Stillfront Group AB (publ)

STO:SF

Earnings Call Transcript 2020-Q4

[Jörgen Larsson, CEO & President]

Thank you. Good morning, and welcome to our year-end report presentation. I'm here together with CFO, Andreas Uddman.Looking at Slide #2, just a brief overview of Stillfront. We are a free-to-play powerhouse with now, as we speak, 19 gaming studios that has -- is operating on a platform, creating significant operational synergies that are constantly improving. We also have a very diversified and evolving game portfolio where we have loyal users playing our games in millions every month. And we also have products that have shown a long life cycle, and that is very important for stability and predictability.We have had in Q4, an average of 22 million unique players on a monthly basis and 4 million on a daily basis. And I would like to note that this is excluding the last 3 acquisitions of Sandbox, Super Free and Moonfrog. And with them included, we have indicated earlier that the number will be a factor 3 approximately in terms of users. Further, our main markets continue to be U.S., the largest; Germany, the second largest; MENA region, third; and U.K., fourth; and now we have France on the fifth place in terms of sites. We are currently more than 1,000 professionals around the globe in several different countries and offices.Turning to next slide. You can see these offices, again, not including Sandbox, Super Free and Moonfrog. And on the left side, you can also see how our reach looks like in terms of revenue distribution. We have, in North America, 48% of our revenues, down from 51%. We have in Europe an increase to 37% from 31%, and Asia is approximately unchanged with a slight decline from 12% to now 10% in Q4, 10% of revenues. And on the right side on the slide, you can see all the beautiful logo types from all our studios.Turning to Slide 4. Looking at our numbers and our revenue and UAC development. We had, in the fourth quarter, revenues of SEK 1,080 million, which is representing 96% increase compared to last year. And that is driven primarily by the acquired growth from Storm8, Candywriter, Nanobit and Everguild but also with an organic growth in Q4 which is, in local currency, 10% to 15%, which we think is decent or solid. And what is different this quarter is that it's quite worth mentioning or emphasizing that it varies a lot over the portfolio. So some products have shown very strong growth. Others have been more flat. But that is exactly why we are building constantly a well-diversified portfolio.Further, if we look into the UAC, we had a spend during the quarter of 20% in relation to our net revenues as compared to last year's 19%. So the numbers was very representative, but it was more volatile in this quarter than it usually has been. We think and analyzed that, that was due to the U.S. election, which made it -- following a quite unusual pattern up until the election, but then it has been quite normal. So what that means is that, as you can see, we have spent, in percentage-wise, similar to any seasonality pattern, increasing in Q4 compared to Q3. But the difference is that it came later than it usually does because it's -- usually, in October, we push more than we have done this year -- or in Q4. So that is also what explains that we gain momentum into January rather than having that in December.Further, looking into the full year, you can see that we have -- or sorry, before that, I should also emphasize the FX situation, which has been extreme this year with an increase in exchange rates in the beginning of the year but then a drastic drop. And also, that negatively impacted us significantly in the fourth quarter. So compared to Q3, we had a drop of SEK 60 million just between Q3, what we had as average cost -- average FX in Q3 compared to what we had in Q4. It represents a SEK 60 million drop.And looking at the full year, we had recorded revenues of SEK 3.991 billion, which is 103% higher than it was last year. So we think that is a strong development. We achieved that growth with 19% in UAC in relation to net revenues. And that is also a number that was slightly lower than we recorded for full year '19 when it was 20%. But you can also see how we have been quite stable in how much we spend. Not on a quarterly basis, it could vary, but if you look at the last 12 months, it's quite stable from 20%, 20%, 19%, 18% and 19% in relation to net revenues.Turning to Slide 5. Looking a bit into our EBIT development -- our adjusted EBIT, which is the primary profitability measure that we use. You can see that we recorded SEK 399 million in EBIT -- adjusted EBIT, for the fourth quarter, which is improvement in growth of 125% compared to last year and a record-high margin of 37% not only for the quarter but actually for the last 12 months, which is, we think, a strong number. And we have maintained and been able to achieve this higher profitability basically through a high degree of operational discipline through all our studios and a well-executed live operations, which both provides us with higher margins and higher profitability as well as it does with achieving growth in a cost-efficient way.And as mentioned, we have both organic growth driving the improved margins as we have a positive -- our business model provides us with higher margins as we grow with the scalability we have in build, but also that we have acquired 2 high-margin studios through Storm8 and Candywriter. So we are -- the contribution comes from both the organic and operational development as well as the acquisitions that we have made during the year. We can also mention that the studios that will -- is not in this report but come -- we have acquired and come in during Q1 are more higher growth but slightly lower margins. And that is exactly what we have searched for, and we are happy that we have been able to close this transaction. We will come back to that later in this presentation.You can also see that on the right side, on the yearly -- the full year EBIT, we have the last 12 months, SEK 1.494 billion (sic) [ SEK 1.493 billion ] in EBIT, which is a 131% growth compared to last year. So we think that is a strong development. As you can see, whereas our EBIT is growing faster than our top line shows, again, the scalability of our business model, you can also see how we have been -- steadily been able to grow our margin from 33% through 35% up to 37%. But again, we think that we should balance around our target 35% and, hence, be able to spend more in growth the next coming years. That is what we would like to achieve, and we think we are on track for that.Turning to Slide 6. Looking into our portfolio, our active portfolio. Again, previously, active portfolio is the games that we work very actively with, that have dedicated live ops team. It's not a long tail of games still being live but not on the level and on the size that that we have dedicated teams. So what we are working very actively with and have done for quite some time is to constantly improve the diversification and the balance of our portfolio. And I think that we have taken significant steps during 2020 and also in the fourth quarter. So we are constantly improving that diversification and balance in terms of age, in terms of where the consumers come from, in terms of female and male audience and not the least how we have now managed to balance between the 3 different product categories. We have close to a perfect balance between the 3 different product areas that we have. And that is something that we think is very important for us to continue to provide the stability and predictability of our gaming portfolio's performance.So now it constitutes -- the portfolio is represented by 42 games. And 77% of our revenues in the fourth quarter were coming from mobile, the mobile channel, so it's growing. Our ad bookings improved slightly from the third quarter, so it's now 8% in relation to -- or in portion of the total revenues. And also, looking at the whole portfolio, you can see that 36% of our portfolio comes from Simulation, RPG & Action, which has now been very well balanced but slightly larger than the other 2 areas.Looking at the ad revenues, I would like to emphasize that we have an ambition to strengthen it. It's good for profitability, but it's also yet another means for diversification. So even though the improvement of 7% to 8% is not that high, it's worth noting that we have increased from 1.5% in Q4 '19 to 8% this quarter. And since we have doubled our business, it's actually a factor 10x in absolute numbers, how much our ad revenues had increased in 1 year. So I think we are good underway, but I'm not pleased with this number. We should definitely be able to grasp the untapped potential of further ad revenues.Worth mentioning is that we have additional 4% of bookings coming from the nonactive portfolio. And as we have stated already in the Q3 report, and as I touched upon just recently, that it was a more volatile marketing -- environment for marketing this quarter than we have seen previously, for the reasons I mentioned. But overall -- and that is important that we have not compromised on the return on ad spend target of net returning the spend within 180 days. We have good margins to our highly set expectations on how it should return. So there's no compromise there, and the absolute spend is the same. But it's slightly later that we have spent during the quarter than we usually do in Q4. Also, I would like to mention that we have more than 20 titles upcoming in our pipeline for soft launch in 2021. And that is, for us, a record number of new products on its way out.Further, I would like to comment on our user numbers. So you can see that we have a 274% year-on-year growth on monthly uniques. And on daily uniques, we have 215% growth year-on-year. And what is important for us, something we have strived for, is to increase the number of paying users. So that is up -- most of these numbers up 278% year-on-year. And we actually have an all-time high in Q4 in the number of paying users, 877,000 paying users, which is then, as you can see, higher than Q2 when we have a very, very high intake of new users. So that shows that the loyal users continue to play our games, continue to pay for the entertainment that we provide. So when the MAU and DAU goes down as a natural reaction on the huge intake from 15th of March to end of May, the paying users are actually still increasing. So I think that shows that the efforts with live ops and the loyalty our users show us is there, for sure.Then a comment on the average revenue per daily active usage, which is down year-on-year, which is a direct reflection on -- that we have added the Mash-up and Casual category. So that is completely due to that. But very -- or more relevant, I would say, is that you can see that from Q2 to Q4, it's no change in the average revenue per daily active users, which is actually representing and showing clearly that the COVID-19 effect that we have was in the number of intake, how much marketing we could perform in -- from mid-March to end of May. That was exceptional and exceptionally profitable as well. But the pattern from these users coming in is very similar since the ARPDAU is unchanged from Q2 to Q4. So basically, we have no COVID-19 effect in the existing pattern from the users.Turning to Slide #7, looking at our strategy portfolio. We are very pleased to see that our strategy portfolio is continuing to perform with a high -- strong growth and very high stability. And in this case, there is no acquisition. It's just organic development. It's currently 12 games, 63% mobile revenues. We have no ad revenues in this area, and close to half of the revenues come from Europe. And 32% of our total active portfolio comes from the strategy area. So it continues to be a very important area for us. And with a 13% organic growth, we are very happy to see that. And as we have seen for quite some time now, it's -- many of the midsized products are performing very well, such as Call of War, Supremacy 1914. And we are very pleased to see that War and Peace had increased significantly after 1 or 2 weaker quarters. So it's really working our product portfolio strategy.Conflict of Nations that was launched on mobile in late Q3 has delivered over our expectations. So it's a very strong product with high growth. And again, we can see that [ true cost platform for our product ] is really increasing the KPIs, providing us with higher growth and higher profitability. And as I mentioned, War and Peace and Conflict of Nations, both launched in 2017, reached all-time high bookings in the fourth quarter of 2020. On the other side, Nida Harb and Strike of Nations had slightly lower activity levels during the quarter. They don't have -- especially Nida Harb don't have, for obvious reasons, being a MENA region product, do not have a seasonality effect in Q4. They rather have a seasonal -- positive seasonality effect in Q2 connected to Ramadan, not, of course, Christmas.Looking at our MAU and DAU and paying users development, you can see that the MAU is very stable. We had an uptick in Q2, for the reasons that I mentioned, but it's very, very stable, both 1% growth year-on-year, but you can also see it's very, very stable from Q3 to Q4. Looking at the DAU, it's 3% up. And looking at the paying users, again, it's growing more than the MAUs and DAUs, which I think is a very good development and pleasing to see. And sequentially, 11% up. So it's almost on the level of the record second quarter. Looking at the average revenue per daily active users, it is, year-on-year, up 9% and also performing very solidly. You can see that it's 7.3 in Q2, 7.1 and 7.2. So I think we have a good development in terms of the KPIs throughout the line. And UAC is also stable. It's 17% in relation to bookings. So that is exactly the same number as in Q3 and 1 percentage point higher than in Q4 '19.Turning to Simulation, RPG & Action on Slide 8. This is, as I said, now the largest product area, even though it's almost on par with the other ones. But if -- we have significantly improved the diversification and changed the product mix in this area, with having the Nanobit products added in the fourth quarter. So now we have 22 games in this area. 70% is mobile, 5% ad bookings and we are 46% revenue collecting from Europe. We had a 56% increase in bookings. And again, it's key titles performing well. Nanobit added to the portfolio just as Everguild. Even though Everguild still is a quite small product and a small studio, we think that we have great growth opportunities there.Nanobit recorded slightly lower revenue than expected due to the performance marketing volatility that we spoke about but also that they are heavily exposed towards U.S., and then the FX dip that we have seen for quite some time had a relatively higher impact on Nanobit. But they did deliver EBIT margin in line with our expectations, and they have also a stable and a solid start into the next year. We can see that Big Farm: Mobile Harvest, also launched in Q4 '17, has been -- continued to perform very strongly as well as Shakes & Fidget, which has outperformed our expectations for quite some time now.And going into our user numbers, you can see that our MAU has grown 149%, our DAU is growing 69% and our monthly paying users is growing 112%. So it's a solid growth across the line here, of course, driven by acquisitions, to a large extent. You can see that our average revenue per daily actives are again very stable. So I think that's a sign of health indeed. It's slightly lower if you look at year-on-year, but that is due to product mix. But if you look also from Q3 to Q4 and looking from Q2, it's very, very stable.Worth commenting on the bookings and the UAC, you can see that UAC is growing faster than the bookings, which is a direct relation to the product mix whereas Nanobit products are, as you saw already at the acquisition when we guided, they are growing in general, over time, faster and had an opportunity to do so and, hence, they are spending more in UA. And as the spend was later in the quarter, giving momentum into Q1, that is what explains basically the difference in increase in UAC and bookings in the short term. This is an effect that is not completely surprising, only looking at 1 quarter for the newly acquired products from Nanobit.Looking in to next slide and Casual and Mash-up. This is an important growth area for us that we decided to try to get into in Q4 '19. And I think that we have been able to do so in a good way. And one of the reasons that we strive for including this area is that we would like to have this product area that is moving faster up and down because the cohorts are short in lifetime, but that is also what explains that we could increase extremely rapidly in Q2 when the COVID-19 marketing opportunities open up, but it's also natural that they are bouncing back in volume, as we can see, and I will touch upon more in a minute. But that is exactly what we would like that, that dynamic we lapped when we were much heavier exposed to strategy games. So that is one of the reasons that we think this is a very important area for us to grasp short-term and long-term opportunities in a way that we cannot do with strategy gains.So now we have 8 games in this category, 100% is mobile. Ad bookings is now 20%, up from 16% last quarter. 72% of the revenue comes from North America. And hence, there is a clear FX hit in this area, more than any other area. But nevertheless, it's 32% of our bookings still. And we are happy to see that Candywriter's BitLife has started to perform very strongly. And we have just recently entered new markets, as we spoke about when we acquired the company, that increasing the spread from being very U.S. exposed into new markets have commenced late Q4 and early now in this year. So we have high expectations that, that will pay off for BitLife and its product area.So Storm8's titles, they performed steadily in the quarter, even though it, in absolute numbers, is softer than the record levels we had in Q2 and Q3. But it's very stable compared to the last year, which is obviously not in our numbers since we acquired them in January, but it's a solid performance year-on-year. And we are optimistic, very optimistic about this product that will grow for a very long time going forward. And again, this is the area where the U.S. market is the most -- we are most exposed to the U.S. market and, hence, the FX effect.Looking at the MAU, DAU and MPU numbers, we can see that we had a drop of 16% sequentially in MAU, some 13% drop in DAU, which is what we expected, but you can also see that the paying users is declining with 12%. So again, the pattern that the paying users are more loyal, even though there is a drop, for reasons that, again, we put -- we increased so much in Q2. And the cohorts has, in average compared to strategy, shorter cohort life cycle, so it's expected pattern. Looking at our average revenue per daily active user, you can see it's extremely steady being at 1.6, 1.7, 1.6 and 1.6. So that, again, shows that we had no COVID-19 effect in -- from increased playing time or the individual user behavior. If that would have been the case, we would have had higher average revenue per daily active users due to COVID-19, and we have not. So that is clearly the case. You can see also that we have quite stable standing in UA in relation to net revenue. So in this area, we are 16%, 17%. The last 4 quarters have been a quite stable level, and we think -- sorry, representative levels.So with this, I would like to hand over to Andreas to look into our financials after presenting the portfolio and the numbers to that. Please, Andreas?

[Andreas Uddman, Chief Financial Officer]

Thank you, Jörgen. Good morning, everyone. Thank you for joining us.I will start with Slide 10, looking at the highlights for the fourth quarter. As Jörgen has touched upon, strong revenue growth of 96% and an adjusted EBIT margin of 37%. We continue to have a strong cash-generative business of SEK 281 million of free cash flow after product development and prior to acquisition and financing. We exited the quarter with -- and the year with just over SEK 1 billion of cash and an undrawn long-term credit facility of SEK 2.5 million. And this was also the quarter where we put a new credit facility in place in early December, which increased that amount significantly that we have available to then complete the acquisition of both Sandbox, which was done in Q4; and then we had Super Free, end of January; and we're hoping to close Moonfrog in Q1. We had a leverage ratio of 0.88, which is within the group's target. So summarizing, a strong operative performance in the business both from a top line margin and cash flow perspective and a further strengthening in our financing platform during the quarter.I will then move in to Slide 11, looking at Q4 isolated, and then I'll talk about the full year. Our net revenues grew with 525 -- SEK 529 million, i.e., 96%, both then from acquired but organic growth as well. And this has started then, in the quarter, to diversify our revenue generation, both in Nanobit and Everguild contributing to the P&L. And we have a further increase in ad revenues to 8% of bookings in the active portfolio, additional diversification of that, which impacts our gross margin positively as well. We had a negative FX effect in Q4 of SEK 37 million, that's year-over-year instead of quarter-over-quarter. This impact also has a positive impact on our costs. We have our natural hedge in our portfolio. So even if the absolute number goes down, the margin remains intact.We did defer a negative effect of SEK 4 million in Q4, which is in line with normal seasonality patterns. We had a gross margin, which was down 1 percentage point versus Q4. This is natural. We've seen that in the previous quarters as well due to the share of mobile, which has gone up. But we have this natural hedge in our portfolio where ad revenues -- ads actually defends the gross margin because there is no sort of platform fees attached to that. We have our -- other external costs are down 12%. This is partially driven by FX effects and then there are some reallocations between line above the EBIT as part of the year-end close, which shows in this position.Staff costs increased in the quarter with 45%, SEK 162 million which, more or less, is driven by the more studios we have added, offset by a lower -- by an FX impact, also reducing that cost. So the good thing is that cost grows a lot less in the quarter than top line, and that's the strength of our model and the scalability of our models. Depreciation and amortization has gone up significantly, which is more -- mainly driven by amortization of PPA items, which increased by SEK 74 million to SEK 111 million over the quarter. And this is for recent acquisition, and the acquisitions we completed during 2020.We had items affecting comparability in the quarter of SEK 43 million. This is mainly driven by Sandbox and Super Free acquisition, which was announced in December. And this gives us an adjusted EBIT margin of SEK 399 million, which is 125% increase versus Q4 '19. Financial items, we had in total of SEK 57 million. SEK 26 million of that is sort of, what I would call, real interest, which is in line also with previous quarters. We had SEK 12 million of sort of noncash interest and earn-outs, which we book each quarter. And we had some impact on FX here as well of SEK 7 million. This is when we -- in some of our operating businesses we hold in some nonlocal currencies, and that has an impact on the group level as well. We had SEK 12 million in total of nonrecurring items, partially driven by the new RCF.That gives us earnings before tax of SEK 188 million. We have a tax rate for the fourth quarter, which was unusually low. We had a higher -- we were conservative and prudent in Q3. We have had, during the quarter, some -- we reassessed some of our positions and got some favorable outcomes in some of our prudent approaches that we have taken previously. And if you look at the tax rate, which you need to look at a full year basis, it's 27%. And if you exclude nondeductible transactional cost, the tax rate for the full year will be 24%. And that gives us then a net result of SEK 163 million, which is an 88% increase versus 2019.Turning to Slide 12, just a summary of this 2020, which has been a fantastic year for Stillfront. We more than doubled our revenues to just under SEK 4 billion. This is, of course, very good to grow, but especially how we've been growing. We've been growing through diversification, i.e., more games, but it's also that those games have led to diversification in demographics, in our gender balances and also the age distribution. So this creates a very strong revenue diversification, which puts Stillfront at the very -- ability to manage a portfolio on a much broader scale than we had a year ago.We also increased ad revenues significantly. And it's -- if you look at it, 6% of our bookings for the full year 2020. But in absolute terms, that is increasing with over SEK 200 million. And that is also a very strong diversification that we do get more revenues because it is a natural strengthening of our gross margin. The gross margin has gone down in the year to 72%. This is due to higher share of mobile, but it has been then defended by a broader revenue diversification through ad revenues. We have deployed SEK 743 million of UA in the full year, which is a -- it's a large number, 87% increase, but we have managed to reduce the cost in relation to revenues versus 2019.We have acquired studios which drives, more or less, the increase in personnel expense. Those are now at SEK 597 million for the full year, which increase by 16%. But as you can see, we do add more top line than we add people, and that is a clear showing of our capability in our model. Depreciation and amortization for the full year increased significantly, mainly driven by PPA items, at an increase of 160% in adjusted EBIT. Adjusted EBIT, almost SEK 1.5 billion for the full year, which is an increase of 131% so -- and also that we have strengthened our margin. This -- if I would summarize the year, it's been a year of where we have executed on a lot of the things that we have set out in November 2019, and it starts to show good results in the numbers.I will then jump into Slide 13, the balance sheet, looking [ in Q4 ] versus Q3 because that's more of a relevant point. We -- total intangible assets increased by 25%, mainly driven by goodwill, which increased 1.6% versus Q3; and other intangibles, which increased by SEK 495 million. That is the mix between pure product development and also items added for PPA purposes during the quarter. We have also added in both sandbox, which was purchased on the last year on the balance sheet, and also Nanobit. On the deferred tax assets and current receivables, that decreased with SEK 776 million. It's -- just to remind you, why that looks -- that decrease is so high is that we recorded Nanobit as an accounts receivable in Q3. So it's a pure account increase, and that has now moved up to intangible noncurrent assets.We ended the quarter -- the year with SEK 1 billion of cash. And we did utilize some of our credit facilities as part of the acquisition of Sandbox, and we utilized some of the cash and we increased our balance sheet that is now SEK 543 million versus Q3. Total earn-outs, we have SEK 2.1 billion, which is up from SEK 1.784 million in Q3. This is driven by mainly Sandbox and Nanobit. SEK 1.3 billion of these are long-term where, i.e., this we set -- after 2021, 66% in cash and 34% in cash and SEK 773 million on that is short-term money set for -- during 2021 with the same relation in terms of cash and equity. We ended the quarter and the year with a net debt of SEK 1.8 billion and an adjusted leverage ratio pro forma of SEK 0.88 million and adjusted interest coverage ratio pro forma of SEK 12.6 million.Moving then to the cash flow, Slide 14. Looking firstly at the quarter, as I mentioned earlier, strong cash flow from operations of SEK 413 million in Q4. This has a positive working capital effect of SEK 120 million. But that is also offset by larger tax payments in Q4 of SEK 108 million, which is a normal seasonality effect on tax payments in Q4. We did -- we invested in total just over SEK 1 billion. SEK 879 million of that was related to Sandbox. And then we had investment in product development of SEK 122 million in Q4, which is an increase from last year of 45%. But in relation to revenues, it's within our previous numbers of approximately 11%. We had cash flow from financing. We did utilize some of the credit facilities, and that was SEK 599 million in Q4.Then as I said, and as the CEO touched upon it, cash flow generation is always good to look from an LTM perspective. And if we look at the cash flow generation from the business, it was SEK 1.2 billion prior to product development in the full year. That's an increase by SEK 755 million versus 2019. We did invest in total SEK 444 million in product development. And even if that increases, that increase is lower than the increase from cash flow from operations. And that is very much the strength in our model. It allows us to utilize that. It allows us to continue to execute on our M&A strategy. So the full year free cash flow after product development amounts to SEK 772 million. And that has been one of the areas that we have seen also as well as on our P&L and our operating performance, a very strong contribution for the year.With that said, I will hand back to Jörgen.

[Jörgen Larsson, CEO & President]

Thank you, Andreas. So on slide -- next slide, we will just summarize here before we open up for questions. So we think we ended the amazing 2020 in high speed with continued strong growth, the 10% to 15% organic growth, and also many products under development for soft launch next year of more than 20. We did see the high volatility that we touched upon. We did see the negative FX effect but, obviously, not in local currency but in reported currency, and 3 new studios have joined the group.Looking at the full year, I think that as Andreas has touched upon and myself also, what we said and what we hope that we would achieve, communicating to the market and in at our Capital Markets Day in November 2019, I think we have achieved that and a bit more. So we have definitely taken steps in building the leading free-to-play powerhouse. We have strengthened step-by-step the business platform that we put so much energy into, and that is so important for us to achieve this position with record number of synergies. We have had 8 -- over 80 synergy collaboration projects between the different studios where we have more than 60 currently, everyday leveraging the structure of Stillfront and the business platform of Stillfront, delivering cost and/or revenue side synergies.So I think this is a key element in building the free-to-play powerhouse and achieve long-term profitable growth. We also have, during the year, built and established a very strong ESG platform and sustainability framework, working with all the 3 areas. And worth mentioning is that within the social aspects, we have been establishing our fair model that we have spoken about earlier. And we also have a dedicated responsible individuals who are looking at content and how we market product in our top management, our CPO. And also, we have -- on the environmental side, we have measured and compensated for all the carbon emissions that we have due to our own operations, but 95% comes from our users' emissions. And we have compensated for all of that, including the play time from our consumers, fully compensated for that with certified gold projects, and we have also achieved a Climate Neutrality stamp from a third-party, certifying that we have done that for '19 and '20.So again, 60 collaboration projects running currently, and we continue to diversify and build our -- improve the balance in our portfolio. And I think that we, with the acquisitions, also have good -- or great opportunities to continue these efforts into next year. And I'm really grateful and impressed by all the studios and all the 1,000 people that we have, how dedicated and how professional they are in the everyday work with our products, the live ops and marketing through our group. And again, our footprint has already, during the year, significantly improved. But we have, with the new acquisitions and with the new product pipeline, new opportunities.So finally, on next slide. Looking into this year, we can see that we have had a strong performance across our game portfolio in January. And we also see good opportunities to increase our UA for further growth for 2021 and onwards. And that is exactly what we would like to achieve with both Nanobit but also the newly made acquisitions that we have several new growth engines onboard for not only 2021 but for 2022, '23 and onwards. Of course, it will be, in the very short term, tough comparison numbers because we have this exceptional uptake -- uptick from mid-March to end of May, but that is a very short-term one-off effect. So I think that, that will not impact our business as such, just optical comparison numbers. So basically, we have -- we feel that we have strong business momentum and many exciting opportunities with more than 20 products that will come out in soft launch as well as we have the 3 new studios not yet consolidated and a strong and interesting pipeline for further M&A activities.So with that, I will open up for questions. Please go ahead.

[Operator]

[Operator Instructions] Our first question comes from the line of Jesper Birch-Jensen of ABG Sundal Collier.

[Jesper Birch-Jensen]

Jörgen and Andreas, a couple of questions from me. First off, you kind of touched on this at the end, but you mentioned that you see good opportunities for growth in 2021 but that you could face tough comparables there in the short term. And just to clarify, you mean mostly Q2, right, because January and February should possibly be boosted by COVID versus 2020?

[Jörgen Larsson, CEO & President]

That is correct. But -- so we saw the uptick very rapidly in March. So it's partly in Q1, but you're perfectly right that it's mainly Q2. So that is correct.

[Jesper Birch-Jensen]

And my next question just in terms of the margin here in 2021. I mean you mentioned -- we've seen elevated levels through 2020. You mentioned on improving genre mix, higher contribution from high-margin studios and so on. And now we have -- in Q1, we have 2 studios coming in, which is growing a lot and investing a lot in UA. On the other hand, we have potentially challenging marketing conditions in Q2, potentially. How should we view margin on 2021? I mean do you foresee your -- outperforming your targets during '21? Or should we see more intensive levels in terms of your 35% target?

[Jörgen Larsson, CEO & President]

Yes. So if we take away the very short -- the short term because there will always be -- and that is not only connected to COVID-19, but one quarter to another can always shift, but we are building Stillfront long term. We have an ambition that we should beat our 2023 targets. We have new ambitions that are much further and higher than that as well. So we are only playing the long-term game here. And I think that what we would like to do, and the reason why we have 35% as EBIT target and not -- and that we have been is that we see great growth opportunities in many dimensions. So I would like the margins to be slightly lower because that means that we will grow slightly higher organically.So I think we do have shown since 2018 that we are on good organic growth, but I think that we could continue to grow with good numbers, but it will not be paired with 37% margin. So I mean full year '20 versus full year '19 was between 15% and 20% organic growth, and full year '19 versus '18 was between 21% and 24%, so definitely much higher than the market. I think we cannot promise to grow 20%, 25% organic, but we hope to think that we have provided ourselves with the opportunities to grow faster than the market. But we don't expect that will be paired with 37%. We want to grasp the growth opportunities rather than keeping only margin.

[Jesper Birch-Jensen]

My last question is in terms of BitLife, which you mentioned has entered new markets. And I was wondering if you could specify a bit more of which markets you're referring to because this will be quite interesting to track given the success in the U.S.

[Jörgen Larsson, CEO & President]

Yes. So we -- naturally, we started off with U.K. I mean there is a -- this is a very text, very, very text intense game, so localization takes a bit more time. And also as we then touched upon related to COVID-19, Candywriter was the only studio that did not benefit from COVID-19 since they had so much ad revenues, and ad revenues dropped since the nominal CPI went down. So -- but they successfully managed to increase their in-app purchases in an impressive way. Now we are on the move again with the localization and the adoption and the entering into new markets, starting with U.K. So that is where we have some more significant data at this point. So when you look at the open sources, you will hopefully see that. And we are preparing ourselves for rolling out to new markets during 2021 in several different steps. Of course, it needs translation and localization on significant tax amount, but we are -- that's in the making.

[Operator]

Our next question comes from the line of Alexander Duval of Goldman Sachs.

[Alexander Duval, Equity Analyst]

Just a quick one on gross margins. You talked about how gross margins are actually down slightly due to mix of games this year in fiscal '20. Can you help us think about how we should be looking at gross margins this year? Should we be assuming flattish development? How should we be thinking about that dynamic on a multiyear view? And secondly, obviously, you've recently announced a number of acquisitions. Can you just give a bit more of an update on the kind of pipeline of opportunities you're seeing near-term and the kind of firepower that you could have to dedicate to those kind of opportunities? And then just maybe remind us of your multiyear M&A philosophy, that would be very helpful.

[Jörgen Larsson, CEO & President]

I can start off, and then you can fill in, Andreas. But when it comes to gross margin, there are some different effects that come into play. One is the large portion of mobile we have, and that has increased. So that is pushing the gross margin downwards. So -- but I think that, for obvious reasons, there is a 70% natural level of that. And I think that, that will not push down the gross margin very much. It's not to expect since we are at high levels. On the other hand, working in the other direction, benefiting our gross margin is ad revenues. And I think, as I touched upon, that we have and we shall, over time, be performing better there. So I think that it will not be in a drastic changes to gross margin basically throughout the next coming year.When it comes to M&A, I think that we are -- we see a lot of exciting opportunities. And I think that we have shown that the exciting opportunities that we have been working with during the fall has turned out as we hoped for with the new -- and including Nanobit and Everguild, 5 new companies onboard. So I think that we are optimistic about the number of opportunities we see in our pipeline and not the least the quality of the opportunities. So I hope and think that we will be able to continue on track of both organic growth as well as acquired growth. When it comes to firepower, I will let -- Andreas, maybe you can touch upon on that. And if you would like to add something on gross margin, please do.

[Andreas Uddman, Chief Financial Officer]

No, I think from a gross margin, I think you captured the main point. In terms of firepower, we -- looking back to -- in 2020, we did change tactics a bit. So we raised the SEK 1.2 billion in June of equity, which we then successfully deployed already end of September with Nanobit. We then worked on our debt portfolio with our banks and increased that capacity, and that has enabled us to do further acquisitions. So we created a very strong financing platform in 2020, and we have shown that we can deploy capital. Of course, it's difficult to say exactly when that is in M&A processes, but that is obviously something that we tactically work on a daily basis to look at the need of our M&A pipeline.And it's also very important to note that we did generate SEK 772 million of cash after product development. That is a very big strength in our business. We are a cash flow-generating business. That could -- comparative, we can buy a Super Free upfront with that kind of cash. So those components, tactically strengthening our financing platforms and also our cash flow-generating business, are something that we will continue to work on.

[Operator]

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

[Oscar Erixon, Financial Analyst]

A few questions from me, starting with your comments on the trading here in -- at the start of Q1. Are you seeing clearly higher bookings in January and the start of February versus the Q4 average? Could you quantify that at all, please?

[Jörgen Larsson, CEO & President]

As you know, we don't -- that will be to give a direct forecast, but we can just say that we are pleased with the momentum that we had in January. So -- and if you look at open sources, you can see that the open sources suggest that the bookings have increased like-for-like. So we think that, that is a good start. But to give a full Q1 forecast here now is not what we can do.

[Oscar Erixon, Financial Analyst]

Got it. Then on user acquisition. Obviously, it's dependent on ROI, and we are very data-driven. But can you provide any type of indication on the direction here year-on-year in 2021 given the acquisitions coming in. And also, if you could discuss just the sort of the highest potential gains in terms of growth investments at the start of 2021?

[Jörgen Larsson, CEO & President]

Yes. So as I touched upon, we do not compromise on our return on ad spend, 180 days net return at the most, and we have had some margin to that as well. So -- but what I hope and think -- again, we are always loyal to -- disciplined and loyal to the data, so to speak, and disciplined in our spending and very agile, so we can shift spending from one territory to another. We can shift spending from one category to another and from one product to another. And that do shift from 1 day to another, literally. So I think that is one of our key strengths. So we're not trying to guess -- or we don't have budgets for full year or full quarter or for a full month or even for a week that some product could always spend a certain amount. It should be driven by highest return.So I think that what we definitely have is that the acquired studios do represent high growth opportunities. I hope and think that we can increase our UA in relation to net revenues so that we will grasp and build momentum for not only 2021 but towards our 2023 target through higher organic growth and contribution from the acquired studios. And the studios' nature and the product they have, and not the least the number of products we have on our way out, if they are performing and meeting our requirements on KPIs, and some of them will for sure, some of them will not for sure, but that will always also, sorry, increase the UA spend.So I really cordially hope that we can increase the UA spend not by compromising with our 180 days return target but due to the fact that we have -- through acquisitions and through the organic pipeline of more than 20 games that we have a lot of growth opportunities. It will not constitute an immediate growth because the organic products are coming throughout the year quite evenly spread, so to speak, so -- but I hope and think that we will see higher UA and, hence, build for higher growth in 2021, 2022 and 2023. Organically, that is.

[Oscar Erixon, Financial Analyst]

Great. And then a question for Andreas, I think. If you could just say something about the advertising revenue -- the advertising percent of revenue and net debt-to-EBITDA pro forma, including the latest acquisitions here of Super Free games, and moving forward. If you could provide some input on that, that will be great.

[Andreas Uddman, Chief Financial Officer]

Yes. In terms of advertising revenues, you mean how they have developed -- the question how they've developed over -- in Q4, we had 8% of bookings, which is an increase from Q3. So there, we see a slight increase. But for the -- I think the key point is actually for the full year because that's where we see the biggest where we have gone from approximately 1% of our total bookings in active portfolio in 2019 to 6% in 2020. So the percentage points look a bit small. But if you consider that we actually grow significantly, that increase is SEK 206 million versus the 2 years, and that's a significant growth. So if we can increase that even further, then we create an offset on our gross margin in terms of our increased mobile share. And then for the second question, as we communicated in terms of our leverage targets, we did say after -- when we acquired Sandbox and Moonfrog and Super Free, that we will remain within our leverage financial targets of 1.5. And we've definitely done well.

[Oscar Erixon, Financial Analyst]

Okay. Perfect. And then just a final question from me to Jörgen. The IDFA changes, do you have any indication on the sort of date or month when it will materialize? I heard early spring. And also, could you discuss the steps that you have taken to prepare for it now over the past coming couple of months that it's getting closer.

[Jörgen Larsson, CEO & President]

Yes, I'm not the one pulling the strings when that -- this exactly happened. We thought it was November, then it was January, now it's April. So -- but seeing is believing. Nevertheless, we did -- one good thing that it brought, that it was announced to happen earlier, was that we did prepare ourselves, first of all, with a thorough analysis. So we don't think, over time, this will -- for reasons that I've elaborated on several times, I wouldn't repeat them now, but we think that we stand in a good position tackling this operational-wise. But we did also start with adjusting ourselves in the way that our marketing mix already in late September, early October.So I think that we see that we can continue to spend on the same level throughout Q4 and with very good return numbers in terms of net returns within 120 days with margin. So I think we are in a good position. And already, last year, at Q2, between 20% and 40% of all our users have been acquired without any opportunity to target them. And then we have taken further steps. So I think that's so far, so good. If it happens in April, which is our current view, we are very well prepared.

[Operator]

Our next question comes from the line of Edward James of Berenberg.

[Edward James, Analyst]

Just 2 or 3 from me. On the performance of the Casual and Mash-up segment, particularly to the decline in sort of active users and bookings Q3 to Q4, can you just discuss in relation to the directives of Zynga and Glu Mobile, particularly with Glu Mobile's Design Home and Kim Kardashian games, which are reasonably similar to Storm8 and Nanobit titles and just to understand whether those -- your position in those markets has deteriorated or stayed the same and whether that leads you to sort of think either an adoption of the strategy and the way that you all approach scaling that vertical over the next 12 to 18 months?

[Jörgen Larsson, CEO & President]

Yes. So again, I understand that question because we had an amazing timing. We were just lucky with the timing when we acquired Storm8. They have the natural attributes on ticking up opportunities much faster than strategy games, and then came the COVID-19 effect, so the timing was great. But making that fantastic uptick in just weeks, very shortly after our acquisitions, it's natural that in comes a bounce-back because it's very, very important to understand the dynamics here. The cohorts of mash-up and casual games and, hence, then the Storm8 games is that a cohort is shorter, and it's natural that it's shorter because the lifetime spending is more front-loaded than the business strategy games where you have to build that over many quarters or even years before you get up to a good level of the -- percentage-wise of the lifetime revenues for a certain cohort whereas it's very fast up in casual and mash-up. But then it's not flat, but it's flattening much faster.So that is why when you don't have the massive intake that we have from March to June in Casual and Mash-up, then you have the bounce-back. It's not related to -- that there is a different competitive situation from the companies that you mentioned. That more games come into this area is not changing our view on the growth opportunities. It's rather confirming that there is a market there, and there is a huge demand. And is that demand fulfilled already, there is nothing more to go for? No, I cannot imagine that we're even nearby because the appetite for games in this direction is significant. You can see many very, very successful -- among the most successful games globally topping the charts are mash-up games. So there is so many more combinations and the existing ones will live for years, not only ours but also our competitors, and they will grow for years. So I think that nothing has changed in terms of strategy. We are comfortable with the competitiveness of the Storm8 products. They will grow for many years. But there is a very unusual pattern during the year. So I understand from where the question comes. But it's not a decline situation, it's a growth product.

[Edward James, Analyst]

Okay. Great. That's very clear. And then just one more. Can you just sort of confirm which companies -- or which acquisitions are included in the pro forma EBITDA calculation? I'm assuming that the acquisitions to be completed in Q1 2021 are not included in that pro forma EBITDA calculation.

[Andreas Uddman, Chief Financial Officer]

Yes. So we don't have -- Sandbox is in there, but not Super Free and Moonfrog.

[Operator]

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

[Hjalmar Ahlberg, Equity Research Analyst]

Maybe just the first question, Jörgen, I don't know if you can comment, but looking at the Sandbox and Super Free games, you gave guidance for 2021.And we only have the Q3 numbers for those 2. But can you comment on how these 2 companies have done in Q4? Have they seen the same kind of trends that you have? Or is that a bit different there and also if the kind of forecast is that heavy loaded towards second half of the year or it's more a little bit earlier?

[Jörgen Larsson, CEO & President]

Yes. So we don't give the exact number for Q4, but it has followed our expectations. That is what we can see. So there's nothing in Q4 that drives us to revise our guidance that we gave. So it's following what we expected. And of course, that will be surprising since we announced the deals in mid-December as well. So I think that they are definitely still valid. Then when it comes to -- there's 2 -- it's also different between Super Free and Sandbox. Sandbox is part of the growth, but definitely not all, but part of the growth is related to their mobile extension and how we can create synergies from that. But also, we believe that the product in itself is so strong and so high quality, so it's scalable to a higher degree in what they have done previously, using the center of excellence that we have in Stillfront and, hence, leveraging our business platform.So we think that will happen. Will it happen -- has it happened already? Well, it's not that far. It takes a certain time to set up these synergies to come into play, but we are optimistic about that gradually from basically the beginning of the year, throughout to the year. And in the case of especially Sandbox, we see -- second half since they launched their mobile product in Q2, we see the growth, and it would be potentially more linear coming from Super Free. Potentially with some seasonality in Q3, but otherwise, it's linear.

[Hjalmar Ahlberg, Equity Research Analyst]

And maybe just one more on the UAC. I mean, as you said, the Casual and Mash-up category is more volatile on revenue and more dependent on UAC spending, and you've been at around 16% of revenue in this category, I think. I guess you don't, but in case -- but if you compare the spending of the 3 categories, do you expect the biggest increase in '21 to be in the Casual and Mash-up category whereas the strategy in RPG might be more similar to Q4 levels?

[Jörgen Larsson, CEO & President]

Yes. Typically, strategy is moving slower in every aspect in both how it changes in UA spend and so on because the whole dynamic on these products and the users' behavior and the cohorts' behavior is not as rapidly changing. And also when you have a higher degree of ad revenues, it's also contributing to something that we wanted with the diversification, but it also is moving faster than strategy that does not have any ad revenue. So I think and hope that we can increase spending -- UA spending in Casual and Mash-up, most Simulation, RPG in between, and I don't expect that we will increase UA so much in strategy. But it's -- again, you have to remember that it's data-driven. So for instance, on Conflict of Nations, the mobile version, that really has performed over all our expectations. Obviously, we fuel that single product with more UA than we do with a product that has been out for a longer time. So data will decide, but that is what I envision for during the year, that mostly we increase in Mash-up and casual in between Simulation, RPG and lower on strategy.

[Hjalmar Ahlberg, Equity Research Analyst]

And the last question on your earn-out. In the Q4, you had SEK 2.1 billion, I think, booked. Is that including Sandbox but, I guess, not including Super Free and Moonfrog? Is that correct?

[Andreas Uddman, Chief Financial Officer]

That's correct.

[Operator]

[Operator Instructions] And there are no further questions at this time. Please go ahead, speakers.

[Jörgen Larsson, CEO & President]

Yes. Thank you all for your interest in dialing into our presentation here and good questions on the -- well, I basically wish you a great day. Thank you for today.