Modern Times Group MTG AB (MTGB) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to the conference call to present MTG's results for the second quarter of 2022. This call is hosted by our CEO and President, Maria Redin; and our CFO, Lasse Pilgaard. I will now hand over the word to Maria, our CEO.

Thank you, Anton, and hello, everyone. I suggest we jump straight into it and go to the highlights of the quarter. Q2 has been a very busy period for us. We continue to face on driving growth, which means scaling new games as well as launching new content and events for players in our established games. This has helped us to deliver 7% pro forma year-over-year sales growth, and organic revenues were up 3% on a quarterly sequential basis, which demonstrates the strong portfolio of our Evergreen IPs. Our portfolio in new games has also continued to grow, and we saw record revenues now in June. On back of increased revenues, we reported record high adjusted EBITDA with a 26% margin, along with a very strong cash conversion of just over 60% for the first half year. We expect to take a market share in the quarter with the overall 7% pro forma growth that we reported. The market visibility is low. But if you look at the external market data on the growth in our purchase spending, and we look at them in Europe and North America in particular, which is our main market, it indicates that the market has declined year-over-year, while we actually have been growing in the same territories. On the corporate side, Q2 has been a historic time for MTG. We successfully closed the sale of ESL Gaming, which allowed us to return around SEK 3 billion to our shareholders through a mix of a redemption share program and the ongoing share buybacks. We've also significantly clarified our corporate structure by rolling up the minority ownership of EHM to become shareholders in MTG. For those of you who may not be as familiar with our background, EHM is a company jointly owned by the founders of InnoGames, and they have now become our largest individual shareholder in MTG . And last but definite not the least, we also held the Stream Capital Markets update in June, which allowed us to share with our shareholders and investors our strategy, vision and ambition as a pure-play gaming group, and we also there introduced to the world our Flow platform, which provide granularity on our financial management and thinking as a pure-play game grid. The Flow platform is what we call the common layer of skills and competence hub that we're building together with our companies and also helps them the companies to accelerate. As we mentioned during the Capital Market Stream, we're currently focus on 4 key areas: user acquisition, business intelligence, ad monetization and cost promotion. We are making a steady progress in these areas, and we're excited to bring new updates as we move along on the development. Let's start off on the corporate side, and we don't miss any important things. Where was on the club platform, which we call the common layers of skills and where we are building based on the skill set that we have on our platform and already in the existing countries, we elevated on the group level to help our companies accelerate and become stronger together and leverage each other's capability. And where we focus on is user acquisition, business intelligence, ad monetization and cost promotion. And this is something we want to share with you as we do improve this along the way because we do believe this will help us accelerate both cost, and hopefully, we can invest more smartly as we move forward. So moving on the next page. Let's look at some of our operational KPIs, which shows that we are on the right traction in our evolution at the Game Group. At the Capital Markets Day, we talked a lot about building relevant reach, which is something that we are passionate about. We are, therefore, very happy that we have 6.7 million daily active users in the quarter, which was a big increase from the 4.3 million in Q2 that we had last year and reflects our growing portfolio of companies and games. We also talked about the importance of diversifying our revenue streams. 63% of revenues came from in-app purchase this quarter, and we are growing our in-app advertising related to revenue at 26% and also 11% comes from platform fees in the quarter. If you look at it sequentially, the number hasn't really changed significantly from the first quarter but it shows a very clear progress of improvement to the diversified revenue stream that we had last year and where we are today. Last year, in app purchase revenues represented 93% of our total sales. Finally, also, when we look to our mobile revenue, 73% today of the revenue comes from mobile, and we generated 42% of our sales from our top 3 games today, which is a significant improvement from the 66% that we had last year, and that means that we are reducing our dependency on any 1 single game title. Moving on and looking at our revenues. As I mentioned earlier, we increased our market share in the quarter, and our sales went up 7% pro forma year-over-year in Q2, while the reported sales were up 70% year-over-year in the same period. These results showcased the strength of our Evergreen IP and the diversity of the games in our portfolio. In particular, the games from Ninja Kiwi and PlaySimple, our most recent acquisitions continue to drive the growth on the back of the strong performance. The growth of 7% is within our growth range that we previously provided to you in the Q1 call and taking into account also the change in market conditions that we see around us. On an annualized basis, we reported net revenues in kroner. They were up 76%, and that is driven by the consolidation of our recently acquired and strongly performing new companies, PlaySimple and Ninja Kiwi as I just mentioned. On the organic sales performance and development, we reported a 7% decline in the quarter, which is an improvement compared to the 9% decline we reported in Q1. And we can see that things are moving in the right direction. On a sequential basis, the organic portfolio grew 3% from Q1, and we saw a small year-over-year growth also now in June, which we're happy to see, which means that we're going into the second half of the year where we expect to return to organic growth for the portfolio. Looking also then at the big picture. We do expect that our growth rate of 7% has helped us outperform the overall gaming market in the quarter and therefore, also for MTG to take in market share. Moving on then to drill it down into our franchises. As we did mention into the Capital Market Stream in June, we will report game franchise revenues now going forward. And we do this because we want to help you and the market stakeholders to understand how our games are performing. And in the same, we also want to emphasize the diversity and relevance of our different genres that we're having. And also as a side note, when you look at this number, it is important to note that the franchise revenue data that you see, they are actually in reported currencies, so they are not currency adjusted. But the growth number, as you see 7%, is FX adjusted. Looking at them, the Word Games franchise overtook Strategy and Simulation when it comes to total revenues in the quarter being our biggest franchise for the group. And despite the small sequential decline that we saw in the quarter, it is performing on a very strong level. And the main growth behind it is our anagram franchise, which has 2 games, Word Trip and Word Jam in particular. And it's important to remember when you look at the game performance in the franchise development is that has performed extremely well, and we also, in Q1, increased our marketing significantly. So sequential is coming from very elevated levels of revenues. And looking at it in the other way, year-over-year, we're seeing a 44% revenue growth, which we're very happy with. And also, when you look at the performance of these games in the quarter, we do continue to expect this to be one of the main growth drivers for the group going forward. When it comes to our Strategy and Simulation genre, we continued to be stable revenue generated for the group and is primarily, of course, driven by InnoGames. We invest in the scale-wise culture where we're seeing positive effects from the new content launches that we've done, in addition, we have also added video apps now visible for all customers in the game. Further, with our largest game, Forge of Empires, we are continuously working with Event Calendar to optimize the player engagement as well as work on initiatives to optimize the retention rates of the game. The Tower Defense franchise continued to perform very strong in the quarter and that's predominantly thanks for a very successful large update that we had for Bloons TD6 in April. And also the Racing franchise revenues were up in the quarter, where we actually had the highest revenue since Q3 last year. And this is also thanks to successful update for the Formula 1 economic research that we had with the new Formula 1 season in May. Moving on then, MTG as a pure-play gaming group, what does it mean? It mean in there, scaling of new games is one of our key priorities to drive growth even though we said content update is relevant for the existing games, but also to make sure we extend our franchises with new games is an additional -- an important growth driver for us in the future. We're currently scaling 5 new games with Rise of Cultures being the largest individual type for us. And we're, therefore, very happy to see that the game growth revenues in Q2 versus Q1 with 30%. And as you further see on this picture, we have also new games in all our different franchises, which again puts one of the most important growth drivers for the second half and onwards, which is scaling existing games franchises, of course, but equally important scaling new games. And in addition to the games that you see here, we also focused on adding content as well as creating user acquisition and our [indiscernible] help hurdle the work on a healthy pipeline of upcoming titles across the wide range of genres. And that also includes our new initiatives around the NFT games where we have in Kongregate in our 2 titles that they are about to launch, along with also other just not identified game launches in our different portfolio companies. Moving to the next slide. As I mentioned earlier, one of the focus areas is to ensure that we have a balanced mix of revenues that can improve our resilience to market fluctuations. Today, 63% of our revenues come from in-app purchases. This figure has become more balanced during the last 12 months, primarily because, of course, the consolidation of PlaySimple, which generate most of its revenues from advertising, but also because we're adding advertisement into games that historically and predominantly has been using in-app purchases as a revenue source, and we were seeing that we can equally actually benefit of advertising for the players in the games without actually losing any player engagement. Advertising revenues, in total, represented 26% of our total sales in the quarter, with the remaining revenues made up steadily growing to third-party platforms like Steam. This revenue side is, of course, coming from a very low level, but it's an important part of the future and several studies are exploring opportunities to add their games to new platforms over time and extend their reach. On the user front, our monthly active users were slightly down compared to Q1 with daily active user more or less flat quarter-on-quarter, which reflected a number of factors, which include 1 of part traditional summer season authorship with the summer coming and also the heat wave coming across here in Europe. People are traveling more and not being close to the devices in the same way. So we're also seeing then on the macro level, ongoing adjustments to post-pandemic new normals. And the same way also with that low visibility that we do see in the market with high inflation rates that could possibly also have reduced some of the player engagement that we see. But if you take that into account and we see where we ended the quarter, we're still very happy with the 6.7 million daily active users that we have in the quarter playing our games, and that is a big increase from the 4.3 million that we had in Q2 last year, and that will reflect our growing portfolio and companies with strong gains. And with that, I would like to hand over to you, Lasse, and take us through on the financial part.

Basically, starting off on EBITDA. We do see the benefits of being part of a larger group now or being a larger group. We delivered a strong quarter on adjusted EBITDA of SEK 357 million and a margin of 26%. In the old definition, this would have been a margin of 27%, which you can then compare to the 25% that we reported in Q1. So a 2 percentage point increase. The earnings growth corresponds to a 75% increase year-over-year and a 4% increase on a sequential basis. These results reflect a strong performance across the portfolio with especially Ninja Kiwi maintaining the high margin again this quarter. Further, as mentioned, this also reflects a quarter where we tactically adjusted new investments from what was originally planned. I will comment more on this on the subsequent slide. Lastly, commenting on the difference between reported and adjusted EBITDA for the quarter. The only 2 corrections that we have done are 1 nonrecurring bonus structures, which goes back to the PlaySimple bonus where we negotiated a correction in the purchase price at the time of acquisition and hence, taking over bonus liability that we needed to fund over the next 3 years, including the year of 2022. Hence, this level will continue in the quarters to come at an approximate rate of SEK 15 million per quarter. Further, we adjusted for a reversal of transaction costs related to ESL that initially was booked as an administration expense in Q1 and has now moved to a noncontinuous M&A item. So turning to the next page, we will look at UA spend where we again managed to maintain a high investment level, although down from the elevated Q1 levels. Our user acquisition spend landed at SEK 500 million for the quarter, the second highest month we have had representing a 36% of revenue. The sequential decrease is primarily driven by the very elevated Q1 levels that we have from some of the larger games, where specifically wise coaches, Word Jam and Word Trip were very high in Q1 and has come down to lower levels in Q2. Investment in new games have remained stable in Q2 versus Q1. At the Capital Markets Day, we guided long-term levels between 39% and 42%, although with variations in the quarters, we are seeing some of that variation between Q2 and Q1, which moved from being at the high end of the interval to below the end of this quarter, which is driven by the general seasonality and that we took deliberate decisions not to spend the full market budget in this quarter. We are seeing some softening in the eCPMs, which over time should make it cheaper to acquire customers, which then we need to put into the context of seeing what happens with the cost of lifetime value across the different games. And that equation, of course, we are monitoring closely to see if we want to spend more or less. So looking forward, as you know, we're not guiding on UA spend quarter-by-quarter. It will always fluctuate. And we have an ambition to spend as much as we can as long as the return on investments meet our threshold. For the actual spend level, I want to refer you to the guidance we've provided as part of the Capital Markets Day, and reminding everyone that Q2 and Q3 typically are slower months than Q1 and Q4, given the cyclical media pattern that exists. Lastly from my side, turning to cash conversion, which is also a new measure for Q2, we delivered 61% cash conversion for the first half year of 2022 as a result of strong operating cash flows. Cash flow from continued operations before taxes and changes in working capital accounted for SEK 678 million for the first half year. Free cash flow ended up at SEK 426 million, reflecting a 61% cash conversion. Year-to-date, the group has used SEK 216 million in the quarter -- sorry, year-to-date to fund earn-out payments and hence delivered the free cash flow after no payment of SEK 210 million for the first 6 months. At the end of the period, we had SEK 8.182 billion in cash in MTG and are currently carrying no other debt than earnout liabilities, which totals SEK 2.498 billion as per the end of the quarter. Please see the new table on Page 16 in the financial reports showing liabilities per year split across cash and shares. So please keep in mind that on top of that, SEK 2.7 billion was paid out as part of the share redemption program shortly after the end of the quarter. We're not guiding cash conversions for the remaining part of the year, and hence, I'll point towards the long-term guidance of 50% to 60% that we provided to you as part of the Capital Markets Day. So back to you Maria for a summary and outlook.

Thank you, Lasse. So to wrap it all up, we do expect MTG to have outgrown the market in Q2, and we do expect this dynamic to continue in the second half of the year given our strong portfolio. This is how key game continues to scale more updates for our public titles to be launched. And of course, we also get into easier costs. Our results in the quarter showed the strength of our group. This as we combined strong top performance growth with high profitability, and as Lasse just mentioned, also high cash conversion and cash generation. Further, Q2 has been a milestone quarter for us as we completed the ESL sale, and we're delivering on our commitment to distribute at least 40% of the net proceed of the sale back to our shareholders. And last but not least, we also have a strong balance sheet, and we continue to look for value-accretive M&A opportunities that will amplify our portfolio and the skills and expand our gaming village. Looking forward, we do believe that we're well positioned with our strong portfolio of evergreen IPs and new games to be launched in this pipeline. Therefore, we do reiterate our outlook, and we expect the pro forma growth for Q1 2022 to be indicative for the full year. And in terms of profitability, we do expect us to deliver a long-term EBITDA margin of around 23% to 25%. And as Lasse just said, free cash flow conversion levels around 50% to 60%. All in all, we're very happy with our position, and we're happy to see us continue to evolve in the group and take it to next level on our journey. And I hope you will also follow our progress as I look forward to talking to you soon. And with that, we are ready to take your questions.

Thank you. [Operator Instructions] And the first question comes from the line of Martin Arnell from DNB.

I hope you can hear me.

Loud and clear, Martin.

Perfect. So I just want to start asking you on the -- this lower than initially planned marketing investments in the quarter. Was that the decision that you took sort of halfway in? Or can you share some more color on why you took that decision?

Yes. I mean, to be fair, the campaigns that are running on a daily basis, and it's an automatic process that it's also the profitabilities of the campaign, and what we do is always to make sure that we optimize how much can we spend based on what we believe the profit potential is on back of that spend. And that shift on a day-to-day basis. And of course, the further you are in the quarter, the more visibility you have, but it's not -- it is something that you work with on a daily basis, not only sort of monthly or call a sequentially basis. And it's not the first time that we have scaled down marketing and it's probably not the last time. And also in Q1, it was extraordinarily high, which is something we should also remember that we really saw a lot of good marketing opportunities. And then we invest, I think the way you should look at it is we will always be prudent. We will always do increase scale up or scale down based on the right profit potential on our marketing investment. On a good note, when you look at the investments on the new games, we continue to see great opportunity to scale down and do marketing investments on back of the new games. And I think especially then, of course, right culture, which is extremely important because that is also one of the growth drivers that we see in the second half that will accelerate our path into organic growth for the group.

And Maria, Lasse, is it fair to say that you have not changed your plans for the level of UA spending for the second half at this point, considering your reiteration of the guidance?

That is correct. But remember also, UA spend always have a lag in terms of when you see the revenue effect. So investment is done in Q3, for example, you will start basically see the revenue effects from the quarters onwards. And typically, you have between 1 and 2 years payback until you're neutral on that investment. So that's more how you also should think about the timing of translating UA spend into revenue.

And did I hear you correct? I think you said that you had stable investments for new games, but the lower UA was mainly for the old games. Was that correct?

Yes, correct. So if you look at the absolute level of investments in the new games, it's remained fairly stable between Q1 and Q2. For some of the larger established titles, especially Forge of Empires, Word Jam, Word Trip, we have very high levels of investments in January and February that already actually in March came a bit down, and that's more than you say, levels that we are seeing also continuing into Q2.

And you also commented in the report that you returned to organic growth in the month of June when Ninja Kiwi was included in the organic calculation. And it would be very helpful if you could just comment if that growth continued in July.

So I think it's too early to comment on July in terms of also giving Q3 data out there. But I think it's more important to look at the sequential development between Q1 and Q2, where we have 3% FX adjusted sequential growth. So we do have now a stable and growing organic portfolio, and it's more a question of what's the comp in terms of whether it's year-over-year growing out.

Okay. And my final question is on your M&A pipeline. You mentioned that you're reviewing several potential targets. What can you say about sellers' expectations in the last months?

Again, I mean, we talked about it at the Capital Markets Day. But also here, I mean, it's difficult to comment on any individual discussions. But if you look in general, if you have a great gaming company, I mean, you want to get fairly paid. And that is, of course, where you see the valuations on the public markets, which has changed. Of course, there could be a discrepancy between the private and the public market. So I think when we are looking at M&A, we're making sure that it makes operational sense, strategic sense and financial sense. And that is a dialogue that you also need to have with the founders because we want to find great companies that can positively contribute to both our growth, but also could bring capabilities onto our flow platform.

And now we are taking our next question from Rasmus Engberg from Handelsbanken.

Yes, can you hear me?

Yes.

And is it -- did I understand it correctly that you still think that you will reach around 10% pro forma organic growth for this year. Is that you're still your expectation?

Yes, that's correct. We still expect to have that ambition.

Okay. And does that sort of factor in that the market dynamics change? Or is that sort of mainly up to you to deliver on?

No. But if you go back when we did announce it back in Q1, the news expectation was a 5% market growth. And now we've seen a decline in market in Q1 and a declining market in Q2, which, of course, is not helping sort of you're not getting the boost from the overall market growth, which means that you need to take market share to deliver that. I think what you see us now in both Q1 and Q2 that we have outperformed the market. And of course, the overperformance versus market growth needs to be higher if the market doesn't come back to growth in the second half of the year. So I think that is the unknown, that is difficult for us to sort of forecast. But when it comes to our ability to outgrow the market, we feel very comfortable.

Right. And then I had a question for Lasse. If you could -- can you provide some sort of guidance on where amortization and CapEx would be? I think there was a huge increase in amortization of game development intangibles in this quarter compared to the previous one. Do you have any sort of guidance on either amortization or preferably both that and maybe a bit on CapEx as well?

Yes. So on CapEx, we have been fairly stable on the levels also communicated at the Capital Markets Day. So there, you're not seeing the same fluctuations a little bit up in Q2, but not the larger fluctuations. You are right that both in Q1 and Q2, we had elevated depreciation levels, primarily driven by Kongregate where the idle portfolio that has faced stops at the previous levels in terms of revenue after COVID-19 did do a decline. And we basically in Q1 and Q2, you would say, clean up the balance sheet to make sure that also was reflected there in terms of what's actually the revenue potential from them. So basically, if you look at our, you could say, depreciation schedule going forward, it will more be Q4 type of levels as a percentage of revenue that you should expect.

Now we're taking our next question. Our next question comes from the line of Fredrik Skoglund from FE Fonder AB.

I had a question on performance marketing in general. Every day, we see more and more evidence of people scaling back on marketing, especially for loss-making startups. Could you elaborate a little bit about that? And with your experience from marketing and TV and advertising, how that is likely to play out going forward and how that could impact you in the future?

Yes. No, what I think it's going to [ base ] income to have potentially on the CPI levels, cost per install. And I think that's the 1 thing that when you do your ROA calculations, which is return on ad spend, which defines how much you can invest on a profitable level, that could actually potentially be an opportunity for us. As Lasse mentioned, we do see a slight softening on the eCPM level. The flip side of that is that you also then see lower potential cost for acquiring the customer because we spend less per customer in advertising. So I think there are different sort of market metrics that could actually work in our benefit that would help us do more efficient marketing going forward. And of course, I mean, when we run marketing campaign, everything is optimized and that is also one of the benefits of us now rolling out the Flow platform to all our portfolio companies so that you can actually add the same strong system that we've been building in InnoGames to all the companies, which will sort of simplify and optimize a much faster decision processes, we can actually benefit when we see these opportunities in the market.

Okay. And also a follow-up question just on acquisition in terms of -- if you can just elaborate a little more, what kind of potential capacity you have for acquisitions over the next couple of years?

Yes. So in terms of capacity, that's saying very much down to the scalability of the different channels. So how much marketing spend can you actually put through and still receive the conversions and return on investments that you would like to see. So it's a difficult question to answer because it depends on basically the eyeballs out there and the competition that we're going to have for it. But I think as Maria also mentioned, if you go back and, for example, look at what happened in the early days of COVID, so if you go back to March, April, where we -- for that period and 6 months had very high rollers, it wasn't due to increasing lifetime value of the customers. It was due to decreasing CPIs because all our competitors, which is also IKEA and the likes, withdrew basically their marketing spend, and that meant we could spend a lot more without seeing higher costs. So basically, a click became relatively cheaper. And given that the conversion was not lower, we basically got in a lot of customers at very attractive return on investments. So it's difficult to put an actual number to it, but of course, we are fairly ready when and if this would happen. And then the only question that we are monitoring very closely is, is there also some impact on the customer lifetime value because, of course, there's also a macro environment out there that is determining the fact that a lot of competitors are cutting their spend. And it could be that the spend on games will also be adjusted. So that's the uncertainty you always have that you need to factor in.

Okay. That was very helpful. But also on the actual M&A potential, if you have some SEK 5 billion in net cash now and going forward in terms of M&A, how fast do you think you will spend those money?

So that's also as impossible to say as the marketing spend one. Of course, we have dialogues we are looking. It's not going to sit idle on our balance sheet in the next 3 years because that basically doesn't make sense from a capital return point of view. But I'm not going to give you either a day or quarter where you should expect larger M&A announcements.

Now we're taking our last question. And the last question comes from the line of Oscar Erixon from Carnegie.

A couple of questions from me, starting with the market. You don't want to sort of comment on the pro forma growth guidance here, but you reiterated it. And you seem confident on outgrowing the market. I think previously this year, and I guess some things have happened since, but you talked about mid-single-digit market growth, I believe. Do you have a sort of updated view on market growth here in 2022, please?

Oscar, I think what we said in the Capital Markets Day is for the sort of next coming years, we do expect our addressable market, which is on the mix of in-app purchases of North America, Europe, the browser and the ad revenues to be sort of 5% range. And then we believe in our guidance 5 -- 7% to 10% that we will then beat the market accordingly. When you look at short term, as we said and I said, I mean, it is low visibility. You see now in Q1 and Q2, the market has been down. If you go back to the most recent official data point, I mean, [indiscernible] said I think mid single digit to your point in sort of Q1 for the full year. And I would probably expect it to come down a little bit. And the question is how much and what can we expect in the second half of the year. That's a little bit short term the unknown. What I do feel comfortable with is that we're going to continue to outperform the market. And I think if we look at our plans, we feel good about them. And also when we look at the games updates and the events we will do and also scaling of the new games, and that's why we're reiterating sort of our outlook.

Great. That's very helpful. And I mean, assuming market growth is a bit lower, let's say, I mean, flat for the year with some improvements on the side in H2, do you expect the Q2 result here to be sort of an indication of how it might look for the year in terms of margins, so that your growth guidance might come down, but then most of the margin guidance should come up?

So I think we -- in Q1, we said that second half of the year should be stronger than first half of the year. And we don't see any, you say, reason that should change. If you're looking at what we've done already first half of the year, we basically just assume that we maintain this level throughout. I think mathematically, we will be up to 7%. So given that and given that we still expect to outperform in second half versus first half, and first half wasn't a great market year either. I think that's probably the easiest way to conceptualize why we still believe and reiterate the guidance on top line. And then on margins, of course, we want to spend as much of our marketing spend that we can as long as we meet the threshold of our investments. The marketing spend, we will not spend -- potentially not spend at the end of this year and will not really have an impact on this year's revenue but more next year. So of course, I think that's going to be more the determination vis-a-vis whether we're going to deliver on the top line this year.

Great. And then on organic growth here in Q3 and Q4, if you could just help me talk you through a bit. I mean if I'm not completely mistaken here, I think the word segment grew by, was it 70% pro forma, including FX, that is. Could you talk a little bit how that will impact organic in Q3 because I think PlaySimple turns organic from August, so 2 months in Q3, for example. Some help there would be useful.

Yes. I mean you're right to say that the main growth drivers that we've seen -- and that shows us the strength we see strong M&A, has been an indicator in the PlaySimple that's been having a very strong growth. I mean, PlaySimple group 44%, I think pro forma FX adjusted in the quarter on the [indiscernible] or the Word franchise. But if you look at it going forward, what we also said in Q1 is the shift going into organic growth is also that we see in the second half that with the new game launches, Rise of Cultures in particular and also the content update that we're having in our existing games portfolio, you should also expect what we call the, I hate to say, the classic portfolio, but the more the -- all the companies and the games that we've owned should also come back to [indiscernible] it is a combination of growth throughout the portfolio. That should enable the total sort of growth level of the Q1 range and also the organic growth. So it's not just by us consolidating PlaySimple that we turn into organic growth.

And maybe just to add, you have some of the details now that we're disclosing the revenue by franchise on.

And also the organic growth. So it's not just by us consolidating PlaySimple that we turn into organic growth.

And maybe just to add, you have some of the details now that we're disclosing the revenue by franchise on Slide 6 and in the financial report. Because there, you can see basically at the current level, we are now with the franchises, if you were comparing them with, for example, Q3 last year, Strategy and Simulation is a good example. Then we would, at this level, if we deliver that again in Q3, grow quite significantly, but Q4 last year was very strong. Again, there were some lockdowns there. So again, I think our focus in the communication has been very much on the sequential growth that we keep seeing that in our portfolio because that's really the health of the portfolio. And then whether it's going to translate into year-over-year growth or not will really be determined on what happened last year, which was really impacted by more external factors than anything else.

Perfect. That's very helpful. And then just finally, a question on D&A and financial costs. I guess you touched upon D&A partly about, I mean. First of all, D&A, will it completely normalize in Q3 and Q4, i.e., no sort of extraordinary D&A for Kongregate in Q3 and Q4? And then secondly, the financial costs here which were very high in Q2, are there any cash costs at all in that? Or is it purely sort of 95% earnout related to revaluation from discount interest?

No, it is the earnout revaluations. That is the major impact here. And you are right in terms of the depreciation schedule that we are back to normalized levels in Q3. I think we had a question here.

Yes, we had a question in writing that comes from Tom Singlehurst at Citi. There are 3 questions so we will start with the first one. It looks like there's quite a wide variance by genre. What underlies this? Is there a massive difference in types of players between these cohorts? Are word games and/or tower games naturally more resilient? Or is it a question or a question of them being more as funded in the short term?

Another good question. And I think it is fair to say that the genres are different. The order is different. The revenue metrics are a little bit different. So if you take the word games, it's probably the most casual end of our spectrum. And especially when you look at the Anagram games, Word Trip and Word Jam, which are the most casual type of games. And I think they have been performing very, very strong in this environment that we see, which we are, of course, very happy with, and they're also bringing diversification of revenue streams, adding much more ad revenues streams. And that also comes to, I mean, what we see in the tower defense genre, which is actually slightly more sort of, it's a mix you can argue between [ clash ] and mid-core. But what we've done there and what we see is there is -- when you launch new strong content update, you really drive player engagement. And I think that the April update we did within TD6, it just got an amazing sort of attraction from the streamers because it was really positive to proceed and engage the players and also, of course, drove the revenues. So what it tells you is, a, why have we focused on the different genres because we do believe it gives us a good diversification. But it also means that you cannot -- today, when you look at them, you cannot cross the 1 genre to necessarily the end of the spectrum on the other end, if you start with Anagram board games into the City Builder, which is maybe the most advanced game that we're having. But that's also why we believe that the M&A fund is very interesting because you can actually add relevant companies in between here and create your own audience reach and make sure that you can create a customer journey within your audience reach. And also make sure that you diversify your revenue streams where you're in the PlaySimple games and more ad-funded revenues in, for example, the strategy City Builder franchise, you have more in-app purchase driven, even though we're adding ad revenues in there, which is very interesting. And then Tower Defense is a mix between premium revenues and in app purchase. So I think you're right, and it all serves a purpose, and it brings us a diversification that we want as a group.

Okay. The second question from Tom is did you quantify the difference in growth trends between in-app purchases and advertising in the quarter in underlying terms?

I can answer that. So no, we didn't. And I think the closest you can get the spatial again, looking at our franchises because, of course, PlaySimple, and hence, the word game franchise is predominantly ads revenue. And the majority of the revenue coming from the other franchises is in-app purchase. So that probably gives you the best indicator of the actual growth.

And then as a last question, can you give us some firm guidance on where you expect the share count to be at the year-end as well as the average for the year as a whole?

So I think we'll come back with that on a written answer in terms of giving you the details. We don't expect anything that hasn't already been announced in terms of basically, you could say, increasing or decreasing shares from some of the buyback ongoing. So I think let's come with the detailed number to you by mail.

Thank you very much. It does not look like we have any further questions at this time. Operator, over to you, and thank you.

That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day.