Stillfront Group AB (publ) (SF) Earnings Call Transcript & Summary

Welcome to our Stillfront Group Q2 Earnings Call. I will be presenting along with our CFO, Andreas, today's presentation, and it will be a Q&A session afterwards in the ordinary way. So, please, the first slide, next slide. We -- since the last month of last year, we have gained great momentum into Q1, and that has continued into Q2. Our revenues grew in Q2 by 31%, in total were a 1% organic growth. And this performance has been primarily driven by the new games that we have launched to the market and the new games that we launched earlier, that we have been able to scale up alongside with -- that we have created synergies when it comes to several areas and collaborations between the different studios that has gained momentum. And also, last but not least, we have had successful live ops, which is a very efficient way of growing our revenues in a cost-efficient way. We also performed a strong cash flow as we have done for several quarters now, and the cash flow grew -- the LTM cash flow grew by 18% in the quarter. On the right hand side, you can see also the distribution of our revenues where we have North America still being the largest part, but you can see also that Asia is increasing and Asia is almost on par with Europe. You can also see through the red dots there that we are a truly global company which is not only looking beautiful on this map. It's very important because that is the way that we can have the proximity to different markets, and that we really can leverage our market reach, capabilities to support all our studios worldwide. Next slide please. So, just some highlights from the portfolio during the second quarter. So we had 3 new games coming into our portfolio -- our active portfolio during the quarter, and in total we have had 14 games coming in organically the last year. So we have a good outcome of the increased soft launch, that we have increased investments that we started some 12, 18 months ago. Also, we have enjoyed a continuous good momentum with Bytro's grand strategy based -- engine based games. So now we have 5 games out there from 3 different studios built upon the same, very successful engine, and this is providing us with a strong component in our total organic growth, and has been -- so for some time that'll be expected, will be going forward as well. Nanobit also had an exciting quarter both -- we announced the collaboration with Netflix, taking a game to the market in 2023, which is yet another example of how we can get leverage on our existing assets, our existing game engines in this case in collaboration with Netflix. And it's yet another dimension of the Stillops platform and how we gain access to new distribution forums to -- in this case a good collaboration with Netflix. Also, Nanobit has a very successful scaling up of their new game Winked, during the quarter. So that has really contributed to good development for Nanobit and for the group. And also, we've seen that BitLife has a very good trajectory in the quarter with lots of live ops and several feature updates that has been very well received amongst the users. So, Candywriter has been growing 40% year-over-year organically, which of course is a very strong performance. Further, we have a good collaboration between Candywriter, that is the publisher, and the developer behind BitLife. Together with Goodgame we have made culturized and adopted versions of BitLife in Portuguese and in Spanish. So we have had some good traction in Latin America during the second quarter, and we are enthusiastic what that could bring for the next -- going forward basically. Next slide please. Looking into our financials, we have, as mentioned, 31% growth, in total revenues were a 1% in organic revenue. So the SEK 1,811 million in revenues are built up and developed from last year according to the revenue bridge you can see on the higher upper right corner of the slide here. So 1% organic growth, just shy of 21% acquired growth and 10% FX -- positive FX effect during the quarter. We have been able to deploy continuously high UA levels without compromising on our profitability targets or the ROAS of less than 180 days. And I'm very pleased to see that we have been able to do this, and very much -- again, the reason why we can achieve this during a quarter when the market has been a bit mixed is that we again leveraged the Stillops capabilities and our marketing capabilities, and the way that we have this data driven way of marketing our products and rapidly reallocate UA to where it yields the best on regarding geography, on regarding product and so on. So, I think –- and channel. So, I think that we -- definitely that is one of the explanations that why we have been able to improve our top line that much in the quarter. We had slightly lower margins compared to Q1 in Q2, and that is due to that we have several growth initiatives ongoing, both, of course, that we invest more in new products that increases the D&A, but also that we have slightly increased the investments and costs taken for improving the Stillops platform further, improving our data capabilities further, as well as the different -- other parts of the Stillops platform that is yielding return we think already, and will do so even more in the future. We also have a different product mix in the quarter with higher degree of mobile revenues, less ad revenues, and also that 6waves is consolidated for the first time the full quarter which has a lower gross margin. So, that is also something that impacts. But we are convinced that this will be improved in the short to mid term, the different components here supporting our margin expansion going forward. And we reiterate our organic growth to be in the mid single digit area for the full year this year. Finally, we can also mention that our LTM curve for net revenues is increasing steadily as you can see in the -- on the slide here. So it amounts to SEK 6.243 billion the last 12 months now. We can go to next slide please. Looking into our total portfolio, we have continued to strengthen and balance further, and not the least, diversify further our portfolio. This is a pillar in our strategy to have a very strong and a leading risk-reward looking into our portfolio, and I think that we have taken a lot of important steps during the quarter -- this quarter as well just as we have done for this year. So, I think that this may be one of the most important things. So now we have -- with the 3 new games added to our portfolio we have 76 products in our active portfolio, and you can also see how the daily actives and the monthly active users year-on-year has been very, very stable. Whereas our monthly paying users have increased by 80% showing that our live ops and the traffic that we have acquired, contains a higher degree of conversion into the paying users which is of course satisfactory. That is also mirroring that strategy. We have had a strong development during the quarter. The share of mobile as mentioned, increased to 79% for the total revenues. Ad bookings down in -- percentage wise of the total revenues to 16%. It's fairly flat in absolute numbers, but it's lower in relative numbers. You can also see the distribution between our different areas, and it's pleasing to see that Strategy is again increasing to 35%, and we can look into some more details on the next slide for the different product areas. So, next slide please. So we can see that it's a very strong development for Strategy. So, I said in the last quarter, I say it again, Strategy strikes back growing some 83% year-over-year, and with a high degree of that coming from organic growth, and it's a core strength. You can also see that in our average revenue per daily active users, it's really increasing for Strategy, showing that we -- our content and the updates and what we do with our live ops in general, are very appreciated in our audience, of course, also supported by the fact that 6waves are part of our group now for the first full quarter. Also, Casual & Mash-up are growing, which is satisfactory to see, by 24% year-over-year. The only area that is not as product area regarded -- is growing -- is slightly declining by 3% year-over-year, is Simulation RPG & Action, and that is basically due to the fact that we're not allocating as much UA to that area as we do to the other ones because it's not yielding as much as the other areas in this quarter. But I'm sure that we will see further traction later in this year also in that area. It's good to see that all 3 product areas is improving their monetization, despite the fact that we have higher –- that we have new products which is usually not monetizing as good as a mature part, whether it's a new product. So still, we are able to, across the board increase our average revenue per daily active users, not only in Strategy. And as mentioned, the number of paying users are significantly improving, not the least in Strategy that is contributing in that respect as well. So, with that, I would like to hand over to Andreas to go deeper into some of the financial aspects. Please, Andreas.

Thank you, Jorgen, and turn to the next slide, please. Start with the cash flow for Q2. We have a continued strong cash flow development for operations of SEK 477 million prior to working capital adjusted movements. This includes taxes paid of SEK 58 million. In the quarter, we had a negative effect from working capital movements, mainly due to accounts payable we paid, which is a reversal from Q1 of SEK 27 million. So cash flow from operations after net working capital is SEK 450 million. We continue to invest in our products. We spent in terms -- in total from our investments, SEK 829 million in the quarter. SEK 249 million of that is for product development from new products, which is the equivalent of 13.8% of net revenues. We also settled some of the cash components for the earnouts relating to 2021, and that had a negative effect on investment activities of SEK 523 million. In terms of financing, fairly flat, negative SEK 4 million, mainly driven by lease payments of SEK 15 million, offset by some slight increase in borrowings for the quarter. We exit Q2 with a cash purchase position of SEK 1.47 billion. So a strong cash flow once again for the quarter. Looking, however, at LTM numbers, it's always important to look at how that grows. In the last 12 months, we generated from operations after deducting the IFRS 16 or lease costs SEK 1.85 billion of free cash flow. This is an increase by SEK 452 million versus last year. We have continued, and tactically decided to continue to invest in our products, and we spent SEK 832 million, which is an increase from last year with SEK 302 million. In relation to net revenues of the same period, that's 13.3%. It is, however, important to note that we do continue to spend -- grow our operative cash flow, and more in absolute terms than our investment cash flow. So we are, over the period, increasing our cash flow after investments of SEK 151 million to just over SEK 1 billion. Cash conversion is 0.45 in the quarter. And with that, please, for the next slide. Net debt has been fairly stable versus last year, SEK 3.6 billion. It increased with SEK 450 million from Q1, which is mainly due to the settlements of our amounts where we used our free cash that we had at Q1. We had a net -- we had a leverage ratio of 1.4x, which is below our target of 1.5x. We have a strong cash position of SEK 1.47 billion at -- cash at hand. Plus we also have SEK 2.3 billion of unutilized credit facility when we exit the quarter. Looking to the right side of this slide, we have a balanced and have a maturity profile on our debt which ensures that we can tackle market uncertainty and be well prepared to refinance our existing facilities when we need to. So then, just to summarize, we continue to have our diversification in revenues. We now have 76 games versus 56 games versus -- in Q2 last year. We have continued to invest in our product portfolio and in our Stillops platform. This is supported by strong underlying cash flow and also continued healthy margins. This, together with our diversified financing platform, allows us to continue to invest in the business and if we select to be -- look at M&A opportunities going forward. So a strong balance sheet position and good cash flow generation from the business in line with previous quarters as well. And with that, I will hand over to -- back to Jorgen.

Thank you, Andreas. We can go into the next slide. That's a summary -- short summary and an outlook. So we have returned to organic growth, something that has been our priority, and I'm pleased to see that we can go from minus 7% to plus 1% organic growth in just 1 quarter, and we can do that with a good profitability and a very strong cash generation, as Andreas pointed out. We are entering into the seasonality, the weaker season -- the seasonality that we have had, I think, for -- if not almost all of the 12 years of this company's history. We expect that to be following the quite usual pattern. As for the ones that have followed us for a time, you know that the Strategy games are more impacted on seasonality usually than Casual games. But all in all, we think it would be a quite usual seasonality in Q3. But to just finalize, we do reiterate our -- we are following our plans to be back on -- or reach the mid single digit organic growth for the full year. So I'm pleased to see that we are on track towards that guidance and that target. So, with that, I would like to open up for questions, please. Take it away.

[Operator Instructions] And our first question comes from Nick Dempsey, Barclays.

I've got 3 questions. So, first of all, with Strategy organic up 29% in the quarter, Simulation, RPG & Action, there's no M&A in there so we can have a decent idea of what organic is. I still guess Casual & Mash-up would be seeing negative organic growth. And then when I dig into that division, Candywriter is going really well. So does that mean we're still seeing notable organic year-on-year declines from Super Free and Storm8 combined? And should that start to ease in the second half, if I'm right on that? Question, a year on from IDFA change, do you think that with all of the adjustments that you've made internally and the adjustments made by external players you use for marketing, that you can now achieve close to the same level of targeting for the same unit of spend as you did before the change, or not? And the third question, with the U.S. dollar moving in your favor, should that help margins a bit in the second half, as I guess your revenues are a bit more weighted to dollar than your costs are?

I can start on the FX, and then Andreas will take the last questions. So, when it comes to organic growth from the different areas, you're correct in that we are still not where we are heading and what we would like to be when it comes to organic Casual & Mash-up. But we are definitely in the situation where we have closed the gap in this issue we had with the very uneven performance from Super Free last year, which we have elaborated on. Remind, however, that Super Free did grow top line wise full year '21 versus full year '20. So it's not like they were in a crisis situation in any way, but it was a very uneven top line development for Super Free, which makes the comp thing very uneven as well, of course. I think that we are -- we will see continuous improvement. So we have seen continuous improvement from Super Free since October, and they have to the third consecutive quarter launched successfully a new game that comes into the active portfolio. So they are definitely in a good spot, and not for the full quarter closed the gap, but they have closed the gap at the end of the quarter. So, I hope and think that we will see them contributing to our reported organic growth for the rest of the year. Also, Storm8 has been developing nicely. They had, as you might recall, a tremendous uplift from the pandemic. So they were the ones that grew the most, the first quarter being on board with almost 70% organic net growth in 1 quarter, or just actually in a few weeks. So they have been struggling with that comps, but the business is developing positively, and they have been successful in several updates in their games, as mentioned in the report. So, I'm also optimistic about that when we come out now of the comparison issues with -- from the pandemic, especially for Storm8, they will also contribute later in the year with organic -- reported organic growth. So, for us, internally, that is not a special topic anymore with Super Free, and it hasn't been a special topic in that way for Storm8 as well. But you're right in the fact that we still need some time for it to be contributing organically for a full quarter. Coming to your second question on IDFA. I think that we are definitely –- post-IDFA, we have been so operationalized for several months now. So I think that what we can see -- and strengthened by the fact that our best performing area is Strategy, which were supposed to be most hit by the IDFA change. And I think that what this has made is that, we are -- on average, you have a lower LTV on the traffic that we buy since it's not as refined as it was pre-IDFA, but we also pay less so we can have the same relationship between LTV and CPI for a cohort nowadays. But then, on our side, when we have bought the traffic, we refine the traffic. So basically, we are strengthened from this factor. And though it was a -- quite an effort to get to that point, but now we are refining the traffic, and that is one of the reason why we can be successful in growing Strategy as well. So, for us, it's not targeting in the same way that was pre-IDFA, but this is part of our industry, and the very reason why we have been focusing so much on being data-driven and building prediction models, because it will always be different changes in different channels, and that's the reason why we have focused so much on this market reach, to master many different channels for many different products in many different territories, so we can always optimize which marketing campaigns that yields the best, and allocate very dynamically and with a high discipline to where it yields the best. So I think that is -- we have benefited from that, and we will benefit from that. So IDFA is not a topic for us or issue for us any longer, and it hasn't been for -- since the beginning of this year, actually. So I'm pleased with that. And on your third question, I'll leave it to Andreas to talk about the impact from FX.

No. I mean, you're right. It's been a very volatile FX market in the last few months, but even in the last week. But in terms of how it impacts Stillfront is, we have a very strong hedge in our portfolio in terms of our P&L that revenues are very linked to the direct costs. So -- and also the -- which includes, of course, platform fees and -- or direct costs and also our marketing spend, but also the fact that our cost structure looks very similar to our revenue structure. So it will, of course, impact the absolute numbers that you report, but it won't impact the margins as such because it is -- we have a nice, natural hedge in terms of that in our portfolio. So the cost structure is very similar to our revenue structure.

Our next question comes from Oscar Erixon from Carnegie.

A couple of questions from me. First of all, very glad to see you being back to organic growth. You have some quick comments here on the return on ad spend and also on the sort of market -- mobile gaming market health in Q2 as opposed to some peers perhaps. Would you say that you have seen any data anomalies on any platforms for Q2? May, for example, looks quite strange from some providers. Would be useful to hear.

Yes, we have seen some mixed signals and some strengthening in third-party data. Having said that, I'm sure that the conclusion when this is sorted out, or summarize the second quarter, which show a weaker development toward –- again, at least what we expected, so I wouldn't be surprised if the sum of the second quarter will be minus 5% in mobile gaming market or something like that. So, it is -- it has been a much higher numbers that have been out there, and it's a bit uncertain about how the market has been developing in the second quarter due to some data errors, but also that it is mixed signals in the market, and that we have seen that different sub-channels and different types of products in different markets has developed very differently. So, I think that some companies that has a low diversification has been suffering more and either compromising on margins or lowering their spend basically. So, I think that, again, the fact that we have a very diversified portfolio, has supported us and grow much faster than the market we think has been growing in Q2.

And just a follow-up on that. Just curious to hear more about what sub-genres have done well and not so well? I mean Casual & Mash-up was quite strong, for example, for you compared to at my expectations in Q2.

Yes. So, it's a multi-dimension answer that one. So I think we should not go into all aspects. But there are some suggestions that certain type of larger products have had challenges to grow, larger products. And with smaller mid-sized products and fairly large products have had been relatively easier. Strategy has been strong, and that has been a bit stronger than I expected, not only in Q2, but for the first half of this year. Casual & Mash-up has been stable in market wise, I think. We are improving steadily, but still some more managed to work and some of the Simulation, RPG games has been a bit weaker, RPG maybe. So-- but it's quite -- not a very unified picture you can get from third-party data, besides the fact that the market has been developing slower than most of us expected, I would say.

And 2 more questions, if I may. One for you, Jorgen, one for Andreas. So first of all, I just want to understand the comments on return on ad spend a year, a bit better. Is the returns –- are the returns better in Q2 versus Q1, any further comments on that? And I mean the spending levels in absolute terms should reasonably, logically bode well for Q3 growth, but you mentioned expecting usual seasonality despite its high spending. It would be useful to just hear your reasoning here, please?

Yes. So, we are pleased to see that we are well within our 180 days ROAS requirement, which is a very strict one. And the reason we have that is that we force ourselves to utilize the full of our market reach and the different channels that we master in the different regions, and the fact that we now have 76 products in our portfolio. I would say that it's not -- it's on par with Q1 and also Q4. So we have consistently been well within our 180 days. What differs is that we put more into Strategy where it's tougher to get the money back within the breakeven -- within 180 days. So I'm pleased to see that even despite that, we are increasing in relative terms in Strategy. We can still return well within our 180 days. So I think we have seen quite similar levels for the last 3 quarters. That is what builds our momentum basically. Then, within the second quarter, there are some -- you referred to the third party data. We had an unusual fluctuation within the quarter. So April and June were stronger than May. So that was a bit unusual, but nothing big in that. But the important thing is that we have been able to deploy 26% in relation to net revenue. So on a high level with very good returns. When it comes to the seasonality, usually, we are deploying a bit less in relation to top line in Q3, but that is, of course, if we can deploy same level as we do in Q2, that is, of course, supporting our growth so that we would like to do that. But we will not compromise on profitability, and usually you cannot deploy that much. So I would expect it will tick up again in September as it usually does, and then we go into the 6, 7 months of strong marketing opportunities following the ordinary pattern basically. That is what we expect at this point in time.

And just one final question. Sorry for asking so many questions. But, for Andreas, you talked a little bit about your debt structure. What's your view on refinancing versus not refinancing the debt maturing here, first of all in 2022, but also in 2023 more importantly? You have roughly, I think, SEK 1.5 billion cash, but also earnouts to be paid, the quite nice free cash flows. Will be great to hear you elaborating on that.

I mean we have a bond of [ SEK 600 million ] maturing in Q4 this year. Of course, we're following closely the development of the bond markets. We do have, as noted, almost SEK 1.5 billion of cash and SEK 2.3 billion of unutilized facilities, and we have a cash flow generating business. So we are very comfortable that we will be able to deal with that. Then what and when, of course, we have to talk about when we get there. Then we have the next maturity, which is the end of 2023. That's with our banks, and we have a good banking relationship with our banks. But as we always do refinancing, we need to consider the market conditions. We need to consider how we work with this, both from a strategic perspective but also from a tactical perspective. But that's why we've been historically and now also conservative in what type of leverage we have, and how high it is, and also looking much -- as much, not just on the absolute value, but also on the maturity profile. So we always -- when we look at it, we should be able to repay that with existing cash from existing facilities. But as you probably -- you have noticed as well, there are obviously various debt markets that are more difficult now, but we are in no rush and have a strong balance sheet to sort of go through that period.

And our next question comes from Chirag Vadhia, Bank of America.

First one was just on EBIT margins which were down this quarter. You mentioned it was due to investments in growth initiatives and a short to midterm effect in gross margins from the current product mix. Could you call out anything in particular that drove this, and if you expect this to continue? And the second question was, how do you view the ad exposure of the group with revenues being cyclical in nature in a recessionary environment, in particular, the Casual & Mash-up segment which has more revenues from that? And final question is, what do you think of Apple's new version of SKAdNetwork announced with WWDC? And do you think this will affect your user acquisition positively or negatively on iOS in a post-IDFA world?

I will try to answer these questions. So when it comes to our margin that -- we see that we -- if you look at the EBITDA margin, you can see that we are at 35%. So compared to the consensus out there, we -- 2 percentage points more in D&A, which is a direct effect on that we have increased our investments in product development since 18 months. So -- and that has also paid off. So that is one discrepancy towards the consensus going into this earnings -- for these earnings to report basically. But I think it's more -- it's as important, but looking into other parts where we see that we short to midterm will improve our margins, besides the obvious -- that UA, when that goes down to a more normal level or to a lower level, that directly correlates with our margin. But taking that away, we also have invested some -- approximately equal to 1% in margin in our Stillops platform, our data capabilities, where we're doing quite heavy investments or taking costs for that and some other parts. Marketing capabilities, as I described, we see that, that pays off very well, but some of that, approximately 1 percentage point in margin comes on our P&L. On the gross margin, 6waves has -- as they entered into the group for the first full quarter, this second quarter, they have third-party publishing today. Absolutely dominating, which then provides us with a direct cost in terms of royalties. We have a very clear path that they already started prior to the acquisition to get in more first-party publishing and second-party publishing. Further, we see a lot of synergy opportunities where they will publish in the Japanese market several of our other Stillfront portfolio gains. And obviously, then that will immediately have a very good, positive impact on gross margin. So I think that we have an opportunity to improve over some time, 12 months, maybe. We can improve the gross margin just by that, but maybe by 1.5% or so. That's the potential there. And then the fact that we have increased mobile part of our business also has an impact. In-game advertising down to 16%. I think we could be -- we should be -- we're not doing good enough, I would say. So I think we should be at the high teens, even up to 20%. And if it would have been 20%, it's more like 1.5 percentage points, improving gross margin as well. So -- and as I mentioned earlier yet another point that supports margin expansion looking 12 months ahead is that we then will have a less degree in relative terms being young products, and young products being under upscale, monetized slightly less than mature products. So that will also support our margins going forward. But we have done our decisions to prioritize getting back to organic growth, increasing our investments, both in the Stillops platform as well as in the -- in our product pipeline, and that is paying off. So I'm pleased with that. So the other parts, we are -- we have a clear plan on how to get back to the margins where we were. Looking at ad revenues, how that will be impacted if ECPM and the prices in general on go down -- goes down. I mean, this is, again, something where, if we have almost perfect in -- build hedge in our business where we have ad revenues. Yes, that will obviously go down if the ECPM goes down or ECPIs goes down. On the other hand, that will support our marketing further. So this is the dynamic that is so important and strategically important for us to have established. And we should be higher than 16% in ad revenue. So that will balance. We haven't seen any massive movements or large movements in ECPMs so far. They are more volatile, but not the structural significant change so far, but it's hard to say what happens in the second half of this year. Your third question about the SKAdNetwork changes, I think it's early to say how that will exactly play out. We haven't received the full understanding -- we haven't got the full understanding yet of what that is. But the first view and analysis from our data analysis and marketing people is that, it will be unchanged to slight positive when that comes in. But again, it's early to say anything more than that, but it will hardly be on the negative side is our view.

And our next question comes from Edward James, Berenberg Bank.

Just a couple for me. So just -- and firstly on the Nanobit and Netflix games. Can you just discuss how the sort of revenue model for those games are, those licenses or upfront terms? Or are they kind of monetized like the rest of your portfolio? Because you've seen sort of a variety of revenue models for sort of platform partnerships like that? Second question, just on wages and cost inflation. Is that impacting the margin profile at all? Are you sort of seeing sort in line or higher or lower cost inflation versus some of your peers, and sort of how is that impacting your sort of margin outlook?

When it comes to the Netflix collaboration, we are -- we cannot disclose the commercial terms, but we think it's a very good way for us to leverage our Stillops platform, and more precisely our game engines. So, the game engines that Nanobit has developed fits very well with the narrative type of games, fits very well to other IP owners, not only Netflix potentially, it could also be other ones. Then how do these look like is different from one case than another. But we are -- just as I think I'm convinced that Netflix are pleased with the deal that we did strike. So, it has a positive impact for us, but I cannot unfortunately go into any details of that commercial agreement. But I think there is a strategic value. We value that collaboration highly. So we think there are more opportunities potentially in the future as well. When it comes to the wage and cost inflation impact, first of all, a very important thing is to note that our -- we have much lower staff costs in relation to net revenues than traditional game developer. We are at a bit over 16%, correct me if I'm wrong Andreas. So that means that if the inflation rate would be 10% across the board, which we don't expect to be nearby, then we will have -- since half of that increase is capitalized, the P&L -- immediate P&L effect would only be 0.8% approximately. So, we are not that exposed to wage inflation. Having said that, in some areas, in some offices, in some regions, we see some wage inflation, in some other areas, since we are largely distributed globally, there is no or very little impact. So basically, large economies and large hubs like in California and San Francisco, to some extent in Germany, it's higher, whereas in Eastern Germany it's lower. But also, it will be interesting to see that what kind of effect it will have that some tech -- several tech companies are actually lowering their staff in total. So this -- the demand side and the supply side is changing slightly, we expect during the second half of this year. Would you like to add something Andreas on that?

Yes. We have been exposed to what I call the tech inflation, for years, and that's also Jorgen was alluding to. Now we have normal inflation which we are not blind to, but there might be an offsetting effect between those 2 waves as such, which is important to keep in mind.

All right. Any more questions?

Our next question comes from Rasmus Engberg, Handelsbanken.

I just wanted to ask you a bit more longer term. I mean, you've been in sort of an investment phase now for about a year or more, to get back to organic growth and so on. Is this kind of the new Stillfront or are we -- or is it kind of like as we go forward, that the rate of expansion of new games is unchanged, meaning that the costs and maybe the potential investments are coming down sometime in the beginning of next year when we meet the comps? Or is it kind of a new Stillfront that we're seeing?

So, that's correct that we took a decision 18 months ago to increase our organic development of products, and I think we -- that has really paid off. We have 14 new games organically that has come out to the market and generate revenues on the levels we qualify for our active portfolio. So it has been a very fruitful and good returns on these investments. But we have -- as communicated earlier, we have kept a pace of 15 products for 6 months coming into soft launch. Some of them will fail, some of them will be very successful and some of -- the rest will be in between somewhere. So I think the outcome has been good. But of course, as we now have 76 games in our portfolio, 15 games in relation to that is a lower number. So, what you can expect is that we -- as we see it now, we will keep approximately this pace in absolute numbers, but in relative numbers, that will go down. That is what I expect now. Then, of course, that is something that is evaluated constantly if we find good investments and get good traction and could do clever investments with good risk-reward such as publishing more games on the [ Bytro ], Strategy, and it has been exceptionally successful for us with a very good risk-reward and short time to market and good returns. So that we will like to do more of. But to summarize, I would expect us to have lower investments also when it comes to what we do with the Stillops platform. As I mentioned, that is maybe 1 percentage point that go in margins, that go into increased costs for expanding our Stillops platform. So we have several very clear identified areas where we think that as our investment pace in relative terms goes down, it will support margin expansion into next year. Would you like to add something, Andreas?

No. I mean, it's just -- we have a very strong cash flow generating business. So we can afford to make those tactical decisions. We are generating cash flow, and we have decided and taken that decision to use some of that and not all of it, to continue to build Stillfront to a better company. So that's where we can take that luxury because we can afford it. It's just to add.

And our next question comes from Simon Jonsson, ABG.

2 questions from me. So the first one, a question on 6waves. You said it was stable here in the quarter. Could you explain what that means? Does it mean that it maintains the Q3 LTM sales numbers you gave us of SEK 750 million? Or should we expect a slightly declining sales until we see the new releases coming later this year?

First, we don't give explicit guidance on each of our studios like that way. But what we mean by stable is, it's revenue-wise stable because it's Strategy games, and Strategy games -- we have had Strategy games as core in our business for 12 years now. So they are very stable for the very straightforward reason that the loyalty amongst users when you're progressing in a Strategy game, is very, very high. Having said that, it's also the area which is most impacted by seasonality because you don't play the more time-consuming Strategy games on average as much during the -- when you are on holidays with your family or whatever it might be, and the audience -- is also a bit older on average than in Casual games. So considering that we not even have a full year with 6waves on board and they -- it's not the perfect synergy, the LTM before we entered, and February to June that they have been consolidated. So if these 5 months are a bit softer than the full year average, I would say. But KPIs are looking very stable, and we are looking forward to grasp the growth opportunities from their existing pipeline and not the least from publishing existing Stillfront games into the world's second largest market for mobile games, which is the Japanese one where 6waves has a very, very strong knowledge and position.

And my second one, you commented on the LTV development earlier and how it has been impacted by the IDFA? You don't target the same way as before, basically. But, could you help us maybe understand how you are as confident in you estimation of LTV and ROIs as before, even after privacy changes? What are the factors behind that as the visibility should be lower?

The visibility is lower when it comes to looking at the traffic and buying the traffic. So it's less refined. We cannot be buying as precise targeting traffic as we could do pre-IDFA. But that is again -- there is some -- it's a natural part of our industry that you will have changes all the time in the marketing conditions. Now IDFA was a bigger change because it came from the platform owner, but changes in the platform or the channel -- sorry, for marketing will be something that we have -- we will see in the future as well. What this leads to is that, we are doing the refinement of the traffic. So our prediction models to analyze the traffic, which is not as refined when we buy it, we do ourselves. So the prediction model and the prediction rate and the precision in our predictions are on par with pre-IDFA, but it's different because we do more. We have refined our models. We have built new models on our side because we cannot get that precise traffic from our partners, the intermediaries where we buy our traffic from. So result is at least as good, which otherwise Strategy would never be possible to grow as much as we have done. So, the outcome is at least as good as pre-IDFA, but it's different, but that's why we are geared the way that we are. So yes, that's my answer to our question basically.

But could that also mean that you as a larger scale player in the market has an advantage?

Absolutely. I mean if you're dependent on a few channels, I mean, the highway previously were, if you were a U.S. player in particular, you work with primarily a large portion iOS, and you work to a large extent with the channel on Facebook. That was the main road 2 years ago. And of course, you are much more [ vulnerable ], whereas Facebook entered into the issues with their algorithm as a consequence of IDFA. So, I mean we have very much an accelerating the leverage from the fact that we master many channels. We market many products in many different territories. So you're absolutely right in that statement, and that has accelerated. And it will continue to accelerate. So you benefit from having this diversity in need.

[Operator Instructions] There are no further questions at this time. I hand over to your speakers for any closing remarks.

Thank you very much, and thank you, everyone, for dialing in this morning and also for raising good questions. So we have a good discussion and interaction. And we are pleased to see you next quarter again if not earlier. Thank you, everyone, and have a great day.