STLFF - Stillfront Group AB (publ) (STLFF) Q3 2023 Earnings Call Transcript

2023-10-25 08:20:25 ET

Stillfront Group AB (publ) (STLFF)

Q3 2023 Earnings Conference Call

October 25, 2023, 4:00 am ET

Company Participants

Jörgen Larsson - CEO

Andreas Uddman - CFO

Conference Call Participants

Simon Jönsson - ABG

Nick Dempsey - Barclays

Erik Larsson - SEB

Martin Arnell - DNB Markets

Rasmus Engberg - SHB

Presentation

Operator

Welcome to the Stillfront Q3 2023 Report Presentation. For the first part of the presentation, participants will be in listen-only mode. [Operator Instructions].

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

Jörgen Larsson

Thank you very much, and welcome to Stillfront's Q3 presentation 2023.

We had a weak development and a disappointing development on the top-line during this quarter. We had a 7% total decline year-over-year, and that was mainly due to a one-off event where we had a hit of SEK 80 million on top-line and SEK 50 million on adjusted EBITDAC related to one-off event, which I will elaborate on later in this call.

However, the margins are maintained at a high level, so the adjusted EBITDAC declined 1% year-over-year, despite the fact that our top-line and the hit that I mentioned, and our adjusted EBITDAC margin up from 23% to 25% year-over-year, and our free cash flow amounted to SEK 941 million for the last 12 months.

You can see on the right side how our revenues were distributed in the quarters. So the main difference is that we see Asia going down relatively, which is again an effect of the previous race that we had due to or thanks to the very successful Albion Online East launch in Q2, otherwise, it's fairly stable.

Looking closer into our revenue development, as mentioned, 7% down year-over-year. You can see on the left upper side in the graphs. And again it was the one-off event I mentioned and the organic decline is then amounting to minus 10% due to this. But we also had as you might recall a very strong in relation to the market Q3 last year. So we have also harder comps. So the positive FX effects amounted to plus 5%. And then we had another effect, which was the Bangladesh operations, which skews the comparisons by 1%.

User acquisition share up sequentially driven by that we have more game launches coming out at the end of this quarter. So we haven't been able to gear up our user acquisition into the fourth quarter. You can also see looking at the LTM graph in the middle of this, how stable we are in UA. And you can also see that our LTM net revenues are up by 5% from Q3 last year to Q3 this year.

Looking at our margin development, as mentioned, 1% down quarter-over -- year-over-year, looking at the single quarter, you can also see that our adjusted LTM EBITDAC margin is increasing in absolute -- not the margin but the EBITDAC in absolute numbers increasing by 16% despite the hit that we had this one-off event. You can see also how we are very stable on EBITDA margin over on the LTM side. So only one quarter deviating from 37% including this quarter.

And the year-to-date EBITDAC margin is at 26%. So it's still within our financial target of 26% to 29%.

We have continued our focus on both improving gross margins, so it’s 2% stronger year-over-year. We have continued the efforts that we spoke about also from our Capital Markets Day by focusing our product investment to where it yields the best, which is our May 10 to 12 franchises. So we have been able to lower our product investment or CapEx with 3 percentage points with improved ROI and you will see that also going into next quarter and onwards that we will have a lot of launches coming out that hopefully will yield growth and success. We managed to get one new product into the portfolio in Q3 already.

We also spoke about at the Capital Markets Day that we will work with efficiency and cost optimization as a direct result from the fact that we are -- we have raised the bar on ROI and profitability demands. So that's why we have been reducing as a consequence of that our workforce with approximately 60 full time equivalents during the quarter.

We had 11% CapEx in product development for product development in relation to net revenues in Q3, which is an important number where we are aiming to get back to at around 10%, which has been our historical average for more than a decade. So we are closing in on that.

Going a bit deeper into this one-off event that impacted our performance in Q3, Albion Online had I would say the most successful launch in this company's history in Q2. Unfortunately, they had a hit with DDoS attacks that was very massively and have negative effects throughout the quarter. So it was not only when the initial issues came where we have player bots or that was disturbing the game experience and then after we mitigated those the DDoS attacks that was the most massive I've seen being 20 years in this industry and with a prolonged effect as mentioned throughout the quarter.

We did launch a new game within our big farm franchise called Sunshine Island and I'm pleased to see that we were able to scale up that game to qualify for the active portfolio in Q3 when it's usually a bit tougher. Super Free's trivia franchise were declining in the quarter, so we have taken some actions where one is the reduction in force at Super Free, so that we can increase the profitability and also taking measures on the product side. So I think that we will have a better trajectory going forward.

As always I'm inclined to say BitLife is continuing their very successful streak of new -- adding new content and being very successful in LiveOps so they have continued their very successful long streak of growth. So these are the main events from the portfolio. We are -- have several what we think exciting new game launches coming up for the fourth quarter including new games from Six Waves, Game Labs, Everguild, but also large content updates, which are key for us in the established franchises.

And also coming into this season where we have the most intense period of special holidays like Halloween, Black Friday, or the whole Black Friday weekend I should say and also of course Christmas. So usually Q4 is a very exciting period in general, but it's also important that we work very actively with our LiveOps and content updates and we did actually already last week launch a couple of updates, so we are working hard on getting effects from these.

We also have unannounced games that are getting towards soft launch from Storm8, Bytro Labs and Jawaker to mention a few of them, which we hope and think will give effect to our organic growth and total growth in 2024 and onwards.

Looking then deeper into a lot of numbers here, I will not walk through all of them but our active portfolio in total. So you can see that we have a decline in the user numbers, which is driven from several different factors. As mentioned already earlier, Snap Games was discontinued in February that had a lot of users but not as much revenues. But then also we had the post operations one year ago in Bangladesh, which had represented both users and revenues that were not on significant.

We also had an effect in decline of users but not -- but still a good development in top-line from Moonfrog. What we are pleased to see, which is ultimately a receipt on that our LiveOps is performing well is the average revenue per daily active users, which are significantly up by 18%. There is an FX effect in that, but there is also a clear monetization effect in the active portfolio, which we have been working hard on across the line of our studios.

We are also pleased to see that the DTC, the direct-to-consumer revenues are up by not less than 8 percentage point year-over-year and 2 percentage point quarter-over-quarter and that is driven by the strategic initiative that we have declared since some time. So we can still do more on that and that's very pleasing to see that our own channels are supporting the increase in gross profits.

The five largest franchises are very stable. They have been at 49%, 51% and this quarter 50% of our total revenues. And we had also a stable development in relative terms of our ad revenues they amounted to 13% of our total revenues.

And here, we have the different product areas even more numbers, but we can see that we have a sequential bookings and user number decline in Simulation, RPG & Action, which again is very much driven -- mainly driven by the one-off event in Albion and sequential decline in Strategy and Casual & Mash-up in line with enormous seasonality as for those of you that have followed us that not only Strategy have a significant normal seasonality since it's more highly engaging products and entertainment that we have in that category usually in the summer season, you instead spend time with other things than playing our Strategy games. And also lower UAC drives lower bookings and user numbers in Strategy year-over-year.

We still are -- despite the fact that we are putting in quite a lot of UA in the end of the quarter, we still are within in new products. And we are still within our 180-day return on ad spend target, which we think is a sign of strength as when you launch a new game, you have a negative contribution until you get a certain volume. So I think that's a strength that we can keep that. And also the positive LiveOps already mentioned is improving our monetization year-over-year in all product areas and that's also strategic initiative that we have been working hard with.

Next slide, please. Now I hand over to Andreas, please.

Andreas Uddman

Thank you, Jörgen.

So we continue to even if we had a one-off event with Sandbox and Albion Online, we continue to have a strong free cash flow. This is driven obviously by the underlying business but that we have put measures in terms of stricter cost controls but also focused investments, where -- which was something we set out and communicated on the capital markets and that that ensures that we can continue to have a strong cash flow.

We had almost SEK 400 million of operative cash flow, within that there is SEK 88 million of paid interest. The reference rates have obviously gone up since a year ago, but even if we have managed to reduce our actual marginal cost for that debt. So that's an increase from last year of SEK 38 million just on interest costs.

Just to reiterate, we still have a very strong interest coverage ratio, so we're well above the targets over the common ones that we have. So we are comfortable with that. We also pay taxes of SEK 69 million and we have the small working capital effect of SEK 4 million in the quarter. So that leaves us with a cash flow from operation of SEK 395 million.

On the investment side, we did settle the final earnout for Moonfrog, which was sort of spilled over to Q3 of SEK 200 million. So we have no earn outs left or to be paid in this year and that was cash-only and we invested SEK 184 million or 11% of our net revenues that's actually in absolute terms of a decline of SEK 73 million from last year or 3.4 percentage points in relation to net revenues.

So actually in the quarter taken away the operative cash flow, the free cash flow as we define it minus product investment, we did deliver SEK 200 million of free cash that helps us obviously deleverage our balance sheet as well I guess.

In terms of the financing SEK 164 million it's a bit of a quarter where we issued new bonds, so we issued new bonds or got the money in and we did repurchase some of our bonds on the market and some actually stayed on the balance sheet just over the quarter end. So the net effect of the change in borrowings was SEK 198 million and then we had some smaller leasing cost and derivatives impact in that as well.

Looking at the LTM numbers, we are generating close to SEK 1.9 billion before net working capital. It is a slight decrease. Within that we obviously have a difference of net working capital, which come further down the line that that impact that as well. In addition to that, we -- as Jörgen mentioned, we have over in Q3 but also previously in the year as part of our cost optimization, but also in terms of our focus, in terms of our investments, taking cost initiatives that have then yielded one-off effects, which do impact the cash flows but not the adjusted EBITDA. So almost SEK 1.8 billion in cash flow from operations and also taking off the lease payments and we have significantly decreased then our investments in product development, which is now SEK 836 million versus the SEK 946 million, there's a decrease at 12%. So whilst we decrease it, we still invest money into our product portfolio I think that's key as well.

Free cash flow is in line with last year's taken in of almost SEK 1 billion that tends to be there is obviously some timing effects on net working capital, but also the one-off cost we've taken in terms of the restructuring. So just for adjusting for that, we will be above last year's numbers.

Looking then at the next slide talking in terms of our leverage, we did reduce our leverage by SEK 225 million in absolute terms in the quarter and we did that with the free cash flow. We basically paid off the earnout for Moonfrog. We are well within our leverage target of 2x that we set as part of our new financial targets this year. So we are at 1.88. This also includes the short-term cash earnouts.

And we had in the quarter a stronger cash position, partially timing that just literally after quarter end we set some of the remaining bonds of SEK 0.5 billion as well. So that it was more of a timing effect that we held a bit more cash on the bank account at quarter end. We still have about SEK 2.5 billion of unused utilized credit facilities and of those SEK 2.2 billion are long-term in nature. So we still have a good financing position and especially in this quarter where we did refinance our bond that was maturing next year, it's still here on the showing as SEK 502 million but that has been repaid on the October 4.

But that has significantly increased our maturity profile, which has increased almost 2.5 years from just around two prior to this quarter. So our balance sheet has a much longer maturity and our next maturity only comes up in the second quarter of 2025.

So to summarize a bit, even if we are obviously disappointed or the one-off effect did impact us our discipline in product investments, which we have initiated well before this quarter, the cost efficiencies are now starting to come through as well on the OpEx side where we are using our scale in a completely different way that we've done before and also some of the collaborations synergies between our studios that is showing that we can maintain a very healthy cash flow quarter-over-quarter, whilst in this quarter the top-line performance was disappointing.

And with that said, I will hand back to Jörgen.

Jörgen Larsson

Thank you, Andreas.

So, short summary and short outlook, so again we are disappointed with the event that happened, obviously. But again, as Andreas elaborated on, it's satisfactory to see that our cost optimization and the things that we said we should do on gross profit, OpEx and CapEx from the Capital Markets Day in February can mitigate that significant one-off event that we faced during the quarter.

We have strong balance sheet and cash flows and we did lower our net debt by SEK 275 million quarter-over-quarter. So I think we are in a fairly good shape even though a day like this, when we announced that we had this one-off, it's may be hard to look forward, but when we do that we see that the market is improving the way that we expected and both when it comes to consumer activity as well as when the conditions for conducting UA or marketing basically.

And these are obviously key elements going into the best time of the year. So we are optimistic that our products that we have out there both the existing ones, but also the promising game launches that we are in the midst of, some is already out there scaling up and some others are on its way out, will drive a significant sequential improvement in the fourth quarter. So what we also wrote in the report is that we of course see that it's less likely for us now with this one-off event to reach the organic positive growth during the quarter as we have been talking about. Without that event we would have been at a very high probability, but now of course, that is less likely that it happens before the year-end, but it's not impossible, I should emphasize, but it's a lower probability.

So with that, I would like to hand over and open up for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions].

The next question comes from Simon Jönsson from ABG. Please go ahead.

Simon Jönsson

Good morning. A couple of questions from me. First, could you maybe elaborate a bit more on the new growth outlook? What has changed since the summer and yes, compared to the online market, which has improved a bit, it looks like.

Jörgen Larsson

Yes. I think basically very little have changed in our outlook and we have followed our plan. And it's important in the context of looking year-over-year that we were outgrowing the market last Q3 by some 10%. So that is also part of the equation here to see that looking year-over-year, we have a tougher comps than the rest of the market because we're double-digit stronger. Looking at 24 months, we are including this Q3 on par or better than the market.

We knew that was coming. So we were expecting to be very close to where we would have been if we adjust for the one-off effect. That was where we more or less expected to be. What is positive and been confirmed now, what was -- what we expected with the market returning to being normalized and returning to positive that is what we still expect. So nothing changed there. Our products on its way out, we also expect these to yield positive effect for us that is unchanged. But there is one big thing not being what we expected, and that is the one-off effect.

Having said that, I must say that, because it's easily interpreted that Sandbox is an issue. They are still at very high growth number despite this one-off effect in Q3 year-over-year with good margin. So -- and they have tackled this very hard and truly unique situation with this massive DDoS attacks that we saw in a very professional way, and they're still growing. So we know that the game has a quality that will support us and the studio and enjoy many -- serve many of our consumers for not only next coming quarters, but years to come.

Simon Jönsson

All right. Thank you. And I have a follow-up on Albion Online here. You said sales declined SEK 80 million sequentially, if it was right. And I was wondering what sales for the game before the Asia launch in Q1 and how that compares to what you expect for Q4 sales for that game?

Jörgen Larsson

We haven't announced the exact -- I mean, we have 72 games in the portfolio, so we don't present any longer each of these games. But the growth already we can see that they are regaining momentum, but it takes, of course, a bit more time. They had an important content update that came out last Monday, which has been early, but been performing in the way that we expected. So they are slowly coming back.

And again, they are at significantly higher level than they were in Q1, in Q4, and Q3, last year. So they are a very healthy business, even though in the context of this day and what we are communicating now, it sounds like they have a serious issue, but they have a very sound profitability and they are growing at amongst the highest growth rate in the whole portfolio of all our products.

Simon Jönsson

All right. Just the last one on that topic. You call it a one-off. So does that mean that you expect most of the SEK 80 million lower this quarter to come back in Q4 then, or how should we interpret that?

Jörgen Larsson

It is. So I've been in this industry for 20 years and I've been in online-related businesses almost in 30 years. I've never seen -- I've never seen something nearby the massive -- the massiveness of these DDoS attacks. So that's why this is a truly one-off event. We have put all the things that you should put in place to mitigate or take away this. But will it repair itself in just a few weeks? No, but we see, as I said, that we -- it's steadily coming back.

But what you have to do is that you have new content. So we have a content release now. We're aiming for a new content release in Albion in -- during Q1, and then also you pair that with finding good UA so that you come back on that. But definitely the product has proven that it has the quality to attract users and to monetize in a very strong way. So I'm looking forward to present how Albion will develop. But again, they are growing already, despite this SEK 80 million in the back, so to speak, at high numbers. But it will take more than just a few weeks to get back to the same level.

Operator

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

Nick Dempsey

Yes. Good morning guys. I've got three questions. First of all, when you said at the beginning of this year that you expected to get to some growth by the end of the year or in Q4. At that point, I guess you didn't know that the release from Albion Online would be so strong in Q2. And when we're thinking about Q4 now, we're saying Albion Online is growing in Q4 year-on-year, and yet, we're still going to see very likely a decline in Q4. So that implies that the rest of the portfolio is declining, going to decline notably in Q4. So has the rest of the portfolio apart from now Albion Online, has that all got worse than you expected through the year? And if so, which corner has got worse? Second question, the first headlines on the DDoS attack on Albion Online, I think they were there in early July. You last spoke to us at the half year results in mid to slightly later July. So what was it that went worse from that initial experience in early July, when -- which you didn't really mention at the first half to it being a very major factor on revenues in the quarter? And the last question, I mean, we're talking about a significant sequential organic growth improvement compared to Q3. So can you narrow that down a little bit? I mean would 5 point improvement be significant, for example? And if you hadn't experienced the problem with Albion Online, would you definitely expect to show positive growth assuming there isn't another one-off effect?

Jörgen Larsson

Yes. So we have been very systematic in building a portfolio of games and that has been the strategy since I founded this company 13 years ago. For the exact reason you don't know a priority, so to speak, and beforehand whether Albion will hit the tremendous successful launch that they had, or somewhere in between. But we had very high hopes on Albion Online and they came in stronger.

But then, other parts in our portfolio, of our 73 games have been within the normal fluctuations that we always would have. And with the model of dynamic UA and resource allocation that we have developed, which is one of our key strengths, we are -- I would say the one key competitive advantage and edge we have built over more than a decade is that we can -- when we see pockets of traction, pockets of traffic, whatever product it is, we are really fast in maximizing the value of that.

And I honestly don't care whether it's BitLife, whether it's Albion, whether it's the Supremacy, but what has proven over quite some time is that we looking over longer time span than just a single quarter or so. We are -- we have been systematically outgrowing the market for quite some time because we have the capability of doing this. But can I say, did I know that the Supremacy franchise were growing for 18 months, but over 100% three years ago? No, I did not.

Did I expect BitLife that took off quite slow after acquisition that they would grow with three digits numbers? No, but just the mere fact that we have a portfolio of strong long live products that we can and we have a machinery behind it both in LiveOps as well in UA to rapidly reallocate. We are in the best possible position to take wherever in the portfolio we gain the best traction and transform that is into outperforming the market. So it's a long answer, but you need to go into that portfolio and diversification thinking in order to answer that question.

No, of course we didn't know that it would be as successful in Q1, but that we looking at all the launches we thought that we should get that also supported by a stronger market. Yes, we were quite convinced. And it would have been very which was, I think, one of the last question, we would have reached that organic growth during Q4 by 99.99% probability if we wouldn't have had this issue. So I think we have some margin in saying that as well.

Upon your second question, the timing again, I've been in this industry for quite some time. Bots, which was the trigger event in the issues here as well as then DDoS attacks, has always been a part of this. I've been facing it regularly. All our studios has been facing this and you have your protection mechanisms in place. But when it comes to a certain level and the magnitude that we haven't seen before, these prevention mechanisms and technologies were basically not enough. So we had to do very unusual measures, which they did in a rapid way, but unfortunately the effect was prolonged over a longer time. And also it's a big topic. So sorry for being a bit long, but I think it's important for many of us.

Also when you have had issues with the existing not being bought but the real players, then you usually also compensate them for the issues that have been in the game, which then drives inflation in game economy. And you take some time before you pick up from that. So it's a number of events that happen throughout the quarter. And of course, if we would have known the outcome in July, we would have mentioned that, but we couldn't imagine just seeing the first sign of this event that it would have this large effect. And again, it's based upon my 20-year experience; I can just say this was truly unique.

Operator

The next question comes from Erik Larsson from SEB. Please go ahead.

Erik Larsson

Thank you, Operator. Couple of questions from my side. Just heading into Q4 here, you've given some color, given Albion and so forth, but are there any signs of a normal seasonal uptick in October so far or is that too early to tell?

Jörgen Larsson

I think we are seeing what we expected as I touched upon, so which is positive obviously, because from typically late September into December, so the one -- there are the two strongest period for marketing is from mid or last week of September up until the first week of December. Then you pause usually up until the December 26 typically. Then you go into the so called Q5, which is then from just after the holidays or from the holidays and onwards into January, sometimes February when the marketing is also very strong. And so far so good, of course, it's very early in Q4, but it follows the usual pattern. Also the other part of this is the activity levels on the users and the activity levels on the users is also following the seasonality pattern that we expected.

Erik Larsson

Okay. Great. And then topic of buybacks, you did some buybacks earlier this year relating to earnouts, but when keeping the current balance sheet and share price in mind, what's your view on a broader buyback program within the coming year or so if you have any thoughts?

Andreas Uddman

Yes. I mean we did as you mentioned, initiate the first buyback program, which we finalized in Q2. That is obviously a tool that we've used and something that we are obviously having our toolbox. There are some limitations on how much we can do this year, but we have ensured that at least in our new bond covenants we have a much more flexible approach to that versus the 2024 bond. We still have some limitations in the 2025. So that's obviously a part that we have used and of course, where we can do the best due diligence is naturally on ourselves. So when we get to that, we will obviously need to come back to the market.

Operator

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

Martin Arnell

Hi, guys, this is Martin here. My first question is just on, I mean, you mentioned the one-off, obviously. And -- but I mean aside from that is that mainly what you're disappointed with in this quarter? Can you give some more color on the remaining business?

Jörgen Larsson

Yes. I think we are very much following our plan that we set in the beginning of the year and also communicated in -- at our Capital Markets Day. We are as -- we are ahead of plan when it comes to gross margin improvement. We are ahead of plan when it comes to OpEx and staff cost lowering. And we are ahead of plan when it comes to getting our investments or CapEx back to at around 10%. We are at 11%, as you probably noted, with good our product ROI, which is of course then prerequisite for making that move. So I think on the cost side, we are definitely ahead of plan.

On the revenue side, again, we expected not to be in positive territory for the full Q3 for the reasons that I mentioned. First of all, it is a seasonality week and we have a very strong comparison number when we were double-digit ahead of the market last year. Looking at 24 months, we are ahead of the market again, but we are -- yes, we are ahead of the market in organic growth, but nevertheless, of course, we are disappointed with this individual quarter, but it's not any deviations.

We mentioned Super Free, which is not satisfactory. So we are doing things there some riffs and some other actions, but otherwise Candywriter, as mentioned is continue to perform very, very strongly. And Sandbox, again, despite this is performing strongly and also parts of our Strategy portfolios really regaining momentum. So I would say it's very much within the normal fluctuations and expectations that we had. But on the cost side, we are ahead of what we, the plan that we lay out in February.

Martin Arnell

Okay. Thanks. And when it comes to the Q4 comments, did you consider providing a more firm guidance for Q4? I mean, given this fairly tough environment and what does significant improvement mean?

Jörgen Larsson

Yes. So it's -- we have been very selective in using guidance in the history. It's only when it has been very, in some few cases in looking back. And one of the reasons is that it is an industry which is quite hard to predict when it comes to nailing everything in one quarter. And that's a -- it tends -- there is a risk that it's more important with the guidance than it is with the mid -- the ongoing and not the least mid to long-term performance. So there is an ambivalence about having hard guidance and it was not a hard guidance, but we said we expected to be back both with the market and ourselves during the second half or the second part of the year.

So -- and I think, as I said, we would have been there if we wouldn't have had this one-off, which is of course, I'm the first one to feel bad about that, but it is what it is. And -- but we cannot look back, we must look forward. And I think that we are very confident that that is a significant improvement. And as I said, there are so many things that we are on the October 25, there are so many things that should happen in Q4 and it always happens in Q4 with Halloween, with the Black Friday weekend and with the holidays that makes it hard to predict on down to 1 or 2 percentage points what the effect will be. Also enhanced by that we are launching more products than I think we have done in a Q4 in many years and that is really, really hard to say how these will play out.

But we have support from the market; we have support from marketing looking stronger in the first couple of weeks of October. So that's why we are confidently saying that it's significantly lower. But would it be supportive if I would estimate an exact percentage point -- percentage number? I don't think so. But of course, it's not like going from 10 to 9. That's not a significant improvement. But -- yes, so it's really hard to say with so many launches coming out.

And again, what is also important, not only focusing on Q4 is that if we, for instance would get -- would have reasons to push more in the so called Q5, the effect in Q4 will not be that strong because the effect will obviously come later. So we will do whatever we can to optimize the long-term value for you as shareholders. Obviously day-to-day it's painful because we are all shareholders and we have this one-off event. But we cannot retract to be super short-term and take decisions that are not supporting the business long-term. So long answer to that question, but I think it's a relevant question today.

Martin Arnell

Yes, I understand your point. It's just hard to understand how investors could be able to feel confidence when there's not more tangible communication for Q4. That was the point. And -- but if you look ahead into next year, what is your -- what is you and your team's view on the market growth at this point?

Jörgen Larsson

We penned a growth number for the next coming years being between 3% to 5% the next coming years and I still think that is a valid number. There are more optimistic scenarios out there. We all have read them. But we are -- we think we are conservative when we say that the market will grow 3% to 5% for the next coming years. There are so many things underpinning that.

But of course, always when you go from a negative market development to a positive, it's super hard to say that it will be on the November 28 or whatever, but it's coming there and we see clearly market analysts also reporting that they see that improvement. And I think that we are getting back to that these levels of market growth. And we have stated, as you know, our financial targets that is that we should be back on consistently beating the market as we have done the last 24 months, but not when you look year-over-year due to what we have discussed now.

Operator

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

Rasmus Engberg

Yes. Hi, guys. Just one final question on this tiresome subject with the one-off, why didn't you come out and say this a month ago or so that and briefed the market about this?

Jörgen Larsson

Again, as we have described, we have had bots -- we have bots and we have DDoS attacks as a natural, and unfortunately, it's a bad thing. But it comes with being online, that comes with the industry, it comes with the business. And again, in 20 or almost 30 years being in online businesses, this is standing out because it was a prolonged effect and a massive effect over longer time.

So it was not until we came into panning down the Q3 report that we fully could grasp the magnitude of this. So that was how we came to this decision that we would have been out guessing more if we tried to communicate something in August 10 or whatever because we didn't see the full effect.

Rasmus Engberg

Fair enough. Then the second question, just trying to figure out what you say about the fourth quarter. So the market is sort of coming back. You're launching new products, so we should expect UA to pick up in the fourth quarter that's pretty clear, right?

Jörgen Larsson

That is correct. As it has done in already September, that's why we have a bit higher UA already in Q3, but that's correct.

Rasmus Engberg

Thank you. And you have some one-off and you seem to have reduced your staff during this quarter. Is that sort of coming in as a positive already in the fourth quarter? Is that more longer-term?

Andreas Uddman

No, that's I mean some of those one-offs will come in, in the fourth quarter. So we took some one-off cost of that in this quarter. I mean that's something we also -- I mean going back to what we talked about the capital markets is that this wasn't an intentional move. So you'd reallocate capital between studios. That also means that some studios needs to reduce the capital that deploy. So we took a bigger one-off SEK 18 million. That run rate effect will partially come in, in Q4 because the people are no longer with us.

Rasmus Engberg

Yes. Okay. Is there seasonality in your staffing as well that that would come back again in the fourth quarter or are these sort of more permanent reductions that we're seeing?

Andreas Uddman

As it gets -- I mean it goes a bit about capital deployment, right? So we have focused on very much of keeping our costs, lowering our cost both on the OpEx and the CapEx side. And -- but of course if we -- and that sadly sometimes means that you have to reduce the number of Ts. And of course, if we see opportunities to redeploy that money in somewhere else where we have better return, that might over time means that we staff up that specific studios. But in general, we -- the cost base that we are looking at is obviously something that we worked hard to achieve. But if we see good returns on deploying people into something else, that is something we'll do.

Jörgen Larsson

But we can add to that that we don't see an immediate need for increasing staff to increase our top-line to get back to organic growth. That is not a necessity, but it's -- we are pleased with that. We have been able to achieve these effects of having higher bar for product profitability and return on investments on products, which have led to this. But I don't think you should expect any larger movements for quite some time in these numbers.

Operator

The next question comes from [indiscernible] from Carnegie. Please go ahead.

Unidentified Analyst

Good morning, guys. Just a couple more follow-up questions on I'll be on here trying to understand the effect a bit more. Just first and foremost, how do you calculate the SEK 80 million effect here on top-line? And if possible, would be great if you could just share some more color on how big this DDoS effect was compared to what Albion could have delivered in the full Q3 without that, was it 20% or 80% effect? Any number would be great.

Jörgen Larsson

Well, it's -- the calculation is quite simple. It's the sequential that Albion had from Q2 to Q3 both on top-line and EBITDAC. Then of course, it's a tricky one to say how they would have developed, but we think that is representative because they were on a growth trajectory on one hand.

On the other hand, a game like this, as MMORPG also have a seasonality. So I think the best way of describing this, I think is to say that well, if this wouldn't have happened, they would have had high engagement and high levels. They could have get more UA and more users in on one hand. But on the other hand it's a seasonality in these kind of games. So that will equal out. That's why we thought this number was representative. Again, as I mentioned, we see now that they have started to regain the momentum going into Q4 and in the last part of Q3. So I think that is -- yes, that is basically how we calculate it and we think it's truly a good representation of the effect.

Unidentified Analyst

Okay. So just a follow-up question if I understand this correctly. So you basically had the negative effect of SEK 80 million in Q3 and comparing Q4 to Q2 then, we should expect a similar kind of loss in Albion revenue, but perhaps a lower number of course, given that it's trending okay, or am I missing something there?

Jörgen Larsson

We expect Albion to be better in Q4 than in Q3. But again, we are -- and this is not just to be kind of secret more than necessary. It's just that we are very cautious about talking about where we deploy, for instance, UA between different products, because where we see it yields the best is where we put the dollars. So the opposite would be that say that well now if we would reason the way that now we should do everything to get Albion back as fast as possible by deploying a lot of UA if that is not yielding the best in the portfolio, or at least the marginal part of that. Then we are sub-optimizing our portfolio, which is our number one competitive edge. So that's why we are extremely cautious about saying that that product will grow this much if we expect and the other one will grow that much.

So there is a behind laying factor that is much more than just trying to be vague. It's just that if we will commit to that, we will lower our competitive advantage. Just look at our margins. We are consistently above the top three or so most profitable mobile publishers globally. And that is due to that we are strict on this. We are returning the ad spend in 180 days.

The one exception we can see from that is when we have several launch product, product in launch, soft launch, that then of course, if these are yielding very strong results and we have many products in relation to the full portfolio launching at the same time, that of course, lowering the return on ad spend temporarily. But then they go into an earn phase, as we call it, when they have a certain volume and then you have a higher profitability. So there are things that could make one quarter look differently than another. But over time, looking at LTM numbers, you can see that we have an incredible stable UA spend and profitability. But individual quarters do vary with season and it do vary with launch coming up and go.

Unidentified Analyst

Great. Thank you for the detailed answer. And just a final one here to clarify around, I think you made a comment in the report around lower run rate towards the end of Q3. Is that related to something other than Albion or is it mainly the Albion effect? Thanks.

Jörgen Larsson

It is mainly the Albion. Again, it goes for the whole portfolio. Some are a bit lower, as we have mentioned explicitly, Super Free. We are not happy with that. We have taken measures and we think that these measures will have effects, hopefully in Q4 and for a long time. And others are at very high growth number, including Albion, as I said, which sounds like a Paradox, but they are amongst our top five growing games despite this effect. So it's just that we come out of a seasonality and then the run rate is lower and further lower by this one-off effect, but otherwise I think it's a normal pattern that we see.

Operator

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 all for dialing in and have good questions. And again, we are of course disappointed with this one-off effect, but it is what it is and we are confident in our long-term growth prospects. And also of course, what we focus a lot on efficiency. We see that we can keep up our margins, we can keep up and even increasing the rolling 12-month EBITDAC in absolute numbers and all the effects that we were talking about on the cost side have kicked in already. So as we grow the top-line, we think that we have a very good opportunity to also yield very good and further improved cash flows going forward.

But again, we are -- no one is more -- feel more pain about that one-off effect than we do. But we think we have very good opportunities going forward.

Thank you very much.

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Stillfront Group AB (publ) (STLFF) Q3 2023 Earnings Call Transcript