Candywriter LLC (SF) Earnings Call Transcript & Summary

Hello. And welcome to the Stillfront Conference Call. [Operator Instructions] And just to remind you, this conference call is being recorded. Today, I'm pleased to present CEO, Jörgen Larsson, and CFO, Andreas Uddman. Jörgen, please go ahead with your meeting.

Thank you and welcome all to the presentation of our acquisition of Candywriter. We are very enthusiastic about what that could bring going forward. I will start presenting a bit about the business and the rationale for this deal and what we expect going forward and also some about the transaction. Then Andreas will take over and talk about the financials and then we have a short summary. So please, we begin with Slide 3, called transaction structure. And the initial transaction consideration consists of USD 74.4 million on a cash and debt-free basis, as always, and the cash payment of that is USD 36.9 million, and the other parties newly issued different shares based upon the -- that evaluation, 7 days prior to the signing, excluding the date of signing. These shares will be subject to a lockup of 18 months. And then we have an earn-out in addition to that, that could, at the maximum, the USD 120.6 million. And that is based upon the next coming 3 years EBIT result. All these tranches are paid in equally in cash and newly shared Stillfront shares, obviously valued prior to each period end or in conjunction with each period end. These shares are subject to a 12-month lockup. And also, I would like to emphasize that we are -- as we have done previously, we have a conservative multiple on the EBIT in the earn-out periods. So the reason why the CapEx is quite high is that we think that it's an exciting growth opportunity and profit growth opportunity and top line, of course, for Candywriter. So it comes in naturally. The funding, very briefly, before Andreas later will go in more in detail is that we basically fund the cash part of the initial payment from existing cash at hand and the RCF facility that we have arranged through Nordea and Swedbank. And after this initial payment and the transaction, we will be approximately on 1.7 to 1.2 leverage ratio pro forma. So we are way within our target of 1.5. And of course, this is made with the customary enterprise adjustments in our working capital and cash in bank. Just a few comments on the right side is that the initial -- looking at the full year '19, it's a multiple of 4.9 of the initial payments. And then we also mentioned what it will be if we pay the full transaction consideration of USD 195 million, then based upon the full year '19, EBIT, it will be 12.8. That is, of course, it will only happen if the coming 3 years will carry a significantly higher profit than 2019. So that 12.8 number's potentially not the most representative. However, it's also good to know what we -- how that -- the total consideration relates to the former profit. So that is basically the deal summary. If we go to Slide #4, next slide. Just an overview of Candywriter, and then we will go a bit deeper into it. Candywriter was founded in 2006. So they have been around pioneering the mobile games business, both have developer and publisher for quite some time. They have focused on casual, mostly, but also, which has caught our intention, not the least, is the mash up between casual and simulation games that they have been very strong in providing games that have proven, the longevity that is very, very important for us. Amongst their games, you can -- it's in several letter games or word games, coloring books and things like that. But the unique mash-up games, called BitLife, is amounting to approximately 85% of the bookings in 2019, and that was launched late on iOS in '18 and then early '19 on Android. So that is the major part of Candywriter's business today. They have a very lean and efficient organization of 13 full-time employees, head office in Miami, U.S. They had several function outsourced amongst -- could be mentioned marketing and some back-end development. And it's owned by the management, Kevin and Nadir, who will also continue to operate the business, hopefully, for a very long time and for sure for many years, luckily. And they are, as you can see on the upper right side, 2 of the -- what we emphasize 3 key individuals. Kevin is the -- leading the engineering work, and Nadir is more on the commercial side and also managing the -- operational-wise managing the headquarters. But then also, Gabrielle is important individual for us, who is then managing the Ad business, which is important and other third party relations. So we think we have an experienced and very, very strong management in place. The track record, very strong financials last year, USD 26 million in top line and USD 15 million in EBIT full year '19, and that is obviously impressive numbers, not at least to relate it to the number of employees, 13. You can also see, which is typical for games coming from the casual side high-user numbers. So they have 7.8 million monthly uniques in March and 1.2 million daily uniques. And they have had through -- since 2006, 42 million cumulative downloads. So that's all impressive numbers, we think. Moving on to the next slide, which is #5. This is an important slide to understand. Why we think this is something to be very enthusiastic about because as we launched our plan in November last year, called Stillfront 3, which aims to create a Stillfront 3x larger what we were in 2019 as a group within the next coming years. In that work, we emphasized that we shall and we need to broaden our stronger footprint. We need and we shall broaden our audience. Otherwise our previous very strong focus on strategy games would be a lack of diversity over time, if we continue to be a 3x larger company without adding new audiences and new changes. So that was the reason why we started to look and found that mash-up games were really, really interesting. And the 2 top companies and products that came out of that search was Storm8 that we had the -- we were glad to close the deal with them here in January, and now the other one was the Candywriter and BitLife. So that is where we -- from what point and what reasoning we build the rationale. So it's building size because size will matter even more in the future, it's diversification and the broad and the marketing. And that is exactly what we do in this case. So we add USD 26 million in net revenue and USD 15 million in EBIT, 2019. We will look at -- Andreas will present this more in detail. We add a lot of data from the 42 million downloads, but also significant amount of active users, as mentioned. And I think putting BitLife into some perspective here, we will elaborate a bit more on the product as well. It was one of the top 5 most downloaded games on iOS in 2019, and that's a very impressive thing to achieve in a short time. But the beautiful thing, the most beautiful thing is that we think that there is still a substantial upward potential in terms of growth and hence, profitability. And we should just in a few minutes go into why we think that, that, that's pending in what areas. But it's an innovative mash-up game between simulation, but a lot of elements from casual as well. And it's a strong untapped potential, we think, in the product. When it comes to the audience, they have -- 80% of the audience is between 18 and 34. So as you might know, we have the -- in Stillfront, prior to this, we have primarily have had 25 and up to 35, 45 to some -- in some games. So this is partially overlapping. So we know the audience and how it reacts, but also partially complementing. So we reach out to partly a new audience, young adults 18 to 25. So that is completely in line with our strategy and what we have set up to achieve. And also, I think that Candywriter with BitLife has really shown how you should use social media to improve your game experience and to interact with the games and with the audience, of course. So that is also something which is -- has made an impression on us. So when it comes to the synergy on the right side of that slide, I think that there's few or made no previous acquisition we made where we can see as clear synergy potential as in this case. And that is, since we have been quite building, finding synergies between the different studios, I think this is really worth noting because if we look at these points, which we have highlighted, which is not all synergy potentials, but the one that we see early and clears at this point, the game is currently only -- BitLife is only available in English. And obviously, localization and culturalization, which we are very experienced with, opens up obvious opportunities. So that's low hanging fruit. So that we will support them with from different other -- other different studios. The extensive in-game advertising expertise that is held within Candywriter is something that is very important, both it adds diversification of our revenue sources, which has a strong value for the group -- for different group. But also, we see that with the skill and the experience that they have and how efficient Candywriter works with this, it is a clear candidate to be a in-game advertising revenue center of excellence for other studios within the group to get support from -- in our ambition to grow our ad revenues. Further, the marketing and analytics is currently outsourced, as mentioned, and that is, of course, an opportunity to make an AB test to see whether we should insource. We know that we have had quite strong track record amongst several of our studios in Stillfront. And we have, as you might know that center of excellence is one of the most -- the strongest is the GDS Marketing, but also Storm8 has very strong traction amongst several studios in marketing and analytics. So that's another opportunity. And finally, live-ops, which has been maybe the most successful and strongest development within Stillfront in the last 18 months. We have really been taking significant steps, which is also from -- seen from Candywriter, one of the rationales from their side to join forces with Stillfront. So all in all, we see several areas where we can see clear synergies and not so far away in time or assets. Going to next slide, Slide 6. It's a brief history -- not brief, but it's the time line because they have a long history, an impressive history, Candywriter. So founded in 2006. And as you can see, they were absolutely pioneering within Apple and App Store being one of the first games there, one of the first companies that had the original iPhone SDK program. And then what I really think that the team has proven through, they're being trailblazing through so many years being early out the new game concepts that has constantly been both innovative and been performing very well, as you can see in this slide, without me reading everything. But that is really something -- it's not that easy to be innovative and pioneering for so many years. So that's really, really impressive. And that is also the reason, I think, why BitLife coming out as the unique game it is, the live stimulator narrated game also has been a transfer, it's not a lucky strike. It has been well read that they have been innovative for a very long time. If we move on to Slide 7. So we think that BitLife is really a hidden gem or something that we really can build to completely new levels. Notably that it's already a significant game and very, very strong game, both in terms of usage, but also in terms of revenue. So it's a text-based live simulation game, which is currently unique in the market. And it's -- and this is really important. It's built in a way, both built on an engine, which is very difficult to close. So it's very complex, much more complex than you might reflect on when you see it because it's text-based. But it's set up in a way, both the processes behind, the supporting tools behind and the technology behind and not the least, a way that it's designed with text-based, so that you can have an efficient production of content so that like store games and games like this need a frequent update of content, and that could be done in an efficient way, not having, for instance, costly geographical assets that must be produced. Still combining that with a high depth and complexity. And this is the -- this combination is something which has really have made some impression on us when we have analyzed the game and the data behind it. And it's really, really much more complicated than you might expect. And also, since it's built on an engine, we can do number -- a number of different clones or variants of the existing games. There is a -- it's a scene that is very -- invites to figure out new clones and new fees. And as mentioned, it's only available in English, so basically in U.S. and other -- the other English-speaking countries are dominating, and 60% were generated from in-game advertising revenues in the last couple of months. One important comment there is that, in general, we have had the ambition, as I touched upon earlier, to increase the ad revenues because we then have a more diversified total revenue stream also in that dimension. But also, it's very important to see or to reflect on in times, if the CPMs are going slightly down, you have an in-built hedge in terms of -- at the same time, if that happens, the cost for acquiring users go down as well. So this plays very neatly and nicely in 2 ways. So as the CPM goes up, that -- those revenues are stronger and the opposite way. So that's one of the reasons that we, as a group, have had and still have and will have the ambition to grow our ad revenues. And there, again, Candywriter will add -- make us taking a significant leap. So also on the right side, we have, as analyzing data, as you know, we are extremely data-driven. What is interesting to see is that the complexity that I mentioned of the product and how they operate the product with a lot of new content that shows clear characteristics that this could be in title that are -- that is a evergreen title that would live for a very, very long time. We know, based upon the data, that it has the longevity, which is very strong for being a mash-up game, but it could be the case that it could be even an evergreen going forward. And that is, of course, very interesting for us. And currently, the marketing is highly profitable, even though this product and this -- the game has a very strong organic traffic, up to 70% that has been organic, but in some cases, that is in contradiction to that, it's marketable, but it has been very marketable. And currently, it's ran with marketing at scale with very short return on marketing. And we were talking about less than 100 days at scale return on marketing. So that, of course, opens for interesting growth opportunity. And then, of course, the expansion to other markets is something where we see the synergies. I mean we have strong distribution, and we are experienced with localization, more or less, globally except China. So that is, of course, something where we think could add to growth. And again, the long-term retention that we can and have measured in the game is very much connected to the pipeline and the way that the frequent content updates have been launched in the game. So it's a lot of reasoning here, but we think it's very keen that you understand the strength of this product already, but not the least, what it can provide going forward. Going to Slide 8. Next slide is, again, why we are so enthusiastic of what we call mash-up is, we discussed that in conjunction with the Storm8 acquisition, but also again here, if you're good at this, and it's not -- that is not just a walk in a park to master this, but then you can combine characteristics from, in this case, casual on one hand, on the other hand, mid-core simulation. So in casual, typically, it's low CPI. It's high short-term KPIs, such as retention; high organic installs; ad revenues, as we have mentioned; and the higher share of female players. Whereas in mid-core, it's typically the live-ops, and you need to -- it needs to be built and the profitability comes from mastering live-ops and the frequent content expansions. And thereby, also you nurse the longevity, and you have a very dedicated but smaller player base typically. And the potential to grow the revenues is, more or less, limited or mainly is in-app purchases. If you can combine this, it's very obvious, which BitLife has done and Candywriter has done with BitLife. That you can get a very, very strong performing product. And also, the competition within mash ups is significantly lower than, for instance, within strategy games or action games or RPG games. So that is why we are so -- very enthusiastic about the phenomena as such and the ones that master it and, hence, it led us to Candywriter and BitLife. All right. So then we go to Slide 9, very brief. This is some demographics. As mentioned, 80% is between 18 and 34 years old, and 20% is 35 and older. And as you can see, it's a majority female players, and that is good. We have a good balance now in Stillfront between male and female players. And also, as mentioned, we add partially a new -- that we can address a new audience here. And again, when it comes to geographical footprint, it's limited. It's definitely good opportunities to grow, not the least in Europe, but also in some other territories. So that is very exciting. That was what I intended to mention about the product, the company, the founders and the deal, and I will hand over to Andreas to talk about the financials more in detail.

Thank you, Jörgen, and good afternoon, everyone. I will start off with Slide 10, the financial highlights for Candywriter in 2019. They had a impressive growth of revenues and also in profitability during 2019, and this was driven by BitLife and the launch of that, which was launched, as Jörgen was saying, in September '18 in iOS and then in February '19 in -- on Android, and that is scaled. I think one of the things that we've been talking about growth is obviously very good, but it's definitely the diversification. Here we add another game or another studio with additional revenues. And -- but here, we also show the amount of advertising revenues, which amounted to $16.2 million in 2019. And that is, of course, something that we can learn from them in the rest of the group. And they also have a very good and efficient resource allocation, not many full-time employees, some outsourced services as well. And they have a long-tail game. They are still adding to bottom -- quite strongly to bottom line because they are not spending anything on marketing since they auctioned BitLife. So overall, it's -- this company goes very in line with previous acquisitions with good growth, but also high profitability. With that, I will jump into Slide #11, which is the pro forma income statement. And we're also presenting here Stillfront Group reported 2019 and it donates full year '19 as well. We move then from SEK 3.1 billion of revenues on pro forma basis, and having Candywriter, which adds then 8% of revenues, with SEK 244 million. So we have a combined Stillfront Group pro forma of SEK 3.3 billion for the full year '19. Our adjusted EBITDA would grow 10% from SEK 1.4 billion to almost SEK 1.6 billion. And we had 11% of EBIT growth from SEK 1.3 billion to just over SEK 1.4 billion. And this is obviously with the strong margins that the company has. We add another percentage points on our pro forma-based EBITDA margin. We might achieve this with the dilution effect from this transaction so that the share consideration, upfront share consideration were only 2.2% dilution. Then moving to the balance sheet. So Slide #12. The main parts on the asset side is obviously our intangible side where it will increase approximately SEK 1.6 billion, subject to share price and FX at deal close, and approximately SEK 1.2 billion of that will be goodwill, and the remaining will be as PPA items that are amortized over time. On the liability side, the increase on that one is roughly SEK 1.1 billion, and that is earn-outs, but also some debt financing that we've seen in parts of this transaction. And that would end up. We approximately, with these numbers, have 1.2 adjusted leverage ratio pro forma after we have completed this transaction. And I think we jump into Slide 13 because that shows us the development of both the EBITDA growth. I mean we have been having a strong EBITDA growth, both organically but also through acquisitions. And that has enabled us to also diversify our funding platform. We secured a strong financing package, both through new share issuance in January, but also additional bond financing plus a new credit facility with Nordea and Swedbank, and that's exactly what we are utilizing for both Storm8 and for Candywriter. So the financial transactions that were made in early Q1 has really enabled us what we discussed and talked about them around our financial firepower. And we do this transaction with just utilizing cash and available facilities. And we have constantly been able to deliver a very conservative leverage ratio historically. And we see based on our pro forma numbers, we will end up with a 1.2 pro forma leverage ratio, which will continue to give a firepower to do additional things going forward for further acquisitions, et cetera. So with that said, I will leave over to -- back to Jörgen.

Thank you, Andreas. And finally, before we open up for questions, we go to Slide 14. We worked with a program from February '19 up until November '19, preparing ourselves to be really building a very strong free-to-play powerhouse in gaming. We identified a number of things that we need to get in place to improve, to refine and to do better. And also, we sharpened our site when it comes to what type of companies to try to get into our group. And we are very happy with that. We, so -- in so short time, have been able to sign agreements with Storm8 and Candywriter because this really take leaps in terms of getting to the ambition of creating a 3x larger company. And of course, as I picked up is the 3-year financial goals, and these are becoming short within reach. So I would like to emphasize that, again, the addressable market and the stronger footprint is really, really important for us so that we can constantly, as we grow the business more and more, we are not getting -- doing that on the cost of too low diversification of our revenue stream. So with this deal and the previous with Storm8, we are -- really have improved our presence in casual because earlier, we were potentially only addressing part of the mid-core, 10%, 15%, 20% of the market. Now we have all read in these few months in 2020, we now have a good balance between mid-core and casual through the mash-ups in Storm8 and Candywriter. So that we are very much already representing, which is the industry composition, where mid-core and casual are in balance in terms of size. And also, we have achieved a balance between male and female audience, and we have also broadened the age range slightly. So I think that, that is very important milestones for us, but still we -- this is only a new beginning. It's not the end in any way. We have also communicated just recently that we will present, from Q1, our portfolio in a slightly different way. So it's the 3 product areas, strategy, simulation, RPG in action. And the third is casual and mash-up. And Candywriter's BitLife will be in casual and mash up, even though it's a simulation game, but it shows the -- has the attributes and show the behavior from the users playing BitLife more -- definitely more closer to casual than to the types of simulation game that we have in that bucket, so to speak. That is clearly a stronger mix up, so -- or mash-up. Also very important to mention is that what we built during the preparation for creating a 3x larger company is to really ensure and work very systematically and put in a lot of effort in to see that for every new studio that joins the group that our synergies becomes clearer and clearer and really that will pay off, not linearly, but exponentially with new studios. And so far, we have been able to achieve that. And I'm very confident that we will see synergies and achieve positive scaling with Candywriter joining as well. And not the least, thanks to the network of center of excellences that we continuously are growing within the group, and I think Candywriter with themselves would add another center of excellence. So I think that we -- this is an important step, building Stillfront. We have still a high ambition on growing Stillfront much further, but this year has started quite well, we think. So with that, I would like to hand over for questions.

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

A few questions from me. First of all, what is the plan for BitLife? Do you plan to scale up marketing for the game? Or will you wait until localizing to other markets first?

Well, we are usually not a type of company that waits for things. So I think there is short scaling opportunities already in the game. But we also think that it's such an obvious opportunity with adding the localization and culturalization. So we will start with that in parallel and some other things. But we will try to do things in parallel here. Then again, as always, as I usually tried to emphasize, it's not even though we think we're a fairly fast-moving company, it will not happen overnight. But now we have a shorter time between the signing and consolidation or closing. So Candywriter will be consolidated from the 1st of May already, which is, of course, good. In all ways -- all different ways, and then we can start to work, but it will not be a dramatical change in terms of synergy the first 1 or 2 weeks or even 1 or 2 months, but we are optimistic about what we can create from the second half of this year.

Great. Got it. And is it possible to provide some type of guidance for 2020, given that the momentum has been quite strong, and the Q4 run rate is very different to the full year '19? It is reasonable to assume 20% growth from the Q4 run rate with perhaps slightly lower margins? Or how should one think about that?

As always, you know that, Oscar, you've heard me say that many times. We don't give any forecast. So we will not guide you in absolute numbers, but I think that as we have mentioned in our material and touched upon presenting here as well is that we see that we definitely see Candywriter and with that BitLife as with the engine as a growth for business. Then, of course, just as any business, all the gaming businesses in the Western, at least, has the ordinary seasonality of strong Q4 and a bit weaker Q3. And that, of course, you need to factor in, but this is a growth business as it stood in 2019 and as it stands today, and as it will stand in the future for a long time. But of course, with seasonality. So what that will be, we don't honestly know. So I couldn't give you forecast even though if I would try to say that. But we see, as I mentioned, in several ways of increasing the pace of growth.

Great. And if you compare sort of the cost structure for Candywriter compared to Stillfront. Stillfront is at the gross margins of 75 % roughly with marketing around maybe 22%, 23%. How is that different in Candywriter given quite a small team and a lot of presumed outsourcing? And how will that change as well that you expect?

Well, we can just conclude from the profitability levels that they had in '19 and have in their operational business that they have a much leaner cost structure, even though we are quite lean in general. So that is hard to beat with 13 steep on these types of revenues. I think that we can increase the pace in terms of generating more revenues with localization. And I will take localization as an example, that is something that they have not managed so far. And I think we can do that in a very cost-efficient way. So -- and also when it comes to the marketing, which is outsourced, that could potentially be insourced with the higher results. I mean they have been good. So it's not for a negative or defensive, so it's for further grow. But potentially, that could also be down at a lower cost. So I don't see that their cost structure would be -- that the cost will increase. Potentially, we increased the marketing spend, but we only do that if we see a very strong return on marketing. So that is only short term to increase the growth even further. So that is my view. Maybe, Andreas, if you would like to add something into that.

No. I think you concluded it. If Oscar doesn't have any follow-up questions to that.

No. I think I'm happy with that. And just a final question for me then. Given sort of the current run rate pro forma here, is it perhaps time to start looking at the new financial targets?

We will come back to that subject as we progress. I mean they are quite fresh, as we presented them in the 26th or 27th of November. So I think it's definitely premature to take this here now. But as we progress and as we find the right company to join the family, of course, we grow and we are constantly looking at our financial targets, so they are well balanced and calibrated to where we are at each and every point. So that is what I can say.

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

I just wanted to follow-up a little bit on Oscar's question here on how to view 2020. Maybe, will it be fair to assume considering it looks like it's in a strong growth rate that Q1, at least, will be on the level as Q4 in terms of revenue?

Lars, you asked for the forecast, and we don't give those forecasts. So I cannot comment on that. But we -- I mean, again, there is -- usually, Q4 is very strong, but it's a growth product, but I cannot answer that question in absolute numbers. That will be good. But I also would like to say that it's important to not view this in 1 or 2 quarters. I mean we have an exceptionally unique and strong product. We know exactly what we should add. We know exactly what -- how the performance of the users look like as we have analyzed data. So we know what we can -- we think what we can improve or add knowledge from other studios. So we have a very clear view of how to drive this product together with the excellent work and the excellent team of Candywriter. So it's a long -- we always play the long-term game, and this is a product that will grow for a long time. That's our view. What happens in 1 quarter is less interesting, I would say, but we are comfortable in the outlook.

And in terms of revenue stream for BitLife, would you expect it to remain the same basically as in Q4? Or will there be a hit for either ad revenue or in-app purchases?

That's a good question because there are 2 forces in this or several. One is that already prior to us joining forces now, Kevin and Nadir and his team, they have been very good in finding more monetization mechanisms that there have been introducing into the game just the recent 3, 4 months. So that is triggering more in-app purchases. So that is, on one hand, what is happening. So that will potentially increase in-app purchases. And I think that we -- with the experience from Stillfront and live-ops, in general, and not the least the monetization mechanisms from mid-core games, is super applicable and relevant for a mash-up game. That will add value over time even more in that direction. At the same time, we can see how strong they have been in working with ad revenues and monetizing through the whole audience. So I think that they will be continuously strong there, but how the balance develops, it's very hard to say. And also, as there is potentially a slight, but it's only a slight impact from COVID in many different items. One is that ad revenues per unit, so to speak, is flat or even to some extent, lowering even though that Candywriter has mostly digital companies', naturally gaming companies' advertising. So it's not very clear. But still that is the fact. On the other hand, they get lower cost for their own marketing. So that could potentially, in the short term, move the balance point. But over time, I think they excel in ad revenues and to manage that in a very, very strong way. So I think it will be a strong contribution for a long, long time.

But I guess that the growth for ad revenue is more related to keep the absolute level of monthly actives to clicking through the ad business, et cetera. So to grow that, you need also a growing player base, while you can work with live-ops so to increase in-app purchases, even if the player base remain stable.

Yes. There is such dependencies, but that's why it's so strong that they both are working with growing the user base. And clearly, you can see they have been extremely successful in that. And hence, that will improve. But there's also the craft of how you work within game advertising. It's not just something that you take from the shelves. And if you have x number of users, you get y dollars in revenue. So you can really work with that as a craft to source with the right partner -- work with the right partners, source with the right content in marketing-wise, et cetera. And there, Gabriel and her team is doing a great job. So I can think that the improvement that they have made in monetizing both in-app purchases and continue to develop their capabilities on the ad side is promising. So I think they are well balanced now. And as mentioned, we see that this game could grow significantly, and hence, the marketing will continue to grow. But you got a point, but I think that they are very well positioned.

And in terms of localization, will that be done internally or will you outsource it? And what are the languages that you will start with?

Yes. We haven't decided exactly every detail as we signed a few hours ago, but we have a game plan. And typically, if you take one of our larger games, I mean, it's processes that are well established in several of our studios, not the least in GDS. And typically, if it's a successful game, it may be localized to 30 languages, plus/minus 5, 10. So -- and also, we have the opportunities with more culturization in certain territories, EMEA region or others. But we don't have decide -- we haven't decided that this should be culturalized, but you have those opportunities. But I think the first thing is to take the -- if you start with the largest languages, basically, that is -- makes the most sense. And actual translation is -- the actual language translation is usually outsourced. But the key thing here is to manage to make this in a efficient -- have an efficient process for this, know how to do it with what pace, how to ensure the quality and in what order to do it. So -- and that's why we add some knowledge that is not really present at Candywriter today. And that -- I mean, we have localized so many games in Stillfront through the years. So I think that we can do that. But part of the production will be outsourced.

And a final question here -- for me here. They are really good at process revenue and it can be a center of excellence. Can you explain a little bit deeper how it works and what the rest of the group can learn, et cetera?

Well, it's -- as I touched upon, it's a craft. It's not only to say that let's be good at in-game advertising. It's what kind of in-game advertising you should have. So that provide you with a advantage in the game? Or how should banners be localized or positioned in the game? Or should there not be banners at all? And what kind of marketing elements should be put together to optimize the revenues basically. And that is -- again, it's across and also, it's different for different types of games. So it's not the same for a casual game as it is for a mash-up, as it is for a strategy game. So you need to understand how this works, and you need to have the experience from working with this many years. And also, you need to manage sourcing advertising content into where you would like it to be in the game. So it's a -- that's quite a complex thing in terms of -- if you should be really good at it. So because it has to be coordinated between the ones that develop the games and the production of the game and content as well as that you have to understand and integrate agencies providing with content, and you also have to push agencies so that you get good prices. So it's many different elements that you need to master to really take this to a new level. And we have been working for a year or so with a project in Stillfront to improve or increase, I should say, how much ad revenues we have in the other categories, but now with this knowledge coming in, I think we could learn more and do it better on the other games as well. Then, of course, the strategy game will never have a high ad revenue, share revenues like a casual game. But still, if we can increase that from being a few percent today to be 5%, maybe, that is, of course, worth the effort.

How was it again? Did Storm8 had the function in house? Or...

They have, as most have, they have some -- I mean, you need someone that manages this. But then also, when it comes -- you need -- you work basically with agencies when it comes to source with extra content. So I think that they are geared, more or less, in a similar way, but I think that potentially Candywriter, as being more dependent, have a longer history might be the center of excellence for this also for Storm8, even though they are performing well.

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

So just 2 questions left from me after some followed questions already. Do you have any plans for the long-tail portfolio of Candywriter? Are there any games that stand out, where you see potential? Or is there something in the pipeline that stands out?

Well, in the long tail, we think that you should take care of your long tail, but we don't see that -- don't expect or haven't taken into our analysis, financial analysis of making this acquisition, that the growth will come amongst the casual games. And the casual games does not represent a high degree of strategic value for us. But of course, contribution, as Andreas put it, it has a clear contribution, not the least to profitability. And of course, we will do our homework to take care of that. But I would definitely like to emphasize with a product like BitLife and not the least engine behind it. It would be an error business-wise not to do whatever you can to maximize the potential of such a unique and such a strong product and also the engine so that we can make clones. Clones could show up as add-ons within the same gaming experience, but it could also be stand-alone games, and that is premature. But I think that what you should -- what we focus on and what is the right thing for Candywriter already focusing on is to do the most out of BitLife. That is the priority 1, 2 and 3 and maybe 4.

Okay. Great. And is it possible to say anything regarding -- anything more regarding how the earn-outs are structured? Is it perhaps reasonable to assume that the upfront multiple is sort of this -- the multiple assumed for the earn-out is closed upfront multiple of 5x?

If you look back -- and also we disclosed the exact numbers as we had -- we conducted a financing effort in Storm8, and there was 1x EBIT. And if you look back, some of our transaction has been publicly disclosed how the mechanism is for the earn-outs. In this transaction, we chose not to do that for commercial reasons, basically. But in general terms, I would like to emphasize, it does not differ at all very much from how we usually structure our deals. So that means it's very low EBIT multiples.

And the last question comes from the line of Kristoffer Lindström from Redeye.

I wondered just a brief question on the -- as you're gaining more and more advertising revenue, it also becomes a type of possible acquisition channel for you guys internally as I would guess that this type of cash-on games, do have the strategy element and the players could possibly also like your other games. Is that something you're internally thinking about or having a strategy?

Yes. That's a very good question. And on paper, the most obvious synergies, cross promotion. In reality, that's not so obvious. So usually, that is quite tricky because there are -- you're exposed to consumer for so many games, anyway. So -- but having said that, the more -- the wider portfolio we have, as we scale our business, that is becoming more and more likely synergy that we can have in our portfolio. So if you have 3 games, one strategy, one, casual and one simulation, it's not very likely that we will have a strong cost promo. But when you have 30, 40, 50 games, it makes more sense. So at some point, I think that we will be able to increase that and I think also now when we see, as we discussed when we presented the Storm8 transaction, we know that many of the big-farm players also play puzzle games. So, it's -- as we grow, that opportunity becomes more and more tangible. When it will be actually deploying growth it's too hard to say. But we think currently that other synergies are more obvious, but it's a good question. And at some point, I hope and think that we will be able to drive cross-promotion revenues by using our own ecosystem.

And just the effect of signing this type of deals with the current COVID effects, do you still see it? I mean could it hamper the final deals or you can handle a lot of the -- your own analysis digitally and stuff like that?

Sorry, I -- could you repeat the question, please?

Yes. I just mean that, I mean, you can't travel to the U.S. and meet the guys currently. And looking ahead for further deals because you're going after more M&As. Do you see that the current COVID effects -- I mean, do it make it harder for you guys to make acquisitions? Or can you continue at the pace you're at any time soon?

Yes. COVID-19, it's speaking now. So we just announced the deal. So we have been able so far to cope with that. But of course, it -- no one knows exactly how long time we will be in this state. And all of us, I think, are -- as individuals, are thinking about the health of our staff and our family and friends and everything would like to be out of this as soon as possible. And of course, it's -- if it will continue, which we really don't hope and don't think for a very long time, it will, of course, have an impact on our M&A business. But we have been building, managed by our Head of M&A, Marina has made a tremendous job, both when it comes to this transaction and Storm8 and Kixeye and not to leave the pipeline. So we think that we have many interesting companies that we know well, that we have met with in our pipeline, then we never know when it's the right time to do a deal. So we have companies that we've met with, for sure, many times. But yes, you're right. Of course, if this continue a year, it will be a problem, but I don't how to take that.

No. And the last one. I mean it looks like Candywriter have launched almost a game per year. Is the focus now internally just on BitLife or do they have games in the pipeline also?

As I mentioned, with the opportunities that BitLife represents, the growth opportunities, going forward, not looking back, going forward. I think it would be an error not to continue to focus on that because it's unique. It has really strong user data with the longevity and the typical pattern that could provide -- could -- if they continue their very strong work with content updates and balancing that in a purchase and then increasing in our purchases, this could be a game that could come really high up in the rankings and grow further significantly. And as we have talked about, the localization is not even started yet. So I mean that's priority 1, 2, 3, 4 and 5 to make the most out of this. Then, of course, clones are built upon the same engine, it's possible to do with less defocusing on BitLife cost item engine. So that is potentially in second priority, but a completely new game is not really what we see them focusing on the next year or so.

As there are no further questions, I'll hand it back to the speakers.

Thank you. And thank you all for dialing in and listening to this. I hope you share our enthusiasm and all the joy we feel and the eager -- we're eager about the opportunities with Candywriter joining Stillfront Group in our ambition to create a 3x larger company. Thank you for your time, and have a great day and weekend.

This now concludes our conference call. Thank you all for attending, you may now disconnect your lines.