Welcome to Stillfront's Q2 earnings call. I will be presenting, Jörgen Larsson, CEO, together with our CFO, Andreas Uddman. So next slide, please. We posted strong margins, we had a strong margin development in the second quarter. We had net revenues coming at SEK 1,744 million, which is in line with Q1, and lower revenues by 4% compared to last year. We increased our gross profit by two percentage point, up to 80%, and we had an EBITDA margin of 29%, up 8% quarter-over-quarter, driven by lower acquisition costs and up 0.5 percentage point year-over-year. Our free casual flow amounted to SEK 272 million, which is almost a doubling from the previous quarter.
You can also see on the right, lower right side of this, of this, in this slide, that we lowered our gross profit, which is the one that we are steering the business on, by 1.6% only, and that is an important number. Next slide, please. Looking into our lower user acquisition cost, there is a few highlights that I would like to emphasize on this slide. One is that you can see that we are on a normalized level, at 26%, whereas we both in Q4 and in Q1 had a significant uplift in user acquisition costs due to the so-called trampoline massive launch of our big success, Sunshine Island. But that was, that was on very high levels. Now we are back to 26, as we were also in Q3 last year.
You can see also, the stability, both in terms of net revenues, as well as for the individual quarters, as well as we have on LTM. You can see that we are still then, obviously, since we had this uplift in Q4 and Q1, we're still on LTM, UAC are on high levels, but they are going, slightly down then, yeah. We can go to next slide, please. So looking at our lower cost base, which is a product of the efforts that we took on 18 months ago, is really kicking in now in our margins, which is satisfactory. So you can see on the left side that our margins were 29%, our EBITDA margins, which is, by the way, the highest margins that we've had for 3 years, and it's a significant uplift from Q4 and Q1.
And also, this is driven by the gross margin improvements that I mentioned briefly. We have staff costs that we have lowered by 12%, which then equals to 1.6 percentage points compared to our revenues. UAC up by 2.5% year-over-year, driven by, again, Sunshine Island. What is also very important, then a third part in the initiative that we took on at our Capital Markets Day in February 2023, is to focus our investments more to where it yields the best, where we get the highest ROI. And that is also one of the main explanations to why we have been able to improve our EBITDA margin in the way that we have had. Next slide, please.
The important driver behind the improvement of gross margin, it is a product mix effect that is in there as well. But the most important thing is that we did work very actively with the DTC, direct-to-consumer channel. And as you can see on the upper right graph, it's up to 33% from being 29%, and last year, 26%. And obviously, that is very margin accretive that we have a direct relation to our consumers. It's good for the consumer relationship as well as it is for, for margins. We can see that our monthly paying users are stable. We have a drop on MAU and DAUs, which is a consequence of that we are focusing our efforts, our live ops, on the customers that are most valuable for us, and that is paying off.
You can see that the average revenue per daily active user is on high to, on the lower left side graph, up from 1.7 last year, which is a quite significant improvement. So more focus on these customers as long as... as well as that we work with our direct-to-consumer channel. Next slide, please. Looking into the different areas of our, of our active portfolio, looking at strategy. Strategy saw a clear slowdown at the-- in June, basically, second half of the quarter, which was a bit earlier and a bit more than we had expected. And you can see that it's a clear drop in both, bookings by almost SEK 90 million, approximately. But you can also see that our UAC has gone down significantly from 28% in last quarter to 16% this quarter.
And so hence, we have not been able to deploy the level of UA and continuing with our ROI targets. So then we lower it, and it's also, by the way, strategy that always is the most obvious evidence that we come into the usual seasonality of this industry. So a bit slower than we hoped and expected in June, but nevertheless, a stable performance. And UAC is actually down by 40% compared to last year, whereas bookings is down 12% and gross profit only down 7%. And you can also see here that, we are very strong on the DTC channel in the strategy products area on the upper right side. So we have DTC amounting to 44% of our revenues. Next slide, please.
Within the Sim RPG product area, we are, we can see that sequentially increase in bookings and users driven by two things. One is that we have been able to launch one server, not as successful as the Asia server for Albion Online last year, but nevertheless, a successful launch and contributing positively to the quarter, but also that we have been able to continue to scale our, I would say, probably most successful launch ever, which is then Sunshine Island. You can see on the upper right side that we are now from being running with it as it should look when you have a good success on your hands, that you are able to deploy a lot of UA and the revenue start to pick up. So in Q4, it was SEK 22 revenues or bookings, SEK 62 in UA.
Then we are closing the gap slightly in Q1, doubling the revenues. Now, the Sunshine Island revenues are up by 10%, while we are scaling down user acquisition costs by 40%, so they are on par. And what we will do now is to continue to work with further content, further optimizations, further features for Sunshine Island, so it will serve us with profitability for many years to come. Also, we hope and expect that we can scale it as we come out of the weaker season of the year into Q4 and then Q1. We can go to next slide, please. In Casual and Mashup, we have both on, we were flat sequentially and year-over-year in Casual and Mashup.
Very satisfactory is to see that Supremacy franchise have gained traction, so it's scaled well in the second quarter and drive it, drive both organic growth for the franchise, and we, we see that we can... We hope and think then and see good KPIs indicating that we can continue this for the second half of the year, so that we get another contributor for growth over time. We also have Jawaker, which has continued its massive, very impressive performance. You can see on the upper right side of this, of the, the, the graph or the, the slide, how they have developed. Q2 was the highest uplift we've had so far. They are still on the 41% CAGR since we made that acquisition with very high margins.
So it's really a gem that we have in our portfolio. On the other hand, we have struggled a bit with Storm8 Home Franchise. So we're working both with, see to that we adopt, the studio for other circumstances. That's one thing. The second thing is that we also we launched at the Ellen’s Garden Restoration game, and slowly scaling it, and we hope and think that that could contribute to Storm8's further progression during Q4, not the least. So good early KPIs, but nevertheless, it's still some mileage to work there. So with that, I would like to hand over to Andreas.
Thank you, Jörgen, and good morning, everyone. I will look at the cash flow for the quarter and also the LTM numbers. We had a strong cash flow in the quarter. We had a cash flow from operations before net working capital effects of SEK 482 million. Within that, we spent SEK 462 million of UA, which is actually still a higher absolute amount of SEK 28 million versus last year, but significantly down versus the two previous quarters. So now I get a bit more in depth of that.
We had a financial expense of approximately SEK 100 million in that, which is an increase versus last year of SEK 20 million, which is driven mainly by that we have been in a higher interest rate environment, even if that is now coming down. Pay taxes of SEK 45 million, and we had a negative net working capital effect in this quarter, is mainly driven by a reduction of liabilities. As Jörgen was saying that we saw a slight decrease in the spend on, especially on strategy by the end of the quarter we had spent a lot of UA in Q1 and especially in March. So that is just a fluctuation that impacts the quarter negatively.
So that ended up with a cash flow from operations of SEK 434 million. And we, on the investment side then, we had, as usual in Q2, we settled our earn-outs, and that was SEK 432 million of earn-outs that was paid in cash. We have invested also SEK 852 million or 8.7% of net revenues in CapEx. So that is, as we talked about previously, that is now coming down in the numbers. You can see it is a SEK 40 million reduction from last year, or 1.9 percentage points lower in terms of relationship to net revenues.
We also had a negative effect in terms of investment activities based on the consolidation due to loss of control of our Moonfrog Labs subsidiary in Bangladesh, which impact this investment cash flow of SEK 82 million. So the financing activities these were SEK 260 million. We had a net change in borrowing of SEK 463 million, and we purchased shares for SEK 182 million in the quarter, and these shares have then been used to set on the equity components of the earn-outs, which has now all been settled in Q2.
And I think it's looking at the graph that looks free cash flow per quarter, which is the low graph to the left, is that's how we come from up here, where we have intentionally invested more money into UA. We spend both in Q4, but also in Q1, and that was because we can see that we are getting the financial leverage or the operational leverage in our P&L through the reduction in terms of fixed costs, but also in terms of the improvement of our gross profit, in combination that we also have focused our investments. So when we then reduce UA, we still invest 26%, so it's not like we are completely scaling it down.
It's still on a normal level, even if June was slower. We can directly see the positive contribution in terms of the cash flow, which is then shown in the Q4 and Q2 numbers. So that also impacts the LTM numbers, which is the graph to the right, that we come through this investment period, and we still have cash flow from our operations prior to working capital adjustments of SEK 1.6 billion. It is a decrease from last year, but it is driven partially by that we have spent a lot more UA in the latter in the comparative periods, of approximately SEK 248 million more, comparing the two periods.
We still have a higher financial cost, especially looking into versus the LTM numbers in Q2, 2023, and that is SEK 132 million more that we can still service our debt, but that is, of course, impacting our cash flow from operations. In here as well is some of the effects or the effects that we're seeing, that we've been able to reduce our fixed costs, which is partially done as staff costs, which is down 12% versus last year. We have some one-time costs of SEK 49 million for these cost optimization programs. In terms of investments, here, we can really see that the...
What we were talking about in terms of the capital markets day, we have invested in the last 12 months, SEK 698 million, which is a 10.1% versus net revenue. So that's around the period that we or the area we stated that we will come down, that we have now come down to. And if we compare it to just a year ago, there's a decrease of SEK 211 million. So a bit what we were talking about, creating operational leverage in the business or financial leverage by increasing gross profit, reducing fixed costs, reducing CapEx, is clearly now visible as we are as well taking down CapEx in the last 12 months.
So in terms of the cash flow from operations, cash flow, free cash flow, that was down, if you compare it to the periods, comparative periods, but it was still SEK 737 million. And a large driver of that is obviously our increase of financial cost, combined with the intentional investments in more UA, in especially Q4 and Q1. Then we can jump into the next slide. Leverage, we ended the quarter at 2.715, which includes the cash earn-outs. It is as normal in Q2. The next year's earn-outs are the ones we're paying in a year from now or a bit less. They are the ones—they're now falling into the measurements.
We have settled the earn-outs for 2023, and now in the measurement, the earn-outs for next year is falling in. So that's a normal sort of cycle that we peak around Q2 in terms of leverage in that sense. Taking out the earn-outs, we would be below our financial target, and we would be at 1.93. We had a strong cash position of SEK 895 million in the quarter, and we had approximately SEK 1.5 billion of unutilized short and long-term facilities. I think it's also important to remember that this quarter, we reduced our outstanding bonds because we completed the transaction from SEK 2.5 billion to just SEK 2 billion.
So we have two bonds outstanding, which is also visible on the maturity slide, that we have now shifted our maturity profile. The next maturity we have is in December 2025, so it's almost 18 months away, and we will continue to work tactically with our maturity profile and with our financing structures to ensure that we can maintain a healthy and de-risked approach to that. But it also led that we actually used a bit more of our RCF, but it's still almost 30% out that we are unutilized. So to summarize, we have increased the discipline in our product development.
So in investments, we are more focused, the cost efficiencies are coming through, and you can really see that this is leading to margin-enhancing initiatives, which gives us the flexibility with UA, as we've done in the two previous quarters, spend more, now we reduce it to 26 percentage point versus net revenues, and then we see that the margins and cash flows are coming through. So with this, we can move to the next slide. We also announced a share buyback program this morning, where we stated that we will buy up to SEK 80 million of shares, pending the-- and we are hoping, and the intention is that the volumes will be there, so we can complete this buyback program during Q3. And with that, I will hand back to Jörgen.
Thank you, Andreas. So next slide, please. So to summarize, we had a very strong margin development in the second quarter, and we are entering into the low season of mobile gaming or gaming in general, but we're pleased to see that we are reaching the higher end, the higher part of the spectrum of our financial target. We are at EBITDA margin of 29% in the quarter. We did see, to summarize and repeat, that we did see especially in June that we had a slowdown, so the season, the low season is here, and that is clearly visible in strategy, which is most frequent and most clear hit by the lower season. On the other hand, they are stronger in the high season as well.
We expect that we can reaccelerate some of the UA, which is currently at low levels, but we can reaccelerate that during the half, the second half of Q3, so that we enter into the strong periods, Q4 and Q1, with some pace. And also, as mentioned several times, we are pleased to see that our profitability measures that we have taken are really showing the leverage, the operational leverage so far. But also, we we are in the process of identifying new projects and initiatives going forward that we think will both further lower our cost base and provide us with operational efficiencies that we don't have today, further but also increase accountability and transparency in our organization going forward. We will come back to that during the fall.
With that, I would like to conclude the presentation and open up for Q&A.
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 Jensen, from ABG Sundal Collier. Please go ahead.
Hi, and good morning, Jörgen and Andreas. I want to start with strategy. It was a rather sharp decline, and you know, given that you spent record levels of UA in the segment in Q4 and Q1, and now record low levels, at least if we talk about the levels in terms or compared to the bookings. Can you please talk a bit more about moving parts in the segment during the quarter, especially given that you said the big game, Supremacy and Empire, were more stable?
Yeah, so we saw, for the first time that, Supremacy was, on much lower activity levels as we entered into June. We followed our plan quite well, I would say, both in April and May, but then it turned on. Then, of course, it's—it's multiple factors behind that. I've done this for more than 15 years, so sometimes it starts earlier. It could be triggered by other events, like the Euro 2020 and Copa America in football and, such things. But it's quite normal that, strategy games, in general, are more hit by the seasonality than other areas. And then, whether it's in June, whether it starts in July, of course, when, when we have an earnings call on a separate quarter, that individual quarter will be clearly so.
But as you said, I'm very pleased to see that Empire, despite that we are on low levels of UA for that franchise, it's really performing steadily, and with low or almost no UA, it's margin accretive. But it's primarily within the Supremacy franchise that that slowdown came. But at the same time, the perspective and the performance of Supremacy, it's important to notice that it has been between double-digit, 10%, up to even 100% growth for quite some time, many years now. So, sometime you have a setback slightly, but there's no—we're not concerned over time.
All right. Got it. We talk about lower activity in Q3 as well. Do you mainly refer to strategy, or do you mean in a broader sense in the portfolio?
... No, I think it's, again, what is good since one year approximately, is that we are into a normal market after first the pandemic boost, and then the effects from the downside effects from that. So we're back in the way that this industry works, and in general, there is a slowdown in gaming in general. Then, it is more in strategy, because for the very simple reason that playing a strategy game is more of a commitment, takes more time, and when it's, when you have your holidays, you're with your family or whatever, friends, then you play less. Then in casual and match-up, usually it's a lower effect since it's not as big a commitment to take on playing a casual game.
So you have the full scale from casual match-up, not so much to strategy, clearer slowdown.
All right, thank you. And on the cost side, you talk about potentially finding some new initiatives you can make in the second half year. Can you talk about the magnitude of those potential realizations and compare it to what you have done already?
The very short answer is no, because we are initiating these efforts now in Q3. But we, we think it's important to, to signal and to be transparent about, that we see other potential initiatives that we haven't done yet. Not only lowering cost base, but also increase the transparency of our business. But we will come back to that, rest assured, during the second half of the year.
Excellent. Thank you. And one last from me. In terms of new titles, heading into the second half of the year-
Yes.
Could you maybe name drop some of the games that you are more excited about to add to the active portfolio?
Yeah. So we partly new, but not completely new, is Ellen’s Garden Restoration, which we—again, everything is early, so it's hard to just extend the line. But the KPI so far are promising, so we hope that that will be a growth product for us. But we also have some unannounced, a couple of unannounced games that we will go into soft launch during the fall. Further, and that is important, since we invest now 8.67% in the quarter and LTM 10% at around 10%, CapEx in relation to net revenues, a lot of these that CapEx goes into extend our existing strong franchises. So it's meaning that we can do extensions or BitLife or other franchises that we have as well.
So it's not only the number of completely new titles that counts, it's also extensions, significant extension or future releases of products that we have already.
Okay, I got it. Thanks. That's all for me.
The next question comes from Amar Galijasevic from Carnegie Investment Bank. Please go ahead.
Good morning, guys. A couple of questions from me here. The first one being on Jawaker. You're, you're mentioning they're growing very quickly here, having high margins. Just a question on what makes Jawaker stand out so much in terms of the margin profile, compared to the rest of the group? Is it market exposure or, or anything else?
Yeah, so they Jaw aker has made a tremendous, it's a tremendous, franchise and studio. So what they have built is, the nature of their products is that they take a social behavior, which is the strongest driver of playing games, and take it digitally. They have taken it digitally and expanding, so they have more than 50 games in one single app. What happens then is that if you're good at making this, and it's not easy, is that you get a network effect. So they have a large portion of their marketing is just by organic or viral marketing, which means that UA is on very low levels, and they are cost efficient.
So they really stand out, both in the way that they can grow, I mean, 41% CAGR since we acquired them, it's a really impressive number, without spending, not zero, but close to zero in UA. So they have positioned themselves uniquely, within their region, but also the types of game that they have.
Okay, understood. And then just a couple of cost questions here. You had a very solid gross margin in Q2, and I get that you're driving more D2C, supporting the margin. Was there anything, you know, unusually good, in Q2 that we should keep in mind for H2?
I would say it's a product of hard work over a long time, but. So we're pleased to see that. Without getting into a forecast, but I think that we have opportunities to further strengthen our growth margin over time. But it's, as you know, composed of several things. One is how good we are on promoting our D2C channels, which are now up significantly to 33%, but it, there is also product mix component in it. So certain games, like in Strategy, are usually very strong on DTC, whereas casual mashups are usually a bit lower. But I think that we are pleased and that we have progressed further than we thought 18 months ago, but we can do more.
Okay. Thank you. And then just a final one, on the personnel cost. I know you talked about it, a bit, but would you say this is a new normal level, given what you've said so far? Or should we expect costs to decrease further or on the other way, you know, increase further in H2?
Andreas, should you take that one?
Yeah. No, I mean, as we were saying, we see that we have opportunities to tackle our cost base further, we will get back to that. But I think it's also how we reallocate capital between different studios. So some studios will get more capital, especially in terms of our core franchises, and then some studios will not have the same kind of capital allocated in terms of then, you know, which ultimately is our people that built our games. So I think we see that we have opportunities on the total fixed cost base, but exactly how that's going to develop, we will, you know, come back to in the near future.
Okay, understood. And lastly, from me here, I mean, you're generating healthy levels of cash flow, and have been doing for some time. Could you just discuss kind of what leverage ratio would you be happy with, perhaps starting to spend more cash on buybacks or dividends, et cetera?
I mean, we have a target of two, so that's what we will be happy to have. Now, temporarily, especially in Q2, that's just above our leverage ratio, but that was to be expected and it's sort of a normal thing. Today, we announced that we will continue with the buyback program and buy, hopefully then, shares for SEK 80 million in Q3, with volumes allowing on the market. So that was a decision made. That was good capital allocation in terms of the free cash we do generate.
We do have earn-outs coming up next year, and then, and as we also noted in the report, The Walker is very stable and growing, so they are also the one that stand for the majority of the earn-outs in our portfolio. So it was good investment. There was an investment decision made on where we still, you know, balance the position of buying back shares, deploying UA, and having something, being ready for also making product investments. So it's always a balance on how we keep that level, but we are roughly around our financial targets today.
Okay. Thank you, guys. That's all for me.
The next question comes from Nick Dempsey from Barclays. Please go ahead.
Yeah, good morning, guys. I've got three left. So first of all, just going back to the weakness in strategy, can you give us an indication of whether Six Waves is performing better or worse than the rest besides that? Second question, your commentary on Q3 focuses on it being a lower seasonal quarter. We care about year-on-year progress. Am I right to judge from the tone, though, that the weakness in strategy may make it difficult to see positive group growth in Q3 despite the easier comp at Albion Online? And the third question: over time, where do you think the DTC bookings as a percentage of group can ultimately get to?
Thank you, Nick. So on strategy, Six Waves has its two parts in the performance worth commenting. One is that they have not been able to launch new games. The other, so that is obviously hurting top line over time, but it is strategy, so it's not a dramatic drop immediately because they have a loyal, significant user base. The other thing that happens is that since they're not scaling new games, they're instead not growing top line, they are growing their margins, which they have done significantly during the last 12 months. So they are not accretive for the moment in top line, but they are accretive and increasing their margins in a satisfactory way.
Looking at Q3, yes, of course, everything else, you, you don't want the seasonality to kick in and the strategy part to kick in. So we, we do expect that for, for at least half the quarter, Q3, it will be lower activity. So, and that, that is a negative impact. On the other hand, it depends also when we get traction with UA again, because it's even in strategy, we can get quite, quite, not as fast as in casual, but we can get some effect. So I think that, we don't give forecasts. I cannot say that, but it's a, it's a bit softer June than we had hoped for in strategy, and that is, of course, I would have preferred the opposite. Do we have a chance to beat organically in Q3?
Yes, of course, we have, but, I don't give any forecasts about that. Your third question, DTC, how far could it go? That's a very good question. And to be completely honest, I don't really know, because it's many bits and pieces moving around. And it's also important to understand that what we focus a lot on is the customer experiences and live ops. And if you push too hard when it comes to DTC, especially in cash and, and, and mashup and some other product, it could be on the mid- to long-term cost of the user experience, which would be much more expensive than increasing DTC. But, I'm absolutely convinced that we can do more than we have today. That I can state.
Thank you, Jörgen.
Yeah.
The next question comes from Martin Arnell, from DNB Markets. Please go ahead.
Hi, Jörgen and Andreas. My first question is, I think, Jörgen, you mentioned that you're back to a normal market now, but I guess you still have an ambition to grow your top line. So I want to know, you know, what are the main things that you think is needed for you to return to top line growth?
Yes, so we did grow organically from November and through Q1, so. But now in Q2, as I stated in the presentation as well, we did have this SEK 80 million one-off revenue from Albion East. And that is very much what we're down in year-over-year. So I think we are in a good position for getting back to growth. We think that the market, my best guesstimate now is that the market this year, full year, there's a lot of numbers jumping up and down, and they're the ones that we're looking at are often moving it from one quarter to another, literally. But if I should pick a number, I would say the market is growing by 1%-3% this year. But then you should remember, it's quite unevenly spread.
So the world's largest mobile game currency, currently, is on its own, some 1%-2% market growth they are driving. So the market is not growing by high, high numbers yet, but I think, ultimately, when it comes to us, we have a very focused CapEx strategy. We know it yields in a good way. We're good at live ops, so we can see on the average revenue per daily active users that yields, which is important for our growth, obviously. And you can also see that we're able to scale new games. And I think the combination of these three will allow us to grow.
And also, the final comment is that, we see that we probably will be stronger on gross margin, stronger on cost control, but maybe on average, be in a slightly higher UA, taking away the Sunshine Island effect, because that stands out. But on average, compared to what we thought in February 2023, when we thought 25% would be a number, now I would say it's probably a couple of percentage points higher. And that, of course, since we're not compromising on return on ad spend, also will support top line growth.
Okay, thanks. That's, that's helpful commentary. And, can we talk a little bit about the DAUs, also, which [are] falling quite rapidly? I think it was negative 19% year-on-year in this quarter. Can you elaborate on why it's falling at so high a level?
Yeah. Again, coming back to live ops, coming back to focusing on our core users, you can see that the monthly paying users are, that's quite stable. And these users are the ones that we really make our money from. So we have shifted from not focusing so much on low monetizing users, and they are many, not the least in our Indian business, that have had a tremendous amount of low monetizing users. And it doesn't really pay off to pay them too much attention. So instead, we focus on the best customers we have, the most loyal users we have, and then you get the ratio different. But I prefer a high ratio of the pay users to MAU users instead of the opposite, because then it pays off to work with live ops.
I hope that makes sense.
Yeah, it makes sense. Do you expect the ARPDAU levels to be fairly stable, in the coming years?
I think we, we have got good opportunities to, to continue leverage our live ops activities. So which means then that we, we, we don't think that we are maxed out on our, on our ARPDAU, but then in Q3, it's lower activity levels, but we're entering into Q4, Q1, and then usually it goes up. But the trend line, I'm optimistic about, that we can continue to improve ARPDAU across the line.
Okay, thanks. And I have a final question, maybe for you, Andreas. The efficiency actions that you're doing, the ongoing and also the upcoming initiatives, do you think is it enough to stabilize the free cash flow trend, assuming that the top line trend stays where it is or maybe improves a little bit? What do you think?
... Well, I think it depends what you mean by stabilize. I mean, in the last two quarters, we have intentionally made investments in terms of additional UA investments. That was a conscious choice that we did. So we did spend record levels, both in Q4 2023, but also in Q1. So there wasn't, and we could allow ourselves to do that whilst we were, we had these things already showing up in the financials in previous quarters, but now it's even more visible. So I think it depends. It was an intentional decision to do that, and so it wasn't something that just happened.
In terms of the going forward, I think we have been working diligently in where do we deploy our capital, and that has yielded cost savings so far, especially on the fixed cost side, and also on the CapEx side. But how that's gonna be progressing, we have to come back to in the fall.
Okay, thanks. That's all for me.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Rasmus Engberg, from Kepler Cheuvreux. Please go ahead.
Yes. Hi, good morning. Just have one question left, actually. If we roll time forward a little bit, and you do continue to generate about SEK 1 billion on cash flow and pay earn-out debt of maybe SEK 500 million per year, what is your scenario of what you want to do as, as earn-out debt comes off? What do you want-- where do you wanna take that money?
I mean, I can start, Andreas, so you fill in. So I think it's first of all, it's not only a management decision, as you know, but I think that being highly cash generative gives you options. And then it depends obviously on what levels we're traded, if buyback could be something that we do for a longer time, whether we have products that needs very good for deploying more UA and so on. So it's a tactical decision over time, but of course, when we are traded on the levels that we are, buybacks, as we have declared today, is an attractive thing for our shareholders, we think. So that is what I, how I would like to phrase that answer. Andreas, you can fill in.
No, no, I think it completes the answer.
Okay, thanks.
The next question comes from Victor Lindström, from Nordea. Please go ahead.
Hi, good morning. Just a quick question here regarding the, the UA levels going forward. How should we think about the UA levels in the second half, compared to last year?
I think if... First of all, we must take out the, the, as we have said many times during this call, we must take, look at this from two perspectives. One is when, which is a very rare thing, we have a product with a strong KPI outside Sunshine Island, then it's our obligation to max and do the so-called trampoline launch, which, has-- we have deployed, I don't have the exact number, but you can see it's, more than, I think, SEK 150 million or SEK 170 or something in Sunshine Island only. So, and that has happened, I think, three times, in this company's history.
So if we take away that, and I would love to have such a success again, and then we should take that opportunity, but most likely, we will not have successes on that level, but still good deployment opportunities. So taking that away, as I mentioned a few minutes ago, I think that when we look at the composition of our P&L, it's likely to expect that we will be on higher levels than the 25 on average, I would say 27, 28 or something over rolling 12 months. So a bit higher there, but we gain back in gross margin through the DTC work that we have, lowering staff costs by 12%, and also be more efficient in allocating our CapEx.
So we are in a good position to deliver on our 26%-29% EBITDA margin financial target, and also then deploying more UA and having a more efficient CapEx makes it profitable to deploy that to reach the other part of the goal, which is to get to grow above market. So I think there is it's not unlikely that we'll be rolling twelve months higher than it was two years ago. But we can make up more than make up for that, as we can see this quarter as well. I hope that answers your question.
Yes, sure does. Thanks.
The next question comes from Edward James, from Cantor Fitzgerald. Please go ahead.
Morning. Thanks for taking my question. Most have been answered, but I've just got two remaining. Can you clarify a comment you made earlier on user acquisition as extensive sales? I believe the comment was-
... earlier last year, believed that 25% of sales was the appropriate level. However, now going forward, you believe that that level might be a couple of percentage points higher. Can you just clarify that? And I imagine that that is offset by the reasonably material gross margin gains that you've made. And does that leave Stillfront as a higher, lower, or the same in terms of structural underlying margin profile? And then the second question is, appreciate your comments on daily and monthly active users. But even if we look at monthly paying users, it's declined year-over-year in all seven quarters in a row.
And the strategy monthly paying users, after increasing in Q4, declined in Q1, and obviously declined by approximately 10% in Q2, with only strategy Sim RPG action seeing consistent increases. So I guess the question there is, you know, at what point do you believe that this will stabilize? Because that seems pretty central for organic growth to return on a sustainable basis. And are there any learnings you can take from what seems to be much better momentum in simulation RPG action and apply them elsewhere? Because the other two categories seem to have pretty precipitous paying user declines. Thank you.
Yeah. So to the first question of yours, yes, I believe that it will be different structure in our P&L compared to what we elaborated on, not forecasting, but what we elaborated on in February 2023. So I repeat what I just said, that I expect it will be higher than the 25% that we penned down at that point in time, again, taking away these trampoline launches. It's more realistic at maybe 27%-28%. But just as you said, and that is important, that we can offset that clearly with the stronger progress in gross margin, with stronger and more efficient CapEx spend. So EBITDA margin, as we clearly see this quarter, being at the upper end of our targets already, and we have more things to do that we also announced.
So I think indeed, that, UA will be on average higher, yes, but I we can more than compensate that with the other factors. So that is confirmed. So the margin profile, in, in total, is not changed at all, but we can it will be the disposition of the P&L will look slightly different. That's my best... That's how we view it at this current point. When it comes to your question about users, as I also said, we had, I mean, we had channels, we had platforms that were not yielding any revenue. So we have worked our way down. I mean, even on Snap Games, where, some of the one Moonfrog game thing, when that existed, was the largest game globally on Snap Games, but that platform does not even exist any longer.
So, but they had some paying users, even though it was a massive amount of MAU and DAUs. So we are focusing again, and, and this is important, we are focusing on our most valuable users so that we can get most leverage on our live ops. And that is important because you can see what is the key thing is not only the player numbers, it's the MPU times the average revenue per paying users, and that is going the right way. And as you rightly pointed out, even if MPU has gone slightly down, or depending on product area, we are still increasing the average revenue per daily active user. So hence, it's strong on average revenue per monthly paying users indeed. So I think that's a natural development.
Of course, I wouldn't mind everything going up always, but this is not an alarming thing for us. It's a product of that we work very actively with our most loyal users and live ops. Sim RPG, I mean, we've had some good traction, but I remember a year ago or two years ago, the question was often: Why don't you only work with strategy games? Because they have been growing for, I think 3, 4, 5, 6 years by high numbers. But now we can see that that's the whole point with the portfolio that we have of different 73, 73 different games in our active portfolio. It will vary from quarter to quarter, from month to month, from week to week, but also from one year to another.
So I think that we are very pleased, as you now state, that it's Sim RPG delivering that we have the different areas that we have. So, not being uncomfortable, on the contrary, I think it's much better to have a wide array of games in different genres.
Maybe just to add a bit of flavor to the gross profit in UA and how that's directly linked, because how we measured forecasted ROAS is basically revenues minus the costs, so the gross profit, right? So that's the one we measure. So when studios have been able to deploy more D2C channels, they obviously get the natural impact becomes that they actually the number of days goes down. So that's also why there's a shift between those two parts, that higher gross profit, and then you can deploy more in UA. So there's a direct link to those, that how we actually operationally steer the business.
That's great. Thank you very much.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Thank you all for dialing in, and also for you that had questions. And I hope that we could, that we shared some insights besides the actual quarterly report. Thank you for this time. See you next time again. Bye-bye.