And what this clearly shows is that we have now further than extended our maturity profile.
Our next debt that matures is in December 2025, so over- a- year and a half away. That has obviously given us a good flexibility also in looking at the maturity profile of the two bonds that we have now placed at a year between here in 2027 and 2028 in the last year. There's been a good quarter in terms of ensuring that our balance sheet continues to have strong capacity and also having a strong diversification in terms of maturity profiles. Just to summarize then Q1, you can clearly now see that the discipline in our product investments and what we deploy as CapEx, and also actually the cost efficiencies in our organization is showing clearly on our P&L, is coming through as well as that we are strengthening our gross margin by the DTC activities that we have.
That is something that will create a good operational leverage and that just shows that we can continue to maintain a good cash flow while then heavily deploying money into UA investments as we've done in Q1, but also what we did in Q4. With all this said and our good maturity profile and the available funds that we have and cash that we have at hand, we can continue to support growth initiatives in the business. We also then announced this morning that we will do a share buyback program that will start tomorrow, that we will buy back in a similar fashion as we did last year to cover the shares that we are due to pay for the acquisitions, and that is to not have any dilutions. We're buying that back and we're starting tomorrow.
There's approximately 15 million shares that we will buy back. We have one decision now that goes up until the AGM on the 14th of May, and hopefully we, if the board will get another mandate, we will continue that purchase to get up to the 15 million shares after the AGM. With that said, I will welcome Jörgen back again.
Thank you, Andreas. Just a few words to conclude this presentation then we open up for Q&A. As you have heard us say and present, is that we are happy with the development in the winter season. It's a normal winter. We haven't seen this pattern since 2019, actually, where you have higher player activity. You can acquire users with good profitability and hence build for future growth and future higher margins. That is very important.
So both that as well as the other activities that we mentioned with new features being very appreciated in our gaming communities has provided us with organic growth. We are quite certain that we will steer the user acquisition, which is completely up to our operational decisions, obviously. So that's why we are confident that we will not be on these levels in Q2, also according to the standard pattern that we have of seasonality. So very much more proof points that the market has normalized and is back to higher activity and higher UA during Q4, Q1, lower UA and good activity in Q2, and then further lower UA and a bit lower activity in Q3. But hence then we earned the money and increased the margins and cash flow in these two quarters. So we're pleased to see that we can act upon the more normalized market.
Also, we have several exciting things from the product side coming out in Q2 and later in the year as well. So that is what we would like to conclude the presentation with, and by that, I would like to open up for questions. Please.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Simon Jönsson, ABG Sundal Collier. Please go ahead.
Good morning and thanks for taking my questions. So first, on the organic growth, it was almost 0% here, - 0.2%, I think. And you said in the Q4 report that you had positive organic growth in November, December, if I remember right, and since then, Sunshine Island should contribute positively.
So my question is if this growth in Q1 is in line with what you saw in November and December, or if you have seen some kind of slowdown in parts of the group excluding Sunshine Island here in Q1.
Yes, we have positive organic growth in bookings, and bookings is the number one metric that you steer the business because the difference is obviously deferral revenues, and the deferrals will always even out over time. So we are positive in Q1 by 1% in bookings, which we also were then in November and December, as you rightly pointed out. I think we have seen a good continuous traction since November into March.
Then, of course, it's about comps as well, but if you take away the comps and just look at the operational momentum, I'm very pleased to see that we have increased the momentum throughout, and it's not only Sunshine Island. Sunshine Island contributed with SEK 40 million, but also with high UA, so it's not contributing to margins yet. But we have, as we said, continuous good traction with Nanobit. We have good traction with Supremacy grown by double-digit and Goodgame, as we pointed out. So it's actually many different franchises that are contributing to the growth, and that is, of course, also comforting for the remainder of the year.
Okay, got it. And ad revenue has also increased here quarter-over-quarter, and you also deployed a lot of UA, or at least more UA, in the casual segment.
I'm just curious, have you seen any effects from Google changing the ad bidding system here in Q1, or is that something you think could have any effect or impact on ad sales coming quarters?
Yes, of course, we have noticed that change, and I think most in the industry is not super happy with that change. Then the question is how we are coping with that, and our expert in the field, we have a Center of Excellence for Ad Monetization that works not only they're hosted by Candyw riter, but they are working with other studios as well. They have made a great job in coping with that, and that is we wouldn't have increased from 13%-14% of our bookings coming from ad revenues if we wouldn't have coped with it.
So low impact so far, but then, of course, we see the change, and we think the change is not in itself too positive.
Okay, got it. And just to follow up on the Sunshine Island, you mentioned you expected to stabilize. So that stabilization, is that on the sort of March level that you showed, or could it mean that it continues to grow a bit here sequentially?
I think it will continue to grow sequentially. And as we elaborated in the Q4 report, this is typically when you have the chance to make what I can call a trampoline launch. When you have strong KPIs supporting a massive increase or fast increase in UA, you must take that opportunity because it doesn't count very often, and that was what we saw.
Then you accept to run with longer ROAS than the 180 days that we have on average on the portfolio to take the opportunity to build that volume, and then you slow down, so you need to fill the product with more content. But still, the users that we have taken in and the yield from the invested ROAS is still coming this full year, so we will still see the effect. Then I think we will be able to deploy more UA, so it's not like we're quitting. So that means that I see that we will have a good growth in Sunshine Island in Q2 as well. Q3, the activity levels are, as I said, always a bit unclear, but then in Q4, I expect it will grow further without then UA being as massive.
And then we go over to being a profitable product and contribute to the growth, but on a higher level. And then it will be there for, as I said, our average product is 10 years or so, so live for 10 years or so. So it will contribute for many, many years. And that is what is so important to understand, that if we get up a product to maybe SEK 300 million-SEK 400 million yearly revenues for 10 years with good margins, that is something that you don't turn down just because you have one or two quarters with negative contribution, and that is exactly what we see.
All right, got it. And on the total UA that you guide for at slightly lower levels, potentially, do I understand it right that you still see significantly lower UA for Sunshine Island coming quarters?
So that is the main reason why you guide for a reduction. And in that case, should we then expect more stable UA for the rest of the portfolio?
I think that we will. It's not only Sunshine Island that will have a lower UA in relation to its revenues, but I expect it to come down slightly. It depends on how it's always hard for the 14 years that I've been running mobile gaming business, more or longer, actually. It's always a tricky thing to see or understand when it slows down, if it's in June or already late May or so. And sometimes it's not until July. So it's hard to say. And if we can deploy UA for Sunshine Island and the other products in June, I'm more than happy to do that.
But that's why Q2 is a bit hard to say, but it's not only related to Sunshine Island. It's the general thing that it's always in the normal market, lower UA in Q2 already, but even more so in Q3. So I would expect a significant lower relative number than 34 already in Q2, cross the line, and then further lower in Q3. That is what I expect.
All right, got it. And do you still expect that it could be more tilted towards casual as we saw here in this quarter?
We don't steer and think that way. We look at data. Where we get the traction, we put the dollars, so where it yields the best. Then I think I'm very pleased that we have been able to scale the products now, not in strategy, but on the other product areas, the way that we've done.
But it's not like we're taking a decision, me and Andreas, that in Q3 we should put the dollars in casual or in strategy. It's where it's yielded best, and that is one of our main competitive advantages, that we have a capability of rapid reallocation of UA to wherever it yields the best, in which territory, which products, through which channels. But having said that, again, I think that it's very likely that we can continue to grow several or most of the individual franchises that we have been talking about in this presentation.
Okay, got it. Thank you. That's all from me. I'll get back into the queue.
The next question comes from Amir Galijatovic, Carnegie Investment Bank. Please go ahead.
Good morning, guys. A couple of questions from me here.
I think in the CEO comments you write that you're in a good position to deliver on your financial targets. From the data I've seen, and you also stated in the report that App Annie or data.ai now expects the market to grow close to 4% this year. The way I interpret your comment is that you feel that you're in a good position to have an organic growth above that then this year. Is that a fair interpretation?
I will not give a forecast. I'm not sure that it will be 4% this year. I do share the view that the CAGR, the coming five, six, seven, maybe 10 years, a good estimate or guesstimate would be at around 4%.
But looking back, it has been the case that the market institutes, the one you mentioned, one or two of them, they tend to be overestimating, and then when they summarize the year, they are lowering it a bit. So our internal view is it will not be 4% this year, but no one is more happy than me if it turns out to be 4%. And when it comes to our margin and cash flow, it's easy. I mean, you can do the back-of-the-envelope calculation easily just by looking at 27%, maybe, in relation to net revenues is a more normal spend for us, and we have 34%, so it's a 7% difference, and 7% goes all the way down to our EBITDA margin. So I think we are considering what also Andreas touched upon, the significant improvements in gross margin and general cost control that we've had.
And the third part is that we are much more disciplined when it comes to product CapEx. We invest in marketing instead, which is much more predictable. So we have done what we said at the Capital Markets Day, and this is yields significant results when you're lowering the UA, then you have a very rapid effect on margins and cash flow. And otherwise, we probably wouldn't have been so comfortable in going out with a buyback program either if we didn't know and master this dynamic.
Okay, thanks for the clarification. I think you also almost answered my second question, but just to be fully clear here, in terms of UA spend going forward, I understand it will drop as a percentage of revenue here in Q2 and then probably further in Q3.
But if we kind of look at the levels in 2023 in absolute numbers, do you feel those levels were also a bit too high? I get that this depends on how you grow as well, but if you could shed some light on that.
Can you please repeat? If it was too high in 2023, or?
Yeah, so if we look at the kind of absolute UA levels in 2023, do you feel comfortable with those levels, or were they a bit too high as well?
Well, we don't spend UA if we don't meet our return requirements, which is 180 days, with the exception of the trampoline launch two quarters. So it's steered about how much can we spend and get back the money within 180 days.
We have a very high precision in our prediction model, so we are 90%-95% correct in our prediction model. So the more UA we can spend, the better it is because it's yielding growth. So I don't recognize at all that we had too high spend because we would have liked to deploy more in last year because then we would have reached organic growth earlier. But nevertheless, looking into this year, I think that it's not looking back to what we said at our Capital Markets Day that we expected that UA will be at maybe 25% on average. It's not an unlikely or impossible scenario that we, on average, will be maybe on 27%, but then we compensate that with stronger gross margin than we expected when we made this model back on the Capital Markets Day.
General cost control is very good, and then our CapEx is already down to around 10%. So I think we are in a good position to reach that profitability, but with a slightly different composition of the different components.
Got it, got it. Very clear. And final one from me here, follow-up on Simon's question on the Google changes. If I'm not mistaken, I think they're also doing some upcoming privacy changes. Do you foresee an effect on your business from that going forward?
Well, the effects that I mean, IDFA was the topic of every earnings call, I think, for a year or so. And as you can see, we have managed to it's very different, and it's harder. And our guys have been doing a great job in optimizing our marketing and being very rapid and agile in adjusting to the new circumstances.
But at the same time, I can just conclude from the despite being more difficult and tricky, we have been able to increase, as you pointed out, our absolute UA spend from pre-IDFA, during IDFA, and after IDFA without compromising on profitability or return on ad spend. So yes, it will be changes. Some channels will suffer from that, but we work with maybe 50, 60 different channels. So we are in a good position to leverage our diversification, working with many products that are marketable in many markets and through many channels. Some of them will suffer from privacy changes, but that's why we have many to work with.
Got it. Thank you very much. All for me.
The next question comes from Nick Dempsey, Barclays. Please go ahead.
Yeah, good morning, guys.
First of all, we know that you have a tough comp in Q2 in terms of organic revenue growth due to that early success of the Albion East server last year. But could it be that the new Albion Online Europe server, kicking in on, I think you said, the 29th of April, and the ongoing growth of Sunshine Island could help to balance out that tough comp, or should we still expect a dip in your progress in organic growth in Q2? Second question, you have your midterm EBITDA margin target of 26%-29%. You did 24.4% last year. Does it make sense that you could get close to the bottom end of your midterm target this year or in line with last year, or can you give us some kind of indication of what you're hoping for for FY 2024?
Yeah, so good questions, not the least with Albion East. It was a tremendous success and then, unfortunately, was wiped out of this vicious cyber attack that we had. So it's very different comps. They are much higher in Q2, and then in Q3, they become much, much lower. So it's a very special thing with the comps this time. Can we compensate for that? Well, I don't know, to be bluntly honest. But launching a new server for Albion and the other initiatives that we're driving, I mean, we come in with full speed into Q2, but to say whether we can fully compensate for that or not, but it is for sure much tougher comps.
But I'm pleased to see that we managed to compensate and be positive despite we actually launched the prepacked sales for the Asian server in March already, and we still managed to get positive organic growth for Q1. So far, so good, but it is tough not to crack comp-wise. But I'm pleased with the absolute sales development and the sequential development. Coming to your second question then, I will not give you a forecast of our margin for the full year, but what I think is important is that we have a choice to make, and that is how we balance growth opportunities with short-term margin. And just by the simple example that I mentioned, that going from 34%, which is our all-time high in relative terms, down to 27%, which is not an unrealistic average. It's a 7% difference, and then we are at 28% EBITDA margin.
So it's a balance that we will tactically look at. If we can grow everything more than expected in Q2, I'm happy to take on that because we never compromise, and we know we get back our money within 180 days. So that's just it. It would be value destructive not to take that opportunity, but how long we can continue with high UA is hard to say, but it will be lower the coming two quarters.
And I think just you guys mentioned that as well, but it's important the costs that we have taken out, i.e., the fixed costs, you're moving gradually in a higher DTC share. Don't take this the wrong way, but that's the hard thing because that tends to be also in our case, it was people during 2023.
UA is something that is much more dynamic, so we have really laid the foundation of reducing our fixed cost, reducing our CapEx level, and then it's more of a variable cost that we need to steer. That doesn't mean that CapEx is not going to fluctuate from quarter- to- quarter, but it is. That's just easier management than what we were doing in the last sort of 12-18 months .
That's a very good comp. I might just echo part of that because it will show the fantastic leverage and the yield that we have in our business model. Having taken down the difficult parts, direct costs and cost control on staff and other OPEX and CapEx in products, as soon as we lower the UA, it gets an immediate leverage or yielding exponentially into our results and cash flow.
Very good. Thank you.
The next question comes from Eric Larsen, SEB. Please go ahead.
Thank you, operator, and good morning. I just have one question. So you announced buybacks this morning relating to the earnouts, but you also talked about buybacks more broadly in the report. So I'm just curious if you could expand your thoughts around that, doing more buybacks in the future. Thank you.
Yeah, I mean, we announced the buyback program in a similar fashion as last year to buy back to cover the share component. That's what the decision is made now. Then, of course, it would be receiving other mandates. It's always a balance between how much do we continue to invest in business and how much do we return to the shareholders. But if we get to that, we will have to come back to the market. But of course, it's always a balance.
Now we've been able to deploy a healthy, a very high investment in marketing in the last two quarters. We can still complete this, and that's driven by the fact that we have a very strong underlying cash flow that we can, between quarters, decide to invest in different things. But I don't want to make any more statements. Now we will announce one program.
Okay, fair enough. Thank you.
The next question comes from Martin Arnell, DNB Markets. Please go ahead.
Hi, guys. Can you hear me now?
Yes.
Yeah, sorry for that. Yeah, so my question is, it sounds like you have strong visibility on your revenue given the conviction in UA spending and ROI. So we're just trying to understand the near-term outlook a little bit better on the direction of the organic growth.
If you could just indicate that you expect it to improve in Q2, Q3 given the UA levels that you spent.
It's easier to talk about revenues than talk about organic development because we have, just as Nick was alluding to, we have the comp situation last year is very uneven between Q2 and Q3. So that makes answering that question more tricky because it was a SEK 80 million deficit we had on top line due to this cyber attack, unfortunately, last year. So much easier comps in Q3 than in Q2. But our revenue sequential development, we are comfortable in just for the reason that you mentioned, that we have deployed UA without compromising on returns. So we are comfortable in that.
But where it puts us organically between Q2 and Q3, it's a tricky one to say,
just what I said to Nick from Barclays a few minutes ago.
Yeah, but the sequential improvement is you're confident on that at least.
We are very optimistic about continuing with that, yes, with lower UA. So that's why it gives a significant effect on margins as well as cash flow.
And you don't expect an imminent sort of drop or effect because of the lower UA? That comes more later, so to say, if it comes at all.
That is correct.
And also remember, even if we were dropped the UA, it's not like we're underinvesting. There will still be, I mean, now we have a record in the last two quarters, we have spent more because of the opportunities that we saw.
So when we say dropping UA, it will be potentially dropping and still be higher than we had in the last if you look at our curves historically. So it's not like we are underinvesting. It's just we have invested a lot more, and we can steer that to a more normalized level over time depending on the opportunities that we see.
Okay, thanks. Thanks, Andreas. On that subject, the cash flow, I mean, it's strong, but it's still in slight decline here. Do you think that you have the potential to stabilize it looking on a year-on-year basis or actually grow it on an LTM basis further out this year?
Yeah, I mean, I think that the underlying cash flow, the free cash flow, is actually quite stable year-over-year if you look at it.
But the only thing is where does that cash flow come from, right? I mean, cash flow from operations, we have intentionally brought down because UA goes in terms of operations. We still have effects on the higher interest rate cost. I mean, they potentially will come down during the year, but I think especially it's the UA side of things.
That's what's driving it. But what we compensate that with is to reduce our CapEx, which has come down significantly over SEK 200 million in the last if you look at the LTM number. So it's sort of it's more like if you look at absolute, yeah, we're down 2%, but we are supporting a lot higher interest costs over around SEK 147 million in the two periods. So I still think we actually have underlying can grow our cash flow. Then it depends where do we use that cash.
I mean, when I did that answer the question .
Okay, I got. Yep, I got it. Yeah, okay, I got it. Thanks
. The next question comes from Rasmus Engberg, Handelsbanken. Please go ahead.
Yes, hi. I had a couple of questions remaining. Maybe if you could just outline the positive contribution you had from Albion in Q2 last year. Start with that one.
Yeah, so as we communicated in Q3, the drop was SEK 80 million SEK top line. So you can say that it was SEK 80 million in Q2 that came in. So it's a high number, a very successful launch that unfortunately disappeared. But as discussed, we have a new launch on the 29th of April. That's not the full quarter, but it will support us.
Right. Good. And the second question, you don't have a you have not asked for a traditional buyback mandate for the AGM, right?
It's to be used to pay for earlier made acquisitions and incentive programs. Is that correct?
No, the mandate we have that we can do the current mandate and the one we asked for is to have the flexibility to do all of it, if you see what I mean, either to use it to settle earnouts or to, in the end, remove the shares. But this program that we now have announced, which is based on the old mandate, that is specifically dedicated to settle the approximately 15 million shares of earnout payments that we once had in the same fashion last year.
Okay, so.
But the program that we have, the mandate we have gives us flexibility to act with the shares, to buy back shares for different purposes.
But there is nowhere mentioned that you're allowed to cancel those shares or that it is to.
No, but then you have to get a new mandate if I understand all the rules. If you're going to want to cancel, it's another AGM decision. When you have actually repurchased the shares, you need to come back and then cancel it. So usually, you cancel the shares in the next AGM or you do an extraordinary AGM later on. But the purpose of this program that we announced is now for buybacks. So that's just the mechanics of how that works.
Yeah, and for the program put forward to the AGM then, is it your thinking that traditional buybacks could be a good solution for you?
I mean, we look at I mean, the optionality is there. We initiated our first buyback program last year, so this is the second one we're doing.
It's a flexibility there for the board to decide where do we want to deploy the capital. So of course, that optionality exists, but I don't want to preempt any of those decisions or discussions. Now we're focusing on what we just announced this morning.
Right. Thank you. No further questions.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Thank you. Thank you all for dialing in and for good questions asked. I hope and think that you see what kind of development that we've had in Q1. A very promising start, and it's not New Year's Eve in March, but it's a promising start. We have laid the foundation to, together with the market's improvement, develop towards reaching our financial targets. Thank you very much for today.