Stillfront Group AB (publ)

STO:SF

Earnings Call Transcript 2020-Q3

[Operator]

Hello, and welcome to the Stillfront Q3 Report 2020. [Operator Instructions] Today, I'm pleased to present CEO, Jörgen Larsson. Please go ahead with your meeting.

[Jörgen Larsson, CEO & President]

Thank you, and good morning. And also, by my side, I have Andreas, our CFO, to present today. Starting on Slide 2, a few initial words. We have a high ambition in building Stillfront to be the free-to-play powerhouse. We started our scale up phase this year, which has led to that we are now 16 studios that operate with high focus on live ops and user acquisition, but also that we are creating operational synergies between the different studios.We have built a diverse game portfolio with 2 common themes, loyal users and long life cycle gains. We have also reached 20 -- exceeding -- being approximately 20 million monthly uniques playing our games. The main markets we have is U.S., Germany, the MENA region, U.K. and Canada. And in total, we are approximately now 1,000 professionals around the world, basically.If we turn to Slide 3, you can see where these approximately 1,000 professionals are located with the red dots on the left side, which is our -- represents our offices.And also, you can see that we are a true global company, both from the offices and the studios that we have, but also how the revenues are distributed, which you also can see on the left side, North America is now 51% of our revenues; Europe is 31%; Asia, 12%; and then Australia, 3%; South America, 2%; and Africa, 1%. So North America is significantly increasing in share of revenues. In absolute numbers, we are increasing across the board, but in relative terms, North America is gaining territory primarily on the costs, so to speak, on Europe.Turning to Slide 4. We have had a very strong momentum in the third quarter both by a significant revenue growth, amounting to 99% year-on-year, both through a solid organic growth, but also, of course, thanks to the acquired growth from Storm8 and Candywriter. We have, during the quarter, spent 16%, equal to SEK 164 million on user acquisition. And as typical in the third quarter, percentage-wise, it's a bit lower than it were in Q1, where it usually is the highest. And also you can see in Q2, it was higher. Last Q3 '19, we also were at 16%, but obviously lower absolute numbers as we were a significantly smaller company.You can also see on the last 12 months, we are now up to SEK 3.5 billion in revenues and with SEK 635 million in the last 12 months in UA spend. And that is an important trend, which is a fruit of a lot of hard work that we have been able to achieve organic growth in the range of 20% actually from 2018 and onwards. At the same time that our UA in relation to net revenues are going at and now the 2 last quarters below 20%.So I think that's a very strong combination, which is basically only possible through a large focus on operational excellence out in our studio working very hard with -- successfully with live ops. Further, we can just conclude that the accelerate demand and the large influx of users we had in Q2 started to normalize, as we have communicated in June, and that normalized level has continued in Q3.So basically, what we're saying is that we don't see any effect during the quarter. It was actually since June in our operational numbers or in our marketing and activity levels. But of course, we are happy to see that users that we did take in on a much higher level from mid-March to end of May, they are showing the same pattern as Q2 '19, Q2 '18 and so on, namely that they are loyal and will enjoy our products for many years to come.This quarter, besides the -- had always in Q3 present seasonality, which is lower, typically 7% to 10%. We also had a significant FX headwinds which we will come back to later during this presentation.Turning to next slide, Slide #5, looking at our EBIT development. We can see that our EBIT for the quarter was SEK 419 million, equal to a 140% EBIT growth year-on-year, which, of course, we are very pleased with. And also, we are pleased with having the record high profitability of 41% for the quarter and not the least, 37% last 12 months in EBIT margin.And again, the focus on well-executed live operations across the board, across all studios is one of the key elements to achieving this high profitability. But I also think it shows the power in our business model with increasing margins as we grow. We have also been able to acquire very healthy companies but also make them even more healthy being in the group by achieving the synergies that I touched upon initially.But I think it's maybe one of the most important things is the systematic margin expansion that we have been able to achieve, looking back to Q3 '19, where we think -- we thought at that point, that was a very, very strong number, 34% but we have been stable 33%, 33%, but now up to 35% and 37% LTM. Of course, that will vary from one quarter to another, but that's also why the LTM numbers are a very important metric for us. Turning to Slide 6. You can see that we have -- looking at our total portfolio, what is important here is that we work very systematically at Stillfront. We're looking at the total composition of our portfolio that is balanced in many different dimensions, balanced in terms of genre, balanced in terms of addressable audience, not the least the gender balance in our revenues, which we -- I think we have taken significant steps during this first scale up year of Stillfront.So I think you can clearly see that 3 of our 4 acquisitions, Everguild being the small exception, have an audience, which has which is primarily female. So that is one dimension. But also when we look at the risk-reward balance and the balance between growing product and more mature products, smaller, medium and large franchises, how that balances out, I think we have taken significant steps during the years -- the year. And we will continue our efforts to constantly improve the balance so that we get a very strong predictability and profitable growth on our -- across the board in our portfolio.Looking further into some of the numbers here. You can see that the Casual and Mash-up area has continued to develop very well, and we're happy with that. Being the latest vertical that we have added to the portfolio, it's now, during Q3, accounted for 40% of the total bookings in the active portfolio. In total, we have 38 games in the portfolio during the quarter, so basically unchanged from Q2. Notable could be that the product that we added in Strategy, the mobile extension of Conflict of Nations is not considered to be a stand-alone product for the fact that it's a cross -- true cross-platform product, but it's a new launch, nevertheless. We had also 77% mobile in this quarter. We managed to increase our ad bookings, which is an ambition we've had for some time. I think we can do much better, but it's, nevertheless, a sequential good increase from 5% to 7%. So we're happy to see it going in the right direction, and we hope and think that, that could continue.We had -- also worth mentioning that 4% of the total bookings equal to SEK 36 million is gains from the nonactive portfolio. With active portfolio, we mean products that has a volume, revenue volume exceeding the threshold where it's rational for us to have a dedicated live ops team so the long tail, which consists of a significant amount of products, they are profitable, but on a lower level that is not paying off to have a dedicated team. But nevertheless, they delivered 4% of our bookings in the quarter.So on our UA side, we can say that as we saw in the earlier slide, it's 16% in the quarter in relation to revenues and 17% in relation to bookings. So the campaigns have been very efficient and performed well and continue to meet our highly set -- our return on ad spend expectation and demand. So we are well within the 180 days, which we are pleased to see that we can continue with that efficiency.However, we can also conclude that in the -- in September and also into Q4, the volatility has been significant. So it has been a slightly or clearly, a different pattern to what we're used to. So making it a bit more operationally tricky to scale up. Usually, it's a good period from somewhere during September up until the beginning of December to market. That has been a bit more volatile this year. We think that one of the reasons is the American presidential election that has impacted traffic prices. But it's not only in one direction, it's basically more volatile, we can come back to that later as well. Turning to Slide 7, going into each of the 3 different verticals. We are very pleased with how Strategy continues to deliver on a very stable and predictable way, growing by 11% in terms of both bookings and MAUs, equal to now 33% of the active portfolio bookings during the quarter.We also have 6 -- now 61% coming from mobile. Several of the products are true cross-platform or multiplatform, 24% comes from Asia, and it's in total, 12 games making up the Strategy portfolio of ours. We're also very happy to see how our mid-sized products continue to deliver very strong growth. So Call of War, Supremacy 1914 and Conflict of Nations are all built on the same engine, continue to perform well. And actually, these products combined are similar to the size of Nida Harb. So it's really an organic growth success that we have. And then you should remember that Conflict of Nations Mobile was launched in September. So it hasn't contributed so much during the quarter, but we are very optimistic what that could bring not the least full year '21. Also Imperia Online and War and Peace have been very strong in the quarter. It's fine to see how mature products well into several years being operational, could come into and gain new momentum of growth again. War and Peace have had a decline for a couple of quarters, but now are back on a good growth trajectory again. So that's very good to see how our portfolio fare and not the least when your strategy is really working the way that we think it should do and that we are pleased with. As always, in Q3, Nida Harb has maybe the most significant seasonality pattern since they had their strongest quarter in the year during Q2, not the least from Ramadan and other high activity that are usually paying off. And also this year in Q2, there is a slight bounce back, of course, in Q3. Looking at the MAU and the traffic numbers, you can see that, as I said, that we have a -- clearly a sequential drop, which is not very surprising in Strategy games, following the usual pattern, but 11% year-on-year growth.You can see that we have a year-on-year DAU that is 3% down, but we have a strong ARPDAU growth of 15%, and the monthly paying users are plus 7% on a year-on-year basis. And as mentioned, 11% year-on-year bookings increased with a UA that is increasing 26%. And the UA -- the nature of UA in Strategy is that it's delivering returns for the longest time of all out of the verticals, which is, of course, then promising as we can deliver -- increase the UA with good returns and keeping our 180 days target.And also you can see that the ARPDAU in absolute numbers are very high and on a very competitive level, almost at the same level as it was in the record breaking Q2. So good monetization, solid performance across the portfolio in Strategy games. Turning to Simulation, RPG & Action. You can see that we have -- well, first of all, it constitutes 27% of the total bookings in the active portfolio. It's 18 games in Simulation, RPG, Action, 58% mobile, 47% coming from Europe, and ad bookings represented 3% of the total bookings. You can also see how we have been -- managed to grow the user base in this area by 32%. However, it's a clear -- clearly, a sequential drops in MAUs, so you can also see that in DAU, which is -- shows again that it's moving quite fast. And the intake hasn't been that much, but you can also see that the monthly paying users are increasing by 45%, so more than the MAU and DAUs year-on-year, which I think is a strength that we have a higher conversion. And also, you can see that we have a very stable ARPDAU number, even though it's lower year-on-year, it is very stable the last couple of quarters. So it's basically a mix -- the mix of products that explains the year-on-year decline, whereas you can see very stable from -- we got in Storm8 and Candywriter. Also, the bookings 14% year-on-year with the UA increasing 22%. So the UA is 19% in relation to the net -- sorry, the bookings, which is I think showing that we have elevated this business and have continued to grow it with quite a representative UA spend. It's also good to see that Big Farm: Mobile Harvest continues to be one of our growth engines through the whole portfolio, the whole group. We're pleased to see that Shakes & Fidget have been very -- continued very strong performance from Q2. It's also pleasing to see that mature products and smaller products like Gemstone was -- Gemstone actually on its 33rd year, had all-time high during the summer. So it's tremendous what stability and in that case, also tremendous profitability since we don't market the product and despite that, it's taking all-time high. But also smaller games like OFM is a strong growth quarter. We have, however, a weaker performance from several of the Kixeye products. It's partly given that we haven't been able to market it so strongly during the summer or during Q3. And of course, the FX effect being very North America and dollar-centric is significant for the Kixeyes titles. And also, we can see that ad bookings in this area, not the least from Big Farm: Mobile Harvest have doubled year-on-year. So all in all, a solid and good performance, good growth organically and good increase in profitability as well.Turning to our largest area or vertical, Casual and Mash-up. As I mentioned initially, 40% of the bookings, and it's 8 games currently, 100% mobile, ad bookings up to 16%. So it's getting there. 74% of the revenues are from North America, which is good in many ways, potentially not for an FX perspective. But nevertheless, good growth. Also, we can just conclude that Candywriter's -- Candywriter was consolidated for the full quarter. It was only 2 months in Q2. And we have had a healthy growth for BitLife by UA ramping up during the quarter. And also Storm8 continues to deliver solidly during the quarter, somewhat softer during the latter part of the quarter due to marketing conditions as previously touched upon.You can see on the traffic numbers, how we have a decline in terms of MAU and DAU sequentially, year-on-year is not meaningful since this is a newly opened vertical. But you can also see how we have a solid -- actually even an increase in monthly paying users.So that is also something showing that these users stick to -- are sticky and they pay, and this is the pattern that we expected to see in Mash Up. So it's not that we churn paying users when we churn MAU and DAU. So that is encouraging, I think, and very stable ARPDAU. But due to the -- to complete the lower number of users, you can see that we have a -- lowering the bookings to 385 -- sorry, SEK 383 million for the quarter. You can also see that the UA in relation to net bookings was 17%. So basically quite flat.So that was the walk-through of the portfolio and the general trend during the quarter. I will hand over to Andreas to go into financials, and then I will wrap it up after that. Please, Andreas.

[Andreas Uddman, Chief Financial Officer]

Thank you, Jörgen. Turning to Page 10 in the deck. Yes, the highlights for the quarter. We continue to see the same kind of underlying platform financially in Q3 of 99% revenue growth, but very strong EBIT margins. We also had a very strong cash flow generation in the business, generating SEK 207 million prior -- of free cash flow prior to acquisition and financing.We have created in the last 1 to 2 years, a strong platform in terms of financing. We have a strong financial position with a cash position over SEK 1 billion when we exit the quarter, and we still have unutilized credit facilities. As well, we have room in our ability to take up new leverage, and we have a 0.67 leverage ratio, which is well below our targets. This allowed us to continue with strong underlying financial performance and our platform to actually execute on 2 acquisitions in the last 1.5 months, both Nanobit and Everguild. And this is a very strong fundamentals for -- looking at the future pipeline, as Jörgen was mentioning. Turning in to the Slide 11, the income statement. Our net revenues grow by SEK 510 million versus year-over-year, i.e. 99%, driven by both acquired growth, but also good underlying organic growth in our business.We continue to have a good -- well diversified income stream, both from different types of games, from more ad revenues, which increased both in percentage-wise but also in absolute terms in the quarter. We did see normal seasonality effects. So we have seen that each year for this -- in the history of this company in Q3. Usually, that tends to be between 7% and 10%. And then we have also impact of FX, which is in a similar level as the seasonality effect. We had a positive deferral effect in the quarter of SEK 41 million. And this is also partially driven by seasonality. We had a negative one in Q2. So it follows a similar pattern as we have seen before. Looking at platform fees, and our gross margin improved slightly at least versus Q2 this year. That is driven by -- even if we increase our share of mobile to 77% from 75% in Q2 this year, we had a positive effect, both ad revenues, which is a strengthening on the gross margin as well as a deferral effect in the quarter. UA, Jörgen has touched upon, so I won't go into depth on that. Our other external expenses are still -- are increasing year-over-year slightly up versus Q2 as well. We still have a positive effect that people are working from home even if it's becoming marginal when people have started returning to the offices. The big impact here is also FX. I mean, the same as we have impact of FX on our top line, it also impacts our cost base. And that also goes into staff costs, which increases 50% year-over-year. But we also have sort of a natural hedge in that perspective, both from -- when our top line is impacted, our cost base is impacted positively. Amortization and depreciation increased as we have seen similar trends, and this is mainly driven by amortization of PPA items, which increased SEK 69 million year-over-year. We had items affecting comparability of in total SEK 18 million, and this is mainly driven by the Nanobit transaction. And underlying then -- an adjusted EBIT of 41% margin and SEK 419 million for the quarter.In terms of financial items, SEK 48 million. The underlying interest cost is SEK 26 million for the quarter, slightly low from -- down from Q2 this year because we had less utilized credit facility over the whole period. And then we have the SEK 19 million noncash interest that we book based on the earn-out considerations.In terms of tax, we had an unusually high tax charge to our P&L in the quarter of SEK 104 million. This impacts the quarter stand-alone. And it's something we are reviewing, and we will need to get back to that, but we don't think that the quarters stand-alone is representative of what our future outlook will look like. And then stand-alone for the quarter, we had a net result of SEK 154 million. Then I will turn in to the balance sheet. Page 12, or Slide 12. In terms of our big position or intangible assets actually decreases in the quarter with almost SEK 300 million. And this is both goodwill decreased with SEK 200 million and the -- other sort of other intangibles, i.e. product development also decreased. This is the other side of the FX. Majority of our assets actually lies in -- sits in non-SEK currencies. So this actually reduces our balance sheet based on that. And they are revalued at sort of the closing date of the period. We have a high receivable booking, which increased quite significantly. That is a pure accounting treatment since we acquired Nanobit in the last hours of the cash portion, and that is booked as an accounts receivable on the 30th of September and then is converted on the first of October. So it's due to an accounting temporary effect on cash flow that is recorded as an investment in subsidiary.Cash position, SEK 1 billion -- over SEK 1 billion. And we utilized more credit facilities in the quarter to both manage our FX, but also to have a strong war chest for the future as well.We have total earn-outs of almost SEK 1.8 billion. This is a reduction from last quarter. We did pay out the remaining part of 2019 earnouts, both in shares and cash in Q3. So we have no outstanding earn-out payments this year to be made. And we have long term -- long -- the long-term provision for the earn-out is SEK 912 million, and the short term is SEK 872 million.In short term, it's within 12 months. So the short-term reflects the payment for 2020 that is due within 12 months. Adjusted leverage ratio pro forma of 0.65 and an adjusted interest coverage ratio pro forma over 14. So we're well positioned from a balance sheet position as to this quarter. Turning to Slide 13, the cash flow. First, looking at the reported numbers of Q3 and some flavors on that.We had an operative cash flow from operations of SEK 332 million. This includes a positive working capital effect, which has to do with the seasonality of revenues, and a negative in Q2, but it's offset by high tax payments that was executed in the actual quarter of SEK 120 million, but still underlying SEK 332 million of cash flow from operations. We did invest SEK 858 million, and that is mainly driven by Nanobit, which was SEK 695 million. And then we had SEK 815 million of investment in product development, which is 11% in relation to net revenues.We had cash flow for financing activities of SEK 648 million, which is mainly driven by utilization of the credit facility. But as I think I mentioned a few times before, it's always important to look at the long -- the free cash flow. And looking at it on an LTM basis, so the lower part of this slide. Here, we have generated in the last 12 months SEK 939 million of cash flow from operation. That is an improvement of 105% versus LTM Q3 '19.We have increased our investments in product development, which was SEK 406 million LTM. However, it's important here that we actually -- and that's an increase with 103%. So the intrinsic here is that we are actually increasing our free cash flow from operations higher than we are increasing our spend on product development.And this metric is something that that will be volatile over time, where we have, especially in individual quarters. But this is very critical for our underlying performance in this business in terms of our financial model. So very good cash flow generation and a general, very good financial quarter. With that, I will hand back to Jörgen.

[Jörgen Larsson, CEO & President]

Thank you, Andreas. So I will wrap this up with Slide 14. We are very happy with the Everguild acquisition because it's a very focused agile team. And they bring another genre into our portfolio where we're not present or don't have any products, Collectible Card Games, which is a very exciting area. We think it's -- they have been focused on that, and they have an exciting pipeline and knowledge about that. And also existing products are exciting.So we can jointly scale up and see growth from this area, we think for -- it will be some interesting years to come, not the least for 2021 and onwards. And they have a product called The Horus Heresy: Legions, which is based upon the Warhammer universe. And also, they have shown that these kind of games, and if you operate them as professional as the Everguild small agile team have done so far, we can really attract the users for a very long time and have a very high stickiness. And that is, of course, fits perfectly into our strategy.So this is just another example of a smaller acquisition that we have spoken about that we should increase, hopefully, going forward, that is our ambition so that we can find small products that we can scale, filling out white spots and blanks in our current portfolio. And that will be an increasingly important source for acquisitions for us. In parallel, we're doing larger studio acquisitions like Nanobit, Storm8 and Candywriter. And we also hope I think, that we will do more Everguild-like transaction the next coming years. Turning to Slide 15. We updated our financial targets in the Capital Markets update in September. So since we have had the fortune to be reaching our communicated targets from November last year in a very short time. So now we have upgraded and increased our ambition looking to 2023, reaching SEK 10 billion in total revenues, or net revenues, both through organic growth as well as, of course, acquired growth. But important to note that -- always important for us is that we see that we can turn acquired growth into organic growth through the business platform of Stillfront.We have an ambition to reach this revenue with a continued profitability at around 35% in adjusted EBIT margin. And we have an ambition to be conservative but still work with leverage, but that it shouldn't steadily be above 1.5, it could be for a shorter time if it -- there's a good reason for that. But otherwise, we have an ambition that we should be conservative, but still work with the leverage. So that is basically also unchanged. Finally, on Slide 16, a few comments on the 9 months as well as the third quarter. We are working with -- we have had a strong momentum, as I started off with. And not only that we are with all the operational things going on in our group with the new product coming out, expanding, balancing our portfolio and reaching the high financial performance that we think we have achieved with a 99% growth and the 40 -- or 37% LTM EBIT margin. But also, we are working a lot with things that are not visible to the outside, hopefully, explaining some of the performance. But nevertheless, we put a lot of energy into establishing Stillfront as a business platform to attract the best studios, the best talent and the best products so that we can elevate that to further new levels. And we have taken many steps during 2020 to continue to refine center of excellences, expert nodes, sharing data, making data accessible, making collective -- collective knowledge available for new students coming in. We have increased the number of collaboration projects from being somewhere 30 ongoing projects in Q1. We -- at the end of Q2, it was 55 collaboration projects. Now we're up to 60 collaboration projects that are -- that have -- are taking place between the different studios. So this is scaling, not linear. This is scaling progressively with the number of studios that we are in our group. So that is very important. We also now, as mentioned, we're up to 16 studios, 4 acquisitions completed this year. So our M&A agenda during this scale-up is accelerating. Our ambition is accelerating. And we have a strong and exciting pipeline for the future as well when it comes to growing the number of studios.And also the diversification of our portfolio, we are happy with, but not satisfied. We will constantly try to improve the balance and that we increase the user base as well, which has been important in many dimensions. And also, as I touched upon earlier, to have the balance between male and female audience, we also think is very important and exciting, increasing the addressable market and grasp the opportunities from the fact that it's not a balance between supply and demand relating to that part of the gaming audience.Some comments on the third quarter. As mentioned, good momentum, very strong profitability, solid organic growth paired with strong acquisitive growth. But however, as mentioned, a bit more challenging online marketing environment in the end of the quarter and in the beginning of Q4, which is more an operational issue, but -- and we are convinced that, that high volatility driven, we think, primarily from the U.S. election is something that will go away. But nevertheless, it also has been an ingredient in what we had to report.But all in all, we are pleased with the quarter, and we are as convinced as ever about that we are on an exciting track towards 2023 and onwards. So that was the last we had to say, so we open up for questions. Please, welcome.

[Operator]

[Operator Instructions] Our first question comes from the line of Oscar Erixon from Carnegie.

[Oscar Erixon, Financial Analyst]

A few questions from myself. First of all, just the organic growth in Q3 year-on-year. Any input on that? And also, if you could elaborate a bit on the FX effect, which seems to have been quite substantially here, especially sequentially versus Q2?

[Jörgen Larsson, CEO & President]

So on organic growth, we have been able to achieve approximately -- or in the range between 10% and 15%. It's as always, depending on how you define it, but we continue to grow faster than the market. And if you look at LTM numbers, we are in the range of 20% -- we continue to be in the range of 20%.So we are happy with that organic growth, even though it was lower compared to Q2. But that was also, we think, expected. On FX, maybe you can elaborate on that, Andreas.

[Andreas Uddman, Chief Financial Officer]

Yes. We saw -- as mentioned, we had a similar effect from FX that we had on normal quarter-on-quarter Q3 from seasonality. And that is impacted by, especially the strengthening of the SEK and lowering on the dollars. We are more focused on and have been in the last 2 quarters on income from the U.S., which is -- or in North America, which is up 51%. So that impacts us both from historical reporting, where you always take the year-to-date average rates plus the underlying FX in the actual quarter.

[Jörgen Larsson, CEO & President]

Maybe one can add that we have an inbuilt hedge then on our P&L. So that's why you can see that it impacts our top line for sure, significantly, as Andreas said, on par with the seasonality but in local currency, obviously not.So -- and then the inbuilt hedge is that, obviously, our costs are also lower, as Andreas touched upon walking through the P&L. So that's the EBIT hedge. And also on the balance sheet, we also have some hedge. Maybe you can just touch upon that as well, Andreas.

[Andreas Uddman, Chief Financial Officer]

Yes. In terms of the balance sheet, then, what is actually happening is that we are actually lowering our expected -- our debt. So our expected earn-outs goes down in a similar fashion that they are positively impacted because they are usually the underlying functional currency of the targets that we have. So it is a-- as Jörgen pointed out, we have an EBITDA hedge on most of our costs. And we also have then a lower debt level on the balance sheet due to this.

[Jörgen Larsson, CEO & President]

And the final comment could be also that looking on future M&As, it could be also, if not the hedge, at least, working in favor for us effective stronger reporting wise. I hope that answers your question, Oscar.

[Oscar Erixon, Financial Analyst]

Absolutely. And regarding the more volatile marketing prices in the U.S. my assumption will be that this should mainly or I think more affect the recent acquisitions of Storm8 and Candywriter, i.e., the Casual and Mash-up segment, which are more U.S. oriented. Is that correct? And also, have you seen any improvement in marketing prices post the U.S. election now in early November?

[Jörgen Larsson, CEO & President]

So yes, it definitely impacts Mash Up and Casual since they are North America heavy, so to speak. But also, it turns very much on the product. For instance, Kixeye has a significant portion of their revenues coming from North America. And so do some other products. So it's not super clear per vertical or product area, it's rather product based, so to speak. So that is how I would like to describe. But obviously, having 51% of the revenues from North America and primarily U.S., it's a significant portion. Looking on the current situation. So we can see that it's -- there are -- it's improving, but now it's very short time since the election, obviously. And I don't know whether the election is completely done or not, but -- well, the election is, but the aftermath, maybe not. So it's very hard to say how it varies. But we are -- one of the elements that we have and one of the reasons, basically, why we are so much working with broadening the number of products or we're not. So we have the diversification, region-wise, product-wise and sector-wise and addressable market-wise is that we can cope with changes in one territory better having a wider portfolio. Then, of course, with such a drastic change in the FX currency, of course, in our reported number that has an impact. But when changes are more particular for a certain region, we have traction in many regions so we can work with hedging that. But all to say, of course, we would prefer not having that volatility in the pricing going according to a pattern, which is usually not the case.

[Oscar Erixon, Financial Analyst]

Very clear. And the final question for me for now. Just the -- on the synergy side, seems to be good momentum with synergies across the group. Are there any interesting projects that you'd like to highlight perhaps localizing certain gains to the MENA region, for example, Storm8 games, also progress on the synergy projects?

[Jörgen Larsson, CEO & President]

Yes. So since we have 60 of them. This call will be very long to go into details. But in general, we can see that it's many different kinds of both cost side synergies, but also -- and most clearly, you can see it on product and/or marketing and distribution. So one very recent example is the Conflict of Nations Mobile. And I think the whole collaboration based upon the engine, the grand strategy engine of Bytro's, which now had -- there are 3 products there, and they are equal to Nida Harb, which was our record-breaking -- growth history for us. So I think that, that shows a good example when even on a complete product and engine level, one studio can develop a product that are that are growing very, very strongly based upon another studios' engine. So we will definitely see more of that. I hope and think that we will have several marketing- and product-related synergies going forward. But there is no -- besides the very recently then released CON Mobile, we have no new product to announce as we speak now, but we definitely have a strong pipeline of new collaborations in the pipeline, not the least from Nanobit entering into the group just recently. And Everguild, of course -- also the whole idea with Everguild is that it's based upon that we should work with -- leverage the power of the group to make their products scale much more. So we are -- that's why we emphasized this, we see that it's really paying off with a business platform of Stillfront creating this leverage and the synergies.

[Operator]

And the next question comes from the line of Jesper Birch-Jensen from ABG.

[Jesper Birch-Jensen]

A couple of questions for me. First off, for Jörgen. Obviously, you mentioned that the marketing showed some volatility here in Q3 due to the U.S. election. And I was wondering, do you think that the release of the next-generation of consoles could cause similar conditions into Q4? Or is that not big enough of an event?

[Jörgen Larsson, CEO & President]

To be bluntly honest, I don't know, because I think that it has been an interesting launch period with the U.S. election also for the console marketing or the new-generation marketing.But I mean this is worth mentioning, hence, we do it. But on the other side, this is nothing new. I mean, we have had special events, and there are changes in the market rapidly. That is a standard thing that happens from time to time. So it's not like we are very concerned, but it's just that we might see from time to time, lowering our intake of new users compared to what is the usual pattern.But we also know that the absolute strongest period in the year and has been every single year, is Q1 for marketing, not for revenues necessarily, but for marketing because whereas it's usually from somewhere first week of December until the 26th of December, we are very low on marketing because then definitely, traditional gaming companies are pushing extremely hard for the holidays in the western world. So then it's just for us to rest our case. And then we are -- everybody is ready for increase in marketing significantly from 26th of December. And then usually, we have a very, very strong period from that into January, but often, it continues into March, April. So that is the typical seasonality. And I expect that will be the same, maybe stronger this year due to consoles, but I'm not sure, to be honest. So we'll see. But the strength with having products with the longevity and the loyal user base we have, it doesn't put the pressure on us.If we would have had products within hypercasual, for instance, that you have to fill with new users all the time, it will be, I imagine, a bit more stressful. We can just say that it impacts the intake. But nevertheless, we grow from live ops. We can continue to do that. And yes, so we're not stressed. It's more an operational question rather than strategic tactical.

[Jesper Birch-Jensen]

Got you. Another question for you, Jörgen. I was wondering if you could speak to the performance of Nanobit's portfolio since you announced the acquisition, perhaps in terms of growth in the games compared to UA spending there?

[Jörgen Larsson, CEO & President]

I mean they are -- that is Q4. They are not in our company for Q3. So we don't give forecasts, as I think you know. So we need to come back to that. So just on a general level, I mean, they could also see the volatility, but it's not differs from other studios in general. So there's nothing exceptional to that. So I think they have a very strong portfolio and not the least exciting products targeted to get out in the market next year.Fashion Nation, which we think could be -- it's a very exciting release for us. So that is, of course, not impacted of this volatility. But we're completely happy with the -- there's nothing that has changed our view on Nanobit. And we will come back to how it performs when we are reporting Q4.

[Jesper Birch-Jensen]

All right. And my last question is mainly for Andreas. I think, and it's in regards to the tax charge of SEK 104 million. I know you mentioned that it's not representative of the normal tax rate for Stillfront, but I didn't quite catch what caused the tax charge in the quarter. If you could please elaborate on that a little bit.

[Andreas Uddman, Chief Financial Officer]

The tax charge in the quarter was SEK 104 million. That was a tax charge, and that is equivalent to approximately 40% as a stand-alone. On a year-to-date basis, we have SEK 193 million, which equals approximately 32%. But as we stated, we will need to come back on the tax charge going forward on this. But that's early numbers in the quarter.

[Operator]

The next question comes from the line of Hjalmar Ahlberg from Kepler Cheuvreux.

[Hjalmar Ahlberg, Equity Research Analyst]

Maybe just a question on Kixeye. You mentioned that that was one of the segments where you saw some -- both impact on FX, but it also sounded like there was some general weakness. If that's the -- overall the games in the Kixeye studios or any specific games that is impacted there?

[Jörgen Larsson, CEO & President]

No, it's not a systematic drop. I mean, from end Q2 -- sorry, from end Q1 and into Q2, Kixeye was growing, but then it has been a bit more tougher. So we're just adding some flavor to that. So I mean, as we have seen with the current kind of products that Kixeye and the portfolio in general, it does differ from one quarter to another.So it's not a systematic issue. It's just that we would like to highlight that their products have had -- not because we haven't found the right UA and the right channels for that. So we're optimizing our campaigns, but also that the FX is making it a bit more tricky. But I mean, they also have a pipeline of products that we think could be exciting next year. So it's -- we hope and think that we will get Kixeye into growth track again.

[Hjalmar Ahlberg, Equity Research Analyst]

And in terms of revenue mix, I mean you mentioned that ad revenue is increasing a bit from 5% to 7%. And you also showed this on your different genres or different segments, 16% in Casual, but 0% in Strategy. Is there any target here? I mean, can you go as high as 20% in Casual? Or is it more likely you can increase in the other segments?

[Jörgen Larsson, CEO & President]

I definitely think we can do much more. We have no external targets per segment to communicate in that way because it's more, how should I put it, it's more sophisticated than they'll say whatever it takes, we should reach a certain number. Of course, you can do that, but it's all about the blend so that we get the right way of introducing, add the space into the games, not disturbing in-app purchases. So it needs to be done in a diligent way and to optimize the total revenues and the total profitability for products, not only focusing on one number. But having said that, I definitely think we have -- I mean it could potentially be much, much higher in -- I mean, 10%, 15% higher potentially in Mash-up. And it could be definitely higher in Simulation, RPG. We've seen that from Big Farm: Mobile Harvest, not the least. So -- and it shouldn't be 0 in Strategy. I think it's not likely that it will be more than maybe 3% to 5% over time.But all in all, it's a huge potential for us. And I think we can do much better than we've done. It's taken a bit longer time than I hoped for. But nevertheless, we're getting there slowly. And it's, of course, yet another dimension of diversification, and there is no platform fees on these revenues. So it's good for margin expansion as well.

[Hjalmar Ahlberg, Equity Research Analyst]

And another question on acquisitions. You mentioned small acquisitions. You did Everguild in -- recently. How should we view these acquisitions? Are these more -- I mean, you buy a very small company and then you can maybe, I mean, increase revenue fivefold, tenfold. Is it more like that? You should see these acquisitions compared to maybe if you buy a larger one where it's maybe difficult to, I mean, increase significantly, that's pivotal in terms of revenue.

[Jörgen Larsson, CEO & President]

That is one angle. Of course, we see an opportunity to grow these products with higher percent -- higher -- significantly higher percentage-wise than if we acquire larger studio and more mature products. Obviously, that is the case. But also, I think that we have an ambition that we should do -- have a higher pace, not in short time, but over a longer time, within the next coming 3 years, I hope and think that we can have a higher pace of acquiring assets with team, as in this case, or potentially without the team attached to it.So that it makes up also being a relevant stream of nonorganic growth as it is a number of products coming in that way. We're not there yet, but I think we will get there in a couple of years.

[Hjalmar Ahlberg, Equity Research Analyst]

Okay. And just the last question on Q4 seasonality. I mean you mentioned the volatility in terms of marketing efficiency, but with your current portfolio and then the Q4 seasonality any different versus historical levels there?

[Jörgen Larsson, CEO & President]

No. I mean, activity level -- activity wise, we have no reason to believe that existing users will be less active, not at all. Maybe they will be more active if COVID-19 pushes in. Then it's -- how much that translates into transaction is very much depending on how successful we are in live ops, not the least over the weekends and the holidays coming up in December and also Black Friday and stuff like that. So that live ops will tell us how much we gain in revenues from the active base. But I don't see any reason why it shouldn't follow the ordinary pattern. We significantly increased activity.What we talk about is the other part of how we achieve organic growth, and that is how many new users we can take in on what profitability level. So since we keep our -- we are very EBIT-oriented company and have tough requirements on profitability, of course, we are loyal to our strategy. And that means that we can cope with not taking in the same amount of new users. And in short term, that then, of course, would have an impact on revenues, but that is the way that we've built this company. We think it's a good way to go. So we will continue with that. Even though if it would short-term show a volatility in top line, we think it's the way to build the company.

[Operator]

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

[Erik Lindholm-Rojestal]

So looking at the Casual and Mash-up segment, have you seen any increased competition in the Home Design segment? I've noticed there are some new entrants in the segment.

[Jörgen Larsson, CEO & President]

Yes. We also have noticed that, but we think we have a very strong product and a strong audience. So it's no material difference in that respect that we see.

[Erik Lindholm-Rojestal]

Okay. So you continue to see strong user acquisition return in the segment? Or has sort of competition for user acquisition also increased?

[Jörgen Larsson, CEO & President]

Well, it's -- as we said, we are comfortable with acquiring users with the efficient machinery that we have proven for quite some -- many years now. But as I said, the volatility -- we see volatility, and we -- that impacts every product in some sense, then, of course, if you have significant revenues in certain regions where the volatility is not that much. So, for instance, in the Middle East, volatility is lower than in the U.S. if our thinking that the U.S. election is very much behind this, it's, of course, less in the Middle East than it is in the U.S.So -- but -- so that is still applicable. But that -- your question was about whether increased competition hits Storm8 higher -- more than anyone else due to new launches. We don't see that, but the volatility is applicable in both directions for all U.S. exposed products.

[Erik Lindholm-Rojestal]

Okay. Yes. Got it. And looking at M&A, have you seen any increased competition on M&A? And would you say that you are sort of a preferred buyer for these small studios and games that you could add on?

[Jörgen Larsson, CEO & President]

We think that -- first of all, we have never had a strong pipeline as we currently have. Pipeline is one thing, what counts is obviously deals, to make good deals and to get really strong talent, product studios to join our group and enjoy the synergies.So we think that we have a strong offering. We think we have -- that shows in our pipeline. And also, you can see during this year, with increased competition, you can say, we have still managed to do more acquisitions than ever previously.So we think we have a strong offering. We have a financial capacity. But of course, I think it would be naive if you say that increased activity on the market doesn't impact prices. So we -- yes, we are expecting that prices in terms of multiples are -- will increase. How much and in what steps is harder to say, but we expect that will happen during '21. And then -- but we are prepared for that. We have also -- we are also trading on higher multiples now than we were 1 year ago. So I think we can cope with it also from that perspective. But of course, it would be, over time, if more are consolidating and step wise the number of nonconsolidated companies or targets are decreasing, of course, it will increase the competition, but we are ready to take it on.

[Erik Lindholm-Rojestal]

Great. And a final question for Andreas here. Is it fair to sort of assume that the uptick in deferred revenues you saw now in Q3 will spring back in Q4?

[Andreas Uddman, Chief Financial Officer]

Yes. I mean, we tend to have a seasonality effect in the deferred as well. So it's a bit about the timing when we -- when -- how the player behavior is happening. But yes, you would tend to see a normalized pattern or maybe a flat pattern in Q4. But it's difficult to make any future statements in that.

[Operator]

The next question comes from the line of Lars-Ola Hellstrom from Pareto Securities.

[Lars-Ola Hellstrom]

I want to go back to speak about the seasonality effect. In the Strategy and Simulation, DAUs is down 20% quarter-on-quarter. Can you give us some flavor what you view is a corona effect? And what is, so to say, the clean seasonal effect? And how to view it in Q4 given that you will not be able to support with UAC as strongly as you maybe hope for?

[Jörgen Larsson, CEO & President]

I mean, I think it's very hard to dissect to say that it's x percent exactly due to that and so on. But of course, it's not -- I mean if users have started to pay, the loyalty increases significantly. So that is the case. It has been the case for 10 years, before history of this company. So -- and that is very significant if you have games like we have that supports and that are built for supporting a paying user, an active user for a very long time. So it's natural, especially as we have a very high intake during Q2 that it's -- the absolute numbers goes down more than it may be usually do. But the more loyal users, the more -- they will stay for a longer time. And they show the same pattern as we have seen in Q2 '19.But of course, the non-so-active users that the portion of users that we acquired in Q2 that are not in for the long run, so to speak, they try the game and then they drop out, which is also always a portion, higher portion in -- normally in Strategy than it's in Mash-up of course, that will explain some of that pattern. So we are not surprised of these movements at all. So it's very much the expected pattern.What is important maybe going into too much detail is that Mash-up as a category have a different spending pattern than in Strategy. So the increase is more rapidly, a larger portion of the lifetime revenue for a cohort comes in the early months, but it continues. So it's not like Casual that is basically where you empty the revenue potential from a cohort within 90 to 120 days.But a larger portion then compared to in Strategy, spend their lifetime revenue the first coming, say, for 3, 4, 5 months compared the Strategy. Where it's -- in Strategy, it's very slowly building the LTV co, but it continues to grow for a very long time.But that is exactly the difference on diversification we would like -- we searched for adding this third vertical. Because if we wouldn't have had that, we wouldn't have increased as much as we did in such a short time in March, April and May, that was, very much thanks to that. It's faster-moving in Mash-up and to some extent in Simulation, RPG compared to Strategy.The flip side of that is that it lowers in a more quick way than it does in Strategy. So I think it's -- for us, it's -- when we analyze the data, it's following the expected pattern. So we don't see any significant difference or deviations or so.

[Lars-Ola Hellstrom]

Yes. But now in Q4, do you see Strategy and Simulation, that this strong DAU growth you had in Q2 to flip back in Q3? Do you see that some of the DAUs that you expected to be a corona player are coming in again in Q4? Or is that effect the cohorts…

[Jörgen Larsson, CEO & President]

Well, some of -- no, but -- no, no, no. As we have said several times, the cohorts from Q2 '20 are looking similar to Q2 '19. Obviously, we didn't kind of Mash-up those. So that the total portfolio looks different in its behavior. But looking at like-for-like, the cohorts from Q1 '20 to Q2 '20 for Mash-up where we can compare, and we can also -- of course, we have the historical data, even though it wasn't consolidated Stillfront, are showing a similar pattern as always. But the nature of that, the cohorts and Mash-up differs from the ones in Simulation, RPG and in Strategy.So it means that it's the same portion of the users that we took in this year that are -- we expect that we can see are spending time and being active as it was the previous -- across the line, Strategy, Simulation, RPG and Mash-up. So it's looking the same, but the blend makes it harder to compare. But also the fact that was a giant intake in Q2 also makes the absolute numbers larger, if that adds some light to your question.

[Lars-Ola Hellstrom]

Given that I expect that you will run more live ops operation during Q4, will it be possible to keep the ARPDAU at Q3 levels in Q4, even with a higher player base?

[Jörgen Larsson, CEO & President]

I mean, we -- I think that we have proven that we are strong on live ops. So we think definitely, it's possible to do that. But we're not reporting Q4 now, but I think there is no reason to expect that we shouldn't be able to keep it. So usually, it's -- as I said, it's usually a higher activity in Q4 than it is in Q3, which usually supports the ARPDAU. Now you have to put it in perspective from where we come and so on, but we have been able to increase it for quite some time. So even though the blend, again, looks a bit -- it makes it look a bit funny because all 3 areas have increased their ARPDAU, but the blend over the whole portfolio lower significantly, but that's a mix component rather than the individual games are not performing. So yes, I expect we should continue to do that.

[Lars-Ola Hellstrom]

Yes. And finally, going to the success of the Bytro portfolio. In terms of UAC, is it that it's mainly towards U.S. players, it has been hard to run marketing campaigns, while it has been easier or possible to do it for Europe and other regions in -- has the marketing price has not been as high as in the U.S.? And has the Bytro portfolio been growing strongly organically, and would have been growing even stronger if this marketing prices effects haven't been present?

[Jörgen Larsson, CEO & President]

Long question here. But I think that it's organic growth we're talking about on the Bytro engine to start with. And I think that we see very strong growth opportunities. In general, the pattern has been unusual that's why we're highlighting this. But it, again, doesn't change our view on the growth opportunity for both on the Bytro Supremacy engine games, that has been growing tremendously the last 12 -- 18 months. And we hope and think it will be -- continue to grow. And because it's a very strong product, we also launched a Conflict of Nations Mobile, which will hopefully support that.So -- but of course, it would have been grown -- if the volatility is lower and the prices are lower, of course, you can grow at a higher pace, still returning marketing spend within 180 days. But that's completely normal, just as it has been in December. From the first week of December until the 26th of December, the prices are always higher. So then we lower the marketing. So with that, we still reached the return on ad spend, 180 days. On the opposite, the CPIs usually drop significantly going into January where we can increase marketing. So we think that trend and the pattern and the attractiveness of our products in the market are unchanged. It's just that the market changes from time to time. And so we have seen now. So I think it's an isolated topic, and it will happen again some time for whatever reason that you see a certain volatility in the market. But yes, it's how this market works.

[Operator]

And as there are no further questions, I will hand it back to the speakers for closing remarks.

[Jörgen Larsson, CEO & President]

Thank you. Thank you all for good questions. And we are happy that you spend some time with us here to listen to our Q3 numbers, and a good Q&A. So thank you very much for listening in. Bye-bye.

[Operator]

This now concludes our presentation. Thank you all for attending. You may now disconnect.