A leading free-to-play powerhouse Interim report First Quarter - - PowerPoint PPT Presentation

A leading free-to-play powerhouse

Interim report First Quarter 2020

Jörgen Larsson

CEO jorgen@stillfront.com

Andreas Uddman

CFO andreas@stillfront.com

TODAY´S PRESENTERS

STILLFRONT AT A GLANCE

A leading free-to-play powerhouse

• f 14 gaming studios creating

significant operational synergies A diverse and evolving game portfolio with two common themes; loyal users and long lifecycle games 9.8 million MAUs and 2.2 million DAUs including Storm8 (one month), excluding Candywriter

9.8

million

Main markets by revenue are US, Germany, MENA, UK and France Headquartered in Stockholm with a group of 14 studios operating in Australia, Bulgaria, Canada, Germany, Jordan, Malta, Romania, Sweden, United States and Vietnam.

+750

professionals

GLOBAL PRESENCE 14 GAME STUDIOS North Am 36% South Am 2% Europe 42% Asia 17% Oceania 2% Africa 1% Offices Sales

Note: Candywriter not included.

1428 1579 1782 1967 2240

342 346 365 397 438

Q1'19 LTM Q2'19 LTM Q3'19 LTM Q4'19 LTM Q1'20 LTM 418 480 517 551 691

108 99 83 107 148

Q1'19 Q2'19 Q3'19 Q4'19 Q1'20

21% 16% 19% 21% 26%

NET REVENUE, UAC DEVELOPMENT

Net Revenue, MSEK UAC, MSEK UAC, % of Net Revenue

Net revenue growth of

65%

YoY

• Revenue growth driven by
• Acquired studios Kixeye and Storm8
• Solid organic growth – high gaming activity across the portfolio
• High return on user acquisition, paired with record spending levels

UAC in relation to revenue

21%

22% 20% 20% 20% 24%

441 527 604 645 732 Q1'19 LTM Q2'19 LTM Q3'19 LTM Q4'19 LTM Q1'20 LTM 126 167 175 177 213 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20

• ADJ. EBIT DEVELOPMENT
• Adj. EBIT, MSEK
• Adj. EBIT, % of Net Revenue
• Adj. EBIT growth of

69%

YoY

• Adj. EBIT growth driven by
• Acquired studios Kixeye and Storm8
• Solid organic growth and disciplined UA spending with good return
• Gross margin and UAC % slightly lower resulting in improved Adj. EBIT

margin YoY

• Adj. EBIT in relation to revenue

31%

33% 34% 33% 33% 31% 35% 34% 32% 31% 30%

1363 1269 1262 1351 2214 3,4 3,9 4,3 4,3 3,3

0,0 2,0 4,0 6,0 8,0 10,0 12,0 14,0 16,0 18,0 20,0 500 1000 1500 2000 2500

Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 415 450 504 537 664 104 95 80 107 148 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 200 187 207 232 365 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 5669 5612 5094 5795 9785 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20

ACTIVE PORTFOLIO: TOTAL

M A U (‘000)

COMMENTS

• A well diversified active portfolio consisting of 36 games in 3 product areas
• Strategy: games with high degree of community and long-term

gameplay, very strong monetization, mid-core audience

• Simulation, RPG & Action: economy and sports simulation games,

high-paced action games and role-playing games cater to another part of the mid-core audience

• Casual & Mash-up: large audience tilting younger / female,

monetization lower, but still very healthy compared to market

• 3% of total bookings (21 MSEK) from games not in active portfolio

+73% Y oY M P U (‘000) 82% Y oY D A U (‘000) +62% Y oY A R P D A U (S E K )

• 3% Y oY

B ookings (M S E K ) +60% Y oY U A C (M S E K ) +42% Y oY

36

GAMES

65%

MOBILE

3%

AD BOOKINGS 48% STRATEGY

22% U A C , % of B ookings 20% 16% 21% 25%

588 544 491 496 531 5,4 6,5 6,2 6,6 6,6

0,0 5,0 10,0 15,0 20,0 100 200 300 400 500 600 700

Q1'19 Q2'19 Q3'19 Q4'19 Q1'20

ACTIVE PORTFOLIO: STRATEGY

M A U (‘000)

COMMENTS

• Totals 48% of bookings in the active portfolio
• Continued strong YoY growth in 3rd year for Nida Harb 3
• EMPIRE: continued stable performance, Age of Knights in global soft

launch

• Strike of Nations: strong momentum YoY
• Conflict of Nations soon to launch mobile version
• Investment in updating Supremacy 1914 pays off – ATH bookings in its

10th year since launch driven by mobile version

3114 2985 2482 2712 2853 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20

• 8% Y oY

102 94 93 96 100 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 M P U (‘000)

• 2% Y oY

D A U (‘000)

• 10% Y oY

A R P D A U (S E K ) +21% Y oY 288 322 279 299 318 56 53 41 54 63 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 B ookings (M S E K ) +10% Y oY U A C (M S E K ) +14% Y oY

12

GAMES

62%

MOBILE

0%

AD BOOKINGS 25% ASIA

20% U A C , % of B ookings 18% 15% 17% 19%

775 725 771 855 972 1,8 1,9 3,2 3,0 2,7

0,0 2,0 4,0 6,0 8,0 10,0 12,0 14,0 16,0 18,0 20,0 200 400 600 800 1000 1200

Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 98 93 114 136 153 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 2555 2626 2612 3083 3604 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20

ACTIVE PORTFOLIO: SIMULATION, RPG & ACTION

M A U (‘000)

COMMENTS

• Totals 36% of bookings in the active portfolio
• Continued strong YoY growth in 3rd year for Big Farm: Mobile Harvest
• Ramp-up of marketing activity for WC: Rogue Assault in the quarter
• War Storm (MENA-version of WC: Rogue Assault) launched after reporting

period

• Strong YoY growth for Gemstone IV, strongest quarter since 1999 (launched

in 1988, oldest game in active portfolio)

+41% Y oY M P U (‘000) +57% Y oY

17

GAMES

52%

MOBILE

3%

AD BOOKINGS 47% EUROPE

D A U (‘000) +26% Y oY A R P D A U (S E K ) +50% Y oY B ookings (M S E K ) +91% Y oY U A C (M S E K ) +40% Y oY 127 127 225 239 242 48 42 39 53 67 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 28% U A C , % of B ookings 22% 17% 33% 38%

ACTIVE PORTFOLIO: CASUAL & MASH-UP

M A U (‘000)

COMMENTS

• All 7 games only included for one month in the first quarter
• Totals 16% of bookings in the active portfolio
• Storm8 are ramping up marketing from March, with very good return
• Strong development for Property Brothers
• Candywriter´s games part of Casual & Mash-up from May 1 2020

M P U (‘000)

7

GAMES

100%

MOBILE

10%

AD BOOKINGS 65% N.AMERICA

D A U (‘000) A R P D A U (S E K ) B ookings (M S E K ) U A C (M S E K ) 3327 9982 Q4'19 Q1'20 Mar'20 112 335 Q4'19 Q1'20 Mar'20 711 2132 1,6 1,6

0,0 5,0 10,0 15,0 20,0 500 1000 1500 2000 2500

Q4'19 Q1'20 Mar'20 105 105 17 17 Q4'19 Q1'20 Mar'20 16% U A C , % of B ookings 16%

CANDYWRITER AT A GLANCE

• Founded 2006, Candywriter is a pioneering mobile games developer and

publisher focusing on casual and mash-up games with longevity

• Candywriter has created several successful apps and casual games over

the years, including word games Letter Soup and Letter Fridge, Adult Coloring Book, What’s the Difference?

• BitLife, Candywriter´s latest unique mash-up game, launched in 2018

(iOS), 2019 (Android), contributed c. 85% of bookings 2019

• Lean and efficient team of 13 FTE:s with head office in Miami, US
• Several functions outsourced e.g. marketing and back-end development
• 100% owned by the founders: Kevin O’Neil, CEO and Nadir Khan, COO

TRACK RECORD GAMES PORTFOLIO KEY PERSONNEL

CANDYWRITER – A US BASED MOBILE GAMES DEVELOPER

42m

Cumulative downloads to date

$26m

FY 2019 Bookings

~70%

Organic Installs

$15m

FY 2019 EBIT

2006

Founding year

13

Full-time employees

7.8m2

MAU

Kevin O´Neil CEO & Co-founder Nadir Khan COO & Co-founder Gabrielle Bradford Director of Ad Operations Leads engineering team Manages Miami HQ Manages advertising

• perations and third

party relationships

Source: 1) IFRS accounts 2) March 2020

1

1.2m2

DAU

1

Build size, diversify portfolio and broaden market

• Localization & culturalization opportunities: the game

is currently only available in English

• Extensive IGA, in-game advertising expertise:
• diversification of revenue sources
• pportunity to create IGA Centre of Excellence
• Marketing and analytics currently outsourced –
• pportunity to insource via Stillfront´s Centre of

Excellence

• Opportunity to expand live-ops – leveraging on

Stillfront´s expertise

• Adds USD 26m in Net Revenue and USD 15m EBIT 2019
• In total 42m cumulative downloads to date, 7.8m MAUs,

1.2m DAUs as per March 2020

• BitLife top 5 most downloaded games on iOS in 2019 and

still in a growth phase with substantial upward potential

• Innovative mash-up game concept with untapped

potential

• Approx. 80% of BitLife´s audience are between 18-34

years, partially complementing Stillfront´s current audience with young adults 18-25

• Impressive social media presence

High development and synergy potential

STRATEGIC RATIONALES AND SYNERGIES

FINANCIAL HIGHLIGHTS FIRST QUARTER

Revenue growth of 65% - further increased revenue diversification, paired with Adj. EBIT margin of 31%. Cash generative business with a cash conversion ratio of 0.73 in the quarter Moderate leverage, continuously below the leverage target of 1.5x despite recent M&A activity Debt financing secured in Q1 of 2.1bn

• SEK. 1 bn SEK remains undrawn and

472 MSEK of cash at end of Q1. Strong underlying financial performance and a strong financing platform creates financial flexibility for further growth.

1.15x

MSEK Q1 2020 Q1 2019 Net revenue 691 418 65% OWC and Other Revenue 75 41 84% Total revenues 766 459 67% Platform Fees

• 189
• 105

80% Gross Margin % 73% 75%

• 2 p.p.

User acquisition costs

• 148
• 108

37% Other external expenses

• 53
• 22

143% Personnel expenses

• 122
• 69

75% IAC

• 50
• EBITDA

204 154 32% Depreciation, amortization and write-downs

• 98
• 42

135% EBIT 106 113

• 6%

Financial items

• 4
• 13
• 69%

EBT 102 100 2% Taxes for the period

• 26
• 31
• 16%

Net result for the period 77 69 10% INCOME STATEMENT Q1 2020 Gross Margin 2 p.p. lower driven by higher mobile share of revenue, offset by other revenues and scalability of business model UAC increased 37%, but decreased in relation to revenues 21% (26%) Personnel cost increased 75%, P&L effect increased 62% D&A and write-downs increased 135% mainly driven by amortization of PPA items which increased to -56 (-13) MSEK Underlying financial cost -25 MSEK offset by non- recurring items of 22 MSEK due to holding of USD currency as part of the Storm8 transaction Reported tax rate totals 25% COMMENTS

BALANCE SHEET Q1 2020 Intangible assets increased 42% since year-end 2019. Goodwill increased by 3 359 MSEK and Intangibles by 1 199 MSEK of which 1 063 SEK relate to PPA items Bonds and long-term credit facilities increased by 1 142 MSEK of which 517 MSEK relate to bond issuance and 625 MSEK of the utilised RCF Provision for earnouts long term amounted to 1 076 MSEK of which 70% are expected to be settled in cash and 30% in shares Provision for earnouts short term amounted to 223 MSEK of which 61% is expected to be settled in cash and 39% in shares Net debt 1 787 MSEK

• Adj. Leverage ratio, pro forma 1.15x
• Adj. Interest coverage ratio pro forma 22.7x

COMMENTS MSEK Q1 2020 Q1 2019 31 Dec 2019 Intangible non-current assets 7 852 2 228 3 293 Tangible non-current assets 106 59 76 Deferred tax assets & current receivables 642 206 341 Cash and cash equivalents 472 278 342 Total assets 9 072 2 771 4 052 Total Shareholders’ equity 4 320 1 180 1 959 Deferred tax & non-current liabilities 689 165 330 Bonds & long-term credit facilities 2 257 732 1 115 Provision for earnouts, long term 1 076 287 125 Current liabilities 507 280 316 Provision for earnouts, short term 223 128 206 Total Liabilities and Shareholders’ equity 9 072 2 771 4 052

CASH FLOW Q1 2020 Cash flow from operations

• Healthy cash flow generation from operations of 120

MSEK, coupled with positive working capital effect of 43 MSEK Cash flow from investment activities

• Storm8 acquisition of -2 298 MSEK and investments in

product development of -100 MSEK, 14% in relation to net revenue Cash flow from financing activities

• Share issuance of 1 305 MSEK and new net debt of

1 097 MSEK Free cash flow

• CFFO improved Q1 2020 LTM vs 2019 LTM with 58

MSEK.

• Increase in product development of 35 MSEK Q1 2020

LTM vs 2019 LTM

• LTM Q1 2020 cash conversion ratio of 0.68, an

improvement from 2019 LTM with 5 p.p. COMMENTS

• 1. Free cashflow excludes acquisitions and financing activities and demonstrates underlying cash flow generation from the business.
• 2. All leases relate to offices which are needed to run operations, IFRS16 cashflow effect is recorded under financial activities under IFRS but here shown under CFFO to demonstrate underlying operational cashflow.
• 3. Cash conversion ratio is defined as free cash flow divided by net profit.

MSEK Q1 2020 Q1 2019 Q1 2020 LTM FY 2019 Cash flow as reported Cash flow from operations 163 103 544 484 Cash flow from investment activities

• 2 401
• 65
• 3 587
• 1 251

Cash flow from financing activities 2 358

• 10

3 228 861 Cash flow for the period 120 29 185 94 Free cash flow CFFO including IFRS 16 effect 156 95 520 462

• Of which working capital movements

43

• 35

22

• 56

Investments in product development

• 100
• 64
• 283
• 248

Free cash flow (CFFO - Product development) 56 33 236 213 Net profit 77 69 348 341 Cash conversion ratio 0.73 0.48 0.68 0.63

PRELIMINARY PRO FORMA INCOME STATEMENT FY 2019 PRO FORMA INCOME STATEMENT Q4 2019

Note: 1) Pro forma EBITDA contains SEK -43m for Storm8 and SEK -16m for Candywriter relating to estimated advisory transaction costs 2) Pro forma EBIT contains SEK -256m for Storm8 and SEK -74m for Candywriter relating to amortization of Purchase Price Allocation (“PPA”) items and estimated advisory transaction costs 3) The preliminary pro forma financial information does not include any potential accounting effects of performance or retention bonuses or similar incentives to Storm8 key personnel 4) Adjusted EBITDA is EBITDA adjusted for Items Affecting Comparability (“IAC”). Adjusted EBITDA margin is EBITDA margin adjusted for IAC 5) Adjusted EBIT is EBIT adjusted for IAC and excluding amortization of PPA-related items. Adjusted EBIT margin is EBIT margin adjusted for IAC and excluding amortization of PPA-related items

Preliminary pro forma financials with the purpose of describing hypothetical financial results after the transactions. All numbers are preliminary and unaudited The preliminary pro forma financial information does not include the acquisition of Kixeye, Inc, prior to its consolidation date in the Stillfront Group The pro forma financials are presented using the average USD/SEK FX rate for the period 1 January 2019 – 31 December 2019 which was 9.46

I FRS Una udi ted SEKm Stillfront Group (As reported) FY 2019 Storm8 (IFRS) FY2019 Stillfront Group (as reported) and Storm 8 – Aggregated FY2019 Candywriter (IFRS) FY2019 Stillfront Group (Pro forma) FY 2019 Net revenues 1 967 1 127 3 094 244 3 337 Work performed by the company for its own use 197 76 273 6 279 Other revenue 11 11 11 Total Revenues 2 175 1 203 3 378 250 3 627 EBITDA1 741 605 1 345 128 1 473 EBITDA margin 38% 54% 43% 53% 44% EBIT2,3 517 374 891 69 960 EBIT margin 26% 33% 29% 28% 29%

• Adj. EBITDA4

768 663 1 431 144 1 575

• Adj. EBITDA margin3

39% 59% 46% 59% 47%

• Adj. EBIT5

645 644 1 289 143 1 432

• Adj. EBIT margin4

33% 57% 42% 59% 43%

COMMENTS

The transaction of Candywriter is further diversifying the Group. FY 2019 pro forma figures:

• Increase in Net revenue by ~8%
• Increase in Adj. EBITDA by ~10%
• Increase in Adj. EBIT by ~11%
• Adj. EBIT margin 43%
• Dilution upon transaction 2.2%

COMMENT COVID-19 / CURRENT UPDATE

Current observations May 6, 2020:

• Accelerated gaming activity across the portfolio of games
• A large inflow from newly registered users
• High activity among existing user bases
• Increased returns on our marketing campaigns
• Marketing strategy is yielding very positive results
• In addition to the overall accelerated activity:
• Storm8 will be fully consolidated in the second quarter
• Candywriter will be consolidated from May 1, 2020
• Creating a strong momentum into the next quarter.

CREATING A LEADING FREE-TO-PLAY POWERHOUSE

14

games in active portfolio

36 2bn

players Realizing synergies

Positive scaling Network of Centres of Excellences

1

group studios Increased addressable market

Mirroring the industry composition, solid presence in largest genres Mid Core and Casual

Highly diversified portfolio

Strategy Simulation, RPG and Action Casual & Mash-up