Starbreeze AB (publ) (STAR-B.ST) Earnings Call Transcript & Summary

Welcome, everybody, to the second quarter 2025 presentation by Starbreeze. Today's presenters are Adolf Kristjansson, CEO; and Mats Juhl, CFO.

Good morning, everyone. Today, we are going to cover the second quarter where we made some major shifts in our strategy and structure. And now we will focus back on our biggest IP, PAYDAY. During the quarter, we released key updates into the franchise, which have resulted in increased playing time and a shift in community sentiment. The recent ratings of PAYDAY 3 on Steam have been more positive over the recent weeks, which have lifted the rating after an overall mixed review. This puts us on a positive path as we are further improving PAYDAY to drive it into positive rating category. We have simplified our organization, which will be formally put in place on the 1st of September. We have made some critical hires during this period, which now have the critical business responsibilities and are responsible for their own P&L, where they drive both revenue and manage the cost. And as part of this org change, we took on exceptional onetime charges, which marginally drove our costs up as well as closing our French entity and building up our tech teams in Stockholm. Our work-for-hire project with KRAFTON delivered solid revenues during the quarter. The project is progressing incredibly well, and we will continue to work on such projects as they fulfill an important function in our business, both in terms of development of our employees and even out the ebbs and flows of our revenue. The third-party publishing revenue was disappointing during the quarter despite launching 2 titles, with which both were well received by players and media alike. Both games, Roboquest on PlayStation and Out of Sight, received solid ratings. But in the current environment, this is simply not good enough. Hence, we will be exiting our third-party publishing efforts from September, and putting all of our focus on our own franchises, Baxter and work-for-hire project. Words are cheap, and we have been putting our money where our mouth is in terms of PAYDAY. We are now laser focused on heisting genre with our beloved PAYDAY at the center. We are expanding the PAYDAY 3 team by 40%, and we'll have 25 people working on the franchise for the remainder of the year. We are pursuing growth across the board, partnerships and our transmedia strategy, and all of these areas are progressing well. We have big aspirations for both PAYDAY 2 and PAYDAY 3, especially the latter. PAYDAY 2 will receive quality of life improvements, work fixes and new content over the next few months, while PAYDAY 3 will go through more extensive changes to the game as well as adding more content and gameplay. Stay tuned as we are putting the final details down in terms of the PAYDAY strategy, content pipeline and we'll communicate the company and our PAYDAY strategy over the next couple of months. Our key objective for Starbreeze is to transform the company into a thriving, sustainable and profitable business. To achieve this, we are implementing a matrix organization where our product leads for PAYDAY, Baxter and work-for-hire projects will have full P&L responsibility, where they make key decisions in terms of optimizing costs and maximizing revenue. This will take effect on the 1st of September. We are sure this will lead to a business where the employees will feel a stronger sense of ownership, increased synergy and cost optimization. And more importantly, accelerate our speed to market. All of our studio functional leads and product leads will now report directly to myself and essentially removing communication filters, enhance transparency and eliminate company politics. We made some key improvements in terms of PAYDAY, which has seen better heist releases in recent months, improvements in gameplay and introduction of a new mode called, Smash & Grab These are faster paced heists, which the community has embraced, leading to better player retention. But we are not stopping there. The game will go through major rework over the coming months. which we will outline in our upcoming strategic communication. We also made a key hire, Jonas Skantz, one of the best kept secret in the Swedish gaming industry. We'll be making sure that we will fulfill our promises and deliver a state-of-the-art heisting experience in PAYDAY 3. Back to our KRAFTON work-for-hire project. This project has helped us to establish ourselves as a high-quality work-for-hire studio, where both parties have been thrilled with the collaboration, quality development and the end product. This project has now reached an alpha stage, which is a major milestone for the project. I couldn't be prouder of the team and the project, which is delivering a strong product, healthy revenue and is beneficial to the development of the team. We are and will be looking for key work-for-hire projects going forward and see this as an important part of our business. And finally, in terms of our progress of Baxter, we are still planning a release of Baxter in 2026, but have been looking at all potential launch options that will benefit the product, our partners, and most importantly, our players. We see this as a product which we want to develop with our players at the center and want to deliver a product which has been extensively tested with players and has improved with player feedback. As the product is now, it will fill a market gap in the market with a strong co-op action RPG experience. We are currently looking into how we can lean further into heisting in terms of this gaming experience. And I have to say, I've been very impressed with the latest play tests. We had a lot of interest from platform holders and major publishers for this product, and we are hoping to have updates soon in regards to Baxter partnerships. So in short, the company is changing fast. We have a new structure in place, a new operational model and key hires on board which will make a major difference for this company. Our future strategy is going through the final approval stages, and I'm looking forward to communicate this alongside our leadership over the coming months. Thank you for the faith you are showing in me, the company and our incredible employees. We are turning over every stone and improving the company every single day, and I could not be more optimistic and excited about the future. And with that in mind, I hand it over to my partner in crime, our CFO, Mats Juhl.

Thank you very much. Yes. Let's have a look at the numbers as well for our last quarter and also for the first half year of this year. So net sales for the quarter amounted to almost SEK 54 million, an increase from the same period last year with about SEK 13.6 million. In total, the PAYDAY franchise generated SEK 25.7 million in net revenue. And as you've seen in the news, we acquired the PAYDAY rights back from our previous publisher, Plaion, during the quarter. We don't see the full effect from that transfer yet. You will see more effect from that coming in the next quarter, the third quarter of the year. And the reason for that is simple. It takes some time to get everything moved from 1 publisher over to ourselves then since we are self-publishing the game going forward. So more to see about that. Work-for-hire, our public project, as Adolf mentioned, generated almost SEK 20 million during the quarter. So it's a fantastic revenue-generating project that will continue for the full year. If you look on our EBITDA, it amounted to almost SEK 6 million, SEK 5.9 million compared to SEK 8.1 million in the same period last year. As mentioned earlier here in the presentation, we did see some one-off effects on recurring items that affected our results during the quarter. This is mainly related to organization changes. Adjusting for that in the quarter, our EBITDA amounted to SEK 13.3 million, which was in line with our own expectations. And as you see, we have depreciations of slightly over SEK 30 million in the quarter, significantly lower since we are following the depreciation plan that we set up for PAYDAY, which is the main part of that amount. And as you know and as we talked about here as well in the presentation, we do continue to invest quite heavily both in PAYDAY but also in Baxter and other minor projects. So we reported loss after tax for this quarter as well of SEK 25.4 million. Cash flow-wise, we have a good quarter. We have a positive cash flow of SEK 39.2 million compared to SEK 2.7 million in previous year for the same quarter. Cash received regarding PAYDAY 3 together with the directed issue that we fulfilled during this quarter as well gave us a positive impact in our cash position. So we closed the quarter with a cash position of SEK 156.4 million, which is an improvement with about SEK 26 million during the quarter compared to how we closed quarter 1 this year. So it's a good progress, and we have a strong cash position. If we look on the first 6 months for the year, we saw net sales amounting to SEK 121.5 million as a growth compared to the same period last year with slightly over 25%. So we are progressing. Of course, a big portion of that growth comes also from work-for-hire projects. But that is and will be part of our strategy going forward as well. Our EBITDA for the first 6 months amounted to SEK 21.6 million, and our cash flow for the first half year was a positive with SEK 27.4 million. And as we talked about also earlier in presentations, we are not satisfied with our net sales, and we do see improvements in sales, mostly in PAYDAY 3 day by day, week by week. It's a long journey, but our focus is to continue to grow sales, generated both through PAYDAY franchise and in the future from Baxter. And we also see that the changes we do take us in that direction. A little bit more about our cash flow. We closed last year, 2024, with a cash position of SEK 192 million during the first 6 months this year. We have a positive cash flow from operating activities related to our games of SEK 27 million. We continue to invest in PAYDAY 3 and Baxter. So, so far this year, we invested SEK 96 million in game development. So it's a heavy investing, but perfectly in line with the development plans we have in place, as we communicated about earlier as well. We made a total investment during the first 6 months of SEK 105 million. Part of our revenue related to PAYDAY 3 is recognized during the second quarter as financing still, that will change once we have everything in place now for the third quarter and taking back the rights. So -- but during the second quarter, we have still some revenue recognized as financing also in the quarter. And as I mentioned also during the quarter, we issued shares to the directed share issue, and that gave us a positive effect of SEK 33 million during the quarter. So in total, our financing activities had a positive effect of SEK 42.2 million during the quarter or during the first 6 months. We closed the quarter then with a healthy cash position, as I mentioned, slightly over SEK 156 million. So we are in a good position to continue to invest into our games. On a little bit more on the expenses then during the quarter. Direct costs amounted to SEK 45.2 million (sic) [ SEK 49.7 million ] during the quarter, a decrease compared to last year where we saw expenses of SEK 82 million or slightly over. The change is mainly driven, of course, by lower depreciations since PAYDAY 3 now are coming into the next stage. So the depreciation of intangible assets are significantly lower, but we also see lower revenue share on third-party games, mainly Roboquest. And as Adolf mentioned, we are getting out of that business. So that will continue to decrease as well over time. So in total, if you look on the direct cost, we're also working a lot on efficiency and streamlining our organization, but also when it comes to tools we use in development and so on. So direct costs will continue to decrease over time. Our selling and marketing amounted to SEK 12.9 million during the quarter. Expenses mainly related to cost for personnel working with marketing and PR activities for our games. Part of that is, of course, the launch of Roboquest on console and also Out of Sight that drove those costs a little bit higher compared to last year. Our admin expenses amounted to SEK 16.5 million during the quarter, which were in line with the same period last year as well. And as Adolf mentioned a little bit about, our expenses are impacted by nonrecurring items of about SEK 7 million during the quarter. So taking that into account, of course, our expenses should, in a normal stage, be slightly lower. The nonrecurring items, as I mentioned, mainly relates to organization changes. We have closed down the entity in France. And unfortunately by that, also letting some employees leave the company, and that had a financial impact, of course. And at the same time, we're building up a new tech organization in Stockholm, which is in place now. So that's a good change for the company, but it impacts our expenses slightly during the quarter. You see that also in our number of employees where we -- by the end of the first half year, were 159 employees, which is a decrease with 33 employees compared to the same period last year. And part of that is, of course, employees in France, but it's also some employees in Sweden, mainly in the publishing and marketing area as we talked a little bit about before as well. Some of the employees that left the company have been replaced by contractors as well to make sure that we have a proper handover and a good process and don't lose momentum in our development projects. And as mentioned as well, we do continue to recruit over time. We have a number of key personnel on board already, and we are looking for key talent for our projects constantly. So we will see the number of employees slightly increasing going forward, but it should not be a major change compared to where we are at the moment. And finally, looking into our balance sheet. Our intangible assets amounts to SEK 416 million. That is mainly capitalized expenses for game development and our IP rights, as you know. Property, plant and equipment amounts to SEK 50 million, which are right of use assets for our office lease amounts to SEK 36 million. So that's the majority of that amount. Our current assets amounted to SEK 77 million and mainly related to prepaid expenses and trade receivables. And as I mentioned, also our cash position at the end of the quarter, SEK 156 million. Furthermore, our external noncurrent liability mainly relates to lease liabilities for our office lease and tax and prepaid revenue related to previous projects as well. Our current liabilities amounts to SEK 72 million, and that mainly relates to accrued expenses and trade payables. So to sum the quarter up then, we have a good split of sales between our different games. It's fantastic to see work-for-hire revenues coming in, in line with expectations, and we continue to see that over the coming quarters as well. We see improvements both in revenue when it comes to PAYDAY 3, and we will continue to invest and see also, hopefully, then improvements in PAYDAY 2, which is in line with our strategy as well. We do have a good cash position. We feel confident that we have enough cash to continue to invest both in Baxter and in PAYDAY going forward. So that feels good as well. So all in all, we see good progress in many areas, even though our second quarter partly is impacted with nonrecurring items since -- as an effect of the organization changes. We also see improvements in the quarter -- coming quarters. And that is what we focus on, constant improvement in sales and having a stellar organization and keeping focus on our expenses. So we are efficient in that area as well. And by that, back to Adolf as well, and then we open up for questions.

Thank you both for that presentation. Moving ahead, we have some questions from the chat here. First off, is it too early, but can you say anything about which project is coming after the Dungeons or the Project Baxter game?

Probably a bit too early. We have it drafted up in terms of the heisting strategy, which we'll be communicating over the coming months. We were actually at Gamescom, where we talked to a lot of our partners, platform holders and outlined the strategy for them just to test the waters a little bit, and we got extremely good feedback from those meetings. So I believe we -- we have a solid plan in place, and it clearly will be related to the strategy once we -- and the path that we are on. And I think fans of the company, the heisting genre and PAYDAY won't be disappointed with that.

Another question here. When can expect more inflow on Project Baxter?

It's a good question. We, as I said earlier, we are still aiming for release next year. We actually put together this vertical slice, which showed our partners how the game would look like, how the end game would look like, and got some really good quality feedback from them and also through some of the play tests. So once we have implemented this feedback and tweaked it a little bit, then we will be ready to show it to the world. And part of our strategic update, all the rest coming, well, I think we will communicate that probably over the next 2 months, will be Baxter. So we will show something in terms of that, both in terms of gameplay and screenshots as we are communicating the whole company strategy as well as the PAYDAY strategy, but Baxter will be a part of that.

Another question here. Moving over to the transmedia efforts. Do you have any news on the PAYDAY show or any other initiatives related to PAYDAY transmedia projects?

Yes, I do. We have, at this moment, I think 3 or 4 parties were who are interested in bringing PAYDAY to life, whether that is in animated series or in terms of live TV series and even movies and more so for the first 2. That is in place. What we have been doing, as I believe I mentioned in our last quarterly update, is that we've been putting in efforts to lock down the narrative. What that means is that our narrative is split between PAYDAY: The Heist, PAYDAY 2 and PAYDAY 3, along with a lot of live shorts, I would say, on YouTube, which tell the narrative of the heist is the background, the psychological issues they are going through, what led them to the crime, et cetera. This is fairly complex as it's across 3 games and across all this content, some which has not been shown until recently to the public. So we have a group, which has been pulling that together. And when that is done, that will be shared with the interested parties. What usually happens then, there's a pilot being funded and that is being shown to the key distribution and streaming channels, and that essentially kicks off the process, which takes a few years, which is good for us because we want to get the PAYDAY franchise to a place where we are ready to take on millions of new players into the franchise. So if we would do it today, and we will get the transmedia effect into the game, it wouldn't really amount to anything. But down the line, it will. I know that Minecraft Movie had an incredible impact on the Minecraft franchise where they saw people coming back after decades being away from the game, incredible acquisition play, and that is the hope and the goal with this exercise. But these things take time. Once we press the go button, it will take around 3 years until you will see the series on the screen. So be patient on this one. There is a lot of interest, and I'm absolutely sure we will deliver this one in a few years' time.