Stillfront Group AB (publ)

STO:SF

Earnings Call Transcript 2021-Q2

[Operator]

Hello, and welcome to the Stillfront Audiocast with Teleconference Q2 2021. [Operator Instructions]Just to remind you, this conference call is being recorded. Today, I am pleased to present CEO, Jorgen Larsson. Please begin your meeting.

[Jörgen Larsson, Founder, CEO & President]

Thank you very much, and good morning, everyone. It will be me presenting as well as Andreas Uddman, our CFO. I will start -- will give you on Slide 2, an updated Stillfront at a glance. We are now 20 gaming studios that are working very much collaborative and creating operational synergies. We will come back to that later. We also have built a portfolio that is growing and evolving that is typically characterized with lower users and long life cycle games. We are approximately were over 1,200 employees in our different offices, which you can see at red dots on the lower right corner of the Slide #2. We have a record level of users playing our games. They are now 67 million monthly unique and 13 million daily uniques. And our main markets are U.S., Germany, MENA region, U.K. and Canada. And you can see the distribution of our revenues also on the lower right corner. So North America slightly up to 54%; Europe, 29%; Asia slightly up to 11%, which are our main areas. Turning to Slide #3. A few words about our game highlights in the second quarter. We added 4 titles to our active portfolio, so which is now then 56 games. We have now more than 30 games under development and in soft launch in different stages, which is the highest number ever, and that is giving us confidence that we will have the opportunities to grow not only later this year, but also into several years to come. We acquired our first asset during the quarter, Crush Them All, an idle RPG game, which is operated by Imperia Online and also supported by Goodgame in marketing. We also had a successful early launch of Albion Online, the mobile version that reached in a very short period, 2 million downloads. And we are very pleased with that, of course, and also that resulted in an increased daily active users base of more than 50%. So a very good start for Albion Online Mobile. However, we have a bit softer performance on Super Free titles as a direct result of lower download numbers and which in turn is a result of a decrease in UA spend. The successful expansion of Big Farm Mobile: Harvest into Microsoft store, an interesting and promising thing. Low volume so far, but we think that could be interesting in Q3, Q4 and onwards. And finally, I would like to comment on BitLife, which has had the all-time high here in May, and we are optimistic about what that could bring as we continue our localization and expansion of that game and also adding new updates and new content. Going to next slide, Slide #4, we recorded net revenues that were 16% higher in Q2 this year, amounting to SEK 1,382 million. Also, we had an organic growth of minus 17%, which is obviously a direct consequence of that we had in Q2 last year, the exceptional intake of new user. So it's a challenging comparison. However, it's important to note that we have had a very -- we're very pleased with the ARPDAU, the average revenue per daily active user development since that. So it's offsetting some of the user base decline and as it is organically plus 13%. It shows that the COVID-19 cohorts and onwards has been of high quality, and that our teams are really good at the live ops that is so important for our business. Also, very important is to note that since we have this exceptional comparison period, which is making things look a bit special this year as we are -- have been a growth company for more than 10 years, it's important or could facilitate to look at the 24 months comparison instead. And then we have had a on a pro forma basis, excluding Kixeye, which is a separate topic, but otherwise, we have been growing like our addressable market. So that shows that we have a quite steady development over 24 months, but of course, with a very high bump in Q2 last year. Also importantly in this quarter is that we had a UAC deployed representing 25% in relation to net revenues with very good profitability. So way shorter return times than the 180 days that we target. We did target to deploy some 4% to 5% more than that, so that was not possible due to the IDFA challenges. But nevertheless, it's important to note that we did deploy the second highest number ever. And mainly it was Super Free that we couldn't market to the level that we hope for. And since they move a bit faster than other products, that is basically what is part of the development of our top line, obviously. We will come back to that later in the call. Just another comment on the IDFA effect, we think that we -- it's really paid off that we prepared ourselves for almost a year or actually more than a year ago, we started with preparations. We have been benefiting from that. We have been benefiting from the fact that we have a very wide market universe and a strong market reach. Many channels, many territories where we market. So that is what explains that we were able to deploy the second highest level ever, even though we have had the IDF challenges. But of course, 2 things we did not expect out of all these unknown territory that the IDFA change come with, and that was we did expect the update of the phones from the consumers to happen earlier, just that also Apple have commented on. So that was a bit slower than we expected. And also that some of our partners -- marketing partners and intermediaries saw some unexpected challenges due to this, which, of course, had an impact for us, especially that it had an unexpected impact on games and studios that normally don't work, we're targeting at all such as Super Free and others. So that, of course, had an impact. But nevertheless, it's important to note that we had our second highest leeway ever and a high level, 25% in relation to our net revenues. Last comment on this. Looking at the graph, you can see that we have all-time high in recorded revenues, both looking at the individual quarter as well as the last 12 months despite the fact that we also have an 8% negative FX effect in the quarter. Turning to Slide 5, looking at our profitability. We have a very high profitability in Q2 of 35% EBIT margin, and that is obviously then driven by the fact that we didn't -- we were not able to deploy more than 25%, even though that is a high number, obviously targets deployed to 5% more. So that has, of course, a direct correlation to the high profitability and high profit margins. We also can comment, and it's important that we can conclude that we have 19% in advertising revenues, which was a target that we set up at our Capital Markets Day in November 2019 that we should be able to be up high teens in advertising revenues, and that's strategically important, whereas it is a perfect hedge towards volatility in market prices, and that is up from 5% last year. And we can also see that it's important to note, as we have explained and elaborated on earlier that we had a different product mix compared to one year ago, and that is typically that we should have a higher UA spend in relation to net revenues than we had 1 and 2 years ago. We think still that 28% is a representative number as we spoke about all in the beginning of the year. We can also see that we have an all-time high in profits in absolute number, both for the quarter as well as 12 months. So we recorded SEK 477 million in profit only. Turning to Slide #6, looking at our active portfolio. As mentioned, we added 4 titles. So we are now up to 56 titles in our active portfolio. The advertising booking increased, as mentioned, to 19%, mainly driven by the fact that Super Free were included for the full quarter for the first time. Mobile bookings steady on a 77% portion of the total revenues, up slightly from last year, but very steady from Q1. And you can see that we have a significant increase in the number of users worldwide that play our games on both on a monthly basis as well on a daily basis. They were up to 67 million on a monthly basis and the DAU number is up to 13 million. So we are pleased. We are heading for the 100 million user base that we would like to have in the future. We can also conclude which is important that our ARPDAU, the monetization that we are able to do, is really strong. So it's organically up by 13%. And again, that is a product of good work in our studios with live ops, and that's a cohort that we were able to acquire has been of good quality. Turning to Slide 7, looking at the strategy product area. Total of that representing 25% of our active portfolio bookings. We have now 13 games in the portfolio. The bookings are declining by 17%, and that is of course driven by the fact that we have a much lower UA than we had last quarter, but also that we have basically a lower number of users basically than we have compared with Q2 last year. It's important to note that Conflict of Nations continues to be very, very strong for us. It's one of the most successful launches in September last year. War and Peace that was launched in Q4 '17 has continued to perform very well and a strong organic growth year-over-year. It's a low number, but it's an important -- as a last comment on the strategy area that we are starting to see that ad bookings where ad revenues has actually start to kick in. So we have been able to expand in absolute numbers factor 3s, but it's still only 1%, but it's important because we didn't really expect one year ago that we at all be able to generate ad revenues in the strategy area. But as we see now that, that is possible. We are optimistic about that, that number can increase, and that is, of course, in line with what we -- our strategy to increase ad revenues. Turning to Slide 8, Simulation, RPG area and Action area. We can see that this is now 30% of our active portfolio. We have 26 games with Crush Them All, Naval Action, and This Land is My Land added to the portfolio during the quarter. So the growth is 22% compared to last year, primarily by newly acquired titles explaining that and driving us. We share of mobile bookings decreased actually to 59% due to that Albion Online, which is a cross-platform product, have significant revenues on non-mobile areas. But as we mentioned earlier, we see that the mobile portion is promising launched in the quarter. Ad bookings were steady at 5%. You can also see that we have some fluctuations and some lowering in MAU -- especially and in DAU and that is mainly explained, but we had significant pushes in Q1 or now a bit in particular that we didn't have in Q2. Turning to next slide, which is the Casual and the Mash-up product area, slide 9. Now that area is representing 45% of our bookings. We had a year-over-year growth of 30% which is both explained by the acquired titles obviously since this is our latest added product area, but also very strong organic growth from Candywriter. Also, we're happy to see that Moonfrog have had a very strong first couple of months in the group, and we are already establishing several collaboration projects just to ensure that we leverage the business platform that we have. So that is very pleasing to see. And as touched upon already, Super Free have a softer development on top line because they saw the challenges with spending as much as we planned on UA. But the flip side of that is that they are earning more money than we expected and we earlier guided on. So DAU and MAU, as you can see, are I would say, obviously rapidly expanding as we have added Moonfrog that has a significant, very high number of large user base, but they are monetizing on a lower level. But that is what we knew already. And with that, I would like to turn over to Andreas to put into some financial highlights. Please, Andreas.

[Andreas Uddman, Chief Financial Officer]

Thank you, Jorgen. Good morning, everyone. Just turn to Page 11, so the financial highlights of the quarter. We have a revenue growth of 16%, and it's paired with a strong adjusted EBIT margin of 35%. We did -- on the cash flow generate a record level of cash flow from operations of SEK 443 million. We continue to have a strong financial position with a cash balance of SEK 850 million and ongoing total credit facility amount of SEK 2.6 billion. We took strides of improving our maturity profile by issuing our a new bond, the SEK 1.5 billion on very attractive terms. And we have a leverage of 1.56, which is around our leverage targets. So the quarter, even if we have tough comps, strong underlying financial performance, we diversified our financing platform, and this creates flexibility for future growth. Turning then to Page 12, the P&L or income statement in more detail, as mentioned, revenue growth of SEK 190 million, so 16%. This was driven by acquired growth, which grow 41% of the increase. That's sort of offset then by a negative organic growth of 17 and FX movements of -- which creates a negative position of 8%. Acquired growth continues to drive diversified revenue generation. We have more games with both Super Free, Moonfrog contributing to the payout for the full quarter. And we also Game Labs joining in May, whilst that is small and not material, it is still contributed. Ad revenues increased to SEK 261 million or 19% of bookings. This is a key dynamic in our portfolio. And as you can see, the platform fees actually decreased with SEK 29 million, so 9% year-over-year. And that ensures that the gross profit in absolute terms increased by SEK 220 million and i.e., 26%. And this is driven by more ad revenues coming in. So we improved our gross profit margin by 6 percentage points year-over-year, and that allows us to deploy 130 million more i.e., 60% more of UA in the quarter, so the second highest quarter that we ever had. And this is very key in terms of the demand dynamics. We talked about this and the importance of this, and we can now see it in the financial numbers coming through. In terms of our other expenses, the increased SEK 25 million year-over-year, a 53% increase. So obviously some seasonality in that cost position, but mainly driven by the acquisitions that adds sort of fixed costs. Our staff costs increased by SEK 58 million or 35% to SEK 222 million. But it's also important to note that the actual P&L impact of that net of the own work capitalized is SEK 26 million on a 32% increase. Then moving down on the P&L, so we have depreciation and amortization, so that increased by SEK 26 million. That is driven by more products being amortized for the full quarter, but also some depreciation, which is mainly driven by IFRS 16 and office leases. So we increased our adjusted EBIT with SEK 14 million, i.e., 3% versus last year, and our margins were 4 percentage points below last year, but still at 35%. We had some -- moving down then to items affecting variability. We were still very busy this quarter with 2 acquisitions, the main -- and that impacted our costs. So the main cost is related to the Game Labs acquisition, and that total was SEK 13 million. We did change the list and they had a charge of SEK 11 million. And we have some continued cost optimizations in Kixeye. This total cost was actually offset by any other income as well, which was due to a purchase price adjustment, which came after the measurement period, hence taken over the P&L. The PPA amortizations increased as we've seen. I mean, that's driven by our acquisitions that we made. So the increased 74% to SEK 69 million, and that is the main driver that our on adjusted EBIT is decreasing for the quarter. In terms of financial items, we had SEK 72 million charged for the full quarter. The underlying interest cost is 37. And then we have 26 million, which is sort of noncash interest on earn-out considerations that we book each quarter. And then we had a net effect of SEK 9 million, which is a net effect of FX and a small earn-out revaluation in the quarter. This gives us a result of the financial items of SEK 217 million, and we had a reported tax expense of SEK 68 million, and this is equivalent to a tax rate of 31%, but excluding the impact of nondeductible transaction costs, they would have been 29%. And we ended the quarter with a net profit of SEK 149 million. Turn it to Page 13. So cash flow and balance sheet metrics. I mean, as I mentioned before, we had a record cash flow from operations of SEK 143 million, even if we paid taxes of SEK 55 million in the quarter and we had just a small positive effect on working capital. So it's a very strong underlying cash flow generation. We did invest just above SEK 1 billion, of which this was SEK 670 million related to settling of the cash earn-outs that we have outstanding. This was relating to the cash earn-outs for 2020. So that has all been settled, and we have no more cash earn-outs going up this year. And we also acquired Game Labs and that was SEK 189 million. We did invest, continue to invest. So we invested SEK 149 million in new product development or 10.8% of revenues. And we also built the first tranche payment for the Game Labs -- sorry, Crush Them All acquisition, our first asset acquisition. We had small movements on our financing where we had approximately SEK 150 million of new debt taken out. And then also, we got some payments for the warrants programs which matured of SEK 74 million. But as always, cash flow is on an LTM, extremely important to look at from that perspective, and here we continue to show that we could increase our cash flow from operations to almost SEK 1.4 billion. And this is an increase of SEK 617 million versus same measurement as in Q2. That's 92% increase of cash flow from operations. We still continue to invest. So we invested SEK 530 million in the last 12 months in new products, new organic growth. And that increases an increase of 50%. But here is the key sort of metric is that we do increase our operative cash flow more than we increase our investment cash flow even if we deploy SEK 530 million in the last 12 months. So our free cash flow from after product development increased with SEK 490 million or 131% to SEK 865 million. So -- And this has obviously been a key for us. This has enabled us, together with our ability to have different sources of financing to do these acquisitions that we have done in the past period. So underlying strong, I would say, we have to sum up this a bit, underlying extremely good cash flows in the quarter. In terms of the balance sheet we are now at around our leverage ratio, and we are at 1.56 in the quarter, which was expected. And we did strengthen our maturity profile on our debt portfolio by issuing a new 1.5 billion bond, which matures 2025. and we use the majority of that to reduce the RSF utilization that we had. So we have a good debt structure which has become more diversified in this quarter. But just to summarize, underlying, even if we have strong comps from last year, we continue to deliver growth, we continue to deliver strong cash flows and good margins. And with that, I will hand over to Jorgen.

[Jörgen Larsson, Founder, CEO & President]

Thank you, Andreas. We are turning to Slide #15. We decided to give a guidance for the third quarter. And because it is several factors that comes in, both the steel we will have in Q3, then we will get rid of the tough comps after that, but we have the tough comp still being there in Q3. And also, we have seasonality. As always, we have had in this firm in July and August. So we thought that it was good for to be explicit about what we expect for the third quarter, and we expect some SEK 1.3 billion in revenues, plus/minus SEK 25 million. And that is also providing us with an adjusted EBIT between SEK 375 million and SEK 415 million. And the reason why we expect in Q3, if you look at the seasonality, it's basically what we've had most years, if not all years in this company's history. So that is very normal. What usually is that we increased the margins in Q3 compared to Q2. It's an important reason why we don't expect this, this year, and that is because both we have a different structure. So 35 is not what we expected, we deployed less in Q2, but also that we expect and see early signs of opportunities to deploy more UA again. So we do guide on the fact that, that tells you that we see that we can deploy more UA in Q3 than usually we are able to do. And that is a very good and very important factor for us to be comfortable in that we see good opportunities to also compare year-over-year and have organic growth as we go into Q4, I will come back to that in a second. So this net revenue guidance means that we have a growth in Q3 year-on-year between 24% and 29%. And finally, Slide 16. We are continuing our growth journey. Our business is growing. It is tough to see the comparison as we spoke about already -- we knew that already last year. We spoke about that already from the beginning of the year, but our business are performing well, we think, and also the monetization is supporting that -- the growth opportunity and the growth journey we have. And also, if you look at the 24-month period, which is then taking away the bump of Q2 and partly Q3 last year, we had a -- both from the acquired studio in the last 24 months a good -- very, very good contribution. They grew by 27%, which shows that we can really leverage and create synergies on our Stillops platform, but also that we looking at 24 months. We do grow our business with approximately our addressable market, which is very important, of course. And we have a stronger platform than ever of new games organically coming out from our existing studios now up to 30%. So it has been more than tripled in 18 months and as Andreas pointed out, we have not nearby tripled our expenses. So I think that we show that we are more efficient. We leverage what we have on the Stillops platform to both deliver new games but also how we operate the existing games. We also have an exciting pipeline of M&A targets still there. There are still many companies that will be consolidated in this industry for the next coming years also in the short period. So we are executing on our strategy, we are executing on our plans, and it's in large following our plans, even though we have this comparison. So we are in a very good position, and we are confident that we will return to organic growth also comparison year-on-year as we have this comp thing out of the picture. And that means that it's the latter part of the year. Then whether it's October, November or something else, it's, of course, hard to say explicitly. But we have positioned ourselves to go back to organic growth and we are definitely in a record breaking year for Stillfront on its journey towards reaching our long-term targets for 2023. So with that, we are ready with the presentation and open up for questions, please.

[Operator]

[Operator Instructions] The first question comes from the line of Nick Dempsey from Barclays.

[Nicholas Michael Edward Dempsey, Research Analyst]

I've got 3 questions, if that's okay. So the first one, just looking at the Q3 guidance, it's difficult to pull apart the revenue into organic progress and M&A on a year-on-year basis. But I'm not seeing -- when I try and do that, the rate of organic decline that is sharply better than Q2. But then you're also pointing to opportunity to spend more on Q3 which is reflected in your margin. So am I wrong on that organic calculation, will be better? Or will it take time for more UAC to mean more revenue growth? Second question, on that call earlier this week, I think Zinger management said something similar about seeing signs of improvement in the marketing environment led them to put some more UA spend to work. Yes, you said something like that. But can you give us a bit more color on the improvement that you have been seeing? What has given you more confidence to spend more on UA? And the third question if the IDFA effect you've been pointing to has been most impactful at Super Free, that's seems to what you're saying, and that's not contributing to your organic growth number. Is the organic growth you're seeing in Q2 and Q3 the kind of level you always would have expected from the start of this year?

[Jörgen Larsson, Founder, CEO & President]

Thank you for the question. So starting with organic growth into Q3. We don't give that number. We have a guidance for the full. We're not reporting Q3. We will come back to that, but I think that what we always have done, and I think is definitely one of our key strengths is that we are not -- when we operate our business, divide our studios, divide our products into the organic ones and the nonorganic ones. That is actually one of the key reasons why we didn't report organic growth because when you operate again and when you have the ability that we have developed over many years to rapidly with agility, reallocate marketing to whatever product that returns the best. Constantly, we are moving marketing money so that we get the best bang for the buck, so to speak. That means that it's not the way that we operate to say that we should, whatever it takes, increase that studio, that product, whether it's organic or not. So we will come back, obviously, to report that, but it's not how we steer the business. When it comes to the UA momentum, so as you rightly commented in your question like that we have lower margins in Q3. And as I may also touched upon, during my presentation, is that it is for the very fact that we believe that and see early signs that UA momentum is strengthening, but it's early signs. But we obviously believe that we during the third quarter, we'll be able to deploy higher UA levels than we usually are able to do in Q3. And that is, of course, a key component in the fact that we are confident in that we will return into organic growth, also comparison year-over-year during Q4. So yes, we see signs of improvement, definitely. When it comes to the IDFA effects on Super Free, yes. That was one of the two things that we didn't expect. Otherwise, most other things were according to what we expected. But Super Free not working with targeting, they shouldn't be affected very much or at all more or less from IDFA changes where that is primarily making it harder to target traffic. So that was not what we expected. And of course, that low revenue return there. And as we commented on being a Casual & Mash-up game, they move faster in terms of when you can spend the UA that you hoped for or expected, the revenues drop faster, if you don't start to compromise with profitability, which we do not, but on the other hand when the UA get traction on the levels that you expect and that you can deploy with the profitability levels that we expect, the uptick is much faster than in strategy as well. So as we mentioned in the report, if we wouldn't have had Storm8 on board during Q2 last year, that grew by 60%, 70% in a very short period because they are very fast moving. If they would have had Super Free at that point, we would have seen even higher number. So it's fast moving. So that was the unexpected that they had an impact on IDFA, but we are as confident as I mentioned, that, that is a short-term problem. And then they will be able to deploy it and they have the product -- existing products as well as the pipeline for taking opportunities during the full year when -- but then again, if it's in September, October, November or December is, of course, hard to be bold about. I hope that answers your question.

[Operator]

The next question comes from the line of Marlon Varnik from Pareto Securities.

[Marlon Varnik, Research Analyst]

Just a question here on your revenue guidance for Sandbox and Super Free was SEK 1.5 billion to SEK 2 billion for 2021, given in December. Can you please give us an update here? And how we should view the contribution for Q3 and Q4 for Sandbox and Super Free?

[Jörgen Larsson, Founder, CEO & President]

Yes, so we have chosen not to take that at this point in time because as you know we are launching for Sandbox, the Albion Online Mobile, which is we did expect and we -- obviously we are encouraged on the first 30 days or actually 25 days, I think it is, in Q2 when they were out with 2 million downloads in a very short period. So we think they will contribute. And also, we are confident that we will be able to deploy more UA and Super Free, and that will have a quite swift impact on top line. But the profitability is higher, significantly higher on Super Free since we didn't deploy that. So we think it's not -- it's more important for the understanding of Stillfront to guide on the 4Q -- the full Q3 for the full group rather than just taking out Super Free and Sandbox. We will come back to that as we are approaching the year-end. But at this point, we think it's more important to see that, especially as we are seeing opportunities coming now and into Q4 for both these entities.

[Marlon Varnik, Research Analyst]

All right, thank you. And another question, on the mobile advertising market environment, you expect to have a short-term negative impact. How do you define short term? And why do you expect it to be short term? If you can give some more flavor here would be grateful.

[Jörgen Larsson, Founder, CEO & President]

I mean the -- you mean on the opportunities to market our product or the ad revenues we have or both?

[Marlon Varnik, Research Analyst]

Markets to UA spend.

[Jörgen Larsson, Founder, CEO & President]

Again, we have definitely leveraged the fact that we have a very strong market reach. Many channels in many territories in a way that few other of our peers, I think, could match. And that is the explanation why we are on the second highest level ever during the IDFA change. So -- but I'm completely open with that. We had hoped to deploy maybe 4% more than we did, but we did reach 25% in relation to net revenues. The reason why we are quite confident is that the intermediaries that have some problems that were then affecting Super Free and the Casual game part of our portfolio, which we didn't expect would have that short term, we are confident that these intermediaries, they are very particular and specific challenges that they have had that they will not be there more than a few months. So -- and that is, of course, because we are in dialogue with them. And also we see, as I touched upon in the last question -- in relation to the last question that we see on the -- on other areas that we are picking up, it's early signs, but we do pick up and see that some other channels are also improving here in -- as we speak. So we think, all in all, we have a good basis and a good opportunity to market. That's why we had the guidance we had, both in Q3, but even more importantly, at the end of Q3, so that will fuel our top line into Q4 and onwards and hence reach organic growth.

[Operator]

The next question comes from the line of Oscar Erixon from Carnegie.

[Oscar Erixon, Financial Analyst]

A couple of questions from me. Starting here with Facebook and Apple. Just to be very clear, Facebook's challenges and changes here the main reason for the more challenging top line outlook games. And was this a surprise, a complete surprise? And also a follow-up on that, what has changed for these user acquisition intermediaries as you see it into Q3 and Q4?

[Jörgen Larsson, Founder, CEO & President]

Yes, so it has been -- that is correct, that intermediaries like Facebook has been the main explanation. But they are -- we see improvements already, but it's -- I'm not -- we are not -- we shouldn't make predictions about Facebook I think. It's not our role, but we see improvements already. So we are confident that, that is a short-term to service. The fact that, that started later since the conversion into iOS 14.5 and 14.6 and now 14.7 came later than both Apple and ourselves and Facebook expected that didn't add to getting the adjustments in place faster. So basically, it's a bit delayed, and they have seen some challenges which becomes our challenges. But I would be -- I mean, it's a very far-fetched idea to think that these problems will not be fixed very shortly, and we see signs of that already.

[Oscar Erixon, Financial Analyst]

Great, that's very helpful. And I mean, when you sort of try to track the CPMs on Facebook, it seems been quite stable actually despite the changes here and the poor conversion that has been reported. Is any signs of lower CPMs in the Facebook channel? Or should this mainly relate to improved predictability and improved algorithm on Facebook's side?

[Jörgen Larsson, Founder, CEO & President]

I think it's very much an algorithm thing. So the algorithm has been acting in a way which has been -- they have been unstable in the way that you get the -- it's not a structural increase of CPIs for us. So actually, the CPIs have been quite steady. But the thing is that when you scale something through that channel, all of a sudden, it's not following the usual pattern because there's something in the algorithm that is not working as it's done previously. So it's more that we don't know how much volume, we didn't know in Q2, and that is still things to be ironed out. How much can we deploy? Because when you get -- when we increase the volumes, all of a sudden, the CPIs were acting in our -- with our experience unexpected. So we have to slow down. They can push the throttle again. So it has been a bit up and down there. But again, thanks to our market reach and our very agile allocation of marketing money, we are still up at the second highest that ever, and we have not -- and we will not compromise on profitability and marketing. So we are way shorter than the 100-day return to marketing spend that we require. And you might ask, which is part of your question I read, why don't you deploy more if you have margin to the 180 days return mark. And that is exactly because as you scale all of a sudden it doesn't work more then you have to decrease. And so it's much more labor intent for a strong marketeers than it used to be. And that is also the very reason if you have taken part of that. If you would have been a company only or mostly depending on a few channels in a few markets, then I would have been concerned. We are not concerned. We have just a delay, and it took us a bit longer for the reasons that I mentioned than we expected. But I mean that's -- we're talking about a few months, nothing else.

[Oscar Erixon, Financial Analyst]

Perfect. And the final question from me. I mean I think I will start the question on similar note, but you guided for in December last year for Super Free games and Sandbox Interactive pro forma revenue of 1.5 to 2.0 billion and adjusted EBITDA of SEK 350 million to SEK 450 million. Is it fair to assume that it will be hard to reach the top line guidance for the year or can a strong Q4 recovery be enough? And how about the EBITDA guidance, given that I suppose spending will be increased here in Q3 and Q4?

[Jörgen Larsson, Founder, CEO & President]

Yes, as I just tried to answer that a similar question, we think it's too early to say. So that means that it's possible to reach, but we need to see what happens since on the profitability side, as mentioned and also written in the report, we have a higher profitability for Super Free but lower top line due to the reasons that we discussed. But they are also fast moving. So it's definitely possible. I mean, we are reporting Q2. We're not reporting Q3 fully. So of course, that is possible to reach that. So we have to come back to that later in the year. But we think it's more important and more important for the understanding of still something where we stand to guide for all studios instead of only 2 of them now at this point.

[Operator]

The next question comes from the line of Erik Lindholm from Nordea.

[Erik Lindholm-Rojestal]

So looking into Q4 here and then into next year, can you sort of highlight which games you expect to release here from your pipeline? And is this sort of reliant on your ability to deploy more UA here and the UA trends improving perhaps?

[Jörgen Larsson, Founder, CEO & President]

Well, having 30 products on its way out, the way this works and has always been working, is that we are not the kind of company that guesses and hopes and crosses fingers, we are data-driven. So what we do is that we take our products to soft launch, we measure, we are data driven in our approach, and we put the dollars and the euros and the SEK where it returns the best. So and it's pointless to say that it must be product 3, 5, 21 and 29, that is successful. Then of course, we are pleased, we see that Albion Online started off the first 25 days or 28 days or whatever, in this good way that is promising, and there are other products that we have higher expectations on. But again, this is a numbers game. So some of them, typically 20% will exceed our expectations. That has been the case all time. Some of them will trade. But all in all, the wider portfolio we have, and this is the very reason why we have this explicit portfolio theory with our date being data-driven, amongst the 30 new products, there are products that will be successful and will build organic growth just as it is we have opportunities in the existing 56 products as well. So it's not that we expect any kind of miracle to happen in October or so. We think we are confident in the fact that with the things we have with the capability of marketing we possess, the market reach we have. We are in a good spot to also report on 12 months comparison growth. On 24 months, we have never left that at this point. So that is my answer to that.

[Erik Lindholm-Rojestal]

All right, a bit of a different topic, but what sort of impact have you seen on in-game advertising revenues into in Q2 and also into Q3, perhaps. And have they improved on Android and DIPS on iOS or -- Any comment on in-game advertising would be helpful.

[Jörgen Larsson, Founder, CEO & President]

So ad revenues is the very reason why we took the strategic decision November [ '19 ] to have a significant portion of ad revenues where several folds, and one was that just diversification in itself, and diversification is very important obviously for stability. But then also the major reason is that, that's the perfect hedge because to simplify it, but you can say that if market prices or nominal CPIs go up, it's not good for our own marketing of our products, but -- on the other hand, then our ad inventory that drives our ad revenues is benefited from that. And that is the intent hedge that we are very pleased to have established in almost a perfect balance in 18 months only. So in the quarter, as I said, on the CPIs have been steady. So per inventory, it has been fairly stable, but actually increase volumes and there is a -- there is also an increase of CPIs on Android because several companies have moved over more to Android than iOS due to the uncertainties with intermediaries, not the least. And that's then the CPI has been stable or even dropped on iOS. And that is reflected also in how much we get paid for inventory, so to speak. Then the other factor is how much inventory we have, and we have increased the inventory. So we can -- that's the reason why we are at the 19% increase in our ad revenues even though the CPIs have not spiked in any way. On the contrary, it's been very stable, but we have increased the inventory. I hope that answers your question.

[Erik Lindholm-Rojestal]

Yes, definitely. And I guess, looking at Storm8, specifically, trend appears to have continued to be quite weak. But I mean what gives you sort of confidence in the trend improving here? And is there any new releases planned for Storm8?

[Jörgen Larsson, Founder, CEO & President]

Yes, I don't really concur with it, it has been weak. It has been stable, but -- it has stabilized. But also, it's important to note that they grew -- so if you compare it to last year, of course, there is a difference because they grew by 67% Q2 last year. So of course, if you stick to the year-to-year, they have been declining. But if you look at the -- they grew very -- they have had some of the months this year, growing on a level that was better than I expected. Some other months, they have not been growing. They have been declining. And yet again, it's depending on what kind of return on ad spend that they present. If they're not meeting our targets, they shouldn't and they couldn't spend any more UA. So they have been more some months growing, some months not growing this year and I talk equally now, not from comp numbers because they are so very strange. So we see that the 2 main products of Storm8 will be stable for -- and also growing for several years to come. Having said that, to answer your second part of your question, yes, they have other products in their pipeline to be announced later on.

[Erik Lindholm-Rojestal]

Perfect. And just a final question for me. So this improvement that you're talking about, I mean, in deploying UA here into August, perhaps. Is that included for the revenue -- in the revenue guidance for Q3, or should we -- I mean do you expect equally hard UA, difficult UA environment into Q3?

[Jörgen Larsson, Founder, CEO & President]

We have just given you a guidance and that is, of course, what we believe, otherwise, the guidance would have been different. So but what happens is that when we see also taken into consideration, obviously, in the guidance that we gave today, that we are seeing an improvement in the marketing opportunities. The way it works, if you isolate quarter-to-quarter is that is explaining why we are guiding on at around 30% margin instead of 32 or 33 or whatever. That is because we believe that we can deploy that, and that provides us not with growth. If that happens in September, obviously, the revenues from that marketing is not very much impacting in September, but it's a very good thing for Q4 and onwards.

[Operator]

[Operator Instructions] We have no further questions, so I will pass back for any closing comments.

[Jörgen Larsson, Founder, CEO & President]

Thank you very much for dialing in this morning and listening and asking questions. So I think we conclude with that. Thank you very much, everyone.