Ladies and gentlemen, thank you for standing by. Now, I'd like to welcome you to the first quarter 2025 earnings call of Huuuge Games. The speakers today are Wojciech Wronowski, the CEO, and Maciej Hebda, the EVP of Finance. The call will start with a presentation from the company, followed by a Q&A. For the Q&A session, we'll be joined by Erik Duindam, the COO. The presentation will be available for download on our website after the call. You're also welcome to type in 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, and thank you for joining today's call. Wojciech Wronowski speaking, joined by Maciej Hebda, our treasurer and EVP of Finance. We'll begin by summarizing our operational and financial performance for the first quarter. Then, we'll follow up on our outlook for the remainder of the year. As always, we'll wrap up with our Q&A session. Let's turn to the first quarter highlights, which extend the positive trajectory we established at the end of the last year. Revenue landed at $62 million, edging +1% quarter-over-quarter, despite a -6.8% year-over-year comparison headwind. The sequential lift came from the full quarter impact of our Q4 updates and economic improvements, confirming that the product roadmap is doing exactly what we intended, putting a stable floor under the top line and setting the stage for further upside.
Adjusted EBITDA grew to $25 million, and our margin reached a record high of 40.5%, up 0.3 percentage points quarter-over-quarter and 7.7 percentage points year-over-year. This is now the second consecutive quarter we have held profitability north of 40%. We continue to lean into player engagement rather than shorter monetization levers. As a result, DAU increased 4.4% quarter-over-quarter, while daily paying users held essentially flat. Our D2C channel delivered another record quarter, accounting for 20% of total sales in Q1 and climbing to 21.5% in April. This channel not only improves margin but also deepens our direct relationship with high-value players. Based on the feedback we received last quarter, we'd like to take a moment to walk through how we are sequencing capital allocation priorities and where buybacks fit into the picture. First, we hear you.
Many of you told us bluntly that the absence of share buyback program felt like disconnect given a discount at Huuuge trades. We agree that our stock is undervalued and a buyback remains an option. At the same time, our job is to balance today's opportunity with tomorrow's growth. The slide you see boils that balancing act down to our four clear ranked priorities. Priority one is strengthening the engine that funds everything else. We are closing the revenue dynamic gap with a wider social casino in the market and doubling down all the features that lengthen player lifetime. Second, we are doing our homework on iGaming. 2025 is all about deep market research, regulatory mapping, and business plan validation. Our goal is to have a fully costed roadmap with the next several quarters so we can decide if to enter organically or buy our way in.
That decision will heavily influence how much residual capital is realistically available for other uses, including buybacks. Third, we continue to screen for the transformative acquisitions. We are not chasing size for size's sake. Every target must raise our long-term ceiling on growth or capability. We stay disciplined. We only chase prospects that we have high conviction in, clearly fit our strategy, and we never rush to meet artificial deadlines. Finally, share repurchases. We recognize the value of retiring shares at today's multiples, and we are prepared to act electively and opportunistically once we have better understanding of the financial needs of the priorities discussed a moment ago. Now, let me turn to our core business update. The product performance reflects the significant investments we've made last year to improve quality and accelerate time to market.
Our Q4 releases, Huuuge Pass, and Game Economy Improvements created a stable foundation for future growth. In Q1, we doubled down on those successful releases, adding new layers and mechanics to Huuuge Pass, among other improvements. Huuuge and Billionaire Casino remain among the top monetizing games in the market, and our longevity and engagement focus product strategies delivering results. In Q1, we saw improvement across all engagement metrics compared to the last year. Churn decreased while stickiness and day-over-day retention improved, supported by ongoing updates to our most successful releases to date. Daily active users grew by 4.4% quarter-over-quarter, while the payer base remained flat. Importantly, average revenue per paying user increased by 2.4% year-over-year and 2.6% quarter-over-quarter. Over the last two quarters, paybacks have improved significantly, driven by stronger product performance. Maintaining stable and long-term profitability across our core portfolio remains our top priority.
Our D2C channel delivered another record quarter, accounting for 20% of total sales in Q1 and raising to 21.5% in April. Huuuge moved quickly, followed Apple's policy changes after the Epic versus Apple case. Within 24 hours, we began promoting our web shop, and within a week, we had introduced native in-game buttons linking directly to our D2C solutions. We remain optimistic with several meaningful updates ahead on our D2C roadmap. We'll continue optimizing the offering and stay committed to our guidance of reaching a mid-to-high 20s share of total revenue by year-end. Now, I will hand it over to Maciej Hebda, our EVP of Finance, who will walk you through the financial update.
Hello, everyone. Maciej Hebda speaking. I'll cover the financial section of this presentation. Next slide, please. In Q1 2025, our revenue reached $62.4 million, which was a 6.8% year-on-year decline and a 1% quarter-on-quarter growth. We've already had two quarters in a row with sequential revenue improvement, and we are observing continued positive impact of Huuuge Pass on our top line as we managed to reactivate a number of players across all segments. At the gross profit level, we observed year-on-year and quarter-on-quarter improvement in the margin, driven by the continuous expansion of our D2C channel. Our sales and marketing expenses were significantly lower year-on-year and slightly up quarter-on-quarter, in line with our prior guidance. We continue to monitor paybacks and may accordingly slightly adjust spend in the coming quarters.
R&D as well as G&A expenses were higher on a quarter-on-quarter basis, but as disclosed in our financial statements, we recognized $2.6 million of one-off restructuring costs related to headcount reductions that we carried out earlier in the year. There were no notable one-off items in our P&L in Q1 2025. Operating result reached $22.4 million, which was a 23.8% increase year-on-year and almost a 20% improvement quarter-on-quarter. Year-on-year change in net financial items line was mainly driven by the $1.1 million in FX losses recognized in Q1. Our net result amounted to almost $20 million, representing a 20% year-on-year improvement and 7.2% growth quarter-on-quarter. We reported $25.3 million of Adjusted EBITDA, up 15.2% year-on-year and up 1.8% quarter-on-quarter, marking another quarter of margins above 40%. Now, let's move on to cash flows. Next slide, please.
Our net operating cash flow in Q1 amounted to $22.3 million, with investing and financing cash flows almost netting each other out. This led to a change in cash of $21.9 million and our cash balance growing to $165 million at the end of the quarter. As depicted on the slide, our net operating cash flow to Adjusted EBITDA conversion ratio remains consistently high. It reached 81% for the last 12 months, the best result since 2022. I will now go through the 2025 outlook and our high-level guidance. Next slide, please. We reiterate our guidance for a slight year-on-year decline in revenue this year. Top-line recovery continued throughout Q1, with now two quarters in a row of sequential improvement. Our marketing expenses are expected to significantly decline on a year-on-year basis.
In Q1, our spend relative to revenue reached what we expect to be more or less a steady state for the rest of the year. We continue to monitor paybacks and might adjust accordingly following strict discipline. Operating expenses, excluding marketing, should decline year-on-year, and it is worth noting that the Q1 numbers were impacted by the $2.6 million one-offs related to headcount reductions, and we expect to see a decrease in costs in the following quarters. With strong performance in Q1 2025, we wanted to reiterate that we expect the 2025 Adjusted EBITDA and Adjusted EBITDA margin to increase year-on-year. With that, I am turning to Wojciech for his closing remarks.
Thank you, Maciej, and thanks to everyone for tuning in and for your continued support. If there is anything you would like you to remember from this session, it's these four points. Revenue stabilized at Q4, set a solid base for 2025. Profitability remains strong. Adjusted EBITDA margin above 40% for the second quarter. We are focused on the long-term growth. We are exploring M&A and iGaming expansion while not ruling out potential share buybacks. Our positive D2C momentum continues, hitting record highs and driving over 20% of our total sales. Thank you again, and let's start the Q&A now.
Thank you very much. We'll now be moving to the Q&A section of the call. If you'd like to ask a question, please press Star 2 on your phone and wait to be prompted. That is Star 2 on your phone. If you're dialed in by the web, you can type your question in the box provided or request to ask a voice question. We'll just wait a few more moments for the questions to come in. Okay, our first question is from Max Stenberg, private investor. In the cash flow statement, there's an item listed as transaction costs related to SBB. Since no share buyback SBB activity is currently ongoing, could you clarify what these costs relate to?
Sure, so maybe I'll take this question, Maciej here. Thanks for the question, Max. So in simple terms, it is the excise tax that is driven by the U.S., tax regulations. So the buyback was carried out last year, but we had to pay the excise tax this year, and that's what we have reported in this line.
Thank you. Max had also a follow-up. In the report, you mentioned that you're advancing plans for potential entry into new markets. Could you elaborate on what you mean by new markets?
Yeah, I'll take this one, Wojciech here. So when we refer to the new markets, we mean categories adjacent to our core social casino in the business. So while we continuously monitor several opportunities, our current focus is on researching a potential entry into the iGaming space. We see a strong strategic alignment here, and we can leverage our expertise in monetization. It is quite early, and no final decision has been made, but this is a key interest for us at this stage.
Thank you. Our next question is from Jimmy Johnson from Fold Equity. The report mentions a cost of approximately $2.6 million related to headcount reductions. Under which line item is the P&L in this expense recorded? And is there any additional one-off costs related to these redundancies in Q2?
Okay, so maybe I'll take this question, Maciej here. So this $2.6 million cost is actually recognized across a number of lines in the P&L. So it's both general and admin expenses, R&D, and then also general sales and marketing expenses. And the proportion was essentially driven by the amount of people let go in these specific functions. So for the studio, like the HC studio, it would be mostly R&D, and then support functions would be in those other lines. Then maybe just to give a bit more color on this $2.6 million cost, so roughly half of that was driven by either local regulations, so the collective redundancies and the extra severance that we had to pay. And then also around $200,000 was basically the cost of hardware that we just allowed the employees to keep.
Then in terms of Q2, there will be no additional one-off costs with one caveat that we have accrued for some costs in April, and that's also reflected in this $2.6 million.
Thank you. We have another question from Jimmy from Fold Equity. Now that these redundancies have been completed, are there any internal developments currently underway focused on new game projects?
No, at the very moment, we're very focused on our core products, and we are not building new games.
Thank you. We have another question from Jimmy Johnson from Fold Equity. Business and travel expenses are now at the highest level ever reported by a significant margin. Could you provide some context for what is driving this increase?
Sure, so I'll take this one, Maciej here, again. So that's not exactly true. So first of all, the business and travel expenses are reflected in the other costs line, which you can see in one of the notes in the financials in our Q1. The line was actually lower in Q1 versus Q2, but then again, to give more context and color, so first of all, other costs not only include business travels, but also office management, training, recruitment, etc. In terms of the actual business and travel expenses, it's, I would say, very far away from the record high level. It is also largely driven by the headcount, so it's come down over the past few years. But also, we are leaning more and more heavily on face-to-face collaboration, and this line also reflects it.
But the key driver of that is headcount, so I'll just reiterate that it's far from the record high levels. Thanks.
Thank you. We have another question from Jimmy from Fold Equity. Have you already updated the App Store links, or is that planned for the future? If the change has already been implemented, how has the initial performance been?
Yeah, so this is Erik. Within the first 24 hours when this news came out about the U.S., iOS Epic versus Apple case, we already updated our U.S., iOS games to include links directly to our D2C platforms, and we started multiple product initiatives and development initiatives to develop more mechanisms. Right now, we haven't seen very significant impact yet. It's also because we've had a lot of U.S., iOS players already use our D2C platform, so we need to make sure on the product side that we have all the right things in place to convert more people and to keep them active there. So it's a very active topic for us, but too early to see a lot of additional performance from it.
Thank you. We have another question from Jimmy. How do you view the impact of the Epic versus Apple lawsuit on Huuuge, both in the short term and in the longer perspective?
We're optimistic about this. Also, from what I just said, we are working on a roadmap with quite a few different things, so we do expect more benefits and outcomes from this. It's obviously a question how the appeal from Apple will ultimately turn out, but we're optimistic based on everything we know, and so, as I said, we already launched our initial things in the game, and we'll be continuing to roll out more of this and hopefully see quite a lot of long-term impact from this, and in the best-case scenario, this would also impact other countries or Google or those types of things, but that's just speculation, so we'll see in the future.
Thank you. We have another question. In the report, you mentioned looking at high-impact M&A opportunities. Could you elaborate on what this means for Huuuge in practical terms? For instance, does it imply a willingness to take on debt or consider strategic mergers?
Yes, our goal is ultimately, as a company, to return to sustainable growth in the long term. It's our key challenge and key objective, and we see M&A as one of the levers we have to accomplish this, in particular, to enter new markets or to do any form of M&A that is synergetic to our core business. This high impact does not necessarily mean that we're mainly looking for very large-sized deals. It rather means that we're looking for deals that would be meaningful enough to help us to this goal of sustainable growth and potentially entering new markets such as iGaming. In terms of the potential debt, as you know, we have $165 million cash or more, which is a large war chest, and we could always come across a larger deal where debt would be a potential option, but we see that more as an extreme scenario.
Thank you. We have another question from Jimmy as well. The company is clearly making strong progress internally and generating healthy cash flows. While M&A seems to be the primary strategic focus, isn't there also room to consider smaller share buybacks along that approach?
Yeah, I'll cover that, Wojciech here. So I think we covered already this in the presentation, but we recognize the value of buying share back at today's multiples, and we are prepared to act once we have a better understanding of the financing needs of the priorities discussed in the presentation.
Thank you. Our next question is from Michał from Ipopema Securities. Should we await another large update to core games like the one in the fourth quarter in the coming quarters? Do you have any new ideas how to significantly improve performance of your games, features, updates to game economy, etc.?
We are planning multiple bigger releases this year, and we are aiming to deliver a bigger feature in July, September, and November, and we definitely hope to see positive impact on the game metrics with every release. Having said that, we do expect that November release may be quite meaningful due to seasonality aspects.
Thank you. We have another question. You presented stabilization of the business as top one priority. Should we understand that as planned larger cash flow investments in the core business to stabilize core games?
That is not necessarily what we mean by it. So looking back, we've been simplifying our business quite a lot and really focusing on our core games and not on many other genres and things like that. And so this is our focus as a team and company, and I think the results of the past few quarters also kind of show this that there is a lot of focus here. We're not necessarily planning to make larger cash investments. We'll keep improving the business as we go. The one point is marketing. We've seen good paybacks. In general, we're following always the paybacks and making sure that the marketing spend is ROI positive and maximizes the profit margin we get out of it. At this stage, we don't see a material increase there versus the current levels, but that's the variable that could always change.
Thank you. Our next question is from Michał Stopka, Investor. iGaming, could you explain what it is?
Yes, iGaming is real money gaming or online casinos, and this is where we see that the market is quite stale in terms of innovation. A lot of players that have been there for quite some time with very similar platforms and product offerings where we think we can potentially offer something very different, but it's regarding the real money gaming space.
Thank you. We have a follow-up from Michał from Ipopema Securities. You noticed that your paybacks improved in late 2024, yet still you are significantly decreasing marketing spending in 2025. Shouldn't it be otherwise considering better paybacks?
Our paybacks are ultimately, like I said, focused on particular goals and following the ROI, and part of this is also seasonality. Q4 is always a very strong month for user acquisition and product in particular, and so the other thing is we've changed our approach of the product quite a bit where we're much more retention-focused and less reliant on things like sales in the game, which is very positive. It also means that our mix of KPIs are a bit different, and we want to make sure we make the right decisions with the marketing spend and have enough data to make the right decisions, but in general, we're just following the paybacks, and so if we see that the paybacks are sufficiently good to increase the user acquisition spend with high confidence, then that's something we would consider.
Maybe I'll just add something here, Maciej here. Our spend in 2025 is lower than 2024 on an annual basis, but if you compare the quarters, Q1 versus Q4 2024 is, I would say, more of a comparable level, and this was when the paybacks improved, and we see this level as more of an indicative of what we'll be spending in the coming quarters.
Thank you very much. We have a follow-up from Jimmy Johnson from Fold Equity. Regarding the iGaming market, what segments within iGaming are you looking for?
It's a bit early to comment on this in detail, but we are looking around our core know-how and our unique ability with the social casino to create engaging experiences and retain people around slots and casino content.
Thank you. We have a follow-up from Max Stenberg. What is the rationale behind expanding into the iGaming sector, given that the company has no prior experience in this area?
So as I was already alluding to a bit or what I was saying earlier, we have very unique know-how around gamification and retaining players and slots and creating very engaging experiences and entertainment around this. While many players in the iGaming industry are kind of similar and kind of slow, we also have strong marketing performance, sorry, performance marketing capabilities. It's one of our key strengths, so online marketing, which is not necessarily a key strength in the iGaming industry. It's also a fast-growing market, double-digit CAGR in a lot of markets and in general, and it's regulated, so we know exactly the boundaries are very clear. And social casino as a market is in a slight decline. And so with this ability to create different experiences, we think there's a gap here in the market that we can really leverage with our product and social casino skills.
We do understand that there's a lot of expertise and things we will need to bring in, and we're very aware of that, but there is a lot of expertise we have that others don't have in this market.
Thank you. Our next question is from Maria from Wood & Company. What percentage of DTC in the sales mix do you expect at the end of this year?
We are aiming to reach a mid- to high-20% share of the total revenue by the year end.
Thank you. Our next question is from Piotr from mBank. Could you give us more details regarding the iGaming segment? What's the legislation status in the U.S., around that? In which states exactly such online gambling is currently allowed?
Yes, I'll take this question. So yeah, there's quite a few technical questions here. In the U.S., casino games are allowed in several states, and then for sports betting, it's a bit different. But for us, it's a bit early to comment on this as we are really exploring this area, and that does not automatically mean the U.S., or not the U.S., so it's early to comment on those things.
Thank you. We have a follow-up from Piotr as well. Aren't you worried that going into iGaming would paint you as an online gambling company, which might impact ongoing lawsuits claiming that social casino games are online gambling?
Based on everything we've discussed so far with law firms, this is currently not a real concern. At the same time, we're obviously very aware that this is a key priority for us, that it shouldn't affect our social casino games, so it's something we all take into account as a top priority in any decisions in the future.
Thank you. Our next question is from Maria from Wood & Company. You mentioned that you expect positive impact of the collective layoff costs on your costs in the second half of 2025, but what about the second quarter? Should we assume savings to be partially visible already in the second quarter?
So maybe I'll take this one, Maciej here. In short, yes. Yes, the positive impact will already be reflected in Q2, but then the effect will be a bit more pronounced in Q3 and Q4. That is what we meant by this guidance.
Thank you. Our next question is from Piotr from mBank. What size of M&A are you eyeing right now, like a ballpark number? Is it in the single digits, in the millions, double-digit, or triple-digit?
We are generally looking into several options and considering several options and will not comment on the size right now. In general, I do want to say we understand the concerns from the investors. We hear the feedback, and so we're very mindful in only doing deals that will really create value for us and for our shareholders. We can't comment right now on the deal sizes, but as I said before, meaningful or high-impact M&A does not automatically mean that it has to be the largest size deals. That's not necessarily our key focus.
Okay, thank you. Our next question is from Michał from Pure Alpha Investments. Could you update us, please, with your M&A targets? You mentioned that share buyback is not ruled out. When we could expect any decision about any buyback?
So as Erik already mentioned, we are looking into several options, so we won't comment on the size right now in general, but again, we do understand the concerns, and we are very mindful about the deal, and that will create value for business and the shareholders. In terms of buybacks, we don't have a timeline for a decision about buyback.
Thank you. Our next question is from Michał Stopka, Investor. What is the difference between costs provisions paid to Apple and your D2C?
Maybe I'll take this one. So simplifying, in most cases, it's 30% for Google and Apple. It could be lower. For example, the new terms introduced by Apple for several markets in the EU, they actually lowered the standard commission rate from 30% to 17%. And then in terms of our D2C, again, it's mostly cost-related to payment processing, and simplifying this, it would be between 4% and 5%, ballpark figure.
Thank you very much. We would just like to give a reminder that if you'd like to ask a question, please press Star 2 on your phone and wait to be prompted. And if you're dialed in by the web, you can type your question in the box provided or request to ask a voice question. We'll wait a few more moments for questions to come in. Okay, looks like we have no further questions. I will now hand it back to the Huuuge team for the closing remarks.
Thank you for all your time and engagement. We are very confident in the direction we are heading, and we look forward to update you on the progress next quarter. Thank you very much.
This concludes the call. Thank you and have a nice day.