Earnings Call: Q2 2020

Aug 12, 2020

Hello, and welcome to the Cielo France Q2 Report 2020. Through the call, all participants will be in listen only mode only and afterwards there will be a Q and A session. Just to remind you, this conference call is being recorded. Today, I'm pleased to present CEO, Jorgen Larsen. Please go ahead with your meeting. Thank you, and good morning. On Slide 2, you see myself and also my colleague, Andreas, who will be presenting today, CFO. We start with an overview on Slide 3. Basically, still from Rapidlands, we have sized up. We are now 14 studios aiming at the common goal of creating a free to play powerhouse, realizing synergies over our group. We have reached a level of 23,000,000 unique monthly players where 5,000,000 play our games every single day. We have built a portfolio of 38 games on a very diverse basis, reaching out to a broad audience. We will come back to that. But with the common denominators of having loyal users and being long life cycle games. Our main markets are, as previous, U. S, Germany, MENA, U. K, but now also Canada has entered into our top five markets. We are now 800 employees in our 14 studios in several different countries around the world. Turning to Slide 4. You can see our offices and our presence is global. We have also on the left side of that slide, we display how our revenues have been distributed in Q2. And you can see that North America is increasing significantly and in relative terms, but not in absolute. Europe is going down. Asia is fairly flat, slightly down. And also Australia is going up to be actually one of our top 10 markets. And you also see on the right side our different studios. Turning to Slide 5, going into the numbers and our performance during the Q2. We are very pleased with the development of our business, both top line and as we should look into later, our profitability, not the least. So we have a net revenue recorded for the quarter of SEK 1192 million, which then represents a 148% year on year growth. We also have achieved that growth and that these levels of revenues with a 18% UAC in cost per user acquisition in relation to net revenues, which, as you can see, is lower than we've had the last couple of quarters. And that is, of course, very efficient and shows that our marketing is really delivering good results and has been exceptional actually during the quarter. If we look at the last 12 months, recording close to SEK 3,000,000,000 in revenues, And there you can also see even more clearly how we trend the trend of how much UAC we need to achieve this growth is going down. And that is not only a COVID-nineteen effect for 1 quarter, it's actually how we conduct and manage our business. So we're down to the last 12 months is 19% with an accelerated growth. And 1 year ago, it was 22% last 12 months. What we are very happy about is the strong organic growth, which is actually the strongest we've had as a listed company this quarter, and that is, of course, a strong receipt on that our products are gaining territory in the market. Turning to Slide 6, looking at our EBIT levels. It's also a record quarter for us where we recorded SEK463 1,000,000 in EBIT adjusted EBIT, which is equivalent to 39% EBIT margin, which is a significant leap up from last quarter and from several quarters looking back. What you can see on the yes, I should also say it's a 177% increase in EBIT. So as you can see, our EBIT is growing faster than our revenues, which shows the scalability in our business model, and it really works out the way that we have geared it to do. You can also see on the upper right side how the last 12 months has developed, which shows trends more clearly as it is a longer period and you take away seasonality effects. So we are steadily increasing our profitability. So from very steady on 33%, 34% EBIT margin, we are now up to last 12 months, 35% EBIT margin. And again, this is very much driven from the fact that we have strong organic growth and that we have our marketing investments has yielded a very strong very strong result, not only for 1 quarter, but for a very long time now. So we have made our marketing more efficient than ever, and we can optimize our marketing spend over a larger portfolio of games and a larger portfolio of products and more markets. And that is one of the key elements and one of the things that we are most happy with for this quarter. Looking into Slide 7 is about our overall portfolio. We have, for many years now, worked systematically with improving the balance in our portfolio. We look at many dimensions when we look at balancing our portfolio. It's balancing the large franchises versus the midsized products. It's balancing products, targeting different audiences and our genre footprint. We have made significant progress the last couple of quarters this year, not the least by opening a new vertical or mash up in cash on gains, which are balancing our portfolio significantly. We also have a very good balance between a female audience and a male audience, which is completely different compared to 1 year ago. So we have taken a real leap in how our composition of our portfolio looks or how it's constituted. So you can see now, we have 38 games in our active portfolio. We're up to 75% mobile share of those revenues we have, 5% is ad bookings and 34% represented by strategy gains, which is our home turf from a couple of years back. But now we have balanced that in a good way. You can also see that our across the line, our users are increasing. So our monthly actives are up 3 0 6 percent on 1 year. Our daily actives up to 170%. But what we are very happy with is that our paying users are increasing significantly, and they are up by 3 52% in 1 year. So that is also a dimension of balancing our portfolio that we have more payers paying users than ever and also in relation to monthly actives. You can see on the right side that our bookings is increasing by 160%, and our UAC, the last year, has increased 126%, which is yet again a receipt on that our marketing is becoming increasingly efficient and delivering strong results. We can also I would like to comment also on the average revenue per daily active user, which is even though all areas that we have increased from Q1 to Q2, the average is going down. How can that be? That is potentially counterintuitive, but it's because the mix is changing. So since we have differences, as we should look into in a few minutes, between the different verticals or product areas, so since mashup and cash flow is increasing, which has inbuilt the lower average revenue per day last year. It looks like it's going down, but at the same time, all three areas is actually increasing. So we think that's a very healthy level, especially considering the mix of different sharpness that we have in our portfolio. Turning to next slide. Going into the coming slides is going into each of these areas. So you can see on our strategy portfolio, we are very happy to see that we do increase our bookings by 23%, which is pure organic. So our strategy is really delivering a solid and strong quarter. And we do achieve the 3% organic uplift in bookings by only putting in UA or marketing spend, representing 19% in relation to bookings. So I think that, that is showing that our gains are very strong, and it's really a vital portfolio of strategy gains that will continue to deliver value for many quarters and many years to come, we think. We have 12 gains in this part of our portfolio. 61% is on mobile. We have 0% ad bookings, 25% of our revenues is recorded in Asia, both Middle East as well as Japan, which is one of our top 10 markets. What I also would like to emphasize is that in our 23% growth, we have both good contribution from Mirahart 3, which is fueled by Ramadan and a good live ops conducted by Babil Games, has now become the largest strategy game for the first time in our history, which is very satisfactory as this is a pure organic launched product. It's been a couple of years. We also can see that our midsized products are really delivering strong results, not the least Call of War, Supremacy 1914 and Conflict of Nations, all built on the same game engine, which make it very capital efficient. All of these grew by more than 100% year on year. And I think that is very satisfactory. The fact is that these products as well as Imperial Online that has its all time high bookings for 1 quarter, the previous were in 2014. So this again shows the strength and the longevity in our products. But also if you look at the midsized part of our portfolio, again, this balancing question that I or topic that I touched upon, if all other products, small and the large franchises, would be flat in growth, but they're not. But if they would be flat, only the growth contribution from our midsized part of our product would have made Steel Front Group grow by 13%. I think that shows the power and the value of our midsized part of our product and how much these products can contribute to the overall performance of our company. If we turn to SIM RPG in action on Slide 9, you can see that our bookings increased by 153%, obviously, a very, very strong number, not purely organic, but also strong organic growth. We have 21% in user acquisition cost in relation to net bookings or in relation to bookings. And you can also see a very strong growth in both monthly uniques, daily uniques. But again, the paying users are increasing the most. So we're up to 197 1,000 paying users, which is, again, very satisfactory. And here, you can see that the average revenue per daily actives is actually increasing again on the from Q2 in Q2 compared to Q1. This area consists of 18 games, 58% is mobile. We have a slightly decrease in ad bookings to 2%. I think we have an opportunity to grow that over time, but ad revenues had a short cut in the value due to COVID-nineteen. So that was the only part in our business that was not gaining from that. But as the COVID-nineteen effects are normalizing slightly and slowly, ad bookings is also recovering. 47% of the revenues within this area came from Europe. We are very happy to see that shakes and fidget, again, on the topic of our composition on the portfolio, has all time high bookings in Q2. Significant improving monetization is lying behind that as well as strong marketing performance. Big Farm Mobile Harvest has been one of our key growth products for now for a couple of years, and it continues in the last quarter. And we also launched 1 of our 2 new products in the portfolio, Warstorm, which is the MENA version of Orkamond, the world was out during Q2. Turning to Slide 10, which is the new area, cash flow mashups, which we had only 1 month in Q1, but now we have 3 months from Stormate related products, and we have 2 out of 3 months from BitLife. So it consists of 8 games currently. 100% is mobile in this area. We recorded 11% ad bookings, which we think is strong despite the lower value of marketing space, as I touched upon just recently. So there is a latent potential just by the prices for ads are going up or picking up again. 71% of our revenues in this area come from North America. And of course, we are happy to see BitLife as a new game in our portfolio. And again, Bitlife saw this decrease in ad revenues, as I said, but they have made a great job at candoritering, compensating by increased monetization. Center of center of excellence within monetization and we have good synergies and collaboration between the different studios, including CanvaWriter, I think that is one of the reasons why we have been able to compensate the drop in ad revenues with increased monetization and in app purchases. But again, Kevin, Nadeer and all the people at Candorite have made a great job. Storm 8 also, it's an impressive growth with Property Brothers. We are confident that we will continue to be able to grow Property Brothers for several years to come. And that is the largest gain within this area with a tremendous growth since our acquisition early this year. So with that, I would like to hand over to Andreas to go into financials on Slide 11. Thank you, Juergen. So I turn to Slide 11, and this is a summary of the highlights for the quarter. As Juergen mentioned, exceptional strong revenue performance coupled with a strong adjusted EBIT margin of 39%. And we also generated after product development, dollars 228,000,000 of free cash flows in this business. This is prior to acquisition and financing, obviously. A key topic, we strengthened our balance sheet and our flexibility by raising SEK 1,200,000,000 in new equity, and we ended the quarter with a cash position of SEK 936 €936,000,000 and a completely undrawn long term credit facility of €1,600,000,000 This also created some flexibility then on the leverage ratio, which is 0.37. So to summarize Q2, we have through strong business operations and performance, we have created further our financial platform, which will enable us to continue to be part of the consolidation in this industry. Turning to Slide 12, the income statement. We had bookings of SEK 1 point 2,000,000,000. We had a negative deferral effect. This is not unexpected when you grow that much of SEK 17,000,000. Dollars That sort of tends to take itself out over time. But with the growth we had, that negatively impacted our net revenues for the period. But we grew our net revenues by $712,000,000 so 148% versus last year. And this is driven both by acquired and organic growth, as Jurgen was talking about. It's also important to highlight the diversification. We added now CandyRider. We have more games. We have a different genre mix, gender mix and also we increase our ad revenues and that creates actually a natural hedge in our business as well. Gross margin went down with 3 percentage points, and this is driven by an increase share of mobile that increases to 75%, but it is offset by the ad revenues, which is more of a pure very high margins on that. UA, record spend increases absolute terms, but also in percentage points up by 180%, but over in relation to net revenues, only 18%. Other external expenses increases by 74% to 47,000,000 dollars We did see, as I think for most businesses, working from home and no travel, obviously, makes an impact. So slightly decreased also from Q1, and there's always some seasonality in other external expenses. We had an increase in depreciation and amortizations. This is mainly driven by PPA items, which increased by SEK 80,000,000 and that is adding both Stormate and Kixak and Candor items since last year. Financial license for the period was excluding the SEK 30,000,000 impact of revaluating our provision for earn out was SEK 54,000,000. Dollars The underlying interest cost was $29,000,000 We then have a noncash interest that we of SEK 15,000,000. This is how we have to account for our earn out considerations. And then we had a $10,000,000 negative impact on FX due to holding large cash balances. This was in relation to the Candorite acquisition. Storm 8, you need to have you have a few days where you hold larger share of non SiC liquidity. But it's just important to remember that in Q1, we had the same effect, but the opposite. So there we in Q1, we had a SEK 30,000,000 positive. So the year to date effect is actually positive SEK 20,000,000. We had a debt that will give us a EBIT, now earnings before tax of SEK 251,000,000, which is 140% increase versus last year. Tax reported tax was SEK 64,000,000, which is then a 25% tax rate for the quarter and gives us a net result of 188,000,000 So we turn to Page 13, the balance sheet. Here, we look at the balance sheet primarily versus Q1 2020, and we had increases of intangible assets of 13%. This is mainly driven by goodwill because we have added in a candor writer. The goodwill increased by $911,000,000 versus Q1 2020, and intangibles increased by 123 Both of these are mainly driven by Candorite and our own product development. Then we also have impacts on FX because the FX impacts we recorded from a balance sheet perspective. So that offsets that increase. We had, as mentioned earlier, SEK 936,000,000 on cash on our balance sheet. And our bonds and long term credit facilities decreased. We repaid all the outstanding revolving credit facility that we had in Q1, and that was SEK 655,000,000 reduction. But on the other hand, we have increased then our provision for earn outs, both long term and especially short term. It is always in Q2, and that's why the short to long term changes. We always expect to pay next year's earnouts in Q2. So there is a shift between the long and the short term position. Out of the long term, which is 938%, 59% are expected to be settled in cash and 41% in shares. And out of the provision for our Nas in the short term of just over €1,000,000,000, 60 2 percent were expected to settle in cash and 38% in shares. We had a net debt of EUR 665,000,000 and an adjusted leverage ratio pro form a of SEK 0.37 and an adjusted interest cover ratio pro form a of 17.85. That leads me to Page 14, the cash flow. With a strong looking first then at the reported cash flow for the quarter, with a strong cash flow from operation of 3 $44,000,000 This was even if we had a negative effect of working capital of $123,000,000 This negative effect of working capital is driven by receivables with a higher share of mobile, with a higher share of growth across the whole studios, we do get paid post month quarter end close. So that increased our receivables, so but still a very strong operated cash flow in the quarter. Investment activities of SEK469,000,000. This is driven mainly by the Canerator acquisition, which was a net effect of SEK354,000,000 and we invested SEK 107,000,000 in product development, which over in relation to net revenues, that is 9%. It always fluctuates over time. This month this quarter, it was slightly lower. We have spent also time on live ops for the developers and capturing that side, but it will fluctuate as we have flagged previously. Finance activities, a net effect of SEK 610,000,000. We raised the SEK1 200,000,000 and we repaid debt to ensure that we avoid unnecessary interest costs going forward. Looking at the cash flow for my sort of last 12 months. We have, in the last 12 months, generated a free cash flow of SEK 725,000,000, which is obviously and we have, during this period, invested SEK 351,000,000 in product development. So over the time, we after product development have we can continue to organically build cash flow, and our free cash flow after product development increased to SEK 375,000,000 over the period. So before handing back to Jurgen, strong financial performance, strength in balance sheet and good cash flow generation. And I hand over to Jurgen. Thank you, Andreas. So I would like to just finalize the presentation before going into Q and A here, but with some comments on where we stand and what we've done. We have taken several new steps and several large steps in creating a leading free to play powerhouse. We have taken significant steps towards our vision to create a 3x larger group compared to where we were full year 2019 within the next coming years. We have done that through increasing our addressable market as we communicate that we had ambition to do at our Capital Markets Day on the 27th November last year. We have done that through acquisitions but also through organic growth, significant organic growth, the highest we've ever had. So we have a very good balance again between male and female audience, but we've also added a completely new area, the mash up area, which is delivering very strong results for us. So we have increased our addressable market, which is a key strategic component in reaching our vision. We also, as I mentioned, have an increased diversification in our product mix, and that is not only delivering good results, we can optimize and allocate capital over a larger universe of products, and hence, we can increase the efficiency and effect from our marketing spend and our also investments in product development. So what we are building and have been building and will continue to build is a platform for the best independent studios to come in to our to the group and join the group as well as we have a platform that enables the different studios to really collaborate and create synergies. We have currently more than 50 ongoing collaboration projects that is achieving and has been achieving revenue side synergies and or cost side synergies. And this is a key element in what Stifel is all about. And we are taking significant steps in improving and sharpening that platform that Kirtel represents. And all that is, of course, to achieve an accelerated growth. We see that we have been able to achieve accelerated organic growth as well as we have been able to accelerate our M and A activities. And we will continue to do both of these. We have high ambitions, both on the M and A side, hence, the capital injection that we did. So we have the financial revenues as well as we have a strong pipeline for that, but we also we tend to continue with strong organic growth. So we think we have taken these steps. We are very optimistic about and hungry for what we can do in the next couple of years. But this is only the beginning of what we have achieved so far, a launch pad for further achievements and stronger results for not only 2020, 2021, but for many years to come. So with that, I would like to hand over for questions. Thank you. And our first question is from Oscar Erickson, Carnegie. The floor is yours. Thank you. Good morning, Jurgen, and good morning, Ruias, and congratulations on a very impressive result. A few questions from me, starting with just Q2 numbers. You mentioned that organic growth was record strong in Q2, and obviously, the strategy segment grew by some 23% to 24% year on year. Can you give any color on the organic growth in Q2, please? Yes. We have, as you correctly comment and as I also mentioned, we have a strong growth strategy, but I would say we have a strong organic growth across the line. Then, of course, depending on which definition you have, whether you should take in organic growth from, for instance, Store Mate, which has been tremendously strong but hasn't been in our business for the full year. But we if we would say that our net revenues have had, depending on how you define it, but has enjoyed a 20%, 25% organic growth. And if you look at bookings, it's significantly higher than that. So as since we have this difference in deferred revenues. So that is my comments on that. But we are we see a very strong momentum. We do see a seasonality, but we do expect that we should be able to enjoy organic growth for a long time exceeding the market growth since we have the momentum we have and since the corona cohorts that we have been able to acquire in Q2 and in March, they are showing the similar pattern as any cohort that we've taken in, which makes us quite confident that they would deliver value for a long time enjoying our products. Great. Very clear. And some follow ups there regarding the momentum here. I think you mentioned in mid June there that user acquisition unit costs have begun to normalize in June. How has that developed since then? And what do you see for the second half of the year? So yes, it has normalized the cost, which we also hedged. And so we get more paid for our ad on our ad revenue side, but it has normalized. As you know, we have a seasonality we've always had a seasonality in Q3, which is a bit weaker. We expect that this to be completely normal, just as we expect that Q4 and Q1 is the seasonality is in the other direction much stronger. It's very hard to try to predict how the user acquisition costs will develop during the fall as we all struggle with estimate how the COVID-nineteen will develop during the fall here with potential second waves and other things. But we are very confident that the way that we work with our machinery for achieving good return on marketing, as you can see on the long trend lines, there is no reason to expect that we will not be able to continue to optimize and refine our global reach in marketing, which means that we can continue to grow, but not increasing the user acquisition cost in relation to net revenues. But the actual cost per install is, however, quite tricky to predict. But it has not it is not on the low levels from March April, but whether it will stabilize here or whether it will bounce back and be lower again during the fall. Your guess is as good as mine, I would say. Got it. Got it. And regarding the outlook for the second half of the year, which is, of course, uncertain for, I mean, most gaming companies, not least. You mentioned in the report that you see a normalized pattern in the second half of the year, including seasonality effects. Just to clarify, do you expect and have you seen so far in Q3 a more pronounced seasonal effect than normal in Q3. And in terms of normal looking historically, you had some perhaps 8% to 10% sequential organic decline in Q3? Thank you. We don't give explicit forecast. But when we say normalization and that not the least that we see that the cohorts that we have acquired from Q1 and Q2 are showing the similar pattern, which indicates clearly that we expect the same seasonality in Q3 as well as we expect at this point the same seasonality, which is done on the stronger side in Q4 and Q1 into 2021. So we are going in position is that this will be a similar pattern as always, if which is very hard to say. If it will be that the CPIs will not increase back to normal levels or they will bounce back or be going sideways into Q4, then we can accelerate further. But that is what again, it's very hard to say. But there is no reason why we have we see no pattern or no signs of that we don't should follow a slower Q3 on a normal level as well as a faster Q4. So yes, it's basically business as usual. It's our view on that one. Got it. And final question for me before leaving over. A question regarding used acquisition costs and the impact from Apple's changes to IFTA, the identifier for advertisers. What do you deem the impact in the second half of the year to be? Yes, that's a long topic. But to cut to the chase of that, we have made some analysis. And of course, we are on top of this subject. It's important for us. But I think that it's in the short term, there will be for some of our segments, we have to be very observant and quickly, which we are strong at, adopting our marketing. So that is it. I think the most important thing is that the number one takeaway is that the efficient CPI, what we actually get out per spent dollar or euro, we think will be we will be very little affected. Then we have to change some operational ways of conducting the marketing, but that is just operation. That is something we do and we do good. But I think that the CPI's nominal wise will go down due to this, especially for high targeting marketing like for strategy gains, whereas for cash flow mashups, we think that it will potentially benefit from that as they are not targeting the marketing as much. In the medium to long term, I think that companies that has the following two things will benefit actually from this. A, we have if you have a large portion of active players b, if you have a wide diversified portfolio because then you can start to cross market significantly more. And the value of an existing base, especially if you have a wide portfolio of games, is increasing. So I think that this creates molds towards competition. So a company that has these two things, a wide portfolio, generating revenues on a global basis in many markets and you master many channels and b, that you have a high volume of existing users will benefit from this. So but this is we can have a separate 2 hour conversation on this, but that is the bottom line of this. Great. I'll get back to you on that 2 hour conversation. Very clear. Thank you. Thank you. Next question is for Jarmal Hellberg. Kepler Cheuvreux, the floor is yours. Thank you. Just a general question on the increased activities in from your users. Can you comment anything on the revenue streams? Is it subscription, onetime purchases or anything on what kind of revenue streams you're seeing in the increased activity comp? Well, the majority of our revenues are in app purchases, but we have since quite some time, actually a couple of years, we have taken initiatives to see how we constantly and that is not only driven by COVID-nineteen or by adding 1 or 2 games or even opening up a new genre. But we are constantly working by with optimizing and improving our monetization, including our revenue model, which is different from the business model, of course. But the revenue model is something that we constantly can improve and have improved and will improve to blend in subscription elements and blend in that you pay for as an example, you pay for contributing in an event. So our live ops capabilities that has been we have improved maybe the area which we have improved the most over the last 18 to 24 months. It's very much about optimizing monetization, how to earn money on providing exciting new content and events and competitions in our existing games towards our user base. So I think that we will constantly do that. So it's not any change in this quarter, and it's not a change or last quarter in Q2, and it's not a change in Q3. This is constantly that we optimize the way that we our revenue model works. Okay. Got it. And maybe one more on the same topic, just specific for Candrite or BitLife. I don't know when I looked at the revenue as an external user, it seems like I mean, you have the you can buy the bits and chips. Is that the main revenue from that? So the new users buy that? Or do you see a lot of recurring revenue in Canada, BitLife as well? I mean, technically, we don't have recurrent revenues to such large extent since it's in app purchases. In practice, since we have long life cycle games, since we have lawyer users that play our games not only for 1 or 2 years, they play our games for several years up to decades, in practice, I would say 80%, 90% of our revenues are recurrent in the meaning that we know that the users that we have starting a quarter will spend during the quarter. So we are in a very lucky spot from that perspective. But again, that is one thing, and it's not recurring revenue from a technical perspective, meaning that it's a 1 year subscription. So but that comes back again. We will choose and optimize our revenue model between different ways of getting paid from the users constantly. But in practice, the important thing is that the users that play our games will represent 80% to 90% in the next quarter, and it has been like that for many years. Okay. And then just to increase if you see some of your old games making your all time sites like in Play Online and Shake and Fidget. Is that coincidental? Or have you seen any good reasons to push marketing in these games? Or what's behind the view, what am I in those games? Yes. It's not so much marketing in the more mature games. It's just that we are good on Livebox. And Livebox consists of several things. One is that we increase the pace with which we provide new content in these games. I mean these games are like a platform for users that like a typical or a certain type of game to continue to consume if we deliver new exciting content, new exciting things that happening or happening in the games like events and competition. And that increases the monetization, and it increases the portion, as I touched upon going through the different areas, that we will see that we have more a higher degree of basically a higher number of paying users. So it's a blend and it differs slightly. Shakes and Fages have both increased monetization of existing users as well as good marketing. Imperia Online is mainly that they have been very successful, the Imperia team on LiveOps. But I think that LiveOps is a really, really important area to master if you should be a leader in this market. And I think that we show through our mature games that we what kind of results you can achieve by mastering that, showing the, as I mentioned, the Call of War supremacy in 1914 in Conflict of Nations, all grew by more than 100%, not only or mainly because we increased marketing, but we have been more efficient in LiveOps. Our next question is from Lars Olar Helstrom, Pareto Securities. The floor is yours. Hi, Jorgen. Congrats on another strong report. I have a couple of questions. First, we can discuss you had a very strong user growth in the quarter. Can you elaborate how percentage wise here, how much if new users coming into the system and how much is old users getting back to being a MAU or DAU or paying user? Can you separate that? Is it possible? It's possible, but it's different from time to from week to week, and it's different from game to game. So it will again be a 2 year 2 hour maybe 2 year, by the way, conversation. But I think in general, we have a good balance between users and existing users coming back, but not the least, and this is important, we have a latent significant portion of players that play our games from time to time. So for instance, a user can come in and play our games for 3, 4, 5, 6 months, and then they might pause for a couple of months, and then they come back. And the value of our latent user base is significantly different. And the reason why this works so nicely is that we have the types of games that we can play for several years. If you have built a position in one of our games, you can come back and easily pick up that again. We have seen that this reactivation has been a key driver in the growth as well. So I think we have a good balance between new users, reactivated latent users, but also that existing users have been more active during the last quarter. And it's not only Q2 I would like to emphasize. That goes back several quarters where we have been able to improve these metrics. Of course, the new intake has been high in Q2 due to the efficiency the exceptional efficiency in our marketing. But something we are working long term with. And I do I'm really expecting that we will continue to do that in Q4 and Q1 and going into 2021. So I'm optimistic about that. Yes. And a follow-up on that. Is it fair to assume that is the strategy segment that has seen most return of old users. And what kind of retention rates do you see on the old users coming back? Is it similar to the yes? So I would say it's both strategy, but it's also to a large extent in simulation, but even more clear on strategy. We see that the retention pattern is very good on the reactivations. Again, this is a latent base, so it's not completely new users, but we expect that I comment separately, have comment separately and can comment again separately on new users where we see also the retention pattern similar to any other new cohort. But the existing reactivated users show a solid retention. So basically, many of them continue to play. But they will go in and out of the game, which is typically also the what lies behind the seasonality in Q3. Basically, our mature audience that we have go on vacation. It's quite simple. They have family. So when on vacation, they're not playing as much, but they start usually to pick up and have done for every year, and we expect them to do again in when the summer comes to an end, whether that's in late August or in September, it shifts a couple of weeks every year, but we expect that will happen again. So definitely, the reactivation will also trend into Q4 and Q1. That is our absolutely that we are absolutely convinced about that. Okay. And in terms of live ops, which I believe has been a great driver for the AltaDAU level underlying Altdau level. Would you say it has been higher than normal? And is it on a sustainable level in terms of activity? Or has Q2 been a golden opportunity to have even more event than normal? Yes. That's a good question because it is important to emphasize. So it's very good that you take up the topic because LiveOps, it's not only marketing that has been driving our exceptional growth in Q2 and the last year. It's also that we pair that with increased LiveOps. And LiveOps is a very profit oriented way of growing our games. And I think that our studios have been really, really good at not only gear up marketing, but also gear up live ops. I think that we take steps all the time. And you know from previous quarters and when we talked about this that I must honestly say that I underestimated how much we can gain from LiveOps and how much synergies we can gain because the knowledge and how you improve LiveOps is much more sophisticated than you might believe at the first glance. And it's very transferable knowledge from 1 studio and one game over to another studio and another game. And as we increase the number of active games or games in our active portfolio to now to 38 games, of course, that network effect and the leverage we have from the platform and the collective knowledge increases. So this is definitely a numbers game in that sense as well. So I'm absolutely convinced on one thing, that is that LiveOps will continue to be a lever for us to achieve growth. And you can see that there are several metrics, one being that we grow at record level at the same time that we constantly now for quite some time, several years actually, have lowered our marketing spend. And there's only one way of solving that equation, and that is that Live Oak works. We increased the efforts there. So I definitely expect that, that will continue for several years many years to come. Okay. Let's change a subject. On the marketing efficiency, it was very strong in Q2. Could you have pushed USC even harder in the quarter? Or was it that you pushed really hard in April, May and then you kind of refined your player base in June to see what type of player you have been bringing in? Or how you should Yes, that's a good question as well. In hindsight, we can say maybe we should have pushed even more. But that's easy to say when you have the actual outcomes. I mean, our prediction model is usually super we have a very good capability of predict how cohorts will act. But when we entered into a pandemic situation, obviously, our prediction model has never been in pandemic filters, so to speak. So we did we were very fast on the throttle to increase our spend, and we have record spending, but it's still 18% because the top line grew so fast. And we it was a record return on marketing spend for the quarter. So yes, with the fact at hand today, yes, I would have increased it further if we knew that. But at the same time, you have to be a bit it's very hard to know a priori, so to speak. And in terms of marketing prices in June, you said it has had normalized in June, and you also restated in the report. We discussed it here on the call. But compared to, let's say, Q4 last year, how is marketing price? I mean, not all FNC is back, etcetera. So is marketing prices still lower compared to a normal quarter in last year? I would say that it's lower than Q4 as always. Q4 has the average highest lowest indicator. So it's lower than Q4, yes. But then again, during summer, it's harder to market at scale because you have the seasonality effect. But the CPI, we record as lower compared to Q4, to answer your question. So it's still even though it has normalized a bit, but it's still attractive opportunity to scale your games portfolio? We think we have great opportunities. But again, not I must emphasize that you do market on a lower level just because you have the seasonality. So basically, the users that you take in, even though they are at the lower price, since the activity level is lower, you have to be a bit more cautious to market in July than you are in November or September or something like that. So but on the price level, yes, I can confirm that. So that makes us quite optimistic on what we can do in as we come out of the seasonality. Usually, you gear up the marketing, you gear up basically everything as you come out of the summer. And again, we expect to do that. And if the CPIs keep on being lower than usual, that is beneficial for us. But yet to be seen, of course. Yes. And two final questions for me. The first is, can you give some more flavor? You have owned Kickstart for 1 year now. Can you give some more flavor how it has developed over that year and even in Q2? I know there is one game launched through Babel, Warstorm, etcetera, so Yes. As we announced the deal, we said that we had a couple of things that we should improve, but Kixai has a very strong track record, very strong products. But one thing we did do, just as we planned, was that we took marketing to be conducted for Kickside from our center of excellence at Cool Game Studios, and that was a very good move. But it takes some time before you can gear up marketing. So the marketing spend for Kicksight's products were very low Q3, Q4 into Q4, but then we started to gear it up late Q4 and especially in Q1, and that has paid off. So we meet our requirements on marketing, which means that Q2 even cleansed by from COVID-nineteen effects, we had a good growth for the Kixai products as we hoped for and planned for in Q2, even if we take away the COVID-nineteen effect. So I think that Kixai has very much developed as we expected, which was that we will market it very on a very low level the 1st quarters. We had some improvements in some of the products, but also we started to quite immediately work with the collaboration project with Goodgame and Babblegame. So basically, what we expected has also been delivered on. Yes. And the final question, we have seen, for example, U. S. Zynga become even more active in M and A large deals. Is there any price inflation in assets at present in the discussions you are having, you also we have seen valuation multiples on traded gaming stocks coming up quite aggressively. So I guess sellers see that as well. I think that there are several factors coming into answering that question. One is that, yes, we can see that the multiples is has we also see some deals in the market, I should say, where we can see higher multiples, even too high multiples maybe. And also, traded stocks have gone up on a broad perspective. That is on one hand. On the other hand, we are in discussions, and I think that we don't expect a significant short term multiple expansions also because the way that we conduct our M and A differs from going into we don't go into auction processes, for instance, but and also if you look at the transactions that we have done the last couple of years, even though we pay on the lower side, we don't pay top dollar upfront. At the end of the day, I think everybody that we have done deals with can sum up a quite strong development since we have been paying with Clearfield Stock and that has developed strongly. So I think that the way that we structure our deals, at the end of the day, all will be winners if we continue to deliver good results, both the sellers, which are now then shareholders in Steelfront as well as the buyers, hence the Steelfront stock, Steelfront shareholders prior to the transaction. So I think that, that model limits nominal upfront inflation in multiples. But of course, over time, we expect that multiples will go up. How fast it goes is, of course, not only a system question, it's a market question on how other players act, but it's a fair assumption. But again, the difference the difference between our own multiple and what we buy on, I expect, will still it will still be an arbitrage, so to speak. Okay. Thank you. Our next question is from Erik Lindholm, Nordea. The floor is yours. Yes. Hi, guys. Can you hear me? Yes. Great. All right. So starting off on June. The margin was obviously exceptionally strong, and we talked a bit about this. But what do you see as the main drivers behind this? Is it mainly lower user acquisition costs in relation to net sales? Or are there any other factors driving the margin in June? Of course, our user acquisition cost is lower in June. It should be lower in June because we enter into the seasonality. So that is clearly the case, contributing to higher margins. But again, we don't look at 1 single month. I understand why you ask it, but when you run the business, we don't look to a single month. So looking at the quarter, I think that 18% is a representative number even though we increased it rapidly, but also the top line went up in record short time. So we kept that level, and we expect that, that is a representative number going forward as well. So I think that looking into June, very strong profitability, not a high growth in June as a single month as you easily can calculate, but that's a completely normal pattern. All right. Yes. And just general in general on the market here. So Singa just acquired Rollik in the hyper casual segment. What's your view on hyper casual? And could you carry out M and A here? And with what you said on IDFA, do you expect the need for a large user base to with the changes to IDFA to be a driver of consolidation perhaps in hyper casual? It's several questions, Nava. Hyper casual, we don't comment on specific segments in that way, but I think that hypercash is an interesting sector phenomena or whatever you should call it. And it contains some opportunities, but also some challenges connecting to IFDA. I think that hyper casual companies, they can benefit marketing wise because they're not targeting marketing that much. But on the other side, they usually have a significant portion of ad revenues, which obviously then potentially get hit by ESDA and when the prices goes down. So it's two parts of that connection between IFTA and hyper casual. Whether it's different should enter into hyper casual, we look at several different areas, but maybe not the first thing we do. But of course, we follow what happens there. And but I also reckon there's quite high competition there, and it's not a completely uncomplicated area to get into. But so that's my comments on that one basically. All right. Yes. Thank you. And I guess a final one from me. Could you give a bit more flavor on sort of the launch pipeline? Is there anything any gains in particular that you look forward to? Obviously, HNIC in soft launch and so on. Yes. So we have a strong pipeline, we think, of products, some of them announced, some of them in soft launch. Age of Lights is obviously communicated, but there is also a handful of products that we're working on not announced yet. So we think we have a strong pipeline. We are excited about releasing in the near future the mobile version of Conflict of Nations. When we looked at looking back, for those of you who have followed that for quite some time, when Call of War and Supremacy have gone cross platform, built on the same engine, that has been a significant uplift to revenue. So of course, we are optimistic and believe that the release of Conflict of Nation Mobile will have a excite contains exciting opportunities for growth. And that is in late Q3, early Q4, we expect that to go into soft launch and maybe it could be quite short, soft launch since it's built on the same engine as Calla War Mobile. So that is one example of a nearby launch that we expect and hope a lot from. But there is a there are a handful more products in the pipeline that we're working on currently. All right. Thank you. If you do want to ask a question, press 1. And we do not have any more further questions at the moment. I hand back to you. All right. Thank you all for listening in this morning and for good questions. And I think we are all done with this. So thank you again, and have a good day.