Starbreeze AB (publ) (STARB) Earnings Call Transcript & Summary

Warm welcome to Starbreeze presentation of the first quarter of 2025. My name is Adolf Kristjansson, Starbreeze's newly appointed CEO. The last 6 to 8 weeks have been eventful for Starbreeze Entertainment, including my appointment at the end of Q1. Briefly about myself. After completing my MBA in the U.S., I joined the GAME Group to lead its operations across the Nordics and Central Europe, overseeing more than 100 retail locations, including 2 headquarters. Over a 5-year period, my team and I successfully turned the business into a profitable operation. I then joined Electronic Arts in Switzerland, initially leading international sales alignment, but I quickly pivoted towards digital transformation, building and scaling a global digital publishing organization across 4 continents. We managed EA end-to-end platform partnerships with PlayStation, Microsoft, Nintendo and Steam, playing a pivotal role in EA's digital acceleration and its tenfold increase in market cap. I later spearheaded global commercial strategies for block blockbuster franchises such as FIFA, FC, Battlefield, Apex Legends and Star Wars. And most recently, I served on the Board of the Thunderful Group. And today, I'm currently here, the CEO of Starbreeze, one of Sweden's most iconic studios. I bring over 20 years of industry experience to the role, and my focus is clear, to transform Starbreeze into a sustainable, player-centric and high-performing business that delivers long-term value to its employees, players and shareholders alike. We recently announced the reacquisition of the full rights to the PAYDAY franchise and our decision to part ways with our partners at PLAION. As a publisher record for PAYDAY, we will now manage direct relationships with platform holders, bringing numerous strategic and operational advantages. This marks an important step forward as we remain fully committed to the future of the franchise, including PAYDAY 3. This shift enables us to accelerate content development and releases for the PAYDAY franchise, pursue transmedia licensing opportunities, secure 100% of the net revenue, market the game with full creative freedom and to establish a lean and agile publishing function tailored to our reach. Our ambition is to position PAYDAY as a cornerstone of our company and solidify our leadership in the high genre. We envision the franchise structured into 4 key pillars: PAYDAY Legendary encompassing PAYDAY The Heist, PAYDAY 2 and PAYDAY 2 Crimewave Edition. Secondly, PAYDAY Core, which includes PAYDAY 3 and all future HD PAYDAY projects. Thirdly, PAYDAY Partnerships covering collaborations like our Roblox venture with PAYDAY Notoriety and our KRAFTON partnerships on PAYDAY and PUBG. And finally, PAYDAY Lore & Licensing, our transmedia arm where we'll bring to life rich back stories of our iconic characters, exploring their personal struggles and the events that led them to the life of crime. This is an area we're especially excited to develop further, which will add tremendous value to the franchise. We have a past schedule ahead of us in Q2. On May 22, Out of Sight launches on most platforms, an exceptional game with innovative mechanics crafted by our talented friends at the GAME. The following day, May 23, our D&D Baxter team will complete a Vertical Slice of the game, providing a clear snapshot of the final product to share with potential partners. Then on May 26, we're rolling out a PAYDAY 3 update, featuring a new paid heist, a new weapon and the much anticipated defense system, Armor 2.0. Finally, on May 27, Roboquest will debut on PlayStation, opening the doors for over 100 million players to experience this exciting co-op shooter. And with that, I hand over the baton to my partner in crime, Starbreeze's CFO, Mats Juhl.

Thank you, A.K. So let's do some number crunching as well. As always, we go through our group financials. So starting up with the first quarter. We had a strong quarter when it comes to net sales. We saw net sales amounting to SEK 67.7 million, which is an increase compared to the same period last year with SEK 11.1 million, partly driven, of course, by the revenue associated with PAYDAY being a game of demand on PlayStation Plus. Fantastic opportunity, we saw both good revenue coming in, but also a large player activity. So there was a lot of people trying out the game, which was fantastic and a good opportunity for the future as well. In total, PAYDAY actually generated about SEK 45.4 million in net revenue over the quarter, which is good. If you look on our result, EBITDA, it amounted to SEK 15.7 million compared to SEK 48.5 million, which is, if you only look at the numbers, they decrease, but as we mentioned in our report as well, there are one-off effects that are effecting us last year, but also this year. So if you adjust for those, we are in line with previous year where we see a slight increase in EBITDA for the quarter compared to last year. And based on our depreciation plan for PAYDAY 3, we depreciated SEK 44.5 million during the quarter, which is a much lower level compared to previous year. And as I mentioned before, the depreciation plan was quite forward-leaning after the release of the game. And now we are more at the lower level each quarter. We continue to invest, thanks to our games, both PAYDAY and Baxter, of course, and also other projects, that affects our profit and loss as well. So we see a negative result of SEK 29.4 million, mostly driven by the investments we continue to do into all our projects. Our cash flow for the quarter was slightly negative with SEK 11.7 million. We didn't have any inflow of cash regarding PS Plus or the sales for the quarter that was delayed due to the negotiations we had with our partner. But we see a positive effect now in Q2 of about SEK 95 million which is actually related to previous periods as well. So we closed the quarter with SEK 130 million in cash, taking into account cash that actually came in shortly after we closed the Q1. We have a cash position of about SEK 220 million, which is a good and stable, healthy position. A little bit more about the cash flow. We closed 2024 with a cash position of SEK 192 million. And during Q1 this year, we have a negative cash flow from operating activities related to our games of SEK 12 million. We continue to invest into PAYDAY 3 and Baxter, as I mentioned. And this year, we invested SEK 4 million to SEK 6 million in game development during the quarter and made a total investment of SEK 53.4 million over the quarter. Part of our revenue related to PAYDAY 3 is recognized as financing during the quarter related to development of content, not currently released that together with IFRS adjustments sums up to SEK 4 million in positive effect during the quarter. We closed the quarter with the cash position then, as I mentioned, with SEK 130 million. Please take into account also then the SEK 95 million that we -- again now in the beginning of Q2. So looking at our expenses for the quarter, I mentioned before that we are at a decent level when it comes to our expenses. We will be working with that to -- and focus on our expenses to get them down in general. For the quarter, we saw direct cost amounting to SEK 45.2 million, decrease compared to last year mainly related to lower depreciation of intangible assets and lower revenue, which are on third-party games. In a comparable quarter last year, we had quite high rev share related to publishing games. Selling and marketing amounted to SEK 8.3 million. These expenses mainly relates to cost for personnel, working with marketing or PR activities for our games, both our own games, but also third party publishing game. Our administrative expenses amounted to SEK 29.1 million. And here as well, we have onetime effects affecting the comparable period. That was related to long-term incentive program, as we talked about last year then we had a reversal, so actually a positive effect in previous year. Since we ended that program and didn't have a full payout on it, so SEK 15.1 million. We also see some onetime items in this quarter related to depreciation for our old office premises of SEK 16.5 million. So adjusted for that, our administrative cost for the quarter remains in line with previous quarters, which is good. We don't see an increase in underlying costs. We had about 180 employees at the end of the period, a decrease with 11 employees compared to the same period last year. This is also in line with what we talked about before when it comes to both refocusing our staff to Stockholm, so we're building up a new tech department here in Stockholm, and by that, also closing down an entity -- or partly in France. So we also see some changes related to our team here in Stockholm, where we do the necessary adjustment that we need to do to be aligned with the projects we have at the moment. So that's a good thing. Finally, looking into our balance sheet. Our intangible assets amounted to SEK 394 million, mainly capitalized expenses for game development and IP rights. We also have property, plant and equipment, that amounts to SEK 51 million, which were the right-of-use assets for the office lease, the new office amounted to SEK 39 million. So that sums up to the best majority of that. Our current assets amounts to SEK 132 million and mainly related to prepaid expenses and trades and receivables. And I mentioned our cash position, a couple of times already, SEK 130 million. And furthermore, as you know, our external noncurrent liabilities has been amortized and the remaining part mainly related to lease liabilities for our office lease and taxes, so very low debt. And our current liabilities of SEK 119 million mainly relates to accrued expenses and trade payables. So in slim, a very focused balance sheet as well. To sum the quarter then, we have had a good split of sales between our different games. We had PAYDAY 3 in a positive trend, and we look forward to releasing more content in May. Our work with Craftsman continues with full steam towards the end of the year, and we have a good healthy cash position to further invest both into PAYDAY 3 and Baxter and other opportunities that we see. And back to you A.K.

Thank you, Mats. In summary, acquiring the publishing rights to the PAYDAY franchise was a critical milestone for Starbreeze and future of the PAYDAY franchise. At the same time, we secured Embracer as a strategic investor, further strengthening our position. Project Baxter continues to move forward with a Vertical Slice set for completion later this month. We're heading into an unprecedented level of activity in Q2, and with a strong cash position and limited debt, we are well equipped to execute on our strategy. And I believe we're heading into Q&A.

Thank you for that presentation. So we have quite a few questions here from the chat. The first one, do you have any update on TV or screen version of PAYDAY?

Update, yes. I mean, it's very important we remove the path and reacquired the publishing rights of PAYDAY. That was required before we could enter into any kind of negotiations with movie or TV studios. There is a long line of interested parties, which we have started to talk to, and we'll be continuing those discussions over the next few months. But all in all, very positive.

I think again from the chat, we have some clarification. We now get -- now get 100% of the net revenue for PayDAY 3. Mats, can you clarify what the status is with the Digital Bros', please?

As we mentioned previously as well, there is a rev share based on PAYDAY 3 towards our Italian friends, Digital Bros' related to Starbreeze acquired the rights for -- distribution rights for PAYDAY back in 2016. So that's a 33% royalty based on our profit that we make on PAYDAY 3. So when the game has recouped all expenses and also the ongoing current development expenses, and we see a positive result for the game, then that should be split with 33% for Digital Bros' and 67% for us, which is compared to before when we had PLAION as a partner on board, we received 50% of the net sales for the games and PLAION got 50%. And then out of our 50%, 33% should have been paid then to Digital Bros'. So this is a good thing both for us and also for Digital Bros' since it's better to share a bigger or large share amount of revenue. So it's a good thing for us and a good thing for Digital Bros'.

Now that you have more freedom of the PAYDAY IP following the reacquisition of the publishing rights, will you consider revitalizing content updates in PAYDAY 2? And if yes, when can we expect this to be implemented?