Stillfront Group AB. (OTCPK:STLFF) Q2 2024 Earnings Conference Call July 22, 2024 4:00 AM ET
Company Participants
Jörgen Larsson - CEO
Andreas Uddman - CFO
Conference Call Participants
Simon Johnson - ABG Sundal Collier
Amar Galijasevic - Carnegie Investment Bank
Nick Dempsey - Barclays
Martin Arnell - DNB Markets
Rasmus Engberg - Kepler Cheuvreux
Viktor Lindström - Nordia
Edward James - Cantor Fitzgerald
Jörgen Larsson
Welcome to Stillfront’s Q2 Earnings Call. I will be presenting Jörgen Larsson, CEO, together with our CFO, Andreas Uddman.
So next slide, please. We posted strong margins. We had a strong margin development in the second quarter. We had net revenues coming at SEK 1744 million, which is in line with Q1 and lower revenues by 4% compared to last year. We increased our gross profit by 2 percentage point upto 80%. And we had an EBITDAC margin of 29% up 8%, quarter-over-quarter driven by lower acquisition costs and up 0.5 percentage point year-over-year. Our free cash flow amounted to SEK 272 million, which is almost a doubling from the previous quarter. You can also see on the lower right side of this slide that we lowered our gross profit, which is the one that we are steering the business on by 1.6% only. And that is an important number.
Next slide, please. I would like to emphasize on this slide. One is that you can see that we are on a normalized level at 26%, whereas we both in Q4 and in Q1 had a significant uplift in user acquisition costs due to the so-called Trampoline [ph] massive launch of our big success, the Sunshine Island. But that was on very high levels. Now we are back to 26% as we were also in Q3 last year. You can see also the stability, both in terms of net revenues, as well as for the individual quarters, as well as we have on LTM. You can see that we are still then obviously, since we had this uplift in Q4 and Q1, we're still on LTM, UAC are on high levels, but they are going slightly down.
We can go to the next slide, please. So looking at our lower cost base, which is a product of the efforts that we took on 18 months ago, is really kicking in now in our margins, which is satisfactory. So you can see on the left side that our margins were 29%, our EBITDAC margins, which is by the way, the highest margins that we've had for three years. And it's a significant uplift from Q4 and Q1. And also this is driven by the gross margin improvements that I mentioned briefly. We have staff costs that we have lowered by 12%, which then equals to 1.6% percentage points compared to our revenues. UAC up by 2.5% year-over-year, driven by again, Sunshine Island.
What is also very important, then a third part in the initiative that we took on at our Capital Markets Day in February, 2023, is to focus our investments more to where it needs [ph] the best, where we get the highest ROI. And that is also one of the main explanations to why we have been able to improve our EBITDAC margin in the way that we have had.
Next slide, please. And the important driver behind the improvement of gross margin, it is a product mix effect that is in there as well. But the most important thing is that we did work very actively with the DTC, Direct-to-Consumer Channel. And as you can see on the upper right graph, it's up to 33% from being 29% and last year, 26%. And obviously that is very margin accretive that we have a direct relation to our consumers. It's good for the consumer relationship as well as it is for margins.
We can see that our monthly paying users are stable. We have a drop on MAU and DAU, which is a consequence of that we are focusing our efforts, our live ops on the customers that are most valuable for us. And that is paying off. You can see that the average revenue per daily active user is on high to, on the lower left side graph up from 1.7 last year, which is a quite significant improvement. So more focus on these customers as long as, as well as that we work with our direct-to-consumer channel.
Next slide please. Looking into the different areas of our active portfolio, looking at strategy, strategy saw a clear slowdown in June basically, and second half of the quarter, which was a bit earlier and a bit more than we had expected. And you can see that it's a clear drop in both bookings by almost 90 million approximately, but you can also see that our UAC has gone down significantly from 28% in last quarter to 16% this quarter. And so hence we have not been able to deploy the level of UA and continuing with our ROI targets. So then we lower it. And it's also by the way, strategy that always is the most obvious evidence that will come into the usual seasonality of this industry. So a bit slower than we hoped and expected in June, but nevertheless a stable performance. And you will see 12% and gross profit only down 7%.
And you can also see here that we are very strong on the DTC channel in the strategy product area on the upper right side. So we have DTC amounting to 44% of our revenues.
Next slide please. Within the Sim RPG product area, we are, we can see that sequential increase in bookings and users driven by two things. One is that we have been able to launch one server not as successful as the Asia server, for Albion online last year, but nevertheless successful launch and contributing positively to the quarter, but also that we have been able to continue to scale our, I would say, probably most successful launch ever, which is then Sunshine Island.
You can see on the upper right side that we are now from being running with it as it should look when you have a good success on your hands that you are able to deploy a lot of UA and the revenue start to pick up. So in Q4 was 22 revenues or bookings 62 in UA. Then we are closing the gap slide in Q1, doubling the revenues. Now the Sunshine Island revenues are up by 10%. Whilst we are scaling down user acquisition costs by 40%. So they are on par. And what we will do now is to continue to work with further content, further optimizations, further features for Sunshine Island. So it will serve us with profitability for many years to come. Also, we hope and expect that we can scale it as we come out of the weaker season of the year into Q4 and then Q1.
We can go to the next slide, please. In cash and mashup, we have both, we were flat sequentially and year-over-year in cash and mashup. Very satisfactory to see that Super Free's Word Franchise had gained traction. So it scaled well in the second quarter and drive it, drive both organic growth for the franchise. And we see that we can, we hope and think them and see good KPIs indicating that we can continue this for the second half of the year. So that we get another contributor for growth over time.
Then we also have Jawaker, which has continued this massive, very impressive performance. So you can see on the upper right side of this, of the graph or the slide how they have developed. So Q2 was the highest uplift we've had so far. So they are still on the 41% CAGR since we made that acquisition with very high margins, so it’s really a gen that we have in our portfolio.
On the other hand, we have struggled a bit with Storm8’s home franchise. So we're working both with C2 [ph] that we adopt there still before other circumstances. That's one thing. The second thing is that we also, we launched at the Ellen Garden Restoration Game and slowly scaling it. And we hope and think that that could contribute to Storm8’s further progression during Q4, not the least. So good early KPIs, but nevertheless, it's still some mileage to walk there.
So with that, I would like to hand over to Andreas.
Andreas Uddman
Thank you, Jörgen. And good morning, everyone. I will look at the cash flow for the quarter and also the LTM numbers. We had a strong cash flow in the quarter. We had cash flow from operations before networking capital effects of SEK 482 million. Within that, we spent SEK 462 million of UA, which is actually still a higher absolute amount of 28 million versus last year, but significantly down versus the two previous quarters. Now I get a bit more into depth of that.
We had financial expense of approximately SEK 100 million in that, which is an increase versus last year of SEK 20 million, which is driven mainly by that we have been in a higher interest rate environment, even if that is now coming down. Pay taxes of SEK 45 million. And we had a negative networking capital effect in this quarter. It's mainly driven by a reduction of liabilities. As Jörgen was saying that we saw a slight decrease in the spend on especially on strategy by the end of the quarter was we had spent a lot of UA in Q1 and especially in March. So that is just a fluctuation that impacts the quarter negatively.
So that ended up with a cash flow from operations of SEK 434 million. And on the investment side, then we had, as usual in Q2, we settled our earn outs and that was SEK 432 million of earn outs that was paid in cash. We have invested also SEK 852 million or 8.7% of net revenues in the MSEK, in CapEx. And so that is as we talked about previously, that is now coming down in the numbers. You can see it is a SEK 40 million reduction from last year or 1.9 percentage points lower in terms of relationship to net revenues.
We also had a negative effect in terms of investment activities based on the consolidation due to loss of control of our MoonFrogs subsidiary in Bangladesh, which impact this investment cash flow of SEK 82 million. So the financing activities, these were SEK 260 million, we had a net change in borrowing of SEK 463 million. And we purchased shares for 182 million in the quarter. And these shares have then be used to settle the equity components of the earnouts, which is now all been settled in Q2.
And I think it's looking at the graph that looks free cash flow per quarter, which is the low graph to the left. That's how we come from up here where we have intentionally invested more money into UA. We spend both in Q4, but also in Q1. And that was because we can see that we are getting the financial leverage or the operational leverage in our P&L through the reduction in terms of fixed costs, but also in terms of the improvement of our gross profit in combination that we also have focused our investment.
So when we then reduce UA, we still invest 26%. So it's not like we're completely scaling it down, it's still on a normal level, even if June was slower. We can directly see the positive contribution in terms of the cash flow, which is then shown in the Q4 and Q2 numbers. So that also impacts the LTM numbers, which is the graph to the right, that we come through this investment period, and we still have cash flow from operations prior to working capital of adjustments of SEK 1.6 billion. It is a decrease from last year, but it is driven by partially that we have spent a lot more UA in the comparison periods of approximately SEK 248 million more comparing the two periods. We still have a higher financial cost, especially looking into versus the LTM numbers in Q2, 2023. And that is 132 more that we can still service our debt, but that is of course impacting the cash flow from operations.
In here as well is some of the effects or defects that we're seeing that we've been able to reduce our fixed cost, which is partially done as staff costs, which is down 12% versus last year. We have some onetime costs of SEK 49 million for these cost optimization programs.
In terms of investments, here we can really see that what we were talking about in terms of the capital markets day, we have invested in last 12 months SEK 698 million, which is a 10.1% versus net revenue. That's around the period that we or the area we stated that we will come down that we have now come down to. If we compare to just a year ago, there's a decrease of SEK 211 million. A bit what we were talking about creating operation or leverage in the business or financial leverage by increasing gross profit, reducing fixed costs, reducing CapEx is clearly now visible as we are as well taking down CapEx in the last 12 months.
In terms of that cash flow, free cash flow, that was down if you compare to the periods, comparative periods, but it was still 737 million and a large driver of that is obviously the increase of financial costs combined with the intentional investments in more UA, especially Q4 and Q1.
Then we can jump into the next slide. Leverage, we ended the quarter at 2.15, which includes the cash earnouts. It is as normal on Q2. The next year's earnouts, I don't want to be paying in a year from now or a bit less, they are the one they are now falling into the measurements. We have settled the earnouts for 2023 and now in the measurement the earnouts for next year is falling in. That's a normal sort of cycle that we peak around Q2 in terms of leverage in that sense.
Taking out the earnouts, we would be below our financial target and we would be at 1.93. We had a strong cash position of SEK 895 million in the quarter and we had approximately 1.5 billion of unutilized short and long-term facilities. I think it's also important to remember that this quarter we reduced our outstanding bonds because we completed the transaction for 2.5 billion to just 2 billion, so we have 2 bonds outstanding, which is also visible on the maturity slide.
We have now shifted our maturity profile. The next maturity we have is in December 2025, so it's almost 18 months away. We will continue to work tactically with our maturity profile and with our financing structures to ensure that we can maintain a healthy and a de-risk approach to that. They also led that we actually used a bit more of their RCF, but it's still almost 30% out that we are unutilized.
To summarize, we have increased the discipline in our product development, so in investments we are more focused. The cost efficiencies are coming through and you can really see that this is leading to a marketing enhancing initiatives, which gives us the flexibility with UA as we done in the previous quarters. Spend more, now we reduce it to 26% versus net revenues and then we see that the margins and cash flows are coming through.
So with this, and moving to the next slide, we also announced a share buyback program this morning where we stated that we will buy up to 80 million of shares and we are hoping and the intention is that the volumes will be there so we can complete this buyback program during Q3. And with that, I will hand back to Jörgen.
Jörgen Larsson
Thank you Andreas. So next slide please. So to summarize, we had a very strong margin development in the second quarter and we are entering into the low season of mobile gaming or gaming in general, but we're pleased to see that we are reaching the higher end, the higher part of the spectrum of our financial target. We are at EBITDAC margin of 29% in the quarter. We did see to summarize and repeat that we did see in especially in June that we had a slowdown so the low season is here and that is clearly visible in strategy which is most frequent and most clear hit by the lower season.
On the other hand, they are stronger in the high season as well. We currently at low levels, but we can reaccelerate that during the second half of Q3 so that we enter into the strong periods Q4 and Q1 with some pace. And also as mentioned several times, we are pleased to see that our profitability measures that we have taken are really showing the operational leverage so far, but also we are in the process of identifying news projects and initiatives going forward that we think will both further lower our cost base and provide us with operational efficiencies that we don't in our organization go forward. We will come back to that during the fall.
So with that, I would like to conclude the presentation and open up for Q&A.
Question-and-Answer Session
Operator
[Operator Instructions] The next question comes from Simon Johnson from ABG Sundal Collier. Please go ahead.
Simon Jönsson
Hi and good morning Jörgen and Andreas. I want to start with strategy. It was a rather sharp decline and given that you spent record levels of UA in the segment in Q4 and Q1 and now record low levels, at least if we talk about the levels in terms or compared to the bookings. Can you please talk a bit more about moving parts in the segment during the quarter especially given that you said the big game, Supremacy and Empire were more stable?
Jörgen Larsson
Yes so we saw for the first time that Supremacy was on much lower activity levels as we entered into June. We followed our plan quite well, I would say both in April and May but then it turned out. Then of course it's multiple factors behind that. I've done this for more than 15 years so sometimes it starts earlier, it could be triggered by other events like the Euro 2020 [ph] and Copa America in football and such things but it's quite normal that strategy games in general are more hit by the seasonality than other areas. Then whether it's in June, whether it starts in July of course when we have an earnings call on a separate quarter that individual quarter will be clearly so but as you said I'm very pleased to see that Empire despite that we are on low levels of UA for that franchise it's really performing steadily and with low or almost no UA it's margin accretive but it's primarily within the Supremacy franchise that that slowdown came but at the same time the performance of Supremacy it's important to notice that it has been between double digit 10% up to even 100% growth for quite some time many years now so sometime you have set back slightly but we're not concerned over time.
Simon Jönsson
Alright got it, and we talk about lower activity in Q3 as well. Do you mainly refer to strategy or do you mean in a broader sense in the portfolio?
Jörgen Larsson
No I think, it's again, what is good since one year approximately is that we're into a normal market after first the pandemic boost and then the effects from the downside effects from that. So we're back in the way that this industry works and in general there is a slowdown in gaming in general. Then it is more in strategy because for the very simple reason that playing a strategy game is more of a commitment, takes more time and when it's when you have your holidays you're with your family whatever friends then you play less than in casual a matchup usually it's a lower effect since you it's not as big a commitment to take on playing a casual game so you add the full scale from casual matchup not so much to strategy clearer slowdown.
Simon Jönsson
Alright thank you. And on the cost side you talk about potentially finding some new initiatives you can make in the second half here. Can you talk about the magnitude of those potential realizations and compare it to what you have done already?
Jörgen Larsson
The very short answer is no, because we are initiating these efforts now in Q3 but we think it's important to signal and to be transparent about that we see other potential initiatives that we haven't done yet not only lowering cost base but also increase the transparency of our business but we will come back to that rest assured during the second half of the year.
Simon Jönsson
Excellent thank you. And one last from me in terms of new titles heading into the second half of the year, could you maybe name drop some of the games that you are more excited about to add to the active portfolio?
Jörgen Larsson
Yes so we are partly new, but not completely new is Ellen Garden Restoration which we again everything is early so it's hard to just extend the line, but we the KPI so far are promising so we hope that would be a growth product for us but we also have some unannounced a couple of unannounced gains that we will go into soft launch during the fall further and that is important that we since we invest now [Indiscernible] 7% in the quarter and at around 10% CapEx in relation to net revenues a lot of these that CapEx goes into extend our existing strong franchises so it's a meaning that we can do extensions or a bit life or other franchises that we have as well. So it's not only the number of completely new titles that counts it's also extensions not a significant extension or future releases of products that we have already.
Simon Jönsson
Okay I got it. Thanks that's all for me.
Operator
The next question comes from Amar Galijasevic from Carnegie Investment Bank. Please go ahead.
Amar Galijasevic
Morning guys. A couple of questions from me here, the first one being on the Jawaker. You're mentioning they're going very quickly here having high margins. Just a question on what makes Jawaker stand out so much in terms of the margin profile compared to the rest of the group. Is it market exposure or anything else?
Jörgen Larsson
Yes, so Jawaker has made a tremendous, it's a tremendous franchise and studio. So what they have built is the nature of their products is that they take a social behavior which is the strongest driver of playing games and take it digitally. They have taken it digitally and expanding so they have more than 50 games in one single app. What happens then is that if you're good at making this and it's not easy is that you get the network effect so they have a large portion of their marketing is just by organic or viral marketing, which means that UA is on very low levels and they're cost efficient. So they really stand out both in the way that they can grow, I mean 41% CAGR since we acquire them, it's a really impressive number without spending not zero, but close to zero in UA. So they have positioned themselves uniquely within their both region but also the types of gain that they have.
Amar Galijasevic
Okay understood. And then just a couple of close questions here [Indiscernible] very solid gross margin in Q2 and I get that you're driving more DTC and supporting margin was there anything unusually good [Indiscernible] that we should keep in mind for H2?
Jörgen Larsson
I would say it's a product of hard work over a long time, but so we're pleased to see that. Without giving them a forecast, but I think that we have opportunities to further strengthen our gross margin at the time. But it's as composed of several things. One is how good we are on promoting our DTC channels which are now up significantly to 33% but it there is also product mix component in it. So certain games like in Strategy are usually very, very strong on DTC whereas cash in the mashups are usually a bit lower, but I think that we are pleased then that we have progressed further than we thought 18 months ago, but we can do more.
Amar Galijasevic
Okay, thank you. And then just the final one on the personnel cost then you talked about it a bit but would you say this is on new normal level given what you've said so far or should we expect costs to decrease further or on the other way increase further in H2?
Jörgen Larsson
Andreas, should you take that one.
Andreas Uddman
Yes, no I mean as we were saying we see that we have opportunities to tackle our cost base further and we will get back to that, but I think it's also how we reallocate capital between different studios. So some studios will get more capital especially in term capital allocate in terms of then, which ultimately are people that built our game. So I think we see still see things we see that we have opportunities on the total fixed cost base, but exactly how that's going to develop we will come back to in the near future.
Amar Galijasevic
Okay understood. Then lastly for me here, I mean you're generating healthy levels of cash flow and have been doing for some time. Could you just discuss our kind of what leverage ratio would you be happy with perhaps starting to spend more cash on buybacks or dividends etcetera.
Andreas Uddman
I mean, we have we have a target of two, so that's what we will be happy to have now temporarily especially in Q2 that's just above our leverage ratio, but it was to be expected and it's sort of a normal thing. Today we announced that we will continue to with the buyback program and buy hopefully then shares for 80 million in Q3 with volumes allowing on the market, so that was a decision made that was good capital allocation in terms of the free cash we do generate. We do have earnouts coming up next year and as well as noted in our report Jawaker is very stable and growing, so they are also the one that stand for the majority of the earnouts in our portfolio.
So it was good investment to say there was an investment decision made on where we still balance the position of buying back shares deploying UA and having something of being ready for also making product investment. So it's always a balance how we keep that, but we are roughly around our financial targets today.
Amar Galijasevic
Okay. Thank you guys, that’s all for me.
Operator
The next question comes from Nick Dempsey from Barclays. Please go ahead.
Nick Dempsey
Yes good morning guys. I've got three left. So first of all just going back to the weakness in strategy. Can give us an indication of whether Six Waves is forming better [Technical difficulty] buy back. Second question, your commentary on Q3 focuses on it being a lower seasonal quarter. We care about year-on-year progress. Am I right to judge from the tone though the weakness in strategy may make it difficult to see the positive group growth in Q3 despite the easier comfort Albion online and the third question, overtime where do you think the DTC booking as a percentage of group can ultimately get to.
Jörgen Larsson
Thank you Nick. So on Strategy Six Waves has -- it's two parts in the performance worth commenting. One is that they have not been able to launch new games. The other console that is obviously hurting top line over time but it is Strategy, so it's not a dramatic drop immediately because they have a loyal significant user base. The other thing that happens is that since they're not scaling new games they're instead not growing top line, they're growing their margins, which they have done significantly during the last 12 months. So they are not accretive for the moment in top line but they are accretive and increasing their margins in a satisfactory way.
Looking at Q3, yes of course we everything else you don't want the seasonality to kick in and the strategy part to kick in. So we do expect that for at least half the quarter Q3 it will be lower activity, so and that is a negative impact. On the other hand, it depends also when we get traction with UA again, because it's even in strategy we can get quite not as fast as in casual, but we can get some effect. So I think that we don't give [Indiscernible] I cannot say that, but it's a bit softer June than we had hoped for in strategy, and that is of course I would have preferred the opposite if we have a chance to beat organically in Q3 yes of course we have, but I don't give any forecast about that.
Your third question DTC how far did it go, that's a question and to be honest I don't really know, because it's many bits and pieces moving around and it's also important to understand that what we focus a lot on is the customer experiences and live, through live ops, and if you push too hard when it comes to DTC especially in casual and mashup and some other product it could be on the mid long-term cost of the user experience, which would be much more expensive than increasing DTC, but I'm absolutely convinced that we can do more than we have today, that I can state.
Nick Dempsey
Thank you, Jörgen.
Operator
Thank you. The next question comes from Martin Arnell from DNB Markets. Please go ahead.
Martin Arnell
Hi Jörgen and Andreas. My first question is I think Jörgen you mentioned that you're back to a normal market now. But I guess you still have an ambition to grow your top line. So I want to know what are the main things that you think is needed for you to return to top line growth?
Jörgen Larsson
Yes. So we did grow organically from November and through Q1. So, but now in Q2 as we, as I stated in the presentation as well, we did have this SEK 80 million one-off revenue from Albion East and that is very much what we're down in year-over-year. So I think we are in a good position for getting back to growth. We think that the market, my best guesstimate now is that the market this year, full year there's a lot of numbers jumping up and down, and the ones that we are looking at are often moving it from one quarter to another literally. But we if I should pick a number I would say the market is growing by 1% to 3% this year, but then you should remember it's quite unevenly spread, so the world's largest mobile game currently is on its own some 1% to 2% market growth they are driving.
So the market is not growing by high numbers yet, but I think ultimately when it comes to us we have a very focused CapEx strategy we know it yields in a good way. We're good at live ops so we can see on the average revenue per daily active users that yields which is important for our growth obviously and you can also see that we're able to scale new games. And I think the combination of these three will allow us to grow and also the final comment is that we see that we probably will be stronger on gross margin, stronger on cost control, but maybe on average being a slightly higher UA taking away the sunshine island effect because that stands out, but on average compared to what we thought in February 2023 when we thought 25% would be a number now, I would say it's probably a couple percentage points higher and that of course since we're not compromising on return. And [Indiscernible] with support was top line growth.
Martin Arnell
Okay, thanks that's helpful commentary. And can we talk a little bit about the DAU also which is falling quite rapidly, I think it was negative 90% [ph] year-on-year in this quarter. Can you elaborate on why it's falling by so high level?
Jörgen Larsson
Yes, again coming back to live ops, coming back to focusing on our core users you can see that the monthly paying users are that's quite stable and these users are the ones that we really make our money from. So we have shifted from not focusing so much on low-money pricing users and there are many not the least in our Indian business that have had a tremendous amount of low monetizing users. And it doesn't really pay off to pay them too much attention. So instead we focus on the best customers we have, the most loyal users we have, and then you get the ratio different. But I prefer a high ratio on the paying users to -- to MAU users instead of the opposite, because then it pays off to work with live ops. I hope that makes sense.
Martin Arnell
Yes, it makes sense. And do you expect DAU levels to be fairly stable in the coming years.
Jörgen Larsson
I think we have good opportunities to continue leverage our live-off activities, so which means then that we don't think that we are maxed out on our DAU [ph] now but then in Q3 it's lower activity levels but we're entering into Q4, Q1 and then usually it goes up but the trend line I'm not optimistic about that we can continue to improve DAU cost of line.
Martin Arnell
Okay, thanks. And I have a final question maybe for you Andreas. The efficiency actions that you're doing, the ongoing and also the upcoming initiatives, do you think is it enough to stabilize the free cash flow trend assuming that the top line trend stays where this or maybe improves a little bit, what do you think?
Andreas Uddman
Well I think, I think depends what you mean by stabilize. I mean in the last two quarters we have intentionally made investments in terms of additional UA investments that was a conscious choice that we did. So we did spend record levels both in Q4 2023 but also in Q1, so there wasn’t -- and we could allow ourselves to do that whilst we had these things already showing up in the financials in previous quarters, but now it's even more visible. So I think it depends, it was an intentional decision to do that, and so it wasn't something that just happened. In terms of going forward I think we have been working diligently in how we how we -- where do we deploy our capital and that has yielded cost savings so far especially on the fixed cost side and also on the CapEx side, but how and how that's going to be progressing we have to come back to in the fall.
Martin Arnell
Okay. That’s all for me.
Operator
[Operator Instructions] The next question comes from Rasmus Engberg from Kepler Cheuvreux. Please go ahead.
Rasmus Engberg
Yes, hi good morning. Just had one question left actually, if you roll time forward a little bit and you do continue to generate about the billion on cash flow and pay earnout that of maybe 500 million here, what is your scenario of what you want to do as earnout of DAU [ph] comes off, what – where do you want to take that money?
Jörgen Larsson
I mean it's, I can start on the answer you feeling. So I think first of all it's not only a management decision as you know, but I think that being highly cash generative gives you options and then it depends obviously on what levels we're traded if buyback could be something that we do for a longer time, whether we have products that needs very good for deploying more UA and so on. So it's a tactical decision overtime, but of course when we are traded on the levels that we are buybacks as we have declared today is an attractive thing for our shareholders we think. So that is how I would like to phrase that answer and they ask you can fill in.
Rasmus Engberg
No, that’s completes the answer.
Jörgen Larsson
Okay thanks.
Operator
The next question comes from Viktor Lindström from Nordia. Please go ahead.
Viktor Lindström
Hi, good morning. You have to quick half [ph] compared to last year.
Jörgen Larsson
I think first of all we must take out the as we have said many times during this call, we must look at this from two perspectives. One is when which is a very rare thing we have a product with this strong KPI on Sunshine Island then it's our obligation to max and do the so-called trampoline launch, which has we have deployed I don't have the exact number but you can see it's more than I think 150 million in or 170 or something in Sunshine Island only. So and that has happened I think three times in this company's history. So if we take away that and I would love to have such a success again and then we should take that opportunity but most likely we will not have successes on that level, but still good deployment opportunities.
So taking that away as I mentioned a few minutes ago, I think that when we look at the composition of our P&L it's likely to expect that we will be on higher levels than the 25 on average, I would say 27, 28 or something over rolling 12-months, so a bit higher there, but we gain back in gross margin through the DTC work that we had lowering staff cost by 12% and also be more efficient in allocating our CapEx. So we are in a good position to deliver on our 26% to 29% EBITDAC margin financial target and also then deploy more UA and having a more efficient CapEx makes it profitable to deploy that to reach the other part of the goal which is to get to grow above market.
So I think there is -- it's not unlikely that we'll be rolling 12 months higher than it was two years ago, but we can make up, more than make up for that as we can see this quarter as well. I hope that answers your question.
Viktor Lindström
Yes. Sure does, thanks.
Operator
The next question comes from Edward James from Cantor Fitzgerald. Please go ahead.
Edward James
Good morning, thanks for taking my question. Most of them have been answered, I've just got two remaining. Can you clarify a comment you made earlier on user acquisition as a percentage of sales. I believe the comment was earlier last year, I believe that 25% of sales would be the appropriate level, however now going forward you believe that that level might be a couple of percentage points higher. Can you just clarify that, and I imagine that that is offset by the reasonably material gross margins gains that you've made and does that leave still front as a higher lower or the same in terms of structural underlying margin profile.
And then the second question is appreciate your comments on daily and monthly active users, but even if we look at monthly paying users it's declined in year-over-year in all seven quarters in a row, and the strategy monthly paying users after increasing in Q4 declined in Q1 and obviously declined by approximately 10% in Q2 with only Strategy RPG Action seeing consistent increases. So I guess the question there is at what point do you believe that this will stabilize because that seems pretty central for organic growth to return on a sustainable basis and are there any learnings you can take from what seems to be much better momentum and simulation RPG action and apply them elsewhere because the other two categories seem to have pretty precipitous paying user declines. Thank you.
Jörgen Larsson
Yes so to the first question of yours, yes I believe that it will be different structure in our P&L compared to what we elaborated on, not forecasting but we elaborated on in February 2023. So I repeat what I just said that we -- I expect it would be higher than the 25% that we panned down at that point in time, again taking away these trampoline launches, it's more realistic at maybe 27%, 28%. But just as you said and that is important that we can offset that clearly with the stronger progress in gross margin with stronger and more efficient CapEx spend, so EBITDAC margin as we clearly see this quarter being at the upper end of our targets already and we have more things to do that we also announced.
So I think indeed that UA will be on average higher, yes, but I we can more than compensate that with the other factors so that is confirmed. So the margin profile in total it's not changed at all but we can it will be the disposition of the P&L it looks like a different, that's my best, that's how we view it at this current point. When it comes to your question about users, as I also said we had, I mean we had channels, we had platform platforms that were not yielding any revenue, so we have worked our way down, I mean even on snap games where some of the one Moonfrog game thing when that existed was the largest game globally on Snap games but that platform does not even exist any longer, so but they had some paying users even though it was a massive amount of MAU and DAU.
So we are focusing again and this is important. We are focusing on our most valuable users so that we can get most leverage on our live ops. And that is important, because of course you can see what is the key thing is not only the player numbers, it's the MPU times the average revenue per paying users, and that is going in the right way. And as you rightly pointed out, even if MPU has gone slightly down or depending on product area, we are still increasing the average revenue per daily active users, so hence it's strong on average revenue per multi paying users indeed. So I think that's a natural always, but this is a not an alarming thing for us it's a product that we work very actively with our most loyal users and live ops. Sim RPG, I mean we've had some good traction, but I remember a year ago or two years ago, the question was often why don't you only work with strategy games because they have been growing for I think three, four, five, six years by high numbers. But now you can see that that's the whole point with the portfolio that we have of different 73 different games in our active portfolio. It will vary from quarter-to-quarter, from month-to-month from week-to-week, but also from one year to another.
So I think that we are very pleased as you as you now state that it's Sim RPG delivering that we have the different areas that we have, so not being uncomfortable on the contrary I think it's much better to have a wider array of games in different genres.
Andreas Uddman
Maybe I said a bit of flavor to the gross profit in UA and how that's directly linked because how we've been, how we measured forecast [Indiscernible] is basically revenues minus the cost, so the gross profits right. So that's the one we measure, so when students have been able to deploy more DTC channels they obviously get the natural impact becomes that they actually the number of days goes down. So that's also why there's a shift between those two parts, that higher gross profits and then you can deploy more in UA. So it's a direct link to those that how we actually operation is the other business.
Edward James
That's great. Thank you very much.
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 also for you that had questions and I hope that we could, that we shared some insights besides the actual quarterly report. Thank you for this time, see you next time again. Bye, bye.