Earnings Call: Q1 2021

May 5, 2021

Thank you very much, and good morning, all of you that have dialed in. It's also Andreas Oudmann, our CFO, attending this call and will also present the financial parts. We can start with Slide 2, still front at a glance. This is how we looked currently or at the end of the quarter. We were 19 studios globally with approximately 12.50 employees. In as we have continued for quite some time, it's constantly improve and build our portfolio. And they have 2 common themes, as always, that is that it's long life cycle games and loyal users that play our games, which we think contributes to our stability and predictability in our business model. We had in March 60,000,000 unique players and on a monthly basis and 12,000,000 on a daily basis. And we had our main markets being U. S, Germany, MENA region, U. K. And France in terms of revenues. You can also see On the lower right side, how our revenues were distributed globally in the Q1, and it was North America, 53% Europe, 32% Asia, 10%. And you can also see our offices on that slide. Next slide, please. We would like to take the opportunity to highlight some of all the Very high level of activity in our portfolio. There's always a lot of developments going on, on new products, who will come back to. But also with our existing portfolio, one of our strengths, I would say, is to conduct so called LiveBot, where we add on new feature and functionalities and run events on our existing portfolio. So here are some highlights for the quarter. We added 10 new titles into our active portfolio from our acquisitions. We can also see that Word Collect and TriviaStore consistently were ranked among the top 3 downloaded apps in that category, Word and Trivia gained in the U. S. In Q1. We're also happy to conclude that the BitLife internationalization has started naturally with U. K. And in a very good way, put the number one downloaded app on iOS in late January. So we had a good start on the internationalization of BitLife, and more will come later in this year. Conflict automation continues to scale well on mobile and showing strong performance since it was launched on mobile in September last year. On the topic of events, We have just to highlight the Sheikh Zembrigit event, Legendary Dungeon, that in March led to a 25% increase in monthly bookings just for connected to one event, which shows, we think, the power and the efficiency of working actively with LiveOps. And this is only one example, obviously, out of as we we have events of this kind or similar kind in all our gains with the active portfolio on it's not monthly, it could be in some cases weekly, in some cases it's bimonthly, but you can see the kind of effect it could generate. Also very satisfactory is that Fascination from Nanabits, who came into soft launch in the U. S, showing strong early metrics, not the least retention numbers, which is usually the most tricky one to get right. So if that is right, it's promising, but it's too early to make any projections, but we are very pleased with the first soft launch and hope to see that continue as we roll out in more and more countries late this year. Adel Online, it's another very exciting the Adel Online mobile version is a very exciting opportunity for us, where we go through cross platform, which has been the success for our brand strategy portfolio for so long time from Vitra and Dorado. And that is following the plan. So we're scheduling the soft launch coming in for June. So we think that It's also very exciting. And then we have the small Horaceres' Allegiance, which was part of for the main gain when we acquired Everguild. It's now has now onboarded using the what we called the center of excellence, now we call it the steel hub for marketing. And already in a few weeks, we have been able to triple the investment in marketing or marketing spend with very short return on marketing. So that's also very promising for the rest of the year and for many years to come hopefully. So all in all, a lot of things going on in our portfolio. Here are just some of them. But in general, we are very pleased with the composition and the broadening of our portfolio and not the least how our studios are taking care of Livots and Development. Going to next slide, an overview of our revenue development. So We had a 91% year over year Q1 net revenue growth. And that was, of course, driven primarily by from 5 studios, but we also had 9.5% organic growth, which we think is decent and as our Addressable market is between 8% 9%. We also had a negative FX of 8.9%, primarily with a weaker U. S. Dollar compared to SEK. Of course, that is not present in local currencies, but nevertheless, in our reported numbers. So there you can see on the right side how we bridge the Q1 'twenty revenues to the Q1 'twenty one revenues. We also had a Tough comparison for a short period, but maybe or maybe still affecting the organic growth in Q1, but not as much as it will do in Q2. And that is due to the very fantastic, I would say, Uplift we had last year and that we would not have for anything in the world would have been absolutely without because it was really exceptional beneficial for SteelFront and our financial performance last year. The only downside is the comparison numbers. But in the perspective of building this company for yet another next Coming 10 years, that is only a small comparison thing. It doesn't change anything on how we operate our business. You can also see here that our You will see in relation to net revenues were up to 28%, which was exactly what we also flagged for that it will look a bit slightly different When we have more cash flow gains, so this is according to plan, and we also think that this number is representative for the rest of 2021. Then we think we don't say it's representative for 2022 and onwards. Okay. We can go to next slide, please. Our EBIT development, we had a 103% growth year on year of our EBIT in absolute numbers, which is a satisfactory number indeed. And you can see that we had a 33% margin, which we think is strong considering, which is almost forgotten how Q1 last year, we had 31% in EBIT margin. But The big difference is that last year, we spent 21% in U. A, whereas now, we spent 28%. So hence, You can see clearly that we are more efficient and our business model is scalable. And we also have a higher Gross margin as well as OpEx is lower in relation to our net revenues. So that is the change that we sought to established, and I think it has come in, in a very satisfactory way. We can also see that we have still Q1 LTM 37% of EBIT margin equaling from SEK 1,700,000,000 in EBIT the last 12 months. And again, it's very important, so please don't hesitate to ask questions about understanding the dynamics now with higher U. But higher gross margin and a fairly strong EBIT margin. That dynamic is important that you understand. Going to next slide, please. Looking to our active portfolio. You can see, as I mentioned earlier, that we in March, where we the 1st month with all the acquisition consolidated, We reached some more than 60,000,000 unique monthly playing our games, whereas more than 12,000,000 playing our games every single day. So that's strong numbers, and they have been growing some over 300% year on year. The mouths and the valves have been growing 237%. So this is very important numbers because from our perspective, the fact that you have both a wide portfolio of games that is attractive for your audience, and that you have a very large pool of players playing your game regularly that will open up for opportunities that You can source a lot of players to other games within the portfolio from 1 or 2 games they already played, which means that we will be less dependent on external sourcing and external UA for increasing the activity in our portfolio. So that is something which is strategically very important for us. And hence, we have taken these steps. And I think we have exceeded so far our expectations on reaching these numbers of active users. You can also see in terms of monthly paying users for the first time, it's more than 1,000,000. So it's 1 point €2,000,000 paying for our entertainment every month. So that is satisfactory. You can also see that UA is increasing as a consequence of what we just spoke about by 143%. But all in all, we think we have a very strong diversification. Now 62 gains are we have in this quarter, cash flow mashup are Actually, the largest one strategy where we haven't done any acquisitions for a while. Steel are very solid. I will go into that in a minute, but representing 28% and thin Action RPG are 33%. We had in total 77% of our revenues coming from mobile, and We had now 15% in ad bookings and a number higher than that in March, whereas all the new entities were consolidated. So We think that we are basically on the high teens in March of ad bookings, which was something that we communicated as a target a year ago or something. So I think we can say that we have reached that point. Going to next slide, a bit into the strategy part of our portfolio. So you can see how very stable and predictable this part of our business is. You can see that also despite that it's moving more slowly than cash and mash up, we had a clear uplift in Q2 last year. But otherwise, it's exceptionally stable. You can see that the MAU are almost unchanged since Q3. It's 5% down year over year. The DAOs are 2% down year over year, but actually increasing from Q3 and Q4. The ARPDAU is growing by 14%, which is basically what explains that we are growing this area organically by 10%, as you can see in bookings. That is that we have been able to convert more users into paying users on average. It's not the average revenue per paying user that is going up. It's actually going down, but we are broadening our paying user base. So now it's up to 117,000, which is a 70% year on year growth, which we think is very good and healthy. So the 12 games in this category, 66 percent of the revenue comes from mobile and it's the euro intense, this part of our portfolio is overrepresented, I should say, in Europe by 45%. Going in, looking on next slide, it's our same R2G portfolio, consisting of 23 gains, 62% mobile, 44% in North America, very stable ad Revenues in this part of our portfolio, 5%. And you can see also that our MAU is growing impressively in The mall number is growing by 143 year on year. And also, we can see that our DAO is growing at 69% and our Monthly paying users is growing by 123%. Our UA is also going up in this area. We can also conclude that Algonquin Online has had a very good start, and this is despite we have not yet launched the mobile version, which I mentioned will happen in June, we hope I think. And Big Farm, Mobile Harvest and Shake and Fill it continued to perform very solidly and strong through what Q1 as they did in Q4. And the only small disappointment is the kick side factors that are delivering below Vacations in Q1, and that is, of course, having a negative impact on our organic growth. We have taken measures, and we are convinced that we will have a good development in Kickside for many years to come. Going into the cash flow and mash up part of our portfolio, Not surprisingly, it's growing rapidly due to the acquisitions of Superfuglia and Moonfrog, even though they're not fully into the numbers here, but they are performing according to plan. And we are also happy to see, but not surprised, and that the store made main titles are very stable. And from 1 month, it's growing. 1 other month, it's flat. So it's very stable since Q4, and that's very good. And it's very expected since they had a tremendous uplift in Q2 last year. And since these cohorts of users that we took in Q2, they are more or less out of the system. They have churned in according to the natural pattern, but now we have stabilized and we are convinced that both Property Brothers and Home Design Makeover have good growth opportunities for years to come. We can also see that we have 33% ad bookings, so it's significantly increased, primarily driven by the Super Free titles. And 73% of our revenues come from North America in this area. And also you can see that we have 700,000 monthly paying users, which is a significant number as well. Yes, so I think we could hand over to Andreas then to go into the financials more in specifically. Thank you, Jurgen. Good morning, everyone. I will start on financial highlights for Q1, Page 11. We continue to have a strong underlying revenue growth as a group with 91%, and we continue To have a good adjusted EBIT margin of 33%. In line with what we've seen before, we We have a strong cash flow generated business. We generated SEK250,000,000 this quarter as well, even if we had Negatives effects on working capital due to mainly timing effects from our platform providers. So strong cash flow generation. We still have a strong financial position with SEK 1,200,000,000 on cash and still unutilized long term facilities of SEK 1,100,000,000. And we keep our conservative leverage conservative levels of leverage of 1.3 in the quarter, which is below our target of 1.5. And even if we in the quarter paid for both Moonfrogg and Sysco Free. So overall, Q1, we continue to have an underlying to help the performance of the business and a continuous strong financing platform. And this will help us to continue to be part of this consolidation Moving to the income statement. You're going to talk a bit about the dynamics, but our net revenues in total grew SEK628,000,000 for the year over year, so 91%, Organic growth of 9.5 percent and acquired growth 91%, and then we have some negative effects on reported FX of 8.9%. I think the key thing around revenues is What is really showing and coming through in this quarter is the diversification of revenues. We added 10 new Gains to the portfolio and also to the non active portfolio as well. But we also added more ad revenues that now represents 15% of our total bookings in our active portfolio. And this now shows around that we increase our gross margin by 3 percentage points. And this is something that is creating a good natural hedge, more gains, more diversification, but also strengthening of our gross margin. And that entailed then that we can spend more on UA without distorting the whole thing now. That's a very important dynamic and that now is visible in the numbers. And it's important to remember as well that this 15%, So both SuperFree and Moonfrog has a higher share, as we communicated before, our ad revenues, and they were only consolidated 2 months for SuperFree and 1 month from Moonfrold. And in terms of our other costs, both our external costs And our staff costs, here we have also a positive impact on FX. I mean, our cost base It's sort of naturally hedged to our revenues and that we see as well. But it's also important that these combined where we naturally grow increase our cost base, but they increase less than revenues. And this shows some scalability and quite a bit of scalability in our business model whilst we can actually spend 28% of our net revenues in U. A. And this is a very important dynamic, which is now going through. Going below then EBITDA, we have More amortization and depreciation from our games that are sort of going live or have been going live. So that's a natural increase. And then it has the EBIT margin of SEK 432,000,000, which is And then 103% increase from last year. Some items affecting comparability this quarter. Majority of the debt or a big portion of that is from the Moonfrogg acquisition. And then we have some cost optimization projects on going kickback as well as Julian was talking about. Financial items. The underlying interest cost is SEK 30,000,000, which is we utilize more of our facilities, so a natural increase there. We have SEK 23,000,000 of sort of noncash interest, which is booked under the financial items section. And then we have a positive effect of FX of SEK 9,000,000 in the quarter. We reported a SEK 60,000,000 of tax, which is equal to 29%. But in that, it's also an impact of transactional costs, which is not deductible. And if we strip that out, our underlying cash rate is around 26%. Then moving to the next slide, the cash flow and the balance sheet metrics. First of all, looking at the quarter. Cash flow from operations before working capital adjustments, SEK 387,000,000. We had a negative effect in the quarter of SEK 138,000,000 working capital. This is mainly driven by receivables. Q1 has less days. So some of that receivable, also only received in early April. So it's money we will get back. Even with that effect, generated SEK 249,000,000 of free cash flow from operations. High investment phase, of course, with 2 acquisitions completed, which was approximately SEK 1.3 SEK 1,000,000,000 of cash that went out. And we spent SEK 144,000,000 of into new product development, so 11% of revenues, so in line with previous trends we've seen. And we strengthened our cash flow for the period with SEK 174,000,000 after fees and that's it. Cash flows always last 12 months shows the trend, I think, the best. Here, we have a 150% increase in our operative cash flow to SEK 1,300,000,000 of cash. That increase is 150%. And we continue to spend and increase our spend on product development, which just increased 73%. But it's that relationship that is very important to point out that, yes, we do increase our Those amounts win less and that is also leading to more a bigger product pipeline, but our operative cash flow increases more. And so that relationship is important and something that we look at a lot. And With that investment, I. E. Being able to deploy almost SEK 500,000,000 in new product development in the last 4 months, we still generate SEK 810,000,000 of Free cash flow that can fuel our acquisition strategy as well as part of NII and as well as our financing activities. We introduced a new cash conversion ratio. This before we added our net profit, We are now tracking it against EBITDA. It's much more relevant because we have so many non cash items in our P and So STPA amortizations and earn out interest. And that was NOK 4,000,000, which is It will be an increase of 50% from the same period last year. Looking at our key balance sheet metrics. We have continuously we have utilized more facility. We're still below our target of 1.5 And we do continuously work with our financing on a tactical basis. So the sort of foundations we laid last year, that has served us well to be able to execute on our M and A strategy whilst we're keeping a conservative approach to our actual leverage. And we have still SEK 1,200,000,000 of unutilized cash in the group. Another part here, which is very important, we look when we look at that, we don't look at just the absolute numbers. We look at our majority profile. And here we have a good structure at the moment with the first due date on our 2022 bond in end of 2022. And we have the RCF that we utilize, which is 2023 and then we have the 2024 bond. And maturity profile is something we look at. This is also important that we can not just look at an absolute value of debt, but we actually look at how these instructions to be able to remain conservative on that part as well. To sum up, we continue, as we have done in the previous quarter, strong underlying performance in the business, Continued strong cash flow generation and our financing platform has served that we laid in 2020 That's a good purpose by us being able to execute 2 new deals and finalize them without doing any additional financing except for utilizing our facilities. With that said, I will hand back to Jurgen. Thank you, Andreas. So to summarize and give an update on some few special topics that will be the final part of this presentation. So It will go to the slide with IDFA, a topic that is spoken a lot about and now it's It's finally here, so we can get through that one. And as you probably know, the during April now, the Apple has started rolling out the changes with the iOS 14.5 update. So as we have concluded for quite sometime, and we started already in June last year to prepare ourselves for this change. So that is good. And also, We saw that in our portfolio, the actual users that we have acquired last year, 20% to 40% of the users on iOS actually already manually opted out. So for it indicates that we have been able to cope with this up to that level. But of course, that it will be more that it's not trackable in the way that it was previously when the when it's the reverse thing that you have to opt in to tracking instead of manually opting out. What we expect And many in the industry is that the CPI is expected to drop, so the cost per install, the prices are going down. Of course, we, as a company, representing some 1% for the global market, it's not only up to us Successful market price, so it's very much depending on how others would act in this. But it will, for sure, be a adoption of CPIs for some kind of some types of marketing short to midterm. We have also, since the very inception of this company, focused a lot on being strong or even leading in terms So diversification of channels and providers of marketing opportunities, which is was not made 10 years ago due to any changes in IOS, but it serves us well now when the change is actually happening. So I think that, that will open up for sure opportunities because in some areas, in some regions, for some type of Marketing and campaigns for some type of product, it will open up opportunities. For others, it will be more challenging, but then the price level will compensate. So I think that we are in a good shape. We have made an extensive AB testing of different ways of adopting our marketing. And I think it's too early to say after the 1st week, more or less, the outcome of this. And it's really hard to say anything before it stabilizes. Whether that takes 3 weeks or 2 months, I don't know, but I'm absolutely convinced that we are in a position to take on this change And also both handle the limitations where they come up, primarily in the strategy area, I would say, where you target more. But then we have other ways of doing that, which we will come back to when we report Q2. But Also that we can seize the opportunities that we expect will come from lowering prices and that the market will be not completely efficient for a while before it settles. So all in all, I think we are in a good shape. Very hard to say for the short term, but midterm and onwards, we think that this will not be any larger impact to our business. Going to a few words on our business outlook on next slide. We think we have had a solid Started this year in line with our expectations very much and both in terms of the numbers, slightly higher margin that we may hope for or has hoped for, but that's, of course, very good. We have been able to compare it to Q1 last year. We can really see that, as Andreas also elaborated on that our business model is highly scalable and that we can increase the marketing, get back some of that increase in marketing by increased gross margin and also lower OpEx in relation to our net revenues. That model change is something that we really would like to that we have sought to achieve for quite some time. It leads us to a more solid foundation, stronger diversification in our business model. As mentioned also earlier, we have a very strong pipeline of games entering into SoftForce 2021. It's more than 20 products. And this is Also very encouraging that we have been able to more than double the number of products coming out. Actually, it's almost a factor of 3 compared to last year. And we keep our investment into product development on the at around 10%, 10.9% in Q1. So We are not exceeding our investment levels. However, we are significantly achieving more results with that. So that is very good, of course, promising. As said, we will have it will be sensational if we wouldn't struggle with a comparison number in Q2 because we have exceptional growth. So we expect a negative organic growth for Q2, but we also are convinced that in Q4 and the end of the year, we will definitely be back on growth organic growth again. So exactly if that kicks in, in Q3 or in October or in November or when it kicks in, it's hard to say and always dependent on how our new products can scale. Finally, we have intensified the process to transfer Pampersdorf to the main market in NASDAQ, Stockholm. So we are We hope and think that we will be able to do that within the next coming months, of course, depending on receiving the necessary approvals as always. But it looks good, we think. So that was it. And we with that, I think we open up for Q and A. Thank you. Our first question comes from the line of Alex Dubois from Goldman Sachs. Please go ahead. Your line is open. Yes. Good morning, everyone, and many thanks for the question. Just a couple of quick ones here. Firstly, On the Apple situation, you articulated that there could be some risks, but also opportunities and that you feel the company is in good shape to deal with this. I wondered if you could quantify a little bit the sort of range of impacts we should be thinking about. What's your expectation at this point? A little bit more Detail in terms of numbers would be helpful. And secondly, you obviously achieved 9.5% organic growth in the quarter. And there's an expectation of sort of roughly high single digit, low double digit market growth in organic terms this year. I wondered if you could talk a bit about how we should think about your progression as a company relative to that. Perhaps how many percentage points roughly We could be thinking in terms of outperformance, if that's relevant. Many thanks. Thank you. So first of all, IDFA. Again, in the very short term, it's hard to say, but we are convinced and we are collecting data which literally as we speak, to see where potential opportunities will arise, but because they will definitely do so. But It's to be honest, it's exceptionally hard to make a prediction. And of course, we have different scenarios that we work with, but it's not It's hard to make any firm statement to the market on what we expect in the next, say, the first 3, 4, 5, 6, 8 weeks or whatever. But again, if you take the very large picture of this, It will always be that the strong demand will find the supply of products on the market. So and it has been changes previously when GDPR, it was told that no one could play anymore on desktop, which has proven to be completely wrong. So I'm sure it will open up opportunities. But to quantify them both to the numbers and to tying them, it's very hard. So we don't do any statement in this situation. But and it's only Gone 1 week and not everybody has updated their phones either. So I think it's premature. So when it comes to organic growth, It would take away and again, it's important to understand why we are explicit about the negative growth because we had a tremendous traction in Q2 last year, which also counts in part with the Q3 on the casual side because the casual gains are growing very fast when you feel the marketing, recoup on the marketing, But then also the revenues from cash flow customers declined much faster than it does in strategy. So that's why we We'll see some effect in Q3. But as we have said it many times that we are as convinced as ever that we have built ourselves a possibility to grow stronger than the market. And our view on the market growth is 8% to 9%, and that is because we have a plan about 23% being browser game where the market is declining. We don't have a very large presence in some Asian areas where the growth is higher. Now we have just had entered into India, which is exciting for us, but it will not contribute to the total that much this year, but we see that as growth potential. But Considering that we have built this huge universe of marketing opportunities where we constantly optimize, putting our dollars where it pays off the best over the whole portfolio, all channels, all regions and constantly evaluate and rebalance our marketing mix. That is one of the few, but one of the exceptionally important structural competitive advantages that you ever can build on this market. And we are very strong in that. And that's why I think that over longer time, We have a good chance to grow by 1 or 2 percentage points over longer time than the market structurally. Then of course, if we had, as we have had in some quarters in history, 3 successful launches in the same quarter, of course, we will outgrow the market more in that particular quarter, whereas if we don't have any successful launches For 1 or 2 quarters after that, then we might not grow that much faster. So but besides that, if you look at the long trend, We have provided ourselves with opportunities to grow 1% to 2% larger than the market, faster than the market. That's great, me. Thanks. Thank you. Our next question comes from the line of Chirag Baidya from HSBC. Please go ahead. Your line is open. Hi. Thanks for taking my questions. Just the first one is the on the negative impact coming through in Q2, Just to clarify, is that purely based on comps and there is no quantification of IDFA within this? Is that correct? That is correct. So again, we see no visibility to IDFA. It consists of both opportunities and challenges short term. CTIs will drop. If that goes in a short time, it opens up for Good marketing opportunities in cash flow because cash flow don't use targeting. So for them, a lower CPI is just Compact, good news, so to speak. So but basically, there is this is based on comps. So Not that we have put in some cushion for IDFA. Thanks. And so could you talk a bit more about what the time line and plan is For IDSA going forward, given I guess Google will probably phase out GAID and CPIs go down, will the return on ad And also decrease. How are you sort of thinking about this in the time line going forward? I don't think if you take away the very short term again, I see no reason why or no logic why return on market spend should be lower because what will happen in that case is that the market should just swallow just to pick a number out of the area. Say that it's 20% less efficiency, But if that will just be swallowed by market, that means that the market will have in an on average 20% low risk profitability, and that will not happen. So We are in a good spot because we have wide diversification of products. We are in many regions where we actively promote our gains. And we have channel diversification like few others. So we can optimize that, but that's why we are so convinced that The prices will go down because the value of the traffic that we're acquiring is lower for the cases where you target. Thanks. That's really clear. And just on the just on some of the business performance. So to kick size delivering slightly below expectations in Q1, could you elaborate a little bit more on what the underlying drivers are behind this? Sorry, the underlying? Just the underlying drivers of the underperformance of KickSight? Yes. So KickSight was quite a special acquisition when we made it. So for those of you that followed us at that point in time, We didn't buy it was not the founder following the business. It was a kind of large asset deal or carve out from another business, which was a good decision, by the way. But we can see that we the structure of the business was not optimal. Now we are making efficiencies. We thought that it may be compensated by the fact that new products would have come out earlier, but to compensate for that. But Basically, the cost structure were not optimal, but we it hasn't changed our view on the possibility for Jigzag, and they have several exciting projects and products in their pipeline. Thank you. Our next question comes from the line of Denesh Javedra from Redeye. Please go ahead. Your line is open. Good morning, gentlemen. Great report. A question regarding the fee decrease on the Microsoft Store on PC. They lowered from 30% to 12% And of course, it's very good development for publishers overall, especially on a long term perspective. But Microsoft Store is a small part of your revenues today. So would you perhaps consider focusing more on this channel due to the fee reduction? And how do you think This will affect the market overall going forward. I mean Apple has cut App Store fees for small developers in the past. Maybe you could elaborate on that? Yes, I think it's positive as you rightly state. And I think that From our perspective, we are always trying to diversify and regarding this, the channels that we actually have launched in April prior to knowing this, big pharma mobile harvest on the Microsoft Store. But as you also said, it's the negligible revenues at this point in time. But of course, we take we are completely return on I mean, we are return on ad spend driven. And of course, one component in that, you have a difference of 18% in platform fee and it answers decently to our marketing experts. Of course, that is taken into consideration. And I think so I think it's great in general. It's rational in general as well. And of course, it will put some pressure, I would assume, to Google and Apple over time. I don't expect that will change in short term or mid term this or next year. But over longer time, I think it's not a far fetched thought that the platform fees will be lower from the main The main channel is Apple and Google at some point in time as well. So and I think also this will not only put some pressure in general terms, but it also shows that maybe 30% is high because When a market leader goes down to 12%, it indicates that. And finally, It will definitely, in my view, it's early, but I think it will increase the volumes in the Microsoft Store because for the reasons that I mentioned. Great. And yes, really strong report overall, especially the high margin Hi, UAC. Could you comment or maybe elaborate on the UAC market now that many companies We're seeing re increased advertising budgets and maybe give some color on the large U. A. Spend of 28% in terms of net sales and your view of the marketing return on investment KPIs. Yes. So Yes, so it has been a quite normal Q1 in the sense that it's normally the best quarter and also this year to market because the market prices are lower in January, February March than it is in December, for instance. So And you're far away from the seasonality weakness in Q3. So it's usually the best period for marketing, and it has been so for us for many years. So that is one component and that was following that. So basically, the prices We're expected lower than it has been Q2 to well, Q2 was special, but Q3, Q4 last year. So that was satisfactory. Again, as we have said that the nature of the business in cash flow is that you have a higher UA spend because The dynamics is that you drive more traffic. It's a less portion of in app purchases returning the marketing spend, but instead you get, especially in that scale, positively volume, you get ad revenues, which has 100% margin and no cat warranty. So It's a different dynamic, but we have seen that it has come in, in Q1 according to what we hoped for and expected. So I think that is good and that adds dimensions, as just as Andreas elaborated on, to our business model. So That is all good. I think that we will be on this level for 2021 to build volume and to take the growth opportunities. And again, if you take away the how the uncertainty of how fast the CPIs will drop, We have never had that high return on marketing spend in terms of days. So it's significantly lower than 180 days in Q1. So We are optimistic about that we can continue to market. We have also had a strategy since many years to focus on the LCD side of that equation, meaning that If you have content that people like to play and pay for, then of course, meaning that you get a strong LTV. Then you can cope with a lot of things down the road. If the prices are going up for a short period or a longer period, you are in a good position relative others. And also, you can increase volume if the KPIs are lower. So I think that strategy serves us well. Thank you. And last question, a follow-up connected to that regarding plus Comparables, we're moving into, yes, tougher comparable territory now in Q2. And with the start of Q2, have you noticed any change to the Playcourt? So basically, the permanent boost From COVID, did you see any permanent boost in terms of the gamers' behavior and then sticking around and Players, COVID created a lot of new players. Have you seen the retention being lower than usual? It has followed what we have said several quarters now. The cohorts from the COVID Q2 or from March to June have acted very normal. That was our hypothesis already in Q3 last year, and it has proven to be exactly the case. So that means that The cohort in cash and mash up, they spend typically some 80% to 90% of the cohort's total spend the 1st 6 months. So that's why the effect of that was out already in Q4. Whereas in strategy gains, they are scaling up slower in spend, But in strategy, the lifetime value is spread over much longer time. So there you gain more uplift over longer time compared to cash flow mash up. So basically, the retention curves are very, very representative, including I mean, if you look at compared to Q1 this year or Q2 'nineteen or whatever. So very representative. But that's also What explains the tough comparison because we've massive, massive intake of users that gave us several 100 of 1,000,000 of extra revenues, Of course, that when we compare with that, it would be sensational if we can grow with the same organic number after these cohorts are have churned out. So But it's just for 1 quarter. So I don't see that doesn't impact the way we execute The business executes the strategy for building this company. It's just that the comparison numbers, which is a fictional thing. It's not an impact in the way that we operate. It doesn't matter, basically, from an operational perspective. Great answer. Thank you, gentlemen. Have a good day. Thank you. Thank you. Our next question comes from the line of Jesmer Bergjansen from ABG. Please go ahead. Your line is open. Thank you. Good morning, Jorgen and Andreas. A couple of questions From me, as you've highlighted and after looking at the report, it seems like the increase in advertising revenues is really what And the boosting gross margin is really what's allowing you to keep a good level of profitability despite increasing user acquisition. So in Q1, you had 2 months of SuperFree and 1 month of MoonFrog. And what time you had 15% of revenues through ads. What type of levels are you expecting here in Q2 going on? I mean, are we going to see 20 plus percent and thus seeing elevated gross margin levels For the full 2020 going forward compared to 2020? As we stated in the report, we expect The UA of 28% is quite representative for this year. So that is one part of answering that question. Then we as I said, I think at least in the beginning, We had in March, when we had all the existing 19 studios consolidated, we were in the high teens in ad revenues, which was happened to be the target that we that we communicated some 18 months ago or so. So I think that is what you will see and that, of course, increases gross margin. Maybe you Andreas could just comment on the gross margin impact or how it plays with the ad revenues. Yes. I mean, if you take if you look at Q4, we had 7% to 8% of ad revenues. Now we have 15%. And we made that jump through adding 2 months of Super Freak and 1 month of Moon Frog. So It wouldn't be unrealistic to say that, that goes up above 15% just for that simple mathematical equation. And that is sort of more or less the ad revenues. It's 100% gross margin, so there's no there are, of course, some fees, but very marginal. So that will be continued to strengthen exactly how much we haven't communicated. But if you take the line From Q4 to Q1 and then extrapolate the impact of 1 month more on SuperFree, and we will get to just like a higher number than we have now. Thank you. And I mean, like you mentioned, you've reached your target for now, but is it your long term target to keep this in the 20% Area or high teens area? Or are you looking for acquisitions which might drive this even higher as a margin It's a multidimensional thing what we look at, and we have a very clear view. But for obvious reasons, we don't communicate that externally. But this has been a strategic target for us and hence being something that we have looked at and valued high in the criteria for acquisitions. So what the optimal position is, we have ideas, but nothing that we communicate. But I think that It should be a substantial part of our business because it also besides the fact that it further diversifies Our revenue base, which is something that has a value in terms of risk low improving risk reward ratio, it's also an inbuilt hedge. So If the price if the CPI stop, it will, per inventory, so to speak, lower the ad revenues for sure. But also the other way around, if the market prices on the CPI goes up, then the value for inventory of ad revenue or ad space increased as well. So it's an inbuilt hedge. It's not only a diversification. So we think we can have an ambition that it should be a substantial part of our business. We don't want it to be completely dominating because then it will not be imbalanced with the net purchases. So whether that means that it will come into 20 or 25, it's not that simple. It's put in context and it's put into evaluating further things. But I think we have so much more to do there. And it's not only acquired growth. We have reached some promising results organically, which we will come back to later this year in terms of improving or increasing ad revenues in other games than the one that is just acquired. Thank you. It kind of leads me on to my next question. There's been a lot of questions on IDFA and the potential negative impact, but you also mentioned potential opportunities. Just be interesting to hear what types of opportunities you could see there being for still from the due to the IDFA changes. Yes, one is that the CPIs will drop, and it will not drop exactly the same amount on all the markets for upwind type of products. So if you have a wide diversification of channels that we market on and you have a complete system where you optimize, They were running hundreds of campaigns every single day, and 20 of them will be changed tomorrow because other campaigns are more efficient. So if you have that system, if you have that discipline, if you have the operational excellence to do that, Of course, it's a higher probability that you will find the channels that will lower the CPI earlier. If you compare it to a company that only markets their products in the U. S. Through Facebook and Google or whatever, which is not that uncommon. Of course, you cannot marketing mix in the same way as we do. We have almost 50 different channels that we work actively with in almost 50 territories and now with 52 products and 52x50x60, then we have a much higher announced some campaigns that we can optimize over compared to having 2 products on 1 market and 2 channels. So I think it will for sure open up opportunities. That is a longer it's a big topic, but What this leads to over time is that CRM and taking care of player progression and things like that will be more decided for your competitor and it will be moved since it has been very profitable just to buy new users and not get the most out of these users. Now if that moves because you cannot target and the marketing will be less efficient, It will, of course, pay off better if you're able to conduct cross marketing and A lot of things that you do can do in the game to control the progression of the players in the game so that they are satisfied. We're doing a lot of things in that area currently, and that will make Steel Compos even more competitive in the future. Thank you. That's all for me. Thank you. Our next question comes from the line of Yaman Alba from Kepler Cheuvreux. Please go ahead. Your line is open. Thank you. Maybe a question on your commentary on more negative organic growth for Q2. That is, I mean, the way to find organic growth, it includes StormBeat, but then you also have Jan de Reiter, Nautobit and SuperFree Sandbox and Nautofog as well. Could you comment anything on growth rates for those companies maybe compared to last year and then how they look like? Well, many of the ones that you mentioned were not taking into account on organic growth. But We think that we have a lot of growth opportunities, both from these studios that you mentioned. They have new products on their way out, and we are increasing the addressable market for the new studios. Again, for the very that's very typical. If you look at super free there, completely focused, have been completely focused on the U. S. Market. Now we can open up knowledge about other particular markets, which is a tremendous opportunity for them. Then that is not a quick fix, but it will happen. We will hopefully see a result from that during the year. But So I think to answer that more quantitative would be a forecast, but nothing had changed in our view on these acquisitions nor Our strong pipeline and the opportunity for them, it will be a tender pattern as it has been, I guess. Got it. And I know you don't give any forecast, but since you did, you said you expect negative organic growth. Can you say if you expect Single digit or more than that? We don't comment on that as Specifically, this is the Q1 report, as you know, and it has only elapsed the 3rd of the quarter, so it's too early. Yes. Got it. And then in terms of seasonality, typically Q2 is an uptick Compared to Q1, do you think that looks I mean, your portfolio is a bit different now compared to Sortly, but you still expect portfolio to perform in that way as it looks Yes, I mean, again, Several layers coming in here. So that's why Q2 is very special. But I cannot expecting anyway that this industry and the consumer behaviors, I mean, the consumers don't think that much about side the FA. Obviously, they're impacted, but they don't think so much about it. And I think it will definitely be a very similar pattern For years to come, when you play and how you play on the seasonality in Q3 that we usually have had or every year has more or less, It varies lower, but then again, the mobile gains are not affected as much as desktop. So I and in Q4 and the winter playing it more intense. And in Q1, marketing is the best area. I expect that to continue for many years to come because that's driven by human behavior, not by any tech giant changes. Got it. And then you mentioned a bit on the hotel cross Between different games with your now large portfolio, is this something that you already do or is something that you are looking to do going forward? We do that, but it's not a large amount. Again, it hasn't been a burning platform to do that, but we'll accelerate these efforts because it has been very, very profitable and it is very, very profitable still to buy new users. But I think looking at a longer perspective, This is a great opportunity for us because the gaming companies with a wide portfolio and a large audience We'll be able to fuel by the internal sources by cross marketing and backfilling in the ad space that you have to backfill with your own products if you don't get that repaid from external sources and mediation. So there are so many things strongly suggesting that you will have a vast advantage from having both a wide portfolio. It's not good enough with few products and a large audience, but both a wide portfolio and a large audience. Then we will increase in there. And we have a lot of initiatives ongoing, but I shouldn't say that it will dramatically change anything this year. But next year onwards, I think we will have stepwise a constantly increased part of our traffic coming from our own ecosystem. And just the last question, A bit more longer term and comparing, I mean, your current portfolio, as you say, you have a bit more, more cash flow now compared to last year with slightly more U. S. Spend, which could mean a little bit margin is a little bit lower. But do you think this portfolio that you have now is I mean, has the potential to achieve 35% EBITDA margin long term as your target is? Yes, we have a plan on how to achieve it as well. So but as we have stated, we take a lower margin. Then again, it's you shouldn't forget that it's 2 percentage points higher than Q1 last year when we didn't have any significant cash flow revenue. So but we have a very clear view on how to achieve this. And then it's all about executing. And we are prepared and we have the strategy. So it's just doing it. Okay, great. Thank you. Thank you. Our next question comes from the line of Erik Lengholz from Nordea. Please go ahead. Your line is open. Yes. Hi, Jorgen. Hi, Andreas. So in Q4, you said SuperFree had an Run rate of about $100,000,000 in revenues. Is it possible to sort of get an update on the current Exact run rate of revenues for SuperFree here at the end of Q1? Well, we haven't stated that particularly, but I think they are executing on their plan as we have expected, but we don't have an exact run rate number for 1. We tried to it will be a nightmare for you as an analyst if we communicated the run rate for 52 games at 19 Studios that tried to compile that. So we don't communicate individual games on a regular basis, but that was the run rate. We also think that has communicated in conjunction with the acquisition. They have a pipeline of 5 gains coming out later this year, not the first half, but second half. And of course, we have expectations coming from that. So for SuperFree, just as for several of our studios and all the pipe the full pipeline. The majority of these games will come out in Q3, which usually is Quite common you do that and especially it's I mean, we are very satisfied with Fascination from none of it, they started in now in as you saw in some weeks ago. But otherwise, of course, when the visibility It's lower in for a couple of weeks for a number of weeks, whatever that number is. Due to the IDSA, it's potentially not optimal to launch a product at scale at least. But we are developing the product according to the product plans we have. So we have no Significant delays or so that we haven't communicated any time lines, I think, for that, but the majority of these gains will come on during the second half of the year, including SuperFree. Perfect. And just you gave some guidance In conjunction with the Superfiel and Sandbox acquisitions of achieving SEK 1,500,000,000 to SEK 2,000,000,000 Net revenues for 2021 for this acquisition. I mean, could you say something? Do you think you're trending towards sort of the lower end or the upper end of this guidance? And I mean, I know it depends on game launches and so on, but is it possible to say anything on sort of how you're trending towards this? I can just say that we have no reason to change that, but where it will come up. Again, it's very important to understand that. I mean Sandbox is launching their mobile version of Algon online here in June. If that will go like Complete Donation, then we will be, of course, significantly higher. And then the super free games are Casual games, so they move very fast. So also that could be a really kicker later in the year. But it's both hard to predict When and how it will kick in, but we have no reason to change the interval. Perfect. Thank you. And one more question here from me. So I mean you expect a higher UA level here for 2021, but Yes. Like we have discussed, higher gross margin and maybe lower OpEx levels. Is it fair to assume kind of that adjusted EBIT margin stays around this level for the rest of the year. I mean, if you just take the simple math of saying that Q1 is representative more or less, You will wind up at I think if you take the existing Steel Front and the guidance that we gave on the position including none of it back in October. You will wind up at mathematically a blend of 32% margin. So I think that, that will be a good starting point. Now we had 33%. So but it's very, very hard to say. And For us, it's more about whether it's 32% or 33% or 31.5%. It's less important that then we make ourselves competitive and continue to grow and continue to take positions for the next coming years to achieve and hopefully exceed our financial targets for 2022. Okay. Perfect. Just a final one here while at it. So and then at the start of Q2 here, I mean maybe you can't say this, but have you seen the normal pattern of seeing a Ramadan boost To Nudaharb, for example. And I mean, can you say anything on the activity levels in April March sorry, May? Well, again, we don't give forecast, but and as we mentioned the material, Miller Hardist has been maturing slightly the last quarter, so meaning that it has declined. Then we have seen that, for instance, with warranties and other products that were launched in this at the same time in Q4 'seventeen, They could still go into rapid growth. And if you see also that was stated in the report that supremacy 'nineteen, 'fourteen has been growing tremendously or I think it was in Q4. So mature games could grow. Conflict donations grew by 200%. So games can absolutely grow, and that is the strength of our portfolio. It goes up and down. So yes, we expect that Ramadan will have a positive impact on Bahramina region revenues, including the Mubadil, but also That product has the Lidar product has been in a more mature and a bit softer territory in Q1 than usually. So yes, that is what I can say. Perfect. Thank you. Thank you. Our next question comes from the line of Oskar Erskine from Carnegie. Please go ahead. Your line is open. Thank you and good morning. So a question on your organic Growth comments here. Could you just clarify what one should expect sort of beyond Q2? You mentioned uncertain if organic growth was impacting in August, December, October. Should the base case be for organic growth in Q3 given that the sales did decline sequentially in Q3 last year. Thank you. Yes, so it's many components. You know that we always have the ordinary seasonality in Q3 and that we expect to happen again. So It's typically done 5% to 10% lower activity like for like in Q3 compared to Q2. So we expect that will happen. We expect that especially looking into mash up and cash flow, Again, they spend 80% to 90% of their revenues at certain cohort within 6 months. So even though we didn't have any operational COVID-nineteen effect in Q3. We had a financial run from the large intake in Special Ed Storn8, but As we have said, that stabilized. So how that call will come out is actually quite hard to say and also depending on how our new launches come. But for sure, the second half, if it's 4 months, 3 months or 2 months or whatever And onwards, we are convinced that we will be back on the right organic growth that we have communicated. We think that we have provided ourselves with the The opportunity is to grow structurally over longer time faster, 1 percentage points to a percentage point faster than our addressable market, and there No reason whatsoever to change that view. But of course, with this comparison, it becomes a bit tougher to analyze. Understood. And I'm not going to ask about organic growth, sort of the magnitude in Q2, But I will ask if you say something about the organic growth in the second half of March. You mentioned in the report that comps were much tougher. If you could discuss lube and growth in the second half of March and also that If you compare the comparisons in the period last year, in March and in April, May, for example, will be helpful. Thank you. Okay. It's not very simple to take by heart, but I don't have the second half of March compared to April by heart. I don't recall that number. Anyway, so I think usually, it's strong in March, April, May, and it will be from an operational perspective. But again, it becomes a bit blurry, the picture, because the comparison numbers or what they are. But otherwise, we don't think that it will be many changes here. But we have another factor as stated several times, and that is the short term IVFA changes, how fast will the market adopt. So it's super hard to say. But we are very pleased with our March month. It was very strong. So but it's Unfortunately, the only thing I can say, I don't know if you would like to add something Andreas Othman. No, I mean, it was in March last year and there was that Storm 8 was consolidated and We started to see the first positive impact last year in storm 8 earliest And that we have sort of seen a bit negative impact in March versus March, the storm eight, but we haven't communicated the Thank you. We have no more questions from the line. I will hand it back to our speakers. Thank you for listening in this morning and for all the good questions. And we hope to talk to you soon and meet you with you soon, also face to face with somebody else who happened. So thank you, everyone, for this morning. Bye bye.