Ladies and gentlemen, thank you for standing by, and I would like to welcome you to the second quarter 2026 earnings call of Huuuge Games. The speakers today are Wojciech Wronowski, the CEO, and Maciej Hebda, CFO. The call will start with a presentation from the company, followed by a Q&A. For the Q&A session, we will be joined by Erik Duindam, the COO. The presentation will be available for download on our website after the call. You are also welcome to type in the questions in the chat box while the presenters are speaking. With that, I will pass the line over to Wojciech to start the presentation. Please go ahead, sir.
Hello, everyone, and thank you for joining today's call. I am Wojciech Wronowski, CEO of Huuuge, and I am joined today by Maciej Hebda, our Treasurer and Chief Financial Officer. We will begin with an overview of our operational and financial performance, followed by an update on our strategic priorities and our outlook for the remainder of the year. As always, we will conclude with a Q&A session, where we will also be joined by Erik Duindam, our COO. Before we begin the summary of our second quarter 2026 operational and financial performance, let me start with the headline. Today, we are announcing a share buyback of $120 million. This represents 164% of the free cash flow we generated in 2025, and it would bring total capital return to shareholders to approximately $500 million over the past five years.
Our capital distribution policy commits us to returning between 50% and 100% of prior year free cash flow. This buyback is above that range and reflects both the strength of our cash generation and our confidence in the long-term value of the business. In 2025, we generated $73.3 million of free cash flow, and we closed the second quarter with $137 million in cash. Our previous buybacks have already had a significant positive impact on EPS and other per-share metrics, despite the pressure on revenue. The buyback announced today will amplify that effect. Assuming the full $120 million is deployed and more than 16.4 million shares are retired, our per-share metrics would improve by almost 60%, reaching new record levels. Our strong balance sheet and continued cash generation support both this distribution and our iGaming ambitions. We are not choosing between the two.
On the next slide, I will discuss the factors behind this decision and provide further context on where are we with our iGaming strategy. Turning to the quarterly results, revenue reached $50.9 million, down 13.4% year-over-year, reflecting continued softness across the social casino market and the seasonality of our product roadmap. Adjusted EBITDA was $19.8 million with a margin of 39%. Our direct-to-consumer channel continued to deliver strong momentum, reaching another record level of 42.5% of revenue in second quarter and increasing further to approximately 45% in July. Direct- to- consumer remains an important structural driver of profitability and strengthens our direct relationship with players. The first half performance was in line with our internal roadmap and reflected the expected seasonality of our release schedule.
Looking ahead, our roadmap is weighted towards the second half of the year, and we expect the business to pick up, supported by planned product initiatives and slightly lower user acquisition costs. Overall, the second quarter reflects continued discipline in a softer market environment, resilient profitability, further expansion of direct-to-consumer channel, and a significant return of capital to shareholders.
Let's move to our 2026 strategic priorities. Our first priority remains the core business, and the focus here continues to be longevity. We are prioritizing player retention over short-term monetization while doubling down on the features and systems that strengthen engagement and extend player lifetime. We also continue to grow D2C, which remains an important structural driver of margins and cash generation. This is the core engine that funds the rest of the strategy. Our second priority is entering iGaming, and this is where we have an update for you.
A year ago, we communicated our intention to build a second business in this market and made clear that we would remain disciplined in both quality and economics. Since then, we have significantly deepened our understanding of the market by assessing operators, evaluating licensing pathways, and analyzing the regulatory landscape. We are now in much stronger position to determine the right path forward, and this work has informed how our approach is evolving. We are preparing to enter the market through a series of steps that we can control. All pathways remain under consideration, building, partnering, licensing a platform, or acquiring, and we will pursue the route that provides the right combination of speed, quality, and economics. On M&A, our focus has sharpened towards smaller targets with clear synergies where we believe we can move faster on both closing and integration.
At the same time, we are not placing a ceiling on the size opportunities we would consider. Our assessment is based on quality, strategic fit, and economics rather than size alone. Importantly, we do not need to retain cash indefinitely while waiting for a transaction. We carry no debt, and the business continues to generate strong free cash flow. If an opportunity of greater scale met our criteria, we would evaluate the appropriate financing structure. What has changed is that our iGaming entry no longer depends on any single transaction. This gives us greater flexibility and allows us to remain patient and selective. Finally, capital distribution. Today, we are announcing a share buyback of $120 million, which is above our policy range of returning between 50%-100% of annual free cash flow. For 2025, free cash flow reached $73.3 million.
With no debt and continued strong cash generation, our balance sheet comfortably supports both capital returns and execution of our iGaming strategy. We continue to listen the feedback from our shareholders. We are therefore increasing capital returns now in a disciplined way while remaining patient, selective, and deliberate about how we enter iGaming market. Overall, the destination has not changed. What has evolved is the path we are taking to get there and the amount of capital being returned to shareholders along the way. Let me now turn to the business itself, starting with the core franchises. Let me walk you through the performance of our core franchises. Our second quarter results continue to reflect the broader trends across the social casino segment. Gross profits reached $41.1 million, down 7% year-over-year, broadly consistent with the performance of the market.
The decline was primarily driven by lower daily active users. Core franchises' daily active users decreased by 14.5% year-over-year and 7.7% quarter-over-quarter. At the same time, monetization remained healthy. Average revenue per daily active user increased by 1.5% year-over-year, while average revenue per paying user grew by 2.3%, with both metrics remain broadly stable sequentially. This continues to validate the strength and resilience of our payer base. As we discussed on the previous earnings call, the most impactful elements of our roadmap are weighted towards late Q3 and Q4. On September 7th, we implemented a significant economy improvement, an update that in each of the previous two years was introduced in November. The initial results are encouraging. The Monday following the release was our strongest revenue day in several years, and we are seeing a positive early impact on the revenue baseline.
On September 14th, we also released one of the largest product updates to date, a major new meta layer designed to connect the different in-game systems and give player another reasons to engage and enjoy our core product. This is important longevity focused release, and we expect its impact to build gradually as players progress through the new system. These two releases, together with the stronger seasonal period ahead and another major product update planned for November, give us confidence in the outlook for the coming months. We expect momentum to improve meaningfully toward the end of this third quarter, through Q4, and into the beginning of the next year. On marketing, our approach remains unchanged. We continue to operate with strict payback discipline, keeping investment aligned with the product performance and scaling it as the new releases demonstrate sustainable returns.
Overall, maintaining stable and long-term profitability across our core portfolio remains our primary focus, while the latest releases are strengthening the product foundation for improved performance over coming quarters. Let's turn to our direct-to-consumer channel, which continues to be an important driver of both our margin profile and cash generation. D2C reached approximately 42.5% of total revenue in the second quarter, up from 41% in the first quarter. This momentum continued into July, when the channel represented approximately 45% of revenue, reaching another record level. As the channel matures and penetration increases, we naturally expect the pace of growth to become more gradual. Nevertheless, we continue to see further upside and remain focused on increasing the share of revenue generated through direct-to-consumer channel. The long-term development of the channel will also depend on the changes in platform policies and the broader regulatory environment.
We continue to monitor these developments closely and believe we are well prepared to adapt our approach while protecting the profitability and cash generation of the business. Overall, direct-to-consumer remains a strategically important initiative for Huuuge. It strengthens our direct relationship with players while supporting better unit economics, margin expansion, and cash generation. With that, I will hand it over to Maciej, who will walk you through the financial update.
Thanks, Wojciech, and hello, everyone. My name is Maciej Hebda, and I will cover our financials as well as our outlook for the remainder of 2026. Next slide, please. Starting with the P&L. Q2 revenue reached $50.9 million, a 13.4% decline year-on-year and a 9.9% decline quarter-on-quarter. Gross profit was $41.1 million, down 7% year-on-year and 9.7% quarter-on-quarter. The dynamics again reflecting our direct-to-consumer expansion, which supports gross margin. Sales and marketing expenses were up around 12% year-on-year, reflecting our user acquisition investment, and broadly flat sequentially. R&D and general and administrative costs remain well controlled. Operating result was $16.7 million and net result for the period was $14.1 million, both marking double-digit year-on-year declines. Adjusted EBITDA was $19.8 million at a 39% margin, and for the first half, adjusted EBITDA was $44.1 million at a 41% margin.
Despite the top-line pressure, we continue to convert revenue into strong profit. Next slide, please. Moving to cash. Net operating cash flow was $20.8 million in Q2, and $40 million for the first half, a conversion from adjusted EBITDA consistent with our historical levels at around 78% on a last 12-month basis. Our cash position increased to $137 million, up $36.4 million from year-end 2025. In addition, we had almost $14 million in other short-term financial assets, almost half being highly liquid. This is the foundation for everything Wojciech described. It fully funds the $120 million buyback and leaves ample capacity for the iGaming market entry, all from free cash flow without stretching the balance sheet. We remain committed to our publicly announced capital distribution policy in the long run.
Now I'd like to spend a moment on this slide because it's the clearest picture of why our capital allocation matters. Over the years, we've executed several large-scale buybacks and retired the shares, taking our share count from 84.2 million in 2023 to 44.7 million today. The effect on our per-share metrics is significant.
On a last 12-month basis to Q2 2026, adjusted EBITDA per share was $2.05, net result per share $1.51, and free cash flow per share $1.48, all close to record highs, even though our top line has been trending down. This is exactly the point. In a market declining low single digits a year, a lower share count is where per share growth comes from. With the buyback we're announcing today, these per share metrics will improve even further by almost 60%, assuming $120 million deployed and over 16 million shares retired.
We believe this capital allocation strategy, driven by buybacks that reduce the share count, is beneficial to our shareholders over the long run. I will now go through the 2026 outlook and our high-level guidance. Next slide, please. Our full year guidance is unchanged from what we communicated at our FY 2025 results. We expect revenue in net terms to decline slightly year-on-year, in line with the broader social casino market. Marketing spend as percentage of revenue should be around the mid-teens, subject to performance and strict payback discipline, with H2 spend slightly lower than H1. Operating costs excluding UA, should decline modestly year-on-year, following two years of restructuring. We expect adjusted EBITDA to decline slightly with the margin at least flat versus 2025, so continued strong profitability. With that, I'll hand back to Wojciech for his closing remarks.
Thank you, Maciej, and thank you all for joining us today. Let me close with the key takeaways. First, capital allocation. We have announced $120 million share buyback, representing 164% of free cash flow generated in 2025. This will bring total capital return to shareholders to approximately $500 million over the past five years. The buyback reflects the strength of our cash generation and balance sheet, while preserving our ability to execute our growth strategy. Second, profitability remains our core priority.
Gross profit reached $41.5 million in the second quarter, and our adjusted EBITDA margin for the first half of the year was 41%. We remain focused on maintaining strong profitability and cash generation rather than pursuing growth at any cost. Third, our direct-to-consumer channel continues to reach new record levels. D2C represents 42.5% of revenue in the second quarter and approximately 45% in July.
This remains an important structural driver of our margins, unit economics, and cash generation. Fourth, we have an extensive product roadmap for the second half of the year. The first half developed in line with our internal plan, reflecting the seasonality of our release schedule. With the recent economy improvement, a major new engagement layer, the stronger seasonal period ahead, and another significant release planned for November, we expect momentum to improve towards the end of Q3, through Q4, and into early next year.
Finally, we remain committed to entering iGaming on our terms. We are maintaining flexibility on the route to market and will remain patient and selective. Our entry no longer depends on any single transaction, allowing us to pursue the opportunities that offer the right combination of strategic fit, quality, and economics. Overall, we are returning significant capital to shareholders, maintaining strong profitability and continuing to invest in the long-term development of both our core business and our iGaming strategy. Thank you again for your time and your continued support. Let's now move to the Q&A.
Thank you. So we'll now move to the question and answer section. If you would like to ask a question, please press star two on your phone and wait to be prompted. 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 moment or two for the questions to come in. Okay, our first question comes from Jimmy Johnson from Fold Equity. Speaking of the assets, you reviewed the cost structure in early 2025. While the pace of the revenue decline has since accelerated on a gross basis, how do you view the cost base going forward in light of this development?
Maybe I'll take this one. Maciej here. Thanks for all the questions, Jimmy. Starting with this one. We are still working on a 2027 budget, so I'd say it's a bit early for next year's guidance. As for the revenue trend, Wojciech mentioned that we do expect some pickup in the second half of the year, so I would say it should be viewed on a full year basis. On a high level, we remain committed to maintaining high profit margins and our future cost structure should reflect this. Thanks.
Thank you. Another question from Jimmy is, UA is guided to a slight increase and currently stands at around $18 million in first half, compared with just under $15 million in the same period last year. How should we think about this increase in general, and what should we expect in the second half?
Maybe I'll take this one again. Maciej here. Broadly speaking, we set the marketing budget just simply based on the paybacks and expected cohort performance and internal targets. In H1, we follow the paybacks, and we continuously keep monitoring performance and adjusting spend. In the second half of the year, we should see a slight decline. If you take the full year numbers, we reiterate the guidance for mid-teens as percentage of revenue.
Thank you very much. Another question from Jimmy. You mentioned some of the new features which appear to have had a good impact. Should we expect a similar impact on the revenue side as in previous years?
I'll take this one. Hey, Jimmy, it's Wojciech. Thank you for the question. Yeah, in general, this is our expectations. Although quite early to quantify the impact and make a direct comparison with previous years. We had two major releases in September. We see a strong momentum. We had a record revenue day comparing to the previous several years. The baseline is strong. We are seeing in November, another bigger release along with the Q4 seasonality. We are looking optimistic for the future. So together with this, another significant update planned for November Q4 seasonality, we expect positive impact on revenue and momentum. I hope this answered the question.
Thank you very much. Another question from Jimmy. When do you expect a potential launch of the iGaming initiative? Is the primary strategy to pursue the organic route?
Yeah, this is Erik here, so I'll answer this one. The potential launch timing in general hasn't significantly changed, but we would say H1 is our best estimate right now. It still depends on a few decisions and things. Regarding the second point around the organic route, we're pursuing both organic and inorganic routes right now. In each case, our emphasis is on having control over the product development and the marketing, as these are the areas where our strongest synergies lie. So in the past year, we've learned a lot, and we shifted our focus now to a more controlled entry focused purely on these synergies, as opposed to mainly looking for larger M&A that would come with higher complexity. So this means the entry will not necessarily be organic, but we will not wait for any significant larger M&As.
Okay. Thank you. Thank you very much. Another question from Jimmy. There has been a slight increase in R&D costs this year. Is this related to the iGaming initiative, and how should we think about R&D spending going forward?
Maybe I'll take this one. Maciej here. There are no iGaming-related costs in the R&D line, so we haven't really made any organic investments. All of that reflects investment in the core business. I'd say that most of it has been on the product side, on the data side. In terms of the forward guidance, again, it's too early. We are still in the budgeting process. Thanks.
Thank you very much. Jimmy asks, "Loans granted continues to increase. What does this item consist of?
Sure. I'll take this one, Maciej here again. As a reminder, it is a user acquisition financing transaction. Basically, we are funding, let's say, a startup or an early-stage studio and funding their marketing expenses. This loan is repaid from the revenue from any given cohort that is being funded. This was a pilot transaction that we wanted to use strategically as an iGaming entry funnel. But overall, our exposure will now keep declining. So you should see a significant decline in the second half of the year.
Thank you. Thank you very much. Last from Jimmy: "Given the size of the buyback, the remaining cash balance will be lower than it has historically been. What has changed in your thinking around capital allocation that makes you comfortable deploying a larger share of the cash balance now than in the past?
I'll take this one. Wojciech here. As discussed in the presentation, I think Erik mentioned a moment ago, our iGaming entry no longer depends on completing a single large transaction. Our base case is right now organic entry complemented by M&A opportunities. We don't believe it's necessary to retain excess cash indefinitely while pursuing that strategy. This gives us the confidence actually, to return capital above the range set by the policy. We generated more than $40 million of operating cash flow in the first half, and we expect that business to continue converting a significant share of its profit into cash in the next half of the year. Also, in addition to our cash and our cash equivalents, we also held approximately $40 million in other short-term financial assets at the end of the quarter, of which most of them were highly liquid.
Taken together with our debt-free balance sheet and continued cash generation, this leaves us comfortable executing this buyback, and it allows us to maintain sufficient flexibility to invest in the core business and pursue the iGaming strategy we are discussing.
Thank you. Thank you very much. Before I move to the next question, just a quick reminder, if you would like to ask a question, please press star two on your phone and wait to be prompted. If you're a dial-in, by the way, you can either type your question in the box provided or request to ask a voice question. Our next question comes from Olle Jakobsson, WDV Invest AB. "If shareholders don't tender enough shares to complete the buyback, what happens to the unused portion of the $120 million?
Maybe I'll take this one. Maciej here. We will not really signal ahead of the transaction settlement, and it is up to our board of directors to make a decision if such a scenario materializes.
Okay. Thank you. Thank you very much. It looks like we have no further questions from the audience, so I will pass the line back to the team for their closing remarks.
Yes, this is Wojciech here, and thank you all for your time and the engagement. We are looking forward to updating you on our progress next quarter. Thank you, everyone. Have a great day.
Thank you. This concludes our call for today. We are now closing all the lines. Goodbye.