Ladies and gentlemen, thank you for standing by, and I would like to welcome you to the third quarter 2025 earnings call of Huuuge Games. The speakers today are Wojciech Wronowski, the CEO, and Maciej Hebda, EVP of Finance. The call will start with a presentation from the company, followed by a question-and-answer session. 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. 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, the CEO of Huuuge, joined by Maciej Hebda, our Treasurer and EVP of Finance. We'll begin by summarizing our operational and financial performance for the first half of the year, then we'll follow up on our outlook for 2025. As always, we'll wrap up with a Q&A. Let's turn to the third quarter highlights. Revenue for the quarter was $56 million, down 5% year- over- year and 5.1% sequentially, reflecting continued softness across the social casino market. While the top line remains under pressure, our profitability and cash generation continue to demonstrate the resilience of our operating model. Adjusted EBITDA reached $22 million, growing 3.3% year- over- year, and we delivered an adjusted EBITDA margin of 39%. Cash generation remains strong, with 85% net operating cash flow to EBITDA conversion over the last 12 months.
Maintaining profitability in the discipline remains a core principle for us, and third quarter once again reflects that focus. In October, we completed the $120 million share buyback, retiring more than 15 million Huuuge shares, which represent 25.4% of our share capital. This is a significant milestone in our capital allocation strategy and underscores our confidence in the long-term strength of the business. Gross profit remains flat year- over- year, supported by continued expansion of our direct to consumer channel. D2C once again delivered a record performance, accounting for 27% of total sales in the third quarter and further expanding to 34% in October. This channel continues to play a key role in improving margins and strengthening the direct relationship we have with our players. Overall, the third quarter was a period where we executed with discipline, sustaining strong profitability, generating cash, and advancing on our strategic priorities.
Let's move to another slide to discuss our focus areas. Our first priority is the core business. This hasn't changed. We continue focusing on long-term player retention rather than short-term monetization. We are doubling down on our successful features. D2C remains a strong margin driver, and we are disciplined in strengthening the engine that funds the rest of our strategy. Our second priority is a new market entry. We are progressing with our iGaming strategy and evaluating all paths to entry, build, buy, or rent to make sure we move at the right speed with the right economics. This is a multi-year opportunity, and we remain realistic in how we approach it. M&A? No changes here. We have fully shifted away from exploring casual free to play acquisitions and are now focused on opportunities that directly accelerate our iGaming entry.
We are actively evaluating opportunities, and we look only at targets that raise our long-term potential and fit the strategy we have outlined. Finally, capital distribution. As we announced in the previous earnings call, we have moved to a formal policy of returning 50%-100% of annual free cash flow. With clear visibility on the investment required for our strategy and with the business generating strong cash, we remain committed to returning surplus capital to shareholders in a disciplined and predictable way. Now, let me turn to our core business update. Our core franchises continue to perform in line with the broader market trends. Revenue declined year- over- year, consistent with the softening social casino market, which is now expected to contract by roughly 5.5% this year.
In Q3, daily active users decreased by 12.4% year- over- year and 5.7% sequentially, reflecting quite a release pipeline in the first half of the year. Despite these pressure points, monetization remained very solid. Average revenue per daily active user increased by almost 9% year- over- year, and average revenue per paying user grew almost by 5%. This reflects the strength and stability of our payer base, which continues to show exceptionally strong retention. Our core franchises operate as an evergreen business with highly durable monetization and a loyal audience that consistently engages and spends at healthy levels. As we shared on the previous earnings call, our roadmap has the most impactful feature releases clustered in Q4. This quarter, we began rolling on those upgrades.
This week, we released one of the largest economy improvements we have implemented to date, an update that has historically driven positive long-term uplift in both engagement and monetization. In parallel, we launched Huuuge Dash, a new engagement layer built on the learnings from Huuuge Pass, our best-performing release so far. It is worth recalling that Huuuge Pass and our previous economy improvements released last November were the main drivers behind the long-term product stability we achieved over 2025 to date. Building on that success, we hope this new combination of economy improvement and Huuuge Dash to provide a similar foundation for stronger and more durable performance going forward. These releases, combined with the natural seasonality of Q4, give us confidence that the fourth quarter will be meaningfully stronger on a sequential basis.
We expect these upgrades to stabilize our KPIs and position the core portfolio for healthier momentum heading into next year. Marketing spend in Q4 should remain similar to third quarter levels relative to revenue. Payback discipline remains unchanged, and as these new features gain traction, we'll scale investment accordingly. Maintaining stable and long-term profitability across our core franchises continues to be our primary focus. Our direct-to-consumer channel continued its exceptional momentum this quarter. D2C accounted for 27% of total revenue in the third quarter, rising to 34% in October. Growth accelerated even further in November, where D2C reached over 38% of total revenue, with the U.S. alone surpassing 50%. This trajectory reflects both the strong fundamentals of the channel and our ability to execute quickly. In early November, we released Huuuge Pay on Android in the U.S, adding roughly 5 percentage points to the channel mix.
Combined with the iOS rollout in September, these improvements allowed us to reach a single-day record of 46% D2C revenue share. What is important is that all of this is being achieved while still serving only a portion of our player base, meaning there is still substantial upside ahead. We remain confident in our ability to overdeliver on our mid to high 20s guidance for the year, and we are entering 2026 with a strong foundation for further expansion. Now, I will hand it over to Maciej, our EVP of Finance, who will walk you through the financial results for the quarter.
Thanks, Wojciech. Hello everyone, Maciej Hebda speaking. I'll cover the financial section of this presentation. Next slide, please. Our Q3 revenue reached almost $56 million, or a 5% decline year- on- year, consistent with the broader social casino market dynamics. Our gross profit, however, was almost flat year- on- year, reflecting continuous progress with our direct-to-consumer channel expansion. Sales and marketing expenses increased both year- on- year and quarter- on- quarter as we have scaled our user acquisition expenses in light of satisfactory paybacks. R&D costs decreased by 26% year- on -year, reflecting the impact of restructuring. Similarly, G&A expenses are down 18% year- on- year. Our operating result and profit before tax were both higher on a year-on-year basis. Net result for the period reached $15 million, a slight decline year- on- year, driven mostly by the unusually high income tax, the recognition of a deferred tax asset.
We expect the effective tax rate for the full year to get back to the lower level, similar to the one observed in 2024. Adjusted EBITDA in Q3 2025 amounted to $21.6 million, which was a 3.3% increase year- on- year. Moving on to our cash flows. Our net operating cash flow improved year- on- year both in Q3 and for the whole nine months of 2025, mostly on the back of higher pre-tax profits. Cash at the end of the period amounted to $205.8 million, with $120 million being restricted for the purpose of our share buyback, which has now been executed and settled. Looking at the last 12 months, our operating cash flow to EBITDA conversion ratio stood at 85%, the highest level since 2022. Our core business continues to be highly profitable and cash-generative. I will now go through the 2025 outlook and our high-level guidance.
Next slide, please. We would like to reiterate our full-year guidance across all key lines of the P&L. Looking at our top line, we expect some pick up in revenue in November and December, driven not only by seasonality but also the feature release calendar. Game economy update launched earlier this week along with Huuuge Dash, a new feature based on learnings from the successful release of Huuuge Pass, which took place last year. We expect our marketing spend for the year to decline significantly versus 2024, with Q4 spend remaining in the low- teens % of revenue. Our operating expenses should decline year- on- year following the dynamics observed in Q3 2025. Adjusted EBITDA and adjusted EBITDA margin for the full year should increase year- on- year, with Q4 EBITDA expected to improve on a sequential basis. With that, I am turning to Wojciech for his closing remarks.
Thanks to everyone for tuning in and for your continued support. Let me leave you with four key takeaways from today's presentation. First, we successfully executed the $120 million share buyback, retiring over $15 million shares, one of the largest programs of its kind on the Warsaw Stock Exchange. Second, we maintained strong profitability and cash generation with high adjusted EBITDA margins and industry-leading cash conversion. Third, our gross profit remained stable year- over- year, supported by ongoing shift toward direct-to-consumer. Fourth, D2C continues to break records, reaching 27% of the revenue this quarter and exceeding 30% in October. Growth accelerated even further in November, where D2C reached over 38% of total revenue. This concludes today's earnings presentation. Thank you again for joining us. Let's now move to the Q&A.
Thank you. Thank you very much for the presentation. We will now move into the question and answer section of the call. If you would like to ask a question, please press star two on your phone and wait to be prompted. If you are a dialed in , by the way, you can type your question in the box provided or request to ask a voice question. We already received a few questions, so let me start with the first one from Jimmy Johnson from Fault Equity. In the past two quarters, you indicated that cost savings, excluding UA, would come through in the second half, but several of these items are flat quarter on quarter. For example, R&D. Is there, in general, more reduction that will be visible in Q4, excluding the cost for the VIP event?
Maybe I'll take this one, Maciej here. That's my quick question, Jimmy. Going through the cost line by line, in terms of R&D, I would say that the current run- rate fully reflects the savings already. In terms of G&A, directionally, we don't expect the cost to grow further, and we still haven't closed our 2026 budgeting process yet. There are some areas related, for example, to entities in the division, mostly financial services, so those cost savings should come through in the coming quarters. Overall, we want to stick to our approach and strict cost.
Okay, thank you. Maciej, we couldn't hear you very well, so I'm not sure if you can maybe move closer to the microphone. Okay. We have another text question from Jimmy. How large was the cost related to the VIP event?
I'll take this one. It was only several hundred K and below $1 million.
Okay, thank you. Another question is the development of D2C has been very rapid and now represents a large share of the company revenue. Do you see any theoretical limit to how large a share could be reached? Is there anything that would prevent the company from having more than, say, 70% coming from this channel?
Yes, we are very excited about the growth of this channel, and it is difficult to comment on any ceilings or limits at this point. By looking purely at our roadmap, we see still a lot of room to improve and grow this channel. We remain optimistic that we can still move the needle.
Okay, thank you. Another question from Jimmy. How do you view the development of the implemented upgrades and features from Q3 onwards?
Okay, it's Wojciech again. Let me answer this and provide a bit broader context. The first releases in the two quarters, we've seen a very positive impact, and that contributed to stable revenue performance for the first two quarters. Our pipeline weakened in the third and early fourth quarter, but this week, we launched our final update this year that includes massive economy improvements and a large engagement feature that we've been discussing during the presentation. Early signals are promising and encouraging, but it's still quite early to comment on the long-term impact. Yeah, we are quite positive in terms of Q4 to Q3 dynamics.
Okay, thank you. Thank you very much. Our next question from Jimmy. Can you give us any early insights from the Google privacy sandbox changes?
Yes, this is Erik. Google has discontinued their privacy sandbox initiative, supposedly because of low adoption, and people are not happy with it. Right now, it is unclear what type of changes may still come in the future. Google has said that they will give substantial notice to everyone before they implement any changes. As always, we are working closely with Google. We have a good relationship with them, and we'll adapt as we see what's going to potentially change. We're not concerned about it. We've also been dealing with the privacy changes of iOS already for three or four years, and Google seems to be moving very slowly. We'll keep you updated if anything changes.
Okay, thank you. Thank you very much. Our next text question also from Jimmy. You recently implemented a new capital distribution policy. Should we view the recent buyback as part of that, or will 50%-100% of 2025 earnings be distributed according to the new policy?
Okay, maybe I'll take this one, Maciej here. Just please let me know whether my audio is coming better.
It's still a little bit, yeah, choppy.
Your audio is still choppy, so maybe I will comment on this. Regarding the last buyback, it was not a part of the new policy. The new policy will guide distribution starting from the next year.
Okay, thank you. Next question. With the buyback now completed, cash levels stand at around $80 million. Following a potential acquisition, what level do you consider reasonable to maintain in cash?
Okay, I'll answer. Maciej here again. We don't give a specific guidance for the cash levels. Basically, we want to have some buffer for working capital, for current operations, and liquidity management. The balance of $80 million is basically well above the buffer.
Okay, thank you. Thank you very much. We have another text question from Krzysztof Tkocz from Erste Securities. Does the organic development of the iGaming project involve a similar level of risk as creating a new mobile game?
I will take this. There are definitely differences between the markets in terms of their product offerings and marketing environments. Overall, obviously, a new entry will always carry execution risk. Right now, our core strategy for iGaming is to pursue the inorganic path through M&A as our first priority, at least. This would actually mitigate the key risks of any new entry by immediately having a proven platform and established revenue. This is currently our main focus.
Okay, thank you. Another question from Krzysztof. What level of cost associated with the development of the iGaming project should we expect in 2026?
As we are prioritizing M&A first, we are not budgeting any significant or material costs for iGaming development in 2026.
Okay, thank you. Another question from Krzysztof. Has the next round of planned updates for the flagship games already been implemented?
Yes, like I mentioned before, we just launched our final update this week. It includes economy improvements and release of our engagement feature called Huuuge Dash. Again, early signals we are seeing are very promising, but it's too early to comment on the long-term impact.
Okay, thank you very much. Another question from Krzysztof. When developing the iGaming project, both organically and through M&A, do you intend at any stage to leverage the user base of your flagship games, for example, by trying to engage them in the new project, or are such actions not planned due to the risk of cannibalization?
We are not considering right now to cross-promote our active or existing player base. What we are looking at is we have a database of churned players that do not play our core titles anymore that we are potentially able to cross-promote, and that is quite a significant database. For those, we are definitely looking at that. For any existing player base, we would be concerned about cannibalization and only consider this in the distant future if we see stronger margins or LTVs, but this is currently really not what we are looking at.
Okay, thank you. Another question from Krzysztof. With regard to M&A, does the company already have specific iGaming targets in mind?
In general, our M&A team is very active right now, and we see a lot of opportunities in the market, and we are building a strong pipeline. That said, we will not comment on specific targets that we are exploring. In any case of an M&A transaction, we will obviously inform the market through a current report.
Okay, thank you. We have a text question from Grzegorz Balcerski, Trygon Dom Maklerski. What do you see as the ceiling for D2C share of revenue? The October and November reading is impressive, but how much room for growth is there?
Yes, I'll take it. Like I mentioned, it's very difficult to comment on the ceilings and the limits at this point. We are very excited about the progress and the growth of our D2C channel. Still, our roadmap is quite big, and we still have a lot of room, actually, to grow this channel.
Okay, thank you. Thank you very much. We have another question from Jimmy. To clarify the point regarding the capital distribution policy, should we expect any form of distribution in 2026 based on the profits generated in 2025?
I'll take this one, Maciej here. Yes, the policy is forward-looking, so any distributions will be based on the 2025 numbers.
Okay. Also, Jimmy asked if we could repeat the answer to the question. In the past two quarters, you indicated that cost savings, excluding UA, would come through in the second half, but several of these items are flat quarter on quarter. For example, R&D. Is there, in general, more reduction that will be visible in Q4, excluding the cost for the VIP event?
Okay, so I'll answer again. In terms of R&D, the current run- rate fully reflects the cost savings. In terms of G&A, directionally, we don't expect the cost to grow. We still haven't closed the 2026 budgeting process yet. In terms of areas where we will see savings, for example, entities in liquidation, costs related to financial services, those should be visible in the coming quarters. Overall, we just continue with our approach to strict cost discipline.
Okay, thank you. Thank you very much. Just a reminder for the participant. If you are connected via the phone and you would like to ask a voice question, please press star two on your phone keypad and wait for your name to be prompted. If you are connected via the web, you can also request to ask a voice question or send your question as a text in the box provided. I will just give a moment or so for any additional questions to comment. Okay, it looks like we have no further questions, so I would now like to pass the line back to the company for their closing remarks.
Yes, it's Wojciech here. Thank you all for your time and engagement. We look forward to updating you on the progress next quarter. Thank you.
Okay, thank you. This concludes the call for today. We are now closing all the lines. Thank you and goodbye.