Good morning everyone, and welcome to Stillfront's Q1 2022 presentation. I will be presenting today together with my colleague Andreas, CFO, and we will open with a short presentation and then open up for Q&A. Next slide, please. This is Stillfront as of Q1 2022. We have 69 million unique players playing our games, which is a 5 million increase since last quarter, and that is a significant increase, which we are, of course, happy with. We have 73 games in our games portfolio, which is an increase by nine games, and by the year-end, we were 1,560 professionals across 22 studios and at offices marked as red dots in this slide on the right-hand side.
You can also see how our revenues were distributed in Q1 on the right-hand side, with 6% in North America, 28% in Europe, and increasing significantly in Asia, with now 21% across Asia, which is something that we have strived for quite some time. Going to next slide, please. One of the most important things in the quarter is how we have expanded our portfolio. We are a much larger group and a much more diversified portfolio than we have been ever before. That is important because, for the obvious reasons that we increased the number of games, and we're happy to see that we increased with nine titles during the quarter, four coming from the acquisition of 6Waves, but also four coming from organic development from our existing studios.
That means that since Q3 last year, we have 11 games coming out organically, which is of course adding to our trust in reaching positive organic growth for the full year. That is very important and very satisfactory, and I think that the outcome of the soft launches that we have entered is as we hoped for and expected or slightly better. 6Waves adds four titles into our portfolio, and these are titles that are strong, very stable, and well-established strategy games, which is something we have strived for, and they do that in a market that is very important for us and that we open up through the acquisition of 6Waves, and that is the Japanese mobile market, being the second largest in the world, which is of course very exciting.
Also exciting with 6Waves is that they have not less than five games, more than their existing portfolio, coming into soft launch during this year. We also have worked very hard with what we call engine share. Engine share is when we can take a successful existing game and launch more games on that very engine, meaning that we can achieve 50%-80% reuse of existing investments to get out new games, which is obviously increasing our ROI on our portfolio performance and lowers the risk and increase the capital efficiency when it comes to product development. During the quarter, we have Al General launched based upon the Bytro engine, and that is of course very something that we have worked systematically with and that we are satisfied to see.
We can also, related to that because it's built on the Bytro grand strategy engine, see how that has been a success for us, increasingly over the last three, four years, progressively successful, I would say. The grand strategy engine of Bytro has really been successful for us also in Q1. Now we have five different titles delivered from three different studios showing very clearly and very tangible how we create synergies. That's one example of synergies in our business. Also, we're pleased to see that Super Free Games are continuing their growth path from October last year. They also added, in this quarter in Q1 a new game just as they did in Q4. That is also going in the right direction. Next slide, please.
Looking into our financials, our net revenue grew by 27%, driven both of course by the acquisitions as well as that most of our studios have strong organic growth, but we have some offsets from that, Super Free Games being organic from the first of February as the main deviator from that. We do record as expected a negative organic growth of 6.4% when it comes to bookings and 6.8% when it comes to net revenues.
We continue to deliver this growth with high margin, consistently high margins, despite that we have a record high UA spend, and that shows that we're really leveraging our marketing capabilities across the group, the market reach that we have built, both in terms of geography, in terms of number of games that we are marketing and the number of different channels that we master. I'm very pleased to see that we can, without compromising on profitability. We spent some 30, sorry, 28% in relation to net revenues in the quarter, which is actually identical with Q1 last year. Usually, the first quarter is very good for marketing.
Our organic growth guidance for the full year is intact, mid-single-digit for the full year, and we are confident to reach that based upon the both new products, but not the least the marketing that I mentioned. I would also like to highlight that you can see that there is a very clear correlation between how much we spend in UA and what kind of Adjusted EBIT margin that we'll have. You can see that clearly on the left side of showing each quarters. There is a difference Q1 2021 that could be mentioned, just commenting briefly on, and, during that quarter, since that quarter as we have increased the pace of investments, of course D&A also are increased. If you look at the EBITDA margin, it's more or less the same in Q1 2022 compared to Q1 2021.
It's 38% and 37% respectively. Of course, since we did record the expected negative organic growth, the scale, the nature, the natural scale of our business, then have a slight negative effect when it comes to comparing with Q1 last year. Otherwise, if you take away that very special quarter, you can see that it correlates very well. I would also like to mention that we can see that it correlates very well also looking at LTM numbers. You see that both in Q1 2021 and Q2 2021, it's heavily skewed still by the pandemic effect and the very significant uplift that we saw in 2020. That is still explaining why we skyrocketed our margins.
Since then you can see a more steady development and the relationship between UA and margins being developing nicely and as expected. Next slide, please. Looking at the active portfolio, we have a stronger portfolio than ever in several different dimensions, so it's more balanced than ever, and it's more diversified than ever. You can see on the lower right side how the distribution in our portfolio looks like, and I'm very pleased to see that we have improved the balance significantly with strategy increasing. Also in terms of geography with, as mentioned, Japan now being a significant market, and not only that, we're increasing in the MENA region, we're increasing in the Indian subcontinent. It's very pleasing to see. It's a good balance between the three main territories for us, North America, Asia, and Europe.
You can see also how the number of users playing our games is increasing organically across the whole portfolio quarter-over-quarter. We have in particular very strong UA performance from the strategy games, which is very pleasing since strategy games are slowly moving, so it's harder to build that organic growth in short term, but you get paid over longer time, return yielding over longer time, which is adding to our confidence of reaching organic growth for the full year. Actually growing the number of user by 5 million or equal to 8% in one quarter, whereof 98% of that growth is organic, is something that we are very pleased to see.
We can see also that the share of mobile increased to 78%, which is driven both by of course the organic and the natural strong performance by our mobile strategy games. Also of course adding 6Waves titles that are mobile. The ad bookings were in relative terms down to 70% from 19%, but in absolute terms it is on par with the previous quarter. Next slide, please. Briefly looking at the different areas, I will not walk through all of the numbers here, but I think there are some things to emphasize. Of course again, strategy bookings up 59% quarter-over-quarter, driven by the strong organic growth in strategy. Hence we have allocated more UA with very good returns.
That is satisfactory to see as we are one year less than one year from the IDFA change where the outlook were that for strategy games that will be tougher. We can definitely see that it is not tougher. We do it with high and good returns in strategy throughout the quarter. Casual and match-up grew slightly quarter-over-quarter organically, but declined year-over-year because we basically allocated UA less to that area. Simulation RPG bookings slightly down quarter-over-quarter, again, due to the fact that we allocate less UA because it yields less. Again, we see significant, as said, organic increase in DAU and MAUs in strategy in particular, both quarter-over-quarter and year-over-year. You can say that strategy strikes back this quarter.
Next slide, and I will, with next slide, hand over to Andreas.
Thank you, Jörgen. Good morning everyone. That's the right slide. Looking at the cash flow developments, we continue with a very strong cash flow development from operation of SEK 523 million. That includes tax paid, about SEK -60 million, and also a small positive working capital impact in the quarter. We continue to invest 6waves, naturally the big outflow of cash in the quarter. But we also did invest SEK 253 million or 15% of revenues in our product development. We have a strong pipeline. It is both historically that has come into soft launch, but we also have a strong pipeline going forward. We are pleased to be able to deploy that, but still have such a strong underlying operative cash flow.
In terms of financing for the quarter, based on the rights issue we had, we had a positive inflow there of, on net effect, SEK 1.9 billion. That of course strengthens our ability to execute on our strategy going forward as well. Looking at cash flow developments, as we normally do, we always look at the twelve months. I think this is where the strength, one of the key strengths in our underlying business is that we generate cash flow from operations of over SEK 1.8 billion, which is an increase by SEK 546 million from the same period last year or 42%. We have continued to deploy an increase in investments in our product portfolio.
We invested in the last 12 months SEK 732 million in new products, or 12.6% in terms of net revenues. This is key for us and to be able to have a strong underlying cash flow, to be able to deploy that in both UA but also in terms of deploy that in new products. In the last year we have generated SEK 1.1 billion of free cash flow whilst increasing our investment base. This leads to a cash conversion for the last 12 months of 0.52. Move to next slide, please. We have a strong cash financial position. The leverage is as expected, well below our targets of now at the quarter end at 1.2.
We have a net debt position of just over SEK 3 billion and a cash position of SEK 1.7 billion by the end of the quarter. We continue to have and have had a diversified financing platform with a good maturity profile, and this makes the ability to execute on our strategy that we are well positioned for that. Just to summarize, Jörgen talked about the 73 games we have. Of course, this adds additional diversification in our cash flow generation. We also have a stronger diversity or better diversity, both from a product perspective but also from a geographic perspective, by exiting the quarter.
We still continue to invest strong in our product portfolio and this is built up by the strong underlying cash flow we have in this business. With that, I will hand back to Jörgen.
Thank you, Andreas. I would like on next slide just to summarize. We are well positioned for return to sustainable organic growth. Sustainable in two meanings. Both sustainable because we have done efforts and we are doing a lot of efforts in our sustainability work with setting up new targets, ambitious targets for this year and for the further years to come. We have in the annual report and the sustainability report that we released recently, you can see more details on that. We have taken significant steps and integrated that in our business processes, so I think we are definitely taking steps there. We're also growing sustainable and returning to sustainable growth in terms of our top line.
We have been there for a decade, but being in the shadow of the pandemic and with a few other challenges the last quarters, we are rapidly getting into that, and we do that by the new products coming out to the market, continue to invest. We aim on releasing 30 games or getting 30 games into soft launch this year. 15 the first half year as disclosed earlier, but also additional 15 games the second half of this year. Also looking into the fact that we have been growing organically from Q3 to Q4 and from Q4 to Q1 also adds to our optimism and our belief to reiterate our financial target of reaching a mid-single digit organic growth for the full year.
Not the least, we will get help from our StilOps platform that is creating a lot of both cost side, but even more importantly, revenue side synergies and also product development synergies with the engine share that I mentioned previously. Stillfront is in a good shape on its way back to reported organic growth. Thank you very much, and we will now turn to the Q&A session. Please, operator, let's see if we have some questions lined up.
Thank you so much, sir. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. The first question of the day we have from Nick Dempsey from Barclays. Nick, your line is unmuted. Please go ahead.
Yeah, good morning, guys. So I've got three questions. First one, in Q2, I know you're not giving us guidance for organic growth for that quarter, but is it fair to say that the moving parts are Super Free, still a tough comp in April and maybe a bit of May, but then it hits an easier comparison? Then you've got your new games that you're flagging, and perhaps some underlying momentum from some other games. Can you just maybe flesh out, give me a bit more color on the different elements of what's going to help us understand whether Q2 will be a positive growth quarter or not? Question number two, you flag in the statement that you expect the current high level of investment, as you phrase it, to continue through 2022.
Is that an indication we shouldn't get too excited about an Adjusted EBIT margin for the full year any higher than the 30% we've just seen in Q1? The third question, do you have a pipeline of further acquisitions that you're currently working on, or are you gonna pause your M&A momentum for a while and focus on executing on the portfolio as it stands?
Thank you, Nick. On the first question, we don't give a guidance for Q2. We reiterate the full year, so of course it says something what we believe on Q2, but you're perfectly right in the fact that actually Super Free Games grew full year 2021 over top line and especially on EBITDA, full year 2021 over full year 2020, but it was a very uneven development during the year. Just as you point out, sometime during Q2, we think that Super Free Games will contribute, and the team is making a great job in getting there with existing products and the new ones that they have released. We expect them to contribute to organic growth.
We have so many different growth levers, existing products, as well as new products that have gained the momentum. 11 new products coming out since Q3 last year adds to, of course, the picture in Q2. The most important thing is that we deliver on our targets for the full year mid-single-digit . That's my comment on Q2 isolated. We don't give a firm guidance. Let's see. The second question was about investments. Yes, we continue to do investments. We increased the pace of investments in new products about two years ago.
That is what we now can see the fruits from these efforts, and I think we have improved our capability to do that without increasing the investment as much as we have increased the output because we are working with Engine shares and other refined methods of development. I'm very pleased with that. The products are more complex and sophisticated than it was two years ago. I'm pleased with that development. I do expect that we will keep the absolute number of new products coming out to the market approximately on the same level, second half 2015 that is, as we had last half of last year, and we had this first half of this year and second half of this year.
I expect approximately it will be the same in 2023, that level in absolute terms, but obviously in relative terms that will be a lower number. What that drives in terms of margin, I don't think you should draw too many conclusions on that. Of course, there is some effect if we have very good traction with more than usual hit ratio of games that will in the short term lower the margins as we launch these and scale these games. I don't expect that there will be a significant impact on margins in the short term or during this year. When it comes to M&A and pipeline, yes, we have a significant pipeline that is unchanged.
Obviously, the market conditions and not the least our own valuation is a bit challenging for making acquisitions, but it's also important to note that the raise, the capital raise that we did as Andreas pointed out, we are at leverage ratio 1.2, and also the fact that we are delivering some SEK 100 million per month in cash flow after product investments on these high levels, of course, also give us firepower. We do have an opportunity to do approximately just to give a flavor on this, we could potentially do two acquisitions of similar size as 6Waves without raising any more equity. Of course, we must take into consideration tactically market conditions, prices, our own price and target prices and things like that, and financing. I hope that answers your question.
That's very good. Thank you.
Next we have Erik Sjöström from Carnegie. Your line is unmuted. Please go ahead.
Thank you, and good morning, Jörgen and Andreas. A couple of questions from me. Starting with the very strong performance in the strategy segment. Is it mainly Bytro engine performing very strongly here in Q1 and especially in March? And what do you see ahead in the strategy segment, given quite high user acquisition investments in Q1, and good stickiness in the segment? How does that affect the growth outlook here in 2022?
Yeah. You're perfectly right that there is a different dynamic with strategy games. I mean, we have our legacy and background in strategy games, and the good thing with strategy games is that when you have acquired users that get into the game, they tend to stick around for several, many years, even decades. So of course, that should be taken into account when you analyze and look at our numbers. The value when you are successful in organically growing your user base of strategy players, that has a higher value than in other areas in the sense that they will be around for a long time on average. So that's of course adding to our confidence in reiterating the full year target. They will be around and delivering for not only the coming quarters, but for many years to come.
We are very, very pleased with that. I think that it's not only one or two games or only the Bytro games delivering on the Bytro engines there are five games, but we have a wider portfolio both of organic titles, so to speak, but also with five titles coming out and coming into soft launch from 6Waves, but also other strategy games. I think we have a wide array of strategy games, many of them contributing. Obviously the grand strategy part of our portfolio stands out with the growth the last not only quarter or quarters, but actually for the last three, four years, it has been a very strong development.
Excellent. Thank you, Jörgen. A question on full year margins. We're obviously seeing peers here in the quarter with quite low full year margin guidances, suggesting more expensive growth perhaps. Do you see anything similar to that? Do you have any sort of comment on news flow regarding negative market growth in Q1 for the in-app purchases part of the market?
We haven't seen so much of that honestly. As you can see from the level of users that we have acquired, I mean, we grow our user base, our active user base by 8%, where 98% is organic in Q1, and the whole business is growing organically, sequentially Q1 to Q4, as well as it did from Q4 to Q3. We don't see many effects of that. The spending levels are very intact, I would say. In our view, a very normal Q1. You can see also that the UA level were actually identical more or less in relative terms as Q1 last year. We haven't seen any significant impact from that, no.
Great. Very clear. Final question from me. You write about being well within sort of your marketing return thresholds in Q1. Has that continued into April? A follow-on question to that is, obviously Q1 tends to be a seasonally strong quarter in terms of marketing spend. What type of seasonality should we expect here this year? Thank you.
Yeah, we don't give a forecast for Q2, which is clearly in the report, but we have a number of products coming out still in soft launch during the second quarter. We do have good traction. The momentum that we have built for now a couple of quarters, I hope and think will continue during Q2, both from existing products as well as from new products. Of course, it's always very, very hard to say. Usually it slows down, as always it has been the case during the summer for very natural reasons, considering that our audience have usually family and daytime jobs, they go on vacation and all this.
Sometimes during summer it will be slower on the UA side and on top line, and then the margins usually go up. Whether that starts in the 10th of June or the 20th of June or the 4th of July, it's impossible to say. I think having said that, I hope and think that we will have high UA spend higher than we have had, maybe last year in relative terms in Q2, because we have a very interesting number of products coming out, and the ones that already have passed the threshold, we expect that we can scale further. That is my comment on that question.
Excellent. Thank you very much, Jörgen.
This is Jesper Birch-Jensen from SEB. Jesper, your line is unmuted. Please go ahead.
Morning, thank you for taking my question. Just first on a more industry-wide question. I mean, we've seen several entertainment peers kind of flagging for normalizing demand, you know, both for video entertainment, but also from some of your peers within the mobile game sector. I was wondering if this is something you've experienced so far or lately. Thank you.
We haven't seen that. As mentioned several times, we see significant growth, and we do enjoy that growth in the most difficult area to grow, which is in terms of that it's usually growing slower, that is strategy. The good thing with that is that they, as I said and elaborated on, they will be there for a longer time on average. High retention is typical for strategy, so that's why we are very pleased to see that strategy is so strong. We haven't seen any significant effects. I mean, growing our user base from 64 million- 69 million during Q1 also is a clear indicator, and the spending levels are very much intact. I think we don't see that effect very much.
Thank you. Just a question on your user acquisition spending, maybe I'm not understanding this right, but in terms of the casual and mash-up segment, you mentioned it grew quarter-over-quarter organically and declined slightly year-over-year due to lower UA allocation. It kinda seems like the UA allocation to that segment is up both from last quarter and year-over-year. Maybe I'm not reading it right, but any clarification there would be helpful.
We allocate our UA according to how it yields. The yield has been not as strong as in Strategy, and hence we have lowered the UA spend in relative terms. I think I don't have the exact number in front of me now, but if we look at how we have allocated, we are lowering that allocation compared to other product areas, and that is what I think is the important thing. Still, casual and mash-up are stabilizing. SuperFree, which was an isolated issue, has been growing since October.
We expect that Super Free Games will be contributing with positive organic growth during the second quarter, without overspending in UA, meaning that we're not reaching our harsh return on ad spend requirements of 180 days net.
Okay. Gotcha. Thank you. Just lastly.
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Our next question comes from the line of Rasmus Engberg from Handelsbanken. Please go ahead.
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It seems like he has exited the queue, so our next question is coming from Nick Dempsey from Barclays. Please go ahead.
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Oh, brilliant. I just wanted to squeeze another one in, please. Can you tell us whether year-on-year organic growth in Q1 would have been positive if you excluded Super Free Games?
I mean, we have decided not to go out with each of our studios. I think that would be a very tough job for you and others if we go studio by studio. As you clearly have heard us talking about for quite some time, Super Free Games is the main contributor to that we're not in positive territory. That is my comment on that. We have operationally solved the problem, and the team has made a great job both with existing and new products and has been growing since October. As I said, we expect them to be contributing organically sometime here under Q2. That's my comment to that. You will have individual studios going up and down. That's why it's not.
I don't think this is exceptional with Super Free Games. Otherwise we optimize on the complete portfolio of studios and games to get the best yield, both when it comes to allocating marketing capital but also developing products. That is why we are so keen on looking at the full portfolio rather than individual studios or products.
Understood. Thanks.
Rasmus Engberg from Handelsbanken, your line is unmuted. Please go ahead.
Yeah, hi. Second try here to get my question in. I just wondered, you invested about a quarter of a billion SEK in product development in Q1. Is that a level going forward? Is it a peak, or is it a level you're growing from, you think, in your sort of best guess for the full year?
No, I mean, I think it's a few things. First of all, we have a very strong operating cash flow, so we do wanna deploy a high level as we talked about. We have significant products coming on into soft launch. We have added products into the active portfolio, and we have a strong pipeline. We would hope so. There are always timing effects between quarters as we've seen historically as well. We have had as Jörgen mentioned, an idea of continuing to strengthen our investments in product development. There are of course in terms of relation to net revenues that differs over quarter on quarter, but we do have a strong underlying financial performance to be able to support that.
We don't guide exactly on what the level will be, but we have said that we have an ambition to continue to keep that level at the higher pace than we might have done a few years ago.
We guide on the number of products, so that might be a clear indicator. We expect to release 15 products during the second half of this year, and I expect that level to be relevant for 2023. In relative terms, of course, as we are a growing company and as we grow our portfolio, that is less.
Yep. Clear. The second question, I was just wondering, it's a bit curious to look at your balance sheet. You got SEK 1.7 billion of cash sitting there, and then you still have bank loans. Is that just a temporary thing, or are you gonna keep that until you do acquisitions? Or how should we think about that in relation just to the financial net and how. Trying to figure out how close you are to making acquisitions as well, of course.
Yeah. I mean, it's a timing effect in terms of a temporary timing effect.
Okay.
how much cash we held because it's when certain loans or parts of the loans mature, you can choose not to pay a break fee. We're talking about weeks differences to quarter end, ends.
Correct.
to start dates.
Very clear. Just coming back to the investment in the products, where in which areas? I know you've talked a lot about strategy today, but could you sort of give a feel for your various segments where you're investing the most at the moment?
That's a good question. I know that we have a good balance between the three different areas in organic titles being developed. Of course we, which is not yet counted as organic, but still is organic in the wider sense, and that is 6Waves, and they have five products coming out in the strategy area, which is of course high in relation to the existing number of products four that they have in the market. That adds to the strategy bucket, but we have several promising products in all areas. I expect that we will continue because that is important for many reasons. We've held a good balance between the three different product areas.
I'm very pleased that we have strengthened strategy both through the acquisition but also organically, and we strive to keep that balance.
Very clear. Thank you.
We have Jesper again from SEB. Your line is unmuted.
Hi again. Sorry, maybe that was my mic cutting out. I just wanna as a follow-up, you mentioned that you expect Super Free Games to return to organic growth in Q2, and I was just wondering if there's any other segments which has been perhaps suffering from a negative organic growth lately, which you suspect will return to positive organic growth in Q2. Thank you.
I think that, it's very much product, depending on what new and existing products that yields the best in marketing. We don't have any. I mean, this was an exceptional isolated issue with the SuperFree. Again, SuperFree did grow top line full year 2021 compared with 2020, and EBITDA were much higher margin than we expected. It's a healthy company, but it didn't grow on the levels that they started to grow. That's why we have this strange comparison for the first three months, which then of course turns into much easier comps. In general terms, we don't have any. As I said just recently, we expect to release new products, and we have new products in all areas coming out with promising KPIs.
I expect that we will be able to grow all areas for the rest of the year, and there is no isolated issue in the similar way. Also coming out of the pandemic, the shadow of the pandemic, comps is of course also good for the reported organic growth. Evenly spread and both in investment and in returns is what we expect.
Okay, thank you. That's all from me.
Simon Jönsson from ABG. Your line is unmuted. Simon, please go ahead.
Hi, Jörgen and Andreas. I was wondering if you could give any color on the differences in organic growth between ad bookings and in-app purchases here in Q1. Thank you.
Yeah. We stated that ad bookings is lower, 2 percentage points lower in relative terms, but flat in absolute terms. That means that the organic growth basically and mainly comes from in-app purchases.
All right. Thank you.
That's all the questions from audio. I would like to now hand over the floor back to speaker. Thank you.
Thank you everyone for dialing in and listening to our Q1 2022 Stillfront report, and thank you also for the questions put forward. I think we thereby close this meeting. Thank you everyone, and have a great day.