Stillfront Group AB (publ)

STO:SF

Earnings Call Analysis

Stillfront Reports Strong Cash Flow and Strategic Growth Plans

In Q3 2024, Stillfront generated SEK 1.595 million in net revenue, a 4.6% year-over-year decline but nearly flat organically. Gross margins improved to 80%, driven by a strategic boost in direct-to-consumer sales, which rose 5 percentage points. Free cash flow surged 49% to SEK 298 million, while user acquisition costs (UAC) increased to 29% of revenues. Looking ahead, they anticipate enhanced cash flow and continue to aim for cost savings of SEK 200-250 million by Q4 2025, with noticeable impacts from restructuring and reduced fixed costs. Despite a cautious Q4 outlook, the company remains focused on sustainable growth initiatives.

A Mixed Performance Amid Strategic Changes

In Q3 2024, Stillfront reported net revenues of SEK 1.595 million, a decrease of 4.6% year-over-year; however, the organic decline was only marginal at 0.8%. The earnings showcased strong cash flow with a free cash flow of SEK 298 million, rising 49% year-over-year. The slight decline in revenue was largely attributed to increased user acquisition costs (UAC), which soared to 29% of net revenues from 26% the previous year. This indicates that while revenues dipped slightly, the company is investing heavily to bolster future growth.

Improved Margins and Profitability

The gross profit margin held steady at 80%, reflecting a year-over-year increase of 2 percentage points, demonstrating effective cost control and a rise in direct-to-consumer (DTC) revenue, which was up 5 percentage points year-over-year. The adjusted EBITDAC margin saw a slight contraction, down 0.4% year-over-year to 24%, primarily attributed to higher acquisition costs. Nonetheless, the company managed to offset these costs through strategic investments that resulted in better gross margins.

Focus on Direct-to-Consumer Channels

A highlight of the quarter was a strategic push towards DTC channels, which has positively impacted gross margin improvements. The DTC channels' growth supports Stillfront's aim to optimize its revenue sources and reduce reliance on third-party platforms. While user acquisition spending increased to SEK 462 million this quarter with a rise of SEK 33 million over the previous year, management remains cautious about deploying this capital effectively due to seasonal fluctuations and upcoming U.S. elections.

Projecting Forward and Cost-Saving Initiatives

Looking ahead, Stillfront anticipates that user acquisition investments will ramp up alongside increased player activity, particularly in Q4. Management has acknowledged a cautious approach regarding U.S. elections that could impact deployment timelines, suggesting that revenues might not materialize as quickly as planned. The cost-saving measures initiated are slightly ahead of schedule, projected to deliver SEK 39 million in annualized savings, with full effects expected by Q1 2025.

Franchise Performance and Future Prospects

Key franchises are seeing varied performances; while 'Jawaker' continues to show robust growth (with a compound annual growth rate of 41%), titles like 'Storm8' and 'Super Free' have faced challenges but are on the path to recovery. The company remains optimistic about turning around struggling franchises by addressing product gaps and enhancing user engagement. Furthermore, the continued ominous nature of seasonal slowdowns has resulted in lower monthly active users (MAU) and daily active users (DAU), but this is expected to rebound as seasonal cycles normalize.

Cash Management and Share Buyback Strategy

As of the latest quarter, Stillfront has like a strong cash position, with SEK 857 million on hand and available credit facilities totaling SEK 1.8 billion. The company's disciplined approach to managing its debt resulted in a reduction of absolute debt by SEK 223 million this quarter, marking a total deleveraging of SEK 1.6 billion over the past two years. The company is committed to by deploying cash judiciously, including a renewed share buyback initiative of SEK 40 million to manage outstanding earnout provisions.

Earnings Call Transcript 2024-Q3

[Alexis Bonte, executive]

Good morning, and welcome to the Stillfront Q3 2024 interim report. I am Alexis Bonte. I am the interim CEO of Stillfront, and I will be joined later by Andreas Uddman, who is our CFO.

Next slide, please. So we continue to have strong cash flow in the third quarter. We had net revenue of SEK 1.595 million in Q3. That was down by 4.6% year-on-year, but mostly flat organically. It was down slightly by 0.8%.

The gross profit margin was of 80%. That was in line with Q2 and up by 2 percentage points year-on-year. And that was really driven by the mixed effects of an increased share of bookings from our direct-to-consumer channels.

Adjusted EBITDAC margin was at 24%. That's down by 0.4% year-on-year and that's due to increased acquisition costs which I will go into later. Free cash flow of SEK 298 million in Q3 is up by 49% year-on-year.

Next slide, please. So we had higher than actual acquisition costs in Q3. You can see that they were at 29% of net revenues in the quarter versus a lower amount in Q3 '23, around 26%. Most of the reasons for that was around the Super Free turnaround, where we've been able to get Super Free to have significant growth year-on-year again by investing in the Word Collect, and to less extend the Trivia Star franchises.

Next slide, please. Gross margin improvements mostly compensated for that higher UAC in Q3. We had, as I say, gross margin improvements of 2 percentage points year-on-year. But not only that, we also had staff costs as a percentage of net revenue that went down by 1.4 percentage points year-on-year.

And then if you look at UAC, which is up by 3.2 points year-on-year, driven, as I say, by Trivia Star and Word Collect, you can see kind of how that balances out mostly. We focused on product investments driving lower capitalization, with improved return on investment. That also had a good impact.

Next slide, please. So we continue to have strong ARPDAU development in the quarter on the active portfolio. Booking in active portfolio declined by 5% year-on-year, but organically it was really 1%. ARPDAU up by 14% year-on-year, that's driven by strong monetization due to successful live ops across the portfolio. We have teams that are incredibly talented at live operations, and you can see that in the impact in ARPDAU. Monthly paying users, MAU and DAU were down. That's in part due to seasonal effects, but also a conscious portfolio shift of our efforts towards high-value users.

Direct-to-Consumer, DTC was up by 5 percentage point's year-on-year. That's really driven by a strong strategic initiative that we have to increase the share of our own channels, which ultimately drives gross margin improvement. And as I explained, compensates at least in part the higher UAC levels.

Next slide, please. Then in the Strategy area, we had the slow return to more normal UAC levels in Strategy after, very low UAC percentage in Q2. Supremacy bookings declined slightly year-on-year and quarter-on-quarter. It's important to recall that Supremacy had an excellent quarter last year. We still think the franchise is very solid and making improvements, probably improvements to that franchise.

Empire remains stable, and that's in spite of no user acquisition span that leads to very high profitability in that franchise and excellent live operations work by the team there. 6Waves did negatively impact bookings they had lower UAC, but however, they were able to raise their margins by through a series of measures.

UAC is down 35% year-on-year for the category, but is up 20% quarter-on-quarter. Bookings are down by 30% year-on-year, but gross profit is down by 8%, helped, obviously, by the Direct-to-Consumer increase, which basically, if you look at DTC channels, that was up by 13 percentage points compared to the same period last year.

Next slide, please. In the area of Sim, RPG & Action, we had lower bookings quarter-on-quarter. Sunshine Island user acquisition spend was down 41% quarter-on-quarter. This is normal. This is kind of part of the scaling process of a game such as Sunshine Island. We identified -- basically we increased the amount of talent that we have working on that game team. We identified a few product gaps. We're working on those product gaps to make the game even better and stronger, and then once we've got those things done, we'll resume pushing. But we do expect Sunshine Island to continue to be a driver of growth into the medium and long-term.

Albion Online bookings were down quarter-on-quarter. That was kind of re-driven by the normalizing of user numbers following Albion Online's EU server launch in Q2. When you launch a new server for that type of game, it's normal that you have a very high peak, and then you have a slight decline. But what is important is to look at what happens year-on-year and the level of bookings and all KPIs are up year-on-year for Albion Online. So we continue to go in the right trajectory for that franchise.

Shakes & Fidgets, bookings declined. We had an unfortunate update of the user experience that was not very well received. The team is hard at work in fixing that, and I'm very confident that they will be able to correct that issue. But we did have an issue there with Shakes & Fidgets in the quarter.

Next slide, please. If you look at Casual and Mash-ups, Jawaker continues it's very, very strong performance. There's a graph here where you can see that basically Jawaker's, since he's joined the Stillfront Group, has grown on average by a CAGR of 41%. So, obviously very, very strong performance with that franchise. But if you look at overall Casual and Mash-ups, bookings were also mostly flat sequentially and increased by about 1% year-on-year.

I mentioned before Super Free. Most of you have been following us for a long time, know that Super Free is a studio that we've been struggling for a while. And I'm happy to say that the turnaround of that studio is well on its way. And basically the Word franchise, in particular, continues to scale well in the third quarter. And that is also what drove user acquisition spend, and strong growth for the franchise. Jawaker, if you're looking at the year-on-year growth in the quarter, that was at 35% with very high profitability.

In terms of challenges in the category, Storm8, we're continuing to have challenges with the home design franchise. As you know, Storm8 was initially very, very successful after joining the group, especially during the COVID period and the launch of Property Brothers. It's been struggling since then for quite a few quarters. But we have a new game that has launched recently called Ellen's Garden Restoration. That game is growing steadily. Not enough yet to compensate the decline of the other products, but going in a better direction.

We've also identified a few product gaps in how -- basically the games function and our puzzles that we're basically addressing. And that gives us confidence that we'll be able to also perform a turnaround for Storm8, just as we have with Super Free.

Next slide, please. So with that being said, I'm going to pass the mic to my colleague, Andreas, who will go over the numbers.

[Andreas Uddman, executive]

Thank you, Alexis, and good morning, everyone. So, cash flow, as Alexis mentioned, we had a very strong free cash flow this quarter of SEK 298 million. Breaking that down on the cash flow for this specific quarter, we had an operative cash flow of SEK 383 million. And off that, we spent more UA versus last year. We spent SEK 33 million more. So we spent SEK 462 million of user acquisition costs during the quarter. We had interest costs of SEK 108 million. The interest rate has gone up in the last few years, and that is still impacting our operative cash flow. We had a positive working capital effect in the quarter of SEK 74 million. That fluctuates over time, but it was positive in Q3.

So we ended up with a cash flow from operations of SEK 457 million, which is a significant increase from the same period last year. And we still continue to invest in our portfolio. We invested SEK 150 million in our product development portfolio. That is 9.4% of net revenues. So it's coming down. It's been coming down in the last quarters, and we're seeing that coming through the numbers now as well.

Financing, we utilized almost SEK 300 million of cash flow. Quite simply, we did buy back shares of SEK 80 million during the quarter as announced as part of the last earnings call. And we also amortized on our debt position of SEK 223 million in the quarter.

Let me move to the next slide, please. Sorry, go back. That was my bad. By looking at the LTM numbers, I think that's also we see a shift, a trend shift now where we have cash flow from operations prior to networking capital of almost SEK 1.6 billion. We are still having negative working capital effect on the last 12 months, but we have a trend shift where we are generating more cash flows. The initiatives that we have done in terms of increasing the DTC channels, that is, a direct impact on our earnings. That allows us to spend more money on UA. But we have also taken down fixed costs, i.e. staff costs and other costs quite significantly in the last quarter.

So we have a strong cash flow. We have continued to invest in our product portfolio. We invested SEK 664 million in the last 12 months. That is a decline, but it's still a healthy investment, and we believe that that investment is a good level to sort of sustain our product development and continue to invest more in our core franchises.

So with that said, then we can move to the next Slide. So the debt portfolio, we took down our absolute debt in the quarter with SEK 223 million. That was a repayment, and we had some positive FX effects, which would lower the absolute amount of outstanding debt with SEK 277 million. So we're now down to SEK 4.7 billion in how we define our leverage levels, which is basically external debt plus the cash earnouts for the next 12 months.

But I think it's also to take a bit to step back, because there's been some comments sometimes about are we really deleveraging? And if we take a step back just 2 years ago, so 2 years ago in 2022 in Q1, we completed the last acquisition of Stillfront. But if I compare the numbers and how much in total debt, so if we had all the earnouts, that's how we define it, but if we had all the earnouts that we had then, we had SEK 7.5 billion of total gross debt, if that's. And we end the quarter now of SEK 5.9 billion. So we have a very strong deleveraging passive. We have basically paid off down our debt with SEK 1.6 billion in the last 2 years. But we've also been able to buy back shares in the last 2 years of SEK 530 million.

So we have definitely a decline in our total debt portfolio. It's shift from earnouts slightly into the external debt, but in total, the absolute amount that we're deleveraging in 2 years is $1.6 billion and SEK 500 million of share buybacks. So it's just important to remember that.

We saw that our leverage ratio, we always peak in Q2. We had 2.15x, and it's coming down. So we can generate, we can do the buybacks. We deleverage in the quarter to 2.08x. So that's a natural trend of how it's been looking in the past as well.

So with that said, we also still have some cash. We're always holding some cash. So we have SEK 857 million, and we still have available credit facilities of SEK 1.8 billion, which of those SEK 1.4 billion are short-term.

So I think that the absolute debt is coming down. We did also extend the maturity profile further in the quarter where we used our extension option with the Swedish Export Credit Corporation and extended that for another year. So we always work tactically with our debt portfolio, and we did that in Q3 as well where we utilized those kind of terms that we have without changing the actual commercial terms of that agreement.

So with that said, we continue to have a discipline, a much, much stronger discipline how we invest in our franchises, what kind of games we invest in. It is more focused. We have been driving fixed costs down, and we are, as we communicated just a month ago and that we elaborate more in the report, we are committed to coming down further in terms of our fixed cost base by focusing where we put the investments going forward.

So that, and our proven cash flow generation, our proven deleveraging capacity ensures that we have both a healthy balance sheet and that we can spend more UA, that we can support the business financially where it's needed.

And then as the next slide, and today I welcome Alexis back is that we announced a share buyback program today up to SEK 40 million. It was SEK 80 million in the last quarter. The rationale for that is that we are going to use these shares to settle earnouts provisions. We have SEK 178 million of equities earnouts part that should go out by Q2 next year, and we bought SEK 80 million. We're now planning to do SEK 40 million. So that is a way how we balance our capital deployment approach in a balanced manner.

And with that said, I will hand back to Alexis.

[Alexis Bonte, executive]

Thank you, Andreas. If you go to the next slide. So, yes, basically, you know, we did have a unusually long seasonal slowdown that we also already mentioned the last quarter that drove, lower activity levels across our game. So we are obviously able to counter that, with the live operations efforts, the cost cutting, the optimizations and all that. The high UAC spend in the fourth quarter, in terms of the UAC share bookings reaching 29% did affect EBITDAC negatively in the short-term, but was largely compensated with higher gross profit and lower fixed costs as you've seen before.

User acquisition investments in Q4 will sequentially increase due to the higher play activity. However, we are taking a cautious approach to the U.S. elections in 15 days result that could impact a little bit the timing of deployment of UA in the quarter. The CPIs tend to increase a little bit before the U.S. elections. So, the teams are just being watchful for that, and leveraging the data that we have to make sure that we do this in the best way.

We've also accelerating the communicated optimization and reorganization program that we announced some time ago, just a few weeks ago, delivering SEK 200 million, SEK 250 million by the fourth quarter of 2025. We're slightly ahead of plan. We have SEK 39 million of annualized cost savings which will have full effect in Q1 2025, which we have already actioned.

The new organization model will allow us for increase in speed and will also allow us to focus our resources even more into our key franchises, which is really key. We're also have initiated the move of declining games to lower cost locations. And we're also addressing low performing games.

And finally, you've seen the impact the Direct-to-Consumer can have in our Strategy games. So we are also starting to look at some of our larger Casual games and seeing how we can roll out Direct-to-Consumer for those games as well.

Next slide. And then finally, I would like to extend a warm invitation to all of you to join us for Capital Markets Day on February the 6, 2025. This will be in Stockholm. So you'll be able to join virtually just like now, but also in person. And we will give you a bit more details quite soon.

That being said, we would love to hear your questions, please. Thank you.

[Operator]

[Operator Instructions]

[Unknown Analyst]

Yes. Just to start-off, you mentioned unusually long seasonal slowdown. But we are in October now, so have you seen more of an usual seasonal upswing here or anything you can add that would be helpful?

[Andreas Uddman, executive]

Yes, I think -- I think when we say seasonal, I think we refer back to Q2 where we said that we especially in Strategy, the seasonality effect started earlier, it started late May. And that's why we had a slowdown in terms of UA earlier than we usually have for Strategy. So that was an earlier start.

Then what we see -- saw that Strategy is a normal seasonal effect. It goes down in terms of activity during the summer month. The player base tends to be male-dominated, 40-plus, and they go on holidays and all these things. So it's been -- the same thing, it's just that it's been extended. But that event, that already happened in Q2. And then we saw the same length in Q3. But then we are seeing good movements by the end of the quarter, which is normal. But we had a longer period in total. That's why we refer to a longer seasonality.

[Unknown Analyst]

Okay. Got it. So, relatively usual in Q3, then?

[Andreas Uddman, executive]

Yes.

[Unknown Analyst]

Yes.

[Andreas Uddman, executive]

But it started earlier in Q3.

[Unknown Analyst]

Yes, yes, I got it. And turning to D2C, I know D2C channels continues to be a high priority for you guys. And the gross margin is up from last year. But it has been more stable for a few quarters now. So what do you think is needed to lift it further?

[Andreas Uddman, executive]

I think, I mean, we've been very strong. I mean, we've been very strong on moving payments into our own web shops, basically, especially in Strategy. And that really shows in the Strategy. It's not something that happens overnight. We have playbooks, and the students have been really working on it. We've been really working hard on this in the last year. So we have a lot of learning's there. I think where we -- and we still have a few upsides in Strategy, and in Simulation and RPG as well, where we also want to accelerate. There is definitely in the Casual and Mash-up area.

We don't see the same sort of relation maybe, but it is still a big value. So that's something that we will accelerate going forward, as well as getting a lot of our other games up to a higher level. There's still a lot of things to do there.

[Alexis Bonte, executive]

Yes. And just to slightly build on what Andreas is saying, and as a former kind of studio founder, it is a pretty big competitive advantage we have in our group, where we have very solid payments up. We don't have to do our third-party through a third-party as many others do, which really means that the impact to our margins is higher than most. So this is really a competitive advantage that we're deploying.

Also, our speed of learning around what we're doing, because we have this wide portfolio. We're able to exchange what works, what doesn't work with the web shops much more quickly, which is the reason that we've been able to go from a small amount, a small percentage of DTC to a very high percentage extremely quickly and efficiently.

[Unknown Analyst]

All right. Got it. Looking at the DTC growth currently or near-term, is it mainly driven by new games increasing the DTC share of sales, so to say, or is it the same games that continue to grow the DTC a stage further?

[Andreas Uddman, executive]

It's both, I think. In Q3, we have onboarded quite a few games in Q3, but the real effect is actually getting the existing ones to raise the bar, because one is the entry barrier. First, you need to onboard, you need to start working with it, but we see that a lot of games have managed to improve. So it's a mixed effect, but the most drivers are actually the existing games that constantly work on this and have managed to get the payments through the web shop.

[Alexis Bonte, executive]

And an important thing to remember, I think we made the point, is DTC actually can have a slightly negative effect to our bookings, because one of the ways that we drive people to our DTC products is by offering them slight discounts, right? But then the gross profit impact is high. So that's why a gross profit actually is up year-on-year organically. So that's also one of the things that we can fine-tune going forward. As we've converted more players to our DTC, we should be able to potentially reduce some of those advantages, such as discounts, and then work on other advantages.

[Andreas Uddman, executive]

And it's also just important that gross profit is actually how we drive UA. So when we calculate ROAS or the return on ad spend, that is basically driven by the effect after whatever payment fees you have in the business. So that's why it is strong that we can, even if our bookings are organically down 0.5% in terms of bookings, 0.8% in terms of revenues, we are growing our gross profit by 2%.

[Unknown Analyst]

Yes. So this was my follow-up, the discounts on the DTC stores. Do you think -- do you see any risk that consumers sort of get used to lower prices? And do you expect to maintain the discounts or lower prices on the DTC channels compared to mobile apps? Or do you think you can raise them over time to be sort of on par on the price levels?

[Alexis Bonte, executive]

Yes, I mean, as you know, we have very complex live operations with multiple offers. And our goal is always to give the most value that we can for our players. And there's other ways to give value other than discounts. It could be value by basically giving them more items in-game and all that. So I think it's going to be -- it's not going to be, an overnight thing, but over time, I think we can reduce a little bit the need for discounts for people to go through DTC.

Also, people build habits over time as well. And once people will have the habit to go through the DTC channels, we no longer need to pull them in as much as we were pulling them in before. But it will take time.

[Unknown Analyst]

All right. Got it. And one last question from me on the Casual segment. You said that Jawaker continued to do well while Storm8 is continuing to struggle. Should we assume that the rest of Casual is relatively flat then? Or can you give any color on that?

[Alexis Bonte, executive]

The, what of Casual?

[Unknown Analyst]

Yes. The rest of the Casual. Can we assume that the effects of Jawaker and Storm8 are sort of taking each other out?

[Andreas Uddman, executive]

Yes, I mean, Storm8, as we were saying, Storm8 has been, and we've been saying before as well, they haven't been able to compensate for the downfall with the new game, LN, which -- it is the KPI is still early and looking good. But we still have very strong, I mean, Alexis said, the Super Free. We have turned around. Super Free is in healthy growth in the quarter. That has been quite some effort to get there. But we also have the likes of Jawaker, et cetera, and the Moonfrog games, which are growing very healthy.

So it's always a mixed bag in that. But I wouldn't say that all the other games are flat. Actually, some of our growth drivers are in there as well. But Super Free, Storm8 has been struggling, that's for sure.

[Unknown Analyst]

Okay. Got it.

[Operator]

The next question comes from Martin Arnell from DNB Markets.

[Martin Arnell, analyst]

Can we talk a little bit about the top line growth outlook? You comment that your UAC is pretty high in Q3. Can you help us understand the potential effects from that in this current quarter? Any views on the top line growth outlook?

[Andreas Uddman, executive]

I mean, as you know, Martin, we haven't provided any guidance. We're talking about Q4 and Q1 is a period where we do spend more UA. There is a lot of player activity in the games. I think what makes especially this quarter interesting is that usually in Q4, you come up to a period where ahead of Black Friday, the CPIs are becoming expensive to marketing. Usually you slow down and then you start ramping up post that. I think we have a little tweak or an impact this year, which Alexis was talking about as well. We also have a U.S. election and prior to the U.S. election that also impacts us. The quarter will be probably, we are expecting, as we said, to spend similar. Then it's obviously when in the quarter can we deploy that UA. That would impact, if the revenue is going to come this side of the year or next side of the year.

I mean, we always measure the returns. So for us in terms of long term, it would impact the quarter, but it will be paying back. I mean, UA investment is the best investment we can do. It's quite simple. But we haven't given any formal guidance except for that.

[Martin Arnell, analyst]

But it's fair to assume that there's not going to be any big shift in trends here, I mean, U.S. election.

[Andreas Uddman, executive]

No, I mean, we are early in Q4. I mean, we have this in the last year's election. 4 years ago, we had, there was an impact on just before. It's not a longer, but there was performance marketing impact just prior to the election. And then Black Friday, we always have that. But we have -- we're still early in the quarter. So we're just flagging, these are events that could impact, especially how, not the fact that we should be deploying in a similar fashion like we always deploy in Q4. But it's based on when in the quarter that might shift a bit.

[Alexis Bonte, executive]

Yes, I mean, basically, most likely in the quarter, we'll have a little more that will be deployed towards the end of the quarter. The famous, what we call Q5, which is a period right after Christmas, when UA is usually a little less expensive and has good impact. So it could be that this quarter we have to do, we have to shift a bit more of the UA to that period, which means that, the revenue wouldn't come in into Q4.

[Martin Arnell, analyst]

And when I look at the outbound, it's of course high growth numbers. But, and we have -- we're in this phase now with a lower MAU and DAU. It's falling by double digits. And can you just help us walk through this pattern? And when do you expect your player numbers to stabilize and why?

[Andreas Uddman, executive]

Yes, I mean, we have to go, I mean, it depends what period you look at, but we have obviously some events in the last sort of 2 years that significantly impacted the amount of players that we have. So we had both the situation in Bangladesh, in OKA, where we had a lot of players that didn't monetize that much. And the same, it's the same as also for Snap Games, which Moonfrog was very strong. And they had a lot of players, a lot of MAU's and DAU's, but it was monetizing very poorly. So when Snap Games was shut down. So that of course impacts that.

And we have been focusing our games or -- we have also been focusing very much on live ops and utilizing, driving the ARPDAU out. I would also say that in Q3, there is a slower player activity and it has been historically as well. So we are -- the year goes in cycles where Q3 is lowest player activity and that tends to go up in the quarter.

Then it was also very much depending on what games do you invest in? What games do you bring in players to? So Strategy game has, you don't have the same mass audience as such as you have in a Casual and Mash-up. But you have -- when you get monetizing players, they stick around for a very long time.

[Martin Arnell, analyst]

Is it fair to assume growth in your player base next year?

[Alexis Bonte, executive]

Just to build on what Andreas was saying, I think one important thing to say as well is, the number of kind of organic kind of players that you usually get from the stores is also kind of, across the industry as declined. So that means that we have more targeted players that come from marketing, but that also obviously has an impact on the total number of new DAU that usually wouldn't convert very well anyway that you get. So, some of this is kind of a natural thing. In terms of where we'll be next year, I think it's too soon to say.

[Martin Arnell, analyst]

Okay. Andreas, final question to you. Do you see anything that could disturb the cash flow trend in the final quarter of the year? And do you expect similar deleveraging in the coming next 12 months?

[Andreas Uddman, executive]

Yes, I mean, we have been, as I mentioned, we have been deleveraging in the last 2 years of SEL 1.6 billion in total. And we bought back shares of SEK 0.5 billion. So I think, yes, we have a strong deleveraging capacity. We are, as we mentioned, we are -- we are taking down fixed costs. We are committed to take down fixed costs further, which means that we can also spend more money on the franchises and the games that we actually believe in. So that the profile is there. We have been quite stable in terms of that.

Then, of course, individual quarters, there can be working capital effects and all these things. But we have consistently delivered a strong cash flow. And I think the actions we're taking in the business will continue to support that. So I do think that we will continue to deleverage.

[Operator]

The next question comes from Amar Galijasevic from Carnegie Investment Bank.

[Amar Galijasevic, analyst]

Firstly, just to be completely clear here on the profile of the cost savings plan, you mentioned you're slightly ahead of plan here with SEK 39.6 million annualized cost savings with full effect in Q1. Should we read this as, you've already taken some cost measures here in Q3, expected to do more in Q4 or Q1? Or how should the profile look like here going forward?

[Andreas Uddman, executive]

No, I mean, we communicated the numbers. These are annualized cost savings derived from actions we took in Q3. Then you can ask, why don't this all impact Q4? Because the actions were taken, and then you do transitions of games or teams, and that is not going to have a full run rate impact in that Q4. So that's what we stated that. So that's slightly ahead of plan. There is obviously more things that we're doing in terms of what Alexis was talking about as well. You know, where should the games be operated? What games should still be in the portfolio? How should we win what we call the new organizational model? That will also drive down efficiency, but that's not going to happen just overnight. We will continuously work on this, and we will work hard to get the new organizational model in place.

But we also do it controlled. So I think that's what's going to continue to drive that. But we also said to you guys and to our owners that we will share the details. How are we trending towards this? And this was the first update of that, how we're trending.

[Amar Galijasevic, analyst]

Okay. Fully clear. And then just a follow-up question. How do you roughly split out the cost savings per line item, mainly on the personnel side or?

[Andreas Uddman, executive]

Yes, we did communicate 2 areas when we send out that announcement that is driven by direct costs and it's driven by fixed costs. So fixed costs is staff and other costs. And we say that it will be equally split between those 2. That's what we said when we released that. And that's how we are approaching it. So this impact that we have now was mainly driven by the fixed cost impact.

[Amar Galijasevic, analyst]

Okay. Great. And then just maybe an outlook question here. How do you reason about, I know you don't give guidance, but I mean how do you reason about the chances of you reaching your financial targets this year? I think back on the Q2 con call, you as a company seemed quite confident potentially reaching those at least the margin target. But I would say now it seems like you need a very strong Q4 to get there Just helping your thoughts on this.

[Andreas Uddman, executive]

No, I mean, we haven't stated anything else. So we stick to that. Of course, Q4 is a difficult quarter to predict, but we haven't made any understatements on that. So it's not like we are not -- we are changing anything from that.

[Amar Galijasevic, analyst]

Okay. And just a similar question. If you compare your expectations for 2024, 6 months ago compared to right now, what has gone according to plan and what hasn't? And are you more positive now than 6 months ago? Or how should we think about that?

[Andreas Uddman, executive]

I mean, I can start from a pure sort of how we the program that we said, we will focus more on investments. We are focusing on DTC. That has been progressing good, but we also have an intention to accelerate that, which was communicated a month ago in terms of the New York model. So that is progressing, but we want to run quicker, I believe. I think that's where we are impatient in those things.

So I think that is progressing well. I think that the market the gaming market has been more volatile, I would say, in terms of what we see. So that is something that we might not have expected, but we still are being able to scale games. I think that's key. We have been able to scale game.

I mean, if you look at Sunshine Island, yes, it's coming down in bookings, but exactly as planned. I think in Q3 last year, we explained that this is how you scale a game. So going according to game plan, so we can still launch games and you can still get good games out there. So that's -- is that, I would say, a mixed bag on that one. But I think we are progressing and working hard on the things that we can influence.

[Alexis Bonte, executive]

Yes. And I think to build on what you're saying, I see also definitely with the Direct-to-Consumer part of things. I think that's -- that's definitely gone slightly faster than even we would have expected. Again, the moment our studios and game teams see something that works with other game teams, we're able to share case studies. They're able to jump on it and then really deploy very quickly. I think also this reorganization that we've announced, it's just going to allow us to be much faster in kind of decision making and executing this sort of wins. So that's something that I really look forward to.

[Amar Galijasevic, analyst]

That's super helpful. Just a final detailed question on the remaining earnouts. Could you just share how much roughly is split up per subsidiary?

[Andreas Uddman, executive]

We have -- we don't disclose per subsidiary, but we have less studios within earnouts. I mean, York is until 2027, but so the majority of the earnouts post '25 is basically all the earnouts post '25 are related to York. But we haven't announced that breakdown. But I think one key thing in terms of the earnouts, just one to add, is that it's self finance, right? It is a -- so if the earn-outs go up, the better it is.

[Amar Galijasevic, analyst]

Yes, I get that. Okay.

[Operator]

The next question comes from Erik Larsson from SEB.

[Erik Larsson, analyst]

I have 2 questions. First on the net capitalization rate. You're essentially amortizing game assets at around SEK 200 million and investing around SEK 150 million currently. So when do you expect these 2 items to be more in balance?

[Andreas Uddman, executive]

Yes, I mean, it's a good observation. Yes, I mean, we come from, I mean, in 2022, we invested 14% of our net revenues, and now we're down to 9.7%. So, but of course, you amortize these game titles over what tends to be a 3 to 5 year period. So the gap will start closing, but it will still take a few, quite a few quarters to get that gap to close, because you have to look at what did invest 2, 3 years ago and what are we investing now? And we have been taking down, and that has been going a bit quicker the investments than expected. So I think that's a key thing. So it's not going to, still going to be a discrepancy, but when exactly depends, of course, how much we continue to invest.

[Erik Larsson, analyst]

Yes. And then second and final question on the balance sheet or credit facilities. You have your RCF that you -- I guess you will refinance it within the coming year. So I'm just curious, if you look at that in any specific way and whether that refinancing will improve your flexibility in any way with regards to buybacks, et cetera, like your previous bond refinancing did?

[Andreas Uddman, executive]

Yes. I mean, as we have done historically, always worked tactically on our debt financing. The RCF is now the one that is maturing next. So of course, that is something we will need to look at refinancing. Exactly how that will look in terms of the size and the structure, we will get back to when we get to that.

[Erik Larsson, analyst]

All right. Fair enough. That's all for me.

[Operator]

The next question comes from Rasmus from Kepler.

[Rasmus Engberg, analyst]

I just can you remind us again why you reorganized geographically rather than along business lines? Because when you talk about it, you still talk about the Strategy segment, the Casual and Mash-up, et cetera. And secondly, what you took, I think, was it SEK 15 million or something in restructuring charges in this quarter? How much do you expect -- is that the pace we should expect for a couple of quarters? Or will it accelerate?

[Alexis Bonte, executive]

Yes. So I'll take the first part of that question. So basically, the reason we've reorganized around geographical lines is really for speed. For speed and speed of execution, we must remember that this is the games company, this is a games group. Games groups are about talent and it's very important that you have the proximity to the talent and you're able to communicate very, very quickly. We have a very good marketing hub in Europe that is achieving incredible results with the European studios. It was important to also have a marketing hub in the U.S. That was in the same time zone and able to work with those game teams in a more efficient way. So it's really all about speed and efficiency. That's really the key reason for this.

[Rasmus Engberg, analyst]

For the second part?

[Andreas Uddman, executive]

Yes. In terms of the second, yes, I mean, when you do especially on the fixed cost optimization programs, depending on your restrictions and where you are, you have some one-off costs that you need to take. It's part of the game. We haven't guided on a specific number there, but we will have potentially more costs to take, but we haven't given guidance.

[Rasmus Engberg, analyst]

Right. And then I just want to ask you about when you comment on the restructuring, you in the CEO notes, you basically say these combined efforts will ultimately drive organic growth. Is that should we read something into that, that we're talking about at some point in time there will be organic growth? Or is it just a comment that doesn't mean anything?

[Andreas Uddman, executive]

Well, it means that we will -- I think what you're trying to say is that, I think, as Alexis was mentioning, I think one of the key things is, of course, when you trim your organization, you become leaner and meaner. You make decisions quicker and also focusing the best talent, which we also state, into the core franchises. That is something that will drive growth. It's not a hope, but it will drive growth and that we are convinced around that. So that's what we're stating, and it's the same statement. It's not a new statement versus what we had when we actually announced the organization's changes.

[Rasmus Engberg, analyst]

Okay. I'll just check. Just wondering.

[Operator]

The next question comes from Aytaj Khalilli from Barclays.

[Aytaj Khalilli, analyst]

So I have 3 questions. So firstly, as you are focusing on more successful franchises, could there be any opportunity to sell some of the other franchises rather than just restructuring the teams there? And secondly, so you have CMD in February. Do you intend having a new CEO in place before that or not?

And finally, on Albion Online, you mentioned that like given the boost from the new server has gone down, it was down quarter-on-quarter. Can we just talk about the plans or expectations for the game for the rest of the year and '25?

[Andreas Uddman, executive]

Can I take first one on franchise?

[Alexis Bonte, executive]

Yes.

[Andreas Uddman, executive]

Yes, I mean, we are looking at our portfolio in general. Of course, we are looking at where should the games be operated, where should it be operated or should we do something around the portfolio? And we've been clear, we will look at our portfolio and we are working actively on that.

And that could entail we can sell something. But when we get to that, we will talk about it then. But of course, it is we were clear, we are looking at our portfolio as a whole. How does it fit into Stillfront now and in the future? And that can lead to different actions. Over to you.

[Alexis Bonte, executive]

Yes. In terms of the second part, the second question, it's really our official kind of governance policy in terms of succession. The successor, an internal successor, which is myself, becomes interim CEO. The Board, due to governance reasons, starts an external search as well to compare what other alternatives are there. But just to be very clear, I'm committed long term to Stillfront. As you know, I am a shareholder of Stillfront and my intention, if the Board will decide so, will be to continue long term in this role.

In terms of the third part, which is Albion Online, again, as I say, it's a natural process when you launch a new server. Obviously, the team continues to work on the game. Well, there will be if you've been playing the game for a while, there are regular updates to that game. So we have an update that will be coming up soon and we'll continue working on that. The way I look at Albion Online is like a small kind of RuneScape, a small Jagex.

So I think this is a game that has really good potential in the long-term and there's an incredible talent behind it. Very, very, very confident about that franchise in the long-term.

[Operator]

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

[Alexis Bonte, executive]

Perfect. Thank you very much for your questions. We really appreciate you taking the time to listen to our quarterly report. I just want to really reiterate that all of us here at Stillfront, Andreas, myself, all of the teams in the studios and the game teams are really, really hard at work on delivering on our strategy and very, very committed to giving the results that we all want to see.

I really hope that we'll see many of you at our Capital Markets Day in February 6 here in Stockholm or online. And again, thank you very much for your time.