Hacksaw AB (publ) (HACK) Earnings Call Transcript & Summary

Welcome to Hacksaw's Q2 Earnings Call for 2026. [Operator Instructions] Now I will hand the conference over to Group CEO, Ana Vrabic Verdir and Group CFO, Mikael Rahm. Please go ahead.

Good morning, everyone. Thank you for dialing in today for our earnings call for the second quarter. I will start by commenting on our Q2 performance before I hand over to Mike for a closer look at our financials. After that, I will continue with key takeaways. And this is my first earnings as the Interim CEO, I will elaborate a bit on my reflections from these past months. After that, we will open the floor for questions. I'm very pleased with the strong performance in Q2, both operationally and financially. It's another great quarter that we can add to the solid track record we have been delivering to the market. New business continues to be strong. We've closed 106 deals, 63 of which were with new clients. Some of the deals mean provision of our games to operators in new locally licensed markets, including Slovenia and Paraguay. As a result, our games are now offered in more than 40 locally licensed markets. We continue to capitalize on new market opportunities with existing clients and by expanding our client base. We launched 17 new games in-house, a remarkable performance by our team. Additionally, 17 games were developed by partner studios on OpenRGS. We welcomed 2 new independent studios in Q2, and this brings a total number of studios on our platform to 11. We secured an Alberta registration following Q2. That's an important milestone for the business in North America. Alberta represents an exciting new opportunity for the iGaming industry, and we are now well positioned to offer our portfolio of games to the operators as the market regulates. Revenue amounted to EUR 59 million in Q2 and a total of EUR 224 million during the last 12 months. That equals 37% growth adjusted for FX. All growth continues to be organic. Our estimate for the company's global market share remains to be a low single-digit percentage, and the numbers we delivered this second quarter once again demonstrate the opportunities we have in the industry. Our adjusted EBIT margin was 82% in Q2 and the same 82% is our adjusted EBIT margin for the last 12 months. The company continued to demonstrate significant cash generation with operating cash flow growing by 60% year-on-year and by 38% adjusted for onetime items in Q2 last year. Free cash conversion rate over the last 12 months amounted to 91%. I will now give an operational update. On this slide, we see that in-house games developed over the last 12 months. During the second quarter, we have continued to expand our team and in turn, increased our release cadence to 5 games per month. Five games per month should be seen as a normalized level and may deviate from quarter-to-quarter. In the same context, we released 17 games in Q2, an impressive demonstration by our team of both scale and execution. We expect to continue increasing the release cadence over time. The operators highly appreciate that we have a lot of content that we can now target different audience with and the more content we have, the more important we become as a Tier 1 supplier to the operators. Other studios released 17 games during the quarter and 108 games since we opened the platform to third-party studios. As stated during our previous quarters, the cadence of games developed on OpenRGS may fluctuate slightly quarter-over-quarter because several studios are developing games in parallel. We expect to also increase the release cadence on OpenRGS over time. Our OpenRGS platform continues to attract a lot of interest from third-party studios. In Q2, we welcomed Good Times Studios and Aloha Gaming on OpenRGS. We expect to onboard additional studios over time. At the end of the quarter, we had 354 games in our portfolio, up from 241 one year ago. The daily number of rounds over the last 12 months was 30% higher than during the preceding 12-month period. Important to remember here is that the revenue does not increase in direct proportion to rounds as average bet size differs across markets and over time. Player outcomes also fluctuate around the mathematical average in the short term. In addition, our take rate on gross gaming revenue varies depending on the mix of clients and jurisdictions. As a result, the relationship between rounds and revenue will vary from period to period. Our revenues for the last 12 months grew by 31% in Q2 and by 37% adjusted for FX, underscoring our continued strong trajectory. We note that revenues from locally licensed jurisdictions have continued to grow. This is, to some extent, a consequence of new markets regulating. All in all, it was a quarter of continued high growth and delivery of our strategy. With that, I hand it over to Mike to go through our financials.

Many thanks, Ana, and hi, everyone. Let's take a closer look at the numbers for the second quarter. So revenues amounted to EUR 59 million, which was up EUR 14 million or 31% versus last year. Similar to Q1, revenues for Q2 were negatively impacted by FX movements compared to the same period last year. So on a constant currency basis, the Q2 revenue growth was 33%. This growth is, as we mentioned, entirely organic and primarily coming from additional games released and continued growth in our customer base. Now our internal view is that we were overall neither positively nor negatively impacted by the FIFA World Cup, but it was very much business as usual during this period. Moving to the expense side. For Q2, our adjusted operating expenses amounted to EUR 10.9 million, which was up EUR 2.5 million compared to last year and reflected the following drivers. First, our personnel expenses continued to increase as we continue to invest in new talent, primarily within game development and distribution in order to capitalize on the market opportunities and enable continued revenue growth. We will continue to invest in talents and investment that gives us the best possible return given the opportunities we see. This was partly offset by increased capitalization of development expenses. And also note that we, from this year, accrue for annual bonuses throughout the year instead of expensing them all in December. And this impacted Q2 by EUR 0.3 million. Second, our other operating expenses were up, driven by the continued growth and development of the business. And finally, depreciation and amortization increased primarily related to the continued investments in capitalized game development expenses. Although our cost of services sold were stable in this quarter versus last year, we continue to invest in our OpenRGS revenue stream, which increases our revenues and profit in euros, but slightly reduces the average margin over time. OpenRGS remains below 10% of revenue. And should this materially change going forward, we will provide additional information in due course. Our adjusted EBIT for Q2 amounted to EUR 48 million. which was up EUR 11 million or 31% versus last year. The EBIT margin for Q2 was 82%, in line with last year and with recent quarters. And during the quarter, we accrued for severance pay relating to the former Group CEO under items affecting comparability. Now moving further down the P&L. Financial items improved due to both improved treasury management and to lower FX losses. And in terms of tax, our effective tax rate for Q2 was 5.1% compared to 6.5% last year. And this all leads to our net income for Q2 amounting to EUR 46 million, which was up EUR 14 million or 43% versus last year. And our fully diluted earnings per share reached EUR 0.158. Now if we look a bit closer at cash flows. Our Q2 cash flow from operating expenses before changes in working capital amounted to EUR 43 million and was up 32% year-on-year. Changes in working capital were cash flow neutral in Q2, which was an improvement to last year by EUR 6 million. However, last year, changes in working capital included negative onetime items relating to the dividend payment in that year totaling EUR 4 million. This gives that our total Q2 cash flow from operating activities, therefore, amounted to EUR 43 million, which was up 38% year-on-year when adjusting for the onetime items incurred last year, as mentioned earlier. Our free cash flow for the quarter reached EUR 40 million, which is 34% higher than last year when adjusting for the onetime items incurred last year, mentioned earlier. And we maintained a very strong free cash flow conversion rate of 91%. This metric shows our ability to convert profit into free cash flow and is calculated as free cash flow for the last 12 months divided by EBITDA for the same period. And also our Q2 CapEx of EUR 3.5 million increased given our continued investments in game development. And this mostly comprises capitalized expenses relating to the development and certification of new games and functional improvements to our technical platform. We made no major investments in tangible assets during the quarter. And so finally, in terms of our financial position, it continues to be very strong. And we further improved our cash balance during the quarter, adjusting for the EUR 116 million dividend paid in May this year. Our total cash and cash equivalents amounted to EUR 99 million at the end of June compared to EUR 176 million at the end of March and EUR 53 million at the end of June last year, and we still have no interest-bearing debt. That's it for my comments. So back to you, Ana.

Thank you, Mike. I feel privileged to be a part of a fantastic team performance in the quarter, including strong release cadence of games, both in-house and via OpenRGS; increasing the total number of studios in OpenRGS to 11, business opportunities continuing its strong performance with 106 deals signed; our games now being made available in more than 40 locally licensed markets; Alberta supply registration secured after the end of the quarter; last 12-month revenue growth of 37% adjusted for FX with 82% EBIT margin; and maintained high free cash conversion of 91%. Entering as the Interim Group CEO gave me an opportunity to witness the day-to-day dedication behind our success, nicely demonstrated in our solid Q2 results. As we have said before, we operate in a large, growing and global market. All in all, this makes me comfortable in our ability to continue delivering on our business strategy going forward. With those words, I hand it back to you, operator, for questions.

[Operator Instructions] The next question comes from Martin Arnell from DNB Carnegie.

Ana and Mikael, so my first question is about release cadence. You mentioned it a lot as a growth driver in this quarter. And in the coming quarters of this year, should we expect a similar game release cadence like 5 per month or a little bit more? Is that fair?

That is fair. I mean, that's our new normalized level which we actually sort of executed during this quarter. So yes, I mean, that's the sort of normalized level going forward, yes. Sometimes it will be probably -- it could be lower, but it should be at least 5 per month.

And is it similar also for the partner studios on OpenRGS? You had a similar number of new releases there as well.

There it depends on both sort of how many studios we can add and then also their release cadence because some of them are -- I mean, it's 11 studios in various states, so to speak, or development phase. And over time, their release cadence per studio will also increase.

Okay. And if we look in Q3 now where we are, you had this significant jump of revenue between Q2, Q3 last year of EUR 7 million. And so your comps are turning a bit tougher here. But do you still expect that the growth trend that you're on here could continue in Q3? Or is it fair to assume, all else equal, that you're going to see growth slowing down a little bit in Q3?

We don't really guide per quarter, but I would say that, I mean, our view is that long term, we should -- our ambition is to grow by 30% or more, that's still relevant. But as we've said before, it can definitely fluctuate quarter-to-quarter. I mean Q1 this year, we grew 37% FX adjusted.

And if you had seen any major change of trends in the first half or in the first weeks of July, would you have commented on it, I guess?

We don't really sort of comment on intra-month performance. But I mean the first half showed really strong momentum.

Yes. Great. And I have also a question on your cost base. There was a step-up of personnel expenses. I guess, as you mentioned, it relates mostly to recruitment of new developers. Are you comfortable with that level? Or should we see further step-ups throughout the year?

Well, no. We definitely -- I mean, the best bang for the buck, so to speak, for us is to invest in new people and invest in future revenue growth. And so we invest -- continue to invest in both in game development, but also in distribution. So yes, that is something we see to continue.

Maybe just to add, we invest responsibly. So we invest in a pace that we can maintain our company culture, which is extremely important for us.

And my final question is on your agreements. You signed a lot of agreements both with existing clients and new clients. Where -- is it like global? I see a couple of press releases, so we can follow that. But overall, how would you summarize the new business that you've signed and what effects do you expect from that?

Yes. So what we like to highlight is that we are as diversified as possible, and that applies to both games markets and clients. So if you look at the number of deals, it's pretty high, but meaning that we have entered both new markets, signed new operators and continued strengthening our relationships with existing clients. So we see that -- we hope that there will be a very positive effect, but we cannot comment on any quantification.

Yes. I mean so many of these operators are also new startups. So it's really hard to say who will be the winners and who will not be. So it's really hard to quantify the sort of the impact of any one deal.

I understand.

The next question comes from Hjalmar Ahlberg from Redeye.

A follow-up question on the release cadence here, up to 5 games at least per month. What you see from operators? Are you able to kind of push all these 5 games fully when you release them? Or do you see any kind of limitations in terms of operator demand so to say?

So we keep -- we have a very close dialogue with operators in terms of road map. And so no issues whatsoever in terms of releasing more games. And we're still -- I mean, others are releasing a lot more games than we are. So there's still definitely room for new games.

Understood. And also on the OpenRGS here, you mentioned that you continue to see high interest from third-party studios. Do you think you can kind of step up the pace on the number of studios added per quarter? Or is it -- do you expect it to be roughly the same in the coming quarters?

So, this will very much depend on the quality of studios that we are talking to in our continuous dialogue. So it's difficult to quantify whether this will be more than what we have said previously. But if we see good opportunities, we will make sure to enter new partnerships.

And also a question on the CapEx here, which was up a bit in the quarter. Is that also related to kind of increased game development? Or is that the pace that is fair to assume in the next couple of quarters based on the current release cadence?

It was a bit higher this quarter mainly because of certification expenses for new markets, but also that we have stepped up, I mean, game development expenses in itself. But also the game certification actually was a bit higher this quarter.