Stillfront Group AB (publ). (STLFF) Q2 2023 Earnings Call Transcript

Stillfront Group AB (publ). (OTCPK:STLFF) Q2 2023 Earnings Conference Call July 21, 2023 4:00 AM ET

Company Participants

Jörgen Larsson – Chief Executive Officer

Andreas Uddman – Chief Financial Officer

Conference Call Participants

Simon Jonsson – ABG

Nicolas Langlet – BNP Paribas

Nick Dempsey – Barclays

Rasmus Engberg – SHB

Martin Arnell – DNB Markets

Operator

Welcome to the Stillfront Q2 2023 Report Presentation. [Operator Instructions]

Now, I will hand the conference over to CEO, Jörgen Larsson; and CFO, Andreas Uddman. Please go ahead.

Jörgen Larsson

Thank you. Again, welcome to our earnings call [technical difficulty]. We have executed on the agenda that was set in our Capital Markets Day in February. I’m pleased to see that we have developed and executed on the strategies and the plans that we presented there, which has yielded us record high margins and cash flow through that we actually have established a lot of the operational efficiencies that we plan to do, and we communicated on the Capital Markets Day.

So, our net revenues are stable year-over-year. We have a very solid performance of our key franchises, and we are building a solid pipeline for soft launches going out on the second-half of this year. We have yielded an all-time high on our adjusted EBITDAC on SEK 516 million, and also all-time high on our adjusted EBITDA amounting to SEK 708 million. And the margin for EBITDAC was [technical difficulty] to just over 28%. It’s actually a 7% increase in one year.

We are also pleased to record free cash flow or SEK 363 million, and on a LTM basis, approximately SEK 1 billion. We will of course go further into this. You can see on the right-side of the slide, how our revenues were distributed during the quarter, and we have increased and balanced further our geographical footprint, which is of course all good — it’s good, and that is important as well, and mainly driven by an increase in Asia. Next slide, please.

Looking into our revenue development, as I said, we had stable revenue development year-over-year. You can see on the right-hand side that had a negative expected organic growth of 5%, which was offset by a positive FX, so the SEK 1.812 billion is very close to what we had last year. Looking at the LTM, you can see that we’re growing our LTM revenues up to SEK 7.138 billion, which is a 14% increase year-over-year. Also important is to note that we are growing organically, not year-over-year, but we are growing organically from Q1 to Q2 by approximately [2.5%] (ph).

And we are also seeing [technical difficulty] spend slightly less in the user acquisition cost, as you can see on the left-hand graph. We were down two percentage points year-over-year, but you can also see on the LTM numbers, that we are very, very stable on how much we spend, which is approximately 25%-26%. And we continue to do that with unchanged high return on ad spend within our mark of 180 days net return. So, we are pleased on being able to continue to do that year after year. Next slide, please.

Here you can see our margins, which have been — we have had a very strong margin in this quarter. If you look at the EBITDA margin, it is up to 39% in the blue line on the left-hand side, which is very high historically for us. Also, you can see that our most important margin that we primarily focus on, the EBITDAC margin is up to 28%, so we are earning the SEK 516 million in the quarter that I mentioned. Also looking at — and also, I should say that this is a 32% increase year-over-year. Further, you can see that our LTM numbers is amounting to SEK 1.780 billion, which is also very satisfactory, it’s an 18% increase. And what is driving this is primarily that we are doing what we planned and what we said from the Capital Markets Day.

We are improving our gross margin by 2.5%. We are more efficient in how we allocate CapEx for product development. So, we are more focused in what we do investing in product development on delivering higher product investment ROI. So, it’s working according to plan. Further, and not the least, we have good cost control and optimizing costs. So, we are doing, basically, the three elements that we spoke about in the Capital Markets Day. Looking at our CapEx in relation to net revenues, it’s on level of 10.6%. As mentioned and elaborated on earlier, we see that we aim for being at around 10%, not only a single quarter.

Of course, in a single quarter it will vary, but on an LTM basis and we are now down to just over 12%. So, we are getting there, but it will be variations from one quarter to another, depending on what we’re launching. But I’m pleased to see that we are able to record 10.6%, so a significant improvement and still yielding good results in this short time. Next slide, please.

Looking into our — some comments on our key franchise. So, Albion Online has been a positive outlier in the quarter, with a very successful Albion East launch, that has continued to yield good revenues and very, very good growth in the quarter. It’s also satisfactory to see good performance [technical difficulty] product in the existing market, but also in the new markets. BitLife has continued its very successful long-time growth, and they have been very successful in how to conduct live ops so that we have a higher degree of in-app purchases, and also more refined ad bookings.

Jawaker has also, just as BitLife, continued to be performing exceptionally stable. And I think that we have good opportunities to further leverage and expand that franchise, not only in the MENA region, but globally. And as mentioned, we have several exciting things in our pipeline with several products in or soon in soft launch so that we can build growth for years to come. Next slide, please.

Looking on our active portfolio, you can see that we have a decline in user numbers, which is basically explained by the our UA spend is lower, of course, but also that we have a discontinuation of Snap Games, in February, which affected user numbers more than revenues, but the number of users, and also the paused operations in Bangladesh that represent a significant number of users. But sequentially, we are very stable. We have some lowering in MAU and DAU, which is then connected more to users, and the ones that are paying users prove again a very high loyalty and a commitment to our products which we value very much.

And you can also see that our average revenue per daily active users is growing significantly, partly due to positive FX, but also that we are, across the whole portfolio, we are increasing, through live ops, our monetization in the active portfolios. So, I think that this is a development that we are pleased with. Very important strategically and also financially, obviously, is that we have been able to increase the DTC, direct-to-consumer part of our revenue, so it’s up to 26%, which represents a 7% increase year-over-year. And that’s a strategic initiative that we started two years ago, which is really paying off.

And also, of course, the product mix is important for how much DTC we have. You can also see that, now, we are increase from 49% to 51% the share of the five largest franchises. So, again, more focused investments are paying off. You can also see which of these five largest is, and now Albion Online qualifies to be one of our five largest franchises, so that’s exciting going forward. We stay on 13% being ad bookings, so that is a mix of — that has not increased, and year-over-year it’s lower, which is mainly an effect of the product mix, whereas games like Albion and Strategy games have significantly lower ad revenues than products in other areas. And the third-party stores represent now the remaining 6% to 3% of our revenues. Next slide, please.

Through all of them that I would like to highlight a couple of them, as we can see, Simulation are really enjoying a very strong development through Albion East as I mentioned. So, last Q2 I think I mentioned that Strategy strikes back because it grew by 80%. Now, we can say that Simulation strikes back. And this shows again the value of having a diversified portfolio over the three different product areas that we have.

You can see on the lower right side that we are also balancing — the diversification continues. And we have a better balance between the three different areas now Simulation has been growing. So, not only improving the balance in geographical balance, but also the portfolio mix, and that is satisfactory. You can also see that we have lowered UA on strategy and cash year over year. But put the UA where it yields best which has been in Simulation. Live ops, we continue to improve our live ops capabilities. And of course, we also have a FX effect on the numbers.

Yes. You can go to next slide, please, which is, I hand over to Andreas, please.

Andreas Uddman

Good morning, everyone, and talk a bit about our cash flow in the quarter that continued to be strong. We did cash flow from operations before net working capital of SEK 0.5 billion. And this is slightly down from last year of 5% which is driven mainly from two things. First of all, interest rate environment ensures that we pay SEK 73 million of interest which is now approximately a SEK 32 million increase from last year.

We also had higher tax payments in the quarter of SEK 130 million. And there are some timings effects when you actually pay the cash tax. And this is an increase of SEK 72 million. Some of that was related to previous period approximately SEK 28 million. And then, we also had a withholding tax on dividend from India, which we also recorded in Q1. The cash effect has happened this quarter.

We had a positive net working capital effect of SEK 66 million, both driven by receivables which improved the SEK 43 million and also liabilities which due to timing effect was positive SEK 22 million. So, overall cash flow from operations in the quarter was SEK 567 million. A 13% increase versus last year; strong underlying performance from the business even if we have another interest rate environment to consider. We still continued to grow our operative cash flow.

We did investments as such. So, we have SEK 825 million. This is normal the quarter where we settle the [indiscernible] in the quarter, and we did invest SEK 192 million or 10.6% on net revenues in product development. That is actually a decrease SEK 57 million versus last year, actually reducing that relationship to net revenues with 3.2 percentage points.

So, underlying very strong free cash flow of SEK 363 million for the quarter from operations after continuing to invest, there’re some financing activities as well, we had SEK 390 million net effect. We increased our borrowings of SEK 408 million, and we completed the share buyback program as well. And we spent SEK 67 million on ensuring that we totaled SEK 270 million for the first-half of the year.

Looking then at LTM numbers in terms of cash flow, here we have cash flow from operations over SEK 2 billion before networking capital adjustments. There is an increase of 10%. In terms of the cash flow from operations, after networking capital, that decreased by 2% versus the same period. We still have the comp effect of the 11 versus the 13 payments from one of our big continuum next quarter where it sort of rolls out. So, that’s basically driving that by think it’s important to look at the underlying cash flow from operations and just networking capital. It says we don’t have a warehouse. We have just the timing effects on payments, will the overtime flush itself out.

We have invested still a higher investment pace in the two LTM numbers. We invested SEK 908 million for the last 12 months versus SEK 832 million. So, it’s a 9% difference, but if we compare the numbers to the full-year of 2022, this is actually a decrease of SEK 88 million, where as we spend almost SEK 1 billion in 2022, so the gradual decrease of CapEx has come in and then as Jörgen mentioned as well, there are some quarters where CapEx will be higher. But we are pleased that we have been able to redeploy capital into our franchises in a much more efficient way. So, looking at them, the free cash flow here, it goes down SEK 120 million versus last year. But just adjusting for the networking capital difference, we would actually increase it with SEK 100 million. So, very strong cash flow both for the quarter but also that comes into the LTM numbers and we’re very pleased with that development.

Moving to the next slide, our debt portfolio, we increased our net debt, which includes the short-term cash earn-outs, increased to SEK 5.1 billion in this quarter versus SEK 4.7 billion Q1 2023. This is mainly driven by the fact that in Q2, next year’s earn-out sort of becomes cash earn-outs becomes goes into that metric. So, we settled last year’s and we also bring in the next year’s earn-out and that increased the debt position of SEK 517 million. We also did the share buyback of 67, and then we have an FX effect of SEK 200 million.

When you’d have your debt portfolio, you’d use the balance sheet the last day of the quarter. And of course the SEK was very weak against other currencies at that period. This was of course offset by a strong cash flow, free cash flow from the business of SEK 363 million. So, that’s where we stood in terms of how that relates to our leverage ratio. That was 1.9 and that’s below our target of 2. So, we’re still keeping within our target, even if our leverage is decreasing in size going forward and taking out the cash earn-outs, looking at our metric, how we used to have it, but also how our bonds are measured, was 1.6.

And as I mentioned, the Euro and Dollar were extremely high and probably abnormally high or difference versus the average FX rate than we’ve seen before. So, we would have adjusted for that, the leverage ratio including cash earn-outs would have been just 1.8 versus the 1.9. We continued to have a strong cash position of SEK 874 million in the quarter, and we had SEK 2.3 billion unutilized credit facilities of which SEK 1.9 billion was long-term.

So, overall, we maintain our sort of conservative approach to leverage. And also looking at our maturity profile, which is the graph on the right, we have a very good maturity profile. The 2024 bond now has 11 months to maturity, but then we have a very good spread of that look up. So, the combination of relatively low leverage as well as a good maturity profile ensures that we are very confident with our balance sheet, especially since we generate a lot of cash on a quarterly basis or a monthly basis.

So, to summarize Q2, you can now see that what we talked about in the [technical difficulty] investments. We have focused on cost efficiencies, but also margin-enhancing initiatives, and that’s clearly coming through in our gross profit as well. This is both through collaborations and synergies, to just work together on that. And this has now demonstrated that it improved both the EBITDAC but also our underlying cash flow generation.

Before handing back to Jörgen, the maturity profile, cash generation, and available funds will ensure that we can continue to work tactically with our debt portfolio, but also to support the growth initiatives. And what we did in the first-half of the year, executed SEK 270 million on share buybacks. So, it has been a good quarter from a cash flow perspective, and I feel confident around our balance sheet structure, in general.

So, with that, back to you, Jörgen, and next slide, I can say.

Jörgen Larsson

Thank you, Andreas. I would like to just summarize before we go into Q&A. So, as mentioned, we are executing on the plan that we presented earlier. And I think that we are slightly ahead of what we thought we would be at this point in time. And that’s why we are recording record-high profits and cash flow. So, due to the focused investments, the investment strategy and higher gross margin, we are driving up the EBITDAC and [technical difficulty] in absolute number record levels. We are also — as mentioned, we see a very strong performance, solid performance, too strong performance amongst our key franchises, which is very important for us.

And also, we can see that synergies within the group are on the highest level ever, which is one of the key enablers through the Stillops platform that we use to create these synergies, and create the operational efficiency, which is the number one priority for us, and that is what explains the record-high profits and cash flow. As Andreas elaborated on, we are pleased with how our balance sheet looks like and the cash generation, but also other aspects, like maturity, that Andreas elaborated on.

Going in now to the third quarter, which is the most boring quarter, in the sense that we have always a slower activity level due to vacations and such things, so, that, you should expect also this year, as always. Then, in September, usually things start to wind up again. And we are, as mentioned, in a good position to benefit from both that the market, in general, is improving, we saw that in Q2, we expect that will continue [technical difficulty] the market as well as ourselves to go into positive organic growth, and also that we will enjoy, hopefully, some successful launches.

So, with that summary, I would like to go to next slide, and that means that we open up for Q&As.

Question-and-Answer Session

Operator

[Operator Instructions] The next question comes from Simon Jonsson from ABG. Please go ahead.

Simon Jonsson

Hi, Jörgen, Andreas. A couple of questions from me, so, the first is about your view on the marketing landscape. What has changed since Q4, when visibility seemed to be very low? If we look at the total market, it’s showing strength in Q2, and what do you think was behind that, and how do you think that could support in the coming quarters a bit more specifically?

Jörgen Larsson

Yes, I would say that there are many forces coming into that question or many different aspects of that. I think that the normal thing in this industry, and I’ve been here for, well, 20 years or so, even more, is that it’s always changing. So, that is the normal state. And the important thing and the reason why we have been able to continue with the very profitable requirements we have in our market is that we work with many different products in many different geographies through many different marketing partners.

So, we are able to, with our unique model in Stillops, to reallocate capital for marketing to handle all of the changes so far. And I’m very confident that we will be able to do that going forward as well. So, the marketing side of things, we are in a very good shape with the model we have built over the last decade. Other things in the market is what is driving and the other main lever for achieving growth and improve your business is live ops. And we have put a lot of energy into live ops as well. Other things that improves our performance is AI-related things.

So, there are many elements, besides the things that we have elaborated on, on cost optimization, and such, that makes us confident more and more as the visibility is improving slightly through Q1, and now Q2. So, that’s why we are reiterating [technical difficulty] growth. So, I can talk for hours about this topic because it’s a wide question, but I hope that was satisfactory.

Simon Jonsson

Yes, thanks. And another question on the lower CapEx, which of course is in line with your strategy, but I was wondering more specifically where the savings are coming from. Have you pulled the breaks on some projects? If that is the case, what kind of projects are you cutting down on? You had talked about or spoke about synergies in the report and in call, and maybe you can explain if you realized [technical difficulty] synergies that also impacts the game development side?

Jörgen Larsson

So, yes, we are — we have closed some project or — then also there is a seasonality effect. You don’t launch new products in June, before the summer. So, it’s also that effect. So, then the best time, everything else the same, is to launch games from September up until some time in Q1. Then you have a seasonality effect making it not as attractive. So, that means also, because when you launch a product and get traction, then the CapEx goes up, so that’s also an effect. But in general, we have been more selective. And again, what we have said we should do we have done [technical difficulty] our key franchises.

So, that means that we are [more] (ph) targeting, and hence some products has gone up, but it’s important to note that we are not below a sustainable level. We have been at around 10% for a decade, with good organic growth. So, we think that we are getting there to the 10% — at around 10%, which is sustainable, and still outgrowing the market. And looking also the last 12 months, we have been growing faster than the market even though, obviously, we’re not pleased with minus 5%. One absolutely paramount thing in this are the synergies that you’re talking about, because synergies is, for instance, we are making several games on the same game engine.

So, we are reusing earlier products to make new product, which is obviously between different studios as well, and that is a significant contributor to synergies. But also, in many different other products and software, we are sharing experiences. We have knowledge about specific market, so we can take one product and market that with the necessary knowledge about the specifics of Japan, the specifics of MENA, the specifics of India, and of course North America and Europe. And that is also a clear synergy.

Simon Jonsson

Yes, thank you. And so a follow-up on that, you have talked about before, of course, the refocusing on the core titles. So, I was asking if you could maybe share how you have reallocated the resources, what areas have you been refocusing development on. What kind of IPs or studios?

Jörgen Larsson

Yes, we have the five largest in the material, as I showed. And so, Jawaker, Albion Online, and BitLife has been significant drivers of that. And, of course, we continue to develop there. And also, there is a larger portion of our investment that is a larger features that we add on into existing products, and that has proven to — and of course we measure product ROI, so we can see that these investments and larger enhancement on existing products are just returning better than other products. Having said that, we haven’t stopped all new product development that are outside, but they are less. So, it’s just the same message again on that one.

Simon Jonsson

All right. Just to make it clear, those five titles are having more [investments] (ph). All right. And also, I was wondering, I believe you said when you acquired Six Waves, that you expect that some synergies to start to materialize after 12 to 18 months, which would be around now. So, could you say anything or share anything about the development of the synergies between Six Waves and the rest of the group in terms of new releases?

Jörgen Larsson

Yes. There are two levels of synergies with Six Waves, one if that they are very experienced and skilled, in general terms, on strategy games in particular. So, they have been supporting launches outside Japan. So, that is just because they have a very, very strong track record and knowledge as a studio on strategy games. So, that has been valuable for [our features] (ph) in the existing products not being formally part of Six Waves. But that’s very, very important, but that is not visible in Six Waves’ P&L, but they are still adding that value.

Secondly is that we are, in the pipeline that we are discussing, that we mentioned, we have several games that are in the management and in the operations, and led by Six Waves. Not only Six Waves, several of them, they work together with one or two other studios, but they are the main driver of these products. So, just as you said, we expected 12 to 18 months. We have seen some of the first kind of synergies that I mentioned, but hopefully we’ll also be able to launch games in Japan as well in the coming months. So, that’s my answer.

Simon Jonsson

Okay, thanks. And just a quick one on D2C revenue growth, where does that come from specifically? Is it your existing browser games are just growing or have you migrated paying players from mobile to other stores?

Jörgen Larsson

It’s a combination, that we have many products that are cross-platform. So, they are already played because [technical difficulty] small screens, and that’s the way that the consumer’s [reason] (ph) about it is not that they don’t think PC or mobile, as much as they think that certain of parts of my gameplay is a better experience having a larger screen, and hence on a PC. In other cases or in other parts of the game, they are on mobile. So, of course, we are pleased to see that they pay through our payment solutions because that is what is increasing DTC, but the basis for that is that we are cross-platformed in a large portion of our games.

Simon Jonsson

All right, that’s all for me. Thank you.

Jörgen Larsson

Thank you.

Operator

The next question comes from Nicolas Langlet from BNP Paribas.

Nicolas Langlet

Hello. Good morning, everyone, and thanks for picking the question. I have got three of these. The first one, you mentioned you expect to return to positive like-for-like in H2. Do you expect to already be in positive territory in Q3 or it’s mostly through Q4? And do you expect to perform pretty much in line with the market, or you think you can outperform, thanks to your portfolio mix and new game releases?

Second question on D2C, can you remind us what the aspiration in terms of revenue generated through that in one or two years? And finally, you presented a new strategy in February, you said at that time 2023 EBITDAC margin would be below the 26%, 29% range. Now in H1, you were already at 26%, so, are there any reasons why the H2 EBITDAC margin would be below 26% or not otherwise you will be at below end of the range? Thank you.

Jörgen Larsson

Thank you. Well, it’s hard to say when during the second-half and we haven’t guided whether it should be Q3 and Q4 and that depends on both the market as such. But I’ve been again in this industry for quite some time and September is what defines when this happens is also how our new ready from the first week and sometimes it’s later in September. So, things like that could impact but that’s why we are not specifying Q3 or Q4.

Daniel, you had a follow-up on that one, which was — what was that? Sorry, I missed that one.

Nicolas Langlet

No, on whatever you expect, you see a potential to outperform the market during H2, thanks to your own self-help initiative?

Jörgen Larsson

Yes, thank you. So, we have been outperforming the market for quite some time now. And I think we have proven that we have that capability and that is based upon the portfolio that we have, the strength of our key franchises, but very much the operational efficiency that we have built and that we are focusing even more efforts on. And I would say if I should pick the one single thing that makes this possible and have made this possible, and we are convinced will make this more possible, is that we can optimize the allocation of UA capital to where it yields the best.

And this is easily said, but it requires a lot of things behind the scenes on how you rapidly reallocate with machine learning or AI partly and with that in real time. So, yes, I’m convinced that we can outgrow the market systematically, but it will not be every single week or month or quarter because it depends on comps. Like this quarter for instance, we think we’re not outperforming this single quarter, but we know that we outperform it looking LTM, but we had much tougher comps than the market in Q2. But looking at LTM numbers and full-year numbers, we are geared towards outperforming the market, but it will vary from one quarter to another.

Looking at the D2C, we think we can improve it further. So, I don’t have a forecast, but you can see that we have improved it seven percentage points just in one year. But there is still more to do. So, I think and hope that we can increase it now. It depends how large portion of our revenues is also depending on how ad revenues develop. But if you compare D2C to third-party, I’m sure we have more to do there.

On the EBITDAC question, that’s a very relevant question. I think that there are the elements that has taken us so fast to such high numbers and EBITDAC. Some of them are systematically and established just as D2C or gross will continue. It depends also on product mix, but I’m pleased with that. Also that we are steadily, it’s not a straight line every single quarter on the CapEx. So, I think that when we are launching more products, CapEx will go up, because it’s a part of launching new product that you more intensely work with them. But that is driving growth over several years. So, you should not expect that it could be a quarter where we are lower than 26%. Of course, we are extremely pleased with being 26% year-to-date, but it could be lower because we increase UA or increase CapEx a single quarter. So, this is a long-term play, not a single quarter replay.

Nicolas Langlet

Okay, thank you very much.

Operator

The next question comes from Nick Dempsey from Barclays. Please go ahead.

Nick Dempsey

Yes, good morning guys. So, first of all, when I look at the DAUs and MAUs, everything you said on Bangladesh and Ludo Club and on Snap, that makes perfect sense, but when I look at Strategy, those are down quite a lot year-on-year. And I understand you spent less UAC on that division, but I guess I thought that Strategy players were a bit more sticky than through how that dynamic in that division has happened.

The second question, when you’re talking about signs that the market is improving, I just want to drill down on that a bit more. What signs are you looking at there, just Sensor Tower data on a kind of weekly basis or what else do you look at and have those signals continued to improve through the first three weeks of July?

Jörgen Larsson

Yes, so you’re perfectly right that usually the stickiness is much higher in Strategy. That’s perfectly clear. And what you see is that users that we took in, we spent much more and had a tremendous growth in strategy up until Q2 last year, these users have been active and spending money and being very loyal. But after a certain time, of course, a part of them are churning out casino for them to churn out. So, what you see is a quite normal effect of the fact that these users were acquired one or two years ago. So, some churn you always have, but you’re perfectly right that they are more sticky and they have a higher part of their lifetime spend after 180 days compared to casino games, which has the majority of the LTV spend the first 90 days. So, it’s very different. But at some point you see a churn. Also going into the summer is also affecting the activity levels. Many players in strategy, they come and go. So, it’s not like in Casual, you play until you’re ready with the game or go to another game, then you knock that off, you’re coming back.

In Strategy, we have a large portion of players that play for three, four or five months, then they take a pause for two to three months, not sell them June to August, and then they come back to play the next Fall and winter. So, reactivation campaigns are very active. So, these players still have a value even if they didn’t play as much during Q2. So, that’s my comment on that. Looking at developing, you can see on activity levels, you can see on what kind of momentum you get when you spend UA in a single channel for a single game, if that momentum is increasing, that’s a sign of that the market is stronger. And that is particularly important when you launch new games because that’s completely momentum driven, because you need to spend UA to get a certain critical mass of products.

And that has been particularly difficult in the last 18 months. And we see on test campaigns and stuff like that, we can get a better momentum in the UA, but it’s still not on the levels that we had in 2018 to 2020. But it’s improving. And that’s a very important part because that will drive further success on new product launches. And in July, we’re not reporting July, but — and July is again don’t forget that Q3 is a slower quarter. So, it’s not really you must cut out the seasonality to answer that question. And I expect from the first weeks of what we’ve seen that we will have of the quarter to have a similar seasonality effect that we have last year. That’s a fair assumption. Then what decides that is more September than anything else. I hope that answers your question.

Nick Dempsey

Okay, yes, thank you.

Operator

The next question comes from Rasmus Engberg from SHB. Please go ahead.

Rasmus Engberg

Yes, hi guys. Just wondering how many people actually worked in the Bangladesh operation. Can you give us a fair estimate of that?

Jörgen Larsson

35.

Rasmus Engberg

So, this significant reduction in headcount that we’ve seen for the last three quarters, that’s much more than that. Could you sort of perhaps give us an indication of what functions you’ve been able to save on there?

Jörgen Larsson

Yes, so it’s beside the Bangladesh, which is the largest one, we have cut down on some development projects, as mentioned, targeting our key franchises. So, some of the smaller studios, we have made some cuts. And also there is always a natural churn in our business, just as in any business.

And then, we have been able to not replace. Due to that, we have higher operational use AI, which is coming into action for real now, it’s going very fast. And that means that when we are building both for development graphical assets but also customizing products for different markets, we don’t need employees for that. So, it’s actually quite wide. It’s not besides Bangladesh then. Not as much one single point, but it’s more spread over our entire organization as a natural consequence that we are increasing our operational efficiency.

Rasmus Engberg

Yes, and then I’m very curious about the games that your soft launch. Is there anything you can say what genres they’re in? I would guess that I don’t know how many games you’re planning to launch, but that they are in the core among the top five or so games already, or am I wrong there?

Jörgen Larsson

It’s a mix of three things or it contains three different things. One is exactly what you said. It’s within the top 10 franchises; not only the top five, but the top 10. That’s one thing.

The second thing is that we are launching significant feature updates. And the third part is that we have products that are outside or we’re not only going for the main franchises, we have some other products that we are planning to soft launch during the second-half of the year. So, I’m quite pleased with the number of products that comes out. Then of course, we need to see how the soft launches goes, if they go fast and how much we can scale the products, that is yet to be seen. But I’m pleased with that and that’s important. So, it’s a good question there. So, it’s important to note that we are pleased with the number of products that is on its way out. So, it’s not like 10.6% in CapEx is too low, so to speak, we have an historical average for more than a decade to be at around 10%. So, that is a sustainable level and still launching new products.

Rasmus Engberg

All right. I think I’ll stop there and get back in line. Thanks, guys.

Jörgen Larsson

Thank you.

Operator

The next question comes from Martin Arnell from DNB Markets. Please go ahead.

Martin Arnell

Good morning, Jörgen and Andreas.

Jörgen Larsson

Good morning.

Martin Arnell

So, my first question is in [technical difficulty] in the second-half of the year? And, should we view the organic growth return in the second-half as mainly ARPDAU-driven?

Jörgen Larsson

I think that we are trying to be as rational as possible which you can see that one year ago, it was Strategy that strike back. Now, it’s Simulation, because it’s just yielding better when we are skating. So, it’s not that we have a product plan saying that we should only go for Strategy or Simulation or Casual.

Having said that, I think we have — it’s more liking since we have been growing for several years by very high numbers in Strategy, I think it’s fair assumption that to say that we have growth opportunities to continue within Simulation and RPG. I also think that we have opportunities in Casual & Mash-up. But it will be a mix basically. And to put it a bit sticky, I can say I don’t care because we have a set of products. And the important thing is that we get some of them up and running, and being able to scale. And that’s more important than it’s in one or the other area to be honest. I think ARPDAU, but it’s not only ARPDA, I think that we also would see stable or growing user base — paying user base, revenue generating user base as we come into the fall and Q4. So, it will be a mix. That’s my best outlook at this point.

Martin Arnell

Perfect. Thanks for that color. And maybe one to Andreas, on your cash conversion, do you see more working capital release potential in the coming quarters? And, you expect continued trend that you have a stronger cash flow in second-half than in the first-half?

Andreas Uddman

I think — first of all, I think when we look at the LTM numbers, it’s always the comp effect. So, we still have the two less payments in our receivables for the LTM numbers in Q2 that happened — and those numbers relate to Q3 2021. So, that will move itself. So, of course, that on a comp basis, I think down the line and working capital will fluctuate between quarters. We do expect as we did in Q2 to get three payments for the next both Q3 and Q4 from the big platform. So, that’s what we expect [technical difficulty] generation, especially since our business is not — we don’t build up — we don’t have warehouse or inventory. It’s more of a timing effect.

It’s to look at how much we can grow our operative cash flow before that net working capital effect. And that we are growing 10%. And obviously, we hope to grow that further as well as the business expand, but then it’s very much depending how the business performs on EBITDAC level. I think what I said in my statement as well, we are very confident in our cash flow generation. We did SEK 363 million in this quarter. We have historically been able to produce north of a quarter of a billion almost each quarter for the last five quarters as I think we have that. And — but we also will have then the opportunity to actually scale UA and invest in products that we want to invest. So, I think it’s a nice backbone. But I hope that answered some of that question.

Martin Arnell

Yes. Thanks for the color.

Operator

[Operator Instructions] There are no more questions at this time. So, I hand the conference back to the speakers for any closing comments.

Jörgen Larsson

Thank you. And thank you all for dialing in this morning, and listening to our presentation [technical difficulty] I would like to close the call. Thank you, everybody, and have a great day.