Ladies and gentlemen, thank you for standing by, and I would like to Welcome you to the first quarter 2024 earnings call of Huuuge. The speakers today are Wojciech Wronowski, the Chief Executive Officer, and Marek Chwałek, Executive Vice President of Finance. The call will start with a presentation by the company, followed by a Q&A session. For the Q&A session, we'll be joined by Erik Duindam, the Chief Operating Officer, and Maciej Hebda, Senior Vice President, Strategy and Planning. The presentation will be available for download on our website after the call. You're also welcome to type the questions in the chat box while the presenters are speaking. So with that, I'll pass the line over to Wojciech to start the presentation. Please go ahead, sir.
Hello, everyone. Thank you all for tuning in. Wojciech Wronowski speaking, the CEO of Huuuge. Today, alongside Marek Chwałek, our treasurer and EVP of Finance, we are going to summarize our operational and financial achievements for the first quarter of 2024. Next, we'll provide our outlook for the remainder of 2024. The presentation will be, as always, followed with Q&A session. Let's start with highlights. It was a busy and highly productive quarter for Huuuge. Despite higher marketing spend, user acquisition almost doubled year-over-year, our EBITDA margins remain high. We continue to be mindful of our cost structure with operating expenses flat year-over-year, thanks to disciplined management, resulting in savings across the board. Our direct-to-consumer efforts are paying off, contributing positively to our margins. In April, D2C channels accounted for 12% of sales.
Huuuge Casino and Billionaire Casino have seen another quarter of daily active users growth, with product KPI stabilizing in Q1. Huuuge executed $70 million share buyback in April 2024, deploying $220 million back to shareholders over the past nine months. Huuuge continues to be strongly positioned. With nearly $100 million in our war chest, adjusted for the recent buyback, we have the flexibility to explore numerous potential capital deployments options. Let me briefly bring you up to date in regards to core franchises and development of new games. Q1 revenue was in line with the internal expectations and guidance we provided to the market. Q1 is usually the slower quarter, affected by seasonally strong December. User acquisition for core franchises almost doubled year-over-year and increased 13% quarter-over-quarter.
We are not planning to significantly increase UA in upcoming quarters. We aim to optimize current marketing mix and keep spending within our payback targets. Our core franchises' KPI stabilize, while we see positive trend in our daily active users volume. This is a result of the high marketing spend, where numbers of installs doubled compared to Q1 2023. We are expecting stable performance in the second quarter of the year, which is in line with our guidance. Let's shift our attention to direct-to-consumer segment. Our Webshop revenue has shown promising growth, accounting for over 8% of total revenue in the first quarter. We continue to invest further in this channel, strongly believing there is much more we can do to improve our results. By expanding geographic coverage, adding new logging system, incorporating players' feedback, and iterating on user experience, we are incrementally enhancing our offering.
In our previous guidance, we promised to achieve low teens in revenue by the end of the year. Thanks to strong April results, where we delivered 12% of total revenue through our D2C channels, we have increased our expectations from low to mid-teens for full 2024. We have several teams, pods, working on new games, each focusing on mastering a specific genre. Currently, we have three games at different stages of the development. Two of them are scheduled for test launches in the second quarter, and one is being tested as we speak. Building games is challenging, and we plan to roll out and test numerous concepts throughout the year. As soon as we observe notable success, we'll share detailed updates and insights about these games. Now, let's delve into our financial performance. Marek, the floor is yours.
Thank you, Wojciech. Hello, everyone. Good afternoon. I'll cover the financial section of this presentation, so next slide, please. Thank you. In the first quarter of this year, we saw a decline in the revenue base of 6.6% year-over-year and 6.1% quarter-over-quarter, driven mostly by our core franchises. However, when comparing to the first quarter of last year, our core titles dropped by 4.2%, while a large part of the overall decline was attributable to Traffic Puzzle. These results are in line with our guidance for the first half of this year and stem from Q1 seasonality, additionally amplified this year by strong December results. On the gross profit level, we observed year-over-year and quarter-over-quarter improvement in the margin, mostly due to continuous expansion of our D2C channel.
Our sales and marketing expenses increased by 60.7% year-over-year and 4.3% sequentially. We ramped up spending throughout the last year as we continued to optimize paybacks. As Wojciech mentioned, we are not planning to significantly increase UA spending in the coming quarters. In terms of other cost categories, we observed significant optimization year-over-year. Research and development by 23.7%, and general and administrative by 6.3%, reflecting our continued focus on streamlining operations and cost efficiency. In the first quarter of this year, our adjusted EBITDA amounted to almost $22 million. The year-over-year decline is a combination of increased marketing investment and a lower revenue base, partially offset by D2C expansion and considerable savings across both R&D and G&A expenses. Now, let's move on to the balance sheet. Next slide, please.
During the first quarter of this year, the structure of the balance sheet hasn't undergone material changes. The increase in total assets was a combination of an increase in cash and long-term investments, partially offset by a decrease in trade receivables and other receivables. At the end of the first quarter of this year, our cash balance amounted to over $163 million, and it remains robust despite the $70 million share buyback settled in April. The decrease in current liabilities is mostly related to the payment of corporate income tax liability from the previous fiscal year. Turning to the next slide, we can expand a bit on our cash position and cash flow generation. The year-over-year and quarter-over-quarter decrease in the net operating cash flow mostly follows the trends of Adjusted EBITDA.
Additionally, first quarter of this year was affected by a higher income tax payment related to the prior fiscal year. The income tax liability for full year 2023 was higher than for full year 2022, due to much higher pre-tax profit generated by the group. The negative investing cash flow in the first quarter of this year was mostly driven by a long-term investment in Banana Studios, and was partially offset by interest received on short-term bank deposits and money market mutual funds. The negative net financing cash flow is mainly related to lease repayment, and remains stable year-over-year and sequentially. Turning to the next slide, I'd like to sum up our financial update. In the first quarter, we delivered an adjusted EBITDA of $22 million and a net operating cash flow of $14.4 million.
Our net operating cash flow to adjusted EBITDA conversion rate for the 12 months ended at the end of first quarter this year amounted to 78%, and has slightly increased compared to the previous financial year. We recognize that we are one of the most cash-generative businesses in the gaming industry, which allowed us to execute a share buyback of $70 million in April. Within the last 9 months, we have returned $220 million to our shareholders, yet our cash balance remains strong, allowing us to pursue various inorganic growth opportunities. Now, I will discuss our guidance for this financial year. Next slide, please. During our March earnings call, when we discussed our 2023 numbers, we presented our initial guidance for this financial year.
Our first quarter results are mostly in line with our previous projections, and we are not changing our guidance for the entire 2024. As previously indicated, we expect adjusted EBITDA and adjusted EBITDA margin to decrease in 2024, mostly due to investment in future growth. However, we still aim to maintain high profitability. The increase in marketing spend follows the paybacks observed in the second half of 2023, as we continue optimizing our UA strategy in the post-IDFA reality. We are not planning to further significantly increase UA spending in the coming quarters. After the expected revenue decline in the first half of the year, we anticipate a recovery in the second half, driven by the new feature release calendar.
Finally, we are mindful of... We are mindful of our costs, and based on first quarter 2024 performance and current run rate, our operating expenses might actually be slightly lower year-over-year, and not flat as previously guided. With that, I'm handing over to Wojciech for his closing remarks.
Thank you, Marek. Thank you all for tuning in and for your support. If there is anything we would like you to remember from these presentations, these are those key takeaways. First, despite higher marketing spend, our EBITDA margins remain high. Our core franchises KPI stabilize, while we see positive trends in our daily active users volume. Our D2C segment is growing, and percentage of the revenue will reach mid-teens in 2024. Let's start Q&A.
Thank you very much for the presentation. We will now be moving to the Q&A part of the call. If you are dialed in by the telephone, please press star two on your keypad. That's star two on your keypad. You may also ask a voice or a text question if you are dialed in by the web. We'll be taking first the text questions, followed by voice questions. The first question comes from Mr. Robin Liner from Private Investor. First question: Regarding the revenue drop quarter-over-quarter and the expected rebound during the second half, have you had fewer in-game events during this quarter?
I'll take it. We manage our growth by balancing monetization and engagement, so it is not about fewer in-game events, but more broadly, we're less aggressive with promotions and special offers.
Okay, follow-up question from Robin: Have you, have you done any major updates to the D2C in April?
We are constantly working on improvements and widening the audience, so this is a continuous process, and we cannot pinpoint very specific item, but number of changes and improvements we are doing to this platform.
Okay, thank you very much. Follow-up from Mr. Robin again. Can you please share some more color on the investment in Banana Studios?
Erik, would you like to take it?
Yes, definitely. So we mentioned in the past that we are exploring new markets, and including skill gaming, and with Banana Studios, their games, they're unique within the skill gaming genre. They're kind of a slots type of game, but with no elements of chance, and the team is very experienced also in social casino. So we made this investment thinking this is, it's, it's quite a good... It's quite close to us, and it's a good opportunity, but it's too early to share any other sort of numbers or expectations since we've just closed the investment.
Okay, thank you very much. Next question comes from Mr. Jimmy Johnson, Fold Equity. With almost $100 million in the bank after recent buyback and a strong cash conversion, do you consider more initiatives like this in your future?
Marek, go ahead.
Sure. So as you know, we just concluded the share buyback. It has been settled in April. So now we are mostly looking into different capital deployment options, but we are not excluding potential share buybacks in the future.
Okay, follow-up question from, Jimmy Johnson as well. What's the reason to do the buybacks at a premium as an offer, rather than do it continuously in the market to a lower price?
So maybe I'll take it. I'll take this one as well. So there are different reasons. As mentioned previously, there are some tax considerations that are important for us. It's also about the low liquidity currently on the market. And finally, we also by doing this through the author, we are effectively sharing the generated value with the shareholders.
Okay, thank you very much. Next question comes from Mr. Piotr Poniatowski, from mBank. Is the $1.35 million quarterly on the ESOP something we should expect in the next quarters as well?
I think as well, yes, that's more or less the level that you can expect in the coming quarter, as well.
Okay, thank you. Next question from Mr. Marek Pelchar from MDM. What will happen with treasury shares?
Yes, as we already informed the market through the current report, we have already retired the treasury shares that were bought back in the last share buyback.
Okay, and a few follow-up questions as well from Marek. Do you consider to diversify to premium games?
No, no, we don't have a plan to go into premium games.
Okay. Mobile games market is growing. Why is it so hard to make a new profitable game?
Maciej?
Yes, perhaps I'll take this one. So maybe starting with the statement that the mobile games market is growing, it actually is flattish, I would say, again, depending on the source. But one thing in terms of trend I can comment is that we observe a growing polarization of the market. So big games, big IPs, those, let's say, incumbent games in the free-to-play space are still around. They get bigger, and they also take a large share of players' time, attention, and wallets. So it's very difficult for new games to break through with such a saturated market.
Thank you. Follow-up: Can you tell us anything about your strategic initiatives, blockchain, NFTs, et cetera?
We are not actively looking right now into blockchain or NFTs at this stage.
Okay, the next question is from Mr. Michał Wojciechowski from IPOPEMA Securities. Could you give us some more color on what basis you expect sales to grow in the second half? Would it be a sequential growth or driven by some specific events?
In short, our roadmap and our pipeline release is very heavily scheduled toward the end of the second quarter and the third quarter. We're expecting there will be multiple new feature releases that will impact positively both engagement and monetization in the game.
Okay, follow-up question from Mr. Michał. After a rapid start of your DTC platform, should we expect its share in the mix to increase in a slower manner in the upcoming quarters? Or maybe there is no reason for a slowdown?
In D2C, we're also managing the growth and making sure that the performance and the experience for players is perfect. So, we are not expecting massive growth, but we are expecting slow growth and a bit of a stabilization by the end of the year.
Okay, thank you. Next question is from Mr. Krzysztof Tkocz, DM BDM. What part of UA spending in the first quarter of 2024 relates to core titles, and what part to TP?
Erik, would you like to comment on this?
Yes. So TP in this context is Traffic Puzzle. So we don't disclose exact details, but the spend on Traffic Puzzle is largely immaterial, and so it's the vast majority almost always is on the core titles.
Okay, thank you very much. Please stand by for additional questions. Okay, our next question comes from Mr. Piotr Poniatowski from mBank. How are you planning to achieve revenue growth in the second half of 2024? Where will it come from?
I slightly touched on this in the previous questions. Again, all about our roadmap and the pacing of the future releases, and, at the same time, due to higher marketing spend in the first half of the year, we are expecting this, we will start seeing effect in the second half of the year.
Okay, thank you very much. Next question is from, a follow-up question from Mr. Krzysztof Tkocz. Are you looking at any other interesting potential acquisition targets?
Yes, we are definitely all the time exploring. There is a constant pipeline, but we won't provide any information by the time there is something to disclose.
Okay, a follow-up question. How are new projects progressing in pods? What are the company's expectations regarding to these projects?
Like we touched on the presentation, like, we are working on the multiple games, testing many of the market, killing or refining others, and, if there is, there will be any commercial success, we are going to definitely broadcast this to the market.
Okay, next question. What potential benefits does the company see in Slots Cash?
Uh, Erik?
Yes. So I already commented on this a little bit. So, in general, the main benefit we see is the growth potential within the segment and the fact that this is a unique game, within the skill gaming area. There are no other sort of slots like games like this, and it's close to our company's expertise. We see a lot of potential synergies once the game grows, and so therefore, we just see a lot of growth potential here.
Okay, thank you very much. What is the progress of the browser versions of the core games?
Browser games are right now live, and we are actively testing it and broadening the audience. So, we can expect some progress in the upcoming quarters.
Is the current monetization of core titles in line with the company's expectations?
Yes, monetization is in line. Like, like the company give the guidance, we expect the slower first half of the year and, rebounding the second half of the year. We manage our growth by balancing monetization and engagement.
Okay, thank you. Next question is from Mr. Max Phillip Stenberg, private investor. How has Q2 started for your core franchises?
Yeah, we are not commenting on the results during the quarter. We'll share more information during Q2 revenue flash in the first days of July.
Thank you very much. Next question is, can you comment on the KPIs of the marketing expenses, CPCs, et cetera, more expensive, less expensive year on year?
Uh, Erik?
Yeah, we don't comment on marketing metrics in detail, but we are looking at our paybacks and what we can say is the paybacks are so between the money spent to acquire a player and the LTV expectation, this is within our expectations and targets. And we also haven't seen any, let's say, negative trends on our CPI or CPC levels on a very high level. So we're... yeah, we're following our paybacks.
Okay, thank you very much. Reminder, star two for any additional questions. You may also ask a voice or live question by pressing star two. We'll give a minute or so for any additional follow-up questions. Okay, we have a question from Mr. Piotr Łopaciuk from PKO BP Securities. Please go ahead, sir, your line is live.
Hello. You have redeemed 7 million of shares, but there are, like, still 4 million on the balance sheet. What's the plan regarding these remaining shares?
Marek, would you like to take this one?
Sure. Yes, we are generally potentially using these treasury shares for the purpose of our employee stock option program.
Thanks.
Thank you very much. I see no further questions at this point. I'll be passing the line back to the management team for the concluding remarks.
Thank you for joining and spending the time with us. We really appreciate your support and feedback. Please join our next quarterly update. Thank you. Bye. Have a great day.
Thank you very much. This concludes today's conference call. We'll now be closing all the lines. Thank you, and goodbye.